23 CPT Law

CA -
CPT
MERCANTILE LAWS
CA DHARMENDRA
MADAAN
-AN ENTRY INTO LEGAL WORLD
CA - CPT
PAPER – 2 MERCANTILE LAWS
PART – A
INDIAN CONTRACT ACT, 1872 15 MARKS
PART – B
THE SALE OF GOODS ACT, 1930 15 MARKS
PART – C
THE PARTNERSHIP ACT, 1932 10 MARKS
TOTAL 40 MARKS
Classes By
CA DHARMENDRA MADAAN
at
SGN INSTITUTE
PART – A
INDIAN CONTRACT ACT, 1872 15

MARKS
1. NATURE OF CONTRACT
2. OFFER AND ACCEPTANCE
3. CONSIDERATION
4. CAPACITY OF THE PARTIES
5. FREE CONSENT
6. LAWFUL CONSIDERATION AND OBJECT
7. VOID AGREEMENTS
8. PERFORMANCE OF CONTRACT
9. BREACH OF CONTRACT
10. CONTINGENT CONTRACT & QUASI CONTRACT
PART – B
THE SALE OF GOODS ACT, 1930 15

MARKS
1. FORMATION OF CONTRACT OFSALE
2. CONDITIONS AND WARRANTIES
3. TRANSFER OF OWNERSHIP AND DELIVERY OF GOODS
4. UNPAID SELLER
PART – C
PARTNERSHIP ACT, 1932 10

MARKS
1. GENERAL NATURE OF PARTNERSHIP
2. RELATIONS OF PARTNERS
3. REGISTRATION AND DISSOLUTION OF FIRM
TOTAL 40 MARKS
THE INDIAN CONTRACT ACT, 1872
CHAPTER-1 NATURE OF CONTRACT
CONTENTS: -
1 1. DEFINITIONS
2. ESSENTIAL ELEMENTS OF A VALID CONTRACT
2 3. TYPES OF CONTRACTS
1. DEFINITIONS
A. CONTRACT Sec.2(h) An agreement enforceable by law.
B. AGREEMENT Sec.2(e) Every promise and every set of promises forming consideration
for each other.
C. ENFORCEABILITY An agreement which creates legal obligation on the part of
BY LAW parties.
D. PROMISE Sec.2(b) A proposal when accepted becomes a promise.
E. CONSIDERATION Price paid by the one party for the promise of the other.
Technical word meaning ‘QUID PRO QUO’ i.e. something in
return
2. ESSENTIAL ELEMENTS OF A VALID CONTRACT

SECTION 10
 All Agreements are contracts
 if they are made by the free consent
 of the parties competent to contract
 for a lawful consideration and with a lawful object and
 are not hereby expressly declared to be void.
ESSENTIAL ELEMENTS OF A VALID CONTRACT
1. AGREEMENT In order to constitute a valid contract, there must be an agreement
between the parties. To form an agreement, there should be proper offer
by one and its proper acceptance by the other.
2. FREE CONSENT Consent means agreed upon same thing in the same sense i.e. there
should be consensus-ad-idem.
A consent is said to be free when it is not caused by coercion, undue
influence, fraud, misrepresentation or mistake.
Example: - ‘A’ threatened to shoot ‘B’ if he (B) does not sell his house
to him Rs. 20000 and ‘B’ agreed to it. Here the agreement is entered
into under coercion and hence voidable at the option of ‘B’.
3. COMPETENCY Parties must have the capacity to enter into a contract otherwise the
OF THE PARTIES contract is not valid.
Who is competent to contract Who is incompetent to contract
 Major  Minor
 Person of Sound mind  Person of Unsound Mind
 Person not disqualified by law from  Person disqualified by law from
contracting contracting
4. LAWFUL Consideration must not be unlawful, immoral or opposed to the public
CONSIDERATION policy.
Examples:
Unlawful: -A agrees to sell narcotics to B for a sum of Rs. 100000. This
agreement is not valid because the consideration is unlawful.
Immoral: - An agreement for letting a house to a prostitute for carrying
on her vocation there.
Opposed to the public policy: - Trading with enemy, Agreement in
restraint of marriage, trade, legal proceedings etc.
LAWFUL OBJECT Object means the purpose or design. The object of the agreement must
be lawful.
Example:- ‘A’ and ‘B’ make an agreement for smuggling out some
goods from India to another country. This agreement cannot be enforced
in the court because the object is unlawful.
NOT EXPRESSLY An agreement should not be one which is expressly declared void by the
DECLARED VOID law.
Example:- Agreement in restraint of trade, marriage or legal
proceedings are expressly declared void by the law and hence not
enforceable.
INTENTION TO Parties must have an intention of creating the legal relationship. An
CREATE LEGAL agreement of a purely domestic or social nature is not a contract.
RELATIONSHIP Example 1:- ‘A’ invites his friend ‘B’ to his birthday party. ‘B’ accepts
the offer. But he fails to turn up for the party. This agreement creates
social and personal relationship between ‘A’ and ‘B’. It cannot be
enforced in the court. Thus A has no legal remedy against B.
Example 2:- ‘A’ borrows sum of Rs. 500 from his friend ‘B’ for three
months. ‘B’ gets legal right to sue upon ‘A’ if he fails to return money.
It is because this agreement creates legal relationship, which can be
enforced in the court.
BALFOUR Vs. BALFOUR (1919)
In this case a husband just makes a promise to pay his wife monthly allowance of £30 for her
maintenance. Later on they separated and husband failed to pay stipulated amount to his wife.
She filed suit for that allowance. But it was held by the court that such arrangements are not
contracts or do not result in a contract because parties did not intend to create legal relationship
and finally the suit was dismissed.
CERTAINTY OF Agreement made by the parties must be certain or capable of being
MEANING made certain.
Example: ‘A’ is a dealer of kerosene oil and coconut oil. ‘B’ makes an
agreement with him for buying 10 lts of oil. Meaning of this agreement
is uncertain and therefore it cannot be enforced.
POSSIBILITY OF An agreement to do an act impossible in itself is void.
PERFORMANCE Example: - An agreement to discover treasure by magic is void.
LEGAL Such as in writing, registration etc must be completed otherwise the
FORMALITIES contract is not enforceable at law.
TYPES OF CONTRACTS
3.
ENFORCEABILITY CREATION EXECUTION ENGLISH LAW

CLASSIFICATION
*VOID *IMPLIED *EXECUTORY

*VOIDABLE *E- Contract *BILATERAL
SIMPLE FORMAL
*UNENFORCEABLE *UNILATERAL CONTRACTS CONTRACTS
*ILLIGAL
CONTRACT CONTRACT
OF RECORD UNDER SEAL
JUDGEMENT RECOGNISANCE
OF COURT
A. ON THE BASIS OF ENFORCEABILITY

1. VALID CONTRACT A contract which contains all the essential elements.
2. VOID CONTRACT A contract which ceases to be enforceable by law becomes void
[SEC. 2(j)] when it ceases to be enforceable.
3.VOID AGREEMENT An agreement which is not enforceable by law is said to be void. It
[SEC. 2(g)] is an agreement which cannot be enforced from the date when they
were made. It is void ab initio.
4.VOIDABLE An agreement, which is enforceable by law at the option of one
CONTRACT more of the parties, but not at the option of the other (s) is a voidable
[SEC. 2(i)] contract.
For example: - Mr. A, at knife - point, asks B to sell his scooter for
Rs. 50. Mr. B gives consent. The agreement is voidable at the option
of B, whose consent is not free.
5. UNENFORCEABLE An unenforceable contract is one which is good in substance but
CONTRACT cannot be enforced by law due to some technical defects, such as
under stamping, absence of writing, barred by limitation.
6. ILLEGAL A contract which is forbidden by law.
CONTRACT For example: - Agreement to commit crime.
B. CLASSIFICATION ON THE BASIS OF CREATION

1. EXPRESS A contract which is created either by word spoken or written.
CONTRACT For example: - If ‘A’ of Agra offers to sell his car for Rs. 150000 to ‘B’ of Delhi
by a letter and ‘B’ accepts the offer by writing a letter. Thus the contract between
‘A’ and ‘B’ is said to be an express contract.
2.IMPLIED The contract which is created otherwise than by words spoken or written. i.e. these
CONTRACT contracts are:-
A. Tacit A contract which is inferred from the conduct of the parties is said
Contract to be tacit contract.
For example: - (i) When we enter into a bus without asking any
question from bus conductor, we enter into implied contract.
(ii) Obtaining cash form ATM
B. Quasi These are the contracts, which are created neither by word spoken,
Contracts nor written, nor by the conducts of the parties, but these are created
by the law.
For example: - If ‘A’ leaves his goods at ‘B’’s shop by mistake,
then it is ‘B’’s duty to return the goods or to compensate the price.
In fact, these contracts depends upon the principle that nobody
will be allowed to become rich at the expense of the others.
This principle is known as doctrine of unjust enrichment.
3. E-CONTRACT An e-contract is one, which is entered into between two parties via internet.
C. CLASSIFICATION ON THE BASIS OF BASIS OF EXECUTION

1. Executed An executed contract is a contract in which both the parties have performed their
Contract obligation. This is a contract which has been completed.
For example:- If ‘A’ agrees to sell his car to ‘B’ for Rs. 100000. The contract is
said to be executed if ‘A’ delivers car to ‘B’ and B pays the price to ‘A’.
2. Executory An Executory contract is the contract which is to be performed in future.
Contract
3. Unilateral Where obligation is pending on the part of one of the parties.
Contract
4. Bilateral A Bilateral Contract is a contract in which obligation is pending on the part of
Contract both of the parties.
D. ENGLISH LAW CLASSIFICATION

1. Simple A simple contract is the contract that is not formal. These can be made orally or in
Contracts writing and must be supported by consideration.
2. Formal A formal contract is one which is entered into the prescribed form. These contracts
Contracts may be sub-divided as follows:
a. Contract (i) Judgment of Court:- It is an obligation imposed by the court upon one or
of Record more persons in favour of the other/s.
(ii) Recognizance:-It is a written acknowledgement of a debt due to state. It is
met in connection with criminal proceedings.
b. Contract It is a contract which derives its binding force from its form alone. It is also known
under Seal as deed or specialty contract.
DM QUESTION BANK
CHAPTER – 1
1. The law of contract in India is contained in:
(a) Indian Contract Act, 1862 (c) Indian Contract Act, 1872
(b) Indian Contract Act, 1962 (d) Indian Contract Act, 1762
2. An agreement enforceable by law is:

(a) Promise (c) obligation
(b) Contract (d) lawful promise
3. A void agreement is one which is:

(a) valid but not enforceable (a) enforceable at the option of one party
(b) enforceable at the option of both the (b) not enforceable in a court of law.
parties
4. An agreement which is enforceable by law at the option of one or more of the parties thereon
but not at the option of the other or others is a:
(a) valid contract (c) voidable contract
(b) void contract (d) illegal contract.
5. In case of illegal agreements, the collateral agreements are:

(a) valid (c) voidable
(b) void (d) none of these.
6. Which of the following statements is true

(a) an agreement enforceable by law is a (c) both (a) and (b)
contract (d) Neither (a) nor (b).
(b) an agreement is an accepted proposal
7. A voidable contract:
(a) can be enforced at the option of (c) cannot be enforced in a court of law.
aggrieved party
(b) can be enforced at the option of both
the parties.
8. A agrees to sell his car to B at a price, which B may be able to pay. This agreement is:
(a) void (c) voidable
(b) valid (d) contingent.
9. An agreement to do an illegal act, e.g., to share the earnings of a smuggling business, is;
(b) void (d) contingent.
10. Where an agreement consists of two parts one legal and other illegal, and the legal part
is separable from the illegal one, such legal part is:
(b) valid (d) illegal.
11. Agreement – the meaning of which is uncertain is:
(b) void (d) illegal.
12. Mr. ‘X’ invited all his close friends for a dinner. He arranged a very lavish dinner in a star
hotel. On the appointed day, most of his friends could not turn up to the dinner. He was
terribly disappointed. In the above situation which of the following remedies is / are available
to Mr. ‘X’ for the loss caused to him?
(a) Mr. ‘X’ can file a suit against his (c) Mr. ‘X’ can recover the expenses incurred
friends for not attending to the dinner for the arrangements from his friends
(b) Mr. ‘X’ cannot have any remedy (d) Mr. ‘X’ can file a suit for the special
damages.
13. Every contract is an agreement but every agreement is not a contract. This statement
is :
(a) wrong (c) correct subject to certain exceptions
(b) correct (d) partially correct.
14. Agreement is defined in Section ____ of the Indian Contract Act, 1872.
(a) 2(c) (c) 2(g)
(b) 2(e) (d) 2(i).
15. As per Section 2(e) of the Indian Contract Act, 1872, “Every promise and every set of
promises forming the consideration for each other is a / an:
(a) Contract (c) offer
(b) Agreement (d) acceptance.
16. A contract is:

(a) an agreement enforceable by third (c) an agreement enforceable by law
parties (d) not an agreement at all.
(b) an agreement by competent people
17. Contract is defined in Section ______ of the Indian Contract Act, 1872.
(a) 2(e) (c) 2(h)
(b) 2(f) (d) 2(i).
18. A contract is said to be executed when it has been performed by:

(a) one of the parties (c) either (a) or (b)
(b) both the parties (d) neither (a) nor (b).
19. An agreement not enforceable by law is said to be void under Section ___ of the Indian
Contract Act, 1872.
(a) 2(a) (c) 2(f)
(b) 2(b) (d) 2(g).
20. Contract, which ceases to be enforceable by law, becomes a / an:

(a) enforceable contract (c) void contract
(b) void agreement (d) voidable contract
21. A invites B for dinners. B accepts the invitation. In this case, there is an agreement but no
contract, since:
(a) there is no consideration (c) there is no written document
(b) there is no intention to create legal (d) there is no formal acceptance of the offer.
relationship
22. A invites B for diner in a restaurant and B accepts the invitation. On the appointed date, A
is present there but B does not turn up. In this case:
(a) A has no remedy against B (c) A has to invite B again, to perform the
(b) A can sue B for not honoring his promise.
word
23. One of the clauses in an agreement states: “This agreement shall not be legally
enforceable, but binding in honour only”. In such case, the agreement is:
(a) Invalid (c) illegal.
(b) Valid
24. In commercial and business agreements, the intention of the parties to create
legal relationship is:
(a) presumed to exist (c) not relevant at all.
(b) to be specifically expressed in
writing
25. 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 one other or others, is a / an:
(a) void agreement (c) unlawful contract
(b) voidable contract (d) void contract.
26. Voidable contract is:

(a) invalid (c) which is unlawful.
(b) valid as long as it is not avoided by
the party entitled to do so
27. A and B contract to marry each other. Before the time fixed for the marriage, A goes mad.
The contract becomes:
(a) void (c) valid
(b) illegal (d) voidable.
28. _________ has all the essential elements of a contract and can be enforced by law.
(b) void contract (d) unenforceable contract.
29. A contracts with B, a local goonda, to beat his business competitor. This is a / an:
(b) illegal contract (d) unenforceable contract.
30. _________ is made by words either spoken or written.

(a) express contract (c) tacit contract
(b) implied contract (d) unlawful contract.
31. Where a contract has to be inferred from the conduct of parties, it is called:
(a) express contract (c) tacit contract
(b) implied contract (d) unlawful contract.
32. _________ is a contract which is partially performed of wholly unperformed.

(a) executed contract (c) void contract
(b) executory contract (d) illegal contract.
33. _______ is contract in which only one party has to perform his promise or obligation.
(a) void contract (c) unilateral contract
(b) illegal contract (d) bilateral contract.
34. A books a ticket with Jet Airlines for travel from Mumbai to Delhi on 15th September,
2006, date of travel being 10th October, 2006, This is a / an:
(a) void contract (c) unilateral contract
(b) illegal contract (d) bilateral contract.
35. A particular type of contract is required by law to be in writing and registered. It does
not comply with necessary formalities as to writing, registration and attestation. Such a
contract is:
(a) voidable contract (c) valid contract
(b) illegal contract (d) unenforceable contract.
36. All illegal agreements are void; but all void agreement are not illegal:
(a) true (b) false.
37. The term “Promise” has been defined in Section _____ of the Indian Contract Act:
(a) 2(a) (c) 2(c)
(b) 2(b) (d) 2(d).
38. A proposal when accepted becomes a / an:

(a) Contract (c) promise
(b) Agreement (d) Offer.
CHAPTER-2 OFFER & ACCEPTANCE
CONTENTS :-
1. PROPOSAL / OFFER. RULES AS TO OFFER
2. TYPES OF OFFER
3. LAPSE OF AN OFFER
4. ACCEPTANCE. RULES AS TO ACCEPTANCE
5. AN ACCEPTANCE IS TO OFFER WHAT A LIGHTED MATCH IS TO
A TRAIN OF GUNPOWDER
6. COMMUNICATION OF OFFER & ACCEPTANCE
7. REVOCATION OF OFFER AND ACCEPTANCE
_____________________________________________________________________________
1.)PROPOSAL [Sec 2(a)]:-
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
either to such act or abstinence,
he is said to make a proposal.
Example :- A tells B , “I want to marry”. This does not amount to offer but it is a mere
expression of willingness.
Example:- A said to B, “I want to marry, Will you marry me.” This would amounts to offer
because in this case, the intention of A is to obtaining the consent of B.
Example:- D said to E, “I want to sell my bike to you.” This is an offer “to do something”.
Example:- X said to Y, “I will not file a suit against you in the court of law, if you repay the
overdue amount of Rs.100000.This is an offer for “not to do something”.
 Offeror: - Person who makes the offer.
 Offeree: - Person to whom offer is made.
LEGAL RULES REGARDING OFFER

1. Offer must be A social invitation, even if it is accepted, does not create legal relations
capable of creating because it is not so intended. (Balfour Vs. Balfour)
the legal relation
2. Offer must be The terms of the offer must be certain or capable of being made certain.
certain, definite and
not vague
‘A’ has two Maruti cars, one is red and other blue. He offers to sell his car
Example 1
to ‘B’. In this case, Which car he is offering to sell is not clear. Therefore
the offer is not valid one.
‘A’, a dealer of coconut oil, offers to sell 10 lts of oil to ‘B’ for a certain
Example 2
price. This offer is valid one because it is capable of being made certain.
‘A’ offered to take a house on lease provided the house should be put into
Example 3
thorough repairs and should be sufficiently decorated. This offer is too
vague and hence not valid.
3. Offer may be a. Express Offer An offer which is made by words spoken or written.
express or implied Example: - ‘X’ says to ‘Y’, “ Will you purchase my
white horse for Rs. 20000.
Example: - ‘X’ writes to ‘Y’ a letter, “ I want to sell
my car for Rs. 40000 to you.”
b. Implied Offer An offer which is made otherwise than by words
spoken or written.
Example:- A transport company runs buses on a
particular route. This is an implied offer from the
transport company to carry passengers on the route
who are prepared to pay the specified fare. The
acceptance of the offer is complete as soon as the
passengers board the bus. A passenger who enters
the bus also impliedly promises to pay the prescribed
fare.
4. Offer must be An offer should be distinguished from an invitation to offer. An offer is
distinguished from definite and capable of converting an intention into a contract. Whereas an
an invitation to offer invitation to an offer is only a circulation of an offer, it is an attempt to
induce offers and precedes a definite offer.
Examples of Invitation to Offer
1. Window display of goods by a shopkeeper.
2. Quotations, Catalogue, Price list.
3. Advertisement in a newspaper for sale of an article.
Example:- Goods are sold in a shop under ‘self service’ system. Customer
select the goods in the shop and take them to the cashier for payment of
price. Cashier refuses to accept the payment. Held that customer cannot
bound the shopkeeper for delivery of goods.
(Pharmaceutical Society of Great Britain v. Boots Cash Chemists
Ltd. )
5. Offer may be Specific Offer An offer made to a definite person is called Specific
specific or general offer. A specific offer can be accepted only by the
person to whom it is made.
General Offer An offer which is made to the public at large. Anyone

having knowledge of the offer can accept this offer by
complying with the terms of the offer.
Example:- A company advertised in several newspapers
that a reward of € 100 would be given to any person who
contracted influenza after using the smoke balls of the
company according to its printed directions. Carlill used
the smoke balls according to the directions of the
company but contracted influenza. Held that she could
recover the amount as by using the smoke balls she had
accepted the offer.( Carlill V. Carbolic Smoke Ball
Co.1893)
6. Offer must be An offer, to be complete, must be communicated to the person to whom it
communicated to the is made. Unless an offer is communicated to the offeree by the offeror or
person to whom it is by his duly authorized agent, there can be no acceptance of it.
made An acceptance of an offer, in ignorance of the offer, is no acceptance and
does not confer any right on the acceptor.
Example:- S offered a reward to anyone who returned his lost dog. F
bought the dog to S without having heard of the offer. Held, F was not
entitled to the reward (Fitch v. Snedaker).
Example:- S sent his servant L to trace his missing nephew. He then
announced that anybody who traced his nephew would be entitled to a
certain reward. L traced the boy in ignorance of this announcement.
Subsequently when he came to know of the reward, he claimed it. Held,
he was not entitled to the reward (Lalman Shukla v. Gauri Dutt)
7. Offer must be A mere declaration of intention does not amount to offer.
made with a view to Example:- An auctioneer advertised in a newspaper that a sale of office
obtaining consent of furniture would be held. A broker came from a distant place to attend that
the offeree auction, but all the furniture was withdrawn. The broker thereupon sued
the auctioneer for his loss of time and expenses. Held, a declaration of
intention to do a thing did not create a binding contract with those who
acted upon it, so that the broker could not recover (Harris v.Nickerson).
8. An offer may be While making an offer the offeror may impose conditions for the
conditional acceptance of the offer. A conditional offer is a valid offer.
9. An offer should Offeror cannot impose any such condition the non-fulfillment of which
not contain a term would lead to acceptance of that offer.
the non compliance
Example:- A offers to sell out his bike to B stating that if B does not reply
of which amounts to
acceptance with in a week, he will assume that he has accepted the offer. This is not a
valid offer, because failure on the part of B to reply would result in an
acceptance.
10. Communication Example:- P deposited his bags in the cloakroom at the railway station.
of Special terms On the face of receipt, the words “See back” were printed. One of the
conditions printed on the back was “ the liability of the railway company
shall be limited to € 10 for any package”.
P’s bag was lost. He claimed the actual value of bag amounting to € 24.
Held that P cannot recover the amount more than € 10 since the railway
company had taken all the reasonable steps to ensure that conditions
printed on back printed were brought to the knowledge of P. ( Parker v.
S.E. Rail Co.)
2. TYPES OF OFFER
A. General offer An offer made to the public at large. Anyone can accept this offer by
doing the desired act .
B. Specific offer An offer made to a definite person or a group of persons. Such offer can
be accepted only by the specified person to whom it is made.
C. Cross offers When two parties exchange identical offers in ignorance at the time of
each other’s offer, the offers are called cross offers. Two cross offers
cannot become a binding contract in the absence of acceptance.
Example:- A makes an offer for selling out his bike to B for Rs 20000. B,
in ignorance of this offer makes a similar offer for buying A’s bike for
Rs.20000.These two offers are called cross offers and none of these would
constitute an acceptance.
A qualified acceptance to the offer subject to modifications and variations
D. Counter offer
in the terms of original offer. Counter offer amounts to rejection of the
original offer.
Example:- A offers B, “ Will you purchase my car for Rs 100000.B
replies, “I will purchase but I can pay only Rs 75000 for your car.” This
acceptance given by B is a counter offer.
E. Standing, open An offer is allowed to remain open for acceptance over a period of time.
Example:- Tender for supply of goods.
or continuing offer
3.) LAPSE (Revocation) OF AN OFFER
On expiry of stipulated or reasonable time.
By not accepting in mode prescribed.
By rejection by the offeree.
By death or insanity of the offerer or offeree before acceptance.
By revocation by the offeror at any time before acceptance.
Revocation of standing offer at any time by giving notice to the offeree.
Revocation by non fulfillment of condition precedent to acceptance.
By subsequent illegality or destruction of subject matter.
4.) ACCEPTANCE:- Sec.2(b)

 When the person to whom proposal is made
 signifies his assent thereto,
 the proposal is said to be accepted.
 A proposal when accepted becomes a promise.
LEGAL RULES AS TO VALID ACCEPTANCE

Acceptance must be Offeree should be assented to all terms & conditions of the offer. A
absolute and qualified acceptance amounts to counter offer.
unqualified
Acceptance must be Mere mental acceptance is not acceptance. Acceptance cannot be made
communicated in ignorance of the offer. Mere silence is not acceptance.
Acceptance to Whom Acceptance must be communicated to the offeror i.e. the person who
made the offer.
Mode of Acceptance Acceptance must be in the mode prescribed in the proposal. If no mode
prescribed in the proposal, the acceptance must be according to some
usual and reasonable mode.
Time for Acceptance Acceptance must be given within specified time limits given in the
offer. In case no time is specified in the offer, offer must be accepted
within reasonable time and before the offer lapses.
Example:- A person applied for shares in a company in june. He
cannot be bound by the allotment made late in November since delay
of 6 months in acceptance of application for shares was unreasonable.
(Ramsgate Victoria Hotels v. Montefiore )
Acceptance by By performance of an act intended by the proposer.

conduct
Who can accept
Specific offer A Specific offer can be accepted only by the person to whom it is
made.
General offer A general offer can be accepted by anyone having knowledge of the
offer by complying with the terms of the offer.
5.) AN ACCEPTANCE TO OFFER IS WHAT A LIGHTED MATCH TO A TRAIN OF
GUNPOWDER
According to Sir William Anson, “An acceptance to offer is what a lighted match to a train of
gunpowder”.
Offer is compared to a train of gunpowder.
Acceptance is compared to a lighted match.
When a lighted match is applied to a train of gunpowder, an explosion takes place. In the same
way, an acceptance is given to the offer, it would result into a contract and offer cannot be
revoked thereafter.
A train may be removed before match is applied to gun powder. In the same way, an offer may be
revoked before it is accepted by offeree.
6. COMMUNICATION OF OFFER & ACCEPTANCE ( Section 4 )

(A) Communication of The communication of offer is complete when it comes to the
Offer knowledge of the person to whom it is made.
(B) Communication of The communication of acceptance is complete-
Acceptance
(a) As against the When it is put into the course of transmission to
Proposer him so as to be out of power of the acceptor to
withdraw the same .
(b) As against the When it comes to the knowledge of the proposer.
Acceptor
7. REVOCATION OF OFFER & ACCEPTANCE ( Section 4 )

The communication of revocation is complete-
(a) As against the person When it is put into the course of transmission to the person to
who makes it whom it is made so as to be out of power of the person who
makes it.
(b) As against the person When it comes to his knowledge.
to whom it is made
TIME FOR REVOCATION ( Section 5 )

An offer can be revoked at any time before the communication
Revocation of Offer
of acceptance is complete as against the proposer.
An acceptance can be revoked at any time before the
Revocation of Acceptance
communication of acceptance is complete as against the offeree.
DM QUESTION BANK
CHAPTER - 2
1. A proposal may consist of promise for:

(a) doing an act (c) either (a) or (b).
(b) abstaining from doing an act
2. An offer or its acceptance or both may be made:

(a) by words (c) either by words or by conduct.
(b) by conduct
3. Offer made through conduct of parties or inferred from circumstances of the case is called:
(a) implied offer (c) general offer
(b) express offer (d) specific offer
4. A bid at an auction sale is:

(a) an implied offer to buy (c) an expression of an intention to buy.
(b) an express offer to buy
5. An offer which is allowed to remain an offer for acceptance over a period of time is
known as a / an:
(a) standing offer (c) express offer
(b) specific offer (d) implied offer
6. ______ can be accepted only by the person / group to whom the offer is made:
(a) standing offer (c) specific offer.
(b) general offer
7. An offer made to the public at large is called as:

(a) standing offer (c) general offer
(b) specific offer (d) implied offer.
8. For a valid general offer, it is necessary for the offeree to be known to the offeror at the
time of making the offer.
(a) True (b) false.
9. Communication of a proposal is complete when:

(a) it comes to the knowledge of the (c) either (a) or (b)
person to whom it is made (d) the letter containing the proposal is posted.
(b) the letter containing the proposal
reaches the offeree
10. Terms of an offer must be:

(a) Definite (c) either (a) or (b)
(b) capable of being made definite (d) ambiguous.
11. A offers to take a house on lease for a period of 3 years @ Rs. 1 lakh p.m. if the house
was “put through adequate repairs and rooms were handsomely decorated”. Offer is not valid
because:
(a) there is no legal obligation (c) the offer is conditional.
(b) the term of offer is too vague
12. Offer should not contain a term, the non-compliance of which would amount to acceptance.
(a) True (b) false.
13. Which of the following is not necessary for a valid offer?

(a) intention to create legal (c) certainty of terms
obligation (d) communication to the person to whom it is
(b) unconditional terms made.
14. Which of the following is an offer?

(a) quotation of terms by trader (c) advertisement for sale or auction of goods
(b) quotation of the lowest price in (d) bid in auction sale.
answer to an inquiry
15. Issue of Prospectus by a company is an example of:

(a) Proposal (c) invitation to offer
(b) intention to invite offer (d) none of the above.
16. Application filed in by person seeking purchase of shares in a company is an example of:
(a) invitation to offer (c) either (a) or (b)
(b) offer (d) acceptance.
17. In a self –service departmental store, goods and articles are displayed along with their price
tags. Such display constitutes a / an:
(a) invitation to offer (c) acceptance
(b) offer (d) none of the above.
18. In a self –service departmental store, customer’s pick-up article and take then to tje
cashier’s desk to pay. The customer’s action is a /an:
(a) invitation to offer (c) either (a) or (b)
(b) offer (d) acceptance.
19. In a self-service departmental store, a valid contract is concluded when:

(a) customer enter the departmental (c) customers take the articles to the cashier’s
store desk
(b) customer pick up the articles (d) cashier accepts the payment from the
customers
20. Which of the following is an invitation to offer?

(a) a tender to supply goods at a (c) bids in an auction sale
certain time (d) a catalogue of goods for sale.
(b) a request for a loan
21. An advertisement inviting tender is:

(a) an invitation for negotiations (c) an invitation to offer
(b) a proposal (d) a promise.
22. A tenderer can withdraw his tender before its final acceptance by a work or supply order.
(a) True (b) false.
23. If there is a clause in the tender notice restricting the right to withdraw, the tenderer cannot
withdraw the tender at all.
(a) True (b) false.
24. A tender will be irrevocable where:
(a) tenderer has, for some (a) either (a) or (b)
consideration, promised not to (b) neither (a) nor (b).
withdraw
(b) there is a statutory prohibition
against withdrawal
25. There is a counter-offer when:

(a) the offeree gives conditional (c) the offeree makes some query
acceptance or introduced a fresh (d) the offeree makes an identical offer.
term in acceptance
(b) the offeror makes a fresh offer
26. When the offers made by two persons to each other containing similar terms cross each
other, they are known as:
(a) cross offer (c) direct offer
(b) implied offer (d) counter offer.
27. In case of a counter offer or cross offer, one person’s offer can be taken as an offer and the
other’s persons offer can be taken as its acceptance.
(a) true (b) false
28. In case of a cross offer, the original offer comes to an end.

(a) true (b) false.
29. An offer lapses / comes to an end when the offeree:

(a) fails to fulfil a condition (c) either (a) or (b)
precedent to acceptance (d) neither (a) nor (b).
(b) does not accept the condition
30. A proposal is revoked by death of insanity of the proposer, if the fact of his death or insanity
comes to the knowledge of the acceptor:
(a) Before acceptance (c) during acceptance
(b) after acceptance (d) any of the above.
31. Revocation of offer by letter or telegram is said to be complete as against the proposer:
(a) when it is read by the offeree (c) when it is dispatched
(b) when it reaches the offeree (d) both (b) and (c).
32. Revocation of offer by letter of telegram is said to be complete as against the offeree:
(a) when it is read by the offeree (c) when it is dispatched
(b) when it reaches the offeree (d) both (b) and (c).
33. Special terms in an offer are said to be communicated and thus binding
(a) when the offeree has actually read then (c) Either (a) or (b)
(b) where the attention of the offeree has (d) Neither (a) nor (b).
been drawn to such terms and conditions.
34. On the back of the drycleaner’s receipt the liability of the drycleaner in the event of loss ,
theft or damage is limited to 10 times the dry-cleaning charges. A customer has not cared to
see the backside of the receipt. On the front of the receipt words “please see back” are
written. In the even of loss, customer can claim:
(a) actual loss (c) actual loss plus compensation for
(b) amount not exceeding 10 times the inconvenience
dry-cleaning (d) Special damages.
35. Under Section 2(b) of the Indian Contract Act, if the person to whom the proposal is made
signifies his assent, the proposal is said to have been:
(a) accepted T(c) entatively accepted.
(b) provisionally agreed
36. Acceptance may be:

(a) expressed (c) neither (a) nor (b)
(b) implied (d) either (a) or (b)
37. When the acceptance is made otherwise than in words (oral or written), the acceptance is said
to be:
(a) expressed (c) neither (a) nor (b)
(b) implied (d) either (a) or (b)
38. A specific offer can be accepted by:

(a) any person (c) any friend or relative of offeree.
(b) only the person to whom it is made
39. A general offer can be accepted by:

(a) any person who complies with the (c) Either (a) or (b).
conditions of the offer
(b) any person who reads the
advertisement.
40. In cases of general offer, for a valid contract, the acceptor:

(a) must have the knowledge of the offer (c) May acquire the knowledge of the
before acceptance by performance offer after the performance of the condition
(b) need not have the knowledge of the amounting to acceptance.
offer.
41. Communication of acceptance is complete as against the proposer :

(a) only when it comes to the knowledge (c) only when it is put in the course of
of the proposer transmission to him so as to be out of
(b) only when the acceptance is power of the acceptor
communicated to the proposer (d) none of the above.
42. Communication of acceptance is complete as against the acceptor, only:

(a) when it is put in the course of (c) when it has reached the proposer
transmission (d) all of the above.
(b) when the acceptance is communicated
to the proposer
43. Where a letter of acceptance sent by post is lost in transit there is :

(a) no contract as the acceptance has not (c) a contract as the letter of acceptance
come to the knowledge of the offeror duly addressed is put in the course of
(b) is no contract as the acceptance has not transmission
been communicated to the offeror (d) all of the above.
44. An acceptance can be revoked at any time before such acceptance:

(a) comes to the knowledge of the (c) either (a) or (b)
proposer
(b) after it comes to the knowledge of the
proposer
45. Who said, “Acceptance is to a proposal what a lighted match-sick is to a train of gun-
powder?”
(a) Sir William Anson (c) Saymond
(b) Mulla (d) Ricky Ponting.
46. Where contracts are entered through telex, fax or e-mail, it is the duty of the acceptor to
ensure that his telex, fax or e-mail message is duly received by the offeror.
(a) True (b) false.
47. An agreement to agree in future is:

(a) Valid (c) illegal
(b) voidable (d) invalid.
48. Which of the following is false? An offer to be valid must:

(a) intend to create legal relations (c) contain a term the non-compliance of
(b) have certain and unambiguous terms which would amount to acceptance
(d) be communicated to the person to
whom it is made.
49. Which of the following is false? An acceptance:

(a) must be communicated (c) must be accepted by a person having
(b) must be absolute and unconditional authority to accept
(d) may be presumed from silence of
offeree.
50. An offer may lapse by:

(a) Revocation (c) rejection of offer by offeree
(b) counter offer (d) all of these.
51. On the acceptance of an offer by a offeree,

(a) only the acceptor becomes bound by (c) both the acceptor and offeree become
accepting the offer bound by the contract
(b) only the offeror becomes bound (d) none of these.
52. A, by a letter dated 25th September 2006, offers to sell his house to B for Rs. 10 lakhs.
The letter reaches B on 27th September, 2006, who posts his acceptance on 28th September,
20 which reaches A on 30th September, 2006. Here, the communication of offer is complete
on:
(a) 25th September, 2006 (c) 28th September, 2006
th
(b) 27 September, 2006 (d) 30th September, 2006.
53. In the above question, the communication of acceptance is complete as against A on 28 th

September, 2006, and against B on, 2006, and against B on, 2006, and against B on:
(a) 25th September, 2006 (c) 28th September, 2006
th
(b) 27 September, 2006 (d) 30th September, 2006.
54. When offer is made to a definite person, it is known as:

(a) general offer (c) counter offer
(b) cross offer (d) specific offer.
55. Standing offer means

(a) offer allowed to remain open for (c) when the offeree offers qualified
acceptance over a period of time acceptance of the offer
(b) offer made to the public in general (d) offer made to a definite person.
56. When the offeree offers qualified acceptance of the offer subject to modifications and
variations he is said to have made a:
(a) standing, open or continuing offer (c) cross offer
(b) counter offer (d) specific offer.
57. Which of the following is / are the essential element(s) of a valid offer?
1. Offeror must have an intention to be bound by his offer.
2. Offer must be made to a specific person / party and not to public at large.
3. Must be definite. 4. Offer can be vague.
(a) 1&3 (c) 3&4
(b) 2&3 (d) 1 & 4.
58. Which of the following offers do not constitute a valid offer?

1. An auctioneer displays a TV set before a gathering in an auction sale.
2. Ram who is in possession of three cars purchased in different years says, ‘I will sell you
a car’.
3. A says to B, “will you purchase my motor cycle for Rs. 20,000?”
4. Ram communicates to Shyam that he will sell his car for Rs. 1,50,000.
(a) 1&2 (c) 3&4
(b) 2&3 (d) 1 & 4.
59. An auctioneer in Delhi advertised in a newspaper that a sale of office furniture would be
held on September 23, 2006. ‘X’ came from Mumbai to attend the auction, but all the
furniture was withdrawn. ‘X’ sued the auctioneer for loss of his time and expenses. Which of
the following statement(s) is correct?
(a) ‘X’ can get damages from the (c) an invitation to make offer is a valid
auctioneer for loss of his time and expenses offer
(b) ‘X’ will not get damages from the (d) a declaration of intention by a person
auctioneer for loss of his time and expenses will give right of action to another.
60. The term “Proposal” used in the Indian Contract Act is synonymous with the term:
(a) Contract (c) agreement
(b) offer (d) none of these.
61. The term “Proposal” has been defined in Section ____ of the Indian Contract Act:
(a) 2(a) (c) 2(c)
(b) 2(b) (d) 2(d).
62. When a 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:
(a) enter into a contract (c) create legal obligation
(b) make a proposal (d) accept an offer
CHAPTER-3 CONSIDERATION
CONTENTS:-
1. CONSIDERATION
2. LEGAL REQUIREMENTS REGARDING CONSIDERATION
3. A THIRD PARTY TO A CONTRACT CANNOT SUE. EXCEPTIONS.
4. AN AGREEMENT WITHOUT CONSIDERATION IS VOID.EXCEPTIONS.
_______________________________________________________________
1.) CONSIDERATION: - “QUID PRO QUO” – i.e. something in return. Consideration is the
price agreed to be paid by the promisee for the obligation of the promisor.
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
promise to do or to abstain from doing
something,
such act or abstinence or promise is called consideration for the promise.[Section 2(d)]
2. LEGAL REQUIREMENTS REGARDING CONSIDERATION
A. Consideration must Consideration must move at the desire or request of the promisor. Any act
move at the desire of done at the desire of a third party is not consideration.
the promisor Example:- D constructed a market at the desire of the collector of the
district. B, a shopkeeper of the market promised to pay commission to D
on the sales effected by him. Later on B denies to pay the promised
amount. D filed a suit in the court for the recovery of the amount.
The court held that D cannot recover the amount from B because D has
constructed the market at the desire of the collector , not at the desire of
the promisor i.e. B. ( Durga Prasad V. Baldeo )
B. Consideration may Consideration may move from the promisee or any other person who is
move from the not a party to the contract. Thus, there can be a stranger to a
promisee or any other consideration.
person Example:- A, by a deed of gift transferred certain property to her daughter
with the direction that daughter should pay an annuity to her sister .
The daughter executed a writing in favour of her sister agreeing to pay the
annuity.
Later on, she refused to pay the amount to her sister taking a plea that no
consideration is given to her in return from her sister.
The court held that consideration need not necessarily move from the
promisee. Hence, she is bound to pay the promised amount to her sister.
( Chinnayya V. Rammayya )
C. Executed and If consideration under the contract has been given, it is said to be
Executory executed. If consideration under the contract is to be moved in future, it is
consideration called executory consideration.
D. Consideration may Past The words “has done or abstained from doing”
be past, present or consideration indicates past consideration. Past consideration is no
future consideration in England.
Present The words “does or abstains from doing” indicates
consideration present consideration. Consideration which moves
simultaneously with the promise.
Example:- Cash Sales.
Future The words “promise to do or to abstain from doing”
consideration indicates future consideration. Consideration which is to
be performed in future.
Example:- A get booked an air ticket from Delhi to
Mumbai. The flight is to be take off on the next day. In
this case the consideration from A is a Past consideration
and consideration is pending on the part of Airlines
which is to be performed in future.
E. Consideration should be real, not If consideration is an illusory one, then it is not valid.
illusory
F. Consideration need not be adequate Though consideration is an essence of contract,
adequacy of consideration is not regarded as an essence
of contract. Courts do not regard the adequacy of
consideration, it is at the part of promisor to consider
that whether he is receiving adequate consideration or
not.
G. The performance of an act what one is legally bound to perform is not consideration for the
contract
Example:- Promise to pay money to a witness.
H. Consideration must not be unlawful, immoral or opposed to the public policy
2.) A THIRD PARTY OR A STRANGER TO A CONTRACT CANNOT SUE

A stranger to a contract means a person who is not a party to the contract. There is a privity of
contract between the parties. Therefore only a party to the contract can enforce its rights under the
contract.
EXCEPTIONS:-
i. Trust In case of trust, a beneficiary can sue upon the contract.
Example:- H sued her father in law K to recover Rs 15000 being the
arrears of allowance payable to her by K. K under an agreement made
between K and H’s father, in consideration of H’s marriage to K’s son
D. Held that she can recover the amount because she is a beneficiary
under the contract. (Khwaja Muhammad V. Hussaini Begum)
ii. Family In case of family settlement, if the terms of settlement are reduced into
Settlement writing, members who were not originally party to the contract can also
sue upon it.
iii. Marriage A female member can enforce a provision for marriage expenses made
Contracts on partition of HUF between male members.
iv. Acknowledgement Where a person admits his liability, thereafter, if he refused, he will be
of Liability estopped from denying his liability.
Example:- Where A receives money from B for paying it to C and A
admits C the receipt of that amount. Later on if he refuses, he will be
stopped from denying his liability to pay the amount.
v. Assignment In case of assignment of a contract, Where the benefit under the
contract has been assigned, the assignee (the person to whom benefits
of contract are assigned) can enforce upon the contract.
vi. Covenant running The person who purchases land with notice that the owner of land is
with land bound by certain duties affecting land, the covenant affecting the land
may be enforced against the successor of the seller.
3. NO CONSIDERATION, NO CONTRACT
The general rule of law is that an agreement without consideration is void.
EXCEPTIONS
(i) Agreement on account of Natural love and Affection
Example:- A husband by a registered document after referring to quarrels and disagreements

between himself and his wife, promised to pay his wife a sum of money for her maintenance and
separate residence, it was held that the promise was unenforceable. ( Rajlukhy Devi V.
Bhootnath )
(ii) Compensation for past voluntary services {Section 25 (2)}
Services rendered voluntarily.
Services rendered for the promisor.
Promisor must be in existence at the time of rendering services.
Promisor must have intended to compensate the promisee.
Example:- X finds Y’s purse and gives it to him. Y promises to give X Rs 1000. This is a valid
contract.
(iii) Promise to pay time barred debt {Section 25 (3)}
A promise to pay, wholly or in part a debt which is barred by law of limitation can be
enforced if it is :-
In writing and
Signed by the person making it or his authorized agent.
(iv) Agency
According to Section 185 of the Indian Contract Act, no consideration is necessary to
create an agency.
(v) Completed Gifts
Gifts do not require any consideration. ( Explanation 1 to Section 25)
(vi) Charity
A promise to contribute to charity, though gratuitous, would be enforceable, if on the
faith of the promised subscription, the promisee takes definite steps in furtherance of
the object and undertakes a liability, to the extent of liability incurred, not exceeding
the promised amount of subscription.(Kedarnath V. Gorie Mohammad)
(i) Bailment
Consideration is not necessary to effect bailment.(Section 148)
DM QUESTION BANK
CHAPTER -3
1. Which of the following statements is true?

(a) consideration must result in a benefit to (c) consideration must be adequate
both parties (d) Consideration must be something,
(b) past consideration is no consideration in which a promissory is not already bound to
India do.
2. Which of the following statements is false? Consideration:

(a) must move at the desire of the promisor (c) may be illusory
(b) may move from any person (d) must be of some value.
3. Which of the following statements is false?

(a) generally a stranger to a contract cannot (c) completed gifts need no consideration
sue (d) no consideration is necessary to create
(b) a verbal promise to pay a time barred an agency.
debt is valid
4. Consideration must move at the desire of

(a) promisor (c) any other person
(b) promise (d) any of these.

(a) there can be a stranger to a contract (c) there can be a stranger to a contract
(b) there can be a stranger to a consideration (d) none of the above
6. Consideration may be:

(a) past (c) future
(b) present (d) all of the above.
7. Consideration in simple terms means:

(a) something in return (c) nothing in return
(b) everything in return (d) none of the above.
8. Which of the following is not an exception to the rule – no consideration, no contract?

(a) compensation for involuntary services (c) contract of Agency
(b) love and affection (d) gift.
9. As a general rule, an agreement made without consideration is:

(b) valid (d) unlawful.
10. An agreement made with free consent to which the consideration is lawful but inadequate, is:
(a) Void (c) voidable
(b) Valid (d) unlawful.
11. What is legal terminology for the doing or not doing of something which the promisor
desires to be done or not done?
(a) desires (c) consideration
(b) wishes (d) promise.
12. _________ consideration is no consideration in England.
(a) Past (c) future
(b) Present (d) past and present.
13. There can be a stranger to a _________.

(a) Contract (c) agreement
(b) Consideration (d) promise.
14. Which of the following is / are false?

1. Consideration must be real 2. Consideration can be inadequate 3. A promise to do
something which one is already bound to do by law, will be treated as good
4. consideration Consideration must be adequate.
(a) 1&2 (c) 3&4
(b) 2&3 (d) 1 & 4.
15. At the time of marriage between A and b, A’s father promised to B’s parents that he will pay
five thousand rupees per month to B after her marriage with his son. On his failure to pay the
amount, B wants to sue A’s father for the amount promised by him at the time of her
marriage with A. Which of the following statement(s) is correct?
(a) B cannot sue A’s father as the contract (c) B can sue A’s father for breach of
is void for lack of consideration contract.
(b) B cannot sue A’s father under the (d) B cannot sue A’s father as the contracts
doctrine of privity of contracts made at the time of marriage are not
enforceable by law.
16. Consideration is defined under Section ________ of the Indian Contract Act
(a) 2(a) (c) 2(c)
(b) 2(b) (d) 2(d).
17. Consideration may be supplied by:

(a) the promisee (b) the promisee or any other person.
18. M, by a gift deed transferred certain property to her doughtier ‘R’, with a direction that ‘R’
should pay an annuity to M’s brother, ‘C’ as had been done by M. On the same day, ‘R’
executed a deed in writing in favour of ‘C’, agreeing to pay annuity. Afterwards ‘R’ declined
to fulfil her promise saying that no consideration had moved from her uncle ‘C’. Which of
the following statements is correct?
(a) ‘R’ is not bound to pay annuity (c) ‘R’ is bound to pay annuity.
(b) there is no valid consideration in this
contract
19. Consideration in a contract may be:

(a) Past (c) future
(b) Present (d) any of the above.
20. An agreement made without consideration is:

(b) illegal (d) void.
21. An agreement made without consideration is void, as per

(a) Section 23 (c) Section 25
(b) Section 24 (d) Section 26.
22. A person verbally promised the secretary of the mosque committee to subscribe Rs. 500 for
rebuilding of a mosque. Later, he declined to pay the said amount. The agreement is void due
to:
(a) lack of consideration (c) lack of object.
(b) lack of consensus ad idem
23. Agreement without consideration is valid, when made:

(a) out of love and affection due to near (c) to compensate a person who has
relationship already done something voluntarily
(b) in writing to pay a time barred debt (d) all of the above.
24. A Hindu husband by a registered document, after referring to quarrels and disagreements
between himself and his wife, promised to pay his wife a sum of Rs. 2,00,000 on their
next marriage anniversary. The above contract is:
(a) void (c) valid
(b) illegal (d) voidable.
25. “No consideration, No Contract, does not apply to completed gifts, i.e., gifts given and
accepted.
(a) True (b) false.
26. Consideration is not necessary to effect a valid Gratuitous Bailment of goods

(a) True (b) false.
27. No consideration is required to create a contract of agency

(a) true (b) false.
28. Inadequacy of consideration does not make the contract:

(a) void (c) neither void nor voidable.
(b) voidable
29. Inadequacy of consideration may be taken into account by the Court to determine whether
the consent of promisor was freely given
(a) True (b) false.
30. Consideration and objects are unlawful when it is:

(a) fraudulent (c) is immoral and against the public
(b) forbidden by law or defeat any policy
provision of any law (d) all of the above.
31. A person who is not a party to a contract (i.e., a stranger to the contract):
(a) can sue (c) can sue as an agent of the party
(b) cannot sue (d) both (b) or (c).
32. In which of the following situations, a stranger to contract can file a valid suit:
(a) beneficiary of a trust (c) acknowledgement of liability, or by
(b) under family settlement in written form past performance therof
(d) all of the above.
33. Provision of marriage expenses of female members of Joint Hindu Family, entitles the
female member to sue for such expenses on a partition between male members:
(a) true (b) false.
CHAPTER-4 CAPACITY TO CONTRACT
CONTENTS:-
1. WHO IS COMPETENT TO CONTRACT
2. POSITION OF MINOR’S AGREEMENT
1. WHO IS COMPETENT TO MAKE A CONTRACT

SECTION 11: – Every person is competent to contract who is of age of majority according to
the law to which he is subject, who is of sound mind and is not disqualified from contracting
by any law to which he is subject.
A. AGE OF MAJORITY
According to Section 3 of Indian Majority Act, 1875 A minor is a person who has not
completed 18 years of age. Every person domiciled in India attains majority on the completion of
18 years of age.
Exceptions : - In the following cases, a person attains majority on completion of 21 years of
age:-
1. Where the guardian of a minor is being 2. Where the superintendence of minor’s
appointed under Guardians and Wards Act, property is assumed by Court of Wards.
1890.
B. SOUND MIND PERSON (Section 12 )

A person is said to be of sound mind for the purpose of making a contract if at the time when he
makes it he is capable of understanding it and of forming a rational judgment so as to its effect
upon his interests.
A person who is usually of unsound mind, A person who is usually of sound mind but
but occasionally of sound mind, may make occasionally of unsound mind, may not
a contract when he is of sound mind. make a contract when he is of unsound
mind.
UNSOUND MIND PERSONS

C. PERSONS DISQUALIFIED BY LAW
Alien enemy An Alien enemy is a person who is a citizen of a foreign country
which is at war with India.
Contracts during An alien enemy cannot enter into contract during the period of war
the war except a license from the central government.
Contracts entered Contracts entered before war are either dissolved or merely
before war suspended for the period of war and revived after the war is over.
Statutory Corporation A statutory corporation cannot enter into contracts which are ultra
virus its memorandum.
Municipal Bodies Municipal bodies cannot enter into acts which are beyond their
statutory powers.
Sovereign States, These persons enjoy certain special privileges. They cannot be sued
Ambassadors & in the Indian courts. However, they can enter into contracts and
Diplomatic Couriers enforce those contracts in Indian Courts.
Convict A convict cannot enter into contract during the period of
imprisonment.
Insolvent When the person is adjudged insolvent, his property stands vested
in the official receiver or official assignee appointed by the court.
He cannot enter into contracts in relation to property which is
vested to the official assignee or receiver.
A contract with a party incompetent to contract is void ab initio.
2. POSITION OF MINOR’S AGREEMENT

i. An agreement A minor is not competent to contract. A minor’s contract being void,
entered into by or with any money advanced to a minor cannot be recovered. { Mohiri Bibi V.
a minor is void ab Dharmodas Ghose (1903) }
initio
ii. Minor can be Even if a minor is incapable of contracting, still no law prevents him
beneficiary from taking the benefit under a contract. A promissory note executed in
favour of a minor is valid and can be enforced by the minor. A minor
can be payee of a cheque or other negotiable instrument.
Minor as a partner A Minor cannot become a partner in a firm but he can be admitted to
the benefits of the partnership with the consent of all partners.( Section
30 of Indian Partnership Act, 1932)
Minor can always If a minor by fraudulently representing his age enters into contract, still
pleads minority minor can take the shelter of minority.
Example:- A, a minor by fraudulently representing himself to be a
major, induce B to lend him Rs.2000. He refused to repay it and B sued
him for the money. Held that the contract was void and A was not liable
to repay the amount due.
KHAN GUL V. LAKHA SINGH
Lahore High Court held that where the contract is set aside the status quo ante should be restored
and the court may direct the minor, on equitable grounds, to restore the money or property to the
other party. Thus, in such cases, if money could be traced, the court would, on equitable grounds,
ask the minor for restitution.
Sections 30 and 33 of the Specific Relief Act, 1963 provide that in case of a fraudulent
misrepresentation of his age by the minor, inducing the other party to enter into a contract, the
Court may award compensation to the other party.
Ratification an A minor cannot ratify the agreement on attaining the age of majority as
attaining majority is the original agreement is void-ab-initio and therefore, validity cannot be
not allowed given to it later on.
Example: ‘A’, a minor makes a promissory note in favour of ‘B’. On
attaining majority, he makes out a fresh promissory note in lieu of old
one. Neither the original, nor the fresh promissory note is valid.
Contract by minor’s A contract may be entered into on behalf of a minor by his guardian or
guardian manager of his estate. In such a case the contract can be enforced by or
against the minor provided that the contract
(a) is within the scope of the authority of the guardian or manager, and
(b) is for the benefit of the minor.
Liability for No personal liability of minor but minor’s property is liable.
necessaries In order to entitled a supplier to be reimbursed from the minor’s estate,
following conditions must be satisfied:-
A. Goods must be necessaries for that particular minor having regard
to his condition in life.
B. The minor must be in need of those goods both at the time of sale
and delivery.{ Nash v. Inman(1908) }
C. The minor’s estate is not liable only for necessary goods but also
for necessary services rendered to him.
Minor as an Agent Minor can be an agent but cannot be held personally liable for
negligence or breach of duty.
Minor as an Insolvent A minor cannot be adjudicated as insolvent because he is incapable of
contracting.
CHAPTER-5 FREE CONSENT
CONTENTS:-
1. CONSENT
2. FREE CONSENT
3. ELEMENTS VITIATING FREE CONSENT
_____________________________________________________________________________
1. CONSENT (Section 13)
Two or more persons are said to have consented when they agree upon something in the same
sense (consensus-ad-idem).
Example:- A offers B that he want sell his Maruti 800 to him for Rs. 50000. B replies that I can
pay only Rs40000 for your car. Since there is no consent between the parties, no contract will can
be formed.
2.) FREE CONSENT (Section 14)

A consent is said to be free when it is not caused by coercion, undue influence, fraud,
misrepresentation or mistake.
3.) ELEMENTS VITIATING FREE CONSENT

(a) Coercion Coercion is committing or threatening to commit any act forbidden by Indian
(Section 15) 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.
Threat to commit suicide amounts to coercion.
The agreement induced by coercion is voidable.
A person to whom money has been paid or anything delivered under
coercion, must repay or return it.
(b) Undue A contract is said to be induced by undue influence when the relations subsisting
Influence between the parties are such that one of the parties is in a position to dominate
(Section 16): the will of the other and uses that position to obtain an unfair advantage of the
other.
A person is deemed to be in a position to dominate the will of the other, when he
holds authority real or apparent over the other, or when he stands in a fiduciary
relation to the other.
Example: - (a) Father and son (b) Solicitor and Client
(c) Trustee and Beneficiary (d) Doctor and Patient, etc.
A contract which is induced by undue influence is voidable.
(c) Fraud Fraud means and includes any of the following acts committed by a party to a
(Section 17) contract or with his connivance or by his agent with intent to deceive another
party thereto or his agent, or to induce him to enter into the contract:
the suggestion as to fact of that which is not true by one who does not
believe it to be true.
the active concealment of a fact by one having knowledge or belief of the
fact.
a promise made without any intention of performing it.
any other act fitted to deceive.
any such act or omission as to law specially declared to be fraudulent.
 A contract induced by fraud is voidable.
Q- Is mere silence amounts to fraud ?
Ans: - No, Mere silence as to facts likely to affect the willingness of a person to enter into a
contract is no fraud.
Exceptions:-1.) Where it is duty of the person to speak.
2.) Where silence itself equivalent to speech.
(d) Misrepresentation where a person asserts something which is not true though he believes it
to be true, his assertion amounts to misrepresentation.
(e)
DM QUESTION BANK
CHAPTER – 5
1. When the consent of a party is not free, the contract is:

(a) void (c) valid
(b) voidable (d) illegal
2. Consent is not said to be free when it is caused by:

(a) coercion (c) fraud
(b) undue influence (d) all of these.
3. When the consent of a party is obtained by fraud, the contract is:

(a) void (c) valid
(b) voidable (d) illegal.
4. The threat to commit suicide amounts to:

(a) coercion (c) misrepresentation
(b) undue influence (d) fraud.
5. Moral pressure is involved in the case of:

6. A wrong representation when made without any intention to deceive the other party
amounts to:

(a) a threat to commit suicide does not (c) ignorance of law is no excuse
amount to coercion (d) silence always amounts to fraud.
(b) undue influence involves use of
physical pressure
8. A agrees to sell his car worth Rs. 1,00,000 to B for Rs. 20,000 only, and A’s consent was
obtained by coercion. Here, the agreement is:
(b) valid (d) unlawful.
9. Which of the following elements does not affect the free consent of the parties?
(a) coercion (c) in-competency
(b) fraud (d) undue influence.
10. When the consent of a party is obtained by, coercion, undue influence, fraud or
misrepresentation, the contract is:
(a) void (c) valid
11. A threatens to kill B if he does not agree to sell his scooter to him for Rs. 1000 only. Here
B’s consent is obtained by:
(a) undue influence (c) coercion
(b) fraud (d) none of these.
12. When the consent to an agreement is obtained by coercion, the agreement is voidable at the
option of:
(a) either party to the agreement (c) the party who obtained the consent
(b) the party whose consent was so (d) none of these.
obtained
13. Where one party is in a position to dominate the will of another and uses his position to
obtain the consent of the other party, the consent is said to be obtained by:
(b) undue influence (d) misrepresentation.
14. Which of the following acts does not fall under the categories of fraud?
(a) intentional false statement of facts (c) innocent false statement
(b) active concealment of facts (d) promise made without intention to
perform.
15. Where the consent of a party is obtained by misrepresentation, the contract is:
16. Which of the following statements is false?

(a) a contract is not voidable if fraud of (c) in case of fraud or misrepresentation,
misrepresentation does not induce the aggrieved party can either rescind or affirm
other party to enter into a contract the contract
(b) a party cannot complain of fraudulent (d) a party who affirms the contract, can
silence or misrepresentation if he had the also change his option afterwards if he so
means of discovering the truth with decides.
ordinary means
17. Where the consent of both the parties is given by mistake, the contract is:
18. As per Section 20, the contract is void on account of bilateral mistake of fact, But as per
Section 22, if there is mistake of only one party, then the contract is:
19. A contract made by mistake about the Indian Law, is:

20. A contract made by mistake about some foreign law, is:

21. A mistake as to a law not in force in India has the same affect as:
(a) mistake of fact (c) fraud
(b) mistake of Indian law (d) Misrepresentation.
22. A believes that a particular kind of rice is being sold in the market at Rs. 3,000 /- per quintal
and, therefore, sells rice of that kind to B at Rs. 3,000 per quintal. But, in fact, the market
price was Rs. 4,000. The contract is:
23. Threat to commit suicide amounts to:

1. Coercion 2. offence under the Indian Penal Code 3. undue influence
2. Fraud
(a) 1&2 (c) 3&4
(b) 2&3 (d) 1 & 4.
25. Contract caused by which of the following is voidable:

1. Fraud 2. Misrepresentation 3. Coercion 4. Bilateral Mistake
(a) 1, 2, 3 (c) 1, 2, 4
(b) 2, 3, 4 (d) 1, 2, 3, 4.
26. Which of the following is a requirement for misrepresentation to exist?
1. Misrepresentation should relate to a material fact.
2. The person making a misrepresentation should believe it to be true
3. It must be made with an intention to deceive the other party
4. The person making a misrepresentation should not believe it to be true
(a) 1&2 (c) 3&4
(b) 2&3 (d) 1 & 4.
27. A contracts with B to buy a necklace, believing it is made of pearls whereas in fact it is made
of imitation pearls. B knows that A is mistaken and takes no steps to correct the error. Now
A wants to cancel the contract on the basis of fraud. Which of the following statements is
correct?
(a) A can cancel the contract alleging fraud (c) A can cancel the contract alleging
(b) A cannot cancel the contract undue influence
(d) A can claim damages.
28. A purchased a used computer from B thinking it as a computer imported from USA, B failed
to disclose the fact to A. On knowing the fact A wants to repudiate the contract. Which of the
following statement(s) is correct?
(a) A can repudiate the contract on the (c) A cannot repudiate the contract
ground of fraud (d) A can repudiate the contract on the
(b) A can repudiate the contract on the ground of mistake.
ground of misrepresentation
29. Under Section 13 of the Indian Contract Act “Consent” means agreeing:
(a) on the same thing (c) at the same time
(b) in the same sense (d) all of the above.
30. "Consensus-ad-idem” means:

(a) general consensus (b) meeting of minds upon the same thing
in the same sense.
32. Consent is not free if affected by:

(a) Mistake (c) both (a) and (b)
(b) misrepresentation
33. A threatens to shoot B, if B does not agree to sell his property to A at a very low price. B’s
consent in this case has been obtained by:
(a) undue influence (c) fraud.
(b) coercion
34. A kidnaps B’s son in order to make B enter into an agreement, the agreement is affected by:
(b) fraud.
35. A chartered accountant holds back the books of accounts and other papers of his client and
refuses to deliver them until and unless fees. The chartered accountant has applied:
(b) fraud (d) misrepresentation.
36. A contract caused by coercion is:

37. To make a contract voidable coercion must have been exercised against:
(a) only the promisor (c) either (a) or (b).
(b) any other person
38. To avoid a contract under “Coercion”, the Indian Penal Code should be in force where the
coercion is employed.
(a) true (b) false.
39. A contract is said to be induced by undue influence where the relations subsisting between
the parties are such that:
(a) one of the parties is in an position to (c) either (a) or (b)
dominate the will of the other. (d) both (a) and (b).
(b) the dominant party uses that position
to obtain an unfair advantage over the
other.
40. A person is deemed to be in a position to dominate the will of another if:

(a) he holds a real or apparent authority (c) he makes a contract with a person
over the other whose mental capacity is temporarily or
(b) he stands in a fiduciary relation to the permanently affected by reason of age,
other illness or mental or bodily distress
41. When the consent is caused by undue influence, the contract is:
42. If a disciple agrees to gift to his Spiritual Guru, his entire property in return for attainment of
salvation, the agreement can be set aside on grounds of:
(b) undue influence (d) misrepresentation.
43. Which of the following relationships raise presumption of undue influence?

(a) parent and child (c) religious / Spiritual Guru and Disciple
(b) guardian and ward (d) all of the above.
44. Which of the following relations raise presumption of undue influence?

(a) landlord and tenant (c) doctor and patient
(b) husband and wife (d) creditor and debtor.
45. Which of these does not constitute fraud?

(a) suggestion as a fact, of something (c) innocent misstatement, honestly
which is not true, by a person who does believing the same to be true
not believe it to be true (d) promise made without any intention of
(b) active concealment of a fact by one performing it.
having knowledge of belief of the fact
46. An attempt to deceive:

(a) is not fraud unless the other party is (c) amounts to misrepresentation
actually deceived (d) amounts to coercion.
(b) is fraud whether the other party has
been deceived or not
47. Mere silence as to facts, likely to affect the willingness of a person to enter into a contract is
not fraud
(a) true (b) false.
48. Where A says to B, “If you do not deny it, I shall assume that the house is sound”. If the
horse is unsound and A says nothing, there is:
(a) misrepresentation (c) fraud
(b) no fraud (d) undue influence.
49. A sells by auction to B his car which A knows to be having serious defects. B is A’s
daughter and has just come of age. A is guilty of:
(a) fraud (c) misrepresentation
(b) undue influence (d) mistake.
50. A contract affected by fraud is:

(a) void (c) valid
51. When the person making a false statement believes the statement to be true and does not
intend to mislead the other party to the contract it is known as:
(b) misrepresentation (d) mistake.
52. Where consent is caused by misrepresentation, the contract is:

(a) voidable (c) illegal
(b) void (d) not affected in any manner.
53. Where consent is obtained by misrepresentation, the aggrieved party has the
following remedies:
(a) he can rescind the contract within a (c) both (a) and (b)
reasonable time (d) neither (a) nor (b).
(b) he can insist on the performance of the
contract upon a condition that he shall be
put in the position in which he would have
been if the representations made had been
true
54. Where consent of the party was caused by misrepresentation but the party had the means to
discover the truth with ordinary diligence, the contract is:
(a) void-ab-initio (c) voidable
(b) valid (d) unenforceable.
55. One Blenkarn, knowing that Blenkiron & Co. Were reputed customers of Lindsay & Co.
Placed an order with Lindsay & Co. By introducing himself as Blenkiron, the proprietor of
Blenkiron & Co. Goods were then sold to Cundy, an innocent buyer. Lindsay & Co. sued
Cundy for recovery of goods. In this case:
(a) Cundy has good title to goods and can (c) Both (a) and (b)
retain them (d) Lindsay never intended to contract
(b) Sale made by Blenkarn to Cundy is with Blenkarn, these was no contract. So,
valid Cundy’s title is defective.
56. Unilateral mistake as to a matter of fact renders a contract:

(a) void (c) does not affect validity of the contract.
(b) voidable at the option of party under
mistake
57. If there is an unilateral mistake as regards identity, caused by fraud of the other party, the
contract is:
(a) void (c) valid
58. An old illiterate man with a feeble eye-sight was made to sign a bill of exchange, by means
of a false representation that it was a guarantee bond. The bill of exchange constitutes a / an:
(a) valid contract (c) contract voidable at the option of the
(b) void-ab-initio agreement old man
(d) illegal agreement.
59. ‘A’ held an auction for the sale of some lots of tow. ‘B’ thinking that hemp was being sold,
bid for a lot of tow for an amount which was out of proportion to it but was a fair price for
hemp. The contract is:
60. An agreement is void when there is:

(a) mistake of fact by one party (c) mistake of foreign law
(b) mistake of fact by both the parties (d) all the above.
61. P wrote to H inquiring price of rifles suggesting that he might buy as many as 50. On receipt
of information, he telegraphed, “Send three rifles”. Due to telegraphic mistake, message was
transmitted as “End the rifles”. H dispatched 50 rifles. The agreement is void on account of:
(a) unilateral mistake as to quantity (c) bilateral mistake as to quality of the
(b) bilateral mistake as to quantity of the subject matter
subject matter (d) (b) and (c).
62. The validity of contract is not affected by:
(a) bilateral mistake o fact (c) misrepresentation
(b) mistake of Indian law (d) fraud.
63. Mistake as to Foreign Law is treated in the same manner as:

(a) Mistake of Indian law (c) Misrepresentation
(b) Mistake of fact (d) fraud.
CHAPTER-6 LAWFUL CONSIDERATION & OBJECT
CONTENTS:-
1. LAWFUL CONSIDERATION & OBJECT
______________________________________________________________________________
1. LAWFUL CONSIDERATION OR OBJECT [Section 23]

Consideration or object is unlawful if it is: -
A. Forbidden by law Acts forbidden by law are those which are punishable under any statute as
well as those prohibited by regulation or orders made in exercise of the
authority conferred by the legislature.
Example:- A promises to drop prosecution which he has instituted against
B for robbery and B promises to restore the value of the things taken. The
agreement is void, as its object is unlawful.
Example:- A loan granted to the guardian of a minor to enable him to
celebrate the minor’s marriage in contravention of the Child Marriage
Restraint Act is illegal and cannot be recovered back.
Example:- A license to cut the grass is given to X by forest department
under Forest Act. The license provides for imposition of penalty in the
event of X choosing to assign his right. However if X assigns his right, the
agreement would still be valid since there is no prohibition for such
assignment as the consideration stipulating penalty is only to regulate the
matter of administrative measure.
B. Defeat the The term ‘Law’ includes any legislative enactment or rule of the Hindu
provisions of any and Muslim Laws or any other rule for the time being in force in India.
law Example:- Agreement in restraint of parental rights is in violation of
Hindu Law.
C. Fraudulent Where object or consideration is unlawful on ground of fraud.
Example:-A, B and C enter into agreement for the division among them
of gains acquired or to be acquired, by them for fraud. The agreement is
void as its object is unlwful.
D. Injury to the The general term “injury” means criminal or wrongful harm. Where the
person or property of object of an agreement is to cause injury to the person or property of
another another.
Example:- An agreement to print a book in violation of another’s
copyright is void.
Example:-A borrowed Rs. 1000 from B. A executed a bond promising to
work for B without pay for 2 years and in case of default agreed to pay
interest at a very exorbitant rate and the principal amount at once. Held,
the contract was void (Ram Swaroop v. Bansi)
E. Immoral or Example: - Letting house to a prostitute knowingly.
opposed to the
public policy
Partial Illegality :-( Section 24 ) If any part of a single consideration for one or more objects, or
any one or any part of any one of several considerations for a single object, is unlawful, the
agreement is void.
Example:-A promises to survive the business on behalf of B, a licensed manufacturer of some
permissible chemicals and some contraband items. B promises to pay A a salary of Rs. 100000
per month. The agreement is void, the object of A’s promise and the consideration for B’s
promise being in part unlawful.
DM QUESTION BANK
CHAPTER - 6
1. An agreement the object or consideration of which is unlawful, is:

(b) Valid (d) contingent.
2. The consideration or object of an agreement is considered unlawful, if it is:

(a) forbidden by law (c) immoral
(b) fraudulent (d) all of these.
3. A agrees to pay Rs. 5 lakhs to B, if he (b) procures an employment for A in Income Tax
Department. This agreement is:
(b) Valid (d) contingent.
4. A agrees to pay Rs. 50,000 to B if he kills C. The agreement is:

5. An agreement the object or consideration of which is unlawful, is;

(b) void (d) contingent.
5. The consideration of an agreement is considered unlawful, if it is:

1. forbidden by law 2. Fraudulent 3. Immoral 4. very expensive
(a) 1, 2, 3 (c) 1, 2, 4
(b) 2, 3, 4 (d) 1, 2, 3, 4.
CHAPTER–7 VOID AGREEMENTS
CONTENTS :-
1. AGREEMENTS EXPRESSLY DECLARED VOID
1. AGREEMENTS EXPRESSLY DECLARED VOID

Agreements by incompetent parties (Sec. 11)
Agreements with unlawful object or consideration (Sec. 23)
Agreement made under mutual mistake of fact (Sec. 20)
Agreements without consideration (Sec. 25)
Agreements in restraint of marriage, trade or legal proceedings etc.
Agreements to do impossible Acts (Sec. 56)
Example:- An agreement to discover treasure by magic is void.
 Uncertain meaning – An agreement the meaning of which is not certain is void but where
the meaning thereof is capable of being made certain, the agreement is valid.(Sec. 29)
Example:- A agrees to sell 100 tons of oil @ Rs. 2000 per ton to B. The agreement is void on
ground of uncertainty because in which type of oil they are dealing is not clear.
 Wagering agreement – It is an agreement involving payment of a sum of money upon the
determination of an uncertain event. An agreement by way of wager is void.
No party have control over the event.
Collateral transactions are valid.
b Speculative transactions are generally valid
Elements:-
 Mutual intention of contracting parties to acquire or deliver the commodities.
 The undertaking or risk arising from movement in prices.
AGREEMENTS OPPOSED TO THE PUBLIC POLICY

These are the agreements which are against the moral laws of the society and contravenes any
established interest of society. Following agreements are opposed to the public policy:-
(a) Trading with Any trade with person owing allegiance to a Government at war with India
enemy without the license of the Government of India is void, as the object is
opposed to public policy.
(b) Stifling An agreement to stifle prosecution tends to be a preservation or an abuse of
prosecution justice; therefore, such an agreement is void. The principle is that one
should not make a trade of felony (crime).One should not convert a crime
into into a source of profit.
Compromise of public offence is illegal.
To drop uncompoundable offence without permission of court.
Example:- A Knew that B has committed a crime. He obtains a promise
from B to pay him Rs. 20000 in consideration of not exposing B. This is a
case of stifling prosecution & therefore illegal & void.
(c) Champerty & Maintenance It is the promotion of litigation in which one had no
maintenance interest.
Example:- A promises to pay B a sum of Rs. 10000 if B
filed a suit against C in the court. This agreement is in the
nature of maintainence and hence void.
Champerty It is bargain whereby one party agrees to assist the other in
recovering property, with a view to sharing the profits of
litigation.
Example:- An agreement to give assistance(monetary or
otherwise) to another person to recover the property by
legal action and to share the proceeds of litigation is a
champertous agreement.
(d) Interference An agreement whose object is to induce any judicial officer of the state to
with the course of act partially or corruptly is void.
justice
(e) Marriage An agreement to negotiate marriage for reward, which is known as a
brokerage marriage brokerage contract, is void, as it is opposed to public policy.
contracts For Example:- An agreement to pay money to a person hired to procure a
wife is opposed to public policy and therefore void.
(f) Interest Taking a benefit against the obligation.
(benefit) against Example:- A, who is the manager of a firm, agrees to pass a contract to X
obligation if X pays to A Rs. 20000 privately; the agreement is void.
(g) Sale of public Bribe for appointment in a public office as it interfere with the
office appointment of a person best qualified for the service of public.
An agreement to pay money to a public servant in order to induce him
to retire from his office so that another person may secure the
appointment is void.
An agreement to procure a public recognition like Padma Vibhushan for
reward is void.
(h) Agreements for Agreements having their object the establishment of monopolies are
creation of opposed to the public policy and hence void. It is also hit by MRTP Act.
monopolies void Example:- A local body granted a monopoly to A to sell vegetables in a
particular locality. Held that the agreement was void.
(i) Agreement in Every agreement in restraint of marriage of any person, other than a
restraint of minor, is void (Sec. 26).
marriage Example:-A promised to marry no one else except Miss B and in default
pay her a sum of Rs.100000. A married some one else and B sued A for
recovery of the sum. Held, the contract was in restraint of marriage, and as
such void.
(j) Agreement in An agreement by which any person is restraint from exercising a lawful
restraint of trade profession, trade or business of any kind, is to that extent void.
Exceptions (i) Sale of goodwill
 Within specified local limits
 
  
 Reasonable 
 
(ii) An agreement among the sellers of a particular commodity not to sell

the commodity for less than a fixed price is not an agreement in restraint of
trade.
(iii) An agreement between partners not to carry on competing business
during the continuance of partnership is valid. ( Section 11 of Indian
Partnership Act, 1932)
(iv) Agreement with outgoing partner not to carry on competing business
for a reasonable time will be valid.( Section 36 of Indian Partnership Act,
1932)
(v) An agreement of service by which an employee binds himself, during
the term of his agreement, not to complete with his employer is not in
restraint of trade.
Example:- B, a physician and surgeon, employs A as an assistant for a
term of three years and A agrees not to practice as a surgeon and physician
during these three years. The agreement is valid and A can be restrained by
an injunction if he starts independent practice during this period.
(vi) An agreement by a manufacturer to sell during a certain period his

entire production to a wholesale merchant is not in restraint of trade.
(k) Agreement in It is one by which any party thereto is restricted absolutely from enforcing
restraint of legal his rights under a contract through a court or which abridges the usual
proceedings period for starting legal proceedings. It is void.
 Exceptions –
 Settlement of dispute through arbitration.
 Question already arisen or which may arise in future refer to arbitration
such a contract must be in writing.
DM QUESTION BANK
CHAPTER – 7
1. An agreement is void if it is opposed to public policy. Which of the following is not covered
by heads of public policy?
(a) trading with an enemy (c) marriage brokerage contracts
(b) trafficking in public offices (d) contracts to do impossible acts.
2. An agreement in restraint of marriage, i.e., which prevents a person from marrying, is:
(a) valid (c) void
(b) voidable (d) contingent.
3. An agreement in restraint of marriage is valid in case of following persons:

(a) minors. (c) Handicapped
(b) Educated (d) none of these.
4. An agreement, which prevents a person from carrying a lawful business, is:

(a) Valid (c) Voidable
(b) Void (d) contingent.
5. An agreement iln restraint of legal proceeding is void. It does not cover an agreement which:
(a) restricts absolutely the parties from (c) discharges a party from liability or
enforcing their legal rights extinguishes the right of a party
(b) cuts short the period of limitation (d) provides for a reference to arbitration
instead of court of law.
6. An agreement to pay money or money’s worth on the happening or non-happening of a

specified uncertain event, is a:
(a) wagering agreement (c) quasi contract
(b) contingent agreement (d) uncertain agreement.
7. A sells the goodwill of his business to B and agrees with him to refrain from carrying on a
similar business within specified local limits. This contract is:
(a) Valid (c) voidable
8. R, an optical surgeon, employs S as the assistant for a term of three years and S agrees not to
practice as a surgeon during this period. This contract is:
9. A agrees to pay Rs. 500 to B if it is rains, and B promises to pay a like amount to A if it does
not rain, this agreement is called:
(a) quasi contract (c) wagering agreement
(b) contingent contract (d) voidable contract.
10. Which of the following are covered under the heads Agreements Opposed to Public Policy?
1. Trading with enemy 2. Trafficking in Public Offices 3. Marriage Brokerage Contracts
2. Contracts to do impossible acts
(a) 1, 2, 3 (c) 1, 2, 4
(b) 2, 3, 4 (d) 1, 2, 3, 4.
11. G paid Rs. 1,00,000 to H to influence the head of the Government Organization in order to
provide him some employment. On his failure to provide the job, G sued H for recovery of the
amount. Which of the following is correct?
(a) the contract is valid and G can recover (c) G can recover the amount with interest
the amount from H (d) G can recover the amount of Rs.
(b) the contract is void as it is opposed to 1,00,000 and damages.
public policy and G cannot recover
12. ‘A’ promises to drop prosecution which he has instituted against ‘B’ for robbery. ‘B’
promises to restore value of things taken. The agreements is:
(a) contingent (c) voidable
(b) valid (d) void.
13. ‘A’ estate is sold for arrears of revenue. As per the Income Tax, the defaulter is prohibited
from purchasing it. ‘B’ agrees with ‘A’ to purchase the estate and convey it back to ‘A’ for
the price which ‘B may pay. The agreement is:
(a) legal (c) voidable
(b) valid (d) void.
14. A, B and C enter into an agreement for sharing the gains acquired by fraud. This agreement
is
(a) Contingent (c) void
(b) valid (d) voidable.
15. ‘A’ gave a loan to the guardian of a minor to enable him to celebrate the minor’s marriage in
contravention of Child Marriage Restraint Act. The agreement between ‘A’ and ‘Guardian of
Minor’ is:
(a) Valid (c) voidable.
(b) Void
16. If illegal part of a contract can be served from legal part, the contract is:
(a) void in respect of illegal part only (c) fully void.
(b) altogether void
17. Agreement, part of the consideration or object of which is unlawful and the unlawful objects
cannot be separated from the lawful objects, is:
(a) Legal (c) voidable
(b) Void (d) valid.
18. An agreement in restraint of trade is:

(a) Void (c) illegal
(b) Valid (d) voidable.
19. Section ____ of the Indian Contract Act deals with “Agreements in restraint of trade”:
(a) 26 (c) 28
(b) 27 (d) 29.
20. In Patna, 29 out of 30 manufacturers of combs agreed with R to supply combs only to him
and not to any one else. Under the agreement R was free to reject the goods if he found no
market for them. The agreement is:
(a) Valid (c) illegal
(b) Void (d) voidable.
21. K, an employee of a Chennai based company, agreed not to employ himself in a similar
business within a distance of 800 miles from Chennai after leaving the company’s service.
The agreement is void on ground of being:
(a) an agreement without consideration (c) an agreement in restraint of trade
(b) an uncertain agreement (d) all of the above.
22. In which of the following agreements, Restraint of Trade is valid?

(a) agreement with Buyer of Goodwill (c) Agreements under the Partnership Act,
(b) trade combinations, to the extent they 1932
do not create monopoly of opposed to (d) All of the above.
public policy
23. S, a seller of imitation jewellery, sells his business to B and promises, not to carry on
business in imitation jewellery and real jewellery. The agreement is:
(a) valid with regard to imitation
jewellery; and void as regards real (c) wholly void
jewellery (d) fully valid.
(b) void with regard to imitation
jewellery; and valid as regards real
jewellery
24. Doctors may be paid non practicing allowances to avoid practicing when they are employed
in a hospital. Such agreement is:
(a) valid (c) unenforceable
(b) void (d) voidable.
25. Where an employee enters into an agreement with his employer not to engage in similar
work after the termination of his service, the agreement is:
(a) valid (c) enforceable
26. Which of the following agreements in restraint of trade is valid?

(a) partner not to carry on any business (c) not to carry on similar business within
other than that of the firm while he is a specified periods or local limits, upon or in
partner anticipation of dissolution of firm
(b) outgoing Partner not to carry on any (d) all of the above.
business similar to Firm’s within specified
periods or local limits
27. Section 28 of the Indian Contract Act deals with:

(a) agreement in restraint of legal (c) agreement in restraint of marriage
proceedings (d) agreement to agree in future.
(b) agreement in restraint of trade
28. Any agreement which limits the time within which any party thereto may enforce his rights
by way of legal proceedings in the Ordinary Tribunals / Courts is:
(a) voidable (c) void
(b) enforceable (d) valid.
29. Two or more parties may agree that:

(a) any dispute which may arise between (c) both (a) and (b)
them as regards any subject(s) shall be (d) neither (a) nor (b).
referred to arbitration
(b) the parties will not question the award
of the arbitrator
30. An agreement to refer the dispute to the arbitrator is valid in respect of disputes:
(a) already arisen (c) neither (a) nor (b)
(b) which may arise in future (d) both (a) and (b).
31. A promise to give money or money’s worth upon the determination or ascertainment of an
uncertain event is called:
(a) wagering agreement (c) illegal agreement
(b) unlawful agreement (d) voidable agreement
32. In a wagering agreement, there is a promise to perform an act based on a / an:

(a) certain event (c) either (a) or (b)
(b) uncertain event (d) both (a) and (b).
33. In a wagering agreement, uncertainty may be due to:

(a) the event is yet to take place (c) either (a) or (b)
(b) the event might have already happened (d) both (a) and (b).
but the parties are not aware of its results
34. In a wagering agreement, each party should stand to win or lose.

(a) True (b) false.
35. If either of the parties may win but cannot lose, or both may lose and cannot win, it is:
(a) a wagering agreement (c) a voidable agreement
(b) not a wagering agreement (d) an illegal agreement.
36. To constitute wager, the promise should be to pay money or money’s worth only.
(a) True (b) false.
37. An agreement by way of wager is:

(a) valid and enforceable by law (c) voidable
(b) void (d) immoral.
38. A ‘wagering agreement’ is void under Section ___ of the Indian Contract Act, 1872.
(a) 28 (c) 30
(b) 29 (d) 31
39. Wagering agreements have been declared illegal in:

(a) Gujarat (c) both (a) and (b)
(b) Maharashtra (d) neither (a) nor (b).
40. In India, unauthorized lottery is:

(a) Illegal (c) both (a) and (b)
(b) Void (d) neither (a) nor (b).
41. A, in Mumbai, bets with B and loses. A applies to C for a loan in order to pay B. C gives the
loan to A knowing the purpose. In this case:
(a) C can recover the amount of loan from (c) C can recover the amount from B
A (d) C can recover the amount from A or B
(b) C cannot recover the amount of loan
from A
42. Prize competitions, insurance contracts, etc. are not wagering agreements.
(a) True (b) false.
43. Transactions for sale and purchase of stocks and shares or for sale and delivery of goods
with a clear intention only to settle the price difference are:
(a) wagering agreements (c) contingent contract
(b) not wagering agreements (d) voidable agreements.
44. As per the Prize Competition Act, 1955, prize competitions in games of skill are not wagers
provided the prize money does not exceed.
(a) Rs. 100 (c) Rs. 1,000
(b) Rs. 500 (d) Rs. 10,000.
45. An agreement to contribute a plate or prize of the value of Rs. 5,000 to be awarded to the
winner of a horse race is:
(a) voidable (c) valid
(b) void (d) unenforceable.
46. In case of Government authorized lotteries, sale of lottery ticket confers on the purchaser
thereof:
(a) a right to participate in the draw (c) both (a) and (b)
(b) a right to claim a prize contingent upon (d) neither (a) nor (b).
his being successful in the draw
47. If the consideration or object of an agreement is regarded by the Court to be immoral or

opposed to public policy, the agreement is:
(a) Void (c) valid
48. Which of these are opposed to public policy?

(a) restraint of marriage (c) interference with course of justice
(b) restraint of personal liberty (d) all of the above.
49. A promise to indemnify a firm of printers and publishers of a paper against consequences of
publishing a libel:
(a) cannot be enforced. The firm has to (c) can be set aside
pay damages for libel (d) can be considered voidable at the
(b) can be enforced. The firm need not pay option of the indemnifier.
damages for libel
50. Where a person agrees to maintain a suit, in which he has no interest, the proceeding is
known as:
(a) champerty (c) stifling with prosecution
(b) maintenance (d) interference with course of justice.
51. An agreement whereby one party assists another in recovering money or property and, in
turn share in the proceeds of the action is called:
(a) champerty (c) stifling with prosecution
(b) maintenance (d) interference with course of justice.
52. K, father of two minor sons, agreed to transfer their guardianship in favour of Mrs. A and
agreed not to revoke it. Subsequently, he filed suit for recovery of boys and a declaration that
he was the rightful guardian. In this case:
(a) K has the right to revoke his authority (c) K’s agreement is void because both his
and get back the children sons were minors
(b) K does not have the right to revoke his (d) K’s agreement is valid but not
authority and get back the children enforceable since consideration is not
given.
53. Marriage brokerage contracts are:

(a) enforceable (c) void
54. An agreement in which a person promises, for a monetary consideration, to procure the
marriage of another is:
(a) enforceable (c) valid
55. A promises to pay B Rs. 50,000 if B procures him the title “Padma Shri”. The agreement is:
(a) enforceable (c) void
56. A promises to pay B Rs. 10 lakhs to retire from the job in order to make room for A’s
appointment to the public office held by B. The agreement is;
(a) Void (c) enforceable
(b) Valid (d) voidable.
57. An agreement to remain unmarried is:

(b) Void (d) enforceable.
58. Any restraint of marriage, whether total or partial is:

(a) Void (c) both (a) and (b)
(b) opposed to public policy (d) neither (a) nor (b).
CHAPTER-8 PERFORMANCE OF CONTRACT
CONTENTS :-
1. PERFORMANCE OF CONTRACTS
2. BY WHOM CONTRACT MAY BE PERFORMED
3. SUCCESSION & ASSIGNMENT
4. EFFECT OF REFUSAL TO ACCEPT OFFER OF PERFORMANCE
5. EFFECT OF REFUSAL OF PARTY TO PERFORM PROMISE
6. LIABILITY OF JOINT PROMISORS
7. RIGHTS OF JOINT PROMISEES
8. TIME & PLACE FOR PERFORMANCE OF THE PROMISE
9. PERFORMANCE OF RECIPROCAL PROMICE
10. EFFECT OF FAILURE TO PERFORM AT A TIME FIXED IN A
CONTRACT IN WHICH TIME IS ESSENTIAL
11. IMPOSSIBILITY OF PERFORMANCE
12. APPROPRIATION OF PAYMENTS
13. CONTRACTS WHICH NEED NOT BE PERFORMED
14. RESTORATION OF BENEFIT UNDER A VOIDABLE CONTRACT
15. OBLIGATION OF PERSON WHO HAS RECEIVED ADVANTAGE
UNDER VOID AGREEMENT OR ONE BECOMING VOID
16. DISCHARGE OF CONTRACT
______________________________________________________________________________
1. PERFORMANCE OF 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 the contract act or any
other law.
Promises bind the representatives of the promisor in case of death of such promisor before
performance, unless a contrary intention appears from the contract.
2. BY WHOM CONTRACT MAY BE PERFORMED

If there is something in the contract to show that it was intention of the
Promisor himself
parties that the promise should be performed by the promisor himself, such
promise must be performed by the promisor.
This means contracts which involves the exercise of personal skill &
diligence or which are founded on personal confidence between the parties
must be performed by the promisor himself.
Where personal consideration is not the foundation of the contract, the
Agent
promisor or his representative may employ a competent person to perform
it.
A contract which involves the use of personal skill or is founded on
Representatives
personal consideration comes to an end on the death of the promisor.
As regards any other contract, the legal representatives of the deceased
promisor are bound to perform it unless a contrary intention appears from
the contract. But their liability under a contract is limited to the value of the
property they inherited from the deceased.
Third persons Where the promisee accepts performance of the promise from a third
person, he cannot afterwards enforce it against the promisor.
When two or more persons have made a joint promise, then unless a
Joint promisors
contrary intention appears from the contract, all such persons must jointly
fulfill the promise.
If any of them dies, his legal representatives must, jointly with the
surviving promisors, fulfill the promise. If all of them dies, the legal
representatives of all of them must fulfill the promise jointly (Sec.42).
3. SUCCESSION & ASSIGNMENT

(a) Succession (b) Assignment
When the benefits of a contract are succeeded to by Benefits of a contract can only be
process of law, then both burden and benefits assigned but not the liabilities there
attaching to the contract, may sometimes devolve on under.
legal heir.
4. EFFECT OF REFUSAL TO ACCEPT OFFER OF PERFORMANCE [ Section 38]

When the promisor has made an offer of performance to the promisee, and the offer has not been
accepted then the promisor is not responsible for non-performance, nor does he thereby lose his
rights under the contract.
Conditions: -
It must be unconditional.
It must be made at proper time and place.
If the offer is to deliver anything to the promisee, promisee must have reasonable
opportunity to check the goods.
 An offer to one of the several promisees will have same legal consequences as an
offer to all of them.
5. EFFECT OF REFUSAL OF PARTY TO PERFORM PROMISE [Section 39]

When a party to a contract has refused to perform or has disabled himself from performing
his promise in entirely, the promisor may put an end to the contract, unless he has signified by
words or conduct, his acquiescence in its continuance.
 Rights to the aggrieved party

To terminate the contract.
To indicate, by words or by conduct, that he is interested in his continuance.
Right to claim damages.
6. LIABILITY OF JOINT PROMISORS

Promisee may compel any one or more of such joint promisors to perform the whole
of the promise.
If one of the joint promisors is made to perform the whole contract, he can call for a
contribution from others.
If any of the joint promisors make a default in making his contribution the remaining
joint promisors must bear the loss arising from such default in equal shares.
7. RIGHTS OF JOINT PROMISEES

All of them jointly have right to claim performance.
If any one of joint promisees dies, Survival promisee + Representatives of deceased
promisee.
If all of them dies. Representatives of deceased promises.
8.TIME & PLACE FOR PERFORMANCE OF THE PROMISE

No time specified for performance of promise, promise must be performed within
reasonable time.
If promise is to be performed on a specified date but hour is not mentioned, the promisor
may perform it any time during the usual hours of business, on such day .
Delivery must be made at the usual place of business.
When no place is fixed for performance of promise, it is the duty of the promisor to ask
promisee to fix a reasonable place for the performance of promise.
When the promisor has not undertaken to perform the promise without an application by
the promisee and the promise is to be performed on a certain day, it is the duty of the
promisee to apply for performance at a proper place and within the usual hours of
business.
9. PERFORMANCE OF RECIPROCAL PROMISES

Reciprocal Promises When a contract consists of two promises, one being consideration
for the other, such promises are called Reciprocal promises.
Example – A promises to deliver 500 quintals of rice and B promises
to pay the price on delivery, the contract would consists of
reciprocal promises.
Simultaneous Reciprocal promises may have to be performed simultaneously or
performance of one after another.
Reciprocal promises
Example – Where A promises to deliver 500 quintals of rice and B
promises to pay the price on delivery, both the promises are to be
performed simultaneously.
Performance of When the order of performance of the reciprocal promises is
Reciprocal promises expressly fixed by the contract, they must be performed in that order.
where order of
Example –A and B contract that A shall build a house for B at a
performance is
fixed price. A’s promise to build the house must be performed
expressly fixed
before B can be called upon to perform the promise to pay for it.
Performance of The order of performance may sometimes be indicated not
Reciprocal promises expressly, but by the nature of the transaction.
when the order of
Ex – A promises to make over stock for B and B promises to give
performance is fixed
security for the payment of price. A’s promise to make over stock
by implication
need not to be performed until the security is given by B.
Effect of one party o Contract become voidable
preventing other from o Another party is entitled to claim compensation on A/c of by
performing promise
suffered due to non-performance.
Reciprocal promise to do certain things that are legal contract, and also some other
things that are illigal Void Agreement
10. EFFECT OF FAILURE TO PERFORM AT A TIME FIXED IN A CONTRACT

IN WHICH TIME IS ESSENTIAL
Where time is essential and the party fails to perform promise at or before specified time,
the contract becomes voidable at the option of the promisee.
Where time is not essential, the contract cannot be avoided on the ground that time for
performance has expired. The promise is only entitled to compensation from the promisor
for any loss caused by delay.
But it must be remembered that even where the time is not essential it must be performed
within a reasonable time otherwise it becomes voidable at the option of the promisee.
Where time is essential, promisor fails to perform within time & promisee accept the
performance, he cannot claim compensation for non-performance at time agreed unless
notice of intention to claim compensation is given.
11.
12. APPROPRIATION OF PAYMENTS

Appropriation Appropriation of payment where debt to be discharged is indicated by debtor,
by Debtor payment, if accepted, must be applied accordingly.
Latin maxim
Quickquid soivitur, sovitur secundum modum solventis.
Appropriation Appropriation of payment where debt to be discharged is not indicated by debtor,
by Creditor creditor is entitled to appropriate it to the debt first in time.
Appropriation Where neither party appropriates ,Payment shall be applied in discharge of the
by Time debts in order of time, where they are time barred or not.
If debts are equal standing, the payment shall be applied in discharge of each
proportionately.
13. CONTRACTS WHICH NEED NOT BE PERFORMED

1. Novation When parties to a contract substitute a new contract for old. On
novation, old contract is discharged and consequently it need not to
be performed. There may be change in parties.
2. Rescission When parties to a contract agree to rescind it, the contract need not
be performed. In this case, only old contract is cancelled no new
contract is formed.
3. Alteration Where parties to a contract agrees to alter it, the original contract is
rescinded, with the remit that it need not be performed.
 No change in parties to the
contract.
 Change in terms & conditions
of original agreement.
4. Waiver or Remit of Promisee can dispense with performance without consideration and
performance by promise without a new contract or may extend the time of performance.
14. RESTORATION OF BENEFIT UNDER A VOIDABLE CONTRACT
If the person at whose option contract was voidable has rescind the contract, he shall restore the
benefit (either return the goods the goods or pay for it) received there under from another party to
such contract, to the person from whom it was received.
15. OBLIGATION OF PERSON WHO HAS RECEIVED ADVANTAGE UNDER VOID

AGREEMENT OR ONE BECOMING VOID
When an agreement is discovered to be void or when a contract becomes void, any person who
received any advantage under such agreement or contract must restore it, make compensation
for it to the person from whom he received it.( Either restore back the advantage received or
pay compensation for it)
16. DISCHARGE OF CONTRACT
Discharge by mutual agreement – Novation, Alteration, Rescission, Remission

Discharge by impossibility of performance.
Discharge of lapse of time e.g. Time barred debt under Indian Limitation Act, 1963
Discharge by operation of law such as by death of promisor, by insolvency, merger, material
alteration etc.
Discharge by breach of contract
Actual Breach of Contract Anticipatory Breach of Contract
Breach of contract at time of performance Breach of contract before time of performance
Where promisee neglects or refuses to afford the promisor reasonable facilities for performance
of promise.
DM QUESTION BANK
CHAPTER - 8
1. On the valid performance of the contractual obligations by the parties, the contract:
(a) is discharged (c) becomes void
(b) becomes enforceable (d) none of these.
2. Which of the following persons can perform the contract?

(a) promisor alone (c) agent of the promisor
(b) legal representatives of promisor (d) all of these.
3. A, B and C jointly promised to pay Rs. 60,000 to D. A was compelled by D to pay the entire
amount of Rs. 60,000. Here:
(a) A can file a suit against D for recovery (c) on payment by A, the contract is
of amount exceeding his share discharged and B and C are also not liable
(b) A is entitled to recover Rs. 20,000 each to A
from B and C (d) D is not justified here, and is liable to
refund the entire amount to A.
4. In commercial transactions, time is considered to be of the essence of the contract, and if the
party fails to perform the contract within specified time, the contract becomes:
(a) voidable at the option of the other party (c) illegal for non-compliance of legal
(b) void and cannot be enforced terms.
5. Where the performance of a promise by one party depends on the prior performance of
promise by the other party, such reciprocal promises fall under the category of:
(a) mutual and concurrent (c) mutual and independent
(b) mutual and dependent (d) both (a) and (b).
6. Suppose the time fixed for performance of the contract has expired but the time is not
essential. What is the remedy of the promisee in the circumstances?
(a) can rescind the contract (c) no remedy available
(b) to claim compensation (d) can’t be determined.
7. ‘A’, ‘B’ and ‘C’ jointly borrowed Rs. 2,00,000 from ‘D’ by executing a promissory note. ‘B’
and ‘C’ are note traceable. ‘D’ wants to recover the entire amount from ‘A’. ‘A’ objected this
move by saying he is liable to pay 1 / 3rd of the debt only. Which of the following statement(s)
is correct?
(a) ‘D’ can recover the entire amount from (c) ‘D’ cannot recover any amount from
‘A’ ‘A’
(b) ‘D’ can only recover 1/3rd of Rs. (d) the promissory note is not executable
2,00,000 from ‘A’ against ‘A’ as ‘B’ and ‘C’ are not traceable.
CHAPTER-9 BREACH OF CONTRACT
CONTENTS :-
2. DAMAGES IN CASE OF BREACH OF CONTRACT
3. HOW TO CALCULATE THE DAMAGE
4. REMEDIES FOR BREACH OF CONTRACT
__________________________________________________________________________
i. Normal Compensation for any loss or damage which arises naturally in the normal course
Damages of events. Ordinary damages are calculated by measuring the difference between
the contract price and market price on the date of breach.
ii. Special Where party to a contract receives a notice of special circumstances affecting the
Damages contract, he will also liable for special damages.
(iv)Nominal These damages are awarded where the plaintiff has proved that there has been
Damages breach of contract but he has not in fact suffered any real damage.
These damages are awarded just to establish right to decree for breach of contract.
The amount may be a rupee or even 10 paise. Amount of damages depends upon
loss of credit & reputation suffered on that A/c
(v) Damages for Damages can be recovered from the carrier even without notice.
deterioration to “Deterioration” not only implies physical damages but also loss of special
goods caused by opportunity for sale.
delay
3. HOW TO CALCULATE THE DAMAGE

 Breach by buyer Damage = Contract price - Market price at the date of breach
 Breach by seller Damage = Market price at the date of Breach - Contract price
4. REMEDIES FOR BREACH OF CONTRACT

(i) Rescission of Discharge from his own obligations
Contract Entitled to compensation for damages suffered
(ii) Suit upon Quantum Meruit  “As much as is earned” Or “According to the quantity of
Quantum Meruit work done”
When the person has begun the work and before he could complete it, the other party terminates the
contract or does something which make it impossible for the other party to complete the contract, he
can claim for the work done under contract.
He may also recover the value of work done when further performance of contract become
impossible.
Suit for Quantum Meruit arise in three cases:–
A. Work done and accepted under void contract.
B. Act done or something delivered non-gratuitously, the person who enjoys the benefit must pay
for it.
C. Divisible Contract: - One part performed & refuses to perform other part. Party in default may
sue other party who has enjoyed the benefit of past performance.
(iii) Suit for Where damages are not an adequate remedy in case of breach of contract, the
specific court may in its discretion on a suit for specific performance direct party in
performance breach, to carry out his promise according to the terms of contract.
(iv) Suit for Where a party to a contract is negativating the terms of contract, the court may
Injunction -be issuing an ‘injunction order’ restrain him from doing what he promised not
to do.
DM QUESTION BANK
CHAPTER – 9
1. A, B and C jointly promised to pay Rs. 60,000 /- to D. Before performance of the contract, C
dies, here, the contract:
(a) becomes void on C’s death (c) should be performed by A and B
(b) should e performed by A and B along alone
with C’s legal representatives (d) should be renewed between A, B and
D.
2. A contract is discharged by novation which means the

(a) cancellation of the existing contract (c) substitution of existing contract by a
(b) change in one or more terms of the new one
contract (d) none of these.
3. A agrees to pay Rs. 1 lakh to B if he brings on earth a star from sky. This is a / an:
(a) illegal agreement (c) voidable contract
(b) valid contract (d) void agreement.
4. When after the formation of valid contract, an even happens which makes the performance of
contract impossible, then the contract becomes:
(a) Void (c) valid
(b) Voidable (d) illegal.
5. An agreement to do an act impossible in itself:

(a) is void (c) is illegal
(b) is voidable (d) becomes void when impossibility is
discovered.
6. An agreement to discover treasure by magic is void on grounds of:

(a) initial impossibility (c) lack of consideration
(b) subsequent impossibility (d) supervening impossibility.
7. A agrees to pay B Rs. 50 lakhs, if B files on a horse to the moon. The agreement is:
(a) Void (c) enforceable
(b) Voidable (d) illegal.
8. When performance of a promise becomes impossible or unlawful, the cotract:

(a) becomes void when the act becomes (c) neither becomes void nor voidable
impossible or unlawful (d) is valid.
(b) is voidable when the performance
becomes impossible
9. A contract is not frustrated by commercial impossibility

(a) True (b) false.
10. Where a contract could not be performed because of the default by a third person on whose
work the promisor relied, it:
(a) is not discharged (c) becomes void
(b) is discharged (d) becomes voidable.
11. A entered into a contract with B for supply of certain things manufactured by C, C did not
manufacture those goods. In this case:
(a) A is not discharged (c) Contract becomes void
(b) A is discharged (d) Contract becomes voidable.
12. K contracts with M to perform regularly for a period of two months at M’s theatre. K falls ill
and could not perform. The contract:
(a) is valid (c) becomes void
(b) is void-ab-initio (d) is voidable at M’s option.
13. A musical hall was agreed to be let out on certain dates, but before those dates the hall was
destroyed by fire. The contract becomes void on the ground of:
(a) impossibility of performance (c) unlawful consideration
(b) illegality of object (d) all of the above.
14. When war is declared between two countries subsequent to making of contract, parties would
be:
(a) liable for criminal action (c) exonerated from performance of the
(b) liable under the contract contract
(d) exonerated from criminal liabilities.
15. When the contract is made for several purposes, failure of one of them:
(a) terminates the entire contract (c) makes the contract voidable.
(b) does not terminate the entire contract
16. A agreed to let out a boat to H to: (i) view the naval review at the king’s coronation and (ii)
to cruise round the fleet. Owing to the king’s illness, the naval review was cancelled, but the
fleet assembled and the boat could have been used to cruise round fleet. In this case:
(a) contract is discharged due to subsequent (c) contract is illegal.
impossibility (d) Contract becomes void.
(b) contract is no discharged
17. A agreed to supply certain goods to B. As a result of an increase in raw material and labour
costs, it is no longer profitable for A to supply them at the agreed rate. In this case:
(a) contract becomes void (c) A cannot be excused for non-
(b) contract is discharged performance
(d) A can be excused for non-
performance.
18. A contract is discharged by rescission which means the:

(a) change in one or more terms of the (c) abandonment of rights by a party
contract (d) cancellation of the existing contract.
(b) acceptance of lesser performance
19. When prior to the due date of performance, the promisor absolutely refuses to perform the
contract, it is known as:
(a) abandonment of contract (c) actual breach of contract
(b) remission of contract (d) anticipatory breach of contract.
20. In case of anticipatory breach, the aggrieved party may treat the contract:
(a) as discharged and bring an immediate (c) exercise option either (a) or (b)
action for damages (d) only option (a) is available.
(b) as operative and wait till the time for
performance arrives
21. In case of breach of contract, which of the following remedy is available to the aggrieved
party:
(a) suit for rescission (c) suit for specific performance
(b) suit for damages (d) all of these
22. Sometimes, a party is entitled to claim compensation in proportion to the work done by him.
It is possible by a suit for:
(a) Damages (c) quantum merit
(b) Injunction (d) none of these.
23. Generally, the following damages are not awarded:

(a) ordinary damages (c) remote damages
(b) special damages (d) nominal damages.
24. A party entitled to rescind the contract, loses the remedy where:
(a) he has ratified the contract (c) contract is not separable and
(b) third party has acquired right in good rescission is sought of a party only
faith (d) all of these.
25. The special damages, i.e., the damages which arise due to unusual circumstances:
(a) are not recoverable altogether (c) can be claimed as a matter o right
(b) are illegal being punitive in nature (d) can be claimed only if the same were
made known at the time of contract.
26. Which of the following statements is incorrect?

(a) ordinary damages are recoverable (c) remote or indirect damages are not
(b) special damage are recoverable only if the recoverable
parties knew about them (d) none of these statements is correct.
27. M a popular singer, enters into a contract with the manager of a theatre, to sing at the theatre
two evening a week for the next two months and the manager of the theatre agrees to pay
him at the rate of Rs. 5,000 for each performance. From the sixth evening onwards, M
absents himself from the theatre. In this context, which of the following remedies is / are
available to the manager of the theatre against M?
(a) he is at liberty to put an end to the (c) he is entitled to compensation for the
contract damage sustained by him through M on his
(b) he cannot put an end to the contract failure to sing from the sixth evening onwards
(d) both (a) and (c).
CHAPTER-10 CONTINGENT & QUASI CONTRACT
CONTENTS :-
(1)
CONTINGENT CONTRACT
(2)
ESSENTIAL ELEMENTS OF A CONTINGENT CONTRACT
(3)
RULES RELATING TO ENFORCEMENT
(4)
QUASICONTRACTS
(5)
SALIENT FEATURES OF A QUASI CONTRACT
(6)
TYPES OF QUASI CONTACT
(7)
DIFFERENCE BETWEEN WAGERING AGREEMENT & QUASI
CONTRACT
______________________________________________________________________________
1. CONTINGENT CONTRACT [Section 31]

Contingent contract is a contract to do or not to do something, if some event colletral to such
contract, does or does not happen.
E.g. – Contract of Insurance
2. ESSENTIAL ELEMENTS OF A CONTINGENT CONTRACT

The performance of a contingent contract is made dependent upon happening or non-happening
of some event.
Event on which performance is made to depend, is an event colletral to the contract i.e. it does not
form part of reciprocal promises which constitute the contract.
The contingent event should not be the mere will of the promisor.
E.g. – A promise to pay Rs. 10,000, if he so chose, is not a contingent contract.
3. RULES RELATING TO ENFORCEMENT

Contract contingent upon Where a contingent contract is made to do or not to do anything if
happening of an event uncertain future event happens, it cannot be enforced by law unless
(Section 32) and until that event has happened. If event becomes impossible such
contracts become void.
Contract contingent upon Where a contingent contract is made to do or not to do anything if
non-happening of an event any uncertain future event does not happen it can be enforced only
(Section 33) the happening of that event becomes impossible and not before. If
such event becomes happened, such contracts become void.
Contract contingent upon Event shall have considered to become impossible when such person
future conduct of a living does anything which renders it impossible that he should act within
person (Section 34) any definite time or other than under further contingencies.
Contract contingent upon It becomes void if at the expiry of fixed time, such event has not
specified event happening happened, or if before the time fixed, such event becomes
within fixed time(Section impossible.
35)
Contract contingent upon It may be enforced by law when the time fixed has expired and such
specified event not event has not happened or before the time expired, if it becomes
happening within fixed certain that such event will not happen.
time(Section 35)
Agreement contingent on A contingent agreement to do or not to do anything, if an impossible
impossible event (Section event happens is void The impossibility of an event may or may not
36) be known to the parties to the agreement at the time when they
entered into it.
4. QUASI CONTRACTS
Quasi contracts are based on principle of equity, justice and good conscience.
In the case of Quasi contracts, the promisor voluntarily undertakes an obligation in
favour of the promisee, or
Obligation may be imposed by law upon a person for the benefit of another even in the
absence of contract.
5. SALIENT FEATURES OF QUASI CONTRACTS

It does not arise from any agreement of the parties concerned, but it is imposed by law,
and
It is a right which is available not against the entire world, but against a particular
person/s only.
6. TYPES OF QUASI CONTRACTS

Claim for necessaries supplied to a person incapable of contracting, the supplier is entitled to
claim their price from the property of such a person. E.g. – Minor,
Person of unsound mind.
Right to recover A person who has paid a sum of money which another is obliged to pay,
money paid for is entitled to be reimbursed by that other person provided that payment
another has been made by him to protect his own interest.
Obligation of a (a) Where a person lawfully does anything for another person or
person enjoying the delivers anything to him.
benefit of non- (b) Not intending to do so gratuitously and
gratuitous act (c) Such other person enjoys the benefit thereof, the latter is bound to
make compensation to the former in respect of, or to restore, the
things so done or delivered.
Responsibility of A person who finds goods belonging to another and takes them into his
Finder of goods custody is subject to same responsibility as a bailee.
* To take proper care
* Not use it for personal purposes
* Restore it to true owner, if owner is traced
Liability for money A person to whom money has been paid or anything delivered by
paid or thing mistake or under coercion must repay or return it.
delivered by mistake
or under coercion
7. Wagering Agreement Contingent Contract

1. It is a promise to give money or It is a contract to do or not to do something if
money’s worth upon the determination or some event collateral to such contract does or
ascertainment of an uncertain event. does not happen.
2. In a wagering agreement the In a contingent contract, the event is only
uncertain event is the sole determining colletral.
factor.
3. It is essentially of a contingent nature. It may not be of wagering nature.
4. Void Valid
5. Parties have no other interested in the It is not so in this case both parties have interested
subject matter of the agreement except in the subject matter of the contract.
the winning or losing of the amount of
wager. It is a game of chance.
DM QUESTION BANK
CHAPTER – 10
1. A contract dependent on the happening or non-happening of future uncertain event is a:
(a) uncertain contract (c) void contract
(b) contingent contract (d) voidable contract.
2. A contingent contract is:

(a) void (c) valid
3. A contingent contract dependent on the happening of future uncertain event can be enforced when
that event:
(a) happens (c) does not happen
(b) becomes impossible (d) either of these.
4. A contingent contract dependent on the non-happening of a future uncertain event within a fixed
time becomes void when such event:
(a) happens (c) does not happen within a fixed time
(b) does not become impossible (d) both (a) and (b).
5. A agrees to pay Rs. 1,000 to B if a certain ship returns within a year. However, the ship sinks
within the year. In this case, the contract becomes:
6. A contingent contract dependent on the non-happening of specified uncertain event within fixed
time can be enforced if the event:
(a) does not happen within fixed time (c) happens within the fixed time
(b) becomes impossible before the expiry (d) both (a) and (b).
of fixed time
7. The basis of ‘quasi contractual relations’ is the:

(a) existence of a valid contract between (c) provisions contained in Section 10 of the
the parties Contract Act
(b) prevention of unjust enrichment at the (d) Existence of voidable contract between the
expense of others parties.
8. Sometimes, a person finds certain goods belonging to some other person. In such a case, the
finder:
(a) becomes the owner of the goods and (c) can sell the perishable goods if true owner
can use them cannot be found
(b) is under a duty to trace the true owner (d) both (b) and (c).
and return the goods
9. Implied contract, even if not in writing or express words, is perfectly _______ if other conditions
are satisfied.
INDIAN PARTNERSHIP ACT , 1932
CHAPTER-1 GENERAL NATURE OF PARTNERSHIP
CONTENTS :-
1 1. PARTNERSHIP
2 2. ESSENTIAL ELEMENTS OF PARTNERSHIP
3 3. TRUE TEST OF PARTNERSHIP
4 4. PARTNERSHIP Vs. JOINT STOCK COMPANY
5 5. PARTNERSHIP Vs. CLUB
6 6. PARTNERSHIP Vs. HUF
7 7. PARTNERSHIP Vs. COOWNERSHIP
8 8. TYPES OF PARTNERS
9 9. MINOR’S POSITION IN PARTNERSHIP
10
1. PARTNERSHIP [Section 4]
Partnership is the relation between persons who have agreed to share the profits of a business
carried on by all or any one of them acting for all.
PARTNER, FIRM & FIRM NAME :- Persons who have entered into partnership with one
another are individually called partners and collectively a firm and the name under which their
business is carried on is called firm name.
2. ESSENTIAL ELEMENTS OF PARTNERSHIP

1.Two or more persons There should be at least two or more persons to form a partnership.
3. Business There must be business. The term business includes every trade,
occupation & profession. The business must be lawful.
e.g. When two persons owned a building & jointly share the amount of
rent. There is no partnership because there is no business.
4. Sharing of profits Unless otherwise agreed, Sharing of profits implies sharing of losses as
well. However, a person may become a partner in profits only.
5. Mutual agency Business must be carried on by all partners or any one of the partners’
who is acting for all.
Every partner is the principal as well as agent of each other . he can bind
the other partners for all the acts done by him and is bound by the acts of
other partners as well.
6.Maximum number The Partnership Act does not mention any thing about the maximum
of partners number of persons who can be partners in a partnership firm, but Section
11 of the Companies Act, 1956 lays down the maximum limit of
partners.
3. TRUE TEST OF PARTNERSHIP

Sharing of profits is not the true test of partnership. Sharing of profits with the
following persons does not make them partner:–
A money lender or
A servant (manager of a firm) or agent as his remuneration or
Widow or child of a deceased partner or
A previous owner of part of the business as the consideration for the sale of goodwill or
share thereof.
Existence of Mutual Agency which is cardinal principle of partnership law, is the true
test of partnership.
4. PARTNERSHIP V. JOINT STOCK COMPANY

COMPANY
A company is an artificial person, which is a separate legal entity created by law
having a perpetual succession & a common seal.
Partnership vs. Joint Stock Company
S. No. Basis Partnership Joint Stock Company
1. Personality No legal personality. A company is a separate legal
entity.
2. Agency Every partner is an agent of A member is not an agent of
other partners as well as firm. other members or company.
3. Distribution of Compulsory according to No compulsion.
profits partnership deed.
4. Extent of Unlimited. Company limited by shares
liability limited to the amount unpaid on
shares held by member.
5. Property The property of the firm is the The property of the company
joint estate of all the partners. belongs to the company not to its
members.
6. Transfer of A share in a partnership cannot Shares are transferable subject to
shares be transferred without the provision contained in articles.
consent of all partners.
7. Management All partners. Separation of management from
ownership, management by
Board of Directors.
8. Maximum no. of Firm Company
membership Banking 10 Private Ltd. 50
Ordinary 20 Public Ltd. 
9. Minimum no. of Firm 2 Private Co. - 2

Membership Public Co. - 7
10. Regulating Act Indian Partnership Act, 1932 Companies Act, 1956
11. Registration Voluntarily Compulsory
12. Audit No legal necessity Legal requirement under
Companies Act.
5. PARTNERSHIP Vs. CLUB

CLUB
A club is an association of persons formed with the object not for earning profits but of
promoting some beneficial purposes such as improvement of health or providing recreation
for the members etc.
5. Partnership vs. Club

Basis Partnership Club
1. Objective To earn profits. To promote some beneficial purpose.
2. Agency A partner is an agent of other A member of a club is not an agent of other
partners as well as firm. members or club.
3. Property A partner is having an interest in A member of a club has no interest in
property of the firm. property of the club.
6. PARTNERSHIP Vs. HINDU UNDIVIDED FAMILY

S. No. Basis Partnership HUF
1. Creation By agreement By status means by birth in the
Hindu family.
2. Death Death of a partner ordinary leads
Death of a member does not affect
to dissolution of partnership.family business.
3. Management Partners Karta
4. Liability Unlimited Karta  Unlimited
Other Only to the extent
family  of their share in
members family business
5. Authority to Every partner can by his act bind Karta has authority to contract for
bind the firm the firm. family business.
6. Continuity Firm is dissolved on death or HUF has continuity till it is divided.
insolvency of a partner.
7. Governing Partnership Act, 1932 Hindu law
law
8. Calling for Partner can bring a suit against On separation of HUF a member is
A/cs the firm for A/c’s provided he not entitled to ask for A/c of the
also seals for dissolution of the family business.
firm.
9. Minor’s Minor cannot become a partner Minor becomes a member by
capacity though he can be admitted to the incidence of birth.
benefits of the partnership with
the consent of all partners.
7. PARTNERSHIP Vs. CO-OWNERSHIP

S.No.& Basis Partnership Co-ownership
1. Creation By contract By agreement or
Operation of law
2. Sharing of Yes No,
profits & not necessary
losses
3. Agency Partners are agents of each A coowner is not an agent of other coowner.
other
4. Transfer A partner can transfer his share A co-owner may transfer his interest or
of shares only with the consent of all rights in property without the consent of
other partners other coowners.
5. Business There must be a business. It may exist without any business.
8. TYPES OF PARTNERS
1. 3. 5.
Active Nominal Sub
Partner Partner Partnership
*Take active participation in A person who lends his name to the Partnership between partner
conduct of partnership firm, without having any real and stranger
business. interest.
*Public notice of the time of Partner by
retirement. 4. holding
6. Partner in
out
or profits only
2.
Sleeping Partner by
estoppel A person may become a
Partner partner in profits only.
(Dormant) Anyone who by words spoken or
* Do not take part in written or by conduct represents
conduct of partnership himself or knowingly permits
business himself to be represented, to be a
* No public notice at the partners in a firm, is liable as a
time of retirement. partner in that firm to anyone who
has on the faith of any such
representation given credit to the
firm.
9. MINOR’S POSITION IN PARTNERSHIP
A minor cannot become partner of a firm because he is incompetent to contract but he can be
admitted to the benefits of firm with the consent of all partners.
Minor has a right to agreed share of profits.
He has a right to have access to, inspect & copy accounts of the firm.
Right to sue partners for accounts or for payment of his share but only when severing
his connection with the firm.
A public notice is required to be given within 6 months of, attaining majority or having
knowledge of the fact that he is a partner in a firm, whichever is later, whether he
elects to become a partner or not.
His share is not liable after the date of public notice.
If he elects to become a partner then no public notice is required to be given.
If he elects not to become a partner then public notice is required to be given.
If he fails to give public notice within 6 months, he shall be deemed to be partner of
the firm on expiry of 6 months.
If he becomes a partner then he shall be liable towards the debts of the firm
retrospectively. His share in property and profits of the firm shall remain same.
CHAPTER-2 RELATIONS OF PARTNERS
CONTENTS :-
1. RIGHTS OF PARTNERS
2. TYPES OF PARTNERSHIP
3. DUTIES OF PARTNERS
4. PARTNERSHIP PROPERTY
5. IMPLIED AUTHORITY OF A PARTNER. ACTS BEYOND IMPLIED
AUTHORITY
6. LIABILITY TO THIRD PARTIES
7. EXPULSION OF A PARTNER
1. RIGHTS OF PARTNERS
Right to take part in conduct of the business.
Right to be consulted
Right to have access to, inspect & copy books of the firm.
Right to share profits equally if there is no agreement otherwise.
Interest on capital  Not allowed. But if otherwise partnership agreement provides for
the payment of interest on capital, it shall be payable only out of profits.
Interest on advances given by partner to firm will be paid at the rate agreed, if there is no
agreement to this effect, interest is allowed @ 6% per annum.
Right to be indemnified by the firm in respect of all expenses and liabilities incurred by
him in the ordinary and proper conduct of business.
Right to Remuneration – No remuneration allowed except there is an express
agreement.
Right to stop admission of a new partner.
Right to retire with the consent of all other partners. Where partnership is at will, by
giving notice to that effect to all other partners.
Right not to be expelled from the firm by any majority of the partners.
Right of outgoing partner to carry on competing business.
Right of outgoing partner to share subsequent profits – the retiring partner or legal
representatives of deceased partners has option to share of profits or to interest @ 6%
p.a. on the amount of his share in property of the firm.
Right to dissolve the firm – With the consent of all partners. Where partnership is at will,
the firm may be dissolved by any partners giving notice in writing to all other partners of
his intention to dissolve the firm.
Right in emergency – A partner has right to bind the firm for acts done in emergency as
are reasonably necessary for protecting the firm from loss. Provided he has acted in the
same manner as a man of ordinary prudence would have acted in the like circumstances.
2.
Types of Partnership
Partners (b) Particular

hip at Partnership
will
(a) PARTNERSHIP AT WILL (b) PARTICULAR PARTNERSHIP
Where no provision is made by contract between A person may become a partner with another
the partners for the duration of their partnership or person in particular adventure or undertaking.
for the determination of their Such partnership is called “particular
partnership ,“Partnership is at will” partnership”
3. DUTIES OF PARTNERS
Duty to carry on the business of the firm to the greatest common advantage.
Duty to account for profits earned –
A. From any transaction of the firm or B. From the use of firm’s property or
C. Business connection of the firm or D. Firm’s name.
Duty not to carry on competing business to that of partnership firm.
A. If carries on, must account for and B. Firm will not be liable for any loss
pay the firm all profits made. arising under competing business.
Duty to be just and faithful to each other.
Duty to render true accounts and full information of all things affecting the firm to
any partner or his legal representatives.
Duty to indemnify the firm for any damage caused to it by reason of his fraud in
conduct of firm’s business.
Duty to attend diligently his duties relating to conduct of firm’s business.
Duty not to claim remuneration:- Remuneration may be allowed to working partners
provided there is specific agreement to that effect.
Duty to contribute equally to the loss sustained by the firm, unless otherwise agreed.
Duty to indemnify the firm for any loss caused to it by willful neglect in the conduct
of business of the firm.
5. IMPLIED AUTHORITY OF A PARTNER

Authority means capacity of the partner to bind the firm, this capacity may be:
Express authority  By express agreement between the
Implied authority  Authority presumed

IMPLIED AUTHORITY
An act of a partner done in a usual way for the business of the firm binds the firm provided the
act is done in the name or any manner expressing or implying an intention to bind the firm such
an authority of a partner to bind the firm is called implied authority.
 ACTS BEYOND IMPLIED AUTHORITY (Section 19)
(a) Submission of dispute relating to firm’s business for arbitration as it is not the ordinary
business of partnership firm to enter into submission for arbitration.
(b) Compromise or relinquish any claim or portion of a claim by the firm against an
outsider.
(c) Withdraw a suit or proceedings filed on behalf of the firm.
(d) Admit any liability in a suit or proceeding against the firm.
(e) Acquire immovable property on behalf of firm.
(f) Transfer immovable property belonging to the firm.
(g) Opening a bank account on behalf of the firm in his own name.
(h) Enter into partnership on behalf of the firm.
6. LIABILITY TO THIRD PARTIES
Contractual liability
Liability for tort or wrongful act
Liability for misapplication of money received by a partner from a third party
In all these cases, all the partners as well as firm are liable to third parties.
7. EXPULSION OF A PARTNER
A partner may not be expelled from a firm by a majority of partners.
Exception – A partner may be expelled when:
1. Power of expulsion existed in a contract between the partners.
2. Power has been exercised by majority of the partners and
3. Power has been exercised in –
 If a partner is otherwise expelled, such expulsion is null and void.

CHAPTER- 3 REGISTRATION AND DISSOLUTION OF A FIRM
CONTENTS: -
1. REGISTRATION OF A FIRM
2. DISSOLUTION OF FIRM
3. CONSEQUENCES OF DISSOLUTION
1. REGISTRATION OF A FIRM
 Mode of effecting Registration
By post
By hand delivery
 To the registrar of the area in which any place of business of a firm is situated or proposed
to be situated.
 A statement in prescribed form along with prescribed fee stating –
Name of the firm
Principal place of business
Names of other places of business
Date of joining of each partner
Name in full and permanent addresses of partners &
Duration of the firm
 Signed by all the partners or their agents specially authorized for this purpose.
 Registration when complete – When registrar is satisfied that all the provisions related
to registration have been duly complied with, he shall record an entry of the statement in a
register called the register of firms and shall file the statement. Then he shall issue a
certificate of registration.
 However, registration is deemed to be complete as soon as an application in prescribed
form with prescribed fees and necessary details concerning the particular of partnership is
delivered to the registrar.
Q. IS REGISTRATION OF FIRMS’ COMPULSORY?
Ans. No, Registration of firms is not compulsory. But as a consequence of non-registration,
following disabilities are to be faced by partnership firms –
DISABILITIES
1. No suit against The firm or any other person on its behalf cannot bring an action
third party against a third party for breach of contract entered into by him.
2. No set off of If an action is brought against the firm by a third party, then neither
more than Rs.100 the firm nor partner can claim any set off for a value more than Rs.
100 in a suit.
3. No action against A partner of an unregistered firm cannot bring legal action against the
firm firm or any other partner.
But such a person may sue for –
o Dissolution of firm or
o For accounts and realization of his share in the firm’s property where the firm is dissolved.
Note – Non-registration of a firm does not affect the right of third parties against the firm
or its partners.
2. DISSOLUTION OF FIRM
Dissolution of firm means discontinuation of the Jural relation existing between all the partners of
the firm.
Cases where dissolution of firm takes place –
By agreement between all the partners.
a. By insolvency of all the partners.
b. When business of the firm becoming unlawful.
c. By notice of dissolution by a partner where partnership is a will.
d. Subject to the agreement between the partners, on happening of following
contingencies –
Efflux of time
Completion of venture
Death of a partner
Insolvency of a partner
e. By intervention of court –
Partner becoming of unsound mind
Permanent incapacity of a partner
Misconduct of a partner affecting the business
Willful or persistent breaches of agreement by a partner
Transfer or sale of whole interest by a partner
Improbability of business being carried on save at a loss
On other equitable ground for dissolution as court may satisfies
3. CONSEQUENCES OF DISSOLUTION
(a) Contin Inspite of dissolution of the firm, partners continue to be liable for any
uing liability until act done by any of them, which would have been an act of the firm if
public notice done before the dissolution, until public notice is given of the
dissolution.
(b) Rights On dissolution of partnership, any partner or his representative shall
to enforce winding have right, against other partners –
up To have property of the firm applied in payment of the debts
of the firm and
To have the surplus distributed among the partners or their
representatives according to their respective rights.
(c) Author The authority of a partner to bind the firm & other mutual rights and
ity of partners obligations continue –
after dissolution Which are necessary to wind up the firm.
To complete the unfinished transactions pending at the date of
dissolution.
(d) Settlem i. Losses including deficiencies of capital are to be
ent of Partnership paid –
A/c’s (i) Out of profits, then
(ii) Out of capital, then
(iii) By partners individually in their profit sharing ratio
ii. Assets of the firm + Contributions by partners on
A/c of deficiencies of capital
must be applied in following order:–
(i) To pay debts of outsiders then
(ii) To pay partner’s loan then
(iii) To pay partner’s capital then
(iv) Balance will be shared in profit sharing ratio
4. Personal profits and till the firm is wound up, partners must A/c for, the profits from
earned after carrying on business of the firm, to the other partners.
dissolution
5. Return of In case of dissolution of partnership earlier than the period fixed for it,
premium on the partner paying premium is entitled to return of the premium as such
partnership’s part thereof as may be reasonable, regard being had to the terms of
premature agreement & to the length of time during which he was a partner, except
dissolution when partnership is dissolved:–
(Section 51) Due to death of one of the partners or
Mainly due to misconduct of the partner paying the premium
or
Pursuant to an agreement containing no provisions for the
return of the premium or any part thereof
MODE OF GIVING PUBLIC NOTICE (SECTION 72)

In every case where public notice of any manner in respect of partnership firm is required to be
given under this act, it must be given
By notification in the official Gazette, and
In at least one vernacular (local language) newspaper circulating n the
district where the firm to which it relates has its place or principal place of business.
In case of registered firms, in addition to above notification, a notice is also required to be
served on the Registrar of firms.
INDIAN PARTNERSHIP ACT, 1932
DM QUESTION BANK
1. The maximum number of partners is mentioned in:

(a) The Partnership Act (c) The Companies Act
(b) The General Clauses Act (d) The Societies Registration Act.
2. A firm is the name of:

(a) the partners (c) the business under which the firm
(b) the minors in the firm carries on business
(d) the collective name under which
partners carry on business.
3. In the absence of agreement to the contrary all partners are:

(a) not entitled to share profits (c) entitled to share in proportion to their
(b) entitled to share in capital ratio ages
(d) entitled to share profits equally.
4. A partnership at will is one:

(a) which does not have any deed (c) which can be terminated by a notice
(b) which does not have any partner from any partner
(d) which cannot be dissolved.
5. Each of the partner is _________

(a) principal as well as an agent (c) only representative of the firm
(b) only agent of the firm (d) only co-partner of the firm.
6. The Indian partnership act came into force on

(a) 1st October,1932 (c) 1st July, 1930
st
(b) 1 October,1933 (d) 1st September, 1932.
7. An unregistered firm cannot claim ________

(a) set on (c) set on and set off
(b) set off (d) none of the above.
8. Which of the following statements, about the registration of firm, is not true?
(a) it must be done at the time of its (c) it may be done before filing a suit
formation against third party
(b) it may be done at the time of formation (d) it may be done at any time after its
formation.
9. The registration of the firm is considered complete when

(a) application for registration complete in (c) Registrar gives notice of registration to
all respects is filed with the Registrar all partners
(b) Registrar files the statement and makes (d) Court records the statement and
entries in the Register of firms certifies the entries in the Register of
firms.
10. Which of the following is not disability of an unregistered firm?

(a) it cannot file a suit against third parties (c) it cannot claim a set-off exceeding Rs.
(b) its partners cannot files a suit against a 100
firm (d) it can be sued by a third party.
11. A and B have entered into a partnership agreement and the partnership deed provides
neither for the duration nor for the determination of partnership. What is the technical
expression for this kind o partnership?
(a) partnership for a fixed term (c) particular partnership
(b) partnership at will (d) any of these.
12. X and Y purchase 10,000 bags of cement, which they agree to sell for their joint account.
The relation between X and Y is:
(a) X and Y are partners (c) X and Y are co-ventures
(b) X and Y are only joint owners (d) None o these.
13. X agrees with Y who is goldsmith to buy and furnish gold to Y, to be worked up by him and
sold, and that they shall share in the resulting profit or loss. The contract between X and Y
is that of:
(a) partnership (c) contract for labour work
(b) association of goldsmith (d) contract for sale.
14. X and Y agree to work together as carpenters but X shall receive all profits and shall pay
wages to Y. The relation between X and Y is that:
(a) partners (c) labourers
(b) carpenters (d) master-servant.
15. The partnership relation exist when:

(a) joint owner of some property share (c) two friends A (age 19 years), B (17
profit or loss arising from the property years) decide to form a partnership
(b) a person receives a share of profit as a (d) A and B agreed to sell clothes for their
part of his remuneration joint account and share the profits.
16. The partnership firm becomes an illegal association, when:

(a) the number of partners in a banking (c) the number of partners in a banking
business exceeds 10 business exceeds 20
(b) the number of partners in a non- (d) none of these.
banking business exceeds 10
17. A partnership firm may be registered with:

(a) Registrar of Partners (c) Registrar of Companies
(b) Registrar of Firms (d) District Court.
18. In case of registered partnership firm;

(a) a partner cannot file a suit against the (c) the firm cannot file a suit against third
firm parties
(b) a partner cannot file a suit against any (d) All of the above.
partner of the firm
19. Active partner is one who:

(a) takes part in the business of the firm (c) actively shares the profits
(b) actively participates in co curricular (d) makes a show of authority.
activities
20. A partner can retire on _________

(a) reaching the age of superannuation (c) in accordance with the partnership deed
(b) on the balance in the capital account (d) on the condition of his nominee
reaching a certain amount becoming a partner.
21. A new partner can be admitted in the firm with the consent of:
(a) all the partners (c) special majority of partners
(b) simple majority of partners (d) new partner only.
22. A partner may retire from an existing firm:

(a) with consent of all partners (c) by written notice in case of partnership
(b) as per express agreement at will
23. ______ does take active part in conduct of the business.

(a) minor partner (c) active partner
(b) sub partner (d) partner by estoppel.
24. Which of the following statements is not true about minor’s position as a partner?
(a) he cannot become a full-fledged partner (c) he can be admitted only to the benefits
in a new firm of any existing firm.
(b) he can become a full-fledged partner in (d) He can become partner on becoming a
an existing firm major.
25. Every partner has the right to

(a) take part in the business of the firm (c) to use the property of the firm for
(b) to share exclusive profits personal purposes
(d) pay taxes.
26. A partner can be expelled if _______.

(a) such expulsion is in good faith (c) the expelled partner is given an
(b) the majority of the partner agree on opportunity to start a business competing
such expulsion with that of the firm
(d) compensation is paid.
27. On dissolution the partners remain liable till:

(a) accounts are settled (c) public notice is given
(b) partners dues are paid off (d) the registrar strikes off the name.
28. Which of following is not the right of a partner i.e., which he cannot claim as a matter of
right?
(a) right to take part in business (c) right to share profits
(b) right to have access to account books (d) right to receive remuneration.
29. Which of the following acts are not included in the implied authority of a partner?
(a) to buy or sell goods on accounts of (c) to enter into partnership on behalf of
partners firm
(b) to borrow money for the purposes of (d) to engage a lawyer to defend actions
firm against firm.
30. After retirement from firm, which of the following partners is not liable by holding out,
even if the public notice of retirement is not given?
(a) active partner (c) representatives of deceased partner
(b) sleeping partner (d) both (b) and (c)
31. Doctrine of implied authority of a partner applies to the;

(a) act of setting accounts with the person (c) act of admitting a liability in suit against
dealing with the firm the firm
(b) act of acquiring immovable property on (d) all of these.
behalf of the firm
32. Death of partner has the effect of:

(a) dissolving the partnership (c) her heirs joining the firm.
(b) its continuance of the business of the
firm
33. The reorganization of the firm takes place in case of:

(a) admission of a partner (c) expulsion or death of a partner
(b) retirement of a partner (d) all of the above.
34. A partnership firm is compulsorily dissolved where:

(a) all partners have become insolvent (c) the fixed term has expired
(b) firm’s business has become unlawful (d) in cases (a) and (b) only.
35. On which of the following grounds, a partner may apply to the court for dissolution of the
firm?
(a) insanity of a partner (c) perpetual losses in business
(b) misconduct of a partner (d) all of the above.
36. The decision in Garner vs. Murray requires that:

(a) all partner should bring in cash equal to (c) the solvent partners should bear the loss
their respective shares of the loss on arising due to insolvency of a partner in
realization their profit sharing ratio
(b) the solvent partners should bring in (d) the solvent partners should bear the loss
cash equal to their respective shares of arising due to insolvency of a partner in
the loss on realization. the ratio of their last agreed capitals.
37. A minor is:

(a) a partner of a firm (c) entitled to carry on the business of the
(b) representative of the firm firm
(d) entitled to the benefits of the firm.
38. The Partnership Act extends to

(a) Whole of India (c) Whole of India except Jammu and
(b) Whole of India except Jammu Kashmir
(d) Whole of India except Kashmir.
39. The term partnership has been defined in section
(a) 2 (c) 4
(b) 3 (d) 5.
40. Business means and include every

(a) Trade (c) Profession
(b) Occupation (d) All of these.
41. Partnership arises from

(a) Operation of law (c) Agreement
(b) Status (d) All of these.
42. The right of joint family is created by

(a) Operation of law (c) All of these
(b) Status (d) Agreement
43. Co-ownership arises from
(a) Operation of law (c) Agreement
(b) Mutual understanding (d) Both (a) and (c).
44. An agreement of partnership can be

(a) Oral or in writing (c) In writing only
(b) Express or implied (d) Both (a) and (b)
45. Partner can be

(a) Active partner (c) Nominal partner
(b) Sleeping partner (d) All of these.
46. The minimum number of persons required to form a partnership are

(a) 2 (c) 20
(b) 10 (d) 5.
47. The maximum numbers of persons who can form a partnership for carrying banking
business are
(a) 2 (c) 20
(b) 10 (d) No limit
48. The maximum numbers of persons who can form a partnership for carrying any business
other than banking business are
(a) 2 (c) 20
(b) 10 (d) No limit.
49. The partnership agreement may be

(a) In writing only (c)Express or implied
(b) Oral only (d) Only express.
50. A and B, agree to share the profit of business and the losses are to borne by A only. The
agreement is
(e)Void (g) Illegal
(f) Voidable (h) Valid.
51. A and B having a joint house, let is to C and share rent amongst themselves. They are
(a)Partner (c) Company
(b) Club (d) Co-owners.
52. When a partner of a firm agrees to share his profit with an outsider, it is
(a) Particular partnership (c) Sub partnership
(b) Partnership at will (d) None o these.
53. When a person become a partner with another for a particular adventure or undertaking,
this kind of partnership is called
(a) Particular partnership (c) Sub partnership
(b) Partnership at will (d) None of these.
54. Partnership at will has been defined under section

(a) 5 (c) 7
(b) 6 (d) 8.
55. When the partners carry on the business even after the expiry of agreed fixed period, it
becomes
(a) Partnership by will (c) Illegal association
(b) Particular partnership (d) None of these.
56. Persons who have entered into partnership with one another are individually called
(a) Firm (c) Firm’s name
(b) Partners (d) None of these.
57. A person who lends his name to the firm without having any real interest in the firm, is a
(a) Active partner (b) Dormant partner
58. The rights of management in case of Hindu undivided family vests in

(a) Karta (c) All members
(b) All male members (d) All members except minor
59. A person who does not take active part in the conduct of business, is a
(a) Active partner (c) Partner by holding out
(b) Dormant partner (d) Ostensible partner
60. A person who is given share by a partner is a

(a) Active partner (c) Partner by holding out
(b) Dormant partner (d) Sub partner
61. Partner by holding out is also known as

(a) Active partner (c) Nominal partner
(b) Dormant partner (d) Partner by estoppels.
62. The term business has been defined under

(a) Section 2 (a) (c) Section 2 (c)
(b) Section 2 (b) (d) Section 2 (d).
63. For a valid partnership, there must be

(a) Sharing of profits (c) Both (a) and (b)
(b) Sharing of losse (d) None of these.
64. The liability of minor admitted to the benefit of partnership is

(a) Limited only to the extent of his share in (c) No liability
profits and property (d) Unlimited liability.
(b) Similar to that of any other partner
65. A partner who has not entered into partnership, but represent himself a partner is
(a) Sleeping partner (c) Partner by estoppel
(b) Dormant partner (d) Sub partner
66. Which of the following can enter into contract of partnership?

(a) Business firm (c) Member of registered Company
(b) Alien enemy (d) Person of unsound mind.
67. A new partner is liable for

(a) Acts of the firm before becoming partner (c) Acts of the firm after becoming partner.
(b) Before or after he ceases to be partner
68. Expulsion of a partner is dealt with under Section
(a) 30 (c) 32
(b) 31 (d) 33.
69. In case of partnership at will, retiring partner has to give notice to the
(a) Working partner (c) All the partners
(b) Managing partner (d) None of these.
70. Firm will identify the partner in respect o expenses incurred in

(a) Protecting the firm in emergency (c) Both (a) and (b)
(b) Ordinary course of business (d) None of these.
71. Retirement of existing partner result in

(a) Dissolving the partnership (c) Both (a) and (b)
(b) Dissolution of firm (d) None of these.
72. Which of these acts falls within implied authority?

(a) Hiring solicitors to defend actions against (c) Compromise or relinquish any claim of
the firm the firm
(b) Withdraw any suit or proceeding filed on (d) All of these.
behalf of the firm.
73. Which of these acts does not fall within the implied authority?
(a) Sale of goods of the firm (c) Withdraw any suit or proceeding filed on
(b) Receiving payment of debt due to a firm behalf of the firm.
(d) All of these.
74. Partner can transfer his interest

(a) Absolutely (c) By creating a charge on such interest
(b) By mortgage (d) All of these.
75. In case of transfer of interest by a partner, transferee can

(a) Interfere in the conduct of the business (c) Inspect the books of the firm
(b) Require accounts (d) Receive share of profit of the transferring
partner.
76. If public notice of retirement is not given, which of the following partners will not be
liable by holding out?
(a) Active partner (c) Representative of deceased partner
(b) Sleeping partner (d) Both (b) and (c).
77. Acts of the partner which is within his implied authority binds the firm, except in case of
(a) Fraud (c) Third party is aware of the restriction
(b) Willful neglect (d) Misrepresentation.
78. For acts of the firm done after the death of partner, his estate is
(a) Not liable (c) May be liable
(b) Liable (d) None of these.
79. A change in the nature of business can be made with the

(a) Consent of all the partners (c) Active partners
(b) Majority of partners (d) Managing partners.
80. The implied authority of a partner by a contract can be
(a) Restricted (a) Either (a) or (b)
(b) Extended (b) Only restricted.
81. A partner can be expelled from the firm, if such expulsion is in

(a) Good faith (a) Is as given in the contract.
(b) Exercised by majority by partners (b) All of these.
82. Interest on advances made by partner to the firm are payable at

(a) 6% Per annum (c) 12% Per annum
(b) 10% Per annum (d) 15% Per annum.
83. If any loss is caused to the firm, due to fraud committed by any partner in the conduct of
the business, he shall indemnify the
(a) Firm (c) Working partner
(b) Other partners (d) None of these.
84. Where a partner is entitled to interest on capital contribution, the interest shall be paid out
of
(a) Capital (c) Either (a) or (b)
(b) Profits (d) None o these.
85. Good faith for expulsion includes

(a) Expulsion must be in the interest of (c) Expelled partner is given an opportunity
partnership of being heard
(b) The partner to be expelled is served a (d) All of these.
notice
86. A partner can transfer his share

(a) Wholly (c) Either (a) or (b)
(b) Partially (d) Cannot transfer.
87. A share in a partnership can be transferred like

(a) Goods (c) Investment
(b) Property (d) All of these.
88. Liability of partner is

(a) Joint (c) Both (a) and (b)
(b) Several (d) None of these.
89. Introduction of new partner is dealt with under Section

(a) 30 (c) 32
(b) 31 (d) 33.
90. The liability for holding out can be incurred by

(a) Minor (c) Either (a) or (b)
(b) Major (d)Both (a) and (b).
91. An action for indemnity against the partner can be brought by

(a) The firm (c) Either (a) or (b)
(b) Partner (d) None of these.
92. Any notice to a partner operates as a notice to the firm if
(a) It is given to the working partner (c) Both (a) and (b)
(b) It relates to affairs of the firm (d) None of these.
93. Unless agreed otherwise, if a partner in a firm is adjudicated as insolvent

(a) Firm is automatically dissolved (c) Firm become an illegal association
(b) Firm is not automatically dissolved (d) (a) and (c)
94. An outgoing partner cannot

(a) Use the name of the firm (c) Represent him as carrying on business of
(b) Solicit customers of the firm the firm
(d) All of these.
95. On the retirement of the transferring partner, the transferee will be entitled
(a) To interfere in the conduct of the (c) Inspect the books of the firm
business (d) To receive the share of assets of the firm
(b) Require accounts to which transferring partner was entitled
96. Implied authority means the capacity of the partner to bind

(a) Third party (c) Legal representative
(b) Firm (d) None of these.
97. If money received by the firm from third party is misapplied by the partner
(a) Firm is liable (c) Defaulting partner is liable
(b) Firm is not liable (d) None of these.
98. Registration of the partnership firm is

(a) Compulsory (c) Occasional
(b) Optional (d) None of these.
99. Registration of the firm is required to be done at the time of formation

(a) True (c) Partly true
(b) False (d) None of these.
100. In the case of nonregistered firm, which of the following is not a disability?
(a) A partner can file a suit against the firm (c) A partner can file a suit against other
(b) The firm can file suit against the third partners
parties (d) Firm can be sued by a third party.
101. The application for the registration of the firm should be filed with the Registrar of Firms
of that area
(a) Where working partner resides (c) Where place of business of firm is
(b) As agreed by the partners situated or proposed to be situated
(d) All of these.
102. For unregistered firm, there is a

(a) Penalty on partners (c) Both (a) and (b)
(b) Penalty on firm (d) No penalty, but certain disabilities.
103. Application for registration of firm should be signed by

(a) All the partners (c) All working partners
(b) Authorized agents of the partners (d) Either (a) or (b).
104. registration of firm is dealt with under Section
(a) 57 (c) 59
(b) 58 (d) 60
105. If the assets of the firm are not sufficient to meet the debts, the deficiency is to shared by
partner in
(a) Profit sharing ratio (c) Equally
(b) Capital ratio (d) None of these.
106. Registrar shall before making an entry of the statement in the register of firms, shall be
satisfied about the provisions of section
(a) 57 (c) 59
(b) 58 (d) 60.
107. In the case of unregistered firm, partner can file a suit for
(a) Dissolution of the firm (c) Realizing of property of dissolved firm
(b) Settlements of accounts of dissolved firm (d) All of these.
108. Subject to an agreement between parties, partnership firm is dissolved

(a) On efflux of time (c) Insolvency of partner
(b) Death of partner (d) All of these.
109. A firm can be dissolved by court in case of

(a) Partner becoming of unsound mind (c) Misconduct of partner affecting business
(b) Permanent incapacity of partner (d) All of these.
110. A firm can be dissolved by court in case of

(a) Willful breach of agreement by partner (c) Chances that business cannot be carried
(b) Transfer or Sale of whole interest of except at loss
partner (d) All of these.
111. Losses including deficiency of capital shall be first paid out of

(a) Profits (c) Partners in their profit sharing ratio
(b) Capitals (d) Any of these.
112. Losses including deficiency of capital shall be paid in the order of

1.Profits 2. Capital 3. Partners in their profit sharing ratio
(a) 1, 2, 3 (c) 3, 2, 1
(b) 2, 3, 1 (d) 3,1, 2.
113. Firm’s assets shall first be applied in

(a) Debts of third parties (c) Advances made by partners
(b) Capital contributed by partner (d) Residue in profit sharing ratio among
partners.
114. Firms assets shall be applied in the following order

1. Debts of third parties 2. Capital Contributed by partner 3. Advances made by partners
(a) 1, 2, 3 (c) 3, 2, 1
(b) 1, 3, 2 (d) 2, 1, 3.
115. A partner’s separate assets shall be applied first to the payment of

(a) Debts of firms (c) His separate debts
(b) Debt of other partners (d) None of these.
116. A public notice is not required to be given in the case of

(a) Retirement of partner (c) Insolvency of partner
(b) Expulsion of partner (d) Dissolution of firm.
117. Premium has not to returned in the case of premature dissolution, if dissolution
(a) Due to death of one of the partners (c) Either (a) or (b)
(b) Due to the misconduct of partner paying (d) None of these.
premium
118. In case of registered firm, public notice must be given in

(a) Official Gazette (c) To Registrar of firms
(b) At least one vernacular newspaper (d) All of these.
119. In case of unregistered firm, public notice must be given in

(a) Official Gazette (c) To Registrar of firms
(b) At least one vernacular newspaper (d) Both (a) and (b).
120. In case of registered firm, public notice is required to be given in case of

(a) Retirement of expulsion of partner (c) Minor’s exercise of option, on attaining
(b) Dissolution of the firm of majority, to become a partner or cease
his relationship with the firm
(d) All of these.
121. In case of partner becoming of unsound mind, a suit for dissolution may be brought by
(a) Next friend of partner becoming of (c) Either (a) or (b)
unsound mind (d) None of these.
(b) Any other partner
122. If no date is mentioned in the notice of dissolution of the firm, in a partnership at will, the
dissolution will take effect from
(a) Date of sending notice (c) Date is mentioned in the notice
(b) Date on which notice is received (d) None of these.
123. Loss arising from partner’s insolvency is to be met from

(a) Solvent partner (c) All partner including insolvent
(b) Legal heirs of insolvent partner (d) Firm.
124. If public notice of death of a partner is not given and the firm continues the business. Than
in case of the acts of the firm done after the death
(a) Estate of deceased partner will be liable (c) Legal representatives of deceased partner
(b) Estate of deceased partner will not be are liable
liable (d) None of these.
125. A firm can be dissolved by

(a) Compulsory dissolution (c) Court
(b) Dissolution by agreement (d) All of these.
126. Non registration of partnership is

(a) Illegal (c) Calls for penalty
(b) Criminally punishable (d) Result in certain disabilities.
127. Who can enter into contract of partnership?
(a) Alien enemy (c) Member of registered company
(b) Person of unsound mind (d) Business firm
128. Which of the following are not deemed to be partners?

(a) Members of HUF carrying on family (c) Both (a) and (b)
business (d) None of these.
(b) Burmese Buddhist husband and wife
carrying on business
129. Relation between persons who have agreed to share profits of the business carried on by
all of them or one of them acting for all is
(a) Partnership (c) HUF
(b) Agency (d) Venture.
130. Illegal association has been defined in

(a) The Companies Act, 1956 (c) The Partnership Act, 1932
(b) The Indian Contract Act, 1872 (d) None of thes
131. Association created for ________ purposes are not partnerships

(a) Charitable (c) Religious
(b) Social (d) All of these.
132. Partnership is not created when any payment is received by

(a) Lender of money – to person engaged or (c) Widow / Child of a deceased partner as
about to engage in any business annuity
(b) Servant / Agent as remuneration (d) All of these.
133. Liability of the person is unlimited in the case of

(a) Company (c) HUF
(b) Partnership (d) CO-ownership.
134. Registration is compulsory in the case of

(a) Company (c) HUF
(b) Partnership (d) CO-ownership.
135. The maximum number of members in a partnership is provide in

(a) The companies Act, 1956 (c) The Partnership Act, 1932
(b) The Indian Contract Act, 1872 (d) None of these.
136. Notice to a partner amounts to a notice to a firm if

(a) It is given to working partner (c) Relates to firm’s Business
(b) It is actual (d) All of these.
137. Property of the firm has been dealt under Section

(a) 11 (c) 13
(b) 12 (d) 14.
138. Partnership property is the property of

(a) Partners (c) Incoming partner
(b) Firm (d) Outgoing partner.
139. Registration of the firm can be done
(a) At the beginning (c) Either (a) or (b).
(b) During continuous (d) None of these.
140. In English Law Registration of firm is

(a) Compulsory (c) Not required
(b) Optional (d) Required after one year.
141. A and B becomes partner for 10 years. A pays B a premium of Rupees 10000. At the end
of 5 years the firm is dissolved
(a) A can recover rupees 10000 (c) A can recover reasonable part of premium
(b) A cannot recover any amount (d) A can recover rupees 5000 from B.
142. Upon dissolution of firm, firm’s assets shall be first applied for payment o debts and
liabilities of firm and shall thereafter be applied for
(a) Payment of debts and liabilities of firm (c) Partners Capital
(b) Partner’s loans (d) Distribution to partners in their profit
sharing ratio.
143. Upon dissolution of firm, firm’s assets shall be first applied for payment o debts and
liabilities of firm and partners loans and thereafter be applied for
(a) Payment of debts and liabilities of firm (c) Partners Capital
(b) Partner’s loans (d) Distribution to partners in their profit
sharing ratio.
144. X agrees with Y to carry passengers by taxi from Delhi to Gurgaon on the following
terms, namely, Y is to pay X Rs. 100 per mile per annum, and X and Y are to share the
costs of repairing and replacement of the cars, and to divide equally between them the
proceeds of fares received from passengers, Choose the correct alternative.
(a) X and Y are partners (c) X and Y are co-owners
(b) X and Y are cab owners (d) None of these.
145. The essential elements of partnership does not in include:

(a) There must be an association of two or (c) There must be mutual agency among
more persons. partners.
(b) There must be an agreement to share (d) All of these.
profits and losses equally
146. The partnership can be formed

(a) Two brothers Y (age 17 years ) decide to (c) Three brother W (age 19 years), X (age
form a partnership 17 years) decide to form a partnership
(b) Two brothers X (age 18 years), Y (age 17 with a provision that Y will share the
years) decide to form a partnership with a profits only
provision that Y will share the profits (d) None of these.
only
147. The essential elements of a partnership……………….

(a) Must co-exist before can come into (c) May be brought in any time either during
existence the creation of partnership or even
(b) May be brought in within a reasonable therafter before a partnership can come
time of a partnership coming into into existence, but they must coexist
existence within one year of a partnership coming
into existence.
148. Which of the following is correct?

(a) A partnership firm has a separate legal (c) The partners of individual firm can from a
entity apart from partners partnership
(b) Two firms can from a new partnership (d) None of these.
149. The real of partnership is:

(a) Business (c) Agreements
(b) Sharing of profits (d) Business to be carried on by all or any of
them (e) for all.
150. The case of Cax. V. Hickman, (1860) deals with

(a) Test of partnership (c) Implied authority of a partner
(b) Registration of firm (d) Dissolution of firm.
151. Mutual Agency is:

(a) Prima facie evidence of partnership (c) None of these.
(b) Conclusive evidence of partnership
152. Sharing of profits is:

(a) Prima facie evidence of partnership (c) None of these.
(b) Conclusive evidence of partnership
153. Co-ownership necessarily involves:

(a) An agreement (c) Carrying on of a business
(b) Sharing of profit or loss (d) Mutual Agency
(e) None of these
154. A co-owner:
(a) Is an agent of other co-owner (c) Has no right to claim partition of joint
(b) Has no lien on the joint property for property
expenses (d) None of these.
155. The Partnership relation exists when:

(a) Joint owner of some property share (c) Two friends A(age years.), B(17 years)
property share profit or loss arising from decide to from a partnership.
the property (d) A and B agreed to sell clothes for their
(b) A person receives a share of profit as a joint account and share the profits.
part of his remuneration.
156. X and Y purchase 20,000 bags of cement, which they agree to sell for their joint account.
(a) X and Y are partners (c) X and Y are co-ventures
(b) X and Y are only joint owners (d) None of the above.
157. Member of Joint Hindu family carrying on family business are called
(a) Partners (c) Co-parceners
(b) Co-owners (d) None of these.
158. A male person becomes a member in Joint Hindu family on his birth under
(a) Mitakshara school of Hindu Law (c) None of these.
(b) Dayabhaga school of Hindu Law
159. When a coparcener takes part in the act performed or a transaction entered into by the
karta
(a) The liability of the karta will be limited (c) The liability of both the karta and that
but that of Coparcener will be unlimited coparcener will be unlimited
(b) The liability of both karta and (d) The liability of karta will be unlimited but
coparcener will be unlimited that of coparcener will be limited.
160. Which of the following is not correct?

(a) Joint Hindu family is governed by law (c) Joint Hindu family is governed by the
relating to registration of agreements. Civil Procedure Code.
(b) Joint Hindu family is governed by Hindu (d) Both (a) and (c).
Law
161. State which of the following is correct

(a) There is no much difference in the nature (c) There is difference in the nature of a
of a partnership from the nature of a partnership from the nature of a HUF
HUF. because unlike the nature of a HUF, the
(b) There is considerable difference in the nature of a partnership is voluntary and
nature of a partnership from the nature of contractual.
a HUF (d) There is not much difference the nature of
a partnership from the nature of a HUF
because both involve a certain interest of
a particular individual.
162. The partnership deed must be signed by the

(a) One of the partners (c) All senior partners
(b) Majority of the partners (d) All partners.
163. The terms laid down in the partnership deed may be varied by the consent of:
(a) All senior partners (c) All partners
(b) Majority of the partners (d) None of these.
164. Registration of firm becomes effective

(a) From the date of filling of duly signed (c) From the date of receipt of certificate of
and verified statement along with the registration
prescribed form (d) None of these.
(b) From the date of issue of certificate of
registration
165. Registration of partnership is complete

(a) Only after the issue of certificate of (c) Only after the registrar of firms records
registration by the Registrar of Firms. an entry of the statement in the register of
(b) As soon as an application in the firms to this effect.
prescribed form with the prescribed fee (d) After giving the information to the
and other relevant details is delivered to Central Government in this regard.
the registrar of the firms.
166. An unregistered firm has sold some goods to a customer. A suit against the customer for
the recover of price of goods is
(a) Maintainable if the firm is registered after (c) Not maintainable at all irrespective of the
filling the suit registration before or after filling the suit
(b) Maintainable if the firm is registered (d) None of these.
before filling the suit
167. Suppose you have entered into a partnership agreement with me and the partnership-deed
provides neither for the duration nor for the determination of our partnership. What is the
technical expression for this kind of partnership?
(a) Partnership for a fixed term (c) Particular Partnership
(b) Partnership at will (d) Any of these.
168. The position of a minor in a partnership firm is to be determined taking into account
(a) The Indian Contract Act, 1973 (c) Minor’s agreement
(b) The Indian Partnership Act, 1932 (d) The Majority Act, 1875.
169. If a minor on attaining majority, effect to become a partner, he becomes personally liable
to third parties for all those acts of the firm which are done
(a) After the date of his attaining majority (c) After his admission to the benefits of
(b) After the expiry of 6 months of date of partnership
his attaining majority (d) None of these.
170. Which of the following statement is not true about minor’s position as a partner
1. He cannot become a full fledged partner in a new firm
2. He can become a full fledged partner in an existing firm
3. He has to bear all liabilities like other partners
4. He can become a partner on becoming a major
(a) 1 & 2 (c) 3 & 4
(b) 2 & 3 (d) 1 & 4.
171. The liabilities of a minor when admitted to the benefits of the partnership _______
(a) Is confined to his share of the profits and (c) Is similar as that of any other partner of
property of the firm the firm
(b) Is same as that of any other partner in the (d) Is unlimited.
firm
172. A minor is
(a) A servant of the firm (c) Entitled to carry on the business of the
(b) Representative of the firm firm
(d) Entitled to the benefits of the firm.
173. The mutual rights and duties of partners are governed

(a) Only by Partnership Agreement (c) Both Partnership Agreement and the
(b) Only by the Partnership Act, 1932 Partnership Act, 1932
(d) Either Partnership Agreement or the
Partnership Act, 1932.
174. The provision of section 9 and 10 lay down the

(a) Mandatory duties of partners (c) General right of partners
(b) General duties of partner (d) None of these.
175. The provision of section 9 and 10

(a) Cannot be changed by an agreement (c) Can be changed by consent of all partners
amongst partner (d) None of these.
(b) Can be changed by consent of majority of
partners
176. Unless otherwise agreed, a partners
(a) Can carry on same business as that of the (c) Cannot carry on any business other than
firm that of firm
(b) Cannot carry on same business as that of (d) None of these.
the firm
177. A change in the nature of business of the firm may be made only with the consent of
(a) Majority of partners (c) Senior partners
(b) All partners (d) Working partners.
178. Unless otherwise agreed, every partner has right:

(a) To prevent the introduction of a new (c) Not to be expelled from the firm by
partner without the consent of majority of decision of all other partners
the existing partner (d) None of these.
(b) To retire with the consent of majority of
the partners
179. In the absence of any agreement interest on advances by a partner is

(a) Allowed at 6 per cent p.m. (c) Allowed at the market rate of interest
(b) Not allowed at all (d) Allowed at 6 per cent p.a.
180. Where a partner is entitled to interest on capital subscribed by him, such interest will be
payable
(a) Only out of profit (c) Only of profits or out of capital
(b) Only out of capital (d) None of these.
181. What constitutes firm’s property

(a) Property belonging to a partner who (c) Fixed assets brought in by partner to the
enters into an existing partnership common stock of firm
(b) Any property used for the purpose of the (d) The property acquired by partner out of
business of the firm money, withdrawn from the firm’s bank
account for personal use.
182. Implied authority of the partner does not empower him to

(a) Submit a dispute relating to the business (c) Both (a) and (b)
of the firm to arbitration (d) None o the above.
(b) Withdraw a suit or proceeding filed on
behalf of the firm
183. A firm is the course of its business receives money from a third party. One of the partners
misapplies it
(a) The firm is liable to make good the loss (c) The defaulting partner alone is liable
(b) The firm is not liable to make good the (d) The defaulting partner is not liable.
loss
184. Where a partner retires, and the remaining partner carry on the business with the firm’s
property without any final settlement of accounts, the outgoing partner is entitled to
(a) Interest at 6 per cent per annum on the (c) Either of the above two at the option of
amount due to him the outgoing partner
(b) Such share of the profits as may be (d) Interest at the rate of 15 per cent per
attributable to the use of his share of the annum on the amount due to him.
firm’s property
185. The partner who has been wrongly expelled has a right;
(a) To recover damages for wrongful (c) Both (a) and (b)
expulsion (d) None of these.
(b) To claim re-instatement as a partner
186. A partner may be expelled from the firm on the fulfillment of the condition that the
expulsion power is exercised
(a) As given by express contract (c) In absolute good faith
(b) By majority of partners (d) All of the above.
187. The taste of good faith as required under Section 33(1) includes the following
(a) That the expulsion must be in the interest (c) That the partner to be expelled is given an
of the partnership opportunity of being heard
(b) That the partner to be expelled is served (d) All of the above.
with a notice
188. Expulsion of a partner, which is not in accordance with provisions of Section 33 of the
Indian partnership Act, 1932 is _________
(a) Null and void (c) Is unconstitutional
(b) Null and void to some extent (d) In good faith and in the interest of the
partnership.
189. A transferee of a partner’s share is

(a) Entitled to interfere with the conduct of (c) Entitled to inspect the books of the firm
the business (d) Bound to accept the account of profits
(b) Entitled to require accounts agreed to by the partner.
190. A continuing guarantee

(a) Is revoked as to future transactions from the date of any change in the constitution of the
firm
(b) Is not revoked as to future transaction even in case of change in the constitution of the firm
(c) None of these.
191. What constitutes dissolution of firm

(a) Change in profit sharing ratio (c) Retirement / Death of a partner
(b) Admission of a partner (d) All of above.
(e) None of these.
192. A firm is compulsory dissolved

(a) If all but two partners are declared (c) On the death of a partner
insolvent (d) None of these.
(b) If some event takes place which makes
one or more but not all business illegal
193. X, Y, Z are partners in a firm and X becomes insolvent. Than ________

(a) The firm has to dissolve by default (c) The statute of the firm becomes illegal
(b) The firm may not be dissolve unless from the date of adjudication of X as an
there is any agreement between the insolvent
partners to do so (d) X remains a partner, unless the firm is
dissolved.
194. The other partners may sue for the dissolution of firm where a partner has transferred
(a) 25% of his interest in the firm to a third (c) 75% of his interest in the firm to a third
party party
(b) 50% of his interest in the firm to a third (d) 100% of his interest in the firm to a third
party party.
195. Where the business of the firm cannot be carried on except at a loss, the court may order
dissolution of
(a) Any firm (c) Any firm other than partnership at will
(b) Any firm other than partnership for a (d) None of these.
fixed term
196. In case of a partnership at will, notice by any partner of his intension to dissolve the firm,
once given
(a) Can be withdraw by giving another (c) Cannot be withdrawn without the consent
notice of his intension to withdraw of all other partners
earlier notice, to any of the other partners (d) Cannot be withdrawn without the
(b) Cannot be withdrawn without the permission of registrar of firms.
consent of majority of majority of the
partners
197. After the dissolution of a firm, the authority of a partner to bind the firm
(a) Does not continue at all (c) None of these.
(b) Continues so far as many be necessary to
wind up the affairs of the firm
198. Any surplus left after payment of firm’s debts and partner’s advances
(a) Is divided among all partners in their (c) None of these.
capital ratio
(b) Is divided among all partners in their
profit sharing ratio.
199. As per Garner vs. Murray rule, any deficiency of partner’s capital arising on the
insolvency of a partner is shared by
(a) All the partners in their profit sharing (c) All solvent partners in their profits
ratio sharing ratio
(b) All the partners in their capital ratio (d) None of these.
200. Public notice is not given on the death of a partner but the firm continues the business. For
the acts of the firm done after his death
(a) The estate of the deceased partner is (c) His legal representatives are personally
liable liable.
(b) The estate of the deceased partner is not
liable
201. Only the consent of majority of partners is required

(a) To dissolve a particular partnership (c) To introduce a new partner
(b) To change the nature of the business of (d) To expel any partner
firm.
202. X fraudulently induced Y to enter into partnership with him and Y pays a premium of Rs.
5,000/- to X. Within three months the firm incurs liabilities to the extent of Rs. 10,000/-. On
discovering the fraud, Y files a suit for the rescission of the contract creating partnership
and contract is rescinded. The creditors of the firm also levy attachment on Y who pays Rs.
3,000/- to them as well. Which of the following is correct?
(a) Y can obtain a decree for Rs. 8,000/- (c) Y can obtain a decree for Rs. 3,000/-
against X. against X.
(b) Y can obtain a decree for Rs. 5,000/- (d) Y cannot obtain a decree for either Rs.
against X. 5,000/- or Rs. 3,000/- or Rs. 8,000/-
against.
203. A & B are partners in a partnership firm. A introduced C, a former partner, as his partner
to D. C remained silent at that moment, but later on informed D that he is actually a former
partner of the firm. C has also issued public notice in the year of his retirement from the
partnership firm. D, a trader supplied 500 refrigerators to the firm on credit. The credit
period expired and D did not get the price of his supplies. D filed a suit against A and C for
the recovery of price. In light of the above circumstances answer which of the following is
correct?
(a) C is liable for the price to D (c) C is not liable for the price to D.
(b) C is liable for the price to D, irrespective (d) None of the above.
of the fact, whether C remained silent or
not
204. A and B becomes partners for 16 years. A pays B a premium of Rs. 5,000/-. At the end of
8 years there is dispute between A & B and they declared a dissolution
(a) A can get back entire amount of the (c) A can get back Rs. 2,500/- from B
premium paid by him to B (d) A cannot get back any amount of the
(b) A can get back a reasonable part of the premium paid by him
premium
205. The limit for maximum number of partners in a firm is provided in

(a) Section 11 of the Indian Partnership Act, (c) Section 11 of the Indian Contract Act,
1932 1872
(b) Section 11 of the Companies Act, 1956 (d) None of these.
206. A written agreement by which a partnership firm is created is known as

(a) Partnership Deed (c) License Agreement
(b) Deed document (d) None of these.
207. A partnership firm is formed to carry on some joint business and such business should
consist of a
(a) Long and permanent undertaking (c) Any of these two, as the only requirement
(b) Single business venture or undertaking. is that there has to be some business
(d) None of these, as the requirement is of
joint property and not of joint business.
208. The important case of Cox v. Hickman, (1860) HLC 268 lays down the principle of
(a) Registration of a firm (c) Dissolution of the firm
(b) Test of partnership (d) Express authority of partners.
209. A, a contractor, appointed B to manage his entire work. It was agreed that B would
receive 50% of the profits as his remuneration and would bear all the losses, if any. Here, B
is
(a) A’s partner (c) Sole proprietor
(b) A’s agent (d) None of these.
210. Which of the following statement about ‘partnership for a fixed period’ is incorrect?
(a) It is dissolved on the expiry of fixed (c) Both of these
period (d) None of these.
(b) It can also be dissolved before fixed
period by adopting the modes of
dissolution
211. If after the completion of particular adventure or undertaking, the firm continues to carry
on some other adventure, then it becomes a
(a) Void partnership (c) Illegal association
(b) Renewed partnership (d) Partnership at will.
212. On any partner’s refusal to sign the application form the registration, the registration of
the firm
(a) Can be obtained by dropping the name of (c) Cannot be obtained with such a form
such a partner from the firm which is not signed by all the partners
(b) Can be obtained without dropping the (d) Both (a) and (c)
name of such partner
213. Where a new partner joins the firm after its, registration, such a change in the constitution
of the firm, requires
(a) Almost a new registration (c) A simple information to the court
(b) A notice, along with date of joining, to (d) None of these.
the registrar
214. Where an existing partner retires from the firm after its registration, such a change in the
constitution of the firm, requires
(a) Almost a new registration (c) An indemnity bond from a retiring partner
(b) A notice along with date of retirement, to (d) None of these.
the Registrar
THE SALE OF GOODS ACT, 1930
CHAPTER-1 FORMATION OF CONTRACT OF SALE
CONTENTS :-
1 . DEFINITIONS
2. SALE V. AGREEMENT TO SELL
3. SALE V. HIRE PURCHASE
4. SALE V. BAILMENT
5. SALE V. CONTRACT FOR WORK AND LABOUR
6. MODES OF FORMING CONTRACT OF SALE
7. DESTRUCTION OF SUBJECT MATTER OF CONTRACT
8. ASCERTAINMENT OF PRICE
9. STIPULATION AS TO TIME
1. DEFINITIONS
Buyer [ Sec 2 (1) ] :- Buyer means a person who buys or agrees to buy goods.
Seller [Sec 2 (13)] :- Seller means a person who sells or agrees to sell goods.
Goods [Sec 2 (7)] :- Goods means every kind of movable property other than
actionable claims & money and includes :
 Stock and shares
 Growing crops
 Grass &
 Things attached to or forming part of land,
which are agreed to be severed before sale or under the contract of sale.
[Actionable claims are claims which can be enforced only by an action or suit e.g. Debt.]
Types of Goods
Existing
Future Specific
Specific
Unascertained
Unascertained Ascertained
Ascertained
Future
Existing
Goods
Goods
Goods
Goods
Goods
Existing Goods
Goods
Goods Goods which are in existence at the time of contract of sale Goods
Goods Goods
i.e. those
owned & possessed by the seller.
Future goods Means goods to be manufactured or produced or acquired by seller after
making the contract of sale. In case of future goods, there is an agreement
to sell.
Specific Goods Means goods identified & agreed upon at the time of a contract of sale
has been made.
“Unascertained” or Means goods defined only by description and not identified and agreed
“Generic” goods upon.
Ascertained goods Means goods identified in accordance with the agreement after the
contract of sale has been made
Goods in Deliverable State:- Goods are said to be in a deliverable state when they are in
such a condition that the buyer is bound to take delivery of them under the contract.
E.g. – A contracts to sell timber and makes bundles thereof, Goods will be in a deliverable
state, after A has put the goods in such a condition.
Delivery [Sec. 2 (2)]: - Delivery means voluntary transfer of possession by one person
to another.
Kinds of Delivery
Actual Delivery Constructive Delivery Symbolic Delivery
a. Actual Delivery It is actual when the goods are physically delivered to the buyer.
b. Constructive delivery When it is effected without any change in the custody or actual
procession of thing.
E.g. Delivery by attornment (acknowledgement).
E.g. Where a warehouseman holding the goods of A, agrees to
hold them on behalf of B, at A’s request.
c. Symbolic Delivery When there is a delivery of thing in token of a transfer of something
else
E.g. Delivery of goods in transit by handling over the documents to
title (ownership ) to goods, B/L, Dock warrant, Delivery of key of a
Warehouse.
Document of title to goods :- Includes:
Bill of lading
Dock warrant
Warehouse keeper’s certificate
Wharfingers’ certificate
Railway receipt
Multimodel transport document
Warrant or order for delivery of goods or any other document used in the ordinary
cause of business as a proof of possession or control of goods.
Mercantile Agent [Sec 2 (9)]: - It means an agent having in the customary course of
business as such agent an authority either
To sell goods or
To consign goods for the purpose of sale or
To buy goods or
To raise money on the security of the goods..
Property [Sec 2 (ii)]
It means General property (Right of ownership in goods) and not merely special
property.
Insolvent [Sec 2 (8)]
A person is said to be insolvent when he ceased to pay his debts in the ordinary course
of business or cannot pay his debts as they become due whether he has committed an act
of insolvency or not.
Contract of sale [ Sec.4 (1)]

A contract of sale is a contract whereby the seller transfers (sale) or agrees to transfer
(agreement to sell) property (ownership) in goods to the buyer for a price.
 Essentials:
 At least two parties
 Subject matter of contract must be Goods
 Price in money only (not in kind) should be paid or promised.
 Transfer of ownership in goods
 A contract of sale must be absolute or conditional.
 Other essentials of a valid contract.
2. SALE Vs. AGREEMENT TO SELL
S. NO. BASIS SALE AGREEMENT TO SALE
1. Property in goods Transfer Not transfer
2. Risk Transfer Not transfer
3. Type Executed contract Executory contract
4. Sue for Price Yes No, only damages unless price was
payable at stated date.
5. Loss of destruction Buyer Seller
Breach by Seller Buyer’s Right Buyer’s right to claim damages only.
(i) To recover the goods
(ii) Suit for damages.
3. SALE Vs. HIRE PURCHASE
S. NO BASIS SALE HIRE PURCHASE

1. Transfer of Immediate On the payment of last instalment
property
2. Position Buyer  Owner Hirer  Bailee till he pays last
instalment
3. Right of Buyer cannot terminate Hirer may terminate the contract by
termination the contract and is bound returning the goods to its owner
to pay the price. without any liability to pay remaining
instalment.
4. Buyer’s Risk of loss Seller Seller has no risk, right to take back
Insolvency goods
5. Passing of title by Buyer can pass good title Hirer cannot pass any title even to a
buyer to bonafide purchaser bonafide purchaser
6. Tax Tax is levied at the time Tax is not leviable unless it eventually
of contract. ripens into sale
4. Sale v. Bailment
BAILMENT
A bailment is the delivery of goods for some specific purpose under a contract on the condition
that the same goods to be returned to the bailer or are to be disposed off according to directions of
the bailer.
SALE Vs. BAILMENT
S.NO BASIS SALE BAILMENT
1. Transfer of Yes No
ownership Only transfer of possession
2. Return of goods Return of goods in contract of Bailee must return the goods to the
sale not possible. bailor on accomplishment of the
purpose for
which the bailment was made.
3. Consideration Consideration price money Consideration may be gratuitous or
only non gratuitous.
5. SALE Vs. CONTRACT FOR WORK AND LABOUR

S. NO SALE CONTRACT FOR WORK & LABOUR
1.Transfer of Yes No
ownership Only doing some work of labour.
 E.g. Gold supplied to goldsmith for preparing
an ornament
 An artist ask to paint a picture.
6. Modes of forming contract of sale –

There may be:-
Immediate delivery of goods or
Immediate payment of price but delivery at the some future date or
Immediate delivery of goods and immediate payment of price or
Delivery or payment or both are to be made in instalments or
Delivery or payment or both are to be made at some future date.
7. Destruction of subject matter of contract ( Sec. 7 & 8 ) :-
(a) Goods not existing at the time of contract.
Goods destroyed without knowledge of the seller, contract is void-ab-initio.
(b) If there was agreement to sell & Goods perishing after contract is made.
Without any fault of buyer or seller, agreement becomes void.
8. Ascertainment of price ( Sec. 9 and 10 )
Price is the monetary consideration for sale of goods [Sec 2 (10)]
Price may be:
 Fixed by the contract or
 Agreed to be fixed in a manner provided by the contract. E.g. by a valuer or
 Determined by the course of dealings between the parties.
 Where price cannot be fixed in any of above ways, buyer is bound to pay a
reasonable price to the seller.
9. Stipulation as to time (Section 11)
As regard time for payment of price, unless a different intention appears from the contract,
stipulation as regard this is not deemed to be essence of the contract of sale.
But delivery of goods must be made without delay. Stipulations as to time of delivery are
usually the essence of contract.
CHAPTER-2 CONDITIONS & WARRANTIES
CONTENTS :-
1. CONDITION
2. WARRANTY
3. DISTINCTION BETWEEN CONDITION & WARRANTY
4. WHEN A CONDITION MAY BE TREATED AS WARRANTY
5. EXPRESS & IMPLIED CONDITIONS & WARRANTIES
6. CAVEAT EMPTOR
______________________________________________________________________________
1. Condition – A condition is a stipulation essential to the main purpose of contract, the
breach of which gives the right to repudiate the contract & to claim damages.
2. Warranty – A warranty is a stipulation collateral to the main purpose of 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.
3. DISTINCTION BETWEEN CONDITION AND WARRANTY
CONDITION WARRANTY
1. Essential to the main 1. Collateral to the main purpose of contract.
purpose of contract.
2. Aggrieved party can 2. Aggrieved party can claim only damages in
repudiate the contract or claim damages case of breach of warranty.
or both in case of breach of condition.
3. A breach of condition may 3. A breach of warranty cannot be treated as
be treated as breach of warranty. breach of condition.
4. WHEN A CONDITION MAY BE TREATED AS WARRANTY

(i) When buyer altogether waives the performance of the condition.
(ii) Where buyer elects to treat the breach of condition as one of
warranty. He may only claim damages instead of repudiating the contract.
(iii) Contract is non-severable, the buyer has accepted either the whole
goods or any part thereof.
(iv) Where fulfillment of any condition or warranty is excused by law by
reason of impossibility or otherwise.
5. EXPRESS & IMPLIED CONDITIONS & WARRANTIES

Express Conditions – are those which are agreed between the parties at the time of contract
and are expressly provided in the contract.
Implied Conditions – are those which are presumed by law to be present in the contract. An
implied condition may be negated or waived by an express agreement.
 Implied Conditions :-
Condition as to title
In case of sale, seller has right to sell the goods &
In case of agreement to sell, he will have right to sell the goods at the time when property is
to pass.
If the sellers title turnout to be defective, buyer must return the goods to the true owner and
recover the price from the seller.
Sale by description In this case, there is implied condition that goods correspond with the
description.
Sale by sample Bulk shall correspond with the sample in quality.
The buyer shall have a reasonable opportunity of comparing the
bulk with the sample and
The goods should b free from any defect rendering them
unmerchantable, which would not be apparent on reasonable
exanimation of the sample.
Condition by sample as Bulk must correspond with sample & description
well as description
Condition as to quality No implied condition as to quality or fitness of the goods
or fitness sold for any particular purpose.
Condition as to reasonable fitness of goods for a particular
purpose is implied if the buyer had made known to the seller the
purpose of his purchase and relied upon the skill & judgment of
the seller to select the best goods and seller has ordinarily dealing
in those goods.
Condition as to In case of eatables & provisions, in addition to merchantable
wholesomeness quality, goods shall be wholesome.
 IMPLIED WARRANTIES
1. Warra Buyer shall have & enjoy quite possession of goods.
nty as to undisturbed
possession
2. arrant Goods shall be free from any charge in favour of a third party
y as to non-existence of not declared or known to the buyer before or at the time
encumbrances contract is entered into.
3. Discl Goods are dangerous & buyer is ignorant of danger, seller must
osure of dangerous nature warn the buyer of the probable danger.
of goods
4. Warra An implied warranty as to quality or fitness for a particular
nty as to quality or fitness purpose may be annexed by the usage of trade.
by usage of trade
6. CAVEAT EMPTOR
Means Let the buyer beware
 It is the responsibility of the buyer to make proper selection of goods. If the goods turn out to
be defective he cannot hold the seller liable. The seller is in no way responsible for bad
selection of the buyer. The seller is not bound to disclose the defects in the goods which he is
selling.
EXCEPTIONS
1. Where buyer make known to the seller the particular purpose for which the goods are
required, so as to show that he relies on seller’s skill & judgement.
2. Goods purchased under patent No implied condition that the goods shall fit for any
name or brand name particular purpose.
3. Sale by description Goods shall correspond with the description. Goods shall
be of merchantable quality, if purchased from dealer. the
rule shall not apply. But if buyer has examined the goods
& the defects were such which ought to have been
revealed by ordinary examination, the rule shall apply.
4. Sale by sample if bulk does not correspond with sample.
5. Goods by sample as well as Goods shall correspond with both discription as well as
description sample.
6. When quality or fitness for a particular purpose & seller deviates from that.
assumed by usage of trade
7. Fraud or misrepresentation by
the seller.
CHAPTER-3
TRANSFER OF OWNERSHIP AND DELIVERY OF GOODS
CONTENTS :-
1. PASSING OF PROPERTY
2. PASSING OF RISK
3. TRANSFER OF TITLE
4. RULES REGARDING DELIVERY OF GOODS
5. ACCEPTANCE OF DELIVERY OF GOODS
1. PASSING OF PROPERTY (PASSING OF OWNERSHIP)

 Rules:
(i) No transfer of property to the buyer, unless & until goods are ascertained.
(ii) Where there is a contract of sale of specific or ascertained goods, property passes
to the buyer at the time when parties intend to pass it.
(iii) Where there is an unconditional contract for the sale of specific goods in a
deliverable state, property in goods passes to the buyer when the contract is made. (Sec. 20).
The property shall not pass when the goods are made in deliverable state but shall pass only
when the buyer has notice of it. (Sec. 21)
(iv) Where the goods are in deliverable state, but the seller is bound to weigh,
measure, test or to do same act or thing for the purpose of ascertaining price, the property
does not pass until such act or thing is done. When the seller has done its part the property
passes even if the buyer has to do something for his own satisfaction. (Sec. 22)
(v) Unascertained goods
Property passes when
There is ascertainment of goods &
There unconditional appropriation to the contract.
Appropriation of goods It involves selection of goods with the intention of using them in
performance of contract and with the mutual consent of seller & the
buyer.
(vi) Goods sent on approval or ‘sale’ or ‘pattern’
Property passes –
When buyer signifies his approval or acceptances to the seller.
When he does any act adopting the transaction &
If he does not signifies his approval or acceptance to the seller but retained the goods beyond a
reasonable time. (Sec. 24)
(vii) Sale for cash only or return Property pass only when the cash is paid for.
(viii) Conditional appropriation When the seller reserves the right of disposal until certain
conditions arefulfilled, the property therein will not pass
to the buyer till the condition imposed, if any, by the seller
has been fulfilled.
2. PASSING OF RISK [Sec. 26]
“Risk follows ownership”. The general rule is “Risk passes with property”.
Exceptions –
If there is delay of delivery due to fault of seller or buyer, the goods shall at the risk of the
party in default,as regards loss which might not have arises but for the default.
The duties and liabilities of the seller and buyer as bailee of goods for the other party
remain unaffected even when the risk has passed generally.
3. TRANSFER OF TITLE [Sec. 27 to 30]
The general rule regarding transfer of title is that the seller cannot transfer to the buyer of
goods a better title than he himself has. If the seller is not the owner of the goods, then the
buyer also will not become the owner i.e., the title of buyer shall be the same as that of the
seller. Latin maxim “Nemo dat quod non habet”. which means no one can give what he
has not got.
Exceptions – Sale by non-owner  valid
Sale by Mercantile Agent
For documents of title to goods
Agent in pocession of goods with consent of owner
Sale made acting in ordinary course of business as mercantile agent &
Buyer acted in good faith & at the time of contract of sale, no notice of fact that
seller has no authority to sell.
Sale by one of the joint promisors
Buyer - Good title (Purchase in good faith + No knowledge of fact that seller has no authority to
sale).
Sale by person in possession under voidable contract provided contract has not been rescinded
until the time of sale.
Sale by one who already sold the goods but continues to be in possession thereof.(Person obtain
delivery in good faith + No notice of previous sale)
Sale by buyer obtaining possession before property in goods has vested in him.
Effect of estoppel Where the owner is estopped by the conduct from denying the seller’s
authority to sell, the transferee will get a good title on against the true owner.
Sale by an unpaid seller
Sale by official receiver or liquidator of a company.
Sale by finder of goods under certain circumstances.
4. RULES REGARDING DELIVERY OF GOODS

(i) Buyer to apply The seller is not bound to deliver the goods until the buyer has
for delivery applied for delivery, unless otherwise agreed
(ii) Place of If there is no contract to the contrary, goods must be
Delivery – delivered at the place where they were at the time of sale.
In case of agreement to sell, goods agreed to be sold are
required to be delivered at the spot where they were at the
time when agreement was entered into.
If goods were not in existence when agreement to sell was
entered into, then delivery will be made at the place where
they would be manufactured or produced.
(iii) Time of Delivery If not fixed by the parties, the seller must send them within
reasonable time.
(iv) Goods with third In this case, there will be no delivery unless and until such
party third person acknowledges to the buyer that he hold goods on
his behalf.
In case, there is a transfer of document of title to goods, it will
be treated as symbolic delivery. Even if the goods are in
custody of a third person, no acknowledgement is required.
(iii) Time for tender of Demand or tender of delivery should be made at a reasonable
Delivery hour otherwise such demand is ineffectual. What is reasonable
hour is a question of fact.
(iv) Expenses for Delivery Expenses related to putting the goods into a deliverable state
must be borne by the seller, unless there is a contact to the
contrary.
(v) Delivery of wrong In case of delivery of lessor quantity of goods, the
quantity buyer may either accept the same and pay for it or
reject it.
In case of excess delivery, the buyer may accept or
reject the delivery, if he accepts the whole of goods, he
shall pay for them at the contract rate.
In case goods mixed with goods of a different
description and delivery in made, the buyer may
accept the relevant goods and reject the rest or reject
the whole.
Note: Mixing of goods with inferior goods does not
amount to a mixing of goods of different description.
(vi) Part Delivery Part Delivery would have the same effect for the purpose of
passing of property in such goods as delivery of the whole.
But delivery of part of goods will not be treated as delivery of
the whole.
(vii) Installment deliveries Unless otherwise agreed, the buyer is not bound to accept
delivery in installments.
The parties to the contract thereon may determine the
rights and liabilities in case of delivery by installments
and payments.
(x) Delivery of carrier Subject to the terms of contract, the delivery of the goods to
the carrier for transmission to the buyer, is prima facie
deemed to be delivery to the buyer.
(xi) Goods deteriorate Where goods are delivered at a distant place, the liability for
during transit deterioration necessarily incidental to the course of transit will
fall on the buyer, though the seller agrees to deliver at his own
risk.
(xii) Buyer’s right to If goods are not previously examined by the buyer, the seller
examine the good is bound, on request, to afford the buyer a reasonable
opportunity of examining the goods.
5. Acceptance of delivery of Goods
 Acceptance is deemed to take place when the buyer:
Intimates to the seller that he had accepted the goods; or
Does any act to the goods which is inconsistent with ownership of the seller; or
Retain the goods after the lapse of a reasonable time, without intimating to the seller
that he has rejected them.
CHAPTER-4 UNPAID SELLER
CONTENTS :-
1. UNPAID SELLER
2. RIGHTS OF AN UNPAID SELLER
3. RIGHT OF LIEN vs. RIGHT OF STOPPAGE IN TRANSIT
4. EFFECT OF SUB-SALE OR PLEDGE BY THE BUYER ON UNPAID
SELLER’S RIGHT
5. RIGHTS OF BUYER AGAINST THE SELLER IN CASE OF BREACH OF
CONTRACT BY SELLER
6. AUCTION SALE
______________________________________________________________________________
1. Unpaid Seller – The seller of goods is deemed to be an unpaid seller when –
The whole of the price has not been paid or tendered and the seller has an immediate right of
action for the price. 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.
2.
(A) RIGHTS OF UNPAID SELLER AGAINST THE GOODS

(i) Right of Lien (Section 47)
Goods are in possession of seller
Lien until the payment or tender of the price of such goods.
Cases where right of lien can be exercised:
(a) Goods sold without any stipulation of credit or
(b) Goods sold on credit but term of credit has expired or
(c) Buyer becomes insolvent
Cases under which seller loses his right of lien
Where 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 goods.
Where the buyer or his agent lawfully obtains possession of the goods.
Where seller the waived the right of lien.
By Estoppel i.e., where the seller so conducts himself that he leads third parties to
believe that the lien does not exist.
(ii) Right of stoppage in transit – This right can be exercised only if all the following
conditions are fulfilled:
Seller must be unpaid.
Seller must have parted with the possession of the goods.
Goods are in transit.
Buyer has become insolvent.
(iii) Right of re-sale – The right to re-sell the goods can be exercised by the unpaid seller
under the following conditions:
Goods are of perishable nature, no need to inform to the buyer of intention of
resale.
In case of other goods ,when notice of intention of resale is given by unpaid seller
to the buyer & buyer does not within reasonable time pay or tender the price.
(B) RIGHT OF UNPAID SELLER AGAINST THE BUYER

(i) Suit for price (Section 55)
(a) Property has passed to the buyer (ownership).
Buyer wrongfully neglects or refuses to pay price of goods.
(b) Property has not passed to the buyer.
Price is payable on a particular date irrespective of delivery.
Buyer wrongfully neglects or refuses to pay price of goods.
(ii) Suit for damages for non-acceptance (Section 56)
When buyer wrongfully neglects or refuses to accept and pay for the goods, the seller
may sue him fordamages for non-acceptance.
(iii) Suit for damages for Breach (Section 60) – Where the contract is repudiated by the
buyer before the date of delivery, the seller may treat the contract as rescinded and
sue for damages for the breach.
(iv) Suit for interest – Where there is –
 Specific agreement between seller and buyer as to interest on price of goods from the
date.
 On which payment becomes due, the seller may recover the interest from the buyer.
3. RIGHT OF LIEN Vs. RIGHT OF STOPPAGE IN TRANSIT
S.No. RIGHT OF LIEN RIGHT OF STOPPAGE IN TRANSIT
1. It is a right to retain possession. It is a right to regain possession
2. Seller should be in possession of Seller should have parted with the
the goods. possession.
Possession should be with a carrier &
Buyer has not acquired the possession.
3. The right of lien can be exercised It can be exercised only if buyer is insolvent.
even when the buyer is not
insolvent.
4. The right of stoppage in transit Its starting point is the end of right of lien.
starts where right of lien ends.
4. EFFECT OF SUB-SALE OR PLEDGE BY THE BUYER ON UNPAID SELLER’S

RIGHT
 The unpaid seller’s right of lien or stoppage in transit is not effected by any further sale or
other disposition of goods by the buyer.
Exceptions –
When seller has given his assent to such sale, mortgage or other disposition of goods
made by the buyer.
When a document of title of goods has been transferred to the buyer and the buyer transfers the
documents to a person who has bought the goods in good faith & for value.
5. RIGHT OF BUYER AGAINST THE SELLER IN CASE OF BREACH OF
CONTRACT (Section 57 to 59)
(i) Suit Where the seller wrongfully neglects or refuses to deliver the goods to
for non-delivery the buyer, the buyer may sue the seller for damages for non-delivery.
[Section 57] –
(ii) Suit for specific Where property has passed to the buyer, the buyer can also exercise the
performance right to sue for specific performance.
[Section 58]
(iii) Suit for damages Buyer is entitled to claim damages from the seller.
for Breach of
warranty [Section
59]
(iv) Suit for recovery The buyer has right to recover the money paid to the seller where the
of price [Section consideration for payment of it has failed.
61]
6. AUCTION SALE
It is a mode of selling property by inviting bids publicly and the property is sold to the
highest bidder.
An auctioneer is an agent governed by law of agency.
PROVISIONS RELATED TO AUCTION SALE

Where goods are put for sale in lot, each lot is prima facie deemed to be subject matter of a
separate contract of sale.
The sale is complete when auctioneer announces its completion:
By fall of hammer or
Any other customary manner.
Any bidder may retract from his bid until announcement is made.
Right to bid may be reserved expressly by or behalf of the seller and where such a right is
expressly reserved, but not otherwise, the seller or any one person on his behalf may bid at the
auction.
If seller’s right to bid has not been expressly reserved, it shall not be lawful for the seller to bid
himself or to employ any person to bid at such sale
Reserve Price – The sale may be notified to be subject to a reserve or upset price.
Pretended biding – If the seller makes use of pretended bidding to raise the price, the sale is
voidable at the option of the buyer.
THE SALE OF GOODS ACT, 1930
DM QUESTION BANK
1. A contract for the sale of goods where property would pass to the buyer on payment of
total price would be:
(a) Sale (c) hire-purchase contract
(b) agreement to sell (d) sale on approval.
2. The term “goods” under the Sale of Goods Act, 1930 does not include:
(a) old silver coins (c) stocks and shares
(b) actionable claims (d) harvested crops.
3. A contract for the sale of “future goods” is:

(a) Sale (c) void
(b) agreement to sell (d) hire-purchase contract.
4. The Sale of Goods Act, 1930 deals with the:

(a) movable goods only (c) both movable and immovable goods
(b) immovable goods only (d) all goods except ornaments.
5. Under the Sale of Goods Act, 1930, the term “goods” means every kind of movable property
and it includes:
(a) stock and shares (c) both (a) and (b)
(b) growing crop, grass (d) none of the above.
6. The Sale of Goods Act, 1930 deals with the:

(a) Sale (c) agreements to sell
(b) mortgage (d) both (a) and (c).
7. The conditions and warranties may be in the form of:

(a) express (c) either (a) or (b).
(b) implied (d) None of the above.
8. Goods which are in existence at the time of the Contract of Sale are known as:
(a) present goods (c) specific goods
(b) existing goods (d) none of the above.
9. Which one of the following is / are document of title to goods?

(a) railway, receipt (c) warehouse keeper’s certificate
(b) wharfinger’s certificate (d) all of the above.
10. Which of the following is not true?

(a) document showing title is not different (c) specific goods are the goods identified
from document of title and agreed upon at the time of the contract
(b) bill of lading is a document of title to of sale
goods (d) none of the above.
11. Contract of Sale is:

(a) executory contract (c) both of the above
(b) executed contract (d) none of the above.
12. In which form of the contract, the property in the goods passes to the buyer immediately:
(a) agreement to sell (c) sale
(b) hire purchase (d) installment sale.
13. If A agrees to deliver 100 kg. of sugar to B in exchange of 15 mts. of cloth, then it is:
(a) contract of sale (c) sale on approval
(b) agreement to sell (d) barter.
14. In a hire-purchase agreement, the hirer

(a) has an option to buy the goods (c) must return the goods
(b) must buy the goods (d) is not given the possession of goods.
15. 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 (c) exchange
(b) agreement to sell (d) barter.
16. A contract for the sale of goods which provides that the property would pass to the buyer on
full payment of price and execution of sale deed< is known as:
(a) sale (c) hire-purchase agreement
(b) agreement to sell (d) sale on approval.
17. The person who buys or agrees to buy goods is known as:
(a) consumer (c) both (a) and (b)
(b) buyer (d) neither (a) nor (b).
18. ‘X’ engaged ‘Y’, an artist, to paint a portrait of ‘X’ for Rs. 50,000 and ‘Y’ uses his own
canvas and paint, it is:
(a) contract of sale (c) sale on approval
(b) contract of work and materials (d) hire-purchase agreement.
19. A purchased a refrigerator on hire purchase from B and pledged with C. D purchased the
refrigerator from C in good faith, on knowing the facts B wants to recover the refrigerator
from D. Which of the following statements is / are correct?
(a) B can recover the refrigerator from D (c) B cannot recover the refrigerator from
(b) B can recover the refrigerator from A D
only (D) D will get good title for the refrigerator as
he bought it in good faith.
20. In a concluded sale, if the goods are destroyed, the loss is to be borne by:
(a) the seller (c) both seller and buyer in equal
(b) the buyer proportions
(d) the party who is in possession of goods.
21. A stipulation in a contract of sale of goods whose violation by seller gives a right of
rescission to buyer, is called:
(a) guarantee (c) condition
(b) warranty (d) term.
22. A stipulation which is collateral to the main purpose of the contract, and if proved false, gives
the buyer only a right to claim damages, is known as:
(a) condition (c) warranty
(b) guarantee (d) none of the above.
23. Which of the following is not an implied condition in a contract of sale?

(a) condition as to title (c) condition as to free from encumbrance
(b) condition as to description (d) condition as to sample.
24. Which of the following is not an implied warranty?

(a) warranty as to undisturbed possession (c) disclosure of dangerous nature of goods
(b) warranty as to existence of (d) warranty as to quality or fitness by
encumbrance usage of trade.
25. Doctrine of Caveat Emptor means:

(a) let the seller beware (c) let the creditor beware
(b) let the buyer beware (d) none of the above.
26. Under the Doctrine of Caveat Emptor, the seller is:
(a) responsible for the bad selection of (c) both (a) and (b)
goods by the buyer (d) none of the above.
(b) not responsible for the bad selection of
goods by the buyer
27. The Doctrine of Caveat Emptor does not apply, when

(a) the goods are bought by sample (c) buyer has made known to the seller the
(b) the goods are bought by sample as well exact purpose and the seller happens to be
as description a regular dealer.
(d) All of the above.
28. In case of goods sold by sample, the goods should correspond with the sample otherwise:
(a) buyer can reject the goods (c) contract is automatically terminated.
(b) buyer cannot reject the goods (d) seller is liable to punishment.
29. “x’ a shopkeeper, sold a Television set to ‘Y’, who purchased it in good faith. The set had
some manufacturing defect and it did not work after a few days inspite of repairs. In this
case, Television was not merchantable as it was not fit for the designated purpose:
(a) the buyer has no right to reject the (c) both (a) and (b)
television (d) neither (a) nor (b).
(b) the buyer has the right to reject the
television and to have refund of the price
30. Where the buyer is deprived of goods by their true owner, then the buyer:
(a) may recover the price for breach of the (c) either (a) or (b)
condition as to title (d) neither (a) nor (b).
(b) can not recover the price for breach of
the condition as to title
31. In case, a condition is changed to the status of a warranty, then the buyer:
(a) loses the right to reject goods (c) both (a) and (b)
(b) retains right to claim damages only (d) neither (a) nor (b)
30. Under the Sale of Goods Act, 1930, which of the following is / are the implied
warranty(ies)?
1. Warranty of quiet possession 2.Warranty of freedom from encumbrances
3. Warranty of title 4. Warranty as to wholesomeness
(a) 1&2 (c) 2&4
(b) 1&3 (d) 3 & 4.
33. A timber merchant agreed to supply best teak at a certain agreed price to a builder. Later the
merchant supplied timber which was identified as ordinary class of timber and demanded the
payment from the builder. Which of the following statements is / are true?
(a) builder can reject the goods and can (c) builder has to pay the price by taking
claim damages delivery of teak wood
(b) builder has to accept the goods (d) timber merchant can plead the doctrine
of caveat emptor.
34. R, a grain merchant, displays wheat of different varieties. A after satisfying himself the
quality buys the wheat is of earlier harvest. In fact the wheat is of recent harvest. A wants to
return the wheat and refuses to pay the price.
(a) A can return the wheat (c) A can refuse to pay the price.
(b) A cannot return the wheat (d) R cannot sue A to recover the money.
35.Mercantile Agent is having an authority to:

(a) sell or consign goods (c) sell or buy goods
(b) raise money on the security of goods (d) any of the above.
36. Where there is an unconditional contract for the sale of specific goods in a deliverable state:
(a) property in the goods passes to the (c) property in the goods remains with the
buyer when the contract is made seller when the contract is made
(b) property in the goods does not pass to (d) none of the above.
the buyer when the contract is made
37. Selection of goods with the intention of using them in performance of the contract and with
the mutual consent of the seller and the buyer is known as:
(a) distribution (c) amortization
(b) appropriation (d) storage.
38. The property in the goods means the:

(a) possession of goods (c) custody of goods
(b) ownership of goods (d) both (a) and (c).
39. The goods are at the risk of a party who has the
(a) ownership of goods (c) custody of goods
(b) possession of goods (d) both (b) and (c)
40. In case of unconditional contract of sale, the property passes to the buyer at the time of
making the contract. For this rule to apply, the goods must be:
(a) specific (c) physically transferred to buyer
(b) in a deliverable state (d) both (a) and (b).
41. In case of sale of standing trees, the property passes to the buyer when trees are:
(a) felled and ascertained (c) counted and ascertained
(b) not felled but earmarked (d) both (b) and (c).
42. In case of sale of ascertained goods, the ownership is transferred to the buyer when the goods
are :
(a) ascertained (c) weighed and measured
(b) appropriated to the contract (d) both (a) and (b).
43. In case of sale on approval, the ownership is transferred to the buyer when he:
(a) accepts the goods (c) fails to return goods
(b) adopts the transaction (d) in all the above cases.
44. Which of the following is not a form of delivery?

(a) constructive delivery (c) actual delivery
(b) structured delivery (d) symbolic delivery.
45. Acceptance of delivery of goods is deemed to take place when the buyer:
(a) intimates to the seller that he had (c) rejects and retains the goods after the
accepted the goods. lapse of a reasonable time, without
(b) does any act to the goods, which is intimating the seller
inconsistent with the ownership of the (d) any of the above.
seller
46. If a seller hands over the keys of a warehouse containing the goods to the buyer, it result in:
(a) constructive delivery (c) symbolic delivery
(b) actual delivery (d) none of the above.
47. Under which circumstances the unpaid seller can exercise right of re-sale:
(a) when the goods are of perishable nature (c) when the gives notice to the buyer of
(b) when the gives notice to the buyer for the intention to resell and the buyer does
making payment not within a reasonable time pay the price
(d) both (a) and (c).
48. Where the buyer wrongfully neglects of refuse to accept and pay for the goods, then:
(a) the seller may sue buyer for damages (c) none of the above.
for none-acceptance
(b) the seller cannot sue buyer for damages
for non-acceptance
49.Which of the following modes of delivery of goods is considered effective for a valid contract
of sale?
(a) constructive delivery (c) symbolic delivery
(b) actual delivery (d) all of these.
50. Where the goods are delivered to a carrier or wharfinger for the purpose of transmission to
the buyer, the delivery is:
(a) invalid and ineffective (c) conditional
(b) valid and effective (d) none of these.
51. The unpaid seller has right of stoppage of goods in transit only where the buyer
(a) Become insolvent (c) Acts fraudulently
(b) Refuses to pay price (d) All of these.
52. Which of the following is true?

(a) The provisions of Sale of Goods were (c) The Sale of Goods Act restricts the
originally with the Indian Contract Act, parties to modify the provisions of law.
1872 (d) None of the above.
(b) The Sale of Goods Act, 1930 deals with
mortgage
53. Where there is an unconditional contract for the sale of specific goods in a deliverable state-
(a) Property in the goods passes to the (c) None of the above.
buyer when the contract is made
(b) Property in the goods does not pass to
the buyer when the contract is mad
54. Selection of goods with the intention of using them in performance in the contract and with
the mutual consent of the seller and the buyer is known as
(a) Distribution (c) Amortization
(b) Appropriation (d) Storage.
55. An unpaid seller is having rights against

(a) Goods only (c) Both goods and buyer
(b) The buyer only (d) None of the above.
56. When the unpaid seller has parted with the goods to a carrier and the buyer has become
insolvent he can exercise
(a) Right of lien (c) Right of resale
(b) Right of stoppage in transit (d) None of the above.
57. The essence of right of lien is to

(a) Deliver the goods (c) Regain the possession
(b) Retain the possession (d) None of the above.
58. Which of the following right can be exercised by an unpaid seller against the buyer, who is
not insolvent
(a) Right of lien (c) Both (a) and (b).
(b) Right of stoppage in transit (d) None of the above.
59. Which of the following is a buyer right against the seller in case of breach of contract?
(a) Suit for non-delivery (c) Suit for damages for breach of warranty
(b) Suit for specific performance (d) All of the above.
60. An auction sale is complete on the

(a) Delivery of goods (c) Fall of hammer
(b) Payment of price (d) None of the above.
61. If the buyer reject the whole quantity of goods due to short delivery or express delivery, the
contract is treated as
(a) Subsisting (c) Void
(b) Cancelled (d) Invalid.
62. Seller has right of resale where

(a) Goods are perishable (c) Seller gives notice.
(b) Seller has reserved such right. (d) All of these.
63. Legally, a contract of sale include

(a) Sale (c) Barter
(b) Agreement to sell (d) Both (a) and (b).
64. In case of goods sold by sample, the goods should correspond with the sample other wise
(a) Buyer can reject the goods (c) Contact is automatically terminated
(b) Buyer cannot reject the goods (d) Seller is liable to punishment.
65. A contract for the sale of goods which provide that the property would pass to the buyer on
full payment of price and execution of sale deed, is known as
(a) Sale (c) Hire-purchase agreement
(b) Agreement to sell (d) Sale of approval.
66. The sale of Goods Act, 1930 came into force on

(a) 15th March, 1930 (c) 30th July, 1930
(b) 1st July, 1930 (d) 30th June, 1930.
67. The person who buys of agrees to buy goods is known as

(a) Consumer (c) Both (a) and (b)
(b) Buyer (d) None of these.
68. Voluntary transfer of possession by one person to another is popularly known as

(a) Transfer (c) Delivery
(b) Possession (d) None of the above.
69. Where the seller wrongfully neglects to deliver the goods to the buyer, then the buyer
(a) Cannot sue the seller for damages for (c) Either (a) or (b).
non-delivery (d) None of the above.
(b) May sue the seller for damages for non-
delivery
70. Where the buyer is deprived to goods by their true owner, then the buyer
(a) May recover the price for breach of the (c) The seller can sue buyers’ banker for
condition as to title damages.
(b) Cannot recover the price for breach of (d) None of the above.
the condition as to title
71. In an auction sale, the property shall be sold to the

(a) Lowest bidder (c) All bidders
(b) Highest bidder (d) None of the above.
72. In an auction sale, if the seller makes use of pretended bidding to raise the price, then the sale
is
(a) Valid (c) Voidable
(b) Void (d) Illegal.
73. If X commissioned Y, an artist, to paint a portrait of A for 200 dollars & Y uses his own
canvas & paint then it is
(a) Contract of sale (c) Sale on approval
(b) Contract of work and materials (d) Hire-purchase agreement.
74. The implied condition that goods shall be fit to buyer’s specific purpose, is applicable only
where the buyer tells his purpose to the seller and relies upon seller’s skill and judgment as
(a) It is requirement of law (c) Seller can be silent
(b) It is buyer’s duty to select goods, which (d) All of the above.
serve his purpose
75. The bidder at an auction sale can withdraw his bid

(a) Any time during auction (c) Before payment of price
(b) Before fall of hammer (d) None of these.
76. Where in an auction sale, the seller appoints more than one bidder, the sale is
(a) Void (c) Conditional
(b) Illegal (d) Voidable.
77. Where in an auction sale notified with reserve price, the auctioneer mistakenly knocks down
the goods for less than the reserve price, then the auctioneer is
(a) Bound by auction (c) Liable for damages
(b) Not bound by auction (d) Both (a) and (b).
78. Which of the following is/are necessary constitute(s) of a contract of sale?

1. Three distinct parties – seller, buyer and a mediator 2. Movable goods for a price 3. Transfer
of general property 4. Exchanging of goods without money
(a) 1&2 (c) 2&4
(b) 2&3 (d) 3&4
79. The term ‘goods’ for the purpose of Sale of Goods Act, does not include
1. Money 2. Actionable claims 3. Stock and Shares 4. Growing crops, grass
(a) 1&2 (c) 2&4
(b) 1&3 (d) 3 &4.
80. A buyer may make some payment in advance to the seller as a guarantee for performance of
contract. This money is known as
1. Earnest money 2. Security deposit 3. Fixed deposit 4. Deposit.
(a) 1&2 (c) 2&4
(b) 1&3 (d) 3 &4.
81. Which of the following is a document of title to goods

1. Bill of fading 2. Railway Receipt 3. Dock Warrant 4. Performa invoice
(a) 2, 3 (c) 1, 2, 3
(b) All the above (d) 2, 3, 4.
82. A seller is unpaid when

1. Whole of the price have not been tendered 2. A negotiable instrument gives has been
dishonored 3. A bill of exchange gives was dishonored 4. A part of the price has only been
paid
(a) 1, 2, 3 (c) 1, 2, 3, 4
(b) 2, 3, 4 (d) 1, 3, 4.
83. Which of the following is the right of Unpaid seller

1. Right of re-sale 2. Right to stop the goods in transit 3. Right of lien 4. Right to demand back
the goods
(a) 2, 3, 4 (c) 1, 3, 4
(b) 1, 2, 3 (d) 1, 2, 3, 4.
84. A sold a tin of disinfectant powder to K without warning knowing fully that if the tin was not
opened with care, it will likely to cause injury. K was injured while opening the tin. Which of
the following statement(s) is/are correct?
(a) A is not liable to K under the Doctrine (c) A has no duty to disclose the facts to K
of caveat emptor (d) The buyer has the responsibility to
(b) A is liable to the damages enquire about all the things before
purchasing the goods.
85. In a concluded sale, if the goods are destroyed, the loss is to be borne by
(a) The seller (c) Both seller and buyer in agreed
(b) The buyer proportions
(d) The party who is in possession of
goods.
86. The Sale of Goods Act extends to
(a) Whole of India (c) Whole of India except Jammu and
(b) Whole of India except Jammu Kashmir
(d) Whole of India except Kashmir.
87. Goods under the Sale of Goods Act, has been defined in Section
(a) 2(1) (c) 2(4)
(b) 2(2) (d) 2(7).
88. Document of title to goods under the Sale of Goods Act, has been defined in Section
(a) 2(1) (c) 2(4)
(b) 2(2) (d) 2(7)
89. A contract of sale which provides for immediate payment of price and immediate delivery of
goods, is a
(a) Void contract (c) Voidable contract
(b) Valid contract (d) Illegal contract
90. A contract of sale which provides for payment of price and delivery of goods in installments,
is a
(a) Void contract (c) Voidable contract
(b) Valid contract (d) Illegal contract
91. Which one of the following is/are document of title to goods?

(a) Bill of lading (c) Warehouse keeper’s certificate
(b) Share certificate (d) All of these
92. A mate’s receipt is

(a) Document of title to goods (c) Acknowledgement for receipt of goods
(b) Document showing title to goods (d) None of these.
93. In case of agreement to sell, the aggrieved party can sue for
(a) Price (c) Sue the buyer for injunction
(b) Damages (d) All of these.
94. Goods the acquisition of which depend upon a contingency, which may or may not happen
(a) Unascertained goods (c) Existing goods
(b) Contingent goods (d) Future goods.
95. Goods which are manufactured or produced or acquired by the seller, after making of
contract of sale is
(a) Unascertained goods (c) Existing goods
(b) Specific goods (d) Future goods.
96. The appropriation of goods require that

(a) Goods should conform to the (c) The goods must be unconditionally
description and quality stated in the appropriated to the contract
contract (d) All of these.
(b) The goods must be in deliverable state
97. In case of concluded, buyer’s position in respect of goods is of

(a) Owner (c) Hirer
(b) Bailee (d) None of these.
98. An agreement to sell in respect of goods creates
(a) Jus in personam (c) Both (a) and (b)
(b) Jus in rem (d) None of these.
99. The term goods under the sale of goods, Act, does not includes
(a) Patent (c) Goodwill
(b) Copyright (d) Actionable claim.
100.Mercantile agent have an authority to

(a) Sell or consign goods (c) Sell or buy goods
(b) Raise money on the security of goods (d) All of these.
101.A contract for the sale of goods that provide that the property would pass to the buyer on full
payment of the price and execution of sale deed, is known as
(a) Sale (c) Agreement to sell
(b) Hire purchase agreement (d) Void.
102.If no price is fixed in a contract of sale, the buyer shall pay

(a) Reasonable price (c) Lowest price
(b) Maximum price (d) Price as demanded by seller.
103.A contract to sell new currency note at a premium is

(a) Void (c) Valid
(b) Voidable (d) None of these.
104.The term buyer has been defined in Section

(a) 2(1) (c) 2(11)
(b) 2(2) (d) 2(13).
105.The term seller has been defined in section

(a) 2(1) (c) 2(11)
(b) 2(2) (d) 2(13)
106.According to sale of goods act, price means

(a) Consideration in money (c) Either (a) or (b)
(b) Economic exchange value (d) None of these.
107.A agrees to deliver 5 chairs to B in exchange of 3 tables. This is a

(a) Sale (c) Barter
(b) Agreement to sell (d) Hire purchase.
108.Where third party fails to fix the price, but the buyer has received and appropriated the
goods, then the buyer is liable to pay
(a) Whatever he likes (c) As demanded by seller
(b) Penalty (d) Reasonable price.
109.An agreement to sell becomes sale when

(a) Time elapses (c) Either (a) or (b)
(b) Condition are fulfilled subject to which (d) Agreement to sell does not become a
property in the goods is transferred sale.
110.A agrees to sell his car to B at a price to be fixed by C. This contract is
(a) Void (c) Valid
(b) Voidable (d) Illegal.
111.A agrees to sell his car to B at a price to be fixed by C. But C failed to fix the price. This
contract is
(a) Void (c) Valid
112.The condition in defined in the Sale of Goods Act, under section

(a) 12(1) (c) 12(3)
(b) 12(2) (d) 12(4).
113.Implied condition can be waived by express agreement

(a) True (c) Partly true
(b) False (d) Partly false.
114.A breach of condition may be treated as breach of warranty in the following circumstances
(a) Where the buyer altogether waives the (c) Either (a) or (b)
performance of the condition (d) None of these.
(b) Where the buyer elects to treat breach
of condition as of warranty
115.The Doctrine of caveat emptor is incorporated in the sale of goods act under section
(a) 15 (c) 17
(b) 16 (d) 18.
116.Caveat Emptor means

(a) Let the buyer beware (c) Let the Government beware
(b) Let the seller beware (d) Both (a) and (b).
117.If a breach of condition is treated as breach of warranty by the buyer, he

(a) Losses the right to reject goods (c) Does not loses the right to reject goods
(b) Can only claim damages (d) Both (a) and (b).
118.Breach of condition can be treated as breach of warranty under section

(a) 11 (c) 13
(b) 12 (d) 14.
119.A buys wheat from B, believing it to be of recent harvest, but in fact it is of earliest harvest.
A
(a) Can return the wheat (c) Can refuse to pay the price
(b) Cannot return the wheat (d) Both (a) and (c).
120.In every contract of sale there is an implied condition that the seller has a right to
(a) Sell the goods (c) Claim the price
(b) Get back the goods (d) Both (b) and (c).
121.If the buyer buys the goods under a patent or trade name, then
(a) The fitness of goods for buyer’s (c) The fitness of goods for buyer’s
particular purpose does not apply particular purpose is applicable if buyer
(b) The fitness of goods for buyer’s relies upon seller’s skill and judgment for
particular purpose applies his particular purpose
(d) Both (a) and (c).
122.Unless circumstances of the contract show a different intention, following conditions is

implied in the contract of sale of good
(a) Condition as to title (c) Sale by sample as well as description
(b) Sale by sample (d) All of these.
123.In a contract of goods, implied condition as to wholesomeness applies to

(a) Eatables (c) Medicines
(b) Clothes (d) Computers.
124.Goods must be same as wanted by the seller. This is condition as to

(a) Sample (c) Title
(b) Description (d) Wholesomeness.
125.The buyer shall have and enjoy quit possession of the goods. This is an
(a) Implied warranty as to title (c) Implied warranty as to possession
(b) Implied condition as to title (d) Implied condition as to possession.
126.Waiver of condition is presumed, where buyer accepts the goods in parts in a

(a) Non severable contract (c) Contingent contract
(b) Severable contract (d) All of these.
127.The general rule is that buyer must be aware and cautious while buying goods. This Doctrine
is
(a) Caveat emptor (c) Ignorantia juris non excusat
(b) Jus in Rem (d) Quid pro quo.
128.In commercial contracts, stipulation as to time of payment is

(a) Usually of essence of the contract (c) Never of essence of the contract
(b) Usually not of essence of the contract (d) None of these.
129.In case of conflict between express and implied warranties, which one will prevail
(a) Express warranties (c) As decided by the court
(b) Implied warranties (d) None of these.
130.A person brought milk which contained typhoid germs. His wife consumed the milk and
died. He
(a) Can recover damages (c) Can recover damages only if there is an
(b) Cannot recover damages agreement to that effect
(d) None of these.
131.In case of sale, buyer becomes

(a) Owner of goods (c) Bailee of goods
(b) Finder of goods (d) Hirer of goods.
132.Delivery of thing in token of transfer of something else is known as

(a) Constructive delivery (c) Structured delivery
(b) Actual delivery (d) Symbolic delivery.
133.If seller handed over the keys of the warehouse containing the goods to buyer, it is a
(a) Constructive delivery (c) Structured delivery
(b) Actual delivery (d) Symbolic delivery.
134.In case of sale of unascertained goods, the ownership if transferred to the buyer, when the
goods are
(a) Ascertained (c) Both (a) and (b)
(b) Appropriated to the contract (d) None of these.
135.When the goods to be delivered under the contract is identified by the seller, this process is
called
(a) Storage (c) Appropriation
(b) Ascertainment (d) Distribution.
136.Appropriation of goods to the contract can be made with the consent of

(a) Buyer (c) Both buyer and seller
(b) Seller (d) None of these.
137.Where the goods are delivered to the carrier for the purpose of transmission to the buyer, the
delivery is
(a) Valid (c) Conditional
(b) Invalid (d) None of these.
138.A mercantile agent can transfer a valid title to a buyer when

(a) He has the possession of the goods with (c) The buyer buys the goods in good faith
the consent of owner (d) All of these.
(b) He is acting in the ordinary course of
business
139.Under certain circumstances sale by which of the following persons is valid, even though
they are not the owners
(a) Mercantile agent (c) Official receiver
(b) Finder of goods (d) All of these.
140.If time of sending the goods has not been fixed by the parties, the seller must send them
within
(a) 7 days (c) 30 days
(b) 15 days (d) Reasonable time.
141.Where goods are delivered at a distant place, the liability for deterioration in the course of
transit will fall on
(a) Buyer (c) Bailee
(b) Seller (d) Agent.
142.Goods are deemed to be accepted, if buyer

(a) Intimates to the seller, that he had (c) Retains the goods after reasonable time
accepted the goods (d) All of these.
(b) Does any act, which is inconsistent
with the ownership of seller
143.Where the specific goods are in deliverable state, but seller is bound to do some act for
ascertaining the price, the property in goods passes to the buyer when the
(a) Seller has done that act (c) Both (a) and (b).
(b) Buyer is informed of act being done (d) None of these.
144.Where the goods are sold by transfer of document of title, delivery takes place on
(a) Transfer of document of title (c) End of transit
(b) Commencement of transit (d) Both (a) and (c).
145.The goods are at the risk of seller until

(a) Possession in with the seller (c) Goods are delivered to the buyer
(b) Ownership of the goods is transferred (d) Buyer refuses to bear the risk.
to the buyer
146.The goods are at the risk of buyer if

(a) Possession in with the buyer (c) Goods are delivered to the buyer
(b) Ownership of the goods is with the (d) Seller refuses to bear the risk.
buyer
147.Where no place has been mentioned for delivery under the contract of sale, the goods are to
be delivered at
(a) Where the buyer desires (c) Any reasonable place
(b) Where the goods are at the time of sale (d) None of these.
148.The appropriate place of delivery in case of goods agreed to be sold is

(a) Where the buyer desires (c) At the place at which they are at the
(b) Where the goods are at the time of sale time of agreement to sell
(d) Place where goods are manufactured.
149.In case of future goods, if no place has been mentioned for delivery under the contract of
sale, the goods are to be delivered at
(a) Where the buyer desires (c) Any reasonable place
(b) Where the goods are at the time of sale (d) Place where goods are manufactured.
150.The general rule is that risk follows ____________ of goods

(a) Possession (c) Ownership
(b) Delivery (d) All of these.
151.Where goods are not delivered to the buyer, but property in goods is transferred to the buyer,
then the goods is at the risk of
(a) Buyer (c) Carrier
(b) Seller (d) All of these.
152.Where delivery has been delayed through the fault of either buyer of seller, as regards any
loss which might not have occurred but for such default, goods are at the risk of
(a) Buyer (c) Party in fault
153.The ‘sale on approval’ is also known as

(a) Restricted sale (c) Sale on return basis
(b) Hire purchase agreement (d) All of these.
154.A person having possession of the goods under voidable contract can sell the goods before
(a) Confirmation of the contract by the (a) Ratification of the contract by the
aggrieved party aggrieved party
(b) Execution of the contract by the (b) Rescission of the contract by the
aggrieved party aggrieved party.
155.Unless otherwise agreed, the buyer is
(a) Bound to accept installment delivery (c) Liable for damages if buyer does not
(b) Not bound to accept installment accept the delivery by instalments
delivery (d) None of these.
156.A seller is an unpaid seller if

(a) Only a part of the price has been paid (c) Whole of the price has not been paid
(b) Cheque has been issued and the same (d) Any one of these.
was dishonored
157.An unpaid seller has right

(a) Against the goods sold (c) Both (a) and (b)
(b) Against the buyer (d) None of these.
158.The unpaid seller can exercise his right of lien over the goods for
(a) Price (c) Any lawful charges
(b) Storage charges (d) All of these.
159.The unpaid seller can exercise his right of lien over the goods, when he is in possession of
the goods as a
(a) Owner (c) Bailee
(b) Agent (d) All of these.
160.The objective right of lien is to

(a) Deliver the goods (c) Regain possession
(b) Retain possession (d) None of these.
161.The right of lien can be exercised for

(a) Price only (c) Either (a) or (b)
(b) Expenses (d) Both (a) and (b).
162.The essence of stoppage of goods in transit is to

(a) Retain possession (c) Recover damages
(b) Regain possession (d) (a) and (c).
163.Right of lien and right of stoppage in transit

(a) Actually mean the same right (c) Are consequential or sequential in
(b) Are actually similar rights nature, i.e. the end of right of lien is the
starting point of stoppage of goods in
transit.
(d) Are rights available to any seller of
goods.
164.The unpaid seller can withhold the delivery of the goods, where the buyer
(a) Fails to pay the price (c) Fails to pay damages
(b) Becomes insolvent (d) Both (a) and (b).
165.Where the goods are rejected by the buyer and the carrier continues to be in possession of
goods, than the transit
(a) Comes to an end (c) Commences
(b) Does not comes to an end (d) None of these.
166.When unpaid seller has not given notice of resale to the buyer. On resale there is a loss. The
unpaid seller
(a) Can recover it from buyer (c) Must be compensated by buyer
(b) Cannot recover it from buyer (d) None of these.
167.Where property in the goods is transferred to the buyer, unpaid seller has a right of
(a) Lien (c) Resale of goods
(b) Stoppage in transit (d) All of these.
168.Any seller of goods by auction may

(a) Always bid in the auction (c) Cannot bid in the auction
(b) Bid if he reserves his right to bid by (d) Both (a) and (b).
notice to the public
169.Where goods are put for sale in lots in a sale of goods by auction, each lot is prima facie
deemed to be
(a) Separate contract of sale (c) Either (a) or (b)
(b) A single contract of sale (d) Both (a) and (b).
170.In an auction sale if bidders make an agreement, refraining from bidding against each other,
it is
(a) Illegal (c) Neither (a) nor (b)
(b) Immoral (d) Valid.
171.Which of the following are goods?
(a) Trademark (c) Electricity
(b) Water (d) All of these.
172.Money does not include

1. Old coins 2. foreign currency 3. Indian rupees
(a) 1&2 (c) 2 & 3.
(b) 1&3
173.If specific goods at the time of contract without the knowledge of the seller have perished or
become so damaged as no longer to answer their description in the contract. Such contract is
(a) Void (c) Valid
174.If there is an agreement to sell specific goods, and subsequently the goods, without any fault
on the part of buyer or seller, perish or become so damaged as no longer to answer their
description in the agreement, before the risk passes to the buyer. The agreement
(a) Is void (c) Is invalid
(b) Is illegal (d) None of these.
175.Contract of sale can be

(a) Oral (c) Implied from the conduct of the parties
(b) In writing (d) All of these.
176.Consideration in a contract of sale is called

(a) Gift (c) Barter
(b) Reward (d) Price.
177.In a contract of sale unless goods are ascertained there is a

(a) Sale (c) Void agreement
(b) Agreement to sell (d) Voidable agreement.
178.Section 9 of the Sale of Goods Act deals with

(a) Right of lien (c) Agreement to sell
(b) Right of stoppage of goods in transit (d) Ascertainment of price.
179.Delivery can be
(a) Actual (c) Symbolic
(b) Constructive (d) All of these.
180.A, a fisherman agrees to sell to B, a certain kind of fish, provided there is no cyclonic storm.
The goods are
(a) Future goods (c) Contingent goods
(b) Specific goods (d) Unascertained goods.
181.A agrees to sell to B, all apples to be grown on his field during next season, for rupees
2,00,000. In this case, the goods are
(a) Future goods (c) Contingent goods
(b) Specific goods (d) Unascertained goods.
182.In case of sale of goods by sample, there is an implied condition that

(a) Goods should be in conformity with (c) Goods should be of merchantable
sample quality
(b) Buyer shall have reasonable (d) All of these.
opportunity of comparing the bulk with
the sample
183.A purchased a hot water bottle from a chemist, it burst causing injury to him. The Chemist is
(a) Liable on account of implied condition (c) Liable on account of express condition
as to quality. as to quality
(b) Not liable (d) Both (a) and (c).
184.In case of contract for sale of specific or ascertained goods the property in them is transferred
to the buyer when the parties intend to pass it. The intention of the parties can be ascertained
from
(a) Terms of contract (c) Circumstances of the case
(b) Conduct of parties (d) All of these.
185.The pre condition for transfer of property from seller to buyer in case of unascertained goods
is
(a) Ascertainment of goods (c) Either (a) or (b)
(b) Appropriation of the contract (d) Both (a) and (b).
186.Maxim “Nemo Dat quod Non Habet”
(a) No one can give what he himself has (c) One can give what he himself has not
not got got subject to fulfillment of certain
(b) One can give what he himself has not conditions
got (d) All of these.
187.If time is not fixed for delivery, it must be delivered by the seller within
(a) Reasonable time. (c) 15 days
(b) 2 days (d) I week.
188.Unless otherwise provided _________ shall apply for delivery
(a) Buyer (c) Warehouse keeper
189. Unless otherwise provided expenses for delivery shall be borne by
(a) Buyer (c) Warehouse keeper
190. If goods delivered are less than the contracted for the buyer may
(a) Accept them and claim damages for (c) Accept contracted goods and reject rest
shortage (d) All of these.
(b) Reject them
191. Finder of goods can sell the goods if owner of the goods cannot be found with
(a) Due diligence (c) Reasonable diligence
(b) Ordinary diligence (d) None of these.
192.The following right can be exercised by unpaid seller only when property in the goods has
not passed to the buyer
(a) Withholding delivery (c) Resale
(b) Stoppage of goods in transit (d) Both (a) and (b)
193. The parties making a contract of sale
(a) Have to follow the provisions of the (a) Have to remain within the purview of
Sale of Goods Act this act
(b) Can modify any provision of this act by (b) Can go beyond the purview of this act.
express stipulations
194.The subject matter of a contract of sale does not include

(a) Shares and debentures (c) Agricultural crops
(b) Agricultural land (d) Stock of goods.
195.Which are of the following statements, in connection with contract of sale is correct
(a) There may be immediate delivery of (a) There may be immediate delivery of
goods goods and immediate payment of price
(b) Delivery or payment both may be made (b) All A, B & C.
at some future date
196. A sold his car to B for Rs. 1.5 lakhs before A could deliver the car, it is destroyed by fire
without any fault of A. Who will bear the loss
(a) A will bear the loss (c) Both of them will share it
(b) B will bear the loss (d) Insurance company will bear the loss.
197.‘Sale’ is also known as

(a) Absolute sale (c) Contingent sale
(b) Conditional sale (d) All of the above.
198.What is common between contract of sale and Bailment

(a) Transfer of ownership (c) Payment of price
(b) Both are species of general contract (d) Rights of the parties.
199.The provisions of the Sale of Goods Act are applicable
(a) Only in a contract of sale (c) In a contract for work and material
(b) In a hire purchase of goods (d) In A & B.
200.A hire purchase agreement is a

(a) Bailment of goods (c) Both bailment and agreement to sell
(b) Agreement to sell the goods (d) Sale of goods.

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CA -

THE SALE OF GOODS ACT, 1930 15 MARKS

INDIAN CONTRACT ACT, 1872 15

THE SALE OF GOODS ACT, 1930 15

PARTNERSHIP ACT, 1932 10

2. ESSENTIAL ELEMENTS OF A VALID CONTRACT

ENFORCEABILITY CREATION EXECUTION ENGLISH LAW

*VOID *IMPLIED *EXECUTORY

A. ON THE BASIS OF ENFORCEABILITY

B. CLASSIFICATION ON THE BASIS OF CREATION

C. CLASSIFICATION ON THE BASIS OF BASIS OF EXECUTION

D. ENGLISH LAW CLASSIFICATION

2. An agreement enforceable by law is:

3. A void agreement is one which is:

5. In case of illegal agreements, the collateral agreements are:

6. Which of the following statements is true

16. A contract is:

18. A contract is said to be executed when it has been performed by:

20. Contract, which ceases to be enforceable by law, becomes a / an:

26. Voidable contract is:

30. _________ is made by words either spoken or written.

32. _________ is a contract which is partially performed of wholly unperformed.

38. A proposal when accepted becomes a / an:

LEGAL RULES REGARDING OFFER

General Offer An offer which is made to the public at large. Anyone

4.) ACCEPTANCE:- Sec.2(b)

LEGAL RULES AS TO VALID ACCEPTANCE

Acceptance by By performance of an act intended by the proposer.

6. COMMUNICATION OF OFFER & ACCEPTANCE ( Section 4 )

7. REVOCATION OF OFFER & ACCEPTANCE ( Section 4 )

TIME FOR REVOCATION ( Section 5 )

1. A proposal may consist of promise for:

2. An offer or its acceptance or both may be made:

4. A bid at an auction sale is:

7. An offer made to the public at large is called as:

9. Communication of a proposal is complete when:

10. Terms of an offer must be:

13. Which of the following is not necessary for a valid offer?

14. Which of the following is an offer?

15. Issue of Prospectus by a company is an example of:

19. In a self-service departmental store, a valid contract is concluded when:

20. Which of the following is an invitation to offer?

21. An advertisement inviting tender is:

25. There is a counter-offer when:

28. In case of a cross offer, the original offer comes to an end.

29. An offer lapses / comes to an end when the offeree:

36. Acceptance may be:

38. A specific offer can be accepted by:

39. A general offer can be accepted by:

40. In cases of general offer, for a valid contract, the acceptor:

41. Communication of acceptance is complete as against the proposer :

42. Communication of acceptance is complete as against the acceptor, only:

43. Where a letter of acceptance sent by post is lost in transit there is :

44. An acceptance can be revoked at any time before such acceptance:

47. An agreement to agree in future is:

48. Which of the following is false? An offer to be valid must:

49. Which of the following is false? An acceptance:

50. An offer may lapse by:

51. On the acceptance of an offer by a offeree,

VOID IMPLIED *EXECUTORY