Clat Prep Contract Notes (Ce)

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LAW OF CONTRACT
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Index
Page 1 INTRODUCTION
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Page 3 CONTRACT AND ITS FORMATION
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Page 14 CAPACITY TO CONTRACT

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Page 18 FREE CONSENT

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Page LAWFUL OBJECT AND LAWFUL

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CONSIDERATION
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Page 31 QUASI CONTRACTS
Page 34 THE BREACH OF CONTRACT
Page 36 PRACTICE QUESTIONS
Page 77 ANSWER KEY & EXPLANATIONS

LAW OF CONTRACT
INTRODUCTION 1
In the last chapter you read about law of torts, in the next part of your learning we
shall talk about the law of contracts. While the law of torts remains largely uncodified
in India barring certain notable exceptions,2 the law of contracts is codified in the
Indian Contract Act, 1872 (“ICA”).3
In the current book we shall read, learn and understand the nuances of law of contracts.
WHAT IS ICA?
ICA is the principal law regulating contracts in India.
It determines the circumstances in which promise made by the parties to a contract
shall be legally binding on them. All of us enter into a number of contracts everyday
knowingly or unknowingly. Each contract creates some right and duties upon the
contracting parties. ICA is a substantive law in the sense that it lays down the
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statutory rights and duties of the respective parties to a contract.AL
The ICA came into force on 1 September 1872. It applies to the whole of India except
the state of Jammu and Kashmir.
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DEFINITION
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Section 2(h) of ICA defines the term contract as "any agreement enforceable by law".
There are two essentials of this, agreement and enforceability.
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Essential Elements of a Valid Contract

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According to Section 10, "All agreements are contracts, if they are made by the free
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consent of the parties, competent to contract, for a lawful consideration with a lawful
object, and not hereby expressly declared to be void."
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The following, then, are the essential elements of a valid contract:

1. Proper offer and proper acceptance;4
2. Lawful consideration;5
3. Capacity to contract;6
4. Free Consent;7
5. Lawful Object;8
6. Agreement not declared void or illegal;9 and,
7. Intention to Create Legal Relationships.10
2
One of the most prominent ones being the Consumer Protection Act, 2019.
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Hereinafter as ICA
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Chapter 2 of this book
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LAW OF CONTRACT
In the next chapters you will read about all these essentials in detail
Void Contract [Section 2(j)]: A void contract is a contract which ceases to be
enforceable by law. A contract when originally entered into may be valid and binding
on the parties. It may subsequently become void. There are many judgments which
have stated that where any crime has been converted into a "Source of Profit" or if any
act to be done under any contract is opposed to "Public Policy" -- than that contract
itself cannot be enforced under the law.
Voidable Contract [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 other or others,
is a voidable contract. If the essential element of free consent is missing in a contract,
the law confers right on the aggrieved party either to reject the contract or to accept
it. However, the contract continues to be good and enforceable unless it is repudiated
by the aggrieved party.
Illegal contract: A contract is illegal if it is forbidden by law; or is of such nature that, if
permitted, would defeat the provisions of any law or is fraudulent; or involves or implies injury
to a person or property of another, or court regards it as immoral or opposed to public policy.
These agreements are punishable by law. These are void-ab-initio. This useful syllogism
would be a good tool for you to distinguish between illegality and voidity of contracts.
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“All illegal agreements are void agreements but all void agreements are not illegal.”
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Unenforceable contract: Where a contract is good in substance but because of
some technical defect cannot be enforced by law is called unenforceable contract.
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These contracts are neither void nor voidable.

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On the basis of formation:

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1. Express contract: Where the terms of the contract are expressly agreed upon in
words (written or spoken) at the time of formation, the contract is said to be
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express contract.
2. Implied contract: An implied contract is one which is inferred from the acts or
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conduct of the parties or from the circumstances of the cases. Where a proposal or
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acceptance is made otherwise than in words, promise is said to be implied.

3. Quasi contract: A quasi contract is created by law. Thus, quasi contracts are
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strictly not contracts as there is no intention of parties to enter into a contract.

It is legal obligation which is imposed on a party who is required to perform it. A
quasi contract is based on the principle that a person shall not be allowed to
enrich himself at the expense of another.
On the basis of performance:
1. Executed contract: An executed contract is one in which both the parties have
performed their respective obligations.
2. Executory contract: An executory contract is one where one or both the parties to
the contract have still to perform their obligations in future. Thus, a contract which
is partially performed or wholly unperformed is termed as executory contract.
3. Unilateral contract: A unilateral contract is one in which only one party has to
perform his obligation at the time of the formation of the contract, the other party
having fulfilled his obligation at the time of formation of contract or before the
contract comes into existence.
4. Bilateral contract: A bilateral contract is one in which the obligation on both the
parties to the contract is outstanding at the time of the formation of the contract.
Bilateral contracts are also known as contracts with executory consideration.
LAW OF CONTRACT
CONTRACT AND ITS FORMATION

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What is a Contract?
Contract being a popular term, I am sure you must have heard this term in course
of your daily life. In common parlance, the term ‘contract’ signifies some kind of
business transaction creating obligations backed by law. Notwithstanding the
(needless) complexity that often besets discussion of contracts as a concept, a
contract signifies all relationships which are legally binding in character; from the
complex process of buying a house to the simplicity of buying a candy, to acquiring
a stake in an MNC, these are all examples of the contract in one form or the other.
The main source of law regulating contracts in India is the ICA. It determines the
circumstances in which promise made by the parties to a contract shall be legally
binding on them. Each contract creates some rights and duties upon the contracting
parties. ICA deals with the enforcement of these rights and duties upon the parties
to the contract thus formed.
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The term ‘’contract’’ is defined in section 2(h)14 of the Indian Contract Act, 1872, as
An agreement enforceable by law is a contract.
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Thus, to arrive at a contract there must be—

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(i) An agreement, and

(ii) The agreement should be enforceable by law.
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Let’s understand the two things one by one.
AGREEMENT
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An ‘’Agreement’’ is defined as “every promise and every set of promises forming

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the consideration for each other.”15
Promise is defined as an accepted proposal.16 This is another way of saying that an

agreement is an accepted proposal.
The process of definitions comes down to this: A contract is an agreement, an
agreement is a promise and a promise is an accepted proposal. Hence, every
agreement, in its ultimate analysis, is composed of proposal from one side and its
acceptance by the other.
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You don’t have to remember the section numbers or even the exact definitions, all that you need to do is
understand and remember the concept.
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Section 2(e) of ICA
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Section 2(b) of ICA
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ENFORCEABLE BY LAW
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An agreement is regarded as a contract when it is enforceable by law. The conditions
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of enforceability17 for a valid contract are as follows:
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(1) There is some consideration for it.
(2) The parties are competent to contract.
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(3) Their consent is free.

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(4) Their object is lawful.

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It is pertinent to note that only those agreements which fulfill all the aforementioned
criteria can culminate into a contract, on the other hand even if one of the conditions
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is not fulfilled, such an agreement cannot become contract i.e., it is not enforceable by
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law. Thus, every contract is an agreement, but every agreement is not a contract.
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We shall further discuss in some detail the essentials of formation of contract in

upcoming chapters.
How are contracts created?

As has been referred earlier a contract is an agreement which can be enforced in a
court of law. That means necessarily in order to understand contract you need to
understand agreement and to understand agreement, proposal and acceptance must
be understood.
Let’s get started then ….
Proposal and Acceptance:
The term proposal means a plan or a suggestion. If the contract is a relationship
between two or more parties then proposal is the first step to create that relationship.
No contract or a legal relationship can come into being in absence of proposal, it
being the starting point. ICA defines “Proposal”18 as follows:
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Section 10 of ICA
18
Section 2 (a)
LAW OF CONTRACT
“When one person signifies to another his willingness to do or to abstain from

doing anything with a view to obtaining the assent of that other to such act
or abstinence from doing anything with a view to obtaining the assent of that
other to such act or abstinence, he is said to make a proposal”.
The person who makes the proposal is called the promisor or the offeror and the
person to whom it is made is called the promise or the offeree,.
A close analysis of the abovementioned definition of the offer reveals that it

necessarily must satisfy the two essentials:
• It is an expression of willingness, to do or not to do something.
(COMMUNICATION)
• It is made with a view of obtaining the assent of the offeree. (INTENTION)
1. COMMUNICATION OF PROPOSAL.
The first part of the definition of proposal lays emphasis upon the requirement that
the willingness to make a proposal should be ‘signified’. To signify means to declare
or simply to communicate. The process of making a proposal is completed by the act
of communicating it.
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The law does not prescribe or even require any mode of communication. An offer can
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be communicated in any form whatsoever provided it is effective and has the effect
of communicating it. Thus a proposal may be made in any way which has the effect
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of laying before the offeree the willingness to do or abstain from doing something.
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Express and Implied offer:

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An offer can be made verbally or by writing or even by conduct. An offer which is

made by conduct is called an implied offer and the one which is expressed by words,
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written or spoken, is called an express offer.20 An acceptance may likewise be made

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expressly or impliedly. For example if you tender to sell your wrist watch to your
friend, it’s an example of offer by words, whereas an example of offer by conduct can
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be some hawker sitting on the roadside, he may not speak anything but his conduct
of being present there with goods which are generally offered for sale is sufficient
enough to assume his offer.
ILLUSTRATION #1
PRINCIPLE 121: When one person signifies to another his willingness to do or to
abstain from doing anything with a view to obtaining the assent of that other to such
act or abstinence from doing anything, he is said to make a proposal
PRINCIPLE 2: Acceptance of an offer creates a binding obligation.
EXPLAINATION: To signify means to convey.
Offer and its acceptance can be express or implied.
20Section 9, ICA. Insofar as the proposal or acceptance of any promise is made in

words, the promise is said to be express. Insofar as such proposal or acceptance is
made otherwise than in words, the promise is said to be implied.
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Please Note, as has been highlighted earlier the principle given in the question may or may not be correct. It
may be totally unconnected to the correct proposition of law or may be partially incorrect.
LAW OF CONTRACT
FACTS: Rajiv is a resident of Sabarmati colony. Once while on his way to office he
saw one vacant building on fire. He immediately summoned the services of a fire
brigade. The fire department after extinguishing the fire claims Rs. 5000 from Rajiv.
On the other hand Rajiv was under the mistaken impression that his area was within
the free service zone, wherein he does not have to pay for the fire service. The fire
service department sues Rajiv for the said amount. Decide
(a) Rajiv is not liable to pay as the building did not belong to him
(b) Rajiv is not liable to pay as no valid proposal has been made by him.
(c) Rajiv is not liable because he was under a mistaken belief and more so he never
made the offer.
(d) Rajiv is not liable because even if it believed that he made the offer the fire
department did not accept the offer.
ANSWER: The correct answer is B.

Rajiv is not liable to pay as a contract is an exchange of promises. Applying Principle
1 to the facts of the case, it is apparent that Rajiv did not signify his willingness to
do or abstain from doing anything. Hence, no contract has been entered into, and
thus there is no obligation to pay on Rajiv’s part.
2. INTENTION TO CONTRACT
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An offer and its acceptance must be made with the intention of creating legal
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relations. It is not every casual conversation that is to be turned into a contract,
although the parties may seem to agree. There are agreements between parties which
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do not result in contract within the meaning of that term in our law. The ordinary
example is where two parties agree to take a walk together, or where one invites
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another for dinner and then himself cancels the same. Though there is an offer and
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acceptance of hospitality (dinner), yet the same would not create any contract
because there is no intention of getting into a binding legal relationship.
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How is the intention determined?

The intention of the parties is naturally to be known from the terms of the agreement
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and the surrounding circumstances. The test of contractual intention is objective,

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not subjective. What matters is not what the parties had in mind, but what a
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reasonable person would think, in the circumstances, their intention to be.
ILLUSTRATION #2
PRINCIPLE 1: Agreement enforceable by law is contract. An agreement is said to be

created if two or more persons agree on the same thing, having intention of getting
into contractual obligations.
EXPLAINATION: The intention of the parties is naturally to be known from the terms
of the agreement and the surrounding circumstances. The test of contractual
intention is objective.
Offer and its acceptance can be express or implied.
FACTS: Seeta, Kanak and Janaki together solved a cross word puzzle. Seeta and
Janaki were mother and daughter and Kanak, a paying guest. They together made
entries in a crossword puzzle in the name of the mother, Janaki. The expenses were
met by one or the other without any rules or any mutual agreement as regards the
sharing of the prize money. The entry was successful one week but Janaki refused
to divide the prize. DECIDE
(a) Janaki is liable to share the money as there is implied acceptance on her part to
share the monies.
LAW OF CONTRACT
(b) Janaki is not liable because the entries were made on her name.
(c) Janaki is not liable because it was she who met expenses for sending the entry and
also the entry was sent in her name making it simply clear that she is the only
claimant.
(d) Janaki is bound to share the award as there was an intention to enter into legal
relations and there is an implied intention to share the award.
ANSWER: The correct answer is D.
Janaki is bound to share the money so, as any reasonable man looking at their
conduct would at once conclude that they must have intended to share the prize.
In the case of social relations it follows, almost as a matter of course, that the
parties do not intend legal consequences to follow, whereas in case of business
relations it equally follows, almost as a matter of course, that the parties intend
legal consequences to follow. This does not, however, mean that in family or social
matters there cannot be a legally binding contract. All that the law requires is that
the parties must intend legal consequences.
ILLUSTRATION #3
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PRINCIPLE 1: Theory covered in the chapter so far. AL
FACTS: Symonds, Bell and Cook are international businessmen. An exhaustive
agreement was drawn between them for their dealings in paper tissues. The
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agreement contained the following clause: “This arrangement is not entered into as
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formal legal agreement and shall not be subject to a legal jurisdiction in the law
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courts either in Australia or in England”. The agreement was terminated by one of

the parties contrary to its terms. The Australian firm brought an action for the
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breach. DECIDE
ANSWER: In the case in hand, since it is clearly mentioned in the contract itself that
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parties never intended the contract to be subjected to any legal process, and since
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there was no intention to affect legal relations it is concluded that the document did
not constitute a binding contract.
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ACCEPTANCE:
Section 2 (b) defines acceptance as follows:
When the person to whom the proposal is made signifies his assent thereto, the
proposal is said to be accepted. A proposal, when accepted, becomes a promise.
Thus, Acceptance is the assent given to a proposal, and it has the effect of converting
the proposal into promise.
ESSENTIALS OF ACCEPTANCE:
There are three essentials of acceptance
• Communication of the acceptance.
• Knowledge of the offer.
• It must be unconditional and unqualified:
COMMUNICATION OF ACCEPTANCE:
The definition clearly requires that the assent should be ‘communicated’. It may be
communicated or expressed by any act or omission by which the party accepting
intends to communicate his assent or which has the effect of communication.
LAW OF CONTRACT
An agreement does not result from a mere state of mind, Intent to accept an offer or
even a mental resolve to accept an offer does not give rise to a contract. There must
be some external manifestation of that intent. Such manifestation may be in the form
of express words, written or spoken or may be signified through conduct.
KNOWLEDGE:
An offer cannot be accepted unless and until it has been brought to the knowledge
of the person to whom it is made. Take for example an announced reward for tracing
a missing child could not be claimed by a person who had traced the child in
ignorance of the announcement.
Acceptance must be unconditional and unqualified:
Acceptance must be communicated in the exact manner and form as the offer or the
offerer requires it to be. If any conditions are attached to the offer it is not acceptance.
Take for example if A offers B to sell A’s car to B at 5 lacs. This offer must accepted
in its exact offer but if B says that B will buy the car but only if A paints his car red,
this is no acceptance as the offeree has attached a condition to the offer.
ILLUSTRATION #4
PRINCIPLE 1: When the person to whom the proposal is made signifies his assent
thereto, the proposal is said to be accepted. For a contract to come into being the
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offer must be accepted. AL
EXPLAINATION: An offer can be accepted by words or conduct.
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FACTS: Akbar Ambani is rich businessman. He makes an offer of Rs. 1,00,000 to
anyone who would spend 2 hours in water on 31st December. Birbal Birla is a poor
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farmer who was cutting wood near the river and suddenly his axe fell into the river.
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It took him more than two hours to find the axe. Subsequently he got to know about
the offer made by Mr. Ambani. Birbal claims the reward. DECIDE.
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(a) Ambani is liable to pay as Birbal spent 2 hours in cold water.

(b) Birbal cannot claim the amount as he stayed in the water for his own purpose.
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(c) Birbal is entitled to the reward as he accepted the offer by his conduct of spending
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2 hours in water.
(d) Ambani is not liable to pay as Birbal had no knowledge of the offer.
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As has been highlighted earlier for a valid acceptance not only there must be a valid
communication but also the knowledge of the offer.
NOTE: Where an offer has been accepted with knowledge of the reward, the fact that
the informer was influenced by motives other than the reward, will be immaterial.
Refer to the following illustration for better understanding.
ILLUSTRATION #5
thereto, the proposal is said to be accepted.
For a contract to come into being the offer must be accepted.
EXPLAINATION: An offer can be accepted by words or by or conduct.
FACTS: Akbar Ambani is rich businessman. He makes an offer of 100000 to anyone
who would spend 2 hours in water on 31st December. Birbal Birla is a poor farmer
who also got to know about the same but he was too scared to even think about the
excruciating cold. Once he was cutting wood near the river, suddenly his axe fell into
the river. It took him more than two hours to find the axe. Birbal claims the reward.
DECIDE.
LAW OF CONTRACT
(a) Ambani is liable to pay as Birbal spent 2 hours in cold water.

(b) Birbal cannot claim the amount as he did not accept Akbar’s offer but instead
spent time in the water for his own purposes.
(c) Birbal is entitled to the reward as he accepted the offer by his conduct of spending
2 hours in water.
(d) Ambani is not liable to pay as Birbal had no knowledge of the offer.
The correct Answer is B.
There is no meeting of the minds between the parties, and hence it cannot be said
that Birbal has accepted the offer.
TYPES OF OFFER:
There are two types of offer: public offer and the private offer. A public offer is made
to the world at large, and fulfilment of the terms of the offer by any individual creates
legally binding relations between the offeror and such other person.
On the other hand, private offer is one which is either made to an ascertained
person or to some other ascertainable person and the contract arises only when it
has been accepted by an ascertained person and in particular by the person to whom
the offer has been made (acceptance by any other person to whom the offer has not
been made is no acceptance).
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ILLUSTRATION #7 AL
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offer must be accepted.
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EXPLAINATION: Acceptance must be unconditional and unqualified.

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An offer to create a contract it must be coupled with an intention to get into legally
binding obligation.
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FACTS24: A company offered by advertisement to pay Rs. 5000 to anyone who

catches cold or any disease caused by cold after having used the medicine according
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to printed directions. It was added that Rs. 5,00,000 is deposited with the State Bank
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of India showing the company’s sincerity in the matter. The plaintiff, Mrs. Reddy,
used the medicine according to the directions but she nevertheless subsequently
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suffered from cold. She sued the company for damages for breach of contract. The
company contended that no offer was made to her and even if it is assumed that offer
was made there was no acceptance therein. DECIDE
(a) Mrs. Reddy can claim the reward as she suffered cold despite consuming the
medicine in accordance with the directions.
(b) Mrs. Reddy is not entitled to the reward as there is no acceptance.
(c) The company is bound to pay as there is implied acceptance by conduct.
(d) No legal obligations are created by offers which are not addressed to an
ascertained individual and more so there is no consideration from Mrs. Reddy
therefore no contract comes into being.
ANSWER: The correct answer is C.
The contentions of the company that there was no intention to enter into legal
relations as it was simply an advertisement; that the offer was not made to any one
person in particular and that the plaintiff had not communicated her intention to
accept, are baseless. The very fact that a public offer was made along with an
assurance that a bigger amount has been deposited in the bank to show company’s
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Facts similar to Carill v Carbolic Smoke Ball Co.
LAW OF CONTRACT
security, certainly shows company’s intention to get into a legally binding

relationship. Since Mrs. Reddy bought the medicine and thereby used it according
to the prescribed direction there is a valid acceptance by conduct and hence the
company is liable to pay.
OFFER AND INVITATION TO TREAT
An offer should be distinguished from an invitation to receive offers. When a man
advertises that he has a stock of books to sell or house to let, there is no offer to be
bound by any contract, such advertisements are offers to negotiate. These are merely
invitation to the other party to make an offer. Once the offer is made, the offeree may
or may not accept the same.
Where a party, without expressing the final willingness, proposes certain terms on which
he is willing to negotiate he does not make an offer, he only invites the other party to
make an offer on those terms. This is perhaps the basic distinction between an ‘’offer’’
and an ‘’invitation to receive offers. Let’s refer to the judgment in Harvey v Facie.25
The plaintiffs telegraphed to the defendants, writing: “Will you sell us Bumper Hall
pen? Telegraph lowest Cash price”. The defendants replied, also by a telegram:
“Lowest price for Bumper Hall pen ₤ 900”. The plaintiffs immediately sent their last
telegram stating: “We agree to buy bumper Hall pen for ₤900 asked by you”.
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: Try to find the examples of offers and invitation to treat
around. Quick Clue: The Catalogues and display of goods is only an invitation to
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offer, intending customer to offer to buy at the indicated prices.
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The defendants, however, refused to sell the property at that price. The plaintiffs
contended that by quoting their minimum price in response to the inquiry, the
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defendants had made an offer to sell at that price. But the judicial committee turned
down the suggestion. Their Lordships pointed out that in their first telegram, the
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plaintiffs had asked two questions, first, as to the willingness to sell and, second, as
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to the lowest price. The defendants answered only the second question and gave the
lowest price. They reserved their answer as to the willingness to sell. Thus they had
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made no offer. The last telegram of the plaintiffs was an offer to buy, that was never
accepted by the defendants.
ILLUSTRATION #8
PRINCIPLE 2: Where a party, without expressing the final willingness, proposes
certain terms on which he is willing to negotiate he does not make an offer, he only
invites the other party to make an offer on those terms.
EXPLAINATION: An offer to create a contract it must be coupled with an intention
to get into legally binding obligation.
FACTS: Price Water House Silver, a leading auction house of the world declared
an auction of antique paintings on 24th December, but due to unavoidable
circumstances they had to cancel the auction. Motu Mallayya who is a famous
collector of the old paintings sues PWHS for breaching the contract.
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Once again you need not remember the name of the cases just try to understand the concept thereon.
LAW OF CONTRACT
(a) Motu Mallayya shall win as cancelling the auction is breach of legal obligations.
(b) Motu Mallayya shall lose as he did not convey his willingness to participate in the
auction to Price Water House Silver.
(c) Motu Mallayya shall lose as acceptance of invitation to offer does not create any
obligation capable of being enforced by law.
(d) Motu Mallayya shall win because he always wins. ANSWER: C
It is self-explanatory as to why there has been no breach of contract in the present

instance. No offer had been made by PWHS that Motu Mallayya could have accepted
and which gave rise to legal relations between the two parties.
OFFER VS. INVITATION TO OFFER VS. COUNTER OFFER
• Offer is an expression of willingness of getting into a legal relationship, an

offer when accepted results into promise and finally culminates into a
contract.
• Invitation to offer is merely an invitation to the interested party to make an
offer. The person who makes the invitation is not the offeror but rather an
offeree.
• Counter offer is an offer in response to an offer. If any condition is attached
to acceptance or if in response to an offer if the offeree also makes an offer,
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such offer is called a counter offer. Counter offer or conditional acceptance
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does not create any contract, rather they create a new offer which may or may
not be accepted by the original offeror (now offeree vis a vis the new offer)
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ILLUSTRATION #10
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EXPLAINATION: Acceptance must be communicated to the offeror himself. A

communication to any other person is as ineffectual as if no communication has
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been made.
FACTS26: Shammi Kapoor (The plaintiff) proposed (by a letter) to purchase his
nephew, Ranbir Kapoor’s, horse. The letter said: ‘’I want to purchase your horse
named Chetak at Rs. 20.000, do not auction that horse to anyone else”. Ranbir sent
no reply to this letter but informed his staff that the aforementioned horse must not
be auctioned. Eventually the horse was sold by the staff by mistake to SRK. The
plaintiff sued the SRK on the ground that under the contract the horse had become
his property and therefore the defendant’s unauthorized sale amounted to unlawful
ownership as the horse already belongs to the plaintiff. DECIDE
(a) Ranbir is liable to his uncle, for breach of contract.
(b) The staff is liable for breach of contract, as Ranbir clearly instructed them not to
sell the horse and had in a way accepted the offer of Shammi.
(c) Shammi must, instead of SRK, sue Ranbir and his staff for breach of contract.
(d) Nobody is liable.
26Facts similar to Felthouse v. Bindley.
LAW OF CONTRACT
It is clear that the nephew in his own mind intended the uncle to have the horse, but
he had not communicated his intention to the uncle. As instructed by the principle,
the contract comes into being only when it is accepted. Since in the case in hand
there is no acceptance by the nephew, Mr. Ranbir, there is no legally binding
agreement.
ILLUSTRATION #11
EXPLAINATION: Acceptance must be communicated to the offerer himself. A
communication to any other person is as ineffectual as if no communication has been
made.
FACTS27: Shammi Kapoor (The plaintiff) proposed (by a letter) to purchase his
nephew, Ranbir Kapoor’s horse. The letter said: ‘’I want to purchase your horse
named Chetak at Rs. 20.000, do not auction that horse to anyone else and if don’t
get any reply in 7 days I shall assume that you have accepted my offer”. Ranbir sent
no reply to this letter but informed his staff that the aforementioned horse must not
be auctioned. Eventually the horse was sold by the staff by mistake to SRK. The
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plaintiff sued the SRK on the ground that under the contract the horse had become
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his property and therefore the defendant’s unauthorized sale amounted to unlawful
ownership as the horse already belongs to the plaintiff. DECIDE
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(a) Ranbir is liable to his uncle, for breach of contract.
(b) The staff is liable for breach of contract, as Ranbir clearly instructed them not to
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sell the horse and had in a way accepted the offer of Shammi.
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(c) Shammi must, instead of SRK, sue Ranbir and his staff for breach of contract.
(d) Nobody is liable.
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ANSWER: The correct answer is D.28

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Not only because the nephew never communicated the proposal to his uncle but also
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it is settled principle of law that the offerer cannot impose upon the offeree the burden
of refusal. The offerer cannot say that if no answer is received with a certain time, the
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offer shall be deemed to have been accepted. It is not open to an offeror to stipulate
against an unwilling offeree that the latter’s silence will be regarded as equivalent to
acceptance.
PROMISE30:
As defined by section 2(b) an offer when accepted becomes a promise. Since we have
understood as to what is offer and how it can be accepted, next we need to
understand the other essentials of a valid contract.
Promise gets converted into an agreement only if it is coupled with consideration.
There can be no agreement, least the contract, without lawful consideration.31 It can
be defined as the price paid for the promise or simply put anything given or taken
for the purpose of the agreement can be called the consideration. Minus the
consideration the promise remains a promise only and does not become an
agreement.
27 Facts similar to Felthouse v. Bindley.

28
Try to understand the difference between Illustration 10 and illustration 11.
30
Offer when accepted results into promise.
31
For detailed understanding refer to the Chapter: CONSIDERATION.
LAW OF CONTRACT
AGREEMENT:
Section 2 (e) defines agreement as every promise or every set of promises forming
consideration for each other.
That means agreement is a combination of reciprocal exchange of promises32 and
consideration.
But then not all agreements can be enforced by law, take for example an agreement
to kill someone33 cannot be enforced in a court of law.
What agreements are contract?

Section 10 of ICA provides-All agreement are contracts if they are made by the
free consent of parties competent to contract for a lawful consideration and
with a lawful object, and are not hereby expressly declared to be void.
Thus, every contract is an agreement, but every agreement is not a contract An
agreement grows into a contract when the following conditions are satisfied:
(1) There is some consideration for it.
(2) The parties are competent to contract.
(3) Their consent is free.
(4) Their object is lawful.
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32
Explained above.
33
Popularly called contract killing but then there is no contractual element in it.
LAW OF CONTRACT
CAPACITY TO CONTRACT 3
As discussed earlier, Section 10 of the Indian Contract Act34 provides that -All
agreements are contracts if they are made by the free consent of parties
competent to contract for a lawful consideration and with a lawful object,
and are not hereby expressly declared to be void.
An agreement grows into a contract when the following conditions are satisfied:
(a) The parties are competent to contract.
(b) There is some consideration for it.
(c) Their consent is free.
(d) Their object is lawful.
In the current chapter we shall talk about the first requirement of a valid contract
that the parties must be competent to contract, also referred to as the capacity of the
parties to contract.
Competence to contract is defined in Section 1135.
Who are competent to contract- Every person is competent to contract who is of the
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age of majority according to the law to which he is subject, and who is of sound
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mind, and is not disqualified from contracting by any law to which he is subject.
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The section declares the following person to be incompetent to contract:
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(1) Minors,
(2) Persons of unsound mind and
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(3) Person disqualified by law to which they are subject.

Let’s discuss, one by one, all of these factors which incapacitate one from entering
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into a contract.
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MINORITY
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Age of Majority
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The age of majority is generally eighteen years, except when a guardian of minor’s person
or property has been appointed by the court, in which case it is twenty one. The age of
majority of a person is to be determined according to the law to which he is subject.36
Nature of minor’s agreement

Section 10 requires that the parties to a contract must be competent to contract and
section 11 says that a minor is not competent. But either section does not make it clear
as to what will be the effect of the minor’s agreement. The position was made clear in
1903 by the Privy Council37 in Mohori Bibi vs. Dharmodas Ghose by declaring that an
agreement with a minor would be void ab initio (meaning void from its inception). If
we talk about the current times considering that most of you, if not all, are minors and
you enter into one or the other agreement every day be it in form of a simple agreement
of eating in a restaurant or watching a movie or perhaps something slightly bigger like
34
ICA
35
Once again, it’s not important to remember the section numbers.
36
Everyone in India is presumed to be guided by the provisions of Indian Majority Act, 1875, which provides for
the age of majority as 18 years.
37
It was the highest court of appeal in India before independence.
LAW OF CONTRACT
enrolling yourself with us CLAT MENTORS,38 it is not feasible to hold on to the

categorical declaration that a minor’s agreement is always ‘’absolutely void”. The law
recognizes that sometimes, a minor may enter into agreements for her/his benefit and
in cases where a contract is entered into by a minor for her/his necessity (mostly
education, but could be some other “necessity”, too), her/his estate (the sum of all
property in the name of the minor) could be made liable for the same.
Effects of minor’s agreement
A minor’s agreement is void ab-initio39 and hence it does not create any right or liability
for or against the minor or even his parents. The reason for such a proposition is that a
minor in law incapable of giving consent, and, there being no consent, there could be
no relationship or obligation capable of being enforced by the law.
ILLUSTRATION #1
PRINCIPLE 140: All agreements are contracts if they are made by the free consent of
parties competent to contract for a lawful consideration and with a lawful object.
PRINCIPLE 2: Every person is competent to contract who is of the age of majority
according to the law to which he is subject, and who is of sound mind, and is not
disqualified from contracting by any law to which he is subject.
EXPLAINATION: Minor means any person who has not completed the age of 18
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years.
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FACTS: Saiffi is a resident of Sundar Gaon, a beautiful village on the northern
borders of India. He studies in class 5 and is very good in studies. In one of the
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‘Nature Trips’ (class trips organized by school to make people aware about the
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surroundings) he was told by his science teacher that people across the border are
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also like us. From that day onward Saiffi decided to visit Pakistan and he told the
same to his friend Imam. Imam, who studies in the same class with Saiffi is son of a
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rich man of the village. After making elaborate plans the duo decided to go to
Pakistan on a rented horse and took a horse from shop of Gaffoor, after paying
security deposit of Rs. 500. The horse was taken by Imam but then he allowed Saiffi
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to ride the horse but he jumped and killed the horse. Gaffoor sued Imam for breach
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of contract and compensation for the loss of the horse. DECIDE

(a) Imam is liable to pay compensation to Gaffoor for the death of the horse but there
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is no contract and hence there cannot be any breach of contract.

(b) Saiffi is liable to pay the compensation as it was him who killed the horse.
(c) Gaffoor cannot claim anything as contract with a minor is void ab initio hence
there can be no obligation on Saiffi to pay.
(d) Imam and Saiffi’s parents are liable to pay.
ANSWER: C
As a contract with a minor is void ab initio, there can be no contractual obligation
on part of Saiffi to compensate Gaffoor.
ILLUSTRATION #2
38
I hope this decision of yours is proving itself to be fruitful so far and we have been able to meet your
expectations.
39
Void ab-initio means void from the very beginning or void from its inception.
40
LAW OF CONTRACT

years.
FACTS: Saiffi is a resident of Sundar Gaon, a beautiful village on the northern
borders of India. He studies in class 5 and is very good in studies. In one of the
‘Nature Trips’ (class trips organized by school to make people aware about the
surroundings) he was told by his science teacher that people across the border are
also like us. From that day onward Saiffi decided to visit Pakistan and the told the
same to his friend Imam. Imam, who studies in the same class with Saiffi is son of a
rich man of the village. After making elaborate plans the duo decided to go to
Pakistan on a rented horse and took a horse from shop of Gaffoor, after paying
security deposit of Rs. 5000. The horse was taken by Imam but then he allowed Saiffi
to ride the horse but he jumped and killed the horse. When they came back after 5
days they asked Gaffoor for the security amount but he refused on the account that
they have killed his beloved horse. DECIDE
(a) Imam is liable to pay compensation to Gaffoor for the death of the horse but there
is no contract and hence there cannot be any breach of contract.
(b) Though there is no valid contract but since they killed the horse Gaffoor is right
at withholding the security amount.
(c) Gaffoor cannot claim anything as contract with a minor is void hence there can
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be no obligations on either side. AL
(d) Gaffoor is bound to return the money as an agreement on the basis of the doctrine
of restitution.
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ANSWER: D
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Option C appears close and in fact correct too but still D is better answer.
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Doctrine of Restitution. If a minor obtains property or goods by misrepresenting

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his age, he can be compelled to restore it, but only so long as the same is traceable
in his possession. Where the infant has sold the goods or converted them into
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liquid cash, he cannot be made to repay the value of the goods, because that
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would amount to enforcing a void agreement.

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ILLUSTRATION #3
years.
FACTS: Prem Shankar, a minor, succeeded in deceiving some money-lenders by
telling them a lie about his age, and so got them to lend him Rs. 40,000 on the faith
of his being adult and mortgaged41 his house as a security. When the money lenders
got to know about the truth they tried to recover the amount of principal and interest
and damages for fraud. Will they succeed?
(a) They will succeed because Prem Shankar committed the fraud.
(b) They will not succeed in getting the amount of principal and interest and damages
for fraud but they can retain the house which has been mortgaged.
(c) They will not succeed because Prem incompetent.
41
Mortgage means giving an immovable property as a security for loan.
LAW OF CONTRACT
(d) They will succeed because they did not know that Prem is a minor at the time
when they made the contract.
(e) They will not succeed in recovery of the amount of principal and interest thereon
because contract with the minor is no contract. Also, since no legal obligation is
created thereon they have to return the land. ANSWER: E
2. PERSONS OF UNSOUND MIND:
Don’t get carried away by all these illustrations not imposing

any liability on the minor. The legal principles or for that matter the entire theory
contained herein may not work in the real life as smoothly as it seems to work
here.
Persons of unsound mind are incompetent to contract. Any agreement by any such
person may be avoided if the court is satisfied that the person was incapable of
understanding the contract and the other party knew of such incapacity.
Section 12 explains as to who is a person of unsound mind.

What is a sound mind for the purposes of contracting: – A person is said to be
of sound mind for the purpose of making a contract if, at the time when he
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makes it he is capable of understanding it and of forming a rational judgment
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as to its effect upon his interests.
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A person, who is usually of unsound mind, but occasionally of sound mind, may make
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contract when he is of sound mind whereas a person, who is usually of sound mind,
but occasionally of unsound mind, may not make a contract when he is of unsound
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mind.
In India the agreement of a person of unsound mind is, like that of a minor,
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absolutely void.
3. INSOLVENT PERSONS.
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The third incapacity as regards a valid contract is that a person who has been
adjudicated as an insolvent44 cannot enter into a contract. The reason for such a rule
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is that an insolvent person cannot pay any damages45 in case of breach of the
contract thereby frustrating the very purpose46 for which the contracts are made.
44
Bankrupt, one whose assets are less than his liabilities.
45
Damages means the monetary compensation paid to the plaintiff for the breach of any legal obligation existing
in his favor. For a better understanding refer to chapter 2 in Book 1, Law of Torts.
46
The purpose for which the contracts are made is to give a sense of security, i.e. in case other party breaches
the contract one can go to the court for its enforcement and can recover damages for its breach.
LAW OF CONTRACT
FREE CONSENT 4
Why Free Consent is important?
The very purpose why one gets into a contract is to gain something for oneself, no
contract is entered into without any objective of profit or to gain some thing; keeping
the same in mind it is a very important for the one who is entering into a contract to
know the full import and all possible repercussions of entering into a contract. Ergo
free consent is a sine quo non47 of a valid contract. Furthermore, absence of free
consent makes a contract void or voidable.48
What is Free Consent?

Free consent is an essential requirement49 of a valid contract. The expression ‘’free
consent’’ is defined in section 14:
‘’Free consent’’ defined.—consent is said to be free when it is not caused by:
1) coercion, as defined in section 15, or
2) undue influence, as defined in section 16, or
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3) fraud, as defined in section 17, or AL
4) misrepresentation, as defined section 18, or
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5) mistake, subject to the provisions of Sections 20, 21 and 22.
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Consent is said to be vitiated when it would not have been given but for the existence
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of such coercion, undue influence, fraud, misrepresentation or mistake.

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In the current chapter we shall talk about all of the factors mentioned above.
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As Section 14 provides, free consent is said to be absent if an agreement is affected by

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any of the 5 vitiating factors referred above. The first four of the aforementioned factors,
i.e., coercion, undue influence, fraud and misrepresentation renders a contract voidable
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at the option of the party whose consent is taken otherwise than in accordance with law.
An agreement shall be void if the consent is affected or caused by “mistake”. For a better
understanding lets understand what void and voidable contracts are.
Void and Voidable Contracts

An agreement not enforceable by law is called void agreement.50 Such an agreement
is not enforceable at the option of either party. On the other hand an agreement
which is enforceable by law at the option of one or more of the parties thereto but
not at the option of the other party/parties is a voidable contract.
COERCION
An agreement to which consent is caused by coercion is voidable at the option of the
party whose consent was so caused. ‘’Coercion’’ is defined52 as:
47
Sine quo non of something means essentials of that thing.
48
Explained later in the chapter
49
For all other essentials of valid contract refer to chapter 2, section 10.
50
Section 2 (g)
52
Section 15
LAW OF CONTRACT
Coercion is the committing, or threatening to commit, any act forbidden by

the Indian Penal Code, or the unlawful detaining, or threatening to detain,
any property, to the prejudice of any person whatever, with the intention of
causing any person to enter into an agreement.
As the definition and literal meaning of the word coercion itself makes it clear,
coercion implies a situation or an agreement where the consent of the party is
obtained by unlawful means. Consider the following example.
Mr. X by threat of suicide, induced his wife and son to execute a gift deed in favour
of his brother (X’s Brother) in respect of certain properties which belonged to the wife
and the son. It was held by the court of law that the threat of suicide amounted to
coercion and such deed is therefore, voidable.53
Once again let’s understand the meaning of voidable contract with the help of this
example: In this case, the consent of the wife and the son was taken by unlawful
means i.e. by threat of suicide, since at the time this case came up before courts,
attempt to commit suicide was a punishable offence54 in India. Now since the consent
of the wife and the son is taken by improper means therefore, the contract is voidable
i.e. it’s up to the wife and the son whether to continue with the contract or discard
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it totally. AL
To threaten a criminal prosecution is not per se an act forbidden by the Indian Penal
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Code. Such an act could only be one forbidden by the Indian Penal Code if it
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amounted to a threat to file a false FIR.

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ILLUSTRATION #1
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PRINCIPLE 2: Coercion is the committing, or threatening to commit, any act

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forbidden by law. Coercion renders a contract voidable.

EXPLAINATION: Theory.
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FACTS: Radha is a young girl of 20 and perhaps the only female in her village who
has completed her graduation. Sukhi Lala (SL) is the land lord of the village and has
a reputation of being an exploiter of the poor villagers by misappropriation of the
loans and property pledged with him. Radha’s father Bapu Lal took a loan of 50
thousand from SL for Radha’s education @ 6% per annum but since Bapu Lal is an
illiterate person SL altered the loan contract to make the rate of interest as 16%.
When Radha found this, she threatened SL with criminal prosecution unless he
further gives her a loan of 80 thousand and that too @ 0% interest. SL agreed but
later wants to avoid the contract; can he do so? Advise him suitably.
(a) The contract is valid as Radha did not threaten to do any act forbidden by law.
(b) SL can avoid the contract as it is a clear case of coercion and hence the contract
is avoidable at the instance of SL.
(c) Radha is liable for extortion which itself is a punishable offence under IPC.
(d) SL cannot avoid the contract as he himself is a wrongdoer
53
Facts of the case: Chikam Amiraju vs. Chikam Seshama.
54
Section 309 of IPC makes an attempt to commit suicide a punishable offence.
55
LAW OF CONTRACT
ANSWER: A
As stated in the principle, ‘Coercion’ is the committing, or threatening to commit, any
act forbidden by law; in the case in hand Radha threatened SL with a criminal
prosecution which cannot be called unlawful or forbidden. But if Radha would have
threatened SL with false prosecution she would have been liable.
ILLUSTRATION #2
PRINCIPLE 2: Coercion is the committing, or threatening to commit, any act
forbidden by law. Coercion renders a contract voidable.
FACTS: Radha is a young girl of 20 and perhaps the only female in her village who
has completed her graduation. Sukhi Lala (SL) is the land lord of the village and has
a reputation of being an exploiter of the poor villagers through loan frauds. Radha’s
father Bapu Lal took a loan of Rs. 50,000 from SL for Radha’s education at @ 6% per
annum despite the fact that generally loans are given at @ 5% per annum but since
Bapu Lal is an illiterate person he did not object to the same. When Radha found
this she threatened SL with criminal prosecution for theft unless he further gives her
a loan of 80 thousand and that too @ 0% interest. SL agreed but later wants to avoid
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the contract; can he do so? Advise him suitably. AL
(a) The contract is valid as Radha did not threaten to do any act forbidden by law.
(b) SL can avoid the contract as it is a clear case of coercion and hence the contract
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is avoidable at the instance of SL.
(c) Radha is liable for extortion which itself is a punishable offence under IPC.
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(d) SL cannot avoid the contract as he himself is a wrongdoer

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ANSWER: B. Refer to the previous illustration for explanation.

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UNDUE INFLUENCE
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The Contract Act defines undue influence.

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A contract is said to be induced by ‘’undue influence’’ where the relations

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subsisting between the parties are such that one of the parties is in a position
to dominate the will of the other and use that position to obtain an unfair
advantage over the other56.
Sometimes the parties to an agreement are so related to each other that one of them is
able to dominate the will of the other. The person who occupies the superior position
may impose their will on such other party to enter into an agreement that they would
not have entered into, but for the influence so exerted. Examples of someone in such
superior position would be your parents, spiritual advisers (guru), teachers, boss etc.
The idea is that there must be an imbalanced power dynamic in favour of one party to
a contract, and the abuse of such an imbalanced power dynamic to enter into an unfair
contract.
ESSENTIALS OF UNDUE INFLUENCE
There are three essentials of Undue Influence:
• Position of dominance (Real or Apparent authority)
• Use of the position.
• Unfair advantage.
56
Section 16.
LAW OF CONTRACT
POSITION OF DOMINANCE
A party is said to dominate the will of other in cases where there is active trust and
confidence between the parties or the parties are not on equal footing. For example,
in Willams v Baylex, where a father, being afraid of the bank manager’s threatened
prosecution of his son, agreed to give an equitable mortgage to the bank on his
property in return for the promissory notes which were forged by his son. The
agreement was held by the House of Lords57 to be voidable.
Real or Apparent authority.—A person in authority is definitely able to dominate the will
of the person over whom the authority is held. The authority may be real or apparent. The
expression ‘’apparent authority’’ would include cases in which a person has no real
authority, but is able to approach the other with a show or color of authority.
Example: Person in real authority would include an income tax officer in relation
to an assessee; a magistrate or police officer in relation to an accused person and the
like. An example of apparent authority could be a spiritual guru, or other fiduciary
relations.58
Use of the position and an Unfair Advantage:
Undue influence is said to be exercised if the person not only has a position of
authority but also uses that position to obtain an unfair advantage but there is no
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undue influence if a person with authority does not use that authority. Take for
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example my boss has a real authority over me, now if he wants to buy my Rolex
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watch at 20% less the market value using his position making me aware of my due
promotion, I perhaps might not say no … he being my boss and also because I don’t
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want to lose out on the promotion. On the other hand if he wants to buy my watch
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and asks me the price without exercising any undue influence or without showing
the adversities of rejection then it is not a case of undue influence.
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ILLUSTRATION #3
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PRINCIPLE 2: A contract is said to be induced by ‘’undue influence’’ where the
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relations subsisting between the parties are such that one of the parties is in a
position to dominate the will of the other and uses that position to obtain an unfair
advantage over the other
FACTS: Amar Chand having advanced money to his son, Mangal Das, during his
minority, upon Mangal's becoming a major, obtains a bond from Mangal for a greater
amount than the sum due in respect of the advance, though Mangal initially signs
such a bond but later sues Amar Chand calling the contract voidable at Mangal’s
instance. DECIDE
(a) There is no Undue influence on the part of Amar chand as he being the father he
is entitled to certain privileges over his son.
(b) It is a case of Undue influence because when Mangal took the money he was a minor
(c) It is not a case of Undue influence because there is no bad intention on the part
of Amar.
(d) It is a case of Undue influence because Amar took advantage of his parental
influence to obtain an unfair advantage over his son. ANSWER: D
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Earlier the highest court in England.
58
Fiduciary relations means relations based on love affection and trust.
LAW OF CONTRACT
Examples of Undue Influence: ( 1) Parent and child.(2)

Guardian and ward.(3) Trustee and beneficiary.(4) Spiritual master and
disciple.(5) Lawyer and client.(6)Doctor and patient. FIND MORE EXAMPLES
YOUR SELF.
(1) Parent and child
(2) Guardian and ward
(3) Trustee and beneficiary
(4) Spiritual master and disciple
(5) Lawyer and client
(6)Doctor and patient.
FRAUD
Fraud exactly means what the general meaning of this word conveys i.e. to knowingly
cheat someone to obtain an unlawful advantage. It must be kept in mind that such
act of misrepresentation or Cheating must be deliberate or intentional. Consider the
following examples for a better understanding.
ACTIVE CONCEALMENT vs. PASSIVE CONCEALMENT
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Active concealment is something different from mere passive concealment.
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Passive concealment means mere silence as to material facts. In active
concealment a party takes positive steps to prevent the information from reaching
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the other party and this is fraudulent.
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ESSENTIAL ELEMENTS OF FRAUD:

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An assertion or representation or active concealment by a person or his agent:

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(a) Such assertion or representation or active concealment must relate to the fact of
the agreement.
(b) Such assertion or representation or concealment should be made with knowledge
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of it being untrue, or be made recklessly or carelessly, whether it is true or false,

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and be made with intent to deceive.

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(c) It should have been made with a view to inducing the other party to enter into a
contract.
(d) The other party must be thereby indemnified.
Concealment by mere silence is no fraud.
False impression is ordinarily conveyed by deliberate misstatement of facts. But it
may also be done by concealment of material facts. Generally, mere silence is no
fraud, even if its result is to conceal.
When silence is fraud?

• Silence amounts to fraud when there is a duty to speak. Duty to speak arises
where one contracting party reposes trust and confidence in the other. The duty
to disclose the truth will arise in all cases where one party reposes, and the other
accepts, confidence. Duty to speak also arises where one of the parties is utterly
without any means of discovering the truth and has to depend on the good sense
of the other party.
For example: A contract of insurance is a contract of absolute good faith
(“uberrimae fidei”) because one party (insure) has to depend on the disclosures by
the insured. In the absence of any such relationship there is no duty to speak
and mere silence, even if it amounts to misrepresentation will be no fraud.
LAW OF CONTRACT
• Silence amounts to fraud where Silence is Deceptive. — Silence is sometimes

itself equivalent to speech. A person, who keeps silent, knowing that his silence
is going to be deceptive, is no less guilty of fraud.
Example  If I try to sell you an accidental car without making disclosures
MISREPRESENTATION
A representation is an inadvertently false statement of fact, made by one contracting
party to the other on the basis of which the other party enters into a contract. For
better understanding, think of the grounds of misrepresentation as diluted grounds
for fraud. Misrepresentation, simply put, is fraud which is not quite there yet.
Example: Aman, by misrepresentation, leads Babloo erroneously to believe that 500
metric tons of Indigo is made annually at Aman's factory. Babloo examines the
accounts of the factory, which show that only 400 metric tons have been made. After
this, Babloo buys the factory. The contract is not voidable on account of A's
misrepresentation.
ESSENTIAL ELEMENTS OF MISREPRESENTATION

As per section 18 of the ICA, following are the essential elements of
misrepresentation:
(a) Making of unwarranted statements which are not true although the person
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making it believes it to be true. AL
(b) Any breach of duty giving advantage to the person committing it and thereby
misleading another to his prejudice; and
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(c) Causing a party to an agreement to make a mistake as to the substance of the
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thing which is the subject-matter of the agreement.

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Consequence of Coercion, Undue influence, Fraud and Misrepresentation

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When consent to an agreement is caused by coercion, fraud or misrepresentation or

undue influence, the agreement is a contract voidable at the option of the party
whose consent was so caused.
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A party to a contract, whose consent was cause by fraud or misrepresentation may, if

he thinks fit, insist that the contract shall be performed, and that he shall be put in the
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position in which he would have been if the representations made had been true.
Exception.— If such consent was caused by misrepresentation or by silence which is

fraudulent, the contract, nevertheless, is not voidable, if the party whose consent was
caused had the means of discovering the truth with ordinary diligence.
Explanation.— A fraud or misrepresentation which did not cause the consent to a
contract of the party on whom such fraud was practiced, or to whom such
misrepresentation was made, does not render a contract voidable.
EXAMPLES
(a) Aman, intending to deceive Babita, falsely represents that five hundred metric
tons of indigo are made annually at Aman’s factory and thereby induces Babita
to buy the factory. The contract is voidable at the option of Babita.
(b) Aman, by a misrepresentation, leads Babita erroneously to believe that five
hundred metric tons of indigo are made annually at Aman’s factory. Babita
examines the accounts of the factory, which show that only four hundred metric
tons of indigo have been made. After this Babita buys the factory. The contract
is not voidable on Account of Aman’s misrepresentation as Babita chose to
purchase the factory even after exercising due diligence.
LAW OF CONTRACT
(c) Aman fraudulently informs Babita that Aman’s estate is free from encumbrance.
Babita thereupon buys the estate. The estate is subject to a mortgage. Babita
may either avoid the contract, or may insist on its being carried out and the
mortgage debt redeemed.
(d) Babita, having discovered a vein of ore on the estate of Aman, adopt means to
conceal, and does conceal, the existence of the ore from Aman. Through Aman’s
ignorance Babita is enabled to buy the estate at an under-value. The contract
is voidable at the option of Aman.
(e) Aman is entitled to succeed to an estate at the death of Babita; Babita dies:
Chandan, having received information of Babita’s death, prevents the intelligence
reaching Aman, and thus induces Aman to sell him his interest in the estate.
The sale is voidable at the option of Aman.
MISTAKE
Mistake is when both or all the parties to the contract are under mistake as to any
fact essential to the contract. Also if there is absence of consensus as regards the
value of the subject matter that may not be an example of mistake.
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LAW OF CONTRACT
LAWFUL OBJECT AND LAWFUL

CONSIDERATION 5
For an agreement to become a contract there must be lawful consideration and a
lawful object. In the current chapter, we shall talk about these two essentials
of a valid contract.
LAWFUL OBJECT
The purpose or the object for which a contract is being entered into must be lawful.
Any agreement the purpose of which is unlawful does not culminate into a contract
and hence is never enforceable by a court of law.
Example: An agreement to kill61 someone is not coupled with a lawful object and
hence is not enforceable.
What objects are lawful?
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Section 2362 of ICA answers that question by stating the following: AL
What considerations and objects are lawful and what not- The consideration or
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object of an agreement is lawful, unless

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• it is forbidden by law; or
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• is of such a nature that, if permitted, it would defeat the provisions of any law; or
• is fraudulent; or
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• involves or implies injury to the person or property of another or;

• The Court regards it as immoral, or opposed to public policy.
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In each of these cases, the consideration or object of an agreement is said to be

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unlawful. Every agreement of which the object or consideration is unlawful is void.

Consider the following examples:
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EXAMPLES
(a) Aman, Babita and Chandan enter into an agreement for the division among them
of gains acquired, or to be acquired, by them by fraud. The agreement is void,
as its object is unlawful.
(b) Aman promises Babita to drop a prosecution which he has instituted against
Babita for robbery, and Babita promises to restore the value of the things taken.
The agreement is void, as its object is unlawful.
ILLUSTRATION #1
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Though it is called ‘Contract Killing’ but there is hardly anything contractual in it, it should rather be called
‘Agreement Killing’ (I know, Bad joke).
62
Remember, you don’t have to learn section numbers.
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LAW OF CONTRACT
PRINCIPLE 2: Every agreement of which the object or consideration is unlawful is

void.
EXPLAINATION: The object of an agreement is lawful, unless it is forbidden by law;
or is of such a nature that, if permitted, it would defeat the provisions of any law; or
is fraudulent.
FACTS: Aman promises to obtain for Babita an employment in the reputed Civil
Services of India and for that purpose asks Babita to pay her some amount to be
paid as a bribe to superior officers. Babita pays Rs.10,00,000 to Aman and records
the transaction into writing and gets it signed by Aman. Later she finds out that she
is not selected. She goes to Aman to claim her amount back but Aman refuses. Babita
sues Aman. Will she win?
(a) She will win because Aman has signed the contract.
(b) She will win because Aman is bound under contractual obligation to pay since
he could not do the work.
(c) Babita cannot claim as the agreement is void.
(d) Babita shall win because she has a curitton proof of the transaction
ANSWER: C
ILLUSTRATION #2
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PRINCIPLE 2: Every agreement of which the object or consideration is unlawful is void.
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EXPLAINATION: The object of an agreement is lawful, unless it is forbidden by law;
or is of such a nature that, if permitted, it would defeat the provisions of any law; or
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is fraudulent.
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FACTS: Aman, being an agent for a landlord, agrees for money, without the
knowledge of his principal (the landlord), to obtain for Babita a lease of land
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belonging to his principal (the land lord). What is the validity of this agreement?
(a) The agreement is valid.
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(b) The agreement is void.

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(c) The agreement is voidable.

(d) The agreement is enforceable.
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ANSWER: B
The agreement is void because it is fraudulent towards the landlord.
LAWFUL CONSIDERATION:
Consideration is defined as: An act or forbearance of one party, or the promise thereof,
is the price for which the promise of the other is bought and the promise thus given for
value is enforceable
Consideration is just restatement of the basic rule of quid pro quo which means
something for something else. Thus, consideration may take the form of delivery of
anything which has a money value, or payment of money itself or rendering some
services, or doing something or a promise to do any or all of those things. For
example, lending your notes to your friends in lieu of an ice-cream, here the
consideration for you is the ice-cream and for your friend it is your notes. Selling
your bike for Rs. 50,000 to your friend, here consideration is the bike and the money,
for your friend and you respectively.
Consideration can be in any form but it must in every case be lawful; check out the
following examples:
LAW OF CONTRACT
EXAMPLES
(a) Forbearance to sue for ejectment is good consideration for an agreement to pay
enhanced rent.
(b) A promises to pay B Rs. 1,000 at the end of six months if C, who owes the money
to B fails to pay it. B promises to grant time to C accordingly. Here, the promise
of each party is the consideration for the promise of the other.
(c) A promises, for a certain sum paid to him by B, to make good the value of his
ship if it is wrecked on a certain voyage. Here A's promise is the consideration
for B's payment and B's payment is the consideration for A's promise.
ESSENTIALS OF CONSIDERATION:
ICA defines Consideration as:
When at the desire of the promisor, the promisee or any other person has done
or abstained from doing, or does or abstains from doing, or promises to do or
to abstain from doing, something, such act or abstinence or promise is called
a consideration for the promise.
This definition sounds complex but then it’s really simple. All the ‘done’ and
‘abstinence’ used therein are there to convey the three tenses i.e. the consideration
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can be in past, present or future. AL
There are four essentials of lawful consideration:
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1. It is at the desire of the promisor: This means what shall be the amount of
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consideration absolutely depends upon the promisor (offerer) and not the
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promisee. I may sell my Mercedes Benz for 100 bucks or may sell my 10 dollar
pen at 100 dollars, that’s totally my outlook. However, courts may intervene
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when to their mind consideration is too less for a promise. This idea that courts
ought to intervene in cases of grossly disproportionate consideration is called
“peppercorn theory”.
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2. It can be in Past, Present or Future: ICA provides that consideration can be in

past, present or future, say for example, if you did something for a class mate
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yesterday and in return ask for something to be done today; that’s an example
of past consideration. Future considerations are in form of a promise, say when
you buy a car on loan the value of the car to be paid eventually, the consideration
of the car is paid in future. A simple day to day grocery transaction wherein you
pay some money and buy your groceries is an example of consideration in
present.
3. It must hold some value in eyes of law. As section 23 of ICA (stated above)
clearly provides, consideration must not only be lawful it must also be valuable
in eyes of law. For example in return of my car my mother gives me blessings,
these may be priceless for me but form no value in eyes of law and hence it
cannot be called a good consideration.
4. It must be a reciprocal undertaking66. As highlighted earlier, consideration is
nothing but quid pro quo i.e. something for something else, if it flows only from
one party it cannot be called valid consideration.
5. It may be furnished by any person, not necessarily the party to the contract.
Say for you buying anything its’s your dad who always pays, though he is not
the party to the contract.
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It’s more of a tit for tat kind of a thing.
LAW OF CONTRACT
6. It need not be Adequate. A peculiar thing about a lawful consideration is that

adequacy is not a criterion to decide its validity. Adequacy of consideration is
the look-out of the promisor and it is not the business of courts to adjudicate on
the sufficiency or insufficiency of consideration. Once again, I can sell my
Mercedes Benz at 10% of its actual value or even if I sell it for Rs. 1 it is absolutely
lawful to do so. No contract will be called invalid merely because the
consideration involved is lesser or higher than the actual value.
ABSENCE OF CONSIDERATION
Consideration is essential to every contract; a contract not supported by

consideration is void and can only be called a gratuitous promise, which in most
circumstances is unenforceable in law.
ILLUSTRATION #4
EXPLAINATION: Consideration is the price paid for the promise.
FACTS68: Vidya an old lady, by a deed of gift, made over certain property to her
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daughter, Balan, with a direction that the daughter should pay an annuity to Vidya's
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brother. By an agreement between the daughter of Vidya and the brother of Vidya,
Balan promised to pay the annuity. Balan, however, did not pay the annuity. Vidya's
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brother, Hemesh, sued Balan. Will he win?
ANSWER: In the current case the consideration moved from Vidya, the donor of the
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estate, though not from her brother, Himesh. This is sufficient consideration for
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Balan's promise to Vidya's brother because the principle says there must be a lawful
consideration. Also, the consideration is the price paid for the promise but it does
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not mention that consideration must necessarily be paid by or to a particular person.

Pre-existing legal obligation.-If a person is already bound by statutory or official
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duty to do a particular act, the performance of the act cannot be the consideration
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for a promise. Similarly, an agreement to perform a contractual duty with a person

to whom it is already owed is not made for consideration.
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ILLUSTRATION #5
EXPLAINATION: Consideration is the price paid for the promise.
FACTS69: Amarjeet Singh was engaged to marry Baljeet Kaur and Charanjeet Singh
promised Amarjeet Singh a sum of rupees 15 Lacs in consideration of his marrying
Baljeet Kaur, the money to be paid is more in nature of reward than dowry. Is the
contract valid as regards the requirement of consideration?
(a) The contract is not valid because there is no consideration on the part of Amarjeet.
(b) The contract is valid because consideration from Amarjeet is his marrying Baljeet Kaur.
(c) Contract is void for want of consideration.
(d) Contract is valid because there is consideration flowing from both sides though
not strictly as regards each other.
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Chinnaya v. Ramayya
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Shadwell v. Shadwell
LAW OF CONTRACT
ANSWER: D
On Amarjeet’s marriage with Baljeet Kaur, it can be said that the fulfilment of
Amarjeet's contract with Baljeet Kaur was sufficient consideration to support
Charanjeet's promise to pay the sum.
ILLUSTRATION #6
Every agreement of which the object or consideration is unlawful is void.
PRINCIPLE 2: Dowry in any form whatsoever is illegal.
EXPLAINATION 1: Consideration is the price paid for the promise.
EXPLAINATION 2: Any payment made for in relation to marriage is dowry.
FACTS70: Bhiku Pandey, an old man of 64 was very worried about his daughters.
Being desperate to find a suitable groom for his daughter he announced a reward of
1 million in his community to anyone who would marry his daughter. Anna Mhatre,
a young man of the community wanted some money to start his business, he found
the opportunity irresistible and agreed to marry the old man’s daughter despite that
she was 3 years elder to him. After marriage Anna Mhatre claimed the money but
Bhiku refused calling it dowry and illegal. Anna Mhatre on the other hand claimed
that the money promised was merely a consideration for him marrying the old man’s
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daughter. Can Anna Mhatre claim the amount? AL
(a) Anna Mhatre cannot claim as it is dowry. No contract with an unlawful
consideration is valid.
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(b) Anna Mhatre can claim because he has performed his promise and thereby even
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Bhiku must perform his promise.

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(c) Anna Mhatre is liable for punishment for demanding dowry as what he is
claiming is essentially a payment for and in relation with marriage.
(d) Anna Mhatre shall lose because the dowry in any form whatsoever is illegal, despite
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the fact that Bhiku announced it as reward but still it does not change its character
as it essentially remains a payment for and in relation with marriage.
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ANSWER: D 71
EXCEPTIONS TO CONSIDERATION
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In General a contract without consideration is void ab-initio, however in certain

exceptional cases a contract may be legal even if it is not supported by consideration.
Following are the exceptions to the general rule ‘contract without consideration is void’.
1. AGREEMENT MADE ON ACCOUNT OF NATURAL LOVE AND AFFECTION

An Agreement made without consideration is enforceable, if it is made between
parties in near relationships (Ex: Husband and wife / Brother and sister) out of love
and affection and is registered in writing. Consider the following illustration.
ILLUSTRATION #7
PRINCIPLE 2: An Agreement made without consideration is enforceable, if it is made
between parties in near relationships out of love and affection and is registered in writing.
70
Jammuna Das v. Ram Avtar
71
Try to understand the different illustration 5 and illustration 6
LAW OF CONTRACT
EXPLAINATION 1: Consideration is the price paid for the promise.

EXPLAINATION 2: an agreement without consideration is void.
FACTS72: A man named Lucky promised to transfer a house property in favour of
his wife, Monjulika. He put this agreement in the form of a deed and also registered
it. In the deed there was a mention of their frequent quarrels and arguments and
hence they had decided to live separately. After some time when the wife claimed the
house Lucky refused alleging that the agreement is void it being without any
consideration. Is this argument valid?
ANSWER: DO IT YOURSELF.
QUICK-CLUE: Is it made out of natural love and affection?
2. AGREEMENT TO COMPENSATE FOR PAST VOLUNTARY SERVICE
An agreement made without consideration is valid, if it is a promise to compensate,

wholly or in part, a person who has already voluntarily done something for the
promisor, or done something which the promisor was legally compellable to do.
Example:
Santa rescued Banta from drowning in the river. Bada Banta, Banta's father, in
gratitude for Santa's service, promises to pay Rs.10,000/- to Santa. This contract
between Santa and Bada Banta is valid, although it is not supported by consideration.
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3. AN AGREEMENT TO PAY TIME-BARRED DEBT73:
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Where there is an agreement, made in writing and signed by the debtor or by his
authorised agent, to pay wholly or in part a debt barred by the law of limitation, the
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agreement is valid even though it is not supported by any consideration.

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ILLUSTRATION #8
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PRINCIPLE 2: Where there is an agreement, made in writing and signed by the debtor
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or by his authorised agent, to pay wholly or in part a debt barred by the law of limitation,
the agreement is valid even though it is not supported by any consideration.
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EXPLAINATION 1: Consideration is the price paid for the promise. An agreement

without consideration is void.
FACTS: Aman owes Babita Rs 1000 but the debt is barred by the law of limitation.
Babita cannot file a suit for its recovery. Aman signs a written promise to pay Rs1000
on account of this debt. Babita now files a suit for the recovery of Rs.1000. Decide
(a) The contract is not enforceable as consideration is not lawful.
(b) No consideration, no contract; hence Babita shall loose the suit.
(c) The contract is enforceable as it has sufficient consideration.
(d) The contract is enforceable even though it is barred by limitation as it has been
acknowledged in writing.
ANSWER: D
72Raj lakhy Vs Bhootnath

73The limitation Act provides that if a debt is not recovered within the period of limitation,
the debt becomes legally unenforceable. Such a debt is called time barred debt. The limitation
act prescribes a period of 3 years for the recovery of the debt under a contract.
LAW OF CONTRACT
nt sued Aman for the remaining amounANSWER: Do it yourself.
QUASI CONTRACTS 6
INTRODUCTION:
The term quasi contract must not be confused with a form of a contract because it
is not. A quasi contract is not a contract though the obligations contained therein
are similar to a contract; there a quasi-contract is a relation resembling a contract.
At times quasi contracts are called Contracts Implied in Law.
Quasi contract74 can be defined as a fictional contract created by courts
for equitable, not contractual purposes. A quasi-contract is not an actual contract,
but is a legal substitute for a contract formed to impose equity between two parties.
The concept of a quasi-contract is that of a contract that should have been formed,
even though in actuality it was not.
Quasi contract is similar to contracts, in respect of the contractual obligation.
However, it is different from a contract, in respect that there is no formal agreement
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entered into by the parties. AL
It is used when a court finds it appropriate to create an obligation upon a non-contracting
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party to avoid injustice and to ensure fairness. It is invoked in circumstances of unjust
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enrichment and is connected with the concept of restitution.

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What is Unjust Enrichment?

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The principle of unjust enrichment is a general equitable principle which provides

that a person should not profit at another's expense and therefore should make
restitution for the reasonable value of any property, services, or other benefits that
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have been unfairly received and retained.

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Take for example, if I have taken free services from someone or accidently the bank
puts some money in my bank account, I am bound to pay for the services rendered
as well as return the money. This obligation to pay or return though is not based on
a prior-existing contract but there still exists a legal obligation. This legal obligation
is called quasi-contract in law.
How is quasi contract created?

Quasi-contract is a product of circumstance, where there is no offer and acceptance
but rather the circumstances surrounding the facts necessitate that the parties be
considered to be bound to discharge their obligations towards one another. Quasi-
contractual obligations is a product of implication of law because of the conduct and
relationship of the parties. This obligation is called quasi contractual obligation.
Quasi-Contractual Obligations:
1. Claim for necessaries supplied to a person incapable of contracting or on his account.
2. Reimbursement of persons paying money due by another, in payment of which
he is interested.
74 The term "Quasi" means similarity or "bears resemblance to".

LAW OF CONTRACT
3. Obligation of person enjoying benefit of non-gratuitous act.

4. Responsibility of finder of lost goods.
5. Liability of person to whom money is paid or thing delivered by mistake /under coercion.
EXAMPLES76
1. Aman supplies Babita, a mentally unsound person, with necessaries suitable to
his condition in life. Aman is entitled to be reimbursed from Babita’s property.
2. Aman, sub-tenant, pays the arrears of rent due by the tenant to the landlord, in
order to save the tenancy from forfeiture.
3. Aman & Sons delivers a basket containing fruits to Mrs. Babita, by mistake. Mrs.
Babita and his family consume it, despite knowing that the fruits are not
intended for them. Now, the family must compensate Aman & sons.
4. Aman finds a purse left behind by a passenger in a bus. If he takes custody of it,
he is under an obligation to restore it to its owner.
5. Aman and Babita jointly owe Rs 5000/- to Chandan, Aman alone pays the
amount to Chandan, and Babita, not knowing this fact, pays Rs 5000/- over
again to Chandan. Chandan is bound to repay the amount to Babita.
ILLUSTRATION #1
PRINCIPLE 1: A person is liable to pay the price of goods when it is sold to him.
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EXPLAINATION: If a person uses goods, which are left to his care due to mistake by
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another person, he has to compensate to other person for any loss or destruction.
FACTS: Aman Sweet Wala is a famous sweet shop in Delhi. Apart for being famous
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for the quality of the sweets they also have reputation of providing the quickest home
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delivery. One evening a delivery boy from Aman Sweet Wala delivered a carton of
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sweets at Mr. Santa’s residence. The delivery boy told Mr. Santa that the sweets were
ordered by his wife. When Mrs. Santa came home in the evening, she told him that
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she did not order any sweets. Nevertheless, the entire family finished all the sweets.
Next morning the delivery boy came again to Mr. Santa's residence and explained that
by mistake he delivered the carton to them, in fact it was to be delivered to their next-
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door neighbour, Mr. Banta. When Mr. Santa told him they had already consumed the
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sweets, the boy on behalf of his employer asked them to pay the price of sweets.
(a) Aman Sweet Wala cannot claim the amount as it was the fault of their employee.
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(b) Aman Sweet Wala is entitled to claim the price from Mr. Banta because they
consumed the sweets with the knowledge that they did not order the sweets.
(c) Aman Sweet Wala, cannot claim the price because there was no contract or
agreement between them and the defendants and hence there is no legal obligation
to pay.
ANSWER: B
Based on the principle of unjust enrichment and also the explanation given herein
which provides that if a person uses goods, which are left to his care due to mistake
by another person, he has to compensate to other person for any loss or destruction.
Since in the current case the family has eaten the sweets which were not meant for
them, they are bound to pay.
ILLUSTRATION #2
PRINCIPLE 1: Reimbursement of persons paying money due by another, in payment
of which he is interested is a quasi-contract and hence enforceable by law.
PRINCIPLE 2: Beneficiary of an implied contract is liable to the other party.
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The examples correspond to the situations given above.
LAW OF CONTRACT
FACTS: Santa and Banta are childhood friends and though they live in different
houses, they are always together. One day when Santa was at Banta’s house their
common friend Lucky Iyer came to Banta’s house but at that time Banta was not at
home. Lucky reminded Santa of the loan that he and Banta took from him during
the college days. Santa immediately paid back the entire amount and also the
amount due on the part of Banta and also thanked Lucky for his generosity in the
college days. Later Santa claimed half of the amount from Banta as he was liable to
Lucky. Banta refused to pay saying that Santa paid without his permission and also
that he has no legal obligation to pay. DECIDE
(a) Banta is liable to pay as he has a legal obligation to pay, considering the fact
some work is done for him in which he was interested.
(b) Banta is liable to pay as it is a clear case of quasi contract.
(c) Banta is not liable to pay as he never authorized Santa to make payments on his
behalf.
(d) Banta is not liable to pay as there is no proof that Lucky actually is entitled to
the said amount. ANSWER: A
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LAW OF CONTRACT
THE BREACH OF CONTRACT 7

So far we have read how contract is created and what the essentials of a valid
contract are. In this last chapter of your second book we shall learn and understand
the consequences of breach of contract.
Breach of contract: Meaning
The Breach of contract means and includes the violations of the obligations of a binding
contract. This could be done by non-performance of the contract or by not performing
any essential condition or a term of a contract. If the party does not fulfill his contractual
promise, or has given information to the other party that he will not perform his duty as
mentioned in the contract or if by his action and conduct he seems to be unable to
perform the contract, he is said to breach the contract
Remedies for breach of contract
A legal remedy is the means by which a court of law , usually in the exercise of civil
law jurisdiction, enforces a right, imposes a penalty, or makes some other court
order to impose its will.
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There are three crucial remedies in the Indian law for the breach of a contract:
1. Damages78:
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of money by the person who has caused a breach to the person who has suffered from
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such breach of contract. This payment is commonly referred to as damages.

Compensatory damages compensate an injured victim or plaintiff, and punitive damages
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are imposed to set an example of the defendant. Punitive damages serve the function in
civil law that fines do in criminal law.
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2. Injunction:
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The injunction is a type of equitable remedy. Injunction means a court order

forbidding something from being done,79 or commanding something to be done.80
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Injunctions are issued where mere award of damages at the end of a case would not
be satisfactory or effective, or may lead to a greater harm or injustice. All injunctions
are granted at the discretion of the court and their violations are punished
by means of contempt of court proceedings.
3. Specific performance:
Specific performance is the third remedy in which someone who enters into a
contract is forced to perform whatever promise has been reneged upon.
We in particular talk about only the first of the remedies mentioned thereon, as other
two are not relevant from CLAT point of view.
On a breach of contract by a defendant, a court generally awards the sum that would
restore the injured party to the economic position they expected from performance
of the promise or promises.
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Please note that damages in the case of breach of contract are liquidated damages in comparison to
unliquidated damages in case of torts. The difference between the two is that the liquidated damages are
previously ascertained or determined whereas the unliquidated damages cannot be determined before
happening of the legal injury (for a better understanding refer to Book 1, Law of torts).
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Prohibitory injunction
80
Mandatory injunction
LAW OF CONTRACT
Notice the difference here: where a contract is held to be void, courts put the parties
in the position they would be in if the contract had not been entered into. Where it
is found that there is breach of a valid contract, damages are awarded to put parties
in the position they would be in if the contract had been fully performed.
Parties may contract for liquidated damages to be paid upon a breach of the contract
by one of the parties. Under common law, a liquidated damages clause will not be
enforced if the purpose of the term is solely to punish a breach.
How are damages calculated?
Though there are various theories to calculate the quantum of damages at this stage
of you need not all or even any of them, just remember the following two rules:
Firstly, the purpose of awarding damages is to put the aggrieved party in the same
situation which such party would have been had the contract been performed; and
Secondly, aggrieved party can make the party in default liable for only such damages
as the party in default was told at the time of formation of the contract or which such
party in default could reasonably foresee.
CONSIDER THE FOLLOWING EXAMPLES:
Example of Rule 1:
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Aman signs a contract agreeing to buy 10 hours of watchman services from Bahadur’s
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Security Services Pvt. Ltd. for 500 an hour. If Aman breaks the contract and doesn't use
any of Bahadur’s Services, expectation damages paid to Bahadur’s Security Services
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Pvt. Ltd would be 5000 (500x 10), which is the economic loss they suffered.
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If Bahadur’s Security Services Pvt. Ltd breaks the contract, and Aman is forced to hire
another service for 600 an hour, damages paid to Aman would equal 1000 (100 an hour,
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the difference in price between the original contract and the new contract).
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Example of Rule 2:
Consider the facts of Hadley vs. Baxendale
The claimants, Mr Hadley and another, were millers. They cleaned grain, ground it into
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meal and dressed it into flour, sharps, and bran. A crankshaft of a steam engine at the
mill had broken and Hadley arranged to have a new one made by W. Joyce & Co. in other
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town. Before the new crankshaft could be made, W. Joyce & Co. required that the broken
crank shaft be sent to them in order to ensure that the new crankshaft would fit together
properly with the other parts of the steam engine. Hadley contracted with defendants
Baxendale, to deliver the crankshaft to engineers for repair by a certain date at a cost of
£2. Baxendale failed to deliver on the date in question, causing Hadley to lose business.
Hadley sued for the profits he lost due to Baxendale's late delivery.
Here the question was whether the defendant can be made liable for loss of profits
or is he liable only for the delay. Or in other words the question raised was whether
a defendant in a breach of contract case could be held liable for damages that the
defendant was not aware would be incurred from a breach of the contract.
JUDGEMENT
The court declined to allow Hadley to recover lost profits in this case, holding that
Baxendale could only be held liable for losses that were generally foreseeable, or
if Hadley had mentioned his special circumstances in advance.
The mere fact that a party is sending something to be repaired does not indicate that
they would lose profits if it were not delivered on time. Where special circumstances
exist, provisions can be made in the contract voluntarily entered into by the parties
to impose extra damages for a breach.
LAW OF CONTRACT
Law of Contracts
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PRACTICE
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QUESTIONS
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LAW OF CONTRACT
1. PRINCIPLE: Acceptance of proposal must be the exact mirror image of the proposal.
FACTS: ‘A’ made a proposal to ‘B’ to sell a chair for Rs. 500. ‘B’ is desirous of buying
the said chair for Rs. 400.
(a) B has accepted the proposal of A.
(b) B has not accepted the proposal of A.
(c) It is not clear if B has accepted the proposal of A.
(d) It is not clear whether A made a proposal to B.
2. PRINCIPLE: An agreement with a boy below the age of eighteen years is not
enforceable by law.
FACTS: A man entered into an agreement with a girl of seventeen years of age.
(a) The agreement is enforceable by law.
(b) The agreement is not enforceable by law.
(c) The agreement is enforceable by the girl.
(d) No inference can be drawn.
3. PRINCIPLE: Sale of liquor is illegal. All agreements relating to prohibited items do

not exist in the eyes of law.
FACTS: ‘A’ entered into an agreement with ‘B’ for the sale of liquor. ‘A’ failed to supply
the agreed quantity of liquor to B.
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(a) B can bring a legal action against A. AL
(b) B cannot bring any legal action against A.
(c) A can bring a legal action against B.
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(d) A and B can initiate appropriate legal proceeding against each other.
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4. PRINCIPLE: The communication of a proposal is complete when it comes to the

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knowledge of the person to whom it is made.

FACTS: ‘A’ sent a letter making a proposal to ‘B’ to purchase the house of B.
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(a) The communication of proposal is complete when A sent the letter.

(b) The communication of proposal is complete when B’s wife received it.
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(c) The communication of proposal is complete when B’s wife handed over the letter
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to B.
(d) The communication of proposal is complete when B reads the letter.
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5. PRINCIPLE: An agreement may be entered into orally, in writing, or by conduct.

FACTS: ‘A’ went to the shop of ‘B’ and picked a tooth brush and gave a cheque of
Rupees twenty to B and left the shop.
(a) A entered into an agreement with B.
(b) A did not enter into an agreement with B.
(c) Payment of tooth brush cannot be made through a cheque.
(d) A should have carried a currency note of Rupees twenty to make the payment.
6. PRINCIPLE: Property consists of right to posses, right to use, right to alienate and
right to exclude others. Sale is complete when property gets transferred from the
seller to the buyer.
FACTS: ‘A’ sold his car to ‘B’. ‘B’ requested ‘A’ to keep the car in his care on behalf B
for one month. ‘A’ agreed.
(a) Sale of car is complete.
(b) Sale of car is not complete.
(c) Sale will be completed when B keeps the car in his own care.
(d) Sale will be automatically completed after the expiry of one month.
LAW OF CONTRACT
7. PRINCIPLE: A person, who is usually mad, but occasionally not mad, may make a
contract when he is not mad.
FACTS: ‘A’ generally remains in the state of madness and rarely becomes capable of
understanding anything.
(a) A can make a contract.
(b) A can never make a contract.
(c) A can make a contract at any time whenever he pleases.
(d) A can make a contract only for his own benefit.
8. PRINCIPLE: An agreement without free consent can be enforced only at the option
of the party whose consent was not free.
FACTS: A obtains the consent of B to enter into an agreement by putting a gun on
the head of B’s girl friend.
(a) B can enforce the agreement.
(b) B cannot enforce the agreement.
(c) A can enforce the agreement.
(d) Neither A nor B can enforce the agreement.
9. PRINCIPLE: Where one of the parties to a contract was in position to dominate the
decision of the other party, the contract is enforceable only at the option of the party
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who was in a position to dominate decision of the other party. AL
FACTS: A doctor asked his patient to make a payment of Rs. 10,00,000/- (Ten Lac Only)
for treatment of his fever. The patient paid an amount of Rs. 5,00,000/- (Five Lac Only)
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and promised to pay the remaining amount after the treatment. After treatment the
patient recovered from fever. The doctor demanded the remaining amount from the
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patient. The patient refused to pay.

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(a) The contract is enforceable against the doctor.

(b) The contract is enforceable against the patient.
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(c) The contract is not enforceable.

(d) The contract is not enforceable against the patient.
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10. PRINCIPLE: When, at the desire of one person, any other person has done or
abstained from doing something, such act or abstinence or promise is called a
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consideration for the promise.

FACTS: X, the uncle of Y, made a promise to pay him an amount of Rs. 1,00,000/-
as reward if Y quits smoking and drinking within one year. Y quit smoking and
drinking within six months.
(a) Consideration has moved from the side of X.
(b) Consideration has moved from the side of Y.
(c) No consideration has moved from the side of Y.
(d) Quitting smoking and drinking cannot be a consideration.
11. PRINCIPLE: Law never enforces an impossible promise.

FACTS: ‘A’ made a promise to ‘B’ to discover treasure by magic.
(a) Law will enforce the promise.
(b) Law will not enforce the promise.
(c) Law will enforce the promise only at the option of A.
(d) Law will enforce the promise only at the option of B.
12. PRINCIPLE: When a person who has made a promise to another person to do
something does not fulfill his promise, another person becomes entitled to receive,
from the person who did not fulfill his promise, compensation in the form of money.
LAW OF CONTRACT
FACTS: X made a promise to Y to repair his car engine. Y made the payment for
repair. After the repair, Y went for a drive in the same car. While driving the car, Y
met with an accident due to bursting of the tyre.
(a) X will be entitled to receive compensation from Y in the form of money.
(b) Y will be entitled to receive compensation from X in the form of money.
(c) X will not be entitled to receive compensation.
(d) Y will not be entitled to receive compensation from X.
13. PRINCIPLE: Mere silence as to facts likely to affect the decision of a person to enter
into a contract is not fraud.
FACTS: A sells to B (A’s daughter who is a minor) a horse which A knows to be
unsound. A says nothing to B about the unsoundness of the horse.
(a) A has committed fraud.
(b) A has committed no fraud.
(c) There cannot be a contract between a father and daughter.
(d) The daughter did not ask therefore the father did not tell, hence no fraud.
14. PRINCIPLE: When a party to a contract has refused to perform, or disabled himself
from performing, his promise in its entirety, the other party shall not put an end to
the contract.
FACTS: A engaged B on April 12 to enter his service on June 1, but on May 11, A wrote
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to B that his services would not be needed. On May 22, B joined C for employment.
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(a) B cannot put the contract to an end.
(b) B can put the contract to an end.
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(c) C can put his contract with B to an end.
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(d) A must pay damages to B.

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15. PRINCIPLE: Property can be transferred only by a living person to another living person.
FACTS: ‘A’ transfers property of which he is the owner in favor of the unborn child
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of B.
(a) Property has been transferred to the unborn child.
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(b) Property has been transferred to B.

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(c) Property has not been transferred to the unborn child.

(d) Property will be transferred to the unborn child after his birth.
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16. PRINCIPLE: An interest created dependent upon a condition fails, if the fulfillment
of the condition is impossible.
FACTS: A promises to pay Rs. Ten Lakh to B on condition that he shall marry A’s
daughter C. At the date on which A gave Rs. Ten Lakh to B, C was dead.
(a) B’s interest fails.
(b) B’s interest fails because of immorality.
(c) B’s interest fails because of prohibition by law.
(d) B’s interest does not fail.
17. PRINCIPLE: A condition must be complied with after the happening of the event to
which such a condition is attached.
FACTS: A promises to pay Rs. 5,000 to B on the condition that he shall marry with
the consent of C, D and E. B marries without the consent of C, D and E, but obtains
their consent after the marriage.
(a) B has fulfilled the condition.
(b) B has not fulfilled the condition.
(c) The condition is illegal.
(d) B must divorce his wife.
LAW OF CONTRACT
18. PRINCIPLE: A condition must be complied in order to claim the benefit of an agreement.
FACTS: A agrees to transfer a farm to B, if B shall not go to England within three
years after the date of the agreement, his interest in the farm shall cease. B does not
go to England within the term prescribed.
(a) B’s interest in the farm continues.
(b) B’s interest in the farm does not continue.
(c) B has a fundamental right to go to England or not to go to England and hence the
condition is illegal.
(d) The agreement between A and B is void.
19. PRINCIPLE: Terms of any written contract can be proved by producing the written
contract only and oral evidence is excluded.
FACTS: A gives B receipt for money paid by B. Oral evidence is offered to prove payment.
(a) Oral evidence to prove payment is allowed.
(b) Oral evidence to prove payment is not allowed.
(c) Oral evidence is always allowed to prove all facts.
(d) Oral evidence is generally disallowed.
PRINCIPLES FOR Q.20–Q.22:

I. A contract comes into being from the acceptance of an offer. When the person to
whom the offer is made signifies his assent thereto, the proposal is said to be
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accepted and the parties are at consensus ad idem regarding the terms of the
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agreement.
II. Consideration is something that moves from the promisee to the promisor, at the
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implied or express request of the latter, in return for his promise. The item that
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moves can be a right, interest, profit, loss, responsibility given or suffered,

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forbearance or a benefit which is of some value in the eyes of law.

III. Contractual rights and liabilities are exclusive to the parties to contract.
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IV. There are few exceptions to the doctrine of privity of contract like agency, trust,
assignment and third-party beneficiary.
V. A quasi contract is a contract that is created by the court when no such official
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contract exists between the parties to prevent a party from being unjustly enriched,
or from benefitting from the situation when he does not deserve to do so.
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20. FACTS: Goodtyre is a tyre manufacturer who agreed with their dealer to not sell the
tyres below a recommended retail price (RRP). As part of the agreement, Goodtyre also
required their dealers to gain the same agreement with their retailers, who in this
instance was Bestmotors. The agreement held that if tyres were sold below the RRP,
they would be required to pay Rs. 500 per tyre in damages to Goodtyre. This was agreed
between the dealer and Bestmotors, which effectively made Goodtyre a third-party to
that agreement. Sometime after this, Bestmotor sold the tyres below the agreed price
and Goodtyre sued for damages and an injunction to prevent them from continuing this
activity. Bestmotor is arguing that Goodtyre could not enforce the contract as it was not
part of the contract between the dealer and the Bestmotors. The court decided that
Goodtyre had no right to access damages. Which of the following are correct reasons?
I. Goodtyre could not claim for damages as only a party to a contract can claim
damages under it.
II. Goodtyre had not given any consideration to Bestmotors and therefore there could
be no binding contract between the parties.
III. Goodtyre was not listed as an agent within the contract and could therefore not
be included as a valid third-party who had rights to claim on the contract.
(a) I only (b) II only (c) I and II (d) I, II, III.
LAW OF CONTRACT
21. FACTS: Nandini, by deed of gift, made over certain landed property to Reena, her
daughter. By the terms of the deed, which was registered, it was stipulated that an
annuity of Rs. 3,000 should be paid every year to Subhashini, sister of Nandini.
Reena executed in Subhashini's favour an agreement promising to give effect to the
stipulation. The annuity was, however, not paid and Subhashini sued to recover it.
Reena is defending herself by claiming that there is no valid contract with
Subhashini. Which of the following can be ground/s for court's decision?
I. A promise is enforceable if there is some consideration for it and it is quite
immaterial whether it moves from the promisee or any other person.
II. Only a person who is a party to a contract may demand the execution of that
contract from other party. But if there is third party beneficiary to contract then
it is enforced to the extent of his\her benefit.
III. The agreement is valid as both Reena and Subhashini agreed to on the same thing
in the same sense.
IV. There is no privity of contract as Subhashini has furnished no consideration.
Reena had promised to Subhashini but consideration was furnished by Nandini.
(a) I, II (b) III, IV (c) I only (d) II only.
22. FACTS: Tanu's brother, Ishan, tries to talk her into building a greenhouse in her
large back-yard. She declines, but Ishan is convinced that, if she were surprised by
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a lovely greenhouse, she would love it. Knowing that Tanu makes good money, and
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could easily afford the greenhouse, Ishan contacts greenhouse builder Aditya, and
arranges to have him erect the structure while his sister is at work one day. Tanu is
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not happy by her brother's initiative, but the deed is done. Ishan has directed Aditya
to bill his sister for the greenhouse, and that turns out to be the biggest surprise for
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her. She declines to pay, and Ishan tells Aditya he cannot afford it. Aditya is now
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out, not only for payment for his many hours of hard work, but cash for the materials
he used. He files a civil suit to claim against both Tanu and Ishan. Decide.
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(a) Ishan is liable to pay as he has entered into contract with Aditya for his services.
(b) Tanu is not liable to pay as there is no contract between Aditya and Tanu.
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(c) Tanu is liable to pay Aditya the costs involved in building the greenhouse as she is
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being unjustly enriched by this deal.

(d) Tanu is liable as Ishan is her brother and was acting on her behalf under her implied
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consent as she liked greenhouse.
23. PRINCIPLE: Every partner is liable alone and jointly with other partners for the debts
of a partnership firm incurred for the business. Every partner is an agent of every other
partner while being a principal in his own right in the business of the partnership.
FACTS: Varun is a partner in a firm with Chinmoy and Jaffar. Jaffar purchases a
car for his personal purpose and obtains credit for the same in the name of the
partnership behind the back of the other partners. He fails to pay the due amount
on the expiry of the period of credit.
Which of the following statements is the most appropriate in relation to the legal
principle stated above?
(a) Varun, Chinmoy and Jaffar are liable to pay for the car since they are partners
and the credit was obtained in the name of the firm.
(b) Varun and Chinmoy are not liable to pay for the car since Jaffar purchased it for
his personal purpose.
(c) Varun, Chinmoy and Jaffar are liable as partners for all credit obtained in the
name of the firm even if it is for the personal purpose of a partner.
(d) Jaffar can use the credit of the firm to make purchases even for personal purposes
since he is a partner in the partnership.
LAW OF CONTRACT
24. PRINCIPLE: An agreement entered into by way of a wager/bet is unenforceable in law.

FACTS: Thomas is very good at predicting outcomes of cricket matches. Raja and Hoja
give him rupees thousand each to enable him to bet with others about the outcome of a
cricket match. Thomas wins rupees three lakh after betting three thousand rupees.
(a) Thomas must share rupees three lakhs with Raja and Hoja equally.
(b) Thomas must return rupees thousand each to Raja and Hoja.
(c) Thomas need not share Rs. three lakhs with Raja and Hoja since it is the outcome
of an unenforceable agreement.
(d) If Thomas does not pay them rupees two lakhs each, Raja and Hoja can sue him
to recover their share.
25. PRINCIPLE: An essential condition in a contract for sale of goods is that the seller
has title over the goods sold.
FACTS: Ranjan pays rupees two thousand and buys a watch from Mohit who runs
a watch showroom and a repair shop. Jatin sees the watch with Ranjan and tells
him that it is his watch and was only given to Mohit for repairs. If what Jatin says is
true, which of the following statements is the most appropriate in relation to the legal
(a) Ranjan is now the owner of the watch since he paid rupees two thousand for it.
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(b) Ranjan is not the owner of the watch since Mohit did not have a title to it.
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(c) Mohit must pay Jatin rupees two thousand since he sold Jatin’s watch.
(d) Mohit is the owner of the watch since he sold it to Ranjan.
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26. PRINCIPLE: Agreements in restraint of trade are void and unenforceable.

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FACTS: Manu has been working as a blacksmith in his village for many decades.
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Somu has been undergoing training with him for the past three years. After his
training is over, Somu enters into an agreement with Manu that he will not start a
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competing business in the same village while Manu is alive.

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(a) This agreement is void and unenforceable since it is a restraint on trade.

(b) This agreement is valid and enforceable since Manu is Somu’s teacher.
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(c) This agreement is valid but not enforceable after Manu’s death.
(d) This agreement is valid and enforceable since it is to protect Manu’s interest in
consideration for teaching Somu to be a blacksmith.
27. PRINCIPLE: A characteristic feature of partnerships is the principle of mutual
agency, i.e., every partner is an agent for every other partner and hence, will be able
to bind them by his act, within the business of partnership.
FACTS: Ram and Shyam are partners of M/s R & S Trading Company which trades
in rice varieties. Ram agrees to purchase ten tons of rice from Govind. Ram dies after
the rice is delivered to the premises of M/s R & S Trading Company but before the
payment of rice is made. Is the agreement binding on Shyam?
(a) Being partners, Ram’s agreement to purchase rice for their partnership, is not
binding on Shyam.
(b) Since Ram is no more, the agreement is not binding on Shyam.
(c) Being partners, Ram’s agreement to purchase rice for their partnership, is binding
on Shyam.
(d) The agreement is binding on Ram and not on Shyam since the rice is delivered
only to M/s R & S Trading Company and not to Shyam.
LAW OF CONTRACT
28. PRINCIPLE: ‘Gift' means transfer of certain existing property made voluntarily and
without consideration, by a donor, to a donee, and accepted by or on behalf of the
donee, during the lifetime of the donor.
FACTS: Amit executed a gift deed for property ‘X’ in favour of Sooraj, who happened to
be Amit’s loyal servant’s son settled in the U.S. Two months thereafter, Amit died
without leaving a will regarding his assets. Amit’s children initiated steps to partition
his entire property, including property ‘X’ among themselves. At that time, Sooraj came
to India, and learning about the gift, claimed the property ‘X’.
(a) Sooraj can legally get the property ‘X’, as soon as he gets to know about the gift.
(b) Sooraj cannot legally claim the property ‘X’ because, the children of Amit have
already initiated steps for partition.
(c) Sooraj can claim the property ‘X’, because, his acceptance of the gift is implicit by
his conduct of claiming the property as soon as he came to know about the gift.
(d) Sooraj apparently did not comply with the essential requirements of a gift and
hence, the entire property including property 'X', can be partitioned among the
children of Amit.
DIRECTION FOR Q.29–Q.31: Apply the legal principles to the facts given below and
select the most appropriate answer.
PRINCIPLES:
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I. Consideration is something that moves from the promisee to the promisor, at the
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implied or express request of the latter, in return for his promise. The item that
moves can be a right, interest, profit, loss, responsibility given or suffered,
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forbearance or a benefit which is of some value in the eyes of law.
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II. An offer may be revoked at any time before the communication of its acceptance
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is complete as against the proposer, but not afterwards.
29. FACTS: The defendant, Mr. Dhawan, wrote to the complainant, Mr. Chaman, with
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an offer to sell his house to him for Rs. 8,00,000. He promised that he would keep
this offer open to him until Friday. However, on the Thursday, Mr. Dhawan accepted
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an offer from a third party and sold his house. According to Mr. Chaman, he was
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going to accept this offer but had not said anything to Mr. Dhawan because he
understood that he had time until Friday. Mr. Dhawan communicated to Mr.
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Chaman that the offer had been withdrawn, through a friend to the complainant.
After hearing this, Mr. Chaman went to find the defendant, informing of his
acceptance to the offer. Thereafter, the complainant brought an action for specific
performance and breach of contract against the defendant. Whether the defendant’s
promise to keep the offer open until Friday morning was a binding contract between
the parties and whether he was allowed to revoke this offer and sell to a third party?
(a) The statement made by Mr. Dhawan amounts to a valid contract and he has
committed a breach by selling the house before Friday.
(b) The statement made by Mr. Dhawan was nothing more than a promise; there was
no binding contract formed. He had communicated an offer for buying his house to
the complainant and this offer can be revoked any time before there is acceptance.
(c) The communication by a friend or other party that an offer had been withdrawn
is invalid and could not be treated as if it came from the person himself.
(d) Promises to keep an offer open until a certain time is a binding agreement as it is
accepted by the other party.
30. FACTS: MXM Co. is a building contractor who entered into an agreement with Star
Heights Housing Association to refurbish a block of 27 flats. This contract was
subject to a liquidated damages clause, if they did not complete the contract on time.
LAW OF CONTRACT
The MXM Co. engaged Hasan to do the carpentry work for an agreed price of Rs.
20,000. After six months of commencing the work, Hasan realized, he had priced the
job too low and would be unable to complete at the originally agreed price. He
approached MXM Co., who recognised that the price was particularly low and was
concerned about completing the contract on time. MXM Co. agreed to make
additional payments to Hasan in return for his promise to carry out his existing
obligations. MXM Co. agreed to pay Hasan an additional Rs. 575 per flat. Hasan
continued work on the flats for a further period of 6 weeks but only received an
additional Rs. 5,000. He then ran out of money and refused to continue unless
payment was made. MXM Co. engaged another carpenter to complete the contract
and refused to pay Hasan any further sums. Hasan sued for payment under the
original agreement and the subsequent agreement. MXM Co. argued that the
agreement to make additional payments was unenforceable as Hasan has not
provided any consideration to make this agreement a valid contract.
(a) The agreement to pay extra was unenforceable as Hasan had provided no consideration
as he was already under an existing contractual duty to complete the work.
(b) Consideration was provided by Hasan in the form of conferring a benefit on the MXM
Co. by helping them to avoid the penalty clause. Therefore, MXM Co. was liable to make
the extra payments promised.
(c) There was no consideration provided by Hasan as to avoid the penalty clause was
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the main object of the contract. Therefore, MXM Co. was not liable to make the
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extra payments promised.
(d) MXM Co. is liable to pay compensation to Hasan as they have committed a breach
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of contract by employing another carpenter.
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31. FACTS: Bournville ran a sales promotion whereby if persons sent in 3 chocolate bar
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wrappers and a postal order for Rs. 100, they would be sent a record. Big Beats
owned the copyright in one of the records offered and disputed the right of Bournville
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to offer the records and sought an injunction to prevent the sale of the records which
normally retailed at Rs. 1,000. Under the Copyright Act, retailers are protected from
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breach of copyright if they gave notice to the copyright holders of the ordinary retail
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selling price and paid them 6.25% of this. Bournville gave notice stating the ordinary
selling price was Rs. 100 and three chocolate bar wrappers. The issue is whether the
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chocolate bar wrappers formed part of the consideration?

(a) The wrappers were a mere token or condition of sale and not consideration.
(b) The wrappers did form part of the consideration for the sale of records despite the
fact that they had no intrinsic economic value in themselves.
(c) The wrappers did not form part of the consideration for the sale of records as they
had no intrinsic economic value in themselves.
(d) There was consideration for the sale of records in the form of postal order for Rs.
100.
DIRECTION FOR Q.32–Q.33: Apply the legal principles to the facts given below and
select the most appropriate answer.
PRINCIPLES:
I. Offer is a proposal made by one person to another to do an act or abstain from
doing it. The person who makes the offer is known as the promisor or offeror and
the person to whom an offer is made is known as the promisee or the offeree.
II. A contract comes into being by the acceptance of an offer. When the person to
whom the offer is made, signifies his consent thereto, the proposal is said to be
accepted and the parties are at consensus ad idem regarding the terms of the
agreement.
LAW OF CONTRACT
32. FACTS: Tejas drove his car to a car park named Super Car Park (SCP).Outside the car
park, the prices were displayed and a notice stated cars were parked at the owner’s
risk. An automatic ticket vending machine provided a ticket, a barrier was raised and
Tejas parked his car. In small print on the ticket it was stated that the ticket is issued
subject to conditions displayed on the premises. On a pillar opposite to the machine
was a notice stating the owners would not be liable for any injuries occurring on their
premises. Tejas met with an accident and sought damages from SCP. SCP denied any
liability on the basis of the exclusion clause which was mentioned in the notice on the
pillar. Whether there is an offer and acceptance of the exclusion clause?
(a) There is a valid contract between Tejas and SCP as SCP had taken reasonable steps
to bring exclusion clause to Tejas’s attention at the time of making the contract.
(b) The contract was made when Tejas received the ticket and parked his car. The
ticket amounted to a contractual document which effectively referred to the terms
which were clearly visible on the premises.
(c) The machine itself constituted the offer. The acceptance was by putting the money
into the machine. The ticket was dispensed after the acceptance took place and
therefore the exclusion clause was not incorporated into the contract.
(d) The machine itself constituted the offer. The acceptance was by putting the money
into the machine and acceptance of the offer mean acceptance of all the terms of
the offer and hence SCP is not liable.
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33. FACTS: The plaintiffs offered to provide delivery of a machine tool for a price of Rs.
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75,535. The delivery of the tool was set for 10 months, with the condition that orders
only qualified as accepted once the terms in the quotation were met and prevailed over
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any of the buyer’s terms. The buyer responded to the offer with their own terms and
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conditions, which did not include the ‘price variation clause’, listed in the seller’s terms.
This included a response section which required a signature and to be returned in order
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to accept the order. The sellers returned this response slip with a cover letter signalling
that delivery would be in accordance with their original quotation. The tool was ready
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for delivery but the buyers could not accept delivery, for which the sellers increased the
price which was in line with their initial terms. This was denied by the buyer and an
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action was brought by the seller to claim the cost of delay and interest. Was a contract
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made with or without a price variation clause?

(a) The buyer’s order was not an acceptance of the initial offer from the seller but a
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counter-offer which the sellers had accepted by returning the signature section of
the buyer’s letter and so the contract was completed without the price variation
clause and therefore the seller could not increase the cost of the tool.
(b) The buyer’s order was an acceptance of the initial offer from the seller and so the
contract was completed with the price variation clause and therefore the seller
can increase the cost of the tool.
(c) The contract was made with price variation clause due to the condition that orders
only qualified as accepted once the terms in the quotation were met and prevailed
over any of the buyer’s terms.
(d) The contract between the buyer and seller is not valid as both the parties are not
agreeing to the same thing in the same sense.
34. PRINCIPLES:
I. ‘Misrepresentation’ means and includes the positive assertion, in a manner not
warranted by the information of the person making it, of that which is not true,
though he believes it to be true; any breach of duty which, without an intent to
deceive, gains an advantage of the person committing it, or any one claiming under
him, by misleading another to his prejudice, or to the prejudice of any one claiming
under him; causing, however innocently, a party to an agreement, to make a mistake
as to the substance of the thing which is the subject of the agreement.
LAW OF CONTRACT
II. The tort of negligent misstatement is defined as an inaccurate statement made

honestly but carelessly, usually in the form of advice given by a party with special
skill/knowledge to a party that doesn’t possess this skill or knowledge.
FACTS: The plaintiff, Mr. Madan, entered into a tenancy agreement with the defendant,
Esso Petroleum, in respect of a petrol station owned by the latter. During the course of
the negotiation of the agreement, ‘expert’ advisers employed by the defendant had
provided an estimate of the sales which the petrol station could expect which was based
on inaccurate information and consequently was significantly inflated. The value of the
rent on the agreement had been calculated based on this inflated figure. As a result, it
was impossible for the plaintiff to operate the petrol station profitably. Whether the
plaintiff could have any action for negligent misrepresentation?
(a) The contract could not be held void for misrepresentation as the defendants
presented the inflated figure as an estimate rather than as a hard fact.
(b) The defendant has no obligation to disclose as the parties contracting should obtain
the necessary information themselves without relying upon the other party.
(c) As the defendant had taken it upon themselves to employ experts for the purpose of
providing an estimate of sales, they owed a duty of care to the plaintiff to ensure that
this was done on the basis of accurate information. Hence, the plaintiff can recover
the losses which he had suffered as a result of the defendant’s negligent misstatement.
(d) Both (a) and (c).
S
35. PRINCIPLE: Ownership in property consists of right to possess, right to use, right to
AL
alienate and right to exclude others. Sale is complete when property gets transferred
from the seller to the buyer on sale.
TI
FACTS: ‘A’ sold his car to ‘B’. After this, ‘B’ requested ‘A’ to keep the car in his care
N
on behalf of ‘B’ for one month. ‘A’ agreed.

SE
(a) Sale of car is not complete.

(b) Sale will be completed when ‘B’ will take the delivery of the car.
ES
(c) Sale of car is complete.

(d) Sale will be automatically completed after the expiry of one month.
T
36. PRINCIPLE: Every agreement, by which any party is restricted absolutely from
LA
enforcing his right in respect of any contract, by the usual legal proceedings in the
ordinary tribunals, is void to that extent. The law also provides that nobody can
C
confer jurisdiction to a civil court by an agreement between parties.

FACTS: A and B entered into a valid contract for rendering certain service. A clause
in the contract was that in case of any dispute arose out of the contract; it shall be
referred to Arbitration only. Is the contract valid?
(a) Arbitration is also valid dispute settlement machinery recognized by law and
hence the entire contract is valid.
(b) The parties were trying to confer jurisdiction to some authority to decide a dispute
and hence the clause would be invalid.
(c) Arbitrator cannot be termed as an ordinary tribunal. Hence, the agreement is void
and would be unenforceable.
(d) The contract is valid but the clause regarding Arbitration is void.
37. PRINCIPLE: It is a case of fraud where a party to a contract knows or believes a fact
to be true, but conceals it actively from the other party with a view to induce that
person to enter into the contract.
FACTS: While taking a life insurance policy, in reply to questions by the insurance
company during the inquiry into his proposal, Zameer deliberately concealed the fact
of his medical treatment for a serious ailment, which he had undergone only a few
weeks ago.
LAW OF CONTRACT
(a) The act of Zameer did not amount to fraud, as disclosing the fact would have
resulted in exposure of his privacy.
(b) The act of Zameer amounted to innocent misrepresentation.
(c) The act of Zameer did not amount to any misrepresentation.
(d) The concealment of fact by Zameer amounted to fraud.
38. PRINCIPLE: Contract is a written or spoken agreement, with specific terms between
two or more persons or entities in which there is a promise to do something in return
for a valuable benefit known as consideration. Such an agreement is intended to be
enforceable by law. A unilateral contract is one in which there is a promise to pay or
give other consideration in return for actual performance.
FACTS: A Toilet Soap Manufacturing Company in India in order to promote the sale
of their product published an advertisement in all the Newspapers on January 1,
2017 that the Company has kept a model ignition key of an Audi A3 Car. The
advertisement also stated that whoever gets the said key before December 31, 2017
from a soap bar, will be gifted with the Audi A3 Car. Mr. Martin, a foreigner who
came to India as a Tourist, who was staying in a Hotel, found a Key similar to same
Car Ignition Key. Mr. Martin brought this matter to the notice of the Hotel Manager.
The Manager informed Mr. Martin about the Company’s advertisement on January
1, 2017. Mr. Martin wants to claim the Car. Will he succeed?
(a) No. The Soap Company has not entered into a contract with Mr. Martin as he was
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not in India on January 1, 2017 when the advertisement was published.
AL
(b) No. Actual intention of the Company was to promote the sale of the Soap.
(c) The Hotel Manager who could legally claim the Car as he was the one actually
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purchased the soap for the use in the Hotel.

N
(d) Mr. Martin obtained the Key before the stipulated date from the Soap Bar. So he
SE
is covered by the offer of the Soap Company and can claim the car.
ES
39. PRINCIPLE: When a person, who has made a promise to another person to do
something, does not fulfil his promise, the other person becomes entitled to receive,
from the person who did not fulfill his promise, compensation in the form of money.
T
FACTS: ‘X’ made a promise to ‘Y’ to repair his car engine. ‘Y’ made the payment for
LA
repair. After the repair, ‘Y’ went for a drive in the same car. While driving the car, ‘Y’
met with an accident due to bursting of a tyre.
C
(a) ‘Y’ will be entitled to receive compensation from ‘X’ in the form of money.
(b) ‘X’ will not be entitled to receive compensation.
(c) ‘X’ will be entitled to receive compensation from ‘Y’ in the form of money.
(d) ‘Y’ will not be entitled to receive compensation from ‘X’.
40. PRINCIPLE: If a party to a contract agrees to it under undue influence of any other
party, then the party under the undue influence may refuse to perform in accordance
with the agreement.
FACTS: A, a rich youngster became a member of a religious group and soon he was
appointed by P, the head of the group as his personal secretary. As per the rules of
the group, all officials and staff of the group were supposed to stay in the group’s
official premises itself. Some days later, A was asked by P to execute a gift deed in
favour of P, in which it was mentioned that all immovable properties in his name are
being gifted to P. A was unwilling to execute the deed, but he was forcefully restrained
by P and his body guards in P’s office and made A sign the gift deed. Soon after this,
A left the group and refused to hand over the property as agreed to in the gift deed.
Is A’s action valid?
(a) A executed the deed under compulsion and undue influence, and was right in
withdrawing from the contract.
LAW OF CONTRACT
(b) It is illegal for religious groups to acquire property from its members.
(c) As the gift deed was executed by A, he cannot refuse.
(d) As gift is also a contract, the consent of A was not obtained by P while executing deed.
41. PRINCIPLE: According to law, a person who finds goods belonging to another and
takes them into his custody is subject to the same responsibility as a bailee. Bailee is
a person or party to whom goods are delivered for a purpose, such as custody or repair,
without transfer of ownership. The finder of the goods legally can sell the goods found
by him under certain circumstances including the situation that the owner refuses to
pay the lawful charges of the finder.
FACTS: P, a college student, while coming out of a Cricket stadium found a necklace,
studded with apparently precious diamonds. P kept it for two days thinking that the
owner would notify it in a local newspaper. Since he did not notice any such
notification, P published a small classified advertisement in a local newspaper. In two
days’ time, P was contacted by a film actor claiming that it was her Necklace and
requested P to return it to her. P told her that she should compensate him for the
advertisement charges then only he would return it otherwise he will sell it and make
good his expenses. The film star told P that she had advertised in a national newspaper
about her lost Necklace which was lost somewhere in the Cricket Stadium. The
advertisement was published for three consecutive days incurring a large expenditure
for her. Mentioning all this, she refuses to pay P and claims the Necklace back. Which
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among the following is the most appropriate answer to this? AL
(a) P was requesting the film star for the actual expenditure incurred by him before
returning the Necklace. This request is legally sustainable.
TI
(b) The film star was right in refusing P, as she did not offer any reward for anyone
N
who would return the Necklace.

SE
(c) As it was wrong on the part of P to bargain over a property belonging to a celebrity and
he should have accepted some gift which might have been given by the film star and
ES
returned the Necklace instead of threatening her that he would sell it.
(d) As the film star had notified in the newspaper, P ought to have read it and contacted
her instead of publishing another notification. So he cannot claim any compensation.
T
LA
42. PRINCIPLE: An offer made by one party when accepted by another makes it a
contract.
C
In which of the following, there is a contract?

I. P offered to sell his house for Rs. 20 lakhs to R; R told P that he was interested to buy
a house for 15 lakhs only.
II. C was looking for a house for not more than 25 lakhs; P informed C that his house
was available for 20 lakhs.
III. K wanted to buy some old furniture; L told K that he would sell his furniture for
Rs. 10, 000.
IV. R advertised to sell his old car for a price of Rs. Three lakhs; S found the
advertisement and offered to buy it for Rs. 2 lakhs 50 thousand; R agrees to sell
it to S. Which among the above is actually a contract?
(a) Situations 1 and 2 are contracts.
(b) Situation 4 only is a contract.
(c) Situation 3 only is a contract.
(d) Situations 2 and 4 are contracts.
43. PRINCIPLE: Every agreement, of which the object or consideration is opposed to

public policy, is void. An agreement which has the tendency to injure public interest
or public welfare is one against public policy. What constitutes an injury to public
interest or public welfare would depend upon the time and the circumstances.
LAW OF CONTRACT
FACTS: ‘A’ promises to obtain for ‘B’ an employment in the public service, and ‘B’
promises to pay rupees 5,00,000/- to ‘A’.
(a) The agreement is void, as the object and consideration for it is opposed to public
policy.
(b) The agreement is void, because rupees 5,00,000/- is excessive.
(c) The agreement is valid, as it is with consideration for public service.
(d) The agreement is valid, as it is a contract between two parties with their free
consent.
44. PRINCIPLE: An agreement, the terms of which are not certain, or capable of being
made certain, is void.
FACTS: Sunder agreed to take Bhola’s penthouse on rent for three years at the rate of
rupees 12, 00, 000/- per annum provided the house was put to thorough repairs and
the living rooms were decorated according to contemporary style.
(a) There is a valid contract because there is an offer from Sunder and acceptance
from Bhola.
(b) There is a valid contract because all the terms of contract are certain and not
vague as the rent is fixed by both of them and the term ‘present style’ only can be
interpreted to mean the latest style.
(c) There is no valid contract because it has vague and uncertain terms, as the term
‘present style’ may mean one thing to Sunder and another to Bhola.
S
(d) It is voidable contract at the option of Bhola. AL
45. PRINCIPLE: According to law, a person is deemed to have attained the age of
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majority when he completes the age of 18 years, except in the case of a person where
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a guardian of a minor’s person or property has been appointed under the Guardian
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and Wards Act, 1890 or where the superintendence of a minor’s property is assumed
by a Court of Wards. Indian law expressly forbids a minor from entering into a
ES
contract. Hence, any contract entered into by a minor is void-ab-initio, regardless of

whether the other party was aware of his minority or not. Further, though a minor
is not competent to contract, nothing in the Contract Act prevents him from making
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the other party bound to the minor.

LA
FACTS: Lal executed a promissory note in favour of Gurudutt, aged 16 years, stating
that he would pay Gurudutt a sum of Rs. 2 Lakhs when he attains the age of majority.
C
On attaining the age of 18, Gurudutt demanded the amount from Lal, who refused
to pay. Gurudutt wants to take legal action against Lal. Identify the most appropriate
legal position from the following:
(a) A promissory note duly executed in favour of a minor is not void and can be sued
upon by him, because he, though incompetent to contract, may yet accept a
benefit.
(b) Gurudutt should not have entered into a contract with Lal when he was a minor.
(c) Lal was not aware of the fact that Gurudutt was a minor.
(d) Lal argues that as per the Guardian and Wards Act, 1890, Gurudutt can claim the
money only after he attains the age of 21.
46. PRINCIPLE: A contract would be invalid & unlawful, if the contract is for an immoral
or illegal purpose.
FACTS: P was a young and helpless widow, living on the pavement. R, a neighbour
gave her a house, registered in her name, on the condition that she should allow R
to keep his smuggled goods and drugs in her house. After the registration was done,
according to the condition in the contract, R’s agents went to keep some packets in
her house, she refused. R told her the condition under which the house was given to
her. She still refused. Is P justified in her action?
LAW OF CONTRACT
(a) P is not justified as she did not have the right to deny R’s request.
(b) As R was making the contract for illegal activities, P’s stand is valid in law.
(c) R can take back the house by cancelling the transfer deed.
(d) P is right as she did not like smuggled goods to be kept in her house.
47. PRINCIPLE: Acceptance of a proposal must be absolute and unqualified.
FACTS: ‘A’ made a proposal to sell his motorcycle to ‘B’ for Rs. 25,000/-. ‘B’ agreed
to buy it for Rs. 24,000/-. ‘A’ sold his motorcycle to ‘C’ for 26,000/- the next day. ‘B’
sues ‘A’ for damages.
(a) ‘B’ will get damages from ‘A’.
(b) ‘B’ will get the difference of rupees 1,000/- only.
(c) ‘B’ can proceed against ‘C’.
(d) ‘B’ will not get any damages from ‘A’.
48. PRINCIPLE: Where one of the parties to a contract was in a position to dominate the
decision of the other party, the contract is enforceable only at the option of the party
who was in a position to dominate the decision of the other party.
FACTS: A doctor asked his patient to make a payment of rupees Ten Lakh for
treatment of his fever. The patient paid an amount of rupees Five Lakh and promised
to pay the remaining amount after the treatment. After treatment, the patient
recovered from fever. The doctor demanded the remaining amount from the patient.
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The patient refused to pay. AL
(a) The contract is not enforceable without the consent of the patient.
(b) The contract is not enforceable as doctor was in dominating position.
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(c) The contract is enforceable against the doctor.
(d) The contract is enforceable against the patient by the doctor.
N
SE
DIRECTION FOR Q.49–Q.50:

PRINCIPLE: Contract is an agreement freely entered into between the parties. But,
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when consent to an agreement is obtained by undue influence, the contract is

voidable at the option of the party whose consent was so obtained.
T
FACTS: Pragya had been working for a business man Anurag since the age of 18,
LA
working for a range of anurag’s businesses. In 2000, (aged 21) Pragya purchased a
flat. In 2005, Mr. Anurag’s business was facing financial difficulties, and he asked
C
Pragya to offer up her flat as financial security against an overdraft facility for the
business. In July of that year, the bank’s solicitors wrote to Pragya, advising that she
should take independent legal advice before putting her property up as a security for
the debt. The bank also notified Pragya that the guarantee was unlimited in both
time and financial amount. Having discussed the arrangement with Anurag, Pragya
was unaware of the extent of the borrowing, but was assured that her mortgage
would not be called upon, and that his own properties which were also used as
security would be looked at first. A charge was executed over Pragya’s property in
August 2005. In 2009, Mr. Anurag's business went into liquidation and the bank
formally demanded Rs. 60,24,912/- from Pragya. Pragya raised the defence of undue
influence stating that Mr. Anurag had induced her to enter into the agreement, and
the bank had full knowledge/notice of this undue influence which should set aside
the bank’s right to enforce the debt recovery against Pragya. Bank is contending that
there is no undue influence.
49. Whether the consent to offer the flat as financial security was obtained through
Undue Influence?
(a) No, because Pragya was not forced by Anurag to offer her flat as a security.
(b) No, because Pragya was an educated and adult employee of Anurag and she knew
what she was doing.
LAW OF CONTRACT
(c) Yes, an employer/employee relationship was capable of developing into such a

relationship for undue influence. There was no benefit to Pragya in the agreement.
The lack of benefit to one party was evidence enough.
(d) No, an employer/employee relationship is not capable of developing into a
relationship for undue influence.
50. Irrespective of your answer to Q.49, assume it is a case of undue influence. Decide
whether the bank has done enough to allay concerns of undue influence?
(a) The bank had not made all reasonable steps to allay themselves of the concerns
regarding undue influence. The fact that on advice from the bank, the defendant
did not seek independent advice should have been taken as confirmation of undue
influence.
(b) Yes, the bank has advised pragya that she should take independent legal advice
before putting her property up as security for the debt.
(c) Pragya has a duty to be aware of the consequences of her act.
(d) Bank has done enough as it had notified Pragya that the guarantee was unlimited
in both time and financial amount.
51. PRINCIPLE: The acceptance must be absolute and unqualified, leaving no ground
for doubt or uncertainty. If the acceptance is conditional, no valid contract is formed,
and the offer can be withdrawn at any moment, till the absolute acceptance has
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taken place within reasonable time of such offer. AL
FACTS: Delhi government conducted an auction for the sale of license of wine shop.
X offered the highest bid which was provisionally accepted “subject to the
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confirmation of chief commissioner who may reject any bid without assigning any
N
reasons”. Since, X failed to deposit the required amount, chief commissioner rejected
SE
the bid. The government held X liable for the difference between the bid offered by
him and the highest bid accepted in reauction, and commenced proceedings for the
ES
recovery of the sum. It was contended on behalf of the government of Delhi that X
was under a legal obligation to pay the difference as it was due to his default that a
resale of the excise shop was ordered and hence X was liable for the deficiency in
T
LA
price and all expenses of such resale which was caused by his default.
Decide, giving reason, whether X is liable to make payment to the Delhi government.
C
(a) No, X is not liable to make payment as the shop was sold to the highest bidder.
(b) X is liable to pay because the government of Delhi has to conduct re-auction and
also suffered loss in the sale of the shop.
(c) X is liable because his bid was accepted but he failed to deposit the required
amount on time.
(d) No, contract for sale was not complete till the bid was confirmed by the chief
commissioner and till such confirmation, the bidder was entitled to withdraw the bid.
52. PRINCIPLES:
I. Wagering agreements are void.
II. Collateral agreements to wagering contracts are valid.
FACTS: XYZ Bank lends Rs. 40,000 to Sabu in order to enable him to award as prize to
Randeep who is the winner of horse race. Later, Sabu refused to pay the prize stating
that horse racing is wagering agreement. Can XYZ Bank recover money from Sabu?
(a) Yes, it is only a collateral agreement to horse racing and therefore the bank can
recover the money from Sabu.
(b) Horse racing is illegal and therefore XYZ Bank cannot recover anything from Sabu.
(c) No, as it is a wagering contract.
(d) Bank can recover money from Sabu so that payment of prize money can be made
to Randeep.
LAW OF CONTRACT
53. PRINCIPLE: Where a person lawfully does anything for another person, or delivers
anything to him, not intending to do so or to provide gratuitously, and such other
person takes the benefits of that; the latter is bound to compensate the former for
something done or thing provided, or to restore the thing so delivered.
FACTS: Trader 'A' delivers certain eatables at 'B's house by mistake. 'B' consumed
the eatables without asking anything.
Which of the following derivations is correct?
(a) 'B' is bound to pay 'A' for the eatables.
(b) 'B' can be made liable to pay for the eatables, only if 'A' establishes an express
contract between 'A' and 'B'.
(c) 'B' is not bound to pay 'A' for the eatables.
(d) It is the discretion of 'B' to make payment to 'A'.
54. PRINCIPLE: The communication of a proposal is complete when it comes to the

FACTS: A sent a letter making a proposal to B to purchase the house of B.
(a) The communication of proposal is complete when B reads the letter.
(b) The communication of proposal is complete when A sent the letter.
(c) The communication of proposal is complete when B's wife received it.
(d) The communication of proposal is complete when B's wife handed over the letter
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to B. AL
55. PRINCIPLE: Sale of liquor is illegal. All agreements relating to prohibited items do
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not exist in the eyes of law.
FACTS: 'A' entered into an agreement with 'B' for the sale of liquor. 'A' failed to supply
N
the agreed quantity of liquor to 'B'.

SE
(a) 'B' can bring a legal action against 'A'.

(b) 'A' can bring a legal action against 'B'.
ES
(c) 'B' cannot bring any legal action against 'A'.

(d) 'A' and 'B' can initiate appropriate legal proceeding against each other.
T
56. PRINCIPLE: An agreement without free consent can be enforced only at the option
LA
of the party whose consent was not free.

C
FACTS: A obtains the consent of B to enter into an agreement by putting a gun on

the head of B's girlfriend.
(a) B can enforce the agreement.
(b) B cannot enforce the agreement.
(c) Neither A nor B can enforce the agreement.
(d) A can enforce the agreement.
57. PRINCIPLE: Acceptance of proposal must be the exact mirror image of the proposal.
FACTS: 'A' made a proposal to 'B' to sell a chair for Rs. 500. 'B' expressed his desire
to buy the said chair for Rs. 400.
(a) It is not clear whether 'A' made a proposal to 'B'.
(b) 'B' has accepted the proposal of 'A'.
(c) 'B' has not accepted the proposal of 'A'.
(d) It is not clear whether 'B' has accepted the proposal of 'A' or not.
58. PRINCIPLE: Mere silence as to facts likely to affect decision of person to enter into
contract isn’t fraud.
FACTS: 'A' sells to 'B' (A's daughter who is minor) a horse which 'A' knows to be
unsound. 'A' says nothing to 'B' about the unsoundness of the horse.
(a) 'B' can take plea of fraud because she is minor.
LAW OF CONTRACT
(b) There cannot be a contract between a father and daughter.

(c) 'A' has not committed fraud.
(d) 'A' has committed fraud.
59. PRINCIPLE: A person, who is usually of unsound mind, but occasionally normal,
may make a contract when he is not of unsound mind.
FACTS: 'A' generally remains in the state of unsound mind and rarely becomes
capable of understanding the things.
(a) 'A' can make a contract when normal.
(b) 'A' can make a contract only for his own benefit.
(c) 'A' can never make a contract.
(d) 'A' can make a contract at any time whenever he pleases.
60. PRINCIPLE: A condition to a contract can also be complied with after the happening
of the event to which such a condition is attached.
FACTS: 'A' promises to pay Rs. 5000 to 'B' on the condition that he shall marry with
the consent of 'C', 'D' and 'E'. 'B' marries without the consent of 'C', 'D' and 'E', but
obtains their consent after the marriage.
(a) 'B's marriage is not valid.
(b) 'B' has not fulfilled the condition.
(c) The condition is illegal.
S
(d) 'B' has fulfilled the condition. AL
61. PRINCIPLE: An agreement may be entered into orally or in writing, or by conduct.
FACTS: 'A' went to the shop of 'B' and picked a toothbrush and gave a cheque of Rupees
TI
twenty to 'B' and left the shop.

N
(a) Payment of toothbrush cannot be made through a cheque.

SE
(b) 'A' did not enter into an agreement with 'B'.

(c) 'A' should have carried a currency note of Rupees twenty to make the payment.
ES
(d) There was an agreement between 'A' and 'B'.

62. PRINCIPLE: Law never enforces an impossible promise.
T
FACTS: 'A' made a promise to 'B' to discover treasure by magic.

LA
(a) Law will not enforce the promise.

(b) Law will enforce the promise.
C
(c) Law will enforce the promise only at the option of 'A'.
(d) Law will enforce the promise only at the option of 'B'.
63. PRINCIPLE: The acceptance of an offer will be valid only if it is made in the way it
was expected to be made.
FACTS: There was a telephonic discussion between ‘J' and ‘K' for negotiating the sale
of the shop of former to the latter. Upon reaching an agreement as to the price of the
shop of ‘J' at Rs 20 lakh, ‘J' told 'K' to send a letter to him within two weeks
confirming that she wishes to buy the shop for the price finalized. Two Days
thereafter, ‘K' gave her acceptance to ‘J' over telephone but sent the letter of
confirmation after lapse of one month. Is J' bound by acceptance of ‘K’?
(a) Yes, because the acceptance was conveyed within two weeks over telephone and
it was followed by a letter of acceptance as stipulated.
(b) No, because although the acceptance over telephone was conveyed in time but not in
the mode specified and the letter of acceptance was also not sent within two weeks.
(c) No, because sale of immovable property cannot be finalized online; neither any
Acceptance can be given over phone. Hence, the entire negotiation is invalid.
(d) Yes, because no law can compel the purchaser to give his acceptance through the
mode prescribed by the vendor.
LAW OF CONTRACT
64. PRINCIPLE: When one person signifies to another his willingness to do or abstain
from doing anything, with a view to obtaining the assent of that person to such an
act or abstinence, he is said to have made a proposal.
FACTS: Ram sends a telegram to Sohan, writing: “Will you sell me your Rolls Royce
car? Telegram the lowest cash price”. Sohan also replied by telegram: “Lowest price
for car is Rs. 20 lakh.” Ram immediately sent his consent through telegram stating:
“I agree to buy the car for Rs. 20 lakh asked by you” Sohan refused to sell the car.
(a) He cannot refuse to sell the car because the contract has already been made.
(b) He can refuse to sell the car because it was only invitation to offer and not the
real offer.
(c) It was not a valid offer because willingness to enter into a contract was absent.
(d) It was not a valid contract as offer and acceptance is conveyed through telegram.
65. PRINCIPLE: 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 as to its effect upon his interests.
FACTS: Mr. X, who is usually of sound state of mind, but occasionally of unusual
state of mind, enters into a contract with Mr. Y when he was of unsound state of
mind. Mr. Y, having come to know about this fact afterwards, wants to file a suit
against Mr. X.
S
(a) Mr. X cannot enter into contract because he is of unsound state of mind when he
AL
entered into contract.
(b) Mr X can enter into contract but the burden is on the other party to prove that he
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was of unsound state of mind at the time of contract.
(c) Mr X can enter into contract but the burden is on the other party to prove that he
N
was sound state of mind at the time of contract.

SE
(d) Contract with a person of unsound mind is void.

ES
66. PRINCIPLE: A contract which is impossible to perform becomes void.

FACTS: Surender agreed to deliver a specific quality of rice to Sonakshi identified by
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both of them. Before delivery, the rice was burnt by short circuit. Is Surender
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discharged from the performance of the contract?

(a) Surender is discharged from performance as the subject matter of the contract is
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destroyed.
(b) Surender is discharged from performance as the subject matter has been
specifically identified.
(c) Surender is not discharged from performance as he can procure rice from other
sources.
(d) None of the above.
67. PRINCIPLE: A partner is liable for the debts incurred by the other partners in the
course of partnership.
FACTS: Satwik and Prateek enter into a partnership to produce a film wherein
Satwik also directs the movie. The movie bombed at the box office. Consequently,
they run into financial difficulties and the partnership ends. Prateek goes to Abbas
to borrow some money, which Abbas debts from the partnership. Prateek takes the
money and absconds to Malibu. Abbas sues Satwik for the amount.
(a) Satwik is liable to return the money as it was his partner, Prateek, who directed
the movie.
(b) Abbas has been negligent in not properly enquiring the purpose for which Prateek
borrowed the money. Satwik is not liable to pay him back according to the principle
of contributory negligence.
LAW OF CONTRACT
(c) Satwik is not liable as Prateek absconded with the money instead of using it to pay
off the debts in the partnership.
(d) Satwik is not liable as by the time Prateek borrowed money from Abbas, the
partnership was no more in existence.
68. PRINCIPLE: When one person signifies to another his willingness to do or to abstain
from doing anything, with a view to obtaining the assent of that other to such act or
abstinence, he is said to make a proposal. The expression of willingness/desire results
in a valid proposal only when it is made/addressed to some person(s).
FACTS: ‘X’ makes the following statement in an uninhabited hall: ‘I wish to sell my
mobile phone for Rs.1000.
Which of the following derivations is CORRECT?
(a) ‘X’ made a statement that resulted in a promise.
(b) ‘X’ made a statement that resulted in a proposal.
(c) ‘X’ made a statement that did not result in any proposal.
(d) ‘X’ made a statement that resulted in an agreement.
69. PRINCIPLE: A proposal (offer) should be made with an intention that after its valid
acceptance, a legally binding promise or arrangement will be created. The test for the
determination of such intention is not subjective, rather it is objective. The intention of
the parties is to be ascertained from the terms of the agreement and the surrounding
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circumstances under which such an agreement is entered into. As a general rule, in the
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case of arrangements regulating social relations, it follows as a matter of course that the
parties do not intend legal consequences to follow. On the contrary, as a general rule,
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in the case of arrangements regulating business affairs, it follows as a matter of course
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that the parties intend legal consequences to follow. However, the above rules are just
presumptive in nature, and hence, can be rebutted.
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FACTS: One morning while having breakfast, ‘X’, the father, says to ‘Y’ (X’s son), in a
casual manner, ‘I shall buy a motor bike for you if you get through the CLAT.’
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(a) ‘X’ made a statement that resulted in an enforceable promise.
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(b) ‘X’ made a statement that resulted in a valid proposal.

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(c) ‘X’ made a statement that resulted in an enforceable agreement.

(d) ‘X’ made a statement that did not result in any enforceable agreement.
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70. PRINCIPLE: Acceptance (of offer) must be communicated by the offeree to the offeror
so as to give rise to a binding obligation. The expression ‘by the offeree to the offeror’
includes communications between their authorized agents.
FACTS: X made an offer to buy Y’s property for a stipulated price. Y accepted it and
communicated his acceptance to Z, a stranger.
(a) Y’s acceptance resulted in an agreement.
(b) Y’s acceptance did not result in any agreement.
(c) Y’s acceptance resulted in a contract.
(d) Y’s acceptance resulted in a promise.
71. PRINCIPLE: Acceptance should be made while the offer is still subsisting. The offeror
is free to retract his offer at any time before his offer is withdrawn or is lapsed; and
then it is not open to be accepted so as to give rise to a contract. Similarly, if a time
is prescribed within which the offer is to be accepted, then, the offer must be accepted
within the prescribed time. And, if no time is prescribed, then, the acceptance must
be made within a reasonable time. ‘What is a reasonable time’, is a question of fact
which is to be determined by taking into account all the relevant facts and
surrounding circumstances.
LAW OF CONTRACT
FACTS: ‘X’ makes an offer to ‘Y’ to sell his equipment for Rs.1,000.00. No time is
specified for the acceptance. ‘Y’ sends his reply two years after receiving the offer.
(a) There arises a contract between ‘X’ and ‘Y’ to sell/buy the equipment in question
for 1,000.00.
(b) There does not arise any contract between ‘X’ and ‘Y’ to sell/buy the equipment
in question for 1,000.00.
(c) ‘X’ is bound by his offer, and hence, cannot reject the acceptance made by ‘Y’.
(d) There arises a promise by ‘Y’ to buy the equipment.
72. PRINCIPLE: Minor’s agreement is void from the very beginning. It can never be
validated. It cannot be enforced in the court of law.
FACTS: ‘A’, a boy of 16 years of age, agrees to buy a camera from ‘B’, who is a girl of
21 years of age.
(a) There arises a contract between ‘A’ and ‘B’ to sell/buy the camera in question.
(b) There arises an enforceable agreement between ‘A’ and ‘B’ to sell/buy the camera
in question.
(c) There does not arise any contract between ‘A’ and ‘B’ to sell/buy the camera in
question.
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(d) There arises a voidable contract between ‘A’ and ‘B’, to sell/buy the camera in
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question.
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73. PRINCIPLE: A contract which is duly supported by real and lawful consideration is
valid notwithstanding the fact that the consideration is inadequate. The quantum of
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consideration is for the parties to decide at the time of making a contract, and not
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for the courts (to decide) when the contract is sought to be enforced. An agreement
to which the consent of the promisor is freely given is not void merely because the
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consideration is inadequate, but the inadequacy of the consideration may be taken

into account by the Court in determining the question whether the consent of the
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promisor was freely given.

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FACTS: ‘A’ agrees to sell his mobile phone worth 20,000/- for 100/- only to ‘B’. A’s
consent is freely given.
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(a) There is a contract between ‘A’ and ‘B’.
(b) There is no contract between ‘A’ and ‘B’ because consideration is not adequate.
(c) There is no contract between ‘A’ and ‘B’ because a mobile phone worth 20,000/-
cannot be sold for just 100/-.
74. PRINCIPLE: The consideration or object of an agreement is unlawful if it is forbidden

by law. Every agreement of which the object or consideration is unlawful is void.
FACTS: ‘X’, promises to pay ‘Y’ Rs. 50,000, if he (‘Y’) commits a crime. ‘X’ further
promises to indemnify him (‘Y’) against any liability arising thereof. ‘Y’ agrees to act
as per ‘X’s promise.
(a) There is a contract between ‘X’ and ‘Y’.
(b) There is an agreement between ‘X’ and ‘Y’ which can be enforced by the court of law.
(c) There is an agreement between ‘X’, and ‘Y’ which cannot be enforced by the court
of law.
(d) There is a voidable contract between ‘X’ and ‘Y’.
LAW OF CONTRACT
75. PRINCIPLE: The consideration or object of an agreement is unlawful if the Court

regards it as opposed to public policy. Every agreement of which the object or
consideration is unlawful is void.
FACTS: ‘X’ promises to obtain for ‘Y’ an employment in the public service; and ‘Y’
promises to pay Rs. 5,00,000/- to ‘X’.
(b) There is a voidable contract between ‘X’ and ‘Y’.
(c) There is an agreement between ‘X’ and ‘Y’ which can be enforced by the court of law.
(d) There is an agreement between ‘X’ and ‘Y’ which cannot be enforced by the court
of law.
76. PRINCIPLE: Two or more persons are said to consent if they agree upon the same
thing in the same sense. Consent is said to be free when it is not caused by coercion,
or undue influence, or fraud, or misrepresentation, or mistake. When consent to an
agreement is caused by coercion, undue influence, fraud or misrepresentation, the
agreement is a contract voidable (rescindable or terminable) at the option of the party
whose consent was so caused. However, when consent to an agreement is caused by
mistake as to a matter of fact essential to the agreement, the agreement is void.
FACTS: ‘X’ threatens to gun down ‘Y’, if he (‘Y’) does not sell his property worth Rs.
20,00,000/- for Rs. 1,00,000/- only. As a consequence, ‘Y’ agrees to sell it as
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demanded by ‘X’. AL
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(c) There is an agreement between ‘X’, and ‘Y’ which cannot be enforced by the court
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of law.
(d) There is a contract between ‘X’ and ‘Y’ voidable at the option of ‘Y’.
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77. PRINCIPLE: Agreements in restraint of marriage are void.

FACTS ‘X’ enters into an agreement with ‘Y’ where under he agrees not to marry
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anybody else other than a person whose name starts with the letter ‘A’ and promises
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to pay Rs. 1,00,000/- to ‘Y’ if he (‘X’) breaks this agreement.

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(c) There is an agreement between ‘X’ and ‘Y’ which cannot be enforced by the court
of law.
(d) There is a voidable contract between ‘X’ and ‘Y’.
FACTS: Mr. X, who is usually of sound mind, but occasionally of unsound mind,
enters into a contract with Mr. Y when he is of unsound mind. Y came to know about
this fact afterwards and now wants to file a suit against Mr. X.
(a) Mr. X cannot enter into contract because he is of unsound mind when he entered
into contract.
(b) Mr. X can enter into contract but the burden is on the other party to prove that
he was of unsound mind at the time of contract.
(c) Mr. X can enter into a contract but the burden is on Mr. X to prove that he was of
unsound mind at the time of contract.
LAW OF CONTRACT
79. PRINCIPLE: Agreements, the meaning of which is not certain, or capable of being
made certain, are void.
FACTS: A horse was bought for a certain price coupled with a promise to give Rs.
500 more if the horse proved lucky.
(a) This is a valid agreement.
(b) This agreement is void for uncertainty because it is very difficult to determine
what luck, bad or good, the horse had brought to the buyer.
(c) The agreement is partially valid and partially void.
80. PRINCIPLE: Mere silence as to facts likely to affect the willingness of a person to enter
into a contract is not fraud, unless the circumstances of the case are such that, regard
being had to them, it is the duty of the person keeping silence to speak, or unless his
silence is, in itself, equivalent to speech.
FACTS: A sells, by auction, to B, a horse which A knows to be unsound. A says
nothing to B about the horse’s unsoundness.
(a) A can be held liable for fraud.
(b) A can be held liable for misrepresentation.
(c) A cannot be held liable, because he did not say anything positive about the
soundness of horse.
(d) A cannot be held liable because it is the buyer who must be aware of the things.
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81. PRINCIPLE: Every agreement, by which any party is restricted absolutely from enforcing
his rights in respect of any contract, by the usual legal proceedings in the ordinary
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tribunals, is void to that extent.

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FACTS: Feroz and Pinto entered into an agreement for rendering certain services. As
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per the prevailing law, the agreement may be enforced either at Jaipur or Udaipur. The
agreement itself, however, specifies that upon breach, the parties can only approach
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courts at Jaipur. Feroz breaches the contract and Pinto, being a resident of Udaipur,
would like to sue him in Udaipur. He challenged the validity of the clause.
(a) Pinto will succeed as Feroz had made him suffer and the law must take his
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convenience into account and allow him to sue in Udaipur.

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(b) Pinto will succeed as the contract does not allow him to institute any legal
proceedings in any court or tribunal in Udaipur.
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(c) Pinto will fail as the contract does not restrain him from instituting legal
proceedings in Jaipur.
(d) Pinto will fail as he was of sound mind while entering into contract and having
accepted it, he cannot now deny his obligation.
82. PRINCIPLE: A contract is an agreement enforceable by law.

FACTS: Amita invited Bina to her house for dinner. Bina accepted the invitation but
later did not go. On Bina's failure to attend, Amita filed a suit against Bina for the
price of nonconsumed food. Will the law enforce this agreement?
(a) No, it is a social agreement.
(b) Yes, Amita can recover amount for non-consumed food.
(c) No, as Bina did not accept the invitation in writing.
(d) No, because the law does not take account of trivial things.
83. PRINCIPLES:
I. Once a person accepts another's offer, and signifies such acceptance to the
former, a contract comes into existence between them.
II. Uncertain agreements are void agreements.
III. Rejected offers can be accepted only if renewed.
LAW OF CONTRACT
FACTS: Bakshi wanted to purchase a particular land. He sent a letter to his cousin,
Dutt, offering him Rs. 4 lakhs for it. Dutt replied that he would not sell it below 5
lakhs. Bakshi communicated his willingness to pay this amount. Dutt did not sell
the land to Bakshi. Bakshi sued him for breach of contract.
(a) Dutt is liable because once he communicates an offer to Bakshi and Bakshi
accepts it, a contract comes into existence.
(b) Dutt is liable as he has misled Bakshi by his actions.
(c) Dutt is not liable because he has rejected the offer by giving a counter offer which
is also not specific.
(d) Dutt is not liable as there is no legally enforceable contract.
84. PRINCIPLE: An agreement is void if the court regards it as opposed to the public policy.
FACTS: Sunita, while her husband Shankar was alive, promised to marry Neel in
the event of Shankar's death. Subsequently, Shankar died, but Sunita refused to
marry Neel. Neel sues Sunita for damages for breach of promise.
(a) Sunita is liable as she is bound to marry Neel.
(b) She is liable to compensate Neel for breach of promise.
(c) Neel can marry someone else.
(d) She is not liable as the contract is opposed to public policy and so void.
85. PRINCIPLE: An agreement is void if its object is unlawful.
FACTS: Sunil had a rich uncle who owned prime property in Chennai and had lot of
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money in the bank. Being the only heir, Sunil was sure that he would inherit the
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property. One day, the uncle called him to his room and announced that he planned
to marry again. This angered Sunil and he plans to murder his uncle so he hired
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Anuj, a murderer and entered into a contract with him to kill his uncle. Sunil agreed
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to pay Rs. 10 lakhs to Anuj and even paid Rs. 5 lakhs as advance. The following
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night, Anuj entered uncle's house intending to kill him. On reaching there, he
realised that Sunil's uncle was already dead, so he left without doing anything. Next
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day, after post mortem report, it transpired that Sunil's uncle had died due to heart
attack. Now, Sunil wants to recover the advance from Anuj. Will he succeed?
(a) Yes.
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(b) No.
(c) Anuj is liable to return the amount as the act was not done by him.
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86. PRINCIPLES:
I. Consideration must be of value in the eyes of law.
II. Consideration is not real if it is illusory.
FACTS: Arjun received summons to appear at a trial as a witness on behalf of Bitu,
the accused. Bitu promised to pay him a sum of Rs. 1,000 for his trouble. On default
by Bitu, Arjun filed a suit to recover the said sum. Will he succeed?
(a) No, as the consideration is of no value in the eyes of law.
(b) Yes, as the contract is supported by consideration.
(c) No, as there is no consideration for the promise.
(d) Yes, as he appeared before court only after Bitu agreed to pay him the amount of
Rs. 1,000.
87. PRINCIPLE: A minor is not competent to contract.
FACTS: Deep, a 9th standard student, realizes that he being a minor, he is not
permitted by law to execute a contract, appoints Mandeep as his agent to conclude
purchase of a land to gift it to his mother on her birthday. Mandeep accordingly
prepares the papers for the transaction but at the last minute the seller, who had
agreed to sell it, now refuses to sell it contending that he does not wish to sell the
land to a minor. Deep seeks to enforce the contract against the seller.
LAW OF CONTRACT
(a) Deep can enforce the contract, since Mandeep is his agent, Deep is deemed to have
personally entered into a contract.
(b) Deep cannot enforce the contract, only Mandeep can, since seller has entered into
the contract with Mandeep.
(c) Deep cannot enforce the contract since he is a minor.
(d) Deep can neither appoint an agent nor enforce the contract since he is a minor.
88. PRINCIPLES:
I. Acceptance must be given only by the person to whom the offer is made.
II. Communication of acceptance to a person who did not make the offer does not
bind the offerer.
FACTS: Pal sold his business to Sam without disclosing it to his customers. Mani,
an old customer sent an order for goods to Pal by name. Sam, the new owner,
executed the order. Mani refuses to accept the goods from Sam as he intended to
deal only with Pal. In a suit by Sam against Mani:
(a) Sam cannot recover as Mani never intended to deal with him.
(b) Can recover the price as he had supplied goods only against the order made by
Mani.
(c) Sam cannot recover as it was only an invitation to offer by Mani on which no
acceptance can be given by Sam.
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(d) Sam can recover the price of the goods as an offer once accepted results in a
contract.
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89. PRINCIPLE: When an offer is accepted by a person to whom it is made, it becomes
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a promise. But this promise will become legally binding only when the acceptance of
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the offer is unconditional.

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FACTS: Ram makes an offer to sell his house to Shyam for RS. 50 lacs. Shyam
accepts this offer but wants to pay the price of the house in five quarterly
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instalments. Ram does not agree to it. Thereafter Shyam agrees to pay the price of
the house in the way as originally desired by Ram. But Ram dees not reply to it. Can
Shyam compel Ram to sell his house to him?
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(a) Shyam can compel Ram to sell his house because Shyam ultimately agrees to pay
the price as originally desired by Ram.
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(b) Shyam can compel Ram to sell his house because Shyam in the first instance
substantially complied with the desire of Ram.
(c) Shyam can compel Ram to sell his house because Ram's offer does not exclude the
payment of price in instalments.
(d) Shyam cannot compel Ram to sell his house because Shvam imposes a new
condition about payment of price of the house while accepting the offer which is
not ultimately accepted by Ram.
90. PRINCIPLE: Generally an agreement without consideration is not valid. Therefore,
in order to make a valid agreement, some consideration which may have some value
in the eyes of law, is essentially required.
FACTS: William has an old car of which he makes seldom use. He voluntarily enters
into an agreement with Smith to sell this car for rupees ten thousand. Thereafter one
Anson approaches William and offers to buy that car for rupees one lac as the car
was one which Anson has been searching for long. Now William wants to cancel his
agreement with Smith and refuses to deliver the car to him saying that consideration
(price) for the car promised by Smith is negligible: and, therefore, agreement with
him cannot be said to be valid one.
(a) William can cancel his agreement with Smith as the consideration involved in
that is really inadequate.
LAW OF CONTRACT
(b) William cannot cancel his agreement with Smith as the sale of car for rupees ten
thousand was voluntary and this price has some value in the eyes of law.
(c) William can cancel his agreement with Smith as he was ignorant about the
value/price of the car for which it could be sold.
(d) William can cancel his agreement with Smith as he is entitled to get full market
value/price of his car.
91. PRINCIPLE: A seller of goods cannot transfer better rights than he himself posseses
in the goods sold to the buyer.
FACTS: Komal leaves his watch by mistake on a seat in the park. Sonal finds that
watch and immediately sells the same for good price to Monal, who, without inquiring
whether Sonal is its owner or not, purchased it. Komal later on claims that watch
from Monal. Decide whether Komal can succeed.
(a) Komal cannot succeed, as Monal has paid good price of the watch.
(b) Komal cannot succeed, as Monal is unaware of the fact that Sonal is not its owner.
(c) Komal cannot succeed, as it was his carelessness and nothing else which enabled
Sonal to sell the watch to Monal.
(d) Komal can succeed, as Sonal is merely finder of the watch and, therefore, cannot
transfer ownership rights thereon to Monal.
92. PRINCIPLE: A contract cannot be enforced by or against a person who is not a party
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to it. However, where some benefit is conferred on third party by the contract itself,
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the third party can be allowed to enforce that contract to get such benefit.
FACTS: Dinesh is liable to pay Rs. 50,000 to Suresh. In order to discharge this
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liability, Dinesh enters into a contract with Ramesh by which Dinesh sells his car to
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Ramesh for Rs. 1 lac. Ramesh takes the delivery of the car and promises/assures to
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pay its price at the earliest. Dinesh separately informs Suresh about this contract
for his satisfaction. Ramesh fails to pay the car's price. Suresh wants to join Dinesh
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in filing suit against Ramesh for the recovery of price of the car. Whether Suresh is
entitled to do so?
(a) Suresh is entitled to do so because the contract was made for his benefit.
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(b) Suresh is entitled to do so because Dinesh is liable to him and discharge of this
liability depends upon the payment of the price of the car by Ramesh.
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(c) Suresh is not entitled to do so because liability of Dinesh does not depend upon
any assurance of Ramesh.
(d) Suresh is not entitled to do so because he is not a party to the contract between
Dinesh and Ramesh.
93. PRINCIPLE: If a contract is made by post between two persons living in two different
cities, then the contract is said to be complete as soon as the letter of acceptance is
properly posted and the place of completion of the contract is that city where
acceptance is posted. It is worth mentioning here that in every contract, there is
always an offer from one party and the acceptance of the offer from the other party.
FACTS: Sani, a resident of Patna, gives an offer by post to sell his house for Rs. 25
lacs to Hani, a resident of Allahabad. This offer letter is posted on 1st January, 2013
from Patna and reaches Allahabad on 7th January, 2013. Hani accepts this offer and
posts the letter of acceptance on 8th January, 2013 from Allahabad which reaches
Patna on 16th January, 2013. But Sani, presuming that Hani is not interested in
accepting his offer, sells his house to Gani at same price on 15th of January, 2013.
Hani files a suit against Sani for the breach of contract in the competent court of
Allahabad. Will Hani succeed?
(a) Hani cannot succeed as Sani cannot be compelled by law to wait for the answer from
Hani for an indefinite period of time.
LAW OF CONTRACT
(b) Hani cannot succeed as he could use some other effective and speedy mode for
communicating his acceptance in minimum possible time.
(c) Hani can succeed as he properly posted the letter of acceptance and the delay
was beyond his control.
(d) Hani can succeed as contract became complete in the eyes of law on the date of
posting the letter of acceptance.
94. PRINCIPLE: He, who goes to the court of law to seek justice, must come with clean hands.
FACTS: P enters into a contract with S under which S has to construct a house for
P and has to complete the same within one year from the date of the contract. This
contract includes two very important terms. According to first term, if there is price
hike of the materials to be used in the construction, then the escalation charges at
a particular rate shall be payable by P to S. According to second term, if the
construction of the house is not completed within the period prescribed for it, then
S will have to pay penalty at a particular rate to P. Before the completion of the
construction work, the workers of S go on strike and strike continues up to three
months even after the expiry of one year. After that period, workers return and the
construction work again starts. During the last three months’ period of strike, there
was a considerable rise, in the price of the building material. S claimed escalation
cost from P. P did not agree to it. S filed a suit in the court of law either to order the
payment of the price of the building material on the basis of escalated price or to
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allow him to stop their work without incurring any penal liability towards, P.
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(a) S will succeed as strike by his workers was unexpected and beyond his control.
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(b) S can succeed as there is an escalation clause in the contract.
(c) S cannot succeed as he has failed to complete the construction work in time and
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strike cannot be treated as a valid excuse for delay in work.

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(d) S can succeed if he pays penalty to P for delay.

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95. PRINCIPLE: If the object of an agreement is or becomes unlawful or immoral or

opposed to public policy in the eyes of law, then the courts will not enforce such
agreements. Law generally prohibits Child labour.
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FACTS: P enters into an agreement with T by which P has to let his house to T for
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two years and T has to pay Rs. 20,000.00 per month to P as rent. T starts a child
care centre in that house. But after some time, in order to earn some money for the
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maintenance of the centre, T starts sending the children of the centre on rotation
basis to work for four hours a day in some nearby chemical and hazardous factories.
When P comes to know about this new development, he asks T either to stop the
children from working in factories or to leave his house immediately. T neither agrees
to leave the house nor to stop the children from working in the factories. P files a suit
in the court of law for appropriate relief/action.
(a) P cannot succeed as the agreement was for the two years and it cannot be terminated
before the expiry of that period.
(b) P cannot succeed as the object at the time of making of the agreement was not clear.
(c) P will succeed as the object of the agreement has become unlawful.
(d) P will not succeed if T agrees to share the wages of the children with P.
96. PRINCIPLE: If a person transfers movable or immovable property with its full
ownership and without any consideration to some other person, then it is called a gift.
FACTS: S, who has no child of his own, makes a gift of his house worth Rs. 25 lacs
to his nephew, R. After completing all the legal formalities required for a valid gift, S
says to R that in case of need, R will provide that house to S for use without any
questions. R does not react to it. After one year of this gift, S really needs that house
and requests R to make the house available to him, but R refuses to do so.
LAW OF CONTRACT
(a) R cannot refuse as he got the house without paying any consideration for that.
(b) R cannot refuse as S is without children.
(c) R can refuse as he has become full owner of the house.
(d) R can refuse as he himself may be in need of the house.
97. PRINCIPLE: An agreement to do an act impossible in itself cannot be enforced by a

court of law.
FACTS: Ramesh agrees with his girlfriend Shilpa to pluck Stars from the sky through
his extraordinary will power, and bring them down on earth for her within a week.
After the expiry of one week, Shilpa filed a suit for damages against Ramesh for the
breach of contract as Ramesh failed to perform his promise.
(a) Shilpa can succeed in getting damages as Ramesh has deceived her.
(b) Ramesh cannot be held liable as he honestly believes that his love for Shilpa is
true and therefore, he will succeed in his endeavour.
(c) The court cannot entertain such suits as the act promised under the agreement
is impossible in itself.
(d) Ramesh can be held liable for making an absurd promise.
98. PRINCIPLE: An agreement may be oral or written. However, if a law specifically

requires that an agreement must be in writing, then the agreement must be in
writing. A law specifically requires that the agreements relating to transfer of the
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copyright in novel between an author of a novel and the producer of a motion picture
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must be in writing.
FACTS: The author of a novel, Love at Lost Sight, had several rounds of discussion
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with a producer of motion picture regarding making of a motion picture based on

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Love at Lost Sight. During the discussion, they decided to make a motion picture on
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Love at Lost Sight. The producer made a motion picture on Love at Lost Sight after
making a payment of Rs. 10,00,000 (Ten Lacs only) in cash to the author who happily
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accepted this amount as full and final payment. Later on, on the advice of his lawyer,
the author brought a case in a court of law against the producer on the ground that
there is no written agreement between the producer and him.
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(a) The author is likely to succeed in the case as the agreement is not in accordance
with the law.
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(b) The author cannot succeed in the case as has given his consent to the agreement.
(c) The author is not likely to succeed in the case because he has already accepted
the amount of Rs. 10,00,000 as full and final payment.
(d) The author can succeed in the case as the consideration is not adequate.
rational judgment as to its effect upon his interest.
FACTS: X, who is usually of sound mind, but occasionally of unsound mind, enters
into a contract with Y when he (X) is of unsound mind. Y came to know about this
fact afterwards and now wants to file a suit against X.
(a) X cannot enter into contract because he is of unsound mind when he entered into
contract.
(b) X can enter into contract but the burden is on the other party to prove that he
was of unsound mind at the time of contract.
(c) X can enter into contract but the burden is on X to prove that he was of sound
mind at the time of contract.
LAW OF CONTRACT
100. PRINCIPLE: A contract between the father and his son is a contract of utmost good
faith. In such type of contract, law presumes that at the time of entering into the
contract, the father was in position to dominate the will of his son. Where one of the
parties was in a position to dominate the will of the other party, the contract is
enforceable only at the option of the party whose will was so dominated.
FACTS: Ram had advanced a sum of Rs.10,000 to his minor son Shyam. When
Shyam became major, his father Ram misused his parental position and entered into
an agreement with Shyam and obtained a bond from him for a sum of Rs. 30,000 in
respect of the advance. Whether this agreement is enforceable?
(a) The agreement is enforceable against Shyam only for Rs. 10,000, the actual
amount of money advanced to him.
(b) The agreement is enforceable against Shyam for Rs. 30,000 because he has
signed the bond.
(c) The agreement is enforceable against Shyam because he was major at the time of
agreement.
(d) The agreement is not enforceable against Shyam because Ram has misused his
position as father to obtain an unfair advantage.
101. PRINCIPLE: When at the desire of one person, any other person has done or
abstained from doing something, such act or abstinence or promise is called a
consideration for the promise. Only a promise coupled with consideration is
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enforceable by law. AL
FACTS: X, the uncle of Y, made a promise to pay him an amount of Rs. 10,000 as reward
if Y quits smoking and drinking within one year. X also deposited the above mentioned
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amount in a bank and informed Y that the said amount will be paid to him if he quits
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smoking and drinking within one year. Within a period of six months of making the
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promise, X died. After the expiry of one year of making the promise by X, Y made a
request to the legal heirs of X demanding the promised money. The legal heirs of X
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declined the request of Y.

(a) The promise of X to Y is enforceable by law because Y has quit smoking and drinking.
(b) The promise of X to Y is not enforceable by law because Y has benefitted by
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quitting smoking and drinking.

(c) The promise of X to Y is enforceable by law because the amount of Rs. 10,000 has
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been deposited in a bank.

(d) The promise of X to Y is enforceable by law because X has died within a period of
six months of making the promise.
102. PRINCIPLE: Licence is an agreement whereby the owner of the copyright agrees to grant
an interest in the copyright to the licencee. Assignment is an agreement whereby the
owner of the copyright transfers all the property rights to the assignee. Property right is
a bundle of rights consisting of right to possess, right to use, right to alienate and the
right to exclude others.
FACTS: A, an owner of copyright in a cinematographic film, enters into an agreement
with B, a film distributor. B agrees to distribute the film only in Mumbai. A also
enters into many such agreements with other distributors for distribution of his film
in other cities.
(a) The agreement between A and B is more in the nature of assignment than in the
nature of licence.
(b) The agreement between A and B is more in the nature of licence than in the nature
of assignment.
(c) The agreement between A and B is both in the nature of assignment and licence.
(d) The agreement between A and B is neither in the nature of assignment nor in the
nature of licence.
LAW OF CONTRACT
103. PRINCIPLE: Mere silence as to facts likely to affect the decision of a person to enter
into a contract does not amount to fraud, unless his silence is in itself equivalent to
speech.
FACTS: A sells to B a horse which A knows to be of unsound mind. B says to A that
if A does not say anything about the state of mind of horse, then B shall presume
that the horse is of sound mind. A says nothing to B about the mental condition of
horse.
(a) A has committed fraud.
(b) A has committed misrepresentation.
(c) There cannot be a fraud because A says nothing about the mental condition of
the horse.
(d) There cannot be a fraud because B did not ask A whether the horse is of sound
mind.
104. PRINCIPLE: Every agreement in restraint of the marriage of any person, other than
a minor, is void.
FACTS: Qadir Khan died in a road accident. Two co-widows, Sultana and Marjina,
enter into an agreement that if any of them will re-marry, she would forfeit her right
to her share in the deceased husband's property.
(a) The agreement is void because it was restraint of marriage.
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(b) The agreement is not void because no restraint was imposed upon either of two
widows for re-marriage.
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(c) The restraint was partial so agreement is valid.
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105. PRINCIPLE: When a party to a contract has refused to perform, or disabled himself
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from performing his promise in its entirety, the other party may put an end to the
contract.
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FACTS: A engaged B on April 12 to enter his service on June 1, but on May 11, A wrote
to B that his services would not be needed. On May 22, B joined C for employment.
(a) B must wait till June 1. (c) B is not bound to wait till June 1.
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(b) B must have joined C on May 11. (d) A must pay damages to B.
106. PRINCIPLE: An interest which is created on a transfer of property and depends upon
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the fulfilment of a condition, will fail if the fulfilment of the condition is impossible
or is forbidden by law or is of such a nature that, if permitted, it would defeat the
provisions of any law or is fraudulent or involves or implies injury to the person or
property of another or the court regards it as immoral or opposed to public policy.
FACTS: A gives Rs. 10,00,000 to B on condition that B shall marry A's daughter C.
On the date on which A gave Rs.10,00,000 to B, C was dead.
(a) B's interest in Rs. 10,00,000 fails because of impossibility.
(b) B’s interest in Rs. 10,00,000 fails because of immorality.
(c) B's interest in Rs. 10,00,000 fails because of prohibition by law.
(d) B's interest in Rs. 10,00,000 does not fail.
107. PRINCIPLE: A condition precedent must be complied with before the happening of
the event to which such a condition is attached. Fulfilment of such a condition after
the happening of the event is no fulfilment of condition.
FACTS: A transfers Rs. 5,000 to B on condition that he shall marry with the consent
of C, D and E. As C, D and E had to go abroad for some business purposes and as
the date of marriage was already fixed, therefore, B marries without the consent of
C, D and E, but obtains their consent after the marriage when C, D and E return to
their country.
LAW OF CONTRACT
(a) B has fulfilled the condition.

(b) B has not fulfilled the condition.
(c) B was free to marry any one without the consent of anybody.
(d) B must divorce his wife as he married her without fulfilling the condition.
108. PRINCIPLE: In an agreement, a condition subsequent must be complied with to

claim the benefit of that agreement.
FACTS: A agrees to transfer a farm to B, provided that, if B does not go to England
within three years after the date of the agreement, his interest in the farm shall cease.
B does not go to England within the term prescribed.
(a) B's interest in the farm continues.
(b) B's interest in the farm does not continue.
(c) B has a fundamental right to go to England or not to go to England and hence
the condition was illegal.
(d) The agreement between A and B was void.
109. PRINCIPLE: Whosoever commits any act forbidden by the Indian Penal Code with a
view to obtain the consent of any person to enter into an agreement, he cannot get
the agreement enforced by law but the person whose consent has been so obtained,
may get the agreement enforced by law. The Indian Penal Code defines various
offences and prescribes punishments thereof.
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FACTS: A obtains the consent from B to enter into an agreement by an act amounting
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to criminal intimidation under the Indian Penal Code. A brings a case against B for
performance of agreement.
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(a) A will succeed in the case. (c) B will succeed in the case.
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(b) A may succeed in the case. (d) B will not succeed in the case.
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110. PRINCIPLE: When at the desire of the promisor, the promisee had done or abstained from
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doing, or does or abstains from doing, or promises to do or abstain something, such an

act or abstinence or promise is called consideration for the promise.
FACTS: A daughter promises to give maintenance to her uncle in consideration of
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her mother making a gift of certain properties to her. The daughter pleas lack of
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consideration when the uncle seeks to enforce the contract. She says that the uncle
is a stranger to the consideration and so he cannot enforce the contract. The
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daughter;
(a) Will succeed because uncle being a stranger to the consideration cannot enforce it.
(b) Will not succeed because uncle is a near relative and in such cases consideration
is not necessary.
(c) Cannot succeed because consideration might move from any person.
111. PRINCIPLES:
I. Parties to contract should be capable of entering into contract, only then they can
lay the foundation of a valid contract.
II. Every person is competent to contract who is of the age of majority,
FACTS: A minor agreed with B to become a tenant of his house and to pay Rs. 1,000
for the furniture therein. He paid Rs. 800 in cash and gave a promissory note for the
balance. A occupied the premises and used the furniture for some months and then
brought an action for refund of consideration, in this case;
(a) A is liable to pay Rs. 1,000.
(b) A is liable to pay remaining Rs. 200.
(c) A is liable to refund of Rs. 800.
(d) Neither B is liable to refund Rs. 800 nor is A under obligation to pay Rs. 200.
LAW OF CONTRACT
112. PRINCIPLE: When one person signifies to another his willingness to do or abstain
from doing anything, with a view to obtaining the assent of that person to such an
act or abstinence, he is said to have made a proposal.
FACTS: Ramanuj telegraphed to Shyam Sunder, writing: "Will you sell me your Rolls
Royce Car? Telegram the lowest cash price." Shyam Sunder also replied by telegram:
"Lowest price for Car is Rs. 20 lakh." Ramanuj immediately sent his consent through
telegram stating: "I agree to buy the Car for Rs. 20 lakh asked by you." Shyam Sunder
refused to sell the car.
(a) He cannot refuse to sell the Car because the contract has already been made.
(b) He can refuse to sell the Car because it was only invitation to offer and not the real offer.
(c) It was not a valid offer because willingness to enter into a contract was absent.
(d) None of these.
113. PRINCIPLE: Every person, who is of the age of majority, is competent to contract
according to the law to which he is subject.
FACTS: A minor mortgaged his house in favour of Thakur Das, a money lender, to
secure a loan of Rs. 20,000. A part of this, i.e., Rs. 10,500 was actually advanced to him.
While considering the proposed advance, the attorney who was acting for the money
lender, received information that the plaintiff was still a minor. Subsequently the minor
commenced an action stating that he was underage when he executed the mortgage and
the same should, therefore, be cancelled. He prayed for setting aside the mortgage. The
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mortgagee money lender prayed for the refund of Rs. 10,500 from the minor.
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(a) As a minor's contract is void, any money advanced to a minor can be recovered.
(b) A minor's contract is void ab initio, any money advanced to a minor cannot be recovered.
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(c) A minor's contract is voidable; any money advanced to a minor can be recovered.
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(d) Advanced money can be recovered because minor has given wrong information
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about his age.

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FACTS: Mr. X, who is usually of sound state of mind, but occasionally of unsound state
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of mind, enters into a contract with Mr. Y when he was of unsound state of mind. Mr. Y
having come to know about this fact afterwards, wants to file a suit against Mr. X.
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(a) Mr. X cannot enter into contract because he is of unsound state of mind when he
entered into contract.
(b) Mr. X can enter into contract but the burden is on the other party to prove that
he was of unsound state of mind at the time of contract.
(c) Mr. X can enter into contract but the burden is on Mr. X to prove that he was of
sound state of mind at the time of contract.
(d) None of these.
115. PRINCIPLE: Proposal (communication)+ Acceptance (communication) + Consideration=
Contract. The communication of a proposal is complete when it comes to the
FACTS: X's nephew absconded from home. He sent his servant in search of the boy.
After the servant had left, X, by handbills, offered to pay Rs. 501 to anybody finding
his nephew. The servant came to know of this offer only after he had already traced
the missing child. He, therefore, brought an action to recover the reward.
(a) His action would fail because he was not aware of the offer.
(b) His action would not fail because it was a general offer.
(c) The fact that he was not aware of the offer does not make any difference and
hence it was a valid contract. It is a mere formality.
LAW OF CONTRACT
116. PRINCIPLE: Agreements, the meaning of which is not certain, or not capable of being
made certain, are void.
FACTS: A horse was bought for a certain price coupled with a promise to give Rs.
500 more if the horse is proved lucky.
(a) This is a valid agreement.
(b) This agreement is void for uncertainty because it is very difficult to determine
what luck, bad or good, the horse has brought to the buyer.
(c) The agreement is partially valid and partially void.
117. PRINCIPLE: Mere silence as to the facts likely to affect the willingness of a person to
enter into a contract is not a fraud, unless the circumstances of the case are such
that, on close examination it is found to be the duty of the person keeping silent to
speak, or unless his silence is, in itself, equivalent to speech.
FACTS: X sells by auction to Y, a horse which X knows to be of unsound state of mind.
X says nothing to Y about the horse's unsound state of mind. Give the correct answer;
(a) X can be held liable for fraud.
(b) X can be held liable for misrepresentation.
(c) X cannot be held liable, because he did not say anything positive about the mental
state of the horse.
(d) X cannot be held liable because it is the buyer who must be aware of the things.
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118. FACTS: X, a married woman, agreed to live in adultery with B and also agreed to serve
him as his housekeeper. In return, B agreed to pay X Rs. 500 per month for living in
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adultery and Rs. 500 per month for housekeeping. The agreement is;
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(a) Valid.
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(b) Void.
(c) Void as to the first object but valid with respect to the second object.
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(d) Unlawful as being opposed to public policy.
119. FACTS: Ramu applied for the post of Director in an organization. The governing body
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of the organization passed a resolution appointing him to the post. After the meeting,
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one of the members of the governing body informed him privately of the resolution.
Subsequently, the resolution was rescinded. Ramu claims damages. Which one of
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the following is the correct legal proposition in the case?

(a) Ramu cannot claim damages as he had not resigned from his existing post in
anticipation of getting the appointment letter.
(b) Ramu cannot claim damages as there was no formal communication.
(c) Ramu can claim damages as governing body cannot rescind the resolution once
passed.
(d) Ramu can claim damages as there was private communication.
120. PRINCIPLE: In case of a breach of contract, compensation can be awarded for the
personal inconvenience suffered by a party by reason of the breach, which naturally
arose in the usual course of things from such breach, or which the parties knew,
when they made the contract, to be likely to result from the breach of it.
FACTS: Sunita and Sushmita bought bus tickets for a journey from Adyar to
Mandaveli. The bus was to go to St. Thomas Mount via Mandaveli. However, the driver
mistakenly took a wrong direction and the two girls were dropped at a distance of 2½
miles from Mandaveli on the highway. With no other transportation in sight or a place
to stay, the two had to walk 2½ miles at midnight. Later they filed a case against the
bus company and claimed Rs. 5000 as damages for inconvenience caused in having
to walk and Rs. 6500 for Sushmita having fallen ill by catching cold during the night.
LAW OF CONTRACT
(a) Both the amounts are liable to be paid because Sunita and Sushmita suffered
loss for no fault of theirs.
(b) The bus company is liable to pay both the amounts claimed because the loss was
suffered on account of the fault of the bus company and the inconvenience suffered
and illness arose was in the normal course of things from breach of contract.
(c) The compensation for inconvenience suffered by being forced to walk at night is
liable to be paid by the bus company. However, no compensation for Sushmita's
illness because this was not expected on account of breach of contract.
(d) The bus company is not liable to pay any amount, because it was the driver's
fault.
DIRECTIONS FOR Q.121–Q.125:

PRINCIPLES:
I. A minor is a person who is below the age of eighteen. However, where a guardian
administers the minor's property, the age of majority is twenty-one.
II. A minor is not permitted by law to enter into a contract. Hence, where a minor
enters into a contract with a major person, the contract is not enforceable. This
effectively means that neither the minor nor the other party can make any claim
on the basis of the contract.
III. In a contract with a minor, if the other party hands over any money or confers
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any other benefit on the minor, the same shall not be recoverable from the minor
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unless the other party was deceived by the minor to hand over money or any other
benefit. The other party will have to show that the minor misrepresented her age,
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he was ignorant about the age of the minor and that he handed over the benefit
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on the basis of such representation.

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FACTS: Ajay convinces Bandita, a girl aged 18, that she should sell her land to him.
Bandita's mother Chaaru is her guardian. Nonetheless Bandita, without the permission
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of Chaaru, sells the land to Ajay for a total sum of rupees fifty lakh, paid in full and final
settlement of the price. Chaaru challenges this transaction claiming that Bandita is a
minor and hence the possession of the land shall not be given to Ajay. Thus Ajay is in a
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difficult situation and has no idea how to recover his money from Bandita. Decide.
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121. Chaaru is justified in challenging the sale transaction because;

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(a) Bandita is of unsound mind and is not in a position to make rational decisions.
(b) Though, Bandita is eighteen years old, she will be treated as a minor, as Chaaru
is her guardian.
(c) Though, Bandita is eighteen years old, she cannot sell the land without the
permission of her mother.
(d) Though, Bandita is eighteen years old, she should not be treated like a person
who has attained the age of majority.
122. Ajay can be allowed to recover the money only if he can show that;
(a) He was deceived by Bandita who misrepresented her age.
(b) He honestly believed that Bandita was empowered under the law to sell the land.
(c) He was an honest person who had paid the full price of the land to Bandita.
(d) Both (a) and (b).
123. In order to defend the sale, Bandita will need to show that;
(a) Bandita has attained the age of majority.
(b) Bandita is mature enough to make rational decisions regarding her own affairs.
(c) The sale transaction was beneficial to her interest and will enhance her financial
status.
LAW OF CONTRACT
124. Which of the following is correct?

(a) Ajay should be allowed to recover the money because even though there is no
contract, Bandita and Chaaru should not be allowed to unjustly benefit from
Ajay's money.
(b) Ajay should be allowed the possession of the land because Chaaru can always
decide to approve the transaction between Ajay and Bandita.
(c) Ajay should not be allowed to recover because he induced Bandita, a minor, to
sell the land.
125. Which of the following is correct?

(a) If Ajay is allowed to recover the money, that will defeat the law framed for
protecting the minors against fraudulent persons.
(b) If Ajay is not allowed to recover, that will cause him injustice as he has not paid
the entire sale price.
(c) If Ajay is not allowed to recover, Chaaru will benefit from both the money and the
land.
PRINCIPLES FOR Q.126–Q.129:
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I. The act of using threats to force another person to enter into a contract is called
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coercion.
II. The act of using influence on another and taking undue advantage of that person
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is called undue influence.
III. In order to prove coercion, the existence of the use of threat, in any form and
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manner, is necessary. If coercion is proved, the person who has been so

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threatened can refuse to abide by the contract.

IV. In order to prove undue-influence, there has to be a pre-existing relationship
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between the parties to a contract. The relationship has to be of such a nature that
one is in a position to influence the other. If it is proven that there has been undue
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influence, the party who has been so influenced, need not enforce the contract or
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perform his obligations under the contract.

FACTS: Aadil and Baalu are best friends. Aadil is the son of multi-millionaire
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business person, Chulbul, who owns Maakhan Pharmaceuticals. Baalu is the son of
a bank employee, Dhanraj. One day, Aadil is abducted from his office by Baalu.
Chulbul receives a phone call from Dhanraj telling him that if he does not make
Baalu the CEO of Maakhan Pharmaceuticals, Aadil will be killed. Chulbul reluctantly
agrees to make Baalu the CEO. Subsequently Chulbul and Baalu sign an
employment contract. However, as soon as Aadil is released and safely returns home,
Chulbul tells Baalu that he shall not enforce the employment contract. Baalu and
Dhanraj are not sure as to what is to be done next.
126. As per the rules and the given facts, who coerces whom?
(a) Aadil coerces Baalu.
(b) Baalu coerces Chulbul.
(c) Dhanraj coerces Chulbul.
127. In the above fact situation;
(a) There is undue influence exercised by Dhanraj on Baalu.
(b) There is undue influence exercised by Aadil on Chulbul.
(c) There is no undue influence.
LAW OF CONTRACT
128. Chulbul is;

(a) Justified in refusing to enforce the employment contract as Chulbul was coerced
by Dhanraj.
(b) Justified in refusing to enforce the employment contract as Baalu was complicity
in the coercive act.
(c) Not justified in refusing to enforce the employment contract as Baalu was an
innocent person and has not coerced Chulbul.
129. Baalu will succeed in getting the employment contract enforced if he can show that;
(a) He is the best friend of Aadil.
(b) It was his father, and not he, who used coercion against Chulbul.
(c) Chulbul has promised his father to employ him.
130. PRINCIPLE: When the parties to an agreement agree on the same thing in the same
sense, there arise legally binding obligations between them.
FACTS: Zaverilal's antique shop was a well-known shop of the locality. Taradevi, a
socialite of the locality, went to the shop and she was attracted by an earthern jar on
display. Zaverilal explained to her that the jar belonged to Hoysala period; and
despite its earthern composition, it was very strong and almost unbreakable.
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Taradevi replied to him that she was so captivated by the jar that it was immaterial
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to her as to which period it belonged. She bought the jar and came home. She placed
the jar in a prominent place in her drawing room. One of her friends, an art critique,
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who happened to visit her, told her that the jar was not at all an Antique, but Taradevi
did not bother about it. One day, it accidentally fell down and broke into pieces.
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Taradevi took up the matter with Zaverilal that his both statements were wrong and,
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therefore, he should pay damages to her.

(a) Zaverilal must compensate her, since his both the statements concerning jar were
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wrong.
(b) Zaverilal need not compensate, since, Taradevi was not concerned with its antique
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value at all.
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(c) Zaverilal must compensate, because he carelessly made the statements.

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131. PRINCIPLE: When there is breach of contract, the resulting damages will have to be
paid by the party breaching the contract to the aggrieved party. However, the parties
are free to agree as to damages payable in advance in case there is breach of contract.
FACTS: Mr. Ramesh entered into a contract with Mr. Ramakrishna for selling his
green Alto Car for Rs. 3 lakhs. Mr. Ramakrishna was to pay Rs. 3 lakhs on or before
25th April, 2005 and take possession of the car. The party failing to honour the
contract has to pay Rs. 40,000 as damages to the other party. Mr. Ramakrishna has
not performed his part of the contract. Mr. Ramesh is claiming Rs. 40,000.
(a) Mr. Ramesh can sell the car in the second hand market and if he suffers any loss,
then only he can claim that amount from Mr. Ramakrishna.
(b) Mr. Ramakrishna is liable to pay the agreed damages.
(c) Mr. Ramesh has to prove that he has suffered Rs. 40,000 as damages to get it.
132. PRINCIPLE: A contingent contract is a contract to do or not to do something, if some
event, collateral to such contract, does or does not happen.
FACTS: A agrees to pay B a sum of Rs. 1 lakh if B marries C within a period of six
months. B marries C during the seventh month as the marriage hall was available
only during that month. B claims Rs. 1 lakh from A.
LAW OF CONTRACT
(a) B can successfully claim Rs. 1 lakh from A.

(b) B cannot claim Rs. 1 lakh from A as B married C after the duration set in the contract.
(c) B can claim Rs. 1 lakh as well as special damages from A for having married C.
133. PRINCIPLE: A contract without consideration is void. When at the desire of one
party, the other party does something, the consideration is said to flow from the latter
to the former.
FACTS: A's house was on fire and a child was trapped inside the house. Everyone
was shouting for help. A brave onlooker, hearing the shrieks of child, went inside the
house and brought him out. The father of the child promised to pay the rescuer Rs.
10,000. Subsequently, he backtracked on his promise. The rescuer sued the promise
for the breach.
(a) The father of the child must pay for the service rendered by the rescuer.
(b) The rescuer is not entitled to the payment, since he acted on his own.
(c) Commercial considerations cannot be applied to humanitarian instincts.
134. PRINCIPLE: A contract procured by coercion is bad under Indian Contract Act. Coercion
is defined as committing or threatening to commit any act forbidden by Indian Penal
Code. Attempt to commit suicide is an offence under India Penal Code.
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FACTS: A wanted his wife B to part with some landed property given to her by her
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father. B resisted fearing that her husband would squander it away. A threatened
her that if she does not sign the deed transferring the property to him (i.e., A), he
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would commit suicide. B signed the deed. Subsequently, she challenged the deed on
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the ground that the deed was bad under law.

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(a) The deed is valid under the law.

(b) The transfer of property is complete once the deed is entered between the owner
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of the property and the buyer.

(c) The deed is not valid as it was signed under the threat of suicide by her husband
which amounts to coercion and vitiates the contract.
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(d) Husband has a right over the property of the wife that was voluntarily transferred
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to the buyer.
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135. PRINCIPLE: Law does not take notice of trifles.

FACTS: A proposes to his neighbour B that they both should go together for a
morning walk. B agrees to the proposal and it is decided that both of them would
meet at a particular point at 6 A.M. from where they would set off for the morning
walk. In spite of the agreement, B does not turn up. A waits for him at 6 A.M. every
day for a continuous period of seven days. Thereafter, he files a suit against B
claiming damages for the agony and mental torture suffered by him.
(a) B is guilty of breach of contract and is liable to pay damages.
(b) There is no intention to enter into legal relations.
(c) The matter is too small and the court will refuse to go into it.
PRINCIPLE FOR Q.136–Q.138: A contract requires a proposal and an acceptance of
the proposal. It is necessary to make a binding contract not only that the proposal
be accepted, but also that the acceptance is notified to the proposer.
136. A sent a letter to B stating that he was willing to sell to B, 10 bags of rice at Rs. 20
each. B made a telephone call to A to inform him that he had accepted the offer. Just
as he was stating his acceptance, a very noisy aircraft flew over B's house. A was not
able to hear the acceptance.
LAW OF CONTRACT
(a) There is no contract since the acceptance has not been notified to A.
(b) There is no contract since the reply also has to be in writing.
(c) This is a valid contract since B conveyed his acceptance to A. It does not matter
if he heard it or not.
137. A sent a letter to B stating that he was willing to sell to B, 10 bags of rice at Rs. 20
each. B wrote a letter to A accepting the offer and posted it.
(a) The contract is entered into the moment B posts the letter.
(b) The contract is entered into only after A receives and reads the letter.
(c) The contract is entered into only after A receives the letter, reads it and then gets
back to B.
(d) The contract is entered into the moment A makes the offer.
138. A sent a letter to B stating that he was willing to sell to B, 10 bags of rice at Rs. 20 each.
B sent an e-mail to the address mentioned in the letter-head, accepting the offer.
(a) The contract is entered into the moment the mail reaches A's server.
(b) The contract is entered into only after A sees the e-mail.
(c) The contract is entered into when A sent the letter.
(d) The contract is entered into the moment B receives an automated delivery receipt.
139. PRINCIPLE: An agreement becomes a contract when it is entered into between two
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or more people with each other's free consent. Two or more people are said to consent
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when they agree to the same thing in the same sense. Consent is said to be free when
it is not caused by coercion, undue influence, fraud, misrepresentation or mistake.
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FACTS: A went to a doctor to get himself treated. The doctor asked him to sign a
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"consent form" and said that unless he signs it, he will not examine him. A signed
the form waiving his right to sue the doctor.
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(a) This is a valid contract since A understood and consented to the terms.
(b) This is not a valid contract since A had no other option, but to sign.
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(c) This is a valid contract since it is a doctor-patient relationship.

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140. PRINCIPLE: Where both parties to an agreement are under a mistake as to matter
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of fact essential to the agreement, the agreement is void.

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FACTS: A had a piece of land. He believed that the value of the land was Rs. 1,000
per square foot. B knew that the value of the land was infact Rs. 1,500 per square
foot. However, he did not inform A and purchased the land at Rs. 1,000.
(a) The contract is valid since A should have been more careful.
(b) The contract is valid since B paid for the land.
(c) The contract is void since A was mistaken about the cost of the land.
(d) The contract is valid since the land has already been purchased.
PRINCIPLE FOR Q.141–Q.144: The object of an agreement is lawful unless it is
forbidden by law; is of such a nature that, if permitted, it would defeat the provisions
of any law; is fraudulent; involves or implies injury to the person or property of
another person; the court regards it as immoral; it is opposed to public policy.
141. FACTS: A and B entered into a contract, whereby A agreed to get married to B, if her
parents paid A Rs. 1,00,000 before the wedding. B's parents failed to pay the
promised amount. A sues B and her parents.
(a) A will succeed because all the requirements of a contract are met.
(b) A will succeed since the payment of the amount was the condition precedent for
the wedding.
(c) A will not succeed since the contract is void, its object being against the law.
(d) A will not succeed since B was not a party to the contract.
LAW OF CONTRACT
142. FACTS: A was arrested by the police for committing an offence and was subsequently
granted bail by the Court. One of the conditions imposed by the Court for granting
bail was that A arranges for a surety for Rs. 50,000. A approached B to be a surety.
B agreed, but insisted that they enter into a contract whereby A would deposit Rs.
50,000 into B's account, which would be returned to A by B after the case was over.
(a) The contract would be void since its effect is to defeat the provisions of the Cr.P.C.
(b) The contract would be void because A cannot enter into a contract when a
criminal case is going on against him.
(c) The contract would be void because the Court is not a party to it.
(d) The contract would be valid.
143. FACTS: A and B, a Hindu couple were married to each other. Owing to differences
between them, they decided to get divorced. They entered into a contract laying down the
conditions that both parties had to adhere with. One of the terms of the contract was that
their children would not be entitled to claim the ancestral property of A, the husband.
(a) The contract will be void since the children are not a party to the contract.
(b) The contract will be void since its terms are opposed to the personal laws of the parties.
(c) The contract will be valid.
(d) The contract will be void since a woman cannot enter into a contract with her
husband.
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144. FACTS: The BCCI decided to hold an auction to sell IPL teams. 12 bidders registered
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for the auction. Unknown to the BCCI, these 12 bidders had entered into a contract
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that they would not bid more than a certain amount.
(a) The contract will be void because BCCI is not a party to it.
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(b) The contract will be void since the object of the contract is to cause a loss to the BCCI.
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(c) The contract will be void since the maximum number of parties to a contract as
per Indian law is 10.
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(d) The contract will be valid.
145. PRINCIPLE: Every agreement by which anyone is restrained from exercising a lawful
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profession, trade or business of any kind, to that extent is void.

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FACTS: A company entered into a contract with Coca Cola Ltd. to bottle soft drinks
produced by Coca Cola. One of the terms of the contract was that the company would
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not bottle soft drinks for any other competitor of Coca Cola during the pendency of
the contract.
(a) The contract is void since it restrains the lawful right of the company to engage
in business.
(b) The contract is void because there is no consideration being paid.
(c) The contract is valid.
(d) The contract is void since the competitor is not a party to the contract.
146. PRINCIPLE: An agreement is void to the extent that it restricts absolutely, a party
from enforcing his contractual rights by usual proceedings in any ordinary court.
FACTS: A and B entered into a transaction in Delhi for sale of goods based in Delhi. The
contract stated that in case of a dispute, only civil courts in Chennai would have
jurisdiction. Neither A, nor B resided or carried on business in Chennai.
(a) The contract is valid since it is still an Indian court that has jurisdiction.
(b) The contract is void since it ousts the jurisdiction of the competent court.
(c) The contract is void since the consent of the court is required before entering into
such a contract.
(d) The contract is valid since Chennai courts have expertise with respect to
contractual Matters.
LAW OF CONTRACT
147. PRINCIPLE: An agreement, the meaning of which is not certain, or capable of being
made certain, is void.
FACTS: A and B, who were brothers, entered into an agreement which stated that A
would sell his entire share of the ancestral property to B. The agreement did not
mention the specific details (like survey number) of the property.
(a) The contract will be void since it is vague.
(b) The contract will be void because it is not possible to ascertain the property which
is being referred to.
(c) The contract will be void since it is illegal.
(d) The contract is valid since there is clarity about the property sought to be sold.
148. X duly posts a letter of acceptance to Y. But the letter is lost in transit by the
negligence of the Post Office.
(a) There is no contract concluded because the acceptance has not reached the
proposer.
(b) There is no contract concluded because the proposer had not received the letter.
(c) The contract is concluded because the acceptance is complete from the date of
despatch, notwithstanding any delay or miscarriage in its arrival from causes not
within the acceptor's control.
(d) None of these.
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149. Ramesh asks his servant to sell his cycle to him at a price less than that of market
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price. This contract can be avoided by the servant on the ground of;
(a) Fraud. (b) Mistake.
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(c) Undue influence. (d) Coercion.

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150. In book depot, a catalogue of books enlisting the price of each book and specifying
the place where the particular book is available is;
(a) An invitation to offer.
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(b) An offer.
(c) An invitation to visit the book shop.
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(d) Just a promise to make available the particular book at a particular place at the
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listed Price.
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151. PRINCIPLES:
I. If A is asked to do something by B, B is responsible for the act, not A.
II. If A, while acting for B commits a wrong, A is responsible for the wrong, not B.
III. If A is authorised to do something for, but in the name of A without disclosing B's
presence, both A and B may be held liable.
FACTS: Somu contracted with Amar whereunder Amar would buy a pumpset to
be used in Somu's farm. Such a pumpset was in short supply in the market.
Gulab, a dealer, had such a pumpset and he refused to sell it to Amar. Amar
threatened Gulab of serious consequences if he fails to part with the pumpset.
Gulab filed a complaint against Amar.
PROPOSED DECISIONS:
A. Amar alone is liable for the wrong though he acted for Somu.
B. Amar is not liable for the wrong, though he is bound by the contract with Somu.
C. Somu is bound by the contract and liable for the wrong.
D. Both Somu and Amar are liable for the wrong.
SUGGESTED REASONS:
I. Amar committed the wrong while acting for the benefit of Somu.
II. Amar cannot do while acting for Somu something which he cannot do while acting
for himself.
LAW OF CONTRACT
III. Both Amar and Somu are liable since they are bound by the contract.
IV. Somu has to be responsible for the act of Amar committed for Somu's benefit.
Your decision with the reason:
(a) (A)(I) (b) (A)(II) (c) (C)(III) (d) (D)(IV)
152. PRINCIPLE: When a contract has been broken, the party who suffers by such breach
is entitled to receive, from the party who has broken the contract, compensation for
any loss or damage caused to him thereby, which naturally arose in the usual course
of things from such breach, or which the parties knew, when they made the contract
to be likely to result from the breach of it. Such compensation is not given for any
remote or indirect loss or damage sustained by reason of the breach. Decide, whether
and to what extent B is entitled to damages in the following situation:
FACTS: A contracts with B to sell him 1,000 tons of iron at Rs. 100 per tonne. B tells
A that he needs the iron for export purposes, and that he would be selling the iron
at Rs. 200 per tonne. A breaks the contract. When the question comes about
damages, A says he will pay only Rs. 5,000 as damages because the same variety of
iron was available in the market at Rs. 105 per tonne. B however contends that he
should be given Rs.1,00,000 because that was the profit which he would have made
had A fulfilled the contract. B had actually bought the iron at Rs. 110 and had
exported it. B is;
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(a) not entitled to damages. AL
(b) entitled to Rs. 10,000 as damages.
(c) entitled to Rs. 5,000 as damages.
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(d) entitled to Rs. 1,00,000 as damages.
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153. PRINCIPLE: Contract is an agreement freely entered into between the parties.
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FACTS: Tapan was a dealer in mustard oil. The Government of India by an order
issued under the Essential Commodities Act, fixed the price of mustard oil, and also
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the quantity which a person can buy from the dealer. Tapan carried on his business
under this order for a while, but he refused to pay sales tax on his sale transactions
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on the ground that these were not the contracts freely entered into by him.
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(a) Tapan would succeed because the price and quantity were not negotiated by him.
(b) Tapan would not succeed because free consent between the parties was there
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despite the restriction on price and quantity.

(c) He would succeed because the Government under the new order forced him to
enter into contracts.
(d) Both (a) and (c).
154. PRINCIPLE: The contract after death of one party can be continued if it is ratified by
the surviving party.
FACTS: Vishal, a famous artist was requested by Arun, an industrialist to draw the
portrait of his deceased wife and paid Rs. 20,000 in advance and agreed to pay when
the work was completed, a sum of Rs. 2 lakhs. When the portrait was half drawn,
Vishal died due to heart attack. His son, also a fine artist completed his father's work
and demanded the money from Arun. Arun refused to pay and to accept the portrait
drawn by Vishal's son and also demanded the advance to be returned.
(a) Arun cannot demand the advance amount from the son of Vishal, because in
normal cases the son is not responsible for the father's contractual obligation.
(b) Son of Vishal cannot demand the rest of amount from Arun because Arun has
not assigned him the work.
(c) Arun can demand the rest of the amount.
LAW OF CONTRACT
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ANSWER KEY &

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EXPLANATIONS
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LAW OF CONTRACT
ANSWER KEY
1. B 18. B 35. C 52. A 69. D 86. C 103. A 120. C 137. B 154. D
2. D 19. B 36. A 53. A 70. B 87. D 104. B 121. B 138. B
3. B 20. D 37. D 54. A 71. B 88. A 105. C 122. D 139. A
4. D 21. A 38. D 55. C 72. C 89. D 106. A 123. A 140. A
5. A 22. C 39. D 56. A 73. A 90. B 107. B 124. C 141. C
6. A 23. B 40. A 57. C 74. C 91. D 108. B 125. A 142. A
7. A 24. C 41. A 58. C 75. D 92. D 109. C 126. C 143. B
8. A 25. B 42. B 59. A 76. D 93. D 110. A 127. C 144. B
9. B 26. A 43. A 60. D 77. C 94. C 111. D 128. A 145. C
10. B 27. C 44. C 61. D 78. A 95. C 112. C 129. D 146. B
11. B 28. D 45. A 62. A 79. B 96. C 113. B 130. B 147. D
12. D 29. B 46. B 63. B 80. C 97. C 114. A 131. B 148. B
13. B 30. B 47. D 64. C 81. C 98. A 115. A 132. B 149. C
14. A 31. B 48. D 65. A 82. A 99. A 116. B 133. B 150. A
15. C 32. C 49. C 66. C 83. D 100. D 117. C 134. C 151. A
16. A 33. A 50. A 67. D 84. D 101. A 118. C 135. C 152. C
17. A 34. D 51. D 68. C 85. B 102. B 119. B 136. A 153. B
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EXPLANATIONS
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1. The proposal must be accepted as it is. If the proposal is modified while

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accepting, the same is not acceptance under the law. Here, the proposal was not
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accepted as it was but the condition has been changed. Thus, no acceptance has
taken place. B is correct.
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2. No inference can be drawn from the given facts since the facts are silent as to
the status of an agreement with a minor girl. It only mentions of agreement with
a minor boy which is not the question. Thus, D is correct.
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3. Since the agreement for sale of liquor is made illegal and not recognized by law, no
remedy under law would lie to enforce such an agreement. The parties are, therefore,
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not bound by their respective promises and hence, no party can sue another. B is right.
4. The proposal only becomes complete when the acceptor comes to know of it.
Thus, when the letter of proposal will be read by him, it will come into his
knowledge and be complete. D is right.
5. It is clear from principle that an agreement may be entered into even by a mere
conduct of the parties in the absence of any express words. Here, conduct of both
parties sufficiently shows that they both intended to enter into agreement of sale-
purchase with each other. A is right.
6. The property has been defined as a bundle of rights as given in principle. When
there is a transfer of such rights, it is transfer of property. The car has been already
sold to B to whom all the said rights of property have been transferred which is an
essential of sale, and for this reason, property stands transferred. It is not material
to see now as to who really has the possession of property since it has been
transferred to B, who has become the owner when sale was complete. A is right.
7. A person who is rarely of sound mind can also make a contract when he is sound
mind. He can contract during such stage. A is right.
8. The party whose consent was not free can enforce it. Here, the consent of B was
taken by illegal threat; coercion, thus, his consent was not free. Only B can
enforce such agreement. A is right.
LAW OF CONTRACT
9. The principle has made contract to be enforceable only at the option/discretion of

that party which was in dominating position against a party which was not. Clearly,
between a doctor-patient relationship, doctor will be deemed to be in the dominating
position over the patient unless otherwise shown. Based on the above reason,
enforceability is only at the discretion of doctor against the patient. B is right.
10. When a person does or refrains from doing something at the desire of another,
such act is consideration. Here, Y quit smoking and drinking at the desire of X,
thus, Y’s act/refrain amounts to consideration. B is right.
11. The promised act is considered impossible under law which will never enforce it.
B is right.
12. The promise made was to repair the car engine, but the accident was due to tyre
burt. No promise was made to that effect. Thus, no liability arises. D is right.
13. The principle provides mere silence is no fraud. No duty to speak on the part of
seller in any condition has been specified therein. Non-communication of truth is
a mere silence on the part of father here and not fraud. He is not liable. B is right.
14. A party to contract cannot put the contract to end when the other party refuses
to perform his promise. A had promised to provide employment to B, which A
later refused to provide. B, the other party, cannot put contract to end by joining
another employer as per above explanation. A is right.
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15. Transfer of property can only be between living persons, since the child is not
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born yet, it is not living person, no transfer can be legally made to him. C is right.
16. The condition to marry the daughter had become impossible to perform due to
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her death at the time of agreement itself. The interest has failed for this reason.
A is right.
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17. It has been permitted under principle to obtain consent after the happening of
event. The consent was taken after marriage as permissible above. A is right.
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18. The condition attached was to go to England within three years after the agreement.
Since it is not fulfilled, the interest in property will not continue. B is right.
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19. The official answer is A but we consider B as correct. When there is a written
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contract, it must be produced for evidence. Oral evidence has been excluded.
This means, when there is a contract which is into written form between the
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parties; the same cannot be proved by mere verbal/oral evidence. Thus, oral
evidence must not be allowed. B is right.
20. The goodtyre company was not a direct party to the contract between dealers and
their retailer. The contract between the dealer and retailer also did not directly
confer any benefit on company out of the very contract, but a mere condition to
pay compensation to company is agreed in case of any breach of contract. The
company cannot be treated as a beneficiary. There is also no consideration. Thus,
D is right.
21. The Principle-IV provides exceptions to the rule of Privity of Contract. Third party
beneficiary is one of them. This means a third party can claim a benefit or right
even if he himself has not furnished the consideration for it. This further means
that consideration may move from any person, and not necessarily the promisee.
Here, Subhasini was the beneficiary and the promisee too. Based on the above
reasoning, she can claim the money as consideration for her is already paid by
Nandini by gift. Thus, both decisions I and II are correct and A is the right answer.
22. According to Principle-V of Quasi Contract, no person can be allowed to unjustly
benefit out of an act that he/she does not deserve. In this case, if she does not
pay the due money, she will be benefitting or deriving unjust advantage that she
does not deserve legally which the above principle desires to prevent. Based on
this rule alone, she is liable to pay. C is right.
LAW OF CONTRACT
23. Varun and Chinmoy are not liable to pay for the car since Jaffar purchased it for
his personal purpose and not in the course of partnership. The act must have
been done in the course of business to hold the other partners liable. B is right.
24. The agreement is based on wager/bet, which is not enforceable in law. No rights
or duties arise out of an unenforceable agreement. Hence, Thomas need not
share Rs. three lakhs with Raja and Hoja. C is right.
25. A person cannot sell something of which he is not an owner as per the principle.
If the statement made by Jatin is true, this means he was the owner, not Mohit
who sold it to Ranjan. Ranjan does not become owner as Mohit was not an owner
based on above rule. Thus, B is right.
26. There is an agreement not to start a competing business in the same village till
another’s life. The condition is highly unreasonable, thus, a restraint of trade. A
is the only suitable option. A is right.
27. Being partners, Ram’s agreement to purchase rice for their partnership, is
binding on Shyam because under the principle, every partner is an agent for
every other partner. C is right.
28. A gift must be accepted by the donee (to whom the gift is made) during the lifetime
of donor(the one who makes a gift). However, gift has not been accepted by Sooraj
and donor is already dead. Thus, it is no proper gift within the principle, Sooraj
has no claim. D is correct.
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29. As per the second principle, an offer may be revoked at any time before the
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acceptance is made. Here, sale has taken place before acceptance from plaintiff.
Thus, the offer got revoked before acceptance. Plaintiff has no claim. B is right.
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30. A strict application of principle concludes that there was consideration. The fact
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that he agreed to continue the work to finish on time and avoid penalty was in
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pursuance to the promise of additional sum made to him by the company. This
forms a valid consideration under the principle. He was eligible for the money as
promised. B is correct.
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31. The crux of the question is whether there was a consideration. The company had
invited wrappers and promised to send records as stated in facts. In principle, it
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is mentioned that consideration is something that moves from the promisee.

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Here, the customers are the promisees as the company has promised to send
them the records. In return of such records, customers will send chocolate
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wrappers as asked. Thus, wrappers are moving from the promisees. This is
consideration. No independent economic value of consideration is required, as
long as law does not prohibit it. B is the right answer.
32. Exclusion clause in question means a condition/term which was not agreed to
by the parties. Here, the ticket to parking has already been obtained. The
conditions (about no accidental liability of owners) were mentioned on the pillars
inside the building, but no such condition was mentioned on the ticket itself. In
that event, this condition was not agreed to by plaintiff as the same was visible
or noticeable only after the purchase of ticket. The above condition is, thus, an
exclusion clause neither incorporated in the agreement nor agreed by the parties.
C is the right answer.
33. The plaintiff made an offer which was not accepted by defendant, rather,
defendant stated their own terms and conditions as given in facts. This
amounted to a counter offer. This did not include a price variation clause. The
plaintiff accepted this offer, thus accepted all conditions listed therein including
that there will be no price variation clause. Hence, A is right.
34. There needs to be an assertion made as per the first principle. In this case, no
assertion has been made, only an estimate has been shown and not represented
to be an undisputed/hard fact. No misrepresentation done. Thus, A is correct.
Further, as per the second principle, negligent misstatement occurs when any
LAW OF CONTRACT
inaccurate information is provided. Here, estimate was based on inaccurate

information as explicit in facts, thus, there is a negligent misstatement. Hence,
both (a) and (c) are true. D is the right answer.
35. The sale is complete when property is transferred. Transfer of property here
means transfer of ownership as the principle is about transfer of ownership. It is
mentioned in facts that A sold his car. There is a sale, and in sale ownership has
been transferred. Thus, the property in question stands transferred. Though, it
may be in possession of another which is not relevant. C is right.
36. The term ordinary tribunal under the principle means an ordinary civil court or
a tribunal or an arbitration mechanism, etc. Parties to an agreement have a
choice to approach any of the above mentioned authorities. By agreeing to
approach only the arbitration in the question, parties have not restricted
themselves absolutely under the principle. It may be a partial restriction but
certainly not an absolute one. Thus, the agreement is valid. A is right.
37. A deliberate concealment of fact is fraud as per the principle. In contracts of
insurance, it is expected that customer discloses all material facts which can affect
the willingness of insurer to contract with him. Here, the information of disease
must be disclosed for this reason. Since it was concealed, there is fraud. D is right.
38. It is not relevant as to on whose premises the key is found. The only essential
requirement is that the person claiming reward must find the said key even though
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he did not buy the soap. Since, the foreigner got the key; he is entitled to the reward.
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D is the most suitable option. D is right.
39. A person is liable to pay compensation for not fulfilling his promise. Here, the
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mechanic had been hired only for repairing car engine and this service had got
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nothing to do with tyres of the car. Bursting of tyres, thus, cannot be said to be breach
of any promise on the part of mechanic. Y will get no compensation. D is right.
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40. There is apparent misuse of dominant position by the head of religious group
and others. There is clear compulsion and undue influence as explicit in
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principle. Thus, he may refuse to perform his promise. A is right.

41. The bailee has been given a right to even sell the property when he is not
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compensated adequately. This shows the actual owner of the property has no right
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to claim the property back in case sufficient compensation or expense is not

provided. His request for reimbursement is, therefore, a valid request. Out of all the
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options available, only A is relevant and hence, it is right.

42. In first situation, the offer was not accepted but counter offer was made. In
second situation, there is merely an invitation to offer and in third situation,
there is an offer without acceptance. None of these became agreements. But, in
fourth situation, the offer has been accepted, thus it becomes an agreement.
Hence, only fourth situation is a contract. B is right.
43. Promise to obtain government job for payment of money is against the law, and
hence has an unlawful object. The agreement is void. A is right.
44. The term contemporary (present) style is uncertain and cannot be made certain
with precise meaning as it may depend upon person to person. Thus, the
agreement is void. C is right.
45. According to the last part of principle, a minor can hold the other party
responsible towards him even though he himself is not competent to contract. A
is the only option based on this reasoning. Thus, A is right.
46. The agreement is for keeping smuggled goods, which is illegal, thus the
agreement is invalid. B is right.
47. Acceptance must be absolute and unqualified (unconditional). There must be
acceptance of all terms of an offer to be called a valid acceptance. Here, the
original offer has been changed while responding to it, thus, it actually became
LAW OF CONTRACT
a counter offer, rather than an acceptance to offer for the reasons stated above.
B has no remedy under the principle. D is right.
48. There is a principle change here. It is expressly stated in principle that the
agreement is enforceable at the option (discretion) of the dominating party. This
means, the dominating party can enforce the agreement which is contrary to the
actual law according to which dominating party cannot enforce the agreement.
But, we will follow the principle, not the law, and according to the principle, the
dominating party (doctor) can enforce the agreement. Thus, D is correct.
49. Anurag, being her employer, was at influencing position and by asking her to
offer her flat as a security, he exercised undue influence. There is also no
personal benefit of Pragya, which indicates very strongly that she entered into
the agreement solely under the influence of her boss and for his benefit only.
Thus, there is an undue influence. C is right.
50. The question asked is whether the bank has satisfied itself that no undue influence
has taken place. Here, the bank suggested her to take independent advise, but never
asked her again if she was under any influence/pressure and willingly entering into
the contract. The bank did not ensure if independent legal advice by her was taken
or not. Thus, the bank has not done enough to satisfy itself that she has not really
been influenced. In the light of question asked, A is the right answer.
51. An offer when accepted with essential conditions becomes a contract and parties
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become bound by their promises. Here, the offer was made by X in the form of a
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bid, which was provisionally (temporarily) accepted by other party. A provisional
acceptance is not a final acceptance. Unless there is a final acceptance, there
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can be no contract. Since, there is no contract, X owed no duty/obligation of any
kind towards the other party. Thus, he is not liable. D is right.
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52. According to principle two, a collateral agreement to a wagering agreement is valid.

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A collateral agreement here means an agreement which is entered into for the
purpose of performing another agreement. Such agreements will be valid. Here,
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Bank has lent money (Collateral Agreement) so that the debtor can perform his
promise to pay to another under a wager agreement. A is right.
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53. According to the principle, B is liable to pay. It is mentioned that A delivered the
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eatables by mistake. This shows that he did not have an intention to deliver the
same for free. B has derived benefit out of it, thus he is liable. A is right.
C
54. When B reads the letter only then communication of proposal will be complete
according to the principle as proposal is said to be complete when the other party
comes to know of it. A is right.
55. Sale of liquor is illegal in principle and such agreements do not exist in the eyes
of law. Hence, no legal action can lie against anyone. C is right.
56. According to the principle, only a person whose consent was not free can enforce
the agreement. Here, consent of B was not free, thus only he can enforce the
agreement. A is right.
57. The acceptance must be exact mirror image of proposal. The proposal must be
accepted as it is without any change. Here, the original proposal has been
modified by the other party, thus acceptance was not mirror image of proposal.
It is not acceptance under the principle. C is right.
58. Mere silence is not fraud unless a specific duty to speak truth is imposed. No
such duty has been mentioned in principle. In that case, merely keeping silence
cannot amount to fraud. C is right.
59. It is clear from principle that a person of unsound mind can also make contract
when he is not in the state of unsoundness of mind. He can contract when he is
normal. A is right.
LAW OF CONTRACT
60. The required condition in the facts can also be complied after the event has taken
place according to the principle. Here, the consent has been obtained after the
marriage, which is valid as stated above. The condition has been fulfilled. D is
right.
61. Agreement may be entered into by conduct also as provided by principle. Here,
there is no express agreement in words, but the act of picking the article and
making payment is a conduct that shows agreement has been entered into. D is
right.
62. It is an impossible act in the eyes of law. The promise made to do the said act
will be treated as an impossible agreement. It cannot be enforced. A is right.
63. The acceptance was not conveyed in the mode specified as required in the
principle and also letter of acceptance was not sent within two weeks. B is right.
64. The statement made by Sohan did not show any willingness to enter into a
contract as he merely informed the quotation without expressing any desire to
deal with him as such. There is no principle about invitation to offer, thus B is
to be ignored. C provides precise reasoning based on principle. Thus, C is right.
65. As per the official answer key, option C is the correct answer but nothing about
burden of proof is mentioned in principle, so C should be wrong. According to
us, the correct answer should be option A based on direct application of principle
and facts as it is clear from facts that X was unsound state of mind at the time
S
of entering into contract. A is right. AL
66. The contract was only for a specific quality of rice. Rice with this quality could
TI
have been procured from other sources as well. Merely because subject matter
is destroyed, it does not make an agreement impossible unless it is shown that
N
the rice cannot be obtained from anywhere else. C is right.

SE
67. The partnership ended right after the movie bombed. The money borrowed was not
taken in the course of partnership; hence, the other person is not liable. D is right.
ES
68. In the given facts there is no person present since the statement has been made
in an uninhabited (empty) hall. Therefore there is no proposal. C is right.
T
69. In social relations, a presumption follows that parties do not intend legal
LA
consequences. Father-Son relationship, being a social and personal relation,

there appears no intention to create legally binding relationship. Moreover, it is
C
stated in facts that the father made the promise to his son in a casual manner,
which makes it clear that it was not intended to create legally binding
relationship. D is right.
70. The communication between authorized agents would be valid but
communication of acceptance to Z, a stranger does not give rise to any legally
binding obligation. B is right.
71. Two years cannot be called a reasonable period of time. It is not expected from
an offeror to wait for indefinite or unusually long period of time. B is correct.
72. The arrangement becomes void from the very beginning as A is a mirror. An
agreement with a minor is void-ab-initio and not voidable. D is wrong for this
reason. Thus, C is right.
73. The consideration is real and it does not matter if it is adequate or not, if the
consent is freely given, as suggested by principle. The consent has been freely
given here, thus, the agreement will be valid even though consideration is not
adequate. A is right.
74. The agreement to encourage a person to commit a crime and to further also
reimburse any loss suffered (to indemnify) while committing such crime is an
unlawful object which is void. C is right in light of the principle.
LAW OF CONTRACT
75. The promise to secure a job in government for payment of money is illegal. Since
the object is unlawful, agreement is void. D is right.
76. Since consent of Y was obtained through coercion, the contract becomes voidable
at the option of Y as expressly stated in principle. D is right.
77. The fact that he agrees not to marry anyone else in any condition other than the
prescribed condition is a restraint of marriage. C is right.
78. The official answer key has C as the answer but we find option A to be correct
because X was of unsound mind when he entered the agreement. There is
nothing mentioned in principle and facts about burden of proving, etc. as
suggested in C, thus the same must be avoided. A is right.
79. The agreement is not capable of being made certain as the term lucky is not
capable of precise meaning. B is right.
80. The horse was on sale in an auction, thus anyone interested in its purchase
could have examined it. Nothing has been said about the horse, thus no wrong
information has been passed to buyer. It is not fraud. C is right.
81. When there are more than one competent courts (courts having
power/jurisdiction to hear a matter) available, choosing one over another by
parties is not an absolute restriction under the principle. It may be called a
partial restriction, but not absolute as the principle requires to make an
agreement void. Thus, the agreement in question is valid and parties are bound
S
by their promise to submit to the courts of Jaipur only. C is right.
AL
82. It was social obligation and not a legally enforceable contract. There is no
principle of trifles, thus, D is to be ignored. A is right.
TI
83. There is clearly no contract between parties. After the offer by Bakshi has been
N
made, Dutt has not made any offer. He merely said that he would not sell it below
SE
a particular price. This is not an offer, but a mere statement having no legal
impact. If it is not an offer, it cannot be a counter offer. Thus, C is wrong. The
ES
only suitable choice left then is D which is right.

84. Agreement between Sunita and Neel is against public policy as it is considered
immoral under law to promise to marry someone else during the existence of a
T
marriage. D is right.
LA
85. The object to kill being unlawful here, the contract between Sunil and Anuj is
C
void, and no money can be recovered. B is right.

86. Any promise to do an act which a person is bound to do by law is no consideration
in the first place. When there is no consideration at all, its value in law need not
be considered. Here, he was bound by court order to appear. The promise to
appear in court for money is no consideration. Thus, C is right.
87. A minor is not competent to contract. Appointment of an agent is also done under
a contract. A minor is not competent to appoint an agent for the above reason.
Thus, he can neither appoint the agent, nor enforce the contract. D is right.
88. As per principle-I, acceptance can be given only by the person to whom offer was
made. Here, the offer was made to previous owner Pal by name. Thus, it could
have been accepted only by Pal. However, Sam accepted it. Since offer was not
made to Sam, he cannot accept it. A is right.
89. According to the principle, a promise is legally binding only when acceptance is
unconditional. Shyam's acceptance was accompanied by another condition
which amounts to counter offer. Thus, his acceptance was conditional. This is
no acceptance. If there is no acceptance, there is no contract. Ram is not liable.
D is right.
90. Although Smith's offer is negligible when it is compared with Anson's offer,
however it has some value in the eyes of law as per the principle. Consideration
LAW OF CONTRACT
may not be adequate, but if there is something in return of a promise and if

recognized by law, it is a valid consideration. B is right.
91. A person cannot transfer a right to another which he himself does not have.
Thus, if a person himself is not an owner of a property, he cannot transfer
ownership of that property to another. Here, Komal was the owner of the watch
and since Sonal did not have the ownership of property, she could not have
transferred ownership to any other. Monal does not become owner for this
reason. Hence, Komal can claim it back. D is right.
92. The principle makes it clear that a benefit must be conferred by the contract itself.
This means, both parties to contract (Dinesh and Ramesh) must jointly make a
third person (Suresh) beneficiary of their contract. However, in this case, Dinesh
knew the purpose behind sale but Ramesh does not know that Suresh may be
benefitted by the contract. Since he does not know this, it cannot be said that
Ramesh and Dinesh jointly conferred a benefit on Suresh. Thus, Suresh is neither
a party to contract nor a beneficiary, and hence, cannot sue Ramesh. D is right.
93. As per the principle, acceptance is complete when the letter of acceptance is
properly posted and here this was done before Sani sold his house to Gani.
Option C is wrong as it mentions delay was beyond control. This is not relevant,
as no such evidence exists in facts and the principle does not concern itself with
this. Hence, D is better based strictly on principle and facts. D is right.
S
94. Plaintiff must go to court with clean hands means the plaintiff must not have
AL
been a defaulter or negligent in the first place. Here, the plaintiff (S) has not paid
penalty to P for delay in construction. The condition to pay penalty was without
TI
exceptions, thus strike cannot be taken as an excuse to delay work. Thus, S will
not succeed in his claim. The emphasis in principle is upon default of plaintiff
N
(as shown in C) and not on any rectification or corrective measure (as shown in
SE
D). Hence, C is right.

95. Though, the initial object here may be uncertain, but it has become unlawful
ES
under the principle when the purpose of occupation of such property has become
illegal. The property is being used to facilitate child labour by providing
T
accommodation to children, thereby, directly or indirectly promoting it. C is right.

LA
96. There is a transfer of full ownership in a gift, as stated in principle. When full
ownership has been transferred, R has become absolute owner and he can deal
C
with the property the way he wishes. C is right.

97. The agreement is based on an act which is impossible in nature. Hence, C is the
correct answer.
98. Author will succeed because law under the second part of principle specifically
provides for the agreement relating to transfer of the copyright in novel between
author and the producer to be in writing. A is right.
99. The facts disclose that X was a person of unsound mind at the time of entering
into agreement with Y. Thus, he is not capable of entering into a contract under
the given principle. Nothing about burden to prove insanity is mentioned in
principle or facts, thus options B and C need to be avoided. In that event, A is
the right answer based on strict application of principle.
100. There is a clear fact that father misused his parental position. This is undue
influence. Further, the question asked relates to the subsequent agreement
(Bond of Rs. 30,000) as answered by D and not about previous agreement (Rs.
10,000) as answered by A. Thus, D is a correct.
101. Consideration means when one person does something at the desire of another.
Here, the promisee (Y) has done something based on a promise of money made
to him by his uncle as given in facts. A is right.
LAW OF CONTRACT
102. When a limited right is granted, it is license, and when multiple rights are
granted, it is an assignment under the principle. Here, only the right to distribute
film has been granted. No right to personally use the film, or show the film or
otherwise sell it for personal gain has been granted. Thus, it is only a license,
and not assignment as explained above. B is right.
103. The silence can be treated as fraud when it is equal to false speech/suggestion.
A speech or suggestion becomes false when it conveys wrong information. When
a person keeps silence in a circumstance when his silence will lead to wrong
impression/indication of some information, it is equal to false speech. Here, the
seller was specifically told that his silence will suggest the buyer that horse is
sound mind. Thus, seller’s silence here is suggesting wrong information,
amounting to fraud. A is right.
104. There is no restraint here as the condition only justifiably restricts a widow from
claiming husband’s property upon remarriage. It is not considered invalid
restraint. B is right.
105. The principle says that when a party to contract has refused to perform his promise,
the other party can put the contract to an end. Here, the first employer has refused
to provide the job, thus, the other party need not wait for anything further, and he
can put an end to the contract by joining another employer. C is right.
106. The condition is impossible to fulfil, thus agreement is not valid. Though, this
S
case may fall under several heads of principle at the same time, but based on the
AL
order of heads under principle, impossibility comes first in which present case
falls, thus, no need to consider other options. A is right.
TI
107. Condition precedent means that the condition should be carried out before the
N
happening of the event. Post fulfilment of condition is not accepted by the

principle. Here, the consent must have been taken before the marriage. B is right.
SE
108. According to principle, B had to go to England within three years to claim the
ES
interest. If he does not do so, he will lose interest in property. B is right.

109. A had used criminal intimidation (punishable under IPC) to obtain B's consent. A will
not be able to enforce the agreement as per principle. Thus, B will succeed. C is correct.
T
LA
110. The promisee has to do something or make a promise to do something in order

to become consideration for another under the principle. Here, the uncle, for
C
whom promise of maintenance has been made, has neither done something nor
made any promise to do something for daughter. He is a stranger to the
agreement between daughter and mother, and thus cannot enforce the promise
under the given principle. A is right.
111. A is a minor and minor does not have the capacity to contract. The agreement
will be treated as void not giving rise to any rights or liabilities under the said
agreement. D is right.
112. Shyam has answered the second question asked to him and not the first one.
Quoting the price is not an offer as there is no willingness shown at this stage to
enter into a contract. Mere information has been provided without any promise
as such. Thus, C is right.
113. The principle requires a person to be major to be a competent party to contract. Thus,
when a minor becomes party to an agreement, it is not valid. If it is not valid, the
minor cannot be held liable for anything which is shown in option B only. B is correct.
114. Though the answer given in official answer key is C but we consider option A as
more appropriate because the person of unsound mind cannot enter into a
contract in terms of the principle. Nothing about the burden to prove/disprove
is stated anywhere in facts or principle. A is right.
LAW OF CONTRACT
115. An offer becomes complete when the other party comes to know of it. Here offer does
not become complete. Facts specifically lay down that he came to know about the
offer after he had already traced the child. He cannot claim anything. A is right.
116. The performance of promise has been made dependent upon horse proving lucky.
The condition of luck is uncertain and cannot be made certain. It cannot be
known with precision as to what luck would mean here. B is right.
117. Mere silence on the fact doesn’t amount to fraud as the principle says. The horse
is in an auction. It is open for examination by anyone willing to buy it. Fraud
occurs when there is a wrong suggestion in any way. Here, the seller has not said
or suggested anything about the quality of horse, the question of wrong
suggestion does not arise. It is not fraud. C is right.
118. Though D is given as answer in official answer key but we consider C as more
appropriate based on the appearance of agreement since there is no principle
laid down. The agreement with respect to adultery will be void, as the same is
immoral in law, and the agreement with respect to housekeeping is valid as there
is nothing wrong with that. C is right.
119. A person in his private capacity informed Ramu about the decision of the body as
information didn’t come from the official source. A communication made by a person
not authorized or done in an unauthorized manner or an informal communication
such as this is not a valid communication in the eyes of law. B is right.
S
120. Illness wasn’t foreseeable and didn’t arise in the usual course of things thus the
AL
liability of the Bus Company will only be to the extent of inconvenience caused
by walking and not for Rs. 6500. The illness was not a natural consequence of
TI
breach caused which is the essence in principle. C is right.
N
121. It is clear from principle that where there is a guardian of a person, such person
SE
shall become major at the age of twenty one only. Hence, Bandita is considered
a minor as she is not twenty one years old in this case, and therefore, not
ES
competent to enter into a contract. B is right.

122. The principle three very clearly provides two grounds to recover benefit from a
minor. Firstly, that such other party was deceived by the minor by way of
T
misrepresentation of age by minor, and secondly, that such other party was
LA
ignorant of age of minor (honest belief of age). Both these grounds are reflected
in options A and B respectively. Hence, both are correct. D is right.
C
123. She will have to prove that she was competent to contract if she wants to justify
the agreement. That can only be done when she is able to show that she was
major when she contracted. Hence, A is right.
124. It is manifested in facts specifically that Ajay convinced Bandita, a minor. Here,
convincing a minor will be taken as an inducement as provided in option C. Thus,
C is right.
125. This is based on sound understanding of law relating to age of majority and its
relevance to contract law. The purpose for which minors are considered
incompetent to contract is to discourage people from contracting with minors so
that minors can be protected against exploitation at the hands of such people
who may influence them for their advantage. Thus, A is correct.
126. It is provided in facts that Dhanraj has called Chulbul and threatened to kill his son.
The threat has been offered by Dhanraj in this case to Chulbul, hence, C is right.
127. It’s a case of coercion and not undue influence. As the principle of undue
influence states that there must be a pre-existing relationship between the
parties and dominance or superiority of one party over another, all of which is
not seen in facts anywhere among the parties. Hence, there is no undue
influence. C is right.
LAW OF CONTRACT
128. The coercion has been caused by father, not the son as suggested in option B.
The son’s involvement in coercion is not apparent in facts. His father had called
the father of another. The son himself did not call or threaten. The party, who
threatens another, commits coercion. Thus, only A is right.
129. The law regarding coercion is not concerned with as to who really causes
coercion. The only factor needs to be considered is whether a person has given
consent out of coercion or not. If there is coercion, then there is no free consent.
The person, whose consent is not free, can avoid the performance of promise
made by him and the other party cannot hold him liable. In this case also, the
consent of Chulbul has been obtained by coercion. Thus, his consent is not free.
It is not important as to who caused coercion as explained above. Thus, contract
in question cannot be enforced. D is right.
130. There was no meeting of minds as per the principle. Meeting of minds refers to
agreement on subject matter of agreement and its related aspects. In this case,
two statements have been made by shopkeeper. Firstly, about the period that the
jar belonged to. This was not material/important to buyer as given in facts and
this was not the reason why she bought it. Thus, no meeting of minds on this
point. Further, the shopkeeper said that the jar was almost unbreakable which
may be believed by buyer. This does not mean that jar cannot break. It simply
means that jar should not break easily, in other words, leaving the possibility
open for breaking of jar. This statement is not wrong. Since out of two
S
statements, one is not believed by her and the other is not wrong, shopkeeper is
AL
not liable for anything. B is right.
131. The amount of already agreed damages must be paid in accordance to principle
TI
without proving the amount any further. Hence, B is correct.

N
132. The promise to pay money here was dependent upon happening of a condition.
SE
Here, B should have married C within a period of 6 months, but B married C in

7th month, thus A is under no obligation to pay 1 Lakh. Therefore, B is right.
ES
133. According to principle, when a person does something at the desire or request of
another, it is consideration. Here, the rescuer has not acted at the desire of
T
father; rather, he has acted on his own. Thus, it is no consideration. B is right.

LA
134. The threat of suicide includes threat of attempt to commit suicide, which is
forbidden and punishable under the IPC. Such threat constitutes coercion within
C
the meaning of principle. The deed is not valid. C is right.

135. Trifle under principle means a dispute too small in nature that law will not
entertain it. Clearly, here the matter does not have any substance. C is right.
136. The acceptance must be notified to the proposer according to the principle. To
notify to proposer here would mean bringing it to the knowledge or notice of
proposer. Since it is a fact that A was not able to hear the acceptance, it never
came to his knowledge. Thus, it does not become complete acceptance within the
meaning of principle. A is right.
137. B only posted the letter but the contract would be complete when A receives the
letter and reads it, because it is when the acceptance will be said to have been
notified as given in principle. B is right.
138. Contract will be entered only after A reads the email as this is the only inference that
can be drawn based on the principle and available choices. It is the closest to the rule
of notification as provided in principle. B is right.
139. An undue influence occurs when any term of agreement is unreasonable and
which is agreed to by a party under the influence of another. However, here
nothing unreasonable appears in the mere signing of consent form. A consent
form is in-fact a necessary exercise as patients should not be able to sue doctors
unnecessarily. A mere consent form is not unreasonable and hence no undue
influence unless it contains an unjustified clause. Thus, A is right.
LAW OF CONTRACT
140. Both the parties need to be mistaken in order to declare an agreement void. But
here only one party (A) was mistaken and not the other party (B). Since, only one
party is mistaken, the agreement will not be void, and will rather remain valid,
as shown by option A. Further, no agreement is valid merely because money has
been paid or subject matter in it has been purchased as it also needs to satisfy
essential requirements of a contract. Thus, B and D are wrong for this reason
alone. The only relevant choice then left is option A, which shows A alone was
mistaken/negligent, and that the agreement will be valid as explained above. A
is the right answer.
141. An agreement or promise based on immorality in the eyes of law means an
unlawful object under the principle provided. Promise to pay money in the form
of dowry is immoral and illegal in the eyes of law, thus the object becomes
unlawful, and therefore agreement is not valid. C is right.
142. The surety (B) acts as a guarantor, and the law requires that such surety must
pay money out of his own pocket. The money so given by surety cannot be
borrowed from the one for whom surety or guarantee is being offered. Any
agreement or promise which violates this condition is an unlawful agreement or
promise. The condition stated above is listed in Code of Criminal Procedure,
1973. Thus, A is right.
143. Children have legal right in ancestral property of father and they cannot be denied
the same even by a specific agreement to that effect. Such personal rights of children
S
cannot be violated. Thus, agreement is unlawful, and hence, void. B is right.
AL
144. It is called cartelization under competition law to form cartels or groups which
fix the maximum rate at which any particular article will be bought by bidders.
TI
This practice or agreement is against the theory of free and fair market. By fixing
N
the rate in given situation, the bidders prohibited the seller from receiving best
offer/price for his article, violating his legal right. The same is considered to be
SE
unlawful agreement because it causes wrongful loss/injury to a person as

provided under the principle. B is right.
ES
145. Contract is valid because contracts based on exclusivity are not restraint of
trade. Where an arrangement between parties requires strict confidentiality, and
T
where there is a possibility of conflict of interest, parties to such arrangement

LA
are expected to deal exclusively with each other only and to avoid dealing with
competitors of each other. Confidentiality of design, trademark, etc. will be a part
C
of agreement in question, thus becomes an exclusive agreement between parties.

Therefore, there is no restraint of trade. Hence, C is right.
146. When parties agree to approach a court which does not have jurisdiction (power)
to hear the case, such an agreement is considered to be an absolute restriction
within the meaning of principle. A court at a place does not have a jurisdiction
when neither the contract has taken place at that place nor any of the parties
resides there. In this case also, the contract took place at Delhi and no party
resides in Chennai, thus courts in Chennai do not have a jurisdiction to hear the
case since Chennai has no connection with the contract in question. B is right.
147. When meaning is uncertain and also cannot be made certain, only then
agreement is void. When meaning is uncertain, but it can be made certain
without any further ambiguity, the agreement is valid. Here, the dispute is
regarding the clarity on what property is promised to be transferred. Though, it
appears uncertain, but the property details can be made certain by finding out
all ancestral property belonging to promisor. Once the details are acquired, the
promise will become certain. Hence, the agreement is valid. D is right.
148. No principle has been provided for the given facts. In that event, if ordinary rules
of acceptance are applied, acceptance of an offer becomes complete when it
comes to the knowledge of other party. That has not happened in this case, thus
acceptance will not be considered to be complete. B is right.
LAW OF CONTRACT
149. Ramesh was in a superior position or dominating position, and he clearly asked
his servant for the cycle at a lower price. This is a strong indication of presence
of undue influence. Out of the given choices and without any specific principle,
C appears to be most relevant to facts. C is right.
150. Making mere information available for sale/purchase of articles, etc. is invitation
to offer. Menu cards, auctions, goods on display such as in the present case, etc.
are few examples of invitation to offer. A is correct.
151. It is apparent from the facts that Amar has committed a wrong while acting on
behalf of Somu. According to second principle, a person who is asked by another
to do something is alone liable for any wrong that he does while doing the said
thing. Based on the analogy, Amar alone will be liable. A is right.
152. The amount of compensation provided for a breach of contract is dependent upon
loss that naturally arose or in simple terms, the most reasonable amount of
compensation if not specifically agreed. Natural loss is calculated keeping in
mind the price of reasonable alternative or substitute of promised article
available in market. In this case, it is mentioned that the iron that was promised
(Rs. 100 per tonne) but not delivered, was also available for Rs. 105 per tonne
(reasonable alternative). The plaintiff wanted to sell the iron for Rs. 200 per
tonne. If the promised iron was delivered, plaintiff would have derived a profit of
Rs. one lakh. If he had bought the alternate iron, he would have made a profit of
Rs. Ninety Five thousand. The difference between profit from promised article
S
and profit from alternate article is Rs. 5,000 which he must get as compensation.
AL
Therefore, C is right.
TI
153. The agreement must be freely entered into by the parties. This means, the parties
to the agreement must give their free consent to the agreement. A consent under
N
contract law is said to be free when none of these elements exists; coercion,
SE
undue influence, fraud, misrepresentation and mistake. In the present case,

none of these factors exists, thus the consent of plaintiff will be considered to be
ES
free only even though he may not personally appreciate the law. Since the
consent is free, agreement is valid and he cannot refuse to pay tax on the said
grounds. B is right.
T
LA
154. The principle allows ratification of a contract only by the other party which is
surviving. This means, if the contract where one party dies, is not ratified by the
C
other party, it comes to an end and there will be no rights or liabilities flowing
out of it. Here, one party is dead and no consent to continue or complete the
work has been given to the son by surviving party. In this case, neither the
amount taken as advance will be returned by son nor the son can complete the
work without permission of other party for reasons explained above. Both
reasons are reflected in options A and B respectively, thus both are correct. Thus,
D is right.

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Page 14 CAPACITY TO CONTRACT

Page 18 FREE CONSENT

Page LAWFUL OBJECT AND LAWFUL

Page 31 QUASI CONTRACTS

Page 34 THE BREACH OF CONTRACT

Page 36 PRACTICE QUESTIONS

Page 77 ANSWER KEY & EXPLANATIONS

Essential Elements of a Valid Contract

The following, then, are the essential elements of a valid contract:

These contracts are neither void nor voidable.

On the basis of formation:

acceptance is made otherwise than in words, promise is said to be implied.

strictly not contracts as there is no intention of parties to enter into a contract.

CONTRACT AND ITS FORMATION

Thus, to arrive at a contract there must be—

(i) An agreement, and

Let’s understand the two things one by one.

An ‘’Agreement’’ is defined as “every promise and every set of promises forming

the consideration for each other.”15

Promise is defined as an accepted proposal.16 This is another way of saying that an

(3) Their consent is free.

(4) Their object is lawful.

We shall further discuss in some detail the essentials of formation of contract in

How are contracts created?

“When one person signifies to another his willingness to do or to abstain from

A close analysis of the abovementioned definition of the offer reveals that it

Express and Implied offer:

An offer can be made verbally or by writing or even by conduct. An offer which is

written or spoken, is called an express offer.20 An acceptance may likewise be made

20Section 9, ICA. Insofar as the proposal or acceptance of any promise is made in

ANSWER: The correct answer is B.

How is the intention determined?

and the surrounding circumstances. The test of contractual intention is objective,

reasonable person would think, in the circumstances, their intention to be.

PRINCIPLE 1: Agreement enforceable by law is contract. An agreement is said to be

courts either in Australia or in England”. The agreement was terminated by one of

(a) Ambani is liable to pay as Birbal spent 2 hours in cold water.

ANSWER: The correct answer is D.

(a) Ambani is liable to pay as Birbal spent 2 hours in cold water.

EXPLAINATION: Acceptance must be unconditional and unqualified.

FACTS24: A company offered by advertisement to pay Rs. 5000 to anyone who

security, certainly shows company’s intention to get into a legally binding

It is self-explanatory as to why there has been no breach of contract in the present

• Offer is an expression of willingness of getting into a legal relationship, an

offer must be accepted.

EXPLAINATION: Acceptance must be communicated to the offeror himself. A

ANSWER: The correct answer is D.

26Facts similar to Felthouse v. Bindley.

ANSWER: The correct answer is D.28

27 Facts similar to Felthouse v. Bindley.

What agreements are contract?

(3) Person disqualified by law to which they are subject.

Nature of minor’s agreement

enrolling yourself with us CLAT MENTORS,38 it is not feasible to hold on to the

of contract and compensation for the loss of the horse. DECIDE

is no contract and hence there cannot be any breach of contract.

PRINCIPLE 2: Every person is competent to contract who is of the age of majority

Doctrine of Restitution. If a minor obtains property or goods by misrepresenting

would amount to enforcing a void agreement.