MCQ

Elements of MERCANTILE LAW
CHAPTER 1
NATURE OF CONTRACT
Multiple Choice Questions
1. Law of contract is
a. not the whole law of agreements nor is it the whole law of obligations
b. the whole law of agreements
c. the whole law of obligations
d. none of the above
2. A contract creates
a. Rights in personam
b. Rights in rem
c. Only rights and no obligations
d. Only obligations and no rights
3. An agreement is a voidable contract when it is

a. Enforceable if certain conditions are fulfilled
b. Enforceable by law at the option of the aggrieved party
c. Enforceable by both the parties
d. Not enforceable at all
4. An agreement not enforceable by law is said to be

a. Void
b. Voidable
c. Valid
d. Unenforceable
e. Illegal
5. A contract
a. may be void as originally entered into
b. may become void subsequent to it’s formation
c. cannot become void under any circumstances
d. may become void at the will of the party
6. The transactions collateral to an illegal agreement are

a. not affected in any manner
b. also tainted with illegality
c. voidable at the option of the plaintiff
d. void
7. A contract is
a. a legal obligation
b. an agreement plus a legal obligation
c. consensus ad idem
d. an agreement plus a legal object
8. Flaw in capacity to contract may arise from
a. Lack of free consent
b. Lack of consideration
c. Minority
d. Absence of legal formalities
True or False Questions
1. All contracts are agreements but all agreements are not contracts. T
2. There can be a contract even without consensus ad idem F
3. Law of contract is not the whole law of agreements nor is it the whole law of obligations T
4. The law of contract is the law of those agreements which create obligations, and those obligations
which have their sources in agreements. T
5. An agreement which is enforceable at the option of either party is a voidable contract. F
6. A void contract is one which is void ab initio. F
7. A void agreement does not create any legal obligations. T
8. An illegal agreement is not only void as between the immediate parties but even the collateral
transactions to it become tainted with illegality. T
9. All agreements between parties are enforceable in a Court of law. F
10. In some cases, even though a contract may appear to be completed at once, its effects may
continue. T
11. All void agreements are illegal. F
12. In an executed contract both the parties have yet to fulfill their obligations. F
CHAPTER 2
OFFER AND ACCEPTANCE
1. Which of the following result/results in an offer?

a. A declaration of intention
b. An invitation to offer
c. An advertisement offering reward to anyone who finds the lost dog of the advertiser
d. An offer made in a joke
2. A specific offer can be accepted by

a. Any person
b. Any friend of offeror
c. The person to whom it is made
d. Any friend of offeree
3. A letter of acceptance sufficiently stamped and duly addressed is put into course of transmission.
There is
a. A contract voidable at the option of acceptor
b. A contract voidable at the option of offeror
c. No contract at all
d. A valid contract
4. Acceptance may be revoked by the acceptor

a. At any time
b. Before the letter of acceptance reaches the offeror
c. After the letter of acceptance reaches the offeror
d. Before the death of the acceptor
5. An advertisement to sell a thing by auction is

a. An offer
b. An invitation to offer
c. No offer at all
d. A contract
e. An obligation
6. On the face of the ticket for a journey the words “For conditions see back” are printed in small print.
The passenger
a. Is bound by the conditions whether he takes care to read them or not
b. Is not bound by the conditions
c. May not take note of the conditions
d. None of the above
7. An offer is made to Mani in a crowd. It

a. can be accepted by him alone
b. may be accepted by any person who hears it
c. may be accepted by his brother
d. may be accepted by his brother
8. An acceptance is not according to the mode prescribed but the offeror decides to keep quiet. In such
a case, there is a
a. A contract
b. No contract
c. A voidable contract
d. An un enforceable contract
9. There is a counter offer when

a. The offeree gives conditions for acceptance or introduces a fresh term in acceptance
b. The offeror makes a fresh offer
c. The offeree makes some query
d. The offeree accepts it
10. A makes an offer to B on 10th by a letter which reaches B by 12th. B posts letter of acceptance on
14th, which reaches A on 16th. The communication of acceptance is complete as against A on
a. 12th
b. 14th
c. 16th
1. When an offer is made to the world at large, it is called a specific offer. False
2. A social invitation, if it is accepted, creates legal relations. False
3. An advertisement for an auction sale amounts to an offer to hold such action sale. False
4. An offer may contain a term the non-compliance of which may amount to acceptance. False
5. Acceptance once made cannot be revoked at all. False
6. A specific offer may be accepted by anyone. False
7. If the acceptance is not according to the mode prescribed, and the offeror does not inform the
offeree, he is deemed to have accepted the acceptance. True
8. Acceptance may, in some cases, precede an offer. False
9. Mental acceptance is not acceptance at all. True
10. If the parties without having agreed upon the terms of their contract have made an agreement to
agree in future, there is a contract. False
11. The communication of an offer is complete when the letter of offer is posted. False
12. The communication of an acceptance is complete as against the acceptor when it is put in course of
transmission. False
13. The communication of a revocation is complete as against the person to whom it is made, when it
comes to his knowledge. True
14. An offer stands revoked if the offeree fails to fulfill a condition precedent to acceptance. True
15. An offer can be revoked at any time before its acceptance is complete as against the offer. True
16. If the letter of acceptance is posted in due time, the acceptor is not responsible for any casualties in
the post office. True
17. A contract by telephone has the same effect as an oral agreement entered into between the parties
when they are face-to-face. True
18. An offer lapses by the death of the offeree before acceptance. True
Chapter 3
Consideration
1. Consideration must move at the desire of

a. The promiser
b. The promisee
c. Promisor or any third party
d. Both the promisor and the promisee
e. Any third party
2. Consideration
a. Must move from the promisee
b. May move from the promisee or any other person
c. May move from the third party
d. May move from the promisor
3. Consideration
a. Must be adequate to the promise made
b. Need not be adequate to the promise made
c. Must be of reasonable value
d. Must be of more value than the value of the promise made
4. Consideration must be something that the promisor

a. Is already bound to do
b. Is not already bound to do
c. May voluntarily do
d. Most not do
5. Compromise of dispute claims

a. Is a good consideration for a contract
b. Is not a good consideration for a contract
c. Results in a void agreement
d. Is not permitted by law
6. A promise to compensate, wholly or in part, a person who has already voluntarily done something
for the promisor is
a. Enforceable
b. Not enforceable because it is done without consideration
c. Void
d. Voidable
7. A person who is not a party to a contract

a. Cannot sue
b. Can sue
c. Can sue only in well recognized cases
d. None of these
8. Consideration in a contract
a. May be past, present, or future
b. May be present or future only
c. Must be present only
d. Must be future only
9. An agreement made without consideration is

a. Valid
b. Illegal
c. Voidable
d. Void
10. A promises subscribe to a charity. The promise is a
a. Valid contract
b. Voidable contract
c. Void agreement
d. Void contract
1. Consideration must result in a benefit to both the parties to a contract. False

2. An act constituting consideration must have been done at the desire or request of the promisor or a
third party. False
3. Consideration may move from the promisee or any other person. True
4. Past consideration is no consideration. False
5. Consideration must be something to which the law attaches value and it must be equivalent in value
to the promise made. False
6. Forbearance to sue is a kind of abstinence which is recognized as a good consideration. True
7. A person who is not a party to a contract cannot sue upon it even if the contract is for his benefit.
True
8. A stranger in whose favour a charge on some specific immovable property has been created may
enforce it. True
9. A written and registered agreement based on natural love and between near relatives is enforceable
without consideration. True
10. No consideration is necessary to create an agency. True
11. A stranger to a contract cannot sue. True
12. A promise to contribute to charity is supported by consideration. False
Chapter 4
Capacity to Contract
1. An agreement with or by a minor is-
a. void
b. voidable at the option of the minor
c. voidable at the option of the other party
d. valid
2. On attaining the age of majority a minor’s agreement-

a. can be ratified by him
b. cannot be ratified by him
c. becomes void
d. becomes valid
3. A minor, by misrepresenting his age, borrows some money.

a. He can be sued for fraud
b. He cannot be sued for fraud
c. He is liable to return the money
4. A minor enters into a contract for the purchase of certain necessaries. In such a case-
a. he is not personally liable to pay
b. he is liable to pay
c. his estate is liable to pay
d. his guardian is liable to pay
5. A person is usually of unsound mind, but occasionally of sound mind-

a. He may enter into a contract when he is of sound mind
b. He may not make a contract even when he is of sound mind
c. He cannot enter into a contract at all
6. A contract by an idiot is
a. voidable
b. enforceable
c. invalid
d. void ab initio
7. Contracts made before war with an alien enemy which are against public policy are
a. suspended and are revived after the war is over
b. dissolved
c. not affected at all
d. void ab initio
8. The contractual capacity of a company is regulated by

a. its Memorandum of Association and the provisions of the Companies Act
b. the terms of contract entered into with a third party
c. its Articles of Association
d. its Prospectus
9. The Case of Mohiri Bibi v. Dharmodas Ghose, (1903) 301 Cal. 539 deals with
a. communication of offer
b. communication of acceptance
c. a minor’s agreement
d. fraud
e. a lunatic’s agreement
10. Flaw in capacity to contract may arise from

a. want of consideration
b. unsoundness of mind
c. illegality of object
d. uncertainty of object
True or False
1. A minor is a person who has not completed 21 years of age. False

2. An agreement with or by a minor is voidable. False
3. There is nothing which debars a minor from becoming a payee or a promisee in a contract. True
4. A minor is personally liable for necessaries supplied to him. False
5. An agreement can be ratified by a minor on attending the age of majority. False
6. If a minor has received any benefit under a void agreement, he can be asked to compensate or pay for
it. False
8. A person who is usually of sound mind, but occasionally of unsound mind, cannot enter into a
contract when he is of unsound mind. True
9. An agreement of an idiot, like that of a minor, is void. True
10. An alien friend can acquire property in an Indian ship. True
11. A convict when undergoing imprisonment cannot enter into a contract. False
Chapter 5
Free Consent
1. Where consent is caused by fraud or misrepresentation, the contract is

a. voidable at the option of the aggrieved party
b. void
c. unenforceable
d. not affected in any manner
2. Where both the parties to an agreement are under a mistake as a matter of fact essential to the
agreement, the agreement is
a. void
b. voidable
c. illegal
d. not affected at all
3. Merely because a contract was caused by one of the parties to it being under a mistake as to a
matter of fact, it is not
a. voidable
b. void
c. affected at all
4. Consent given to a contract under some misrepresentation by the other party makes the contract
a. void
b. invalid
c. unenforceable
d. voidable
5. When a person positively asserts that a fact is true when his information does not warrant it to be
so, though he believes it to be true, there is
a. misrepresentation
b. fraud
c. undue influence
d. coercion
6. Fraud exists when it is shown that a false representation has been made
a. knowingly
b. unknowingly
c. unintentionally
d. recklessly, not caring whether it is true or false
7. A mere attempt at deceit by a party to a contract
a. is not fraud unless the other party is actually deceived
b. is fraud whether the party has been deceived or not
c. amounts to misrepresentation
8. When consent to an agreement is obtained by undue influence, the agreement is a

a. contract voidable at the option of the party whose consent was so obtained
b. void contract
c. valid contract
d. void agreement
9. Which of the following relationships raise presumption of undue influence?

a. Landlord and tenant
b. Parent and child
c. Doctor and patient
d. Husband and wife
e. Fiancé and fiancée
f. Creditor and debtor
10. If there is error in causa, the contract is

a. void
b. voidable
c. valid
d. illegal
11. If there is error in consensus, the agreement is

a. void
b. voidable
c. avoid d. illegal e. not affected at all
12. If there is a unilateral mistake as regards identity of a party caused by fraud of the other party, the
contract is
a. void
b. voidable
c. valid
d. illegal
13. If there is a fraudulent misrepresentation as to the contents of a document, the contract is

a. void
b. voidable
c. valid
d. illegal
14. If there is a fraudulent misrepresentation as to the character of a document, the contract is
a. void
b. voidable
c. valid
d. illegal
15. The Case of Cundy v. Lindsay, (1878) 3 A.C. 459 deals with
a. coercion
b. undue influence
c. mistake as to the nature of transaction
d. mistake as regards identity
16. A promise made without the intention of performing it amounts to

a. innocent misrepresentation
b. fraud
c. negligent misrepresentation
d. wrongful misrepresentation
17. The unlawful detention of any property of a person to obtain his consent to a contract amounts to
a. misrepresentation
b. fraud
c. undue influence
d. coercion
1. When there is no consent, there is no contract. True

2. If a person enters into a contract by making a mistake of law through the inducement of another
person, he may avoid the contract. True
3. If both the parties believe the subject-matter of a contract to be in existence, which in fact is non-
existent, the contract is void. True
4. A unilateral mistake is not allowed as a defense in avoiding a contract. True
5. Misrepresentation is a false statement which the person making it honestly believes it to be true. True
6. The aggrieved party loses the right to rescind the contract for fraud if a third party has acquired rights
in the subject-matter of the contract in good faith and for value. True
7. A representation is true when it is made, but to the knowledge of the party making it, becomes
untrue before the matter of the contract in good faith and for value. True
8. A contract induced by fraud is voidable at the option of either party to the contract. False
9. Mere silence as to facts to affect the willingness of a person to enter into a contract is not fraud. True
10. If there is no damage, there is no fraud. True
11. There is a presumption of undue influence in the relationship of husband and wife. False
12. A threat amounting to coercion necessarily proceed from a party to the contract. False
13. Suicide is no crime. True
14. A threat to commit suicide amounts to coercion. True
Chapter 6
Legality of Object
Multiple Choice Question
1. The collateral transactions to an illegal agreement are

a. Void
b. Illegal
c. Voidable
d. Not affected at all
2. An agreement made with an alien enemy is

a. Unlawful on the ground of public policy
b. Unlawful because it becomes difficult to be performed
c. Valid
d. Voidable
3. A person enters into an agreement whereby he is bound to do something which is against his pubic
or professional duty. The agreement is
a. Void on the ground of public policy
b. Valid
c. Voidable
d. Illegal
4. Regulations as to the opening and closing of business in a market are

a. Not unlawful even if they are in restraint of trade
b. Unlawful because they are in restraint of trade
c. Void
d. Not valid
5. An employee, by the terms of his service agreement, is prevented from accepting a similar
engagement after the termination of his service. The restraint is
a. Valid
b. Void
c. Illegal
d. Unenforceable
6. The Case of Nordenfelt v. Maxim Nordenfelt Gun Co., (1904) 29 B.L.R 107 deals with
a. Agreements in restraint of legal proceedings
b. Minor’s agreements
c. Agreements in restraint of trade
d. Agreements in restraint of marriage
1. The words ‘objects’ and ‘consideration’ are used in Sec. 23 interchangeably. False
2. If the object or the consideration of an agreement is not directly forbidden by law, but it indirectly
defeats the provisions of any statutory law, the agreement is not void. False
3. Collateral transactions to an illegal agreement also become tainted with illegality. True
4. In cases of equal guilt, the defendant is a better position. True
5. The collateral transactions to an illegal agreement are not affected. False
6. Agreements which curtail the period of limitation prescribed by the Law of Limitation are not void.
False
7. An agreement in contemplation of divorce is valid. False
8. Every agreement, by which anyone is restrained from exercising a lawful trade or business of any kind,
is to that extent void. True
9. An agreement to refer a dispute to arbitration is not enforceable. False
10. An outgoing partner who agrees with his partners not to carry on a business similar to that of the
firm within specified local limits, may carry on that business. False
11. Even if a restraint is intended to protect an employer against an employee making use of trade
secrets learned by him in the course of his employment, the restraint is not valid. False
12. An agreement is restraint of trade is not void. False
Chapter 7
Void Agreements
MCQ’s
1. A contract of life insurance is
a. a contract of indemnity
b. not a contract of indemnity
c. a wagering agreement
d. a contingent agreement
2. An agreement, the meaning of which is not certain, is

a. void
b. voidable
c. valid
d. illegal
3. Which of the following are wagering agreements?

a. A crossword competition the prizes of which depend upon correspondence of the competitors’
solution with a previously prepared solution
b. Picture puzzles
c. Share market transactions in which delivery of stocks and shares is intended to be given and
taken
d. A contract of insurance
e. An agreement to buy a ticket for a lottery
f. Commercial transactions, if the intention is not to deliver the goods but only to pay the
difference in price
g. A crossword competition involving a good measure of skill for its successful solution
4. An agreement to do an impossible act is
a. void
b. voidable
c. illegal
d. enforceable under certain circumstances
5. A wagering agreement is
a. forbidden by law
b. immoral
c. opposed to public policy
True or False
1. An agreement is not a wager if either of the parties may win but cannot lose or may lose but cannot
win. True
2. A contract of insurance is a wagering agreement. False
3. When a contract becomes void, the party who has received any benefit under it must restore it to the
other party. True
4. Avoidable contract becomes void when the party whose consent is not free rescinds the contract.
True
Chapter 8
Contingent Contracts
1. A contract of insurance is a
a. contract of guarantee
b. contingent contract
c. wagering agreement
d. unilateral agreement
2. Which of the following are contingent contracts?

a. contracts of insurance
b. contracts of guarantee
c. Contracts for the sale of goods on credit
d. Wagering agreements
3. A contingent contract is
a. void
b. voidable
c. valid
d. illegal
4. A contract to buy B Rs. 10,000 if B’s house is burnt. This is a
a. Wagering agreement
b. void agreement
c. voidable agreement
d. contingent contract
e. contract of guarantee
5. A agrees to pay B Rs. 2,000 if a certain ship does not return at Mumbai Port within a year. A’s
promise can be enforced when the ship
a. arrives Mumbai in a damaged condition during the years
b. is lost during the year
c. is sunk during the years
d. arrives Mumbai in a good condition during the year
True or False
1. An ‘absolute contract’ is one in which the promisor binds himself to performance in any event without
any conditions. True
2. Where goods are sent on approval, the contract is a contingent one. True
3. A contract of insurance is not a contingent contract. False
4. Contingent contracts to do or not to do anything if a specified uncertain even happens within a fixed
time, become void if the event happens. False
5. A wagering agreement is essentially of a contingent nature. True
6. In a contingent contract the future event is only collateral. True
7. Supervening circumstances which render performance of a promise more difficult and expensive
excuse the promisor from performance of his promise. False
8. Contracts of indemnity are contingent contracts. True
Chapter 9
Performance of Contract
1. Promises forming consideration for each other are known as

a. Independent promises
b. Dependent promises
c. Reciprocal promises
d. Mutual promises
2. Each party is a promisor and a promisee in case of
a. Past consideration
b. Present consideration
c. Every contract
d. Reciprocal promises
3. When the promisee refuses to accept performance from the promisor who offers to perform, it is
a. Attempted performance
b. Vicarious performance
c. Tender
d. Frustration of contract
4. Sale of good for cash is an example of

a. Mutual and independent promises
b. Mutual and dependent promises
c. Mutual and concurrent promises
d. Conditional and dependent promises
5. When a party to a contract transfers his contractual rights to another, it is known as

a. Rescission of contract
b. Waiver of contract
c. Discharge of contract
d. Assignment of contract
6. Where the debtor does not expressly intimate or where the circumstances attending on the
payment do not indicate any intention, the creditor
a. May apply it to any lawful debt due
b. May apply it to even a time-barred debt
7. When two or more persons have made a joint promise, then unless a contrary intention appears
from the contract, all such persons must fulfill the promise
a. Jointly
b. Severally
c. Jointly and severally
d. Jointly or severally
8. Assignment by operation of law takes place

a. By the mutual consent of the parties
b. By the will of either party
c. When the subject-matter of a contract ceases to exist
d. By the death of a party to a contract
9. A who owes Rs. 10,000 to B dies leaving an estate of Rs. 6,000. The legal representatives of A are
a. Liable for Rs. 10,000
b. Liable for Rs. 6,000
c. Not liable at all
d. Liable for Rs. 3,000
10. Owing to a strike in the factory of A, he is not able to supply the good to B as per the terms of the
agreement. The agreement in such a case
a. Is discharged
b. Is not discharged
c. Becomes void
d. Is voidable at the option of A
1. A tender of an instalment when the contract stipulates payment in full is a valid tender. False
2. A contract need not be performed if the promisee refuses to afford the promisor reasonable facilities
for the performance of his promise. True
3. If any one of the joint promisors makes default in the contribution, the remaining joint promisors
must bear the loss arising from such default in equal shares. True
4. A promisor undertakes to perform a promise on a certain day, after the application by the promisee
to the effect. It is the duty of the promisee to apply for performance at a proper place and within the
usual hours of business. True
5. Promises which form the consideration or part of the consideration for each other are called
contingent promises. False
6. In a contract in which time is the essence of the contract, if the promisor fails to perform his
obligation within the fixed time, the contract becomes void. False
7. A debtor expressly intimates at the time of payment should the payment be applied towards the
discharge of a particular debt. The creditor is not bound to do so. False
8. Contractual assignments involving personal skill cannot be assigned. True
9. A promisee can be compelled by the promisor or a third party to accept any person other than the
promisor as the person liable to him on the promise. False
10. Where the parties have a current account between them, appropriation impliedly takes place in the
order in which the receipts and orders take place and are carried into the account. True
11. In mutual and independent promises, one party must fulfill his promise before the other one can be
called upon to fulfill his promise. False
12. The mere fact that a certain time is specified in a contract for the performance of the promise does
not necessarily make time as the essence of the contract. True
13. In non-commercial contracts, the presumption is that time is of the essence of the contract. False
14. Where a debtor makes a valid tender of money, but the creditor refuses to accept it, the debtor is
discharged from making the payment. False
15. When two or more persons make a joint promise and there is no express agreement to the contrary,
the promisee may compel any one or more of the joint promisors to perform the whole of the promise.
True
16. A release by the promisee of any one of the joint promisors does not discharge the other joint
promisors from liability. True
17. Where the debtor does not intimate, the creditor has the right to appropriate payment to a time-
barred debt. True
Chapter 10
Discharge of contract
1) If a contract contains an undertaking to perform an impossibility, the contract is –
a) void ab initio
b) void
c) voidable at the option of the plaintiff
d) illegal
2) An agreement to do an act impossible in itself –

a) is void,
b) is voidable
c) is void ab initio
d) becomes void when impossibility is discovered
3) If a new contract is substituted in place of an existing contract, it is called –

a) alteration
b) rescission
c) novation
d) waiver
e) remission
4) The case of Taylor v. Caldwell (1883) deals with

a) discharge of contract by destruction of subject matter
b) anticipatory breach of contract
c) discharge of contract by death of a party
d) breach of contract.
5) A lends Rs. 500 to B. He later tells B that he need not repay the amount, the contract is discharged
by
a) breach
b) waiver
c) novation
d)performance
6) A contract has become more difficult of performance due to some un-contemplated events or
delays. The contract –
a) is discharged
b) is not discharged
c) becomes void
d) becomes voidable.
7) Where a contract could not be performed because of the default by a third person on whose work
the promisor relied, it –
a) is not discharged
b) is discharged
c) becomes void
d) becomes voidable.
8) A creditor agrees with his debtor and a third party to accept that third party as his debtor. The
contract is discharged by, -
a) performance
b) alteration
c) waiver
d) remission
e) remission
9) The case of Satyabrata Ghose v. Mugneeram Bangur & co. (1954) deals with
a) agreement opposed to public policy
b) Supervening impossibility
c) contract of guarantee
d) agency
10) An undertakes to paint a picture of B. He dies before he paints the picture. The contract –
a) is discharged by death
b) becomes voidable
c) becomes voidable at the option of the legal representatives of A.
d) will have to be performed by the legal representatives of A.
1. If only one party to a contract performs his promise, the contract is discharged. False
2. In case of novation if for any reason the new contract cannot be enforced, the parties can fall back
upon the old contract. True
3. Supervening impossibly is an excuse for the non-performance of a contract in all cases. False
4. If there is any change in the state of things which formed the bases of a contract, the contract is
discharged. True
5. Strikes, lock-outs and civil disturbances do not discharge a contract. True
6. In case of anticipatory breach, the promisee has to wait till the time the act was to be done to take
legal action for breach of contract. False
7. Where at the time of making a contract both the parties are ignorant of the destruction of subject-
matter, the contract is void on the ground of mutual mistake. True
8. In case of post-contractual impossibility, the contracts become voidable when impossibility arises. F
9. When all or some of the terms of a contract are altered, rescission takes place. False
10. Novation means substitution of a new contract for an old one. True
11. Outbreak of war is not an excuse for nonperformance of a contract. False
Chapter 11
Remedies for Breach of Contract
1) The court may grant rescission where the contract is
a) voidable at the option of the plaintiff
b) void
c) unenforceable
d) illegal
2) The foundation of modern law of damages was laid down in, -
a) Tinn v. Hoffman
b) Taylor v. caldwell
c) Hadley v. Baxendale
d) Addis v. Gramophone
3) Specific performance may be ordered by the court when –

a) the contract is voidable
b) damages are an adequate remedy
c)damages are not an adequate remedy
d)the contract is uncertain.
4) The measure of damages in case of breach of a contract is the difference between the –
a) contract price and the market price at the date of breach
b) contract price and the maximum market price during the term of the contract
c) contract price and the price at which the plaintiff might have sold the goods
d) contract price and the price fixed by court.
5) The case of Hadley v. Baxendale (1854) deals with

a) anticipatory breach of contract.
b) quantum of damages
c) supervening impossibility d) quasi contract.
6) Anticipatory breach of a contract takes place –

a) during the performance of the contract
b) at the time when the performance is due.
c) before the performance is due
d) at the time when the contract is entered into.
7) In case of a wrongful dishonour of a cheque by a banker having funds to the credit of the customer,
the court may award----
a) ordinary damages
b) nominal damages
c) exemplary damages
d) contemptuous damages.
8) Ordinary damages are damages which---

a) arise in the usual course of things from the breach
b) which are in the contemplation of the parties at the time when the contract is made
c) are agreed in advance
d) are given by way of punishment for breach of contract.
9) A agreed to sell 100 shares to B at Rs. 75 per share delivery to be given on the 1st march, B refused
to accept delivery on 1st march as price had gone down to Rs. 60 per share. Subsequently A sold these
shares at Rs.92 per share –
a) A cannot recover any damages from B
b) A will have to restore to BRs. 1700 i.e. the profit he made
c) A can recover damages to be determined by the President of the stock exchange.
10) Exemplary damages are –
a) allowed in case of dishounor of a cheque by a banker having sufficient funds
b) the difference between the contract price and the market price
c)allowed where in case of breach of a contract, the plaintiff has not suffered any loss.
D) none of these.
True or False
1. Where there is a right, there is a remedy. True
2. Damages other than those arising from the breach of a contract may be recovered if such damages
are in the contemplation of the aggrieved party as the probable result of the breach. True
3. Damages for loss of reputation are not generally recoverable. An exception to this rule exists in the
case of a banker who wrongfully refuses to honor a customer’s check. True
4. Specific performance of a contract may, in the discretion of the Court, be granted where damages are
an adequate remedy. False
5. When through a mutual mistake of the parties, a contract does not express their real intention, either
party may institute a suit to have the instrument rectified. True
6. Nominal damages are awarded if there is no breach of contract. False
7. If special damages are to be claimed, the attendant circumstances must be brought to the notice of
the other party. True
8. The essence of a penalty is the payment of money stipulated as in terrarium of the offending party. T
9. In case of breach of a contract, the injured party is not bound to take all reasonable steps to mitigate
the loss caused by the breach. False
10. Damages for breach of contract are given by way of punishment for wrong inflicted. False
Chapter 12
Quasi Contracts
1) A quasi contract –
a) is a contract
b) as an agreement
c) creates only legal obligation
d) is none of these
2) when an agreement is discovered to be void, any person who has received any advantage under
such agreement
a) is bound to restore it
b) is not bound to restore it
c)is not bound to return it
d) may retain it
e) none of these
3) A minor has been supplied necessaries on credit

a) he is not liable
b) he is personally liable
c) his estate is liable
d) he is not personally liable
4) A person who finds good belonging to another and takes them into his custody, is subject to the
same responsibility as a-
a) bailee
b) true owner
c) bailor
d) pledge.
5) A finder of lost goods is a –

a) bailor
b) Bailee
c) true owner
d) thief
6) Quantum meruit means –

a) a non-gratuitous promise
b) an implied promise
c) as much as earned
d) as much as is paid.
True or False
1. Strictly speaking, a quasi-contract is not a contract at all. It is a creation of law. True
2. If a minor is supplied by another with necessaries, he is personally liable to pay. False
3. In an indivisible contract, the party not in default has enjoyed the benefit of the part performance.
The party in default may sue on quantum merit. True
4. A finder of lost goods can hold the goods against the whole world except the true owner. True
5. Any person who voluntarily makes a payment on behalf of another, can recover it. False
6. A person delivers some goods to another, not intending to do so gratuitously, and such other person
enjoys the benefit thereof. The latter is not bound to make compensation to the former in respect of
goods delivered. False
7. A person to whom money has been paid by mistake or under coercion must repay or return it to the
person who paid it by mistake. True
*******Part 2
108) A contract of indemnity is a –
a) a contingent contract
b) wagering contract
c) quasi contract
d) void contract
109)The definition of a contract of indemnity as given in the Indian contract act ,1872 includes
a) express promises to indemnity
b) implied promises to indemnity
c) cases where loss arises from accidents and events not depending on the conduct of the promisor or
any other person
d) cases where the loss is caused by the
conduct of the promisor himself or by the conduct of any person
110) S and P go into a shop, S says to the shopkeeper, C let P have the goods and if he does not pay you ,
I will ―This is a –
a) contract of guarantee
b) contract of indemnity
c) wagering agreement
d) quasi contract
111) Any variance made without surety ‘s consent in the terms of the contract between the principal
debtor and the creditor discharges the surety –
a) as to transactions prior to variance
b) as to transactions subsequent to variance
c) as to all transactions
d) from his liability under the guarantee.
112)A guarantee obtained by a creditor by keeping silence as to material circumstances is –

a) valid
b) voidable
c) unenforceable
d) invalid
113)Where there are co-sureties, a release by the creditor of one of them –

a) discharges the other co-sureties
b) does not discharge the other co-sureties
c) makes all the co-sureties immediately liable
d) makes the contract of guarantee void.
114) The right of subrogation in a contract of guarantee is available to the

a) creditor
b) principal debtor
c) surety
d)indemnified
115) The omission of the creditor to sue within the period of limitation –
a) discharges the surety
b) does not discharge the surety
c) makes the contract of guarantee void
d) makes the contract of guarantee illegal.
Part 2, Chapter 4-1

Sale of Goods
1) In a sale, the property in goods –
a) is transferred to the buyer
b) is yet to be transferred to the buyer
c) may be transferred at a future time
d) is transferred when goods are delivered to the buyer
e) is transferred when the buyer pays the price
2)In a sale, if the goods are destroyed, the loss falls on –

a) the buyer
b) the seller
c) partly on buyer and partly on seller
d)the seller if price has not been paid
e) by the buyer.
3)The term property as used in the sale of goods act, 1930 means
a) possession
b) ownership
c) ownership and possession both
d) the subject matter of contract of sale.
4) If a price is not determined by the parties in a contract of sale, the buyer is bound to pay –
a) the price demanded by the seller
b) a reasonable price
c) the price which the buyer thinks is reasonable
d) the price to be determined by a third independent person.
True or False
1. The goods which form the subject-matter of a contract of sale may be moveable or immovable. F
2. The term ‘property’ as used in the Sale of Goods Act, 1930 means general property in goods as
distinguished from special property. True
3. A particular form is necessary to constitute a contract of sale. False
4. Under a contract of sale, property in the goods is transferred from the seller to the buyer. The
contract is an agreement to sell. False
5. Actionable claims and money are not goods. True
6. A contract for the sale of specific goods is violable if at the time when the contract was made, the
goods have, without the knowledge of the seller, perished. False
7. Stipulations relating to time of payment are not of the essence of a contract of sale. True
8. In a sale if goods are destroyed while still in the possession of the seller, the loss falls on the seller. F
9. A hire-purchase agreement is a bailment plus an agreement to sell. True
10. The consideration for a contract of sale cannot be partly in money and partly in goods. False
11. A rare coin cannot be considered as goods. False
12. In an agreement to sell, the ownership in goods is transferred from the seller to the buyer. False
Part 2 Chapter 4-2

Conditions and Warranties
1) The doctrine of caveat emptor applies –
a) in case of implied conditions and warranties
b) when the buyer does not intimate the purpose to the seller and depends upon his own skill and
judgment
c) when goods are sold by sample
d) when goods are sold by description
2) If a sale is by sample as well as by description, the implied condition is that the goods shall
correspond with –
a) sample
b) description
c) both sample and description
d) either sample or description
3) In a sale, there is an implied condition on the part of the seller that he –
a) has a right to sell the goods
b) is in possession of the goods
c) will have the right to sell d) will acquire the goods
4) A condition is a stipulation which is a –

a) essential to the main purpose of contract of sale
b) not essential to the main purpose of contract of sale
c) collateral to the main purpose of contract of sale d) none of the above.
5) In case of breach of a warranty, the buyer can –

a) repudiate the contract
b) claim damages only
c) return the goods d) refuse to pay the price
e) refuse to take delivery of the goods
6) In case of breach of a warranty, the buyer can –

a) claim damages only
b) repudiate the contract
c) cannot return the goods d) refuse to take delivery of the goods
TRUE OR FALSE
1. If there is breach of condition, the aggrieved party can only claim damages and it has not the right to
repudiate the contract. False
2. If a buyer once waives a condition, he cannot afterwards insist on its fulfillment. True
3. In a sale by sample as well as by description, the goods must correspond both with the sample and the
description. True
4. In a contract of sale, there is no implied conditions as to quality or fitness of the goods for a particular
purpose. True
5. Packing of goods is not an important consideration in judging their ‘merchantibility’. False
6. Where a person sells goods, knowing that the goods are dangerous to the buyer and that the buyer is
ignorant of the danger, he need not warn the buyer of the probable danger. False
7. An article is sold under its patent name. There is no implied condition that the goods shall be
reasonably fit for any particular purpose. True
8. In a contract of sale by sample, the bulk of goods supplied may not correspond with sample. False
9. An implied conditions to quality may be annexed by the usage of trade. True
10. If the buyer has examined the goods there is no implied condition as regards defects which such
examination ought to have disclosed. True
Chapter 4-3
Transfer of Property
1. The main object of a contract of sale is

a. Transfer of possession of goods
b. Transfer of property in goods
c. Delivery of goods
d. Payment of price
2. Risk follows ownership

a. Only when goods have been delivered
b. Only when the price has been paid
c. Whether delivery has been paid or not
d. Even when price has not been paid
3. In an agreement to sell, the seller can sue for price if

a. The goods have been delivered to the buyer
b. The goods have not been delivered to the buyer
c. There is a specific agreement
d, None of the above
4. In a contract of sale, unless goods are ascertained, there is

a. A sale
b. An agreement to sale
c. A void agreement
d. An unenforceable agreement
5. Where there is an unconditional contract for the sale of specific goods in a deliverable state, the
property in the goods passes to the buyer when
a. The goods are delivered to the buyer
b. The price is paid by the buyer
c. The contract is made
d. The buyer accepts the goods
property in the goods passed to the buyer when
a. The goods are delivered to the buyer
b. The price is paid by the buyer
c. The contract is made
d. The buyer accepts the goods
7. If the contract is silent as to the party who is to appropriate the goods

a. The buyer is to appropriate
b. The goods seller is to appropriate
c. The party who under the contract is first to act is to appropriate
d. Any party may appropriate
8. In a C.I.F contract the property of the goods passes from the seller to the buyer when the
a. The goods are shipped
b. Goods are received by the buyer
c. Contract is entered into
d. Price is paid
1. ‘Property in goods’ means the custody or control of goods. False

2. Risk follows ownership whether delivery has been made or not and whether price has been paid or
not. True
3. The fact that the time of payment of price or the time of delivery of goods, or both, is postponed does
not prevent the property in goods from passing at once. True
4. Unless otherwise agreed, the goods remain at the seller’s risk until property therein is transferred to
the buyer. True
property of the goods passes to the buyer when the price is paid. False
6. In a C.I.F. contract, the buyer has no right to reject the goods even if they do not conform to the
contract of sale. False
7. A C.I.F. contract is a contract for the sale of documents. True
8. In an ex-ship contract, the property of the goods does not pass to the buyer until the goods are
actually delivered to him. True
9. When a seller delivers the goods to a carrier for the purpose of transmission to the buyer, he is said to
have appropriated the goods conditionally. False
10. A buyer in good faith of goods of one of the several joint owners, who is in sole possession of goods
by the permission of the co-owners, gets a goods title to be goods. True
11. where an unpaid seller who has exercised the right of lien re-sells the goods, the buyer does not
acquire a good title to the goods as against the original buyer. False
Chapter 4-4
Performance of Contract
1. There is a constructive delivery of goods________
a) when the seller hands over to the buyer the key of the warehouse where the goods are lying.
b) where a third person in possession of the goods acknowledges to the buyer that he holds them
on his behalf.
c) when the seller physically delivers the goods to the buyer.
d) when the seller asks the buyers to take delivery of the goods.
2. Where there is no specific agreement as to place, the goods sold are o be delivered at the place___
a) at which they are at the time of sale.
b) of the buyer.
c) desired by the buyer
d) to be determined by the seller.
e) to be determined by the buyer.
3. Unless otherwise agreed, where goods are sent by the seller to the buyer by a route involving sea
transit, the seller___
a) must inform the buyer in time to get the goods insured.
b) may insure the goods.
c) must insure the goods.
d) need not inform the buyer.
4. unless otherwise agreed, where goods are delivered to the buyer and he rejects them____
a) he is not bound to return them to the seller.
b) it is sufficient if he intimates to the seller that he has rejected the goods.
c) he is bound to deliver them to the seller.
d) He may keep them with him.
5. A seller delivers goods in excess of the quantity ordered for. The buyer may______
a) accept the whole.
b) reject the whole.
c) accept the goods ordered for and return the excess.
d) None of these.
6. Where the neglect or refusal of the buyer to take delivery of goods amounts to a repudiation of the
Contract, the seller may sue for the
a) price or damages
b) price only
c) damages only
d) both for price and damages
True or False
1. Handing over the key of a warehouse to a buyer is constructive delivery of the goods to the buyer.
False
2. Unless otherwise agreed, a buyer has no cause of action against the seller if he does not apply for
delivery. True
3. Where a seller delivers to the buyer a quantity of goods larger than he contracted to sell, the buyer
may reject the whole. True
4. A refusal to pay for an instalment of goods to be delivered by instalments at stated times and to be
paid on delivery unaccompanied by any other act, amounts to repudiation of the contract. False
5. The buyer is deemed to have rejected the goods when he does some act in relation to them which
is inconsistent with the ownership of the seller. False
6. Apart from any express contract, the seller of goods is bound to deliver then even if the buyer does not
apply for delivery. False
7. Delivery means voluntary transfer of possession of goods from one person to another. True
Chapter 4-5
Rights of an Unpaid Seller
1. The lien of an unpaid seller depends on

a) possession
b) title
c) ownership
d) whether the buyer has paid the price or not
2. An unpaid seller can exercise his right of lien

a) where the goods have been sold on credit and the term of credit has not expired
b) where the buyers have not become insolvent
3. The right of lien exercised by an unpaid seller is to

a) retain possession
b) regain possession
c) recover price and other charges
d) recover damages
4. An unpaid seller can exercise the right of stoppage in transit when the carrier holds the goods
a) as seller’s agent
b) as buyer’s agent
c) as agent of both of them
d) in his own name
5. If the goods are rejected by the buyer and the carrier or other bailee continues to be in possession
of them, the transit
a) is deemed to be at an end
b) is deemed to be at an end
c) commences
d) none of these
6. An unpaid seller has not given notice of resale to the buyer. On resale, there is a loss
a) The unpaid seller can recover it from the buyer
b) The unpaid seller cannot recover it from the buyer
c) The buyer can recover it from the unpaid seller
d) The buyer must compensate the unpaid seller
7. An unpaid seller has not given notice of resale to the buyer there is a profit. The unpaid seller
a) is bound to hand it over to the buyer
b) is not bound to hand it over to the buyer
c) may dispose it of in any manner he likes
d) may set it off against a previous loss in similar circumstances
8. If seller makes use of pretended bidding at an auction to raise the price, the sale is
a) voidable at the option of the buyer
b) void
c) valid
d) illegal
TRUE OR FALSE
1. A seller who has obtained a money decree for the price of the goods is not an unpaid seller even if the
decree has not been satisfied. False
2. The right of lien is available to an unpaid seller of the goods who is in possession of them and the term
of credit has expired. True
3. An unpaid seller of goods does not lose his lien on the goods when the buyer or his agent lawfully
obtains possession of the goods as buyer. False
4. The right of stoppage in transit is an extension of the right of lien. True
5. Transit comes to an end where the carrier wrongfully refuses to deliver the goods to the buyer or his
agent. True
6. if the unpaid seller does not give notice to the buyer of his intention to re-sell the good, the buyer is
entitled to claim any surplus arising on the re-sale of the goods. True
7. Where a buyer transfers the document of title to the goods by way of pledge, the unpaid seller’s right
of lien or stoppage in transit can only be exercised subject the right of the pledge. True
8. Where the right of bid at an auction is expressly reserve, the seller or anyone person on his behalf may
bid at the auction. True
These are some mcq’s I found in google
Payment of time- barred debt is:

(a) Valid
(b) Void
(c) Illegal
(d) Voidable
Where a promise to pay a time barred debt has been made in writing, it is considered valid by the law
even without consideration.
Rohan promises to make a gift of Rs 10,000 towards the repair of a temple. The trustees of the temple
on the faith of his promise incurrs liabilities. Rohan does not pay. Can the trustees recover the
promised amount from Rohan?
(a) The trustee cannot recover anything from Rohan
(b) The trustee can recover to the extent of liabilities from Rohan
(c) The trustee can recover Rs. 10,000 from Rohan
(d) None
The trustees can recover to the extent of liabilities from Rohan and not the entire Rs. 10,000. If trustees
wouldn't have incurred any liability on account of Rohan then Rohan was not at all responsible to
compensate the trustees.
A is indebted to B. He sells a trolley to C. C promises to pay all debts of A to B. If C fails to pay, B has no
right to sue C because:
(a) C is stranger to consideration
(b) C is stranger to contract
(c) Both
(d) None
General Rule 'A stranger to a contract cannot sue'.
Though a stranger to consideration can sue because the consideration can be furnished or supplied by
any person whether he is the promisee or no, but a stranger to a contract cannot sue because of the
absence of privity of contract (i.e. relationship subsisting between the parties to a contract). Hence, in
this case A is indebted to B. He sells a trolley to C. C promises to pay all debts of A to B. If C fails to pay, B
has no right to sue C because C is stranger to contract.
Consideration is defined in the Indian Contract Act,1872 in:

(a) Section 2(f)
(b) Section 2(e)
(c) Section 2(g)
(d) Section 2(d)
Which of the following statement is true?

(a) Consideration must be adequate
(b) Consideration must result in a benefit to both the parties
(c) Consideration must be something, which a promisor is not already bound to do
(d) Past consideration is no consideration in India
The act constituting consideration must be something which the promisor is not already bound to do
because a promise to do what a promisor is already bound to do adds nothing to the existing obligation.
Which of the following is not an exception to the rule, "No consideration, No contract”?
(a) Natural love and affection
(b) Compensation for involuntary services
(c) Completed gift
(d) Agency
Compensation for involuntary services is not an example to the rule " No consideration, No contract".
According to [Section 25(2)] of The Indian Contract Act, 1872, the person who is to be compensated has
already done something voluntarily or has done something which the promisor was legally bound to do.
The inadequacy of consideration will be taken into account by a court of law:

(a) Always at the discretion of the court
(b) When the promisor performs his promise
(c) When absence of free consent is pleaded in the formation of the contract
(d) When the promisor expresses his desire to get maximum return from his promise
According to explanation 2 of Section 25, an agreement to which the consent of the promisor is freely
given is not void merely because the 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 promisor was freely given.
Consideration must move at the desire of:

(a) The promisor
(b) The promisee
(c) The promisor or any other party
(d) Both the promisor and the promisee
Which of the following is Void Contract?

(a) Agreement the meaning of which is certain
(b) Agreement with lawful consideration
(c) Agreements with minor
(d) Agreement with inadequate consideration, if inadequacy is not supported by free consent
Agreements with unlawful consideration or opposed to public policy results in a void contract.
A Consideration is:
(a) A reason behind making a proposal
(b) A condition of the fulfillment of the other's promise
(c) Doing or abstaining from doing something at the desire of the promisor
(d) Reward for something which one has done for another
Section 2(d) of the Indian Contract Act, 1872 defines consideration as under:" When, at the desire of the
promisor, the promisee or any other person has done or abstained from doing, or promises to do or
abstains from doing something, such an act or abstinence or promise is called a consideration for the
promise."
A who was badly in need of money offered to sell his piano worth Rs. 8500 to B for Rs. 5,000. B refused
to buy. A gradually lowered his price until Rs. 2,500 was reached, which B accepted. Before the piano
was delivered A received an offer of a larger sum from X and he refused to carry out the contract with
B claiming that the consideration was inadequate. Is A liable topay damages to B for failure to carry
out his part of contract?
(a) No, as the consideration was inadequate A cancelled the contract.
(b) Yes, A is liable to pay damages to B for failure to carry out his part of the contract.
(c) No, as the contract was made due to Undue Influence.
(d) Any of the above
The offer of A to sell the piano at Rs. 2,500 was duly accepted by B which resulted into a contract. Now if
A will refuse to sell the piano to B he will be liable for damage as he committed a breach of contract.
Agreement without consideration is valid when made?

(a) Out of love and affection due to near relationship
(b) To pay a time barred debt
(c) To compensate a person who has already done something voluntarily
(d) All of these
There are some exceptions to the general rule No consideration, No contract:
They are as following:
(a) Agreements made on account of natural love and affection [Section 25(1)]
(b) Promise to pay time barred debt [Section 25(3)]
(c) Promise to compensate [Section 25(2)]
'Pivity of Contract' is subject to the exception:

(a) Where a trust or charge is created
(b) Where payment is made to a third party
(c) Where payment is made by a third party
(d) None of these
An offer which is open for acceptance over a period of time is:

(a) Cross Offer
(b) Counter Offer
(c) Standing Offer
(d) Implied Offer
Standing, open or continuing offer is an offer allowed to remain open for acceptance over a period of
time. Tender for supply of goods is a kind of standing offer.
Specific offer can be communicated to__________

(a) All the parties of contract
(b) General public in universe
(c) Specific person
(d) None of the above
When an offer is made to a definite person, it is known as specific offer and such an offer can be
accepted only by that specified person.
_________ amounts to rejection of the original offer.
(a) Cross offer
(b) Special offer
(c) Standing offer
(d) Counter offer
When the offeree offers to be qualified acceptance of the offer subject to modifications and variations in
the terms of original offer, he is said to have made a counter offer. Counter offer amounts to rejection of
the original offer. Thus option (d) is the correct answer.
A advertises to sell his old car by advertising in a newspaper. This offer is caleed:
(a) General Offer (b) Special Offer
(c) Continuing Offer (d) None of the above
General offer is an offer made to the public in general and hence, anyone can accept and do the desired
act. So, in the given question, the advertisement for sale of an old car is published in a newspaper and
anyone can buy that car. Hence, this kind of offer is called general offer.
In case a counter offer is made, the original offer stands:

(a) Rejected
(b) Accepted automatically
(c) Accepted subject to certain modifications and variations
When the offeree offers to be qualified acceptance of the offer subject to modification and variations in
the terms of original offer, he is said to have made a counter offer. It amounts rejection of the original
offer.
In case of unenforceable contract having some technical defect, parties

(a) Can sue upon it
(b) Cannot sue upon it
(c) Should consider it to be illegal
Where a contract is good in substance but because of some technical defect i.e. absence in writing,
barred by limitation etc. one or both the parties cannot sue upon it, it is described as unenforceable
contract.
If entire specified goods is perished before entering into contract of sale, the contract is
(a) Valid (b) Void
(c) Voidable (d) Cancelled
If entire specified goods is perished before entering into contract of sale, the contract is void. This
contract cannot be enforced by law. Such contract which cannot be enforced becomes void.
______________ contracts are also caled contracts with executed consideration.

(a) Unilateral
(b) Completed
(c) Bilateral
(d) Executory
Completed contracts are also called contracts with executed consideration i.e. the consideration for the
promise in a contract is given or executed.
A offers B to supply books @ Rs 100 each but B accepts the same with condition of 10% discount. This
is a case of
(a) Counter Offer
(b) Cross Offer
(c) Specific Offer
(d) General Offer
When offeree offers to be qualified acceptance of the offer subject to modifications and variations in
terms of original offer. So, in the given question A offers B to supply books @ Rs 100 each but B accepts
the same with the condition of 10% discount. Hence, we can say that this is a case of counter offer.
_____________ is a game of chance.

(a) Conditional Contract
(b) Contingent Contract
(c) Wagering Contract
(d) Quasi Contract
Wagering contract is an agreement involving payment of a sum of money upon the determination of an
uncertain event. The essence of a wager is that each side should stand to win or lose, depending on the
way an uncertain event takes place in reference to which the chance is taken and in the occurrence of
which neither of the parties has legitimate interest. Hence, we can say that wagering contract is a game
of chance.
There is no binding contract in case of _______ as one's offer cannot be constructed as acceptance
(a) Cross Offer
(b) Standing Offer
(c) Counter Offer
(d) Special Offer
When two parties exchange identical offers in ignorance at the time of each other's offer, the offers are
called cross offers. There is not binding contract in such a case, as one's offer cannot be constructed as
acceptance by other.
An offer is made with an intention to have negotiation from other party. This type of offer is:
(a) Invitation to offer
(b) Valid offer
(c) Voidable
Invitation to offer is an attempt to induce offer and precedes a definite offer, example an advertisement
given to sell something. Such advertisements are offers to negotiate offers to receive offers. Hence, an
offer made with an intention to have negotiation from other party is an invitation to offer.
When an offer is made to the world at large, it is ____________ offer.

(a) Counter
(b) Special
(c) General
Description: An offer made to the public in general can be accepted by anyone to do the desired act is
known as General Offer. Section 8 of the Indian Contract Act points out that performance of the
conditions of a proposal is an acceptance of the proposal.
Implied contract even if not in writing or express words is perfectly _______________ if all the
conditions are satisfied: -
(a) Void
(b) Voidable
(c) Valid
(d) Illegal
Description: As per Section 9 of Indian Contract Act, in so far as such proposal or acceptance is made
otherwise than in words, the promise is said to be implied. Thus, an implied contract even if not in
writing or express words is perfectly valid if all the conditions are satisfied.
A specific offer can be accepted by ___________.

(a) Any person
(b) Any friend to offeror
(c) The person to whom it is made
(d) Any friend of offeree
Description: When offer is made to a definite person, it is known as specific offer and such offer can be
accepted by that specified persons only.
An agreement to put a fire on a person's car is a ______:

(a) Legal
(b) Voidable
(c) Valid
(d) Illegal
Description: Illegal contracts are forbidden by law. These are immoral and opposed to public policy. E.g.
an agreement to put a fire on a person's car. Such agreements are not enforced by court and thus are
void.
1. the transferee becomes a member of the company when:

a) the instrument of transfer according to section 108 (1-A) along the share certificates or letters
of allotment are delivered to the company
b) the instrument of transfer along with the share certificates are delivered to the company
c) the transfer is registered by the company
d) the company acknowledges receipt of the instrument of transfer
e) the instrument of transfer is delivered to the company
2. A borrows Rs.500/- from B to purchase certain smuggled goods from C. Can B recover the amount
from A if he?
a) knows of A’s purpose for which he borrows money
b) does not know of A’s purpose?
Yes
No
3. A invites B to see a picture with him. B accepts the offer. A purchase a ticket for B and waits for him
at the cinema hall. B does not turn up. Has A any cause of action against B?
Yes
No
4. Payments made by a debtor are always appropriated in chronological order.
True
False
5. A contract which is wholly performed by both the parties is called:

a) executory contract
b) quasi contract
c) bilateral contract
d) unilateral contract
e) executed contract
6. A transfer of shares to be valid must be registered with:

a) high court
b) registrar of companies
c) central government
d) company’s registrar
e) company law board
7. A contract in which the terms are started in word (written or spoken) by the parties is known as (a) -
--------------------- contract
a) express
b) mutual
c) written
d) term
e) none of the above
8. there was a sale of 700 bags of nuts. Unknown to the seller before sale 109 bags had been stolen. Is
the sale valid? Can the buyer be compelled to take the remainder?
Yes
No
9. A agreed to deliver his elephant to B for Khedda operation on 1st October. A later on obtained an
extension of time upto 6th October but could not deliver the elephant till 11th October, when B refuses
to accept the elephant. Advice A. Is B justified?
Yes
No
10. Vidyun purchased a used computer from Prajwal thinking it is a computer imported from USA.
Prajwal failed to disclose the fact to Vidyun. On knowing the fact Vidyun wants to repudiate the
contract. Which of the following statements(s) is/are correct?
a) Vidyun can repudiate the contract on the ground of fraud
b) Vidyun can repudiate the contract on the ground of misrepresentation
c) Vidyun cannot repudiate the contract
d) Vidyun can repudiate the contract on the ground of mistake
e) both (a) and (d)
11. A sells B a certain quantity of rice. It is agreed three months credit shall be given. B allows the rice
to remain in A’s warehouse till the expiry of the three months and then does not pay for them. Can A
retain the goods for price?
Yes
No
12. The first directors of a company is appointed as its statutory meeting

True
False
13. X lent to Y three sums of Rs.100/-, Rs.200/- and Rs.500/-. Y sent a sum of Rs.100/- asking X to
appropriate this money towards the third debt of Rs.500/-. X wants to appropriate this money to the
first loan. Can he do so?
Yes
No
14. the quorum for a valid meeting in case of a public limited company is:
5 members
4 members
2 members personally present
3 members
None of the above
15. the secretary of a company purchased some stationery for the company but he took it home and
put it to his private use. The company refused to pay to the supplier of the stationery on the plea that
It never received the stationery. Is the company liable?
Yes
No
16. the right of lien exercised by an unpaid seller is to:
a) retain possession
b) recover possession
c) recover price and other charges
d) damages
e) both (c) and (d)
17. to foster better industrial relations, directors of A.B. Ltd agree with its trade union to offer 1,000
shares of Rs.100/- each, fully paid up to its employees and to receive amount thereon in 10 equal
installments of Rs.10/- per share. Can the company make such an issue?
Yes
No
18. X agreed to supply certain goods to Y. the goods were to be procured from Algeria. Due to riots and
civil disturbances in that country, goods could not be procured. Can X be discharged on the ground of
riots, etc.?
Yes No
19. An agreement made under coercion, renders the contract –

a) voidable
b) unenforceable
c) void
d) illegal
e) valid
20. who can be a beneficiary to a contract?

a) A major
b) A minor
c) An alien enemy
d) An insolvent
e) Both (a) and (b)
21. A and B jointly owe Rs.100/- to C. A repays the entire loan to C. B, not knowing the fact, pays over
again Rs.100/- to C. Can B recover the amount from C?
Yes No
22. A firm is liable for the wrongful acts of a partner.

Yes No
23. Prabhas hired the house of Sanjay to run a gambling house at a monthly rent of Rs. 5,000/-, on his
failure to pay the rent Sanjay wants to sue Prabhas for recovery of rent. Which of the following
statement(s) is/are correct?
a) Sanjay can recover the rent amount from Prabhas
b) Sanjay cannot recover the rent amount from Prabhas
c) The contract between the Prabhas and Sanjay is void as the of the contract is unlawful
d) Sanjay can recover the rent amount from Prabhas only if he now knows the object of the
contract
e) both (c) and (d)
24. which of the following contracts is not void?
a) contract with a minor
b) contract with a convict whose sentence has expired
c) contract entered into by a company beyond its authority
d) contract with an insolvent person
e) both (b) and (d)
25. A voidable contract is valid till the aggrieved party opts to avoid it.
a) True b) False
26. A agrees to sell his land to B. Before completion of sale, this land is attached by A’s creditor. B
deposits the amount in the court. Later A refuses to complete the sale. Can B recover the amount paid
from A?
a) Yes
b) No
27. In which of the following relationships, there is no presumption of undue influence?

a) Parent and Child
b) Fianc and Fiance
c) Trustee and Beneficiary
d) creditor and Debtor
e) Doctor and Patient
28. Communication of offer is complete when the letter of offer is posted.

a) True
b) False
29. X agreed to give his house to a school for the library on the condition that the library would be
named after him. The management of the school accepted his condition. Later on X changed his mind.
Could the management enforce the contract?
a) Yes (Consideration is present)
b) No
30. A private company must have at least: -

a) Seven Directors
b) Two Directors
c) Four Directors
d) Five Directors
e) Three Directors
31. A minor fraudulently represented to a moneylender that he was of full age and executed a mortgage
deed for Rs. 10,000/-. Has the moneylender any right of action against the minor for the money lent or
for damages for fraudulent misrepresentation?
a) Yes
b) No
32. Commercial impossibility does not make the contract void.

a) True b) False
33. Contracts purported to be made on behalf of a company before its incorporation will
a) Bind the company only if a new contract is entered after income to give effect to pre-
incorporation contract.
b) Bind the company automatically after its incorporation
c) Not bind the company at all
d) Automatically binds the company if it ratifies the same after incorporation
e) Bind the company only after it obtains the Certificate of Commencement of Business
************************************************************************************
1. A person dealing with a company having satisfied himself that the proposed transaction is not in its
nature inconsistent with the Memorandum and Articles, is not bound to enquire into the regularly of
the internal proceedings. This is known as
a) doctrine of fraudulent transfer
b) doctrine of indoor management
c) doctrine of constructive notice
d) doctrine of lis pendens
e) doctrine of ultra vires
2. A offers to sell some goods to B thinking him to be X. B accepted the offer. Later on when A discovered
that the acceptor is B and not X, he declines to sell the goods. Can he do so?
Yes No
3. ‘A’ accepts ‘B’s invitation to dinner by phone. This is not a contract as –

a) there is no consensus between the two parties
b) acceptance is given orally
c) there is no intention to create a legal relationship
d) both (b) and (c)
4. A, a tradesman, sends some goods ordered by B. A’s servant delivers the goods by mistake at C’s
house. C uses the goods. Can A recover the price of the goods from C?
Yes No
5. which of the following contracts is not void?

a) contract with a minor
b) contract with a convict whose sentence has expired
c) contract entered into by a company beyond its authority
d) contract with an insolvent person
e) both (b) and (d)
6. Vidyun purchased a used computer from Prajwal thinking it is a computer imported from USA.
Prajwal failed to disclose the fact to Vidyun. On knowing the fact Vidyun wants to repudiate the
contract. Which of the following statement(s) is/are correct?
a) vidyun can repudiate the contract on the ground of fraud
b) vidyun can repudiate the contract on the ground of misrepresentation
c) vidyun cannot repudiate the contract
d) vidyun can repudiate the contract on the ground of mistake
e) Both (a) and (d)
7. A, a singer enters into a contract with B, the manager of a theater to sing in his theater two nights in
every week during the next two months and B agrees to pay her at the rate of Rs.100/- each night. On
the sixth night A willfully absents himself. With the absent of B, A sings on seventh night. But on the
following day B puts an end to the contract. Can A claim damages for breach of contract? Advice A.
Yes
No
8. Payments made by a debtor are always appropriated in chronological order

True
False
9. The secretary of a company issued in favour of R a certificate which apparently complied with the
company’s articles as it purported to be signed by 2 Directors and the secretary and it had the
company’s seal affixed to it. In fact the secretary had forged the signatures of the Director’s and affixed
the seal without authority. Is the certificate binding on the company?
Yes
No
10. A invites B to see a picture with him. B accepts the offer. A purchases a ticket for B and waits for
him at the cinema hall. B does not turn up. Has A any cause of action against B?
Yes
No
11. contracts purported to be made on behalf of a company before its incorporation will –
a) bind the company only if a new contract is entered after incorporation to give effect to pre-
incorporation contract
b) bind the company automatically after its incorporation
c) not bind the company at all
d) automatically binds the company if it ratifies the same after incorporation
e) bind the company only after it obtains the certificate of commencement of business
12. the promoters of a company, before its incorporation, enter into an agreement with P to buy a plot
of land on behalf of the company. After incorporation, the company refuses to buy the said plot of land.
Has P any remedy either against the promoters or against the company?
Yes
No
13. Transmission of shares –

a) results in cessation of all original liabilities relating to those shares
b) can take place only by order of the court of law
c) requires an instrument of transfer to be delivered to the company by the transmittee of shares
d) is a voluntary act of the transferor
e) requires an application to be made by the person to whom shares are transmitted
14. A pays some money to B by mistake. It is really due to C. Can C recover the amount from B?
Yes
No
15. A firm is liable for the wrongful acts of a partner.

Yes
No
16. Display of goods by a shopkeeper with prices marked on them is:-

a) implied offer
b) an invitation to make an offer
c) express offer
d) specific offer
e) valid offer
17. which of the following relationship do not raise the presumption of undue influence?
a) doctor and patient
b) debtor and creditor
c) trustee and beneficiary
d) landlord and tenant
e) both (b) and (d)
18. which of the following is an exception to the rule that “an agreement in restraint of trade is void”?
a) agreement in restraint of legal proceedings
b) agreement in restraint of carrying of trade after sale of goodwill
c) agreements of trading with enemy
d) agreement in restraint of marriage
e) agreements restricting personal liberty
19. a public company can have two or more managing directors

True
False
20. A sold a new singer car to B. on delivery, B found that it was not a new car. What is the remedy for
B? Can B repudiate the contract?
Yes
No
21. the plaintiff hired a godown from the defendant for period of 12 months and paid the whole rent to
him in advance. After six months, the godown was destroyed by fire and the plaintiff claimed a refund
of proportionate amount of the rent. Is the claim valid?
Yes
No
22. An illiterate woman executes a sale deed on the assumption that it was power of attorney and the
deed after it was executed was not read over to the lady. Advise the lady. Is the contract enforceable?
Yes
No
23. Past consideration is no consideration

True
False
24. A sells to B a certain quantity of rice. It is agreed three months credit shall be given. B allows the
rice to remain in A’s warehouse till the expiry of the three months and then does not pay for them. Can
A retain the goods for price?
Yes
No
25. A company which controls the composition of the board of directors of another company is:-
a) An investment company
b) A loan company
c) A holding company
d) A government company
e) A subsidiary company
26. An auctioneer advertised in a newspaper that a sale of office furniture would be held at Delhi. B, a
broker of Bombay, reached Delhi on the appointed date and time. But the auctioneer withdrew all the
furniture from the auction sale. The broker sues him for his loss of time and expenses. Will he succeed?
Yes
No
27. A sent a telegram to B, “Will you sell your Car? Quote lowest price”. B sent a reply “Lowest price Rs.
25,000/-“. A sent a second telegram to B, “ I agree to buy your car for Rs.25,000/-“ B thereafter refuses
to sell
(a) Can A compel B to do so?
(b) Is there a contract between A and B?
Yes
No
28. A threat to commit suicide does not amount to coercion

True
False
30. Mohan an old man of poor sight accepted a bill of exchange for Rs.2,000/- thinking that it was a
guarantee. Is Mohan liable to pay the amount?
Yes No
31. A executed a pronote in favour of B while he was a minor. The pronote was renewed by A in favour
of B when he attained the age of majority. B brings a suit against A on the basis of the second pronote.
Will he succeed?
Yes
No
32. Every person dealing with a company is presumed to have read the memorandum and articles and
understood them in their true perspective. This is known as:-
a) doctrine of constructive notice
b) doctrine of election
c) doctrine of Lis pendens
d) doctrine of indoor management
e) doctrine of fraudulent transfer
33. A, a minor, borrows Rs.5,000/- and executes a pronote for the amount in favour of B. After attaining
majority, A executes another pronote in settlement of first pronote. Will B succeed in recovering money
from A?
Yes
No
34. B selects certain furniture in a shop. The price is settled. He arranges to take delivery of furniture
the next day through his servant and agrees to pay for the furniture on the first of next month. The
furniture was destroyed by fire the same evening. Is B liable to pay the price?
Yes
No
35. Srinivas offered to sell his house to Aravind for Rs. 5,00,000/-. Aravind accepted the offer by post.
On the next day, Aravind sent a telegram withdrawing the acceptance which reached Srinivas before
the letter of acceptance sent by Aravind reaches Srinivas. Which of the following statement(s) is/are
correct?
a) There is a valid contract between Srinivas and Aravind
b) There is no valid contract between Srinivas and Aravind
c) There is no valid contract between Srinivas and Aravind acceptance reached before the letter
of acceptance
d) an acceptance cannot be revoked by the acceptor
e) Both (b) and (c)
36. Portion of uncalled capital, to be called in the event of winding-up is called: -

(a) Capital Reserve
(b) Reserve Capital
(c) Working Capital
(d) Unpaid Capital
(e) Fixed Capital
37. Mr. A accepts Mr. B's telephonic invitation for dinner. This is: -
(a) Not a contract
(b) A voidable contract
(c) A void contract
(d) A valid contract (e) An invalid contract
38. 5 persons are the only members of a private company. All of them go in a boat on a pleasure trip
into the open sea. The boat capsizes and all the 5 die being drowned. Does the private company cease
to exist?
(a) Yes (b) No
39. A company is a government company if

a) More than 51% of the paid up capital is held by government
b) If more than 40% of the paid up capital is held by government
c) 50% of the paid up capital is held by government
d) If more than 40% of the paid up capital is held by central and state
40. Inserting a coin in the slot of a weighing machine installed at the railway station is an example of:-
(a) Express acceptance
(b) No acceptance
(c) Implied acceptance
(d) Offer
(e) None of the above
41. A delivered his horse to B on trail for a week a condition that if found suitable he will buy the horse
for Rs. 1,000/-. The horse died on the third day. Is B liable to pay the price?
Yes
No
42. Which of the following is not an exception to the Doctrine of Indoor Management?
a) No knowledge of articles
b) Negligence
c) Forgery
d) No knowledge of irregularity
e) Non-existent authority of the company
43. 'A' agreed to sell his car to 'B'. His consent was given at gun point. This contract is voidable as it
involves:-
(a) Under influence
(b) Extortion
(c) Compulsion
(d) Coercion
(e) None of the above
44. A and B, two Indians were returning to India from London by a ship. A will throw him into the canal
until B agrees to sell his scooter parked at Bombay for Rs. 1,000/- only. B agreed to sell the scooter.
After reaching Bombay, B refuses to sell the scooter. Advice A. Is the contract valid?
Yes
No
45. The liability of members in a company limited by shares:-

(a) Is limited to the guarantee given by members
(b) Can be decided at the time of winding up
(c) Is nil, if the shares are fully paid-up
(d) Is limited to the called-up values on shares
(e) Is unlimited
46. A public company:-

(a) a) Can commence business once Certificate of Incorporation is received
(b) b) Is required to file a prospectus and declaration of statutory compliance under Section 149
with the registrar
(c) c) Can commence business after receiving the Certificate of Commencement of Business
(d) Both (a) and (b)
(e) Both (b) and (c)
47. Total managerial remuneration payable by a public company to its Directors:-

(a) Cannot exceed 11% of gross profits for the financial year
(b) Shall be less than 10% of net profits for the financial year
(c) Is left to the discretion of the company
(d) Can exceed 11% but not 15% of gross profits
(e) Cannot exceed 11% of net profits for the financial year
48. A company cannot be sued on a pre-incorporation contract because

a) A company cannot enter into a contract before incorporation
b) Before incorporation a company is a non-entry
c) A company cannot be sued unless there are there parties to the contract
d) Before incorporation a company is not liable for void contracts

(a) Can commence allotment of shares before the minimum subscription is subscribed for
(b) Must have atleast 3 Directors
(c) Need not hold the statutory meeting
(d) Cannot have more than 100 members
(e) Can commence business immediately on incorporation
50. During the war, all the members of a private company, while in general meeting, were killed by a
bomb. Does the company cease to exist because all the members died?
(a) Yes (b) No
51. X at Delhi on 1st August 1974 sends a letter to Y in Mumbai offering to sell his car for Rs. 16,000/-.
Y on 2nd August 1974 sends a letter to X accepting the offer. This acceptance letter reaches X on 4th
August 1974. But on 3rd August X has sold the car to Z and wired Y revoking the offer. This wire reaches
on 3rd August 1974 itself. Is there a breach of contract committed by X?
(a) Yes (b) No
52. The contract entered with a lunatic during the times of his sound mind is:-
(a) Valid
(b) Void
(c) Void ab initio
(d) Not enforceable
(e) Voidable
53. M mows L’s lawn without being asked by L to do so L watches M do the work but does not attempt
to stop him. Is L bound to pay any charges to M?
Yes
No
54. A person cannot be a Director at the same time in more than_______________companies.

a) 15
b) 25
c) 10 d) 30
55. A agrees to employ B from 1st February he writes to B that he need not join the service. Can B claim
any compensation from A?
Yes
No
56. A foreign company is one which is incorporated

a) In India but has foreign shareholders
b) Outside India has a place of business outside India, but has Indian shareholders
c) Outside India does not have an office in India but employs agents in India
d) Outside India but has a place of business in India
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otes.pdf
Descriptive Questions
Who are the members of a company? Distinguish between a member and a shareholder. How is
membership terminated?
What is a Memorandum of Association? What are its contents?
1. What do you understand by capacity to contract? State the rules regarding contracts made by minors.
2. What is share capital? Explain the different kinds of capital.
3. State the doctrine of “caveat emptor” and exceptions to it.
4. Define ‘share’. What are the different types of shares that may be issued by a company?
5. Explain the term ‘Consideration’ and state the exceptions to the rule: “No consideration, No contract”.
6. Briefly discuss the principles laid down in the following cases:-

a) Mrs. Carlile vs. Carbolic Smoke Ball Co.
b) Warner bros vs Ms. Nelson
When a person is induced by undue influence? under what circumstances ,the undue influence is
presumed ?
By whom the contract can be made
of contract of sale, distinction between sale and agreement to sell
Consideration and exceptions to it
Offer? When it is complete? Rules of offer
What do you mean by impossibility of performance
A contract shall be performed by whom?
What is the nature and scope of Business law/Mercantile law/Commercial law?
State the doctrine of “caveat emptor” and exceptions to it.
Write short notes on: -

a. Quantum Meruit
b. Ignorantia Juris Non Excusat
What do you understand by acceptance? What conditions must be fulfilled to convert a proposal into a
promise?
What are the rights of a consumer under the Consumer Protection Act, 1986?
1. Doctrine of Indoor Management and Doctrine of constructive notice
2. Valid documents for the formation of a company
3. Significance of place and time for performance of a contract
Consideration
formation of company
shares and types
business law and scope
What do u understand by consideration? State exception to the rule "no consideration no contract "
What is share? Explain various types of shares
What is winding up of the company? Explain types of wind up methods
Caveat emptor and exceptions to it
When a contract is induced? Circumstances undue influence presumed
caveat emptor and exception ,

Consumer protection act and rights
What is consideration and essentials of valid consideration
Nature and scope of business/mercantile law
Wiat is winding up and explain it's modes
Rules of law relating to time place and performance.
1. Doctrine of Caveat Emptor. What are the conditions to it.
2. Difference between Memorandum of Association and Articles of Association
3. Agreements against public policy
4. Breach of contract and remedies
5. Undue influence, and coercion difference with example
6. Performance of a Contract
7. What is Memorandum of Association. What are its contents?
8. What is Share Capital. Explain its types
9. How is a Company formed under Companies Act 2013.
10. What documents to be submitted to registrar while filing
11. Define Exemplary and Liquidated damages
12. A Contract shall be fulfilled by whom
13. What do you understand by impossibility of performance
14. What is an offer, when is it complete, what are the rules of offer
15. Capacity to contract, and rules regarding contract made by minors
16. What are the nature and scope of business law
17. Time and place for performance of contract
18. Consent. When can it said to be free
19. Consideration. State exception to rule “ No consideration, No Contract”
20. When Contract is said to influenced. What circumstances undue influence is
presumed.
21. Doctrine of Constructive Notice
22. Doctrine of Indoor Management
23. Who shall enter a Contract
24. Quasi Contract
25. Quantum Meriut
26. Essentials of a Contract of Sale of goods
27. Acceptance
28. Ignorantia juris non excusat
29. Difference between public ltd and private ltd
30. Company Windups and Different modes
31. Distinguish between fraud and misrepresentation? What is the effect on validity
of the contract?
32. Explain clearly the nature of contract of sale of goods and bring out clearly the
diff b/w Sle and an agreement to sell
33. Under what circumstance is party entitled to specific performance
34. What are the various ways in which contract may be discharged?
35. When is seller of goods, deemed to be unpaid seller. What are his rights against
1. the goods
2. the buyer
1. Doctrine of Caveat Emptor. What are the conditions to it.
‘Caveat Emptor‘ is the Latin term for “Let the Buyer Beware.” It is a doctrine
that often places the burden on buyers to reasonably examine property and goods
before they purchase it and take responsibility for its condition. It is mostly
applicable to items that are not covered under a strict warranty.
Under the principle of caveat emptor, the buyer cannot recover damages from the
seller for defects on the property or goods that rendered the same unfit for use.
The only exception was if the seller actively concealed latent defects or otherwise
made material misrepresentations amounting to fraud. The general rule of law
dictates that a purchaser assumes the risk of his/her purchase. The intent of the
rule is to place a duty of care on the buyer in selecting an item and putting forth
appropriate inquiry before completing the sale. In this way, the seller is also
protected from liability for buyer’s remorse.
As a seller has to sell his goods, he cannot reveal unflattering truths about his
goods and when a buyer is buying goods, it his duty to check the working and the
quality of the goods that he wished to obtain from the seller. A buyer, in contract
of sale of specific goods, purchases the goods at his own risk as regard as the
quality, price of the goods except on the case of fraud or when any condition to
that effect is laid down in the contract.
The doctrine of caveat emptor does not apply –

[1] In case of implied conditions and warranties;
[2] When the buyer intimates the purpose to the seller and depends upon his
skill or judgment;
[3] When there is a usage of trade;
[4] When there is a fraud by the seller.
2. Difference between Memorandum of Association and Articles of Association
Memorandum of Association Articles of Association

1. It is the charter of the company 2. They are the regulations for the
indicating the nature of its internal management of the
capital. It also defines the company & are subsidiary to
company’s relationship with the memorandum
outside world.
2. It defines the scope of the 3. They are the rules for carrying
activities of the company, or the out the objects of the company
area beyond which the actions as set out in the memorandum
of the company cannot go.
3. It, being the charter of the 4. They are subordinate to the
company, is the supreme memorandum. If there is a
document conflict between the articles &
the memorandum, the latter
prevails.
4. Every company must have its 5. A company limited by shares
own memorandum need not have articles of its
own. In such a case, Table A
applies
5. Any act of the company which 6. Any act of the company which
is ultra vires the memorandum is ultra vires the articles (but in
is wholly void & cannot be intra vires the memorandum)
ratified even by the whole body can be confirmed by the
of shareholders shareholders
3. Agreements opposed to public policy
An Agreement is said to be opposed to public policy when it is injurious to the

welfare of the society or it tends to be harmful to the public interest. The following
agreements are, or have been held to be, opposed to public policy:
1. Agreements of Trading with enemy.

2. Agreement to commit a crime.
3. Agreements interfering with administration of justice.
These include
a) Agreements for stifling prosecution, and
b) Agreements which interfere with the course of justice.
4. Agreements in restraint of legal proceedings. These include
i. Agreements to oust the jurisdiction of Courts, and
ii. Agreements to vary periods of limitation.
5. Agreements for the sale of public offices.
6. Agreements tending to create interest opposed to duty.
7. Agreements in restraint of parental rights.
8. Agreements restricting personal liberty.
9. Agreements in restraint of marriage.
10. Marriage brokerage agreements.
11. Agreements interfering with marital duties.
12. Agreements in fraud of creditors or revenue authorities.
13. Agreements in restraint of trade.
An agreement in restraint of trade is one which restraints a person from

freely exercising his trade, business or profession. Every agreement, by
which anyone is restrained from exercising a lawful profession, trade or
business of any kind is, to that extent, void [Sec. 27]. Exceptions are made
in case of agreements for sale of goodwill and partners’ agreements
provided the restraint is reasonable.
4. Breach of contract and remedies to breach of contract
If a party breaks his obligation which the contract imposes, there takes place
breach of contract.
Breach of contract may be

[1] Actual breach, or
[2] Anticipatory breach.
[1] Actual breach of contract may occur

(a) At the time when the performance is due, or
(b) During the performance of the contract.
[2] Anticipatory breach of contract occurs when a party repudiates his liability
or obligation under the contract before the time for performance arrives.
REMEDIES FOR BREACH OF CONTRACT
In case of breach of a contract, the injured party has one or more of the following
remedies:
1. Rescission. When there is breach of a contract by a party, the injured party

may sue to treat the contract as rescinded. He is also absolved of all the
obligations under the contract.
2. Damages. Damages are monetary compensation awarded to the injured

party by Court for the loss or injury suffered by him.
Damages may be of four types:
1. Ordinary damages. These are damages which actually arise in the

usual course of things from the breach of a contract.
2. Special damages. Damages which may reasonably be supposed to
have been in the contemplation of both the parties at the time when they
made the contract as the probable result of the breach of it, are known
as special damages and may be recovered.
3. Vindictive or exemplary damages. These damages are allowed in case
of the breach of a contract to marry or dishonour of a cheque by a banker
wrongfully.
4. Normal damages. Where the injured party has not suffered any loss by
reason of the breach of a contract, the court may award a very nominal
sum as damages.
3. Liquidated damages and penalty.
‘Liquidated damages’ represent a sum, fixed or ascertained by the parties
in the contract, which is a fair and genuine pre-estimate of the probable loss
that might ensue as a result of the breach. A ‘penalty’ is a sum named in
the contract at the time of its formation, which is disproportionate to the
damage likely to accrue as a result of the breach. The Courts in India allow
only ‘reasonable compensation’.
Quantum Meruit.
A right to sue on a quantum meruit (as much as earned) arises where a
contract, partly performed by one party, has become discharged by the
breach of the contract by the other party. This right is founded on an implied
promise by the other party arising from the acceptance of a benefit by that
party.
4 Specific performance.
In certain cases the Court may direct the party in breach of a contract to
actually carry out the promise, exactly according to the terms of the contract.
This is called specific performance of the contract.
5 Injunction.
It is a mode of securing the specific performance of the negative terms of a
contract.
5. Undue influence, and coercion difference with example
Coercion
“Coercion” is the committing or threatening to commit any act forbidden by the
Indian Penal Code, 1860 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.
A threat to commit suicide amounts to coercion.
Undue Influence
A contract is said to be induced by “undue influence” where the relations subsisting
between the parties are such that one of the parties is in a position to dominate the
will of the other, and uses that position to obtain an unfair advantage over the other.
A person is deemed to be in a position to dominate the will of another where he –

(a) Holds real or apparent authority over the other, or
(b) Stands in a fiduciary relation to the other; or
(c) Makes a contract with a person whose mental capacity is temporarily or
permanently affected by reason of age, illness or mental or bodily distress.
Where a person who is in a position to dominate the will of another, enters
into a contract with him, and the transaction appears to be unconscionable,
the burden of providing that such contract was not induced by undue
influence lies upon the person in a position to dominate the will of the other
(Sec. 16)
Relationships which raise presumption of undue influence:

• Parent and Child.
• Trustee and Beneficiary.
• Religious Guru and Disciple.
• Guardian and Ward.
• Solicitor and Client
• Doctor and Patient.
• Fiance and Fiancee.
Basis for Comparison Coercion Undue Influence

Meaning Coercion is an act of Undue Influence is an
threatening which act of influencing the will
involves the use of of the other party.
physical force.
Use of Psychological pressure Mental pressure or

or Physical force Moral force
Purpose To compel a person in To take unfair
such a way that he advantage of his
enters into a contract position.
with the other party.
Criminal Nature Yes No
Relationship The relationship The act of undue
between parties is not influence is done only
necessary. when the parties to the
contract are in
relationship. Like
teacher - student, doctor
- patient etc.
6. Performance of a Contract
The parties to a contract must either perform or offer to perform their respective
promises.
Attempted performance or tender.

Attempted performance or tender is an offer of performance by the promisor in
accordance with the terms of the contract. If the promisee does not accept
performance, the promisor is not responsible for non-performance, nor does he
thereby lose his rights under the contract. Thus a tender is equivalent to actual
performance. The tender, in order to have this effect, must be unconditional, of the
whole quantity contracted for, at the proper time, place and in the manner
specified; and, where these are not specified, it must be made in a reasonable
manner.
Reciprocal promises.
Promises which form the consideration or part of the consideration for each other
are called 'reciprocal promises'.
Rules regarding performance of reciprocal promises.

1. When reciprocal promises have to be simultaneously performed the
promisor is not bound to perform, unless the promisee is ready and willing
to perform his promise.
2. The reciprocal promises must be performed in the order fixed by the
contract.
3. Where the nature of reciprocal promises is such that one cannot be
performed unless the other party performs his promise in the first place.
Then if the latter fails to perform he cannot claim performance from the
other, but must make compensation to the first party for his loss.
7. What is Memorandum of Association. What are its contents?
Memorandum of Association is the charter of the company and it lays down the
area of operation of the company. It is a document of great importance which
contains the fundamental conditions upon which alone the company is allowed to
be operating.
Memorandum of Association is the most important document of a company. It

states the objects for which the company is formed. It contains the rights, privileges
and powers of the company. It is treated as the constitution of the company. It
determines the relationship between the company and the outsiders.
CONTENTS OF THE MEMORANDUM:
1. The name clause
The name of the company should be stated in this clause. A company is

free to select any name it likes. But the name should not be identical or
similar to that of a company already registered. If it is a Public Limited
Company, the name of the company should end with the word ‘Limited’ and
if it is a Private Limited Company, the name should end with the words
‘Private Limited’.
2. The registered office clause
In this clause, the name of the State where the Company’s registered office
is located should be mentioned. Registered office means a place where the
common seal, statutory books etc., of the company are kept.The company
should intimate the location of registered office to the registrar within thirty
days from the date of incorporation or commencement of business.
The registered office of a company can be shifted from one place to another
within the town with a simple intimation to the Registrar. But in some
situation, the company may want to shift its registered office to another town
within the state. Under such circumstance, a special resolution should be
passed. Whereas, to shift the registered office to other state, Memorandum
should be altered accordingly.
3. The objects clause
This clause specifies the objects for which the company is formed. It is
difficult to alter the objects clause later on. Hence, it is necessary that the
promoters should draft this clause carefully. This clause mentions all
possible types of business in which a company may engage in future.
The objects clause must contain the important objectives of the company
and the other objectives not included above.
4. The capital clause
This clause mentions the maximum amount of capital that can be raised by
the company. The division of capital into shares is also mentioned in this
clause. The company cannot secure more capital than mentioned in this
clause. If some special rights and privileges are conferred on any type of
shareholders mention may also be made in this clause.
5. The liability clause
This clause states the liability of the members of the company. The liability
may be limited by shares or by guarantee. This clause may be omitted in
case of unlimited liability.
6. Subscription clause
It contains the names and addresses of the first subscribers. The

subscribers to the Memorandum must take at least one share. The
minimum number of members is two in case of a private company and
seven in case of a public company.
8. What is Share Capital. Explain its types
The term share capital denotes the amount of capital raised or to be raised by
the issue of shares by a company and is used in many expressions. The usual
different expressions of share capital found in the capital structure of a
company are popularly known as “kinds of share capital.”
Kinds of share capital
Authorized capital :
It is the maximum amount of share capital stated in a company’s memorandum
which the company is, for the time being, authorized to raise. As the
memorandum is registered with the Registrar it is also called the ‘Registered’
capital. Again, as the actual issued capital of the company is usually different
(i.e. less) from the authorized capital, it is also known as ‘Nominal’ capital.
Issued capital:
It means the nominal value of that part of the authorized capital which is allotted
for cash or for consideration other than cash and includes the shares
subscribed by the signatories to the memorandum.
Subscribed capital :
It means the paid up value of that part of the authorized capital which is allotted
for cash or for consideration other than cash and includes the shares
subscribed by the signatories to the memorandum. Thus, in a company where
shares are fully paid up, the ‘Subscribed Capital’ would be equal to the ‘Issued
Capital.’ The ‘Subscribed Capital’ sub-heading is of significance only if the
shares are partly paid up or certain ‘calls’ on shares are unpaid or some shares
have been forfeited for non-payment of the ‘call money’. In any of these
situations the ‘Issued Capital’ denotes the nominal value of shares actually
allotted and the ‘Subscribed Capital denotes the paid up capital of the
company.
Called up capital is that part of the allotted share capital which has been called
up by the company.
Uncalled capital is that part of the allotted share capital which has not been
called up by the company.
Paid up capital is equal to called up capital minus calls in arrears.
Reserve capital is that part of uncalled capital which has been reserved by the
company to be called in the event of its winding up.
The legal provisions about reserve capital may now be seen. Reserve capital
can only be created under Section 99 which states that a limited company may,
by special resolution, determine that any portion of its uncalled share capital
shall not be capable of being called up except in the event of winding up. Such
a step is usually taken by a company with the object of affording additional
security to the creditors.
Once the company has created reserve capital in this way, it cannot charge it
as security for loans unlike the uncalled capital. Moreover, reserve capital
cannot be turned into ordinary capital without leave of the court nor can it be
cancelled in reduction of capital (Natal Land Company vs Paul in Colliery Syndi-
cate). This type of share capital is also known as the “reserve liability” of the
shareholders because it is that portion of the value of each share which cannot
be called up except in the case of winding up of the company.
The company may generally issue 2 kinds of shares.

1. Equity shares
2. Preference shares
Equity share means a share with voting rights, & differential rights as to dividend.
Preference shares means those shares which carry preferential rights regarding
payment of dividend & repayment of capital on winding up.
9. How is a Company formed under Companies Act 2013.
The first stage in the process of formation of a Company is the promotion. At this
stage, the idea of carrying on a business is conceived by a person or group of
persons, called “Promoter” or “Promoters”, respectively.
Before a Company is formed, certain preliminary steps are necessary e.g. whether
it should be a Private Company or a Public Company, what its capital should be,
and whether it is worthwhile forming a new Company or taking over the business
of an already established concern. All these steps are taken by the “Promoters”.
The promoters conceptualizes the idea of a Company and the purpose of is

formation, and do all the necessary preliminary work incidental to the formation of
a Company. The promoter acquires and invests initial capital for the Company.
Once all the formalities are completed including the registration of a Company, the
promoters hands over the authority to the directors of the Company.
The key action points are

1. Obtain a Digital Signature Certificate from authorized DSC issuing
authority.
2. Obtain Director Identification No. (DIN)
3. Register DSC in the name of Director on MCA portal
4. Apply for Reservation of Name. The same shall be reserved for a period of
60 days
5. Adoption of Memorandum of Association
6. The Memorandum and Articles of the company duly signed by all
subscribers;
7. A declaration by an advocate or Practicing professional (CA, CS, CA) who
is engaged in incorporation, and a person named in director as Director,
Manager or Secretary, that all requirements related to incorporation has
been complied with;
8. An affidavit from each subscriber and from each person named as first
director in the articles with
a) the address for correspondence till its registered office is
established;
b) the particulars of every subscribers along with proof of identity;
c) the Particulars of first directors along with proof of identity; and
d) the particulars of interests of first directors in other firms or bodies
corporate along with their consent to act as directors.
9. Commencement of business. Director should file Declaration with ROC
10. Registered Office. A company shall have a registered office within 15
days of Incorporation
10. Define Exemplary and Liquidated damages
Vindictive or exemplary damages
These damages are awarded against the party who has committed a breach of the
contract with the object of punishing the erring as defaulting party and to
compensate the aggrieved party. Generally, these damages are awarded in case
of action on lost or breach of promise. E.g., breach of contract to marry, dishonor
of cheque by the bank without any proper reason.
Such damages are awarded due to its difficulty in measuring the amount of the
mental suffering or the extent of the injury to the feelings of the aggrieved party.
The main aim of awarding such damages is to deter a person from committing a
breach of such contract.
Example: The bank disobeyed the customer’s order to stop payment of a particular
cheque and as a consequence another cheque for £ 25,000 was dishonored due
to inadequate funds. The court awarded £ 250 as damages to the plaintiff.
‘Liquidated damages’ represent a sum, fixed or ascertained by the parties in the

contract, which is a fair and genuine pre-estimate of the probable loss that might
ensue as a result of the breach. A ‘penalty’ is a sum named in the contract at the
time of its formation, which is disproportionate to the damage likely to accrue as a
result of the breach. The Courts in India allow only ‘reasonable compensation’.
A breach of contract is a common type of civil claim. When a court considers a
breach of contract case, the court will almost always award money damages to the
innocent party. This means that the breaching party is ordered to pay money to the
innocent party to make up for the innocent party's losses caused by the breach.
Money damages are a legal remedy. A remedy is any court order that imposes a
penalty or enforces a right. Though not common, there are remedies other than
legal remedies available for breach of contract.
Equitable remedies are those that are based on what is fair, or seems right, in a
particular situation. These remedies were historically designed so that they don't
have to follow precedent, or established common laws. Instead, they are purposely
intended to be a more flexible option that is used to ensure justice in a particular
situation.
It's helpful to note that equitable remedies are rarely used. These options are only
used in cases where money damages are either too difficult to calculate or are
inadequate to remedy the harm done to the innocent party. The two main equitable
remedies available for breach of contract.
Specific Performance
In a breach of contract case, the court can consider ordering specific
performance as long as the innocent party asks for that remedy. This equitable
remedy orders the breaching party to comply with the terms of the contract. This
means that the breaching party will be required to do whatever the party originally
promised to do.
The court will consider this option when money damages won't provide the
innocent party with adequate compensation for the breach. Specific performance
is most common in sales contracts. This remedy is sometimes used when a sales
contract involves something unique, such as a particular tract of land, a rare
heirloom, or a priceless art piece.
Specific performance is best understood by considering an example. Let's say that

Arty is an art dealer. He acquires a rare, ancient Egyptian statue that is thought to
have belonged to Cleopatra. Andrea collects Egyptian art and makes a sizable
offer to buy the piece. Arty agrees, and the two make a valid legal contract.
Arty then decides that he'd rather keep the piece for now. He breaches his contract
with Andrea. Andrea sues Arty for breach of contract. The court decides that the
piece is truly priceless, and Andrea can't acquire another comparable piece no
matter how much money the court awards her. Instead, the court decides that Arty
should comply with the terms of the contract, and sell the piece to Andrea for the
price she already agreed to pay. This is specific performance.
Injunction
Another equitable remedy is injunction, which is a remedy that prohibits a party
from a particular act. Note that specific performance and injunction remedies are
similar, but the key difference is this: specific performance orders a party to do
something, and an injunction orders a party not to do something.
Injunctions can be issued as a remedy at the conclusion of a lawsuit, such as a

breach of contract claim. This type of injunction is a permanent injunction.
Permanent injunctions are issued by a court after hearing a matter, and as a part
of the judgment order. A request for injunction can also be filed as its own separate
lawsuit. Sometimes a party will file a court request for injunctive relief while the rest
of the lawsuit is pending. When the court orders an injunction in this situation, the
remedy won't be permanent.
Temporary injunctions are usually enforceable immediately, but last for only a
short period of time. A temporary restraining order, or TRO, is a common type of
temporary injunction. This remedy is used when a party wishes to halt a particular
act for a short period of time, usually while the party prepares a more formal
lawsuit. These orders typically last a week or ten days.
A preliminary injunction is a remedy that is also temporary. These injunctions

are usually enforceable immediately, but last only until the court can fully hear a
matter and make a more permanent decision on the matter. A preliminary
injunction lasts longer than a temporary injunction, and is meant to ensure that a
party doesn't act on a matter until a court makes a final decision on the issue.
Therefore, preliminary injunctions typically only last the duration of a trial or a
hearing. Injunctions aren't common, but are used mostly in breach of contract
cases.
Like specific performance, the court will consider this option when money damages
won't provide the innocent party with adequate compensation for the breach, and
the innocent party requests that remedy. Injunctions are used when the object of
the contract might be lost, destroyed, or otherwise made unavailable to the
innocent party.
11. What documents to be submitted to registrar while filing
A company for the purpose of incorporation shall file before the Registrar of
Companies an application along with the following documents and necessary fees.
1. Memorandum of Association duly signed by the subscribers.

2. Articles of Association duly signed by the subscribers.
3. Agreement if any which the company proposes to enter in to with any
individual for appointment as it’s managing or whole time Director or
Manager.
4. A list of the directors who have agreed to become the First Directors of
the company and their written consent to act as Directors and take up
qualifying shares.
5. A declaration stating that all the requirement of the companies Act and
other formalities relating to registration have been complied with.
12. A Contract shall be fulfilled by whom
By promisor himself - If it appears from the nature of the contract that it was the
intention of the parties that the promise contained in it should be performed by the
promisor himself, such promise must be performed by the promisor. In such cases
the death of the promisor puts an end to the contract. i.e. where personal
consideration is the foundation of the contract.
By agent – Where the contract does not involve personal skills of promisor, the
promisor or his representative may employ a competent person to perform it.
Where personal consideration is not the foundation of the contract.
By legal representatives –The Contracts which do involve any personal skill may
be performed by his legal representative after the death of the promisor.
By joint promisors - when two or more persons/have made a joint promise, then
unless a contrary intention appears from the contract. All such persons must jointly
fulfill the promise. If any of them dies, his legal representative must, jointly with the
surviving promisors, fulfill the promise. If all the promisors die, the legal
representatives of all of them must fulfill the promise jointly.
By Third Persons – A Contract may be performed by a third person provide the

promise accepts the arrangement. If the promise accepts performance of the
promise by a third party, he cannot afterwards compel the promisor to perform the
contract again.
13. What do you understand by impossibility of performance
Discharge by impossibility.
Impossibility of performance may be-

Initial impossibility. An agreement to do an act impossible in itself is void.
Supervening impossibility. Impossibility which arises subsequent to the

formation of a contract (which could be performed at the time when the contract
was entered into) is called subsequent or supervening impossibility.
The cases covered by supervening impossibility include;

 Destruction of subject-matter of contract;
 Non-existence or non-occurrence of a particular state of things:
 Death or incapacity for personal service;
 Change of law or stepping in of a person with statutory authority;
 Outbreak of war.
The contract is discharged in these cases.
The following cases are not covered by supervening impossibility:
 Difficulty of performance;
 Commercial impossibility;
 Failure of a third person on whose work the promisor relied
 Strikes, lock-outs and civil disturbances;
 Failure of one of the objects.
The contract is not discharged in these cases.
14. What is an offer, when is it complete, what are the rules of offer
• An “Offer” is a proposal by one to another to enter in to a legally binding

agreement.
• When one signifies to another his willingness to do or to abstain from doing
anything, with a view to obtain the assent of the other, such an act or
abstinence is said to be a “Proposal”.
• Person making the proposal is the “Proposer / Offerer / Promisor”.
• Person to whom the proposal is made is called as “Offeree / Proposee”.
• When the Offeree accepts the proposal, he is called as “Acceptor /
Promisee”.
The communication of a proposal (offer) is complete when it comes to the

knowledge of the person to whom it is made.
Legal Rules as to Offer

1. It must be intended to create legal relations.
2. It must be certain.
3. It must be distinguished from
a) A declaration of intention, and
b) and invitation to make offer.
4. It must be communicated to the offeree.
5. It must be made with a view to obtaining the assent of the offeree.
6. It must not contain a term the non-compliance of which would amount to
acceptance.
7. A statement of price is not an offer.
15. Capacity to contract, and rules regarding contract made by minors

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.
Rules regarding contract with Minors

A minor is a person who has not completed eighteen years of age. But where a
guardian has been appointed to a minor under the Guardians and Wards Act or
where a minor is under the guardianship of the Court of Wards, he attains majority
at the age of twenty-one. The positions as regards his agreements is as follows:
1) His agreement is altogether void and inoperative.

2) He can be a promisee or a beneficiary in a contract.
3) His estate is liable for the necessary goods supplied or necessary services
rendered to him or to anyone whom he is legally bound to support or for
money lent to him to buy necessaries.
4) He may enter into contracts of apprenticeship, service, education and
instruction provided these are beneficial to him.
5) He can be an agent.
6) He cannot be a partner. But he can be admitted to the benefits of an already
existing partnership with the consent of the other partners.
7) If he has received any benefit under a void agreement, he cannot be asked
to compensate or pay for it.
8) The court never orders specific performance of his agreements.
9) He can always plead minority and is not estopped from doing so even when
he enters into an agreement by falsely misrepresenting his age.
10) He cannot be adjudged insolvent.
16. What are the nature and scope of business law
Mercantile law or Business Law may be defined as that branch of law which
consists of laws relating to trade, industry and commerce. It is one of the
important branches of Civil Law. It is also called as “Commercial Law”.
Business law encompasses all of the laws that dictate how to form and run a
business. This includes all of the laws that govern how to start, buy, manage and
close or sell any type of business. Business laws establish the rules that all
businesses should follow. A savvy businessperson will be generally familiar with
business laws and know when to seek the advice of a licensed attorney.
Business law includes state and federal laws, as well as administrative
regulations.
Scope of Mercantile Law

The scope of mercantile law is very wide and varied. It includes law relating to
contracts, partnership, sale of goods, negotiable instruments, companies,
insolvency, insurance, carriage of goods, etc.
Mercantile law is concerned with the study of rights and obligations arising out of
mercantile transactions between mercantile persons. Mercantile persons are
persons who carry on commercial transactions. They may be individuals,
partnership concerns or joint stock companies.
Knowledge of mercantile law is essential to merchants. It helps the merchants to

avoid conflicts with the persons with whom he comes into business contacts.
17. Time and place for performance of contract
Time and place of performance of a contract are matters to be determined by

agreement between the parties themselves. Where no time for performance is
specified, the promisor must perform the promise within a reasonable time. If no
time and place is fixed for the performance of the promise, the promisor must apply
to the promisee to fix the day and time for performance.
Time for the performance of a contract may be fixed in the contract itself. In that
case the contract must be performed within that time when time is of the essence
of the contract. The general rule is that in commercial contracts time is of the
essence of contract. In other contracts stipulations as to time are, in the absence
of an express or implied evidence to the contrary, presumed not to be of the
essence of the contract.
18. Consent. When can it said to be free
When two or more persons agree upon the same thing in the same sense, they
are said to consent.
Ex- A agrees to sell his Fiat Car 1983 model for Rs. 80,000. B agrees to buy the
same. There is a valid contract since A and B have consented to the same subject
matter.
All agreements are contracts if they are made by the free consent of the parties.
Two or more persons are said to consent when they agree upon the same thing in
the same sense [Sec. 13.] Consent is said to be free when it is not caused by
 Coercion
 Undue influence
 Fraud
 Misrepresentation
 Mistake
When consent to an agreement is caused by coercion, fraud, misrepresentation,
or undue influence, the agreement is a contract voidable at the option of the party
whose consent was so caused.
19. Consideration. State exception to rule “ No consideration, No Contract”
Consideration means something in return. It is the price for which the promise of
the other is bought. It must result in a benefit to the promisor and / or a detriment
to the promisee or both. Sec. 2 (d) defines it as follows:
“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 something, such act or
abstinence or promise is called a consideration for the promise.”
An agreement made without consideration is void

The following are the exceptions to this rule, i.e., no consideration is required in
case of -
1. A written and registered agreement based on natural love and affection
between parties standing in a near relation to each other
2. A promise to compensate, wholly or a part, a person who has already
voluntarily done something for the promisor
3. A promise by a debtor to pay a time-barred debt if it is made in writing and
is signed by the debtor or by his agent
4. An agency
5. A complete gift
20. When Contract is said to influenced. What circumstances undue influence is

presumed.
Undue Influence
A contract is said to be induced by “undue influence” where the relations subsisting

between the parties are such that one of the parties is in a position to dominate the
will of the other, and uses that position to obtain an unfair advantage over the other.
A person is deemed to be in a position to dominate the will of another where he –

a) Holds real or apparent authority over the other, or
b) Stands in a fiduciary relation to the other; or
c) Makes a contract with a person whose mental capacity is temporarily or
permanently affected by reason of age, illness or mental or bodily distress.
Where a person who is in a position to dominate the will of another, enters
into a contract with him, and the transaction appears to be unconscionable,
the burden of providing that such contract was not induced by undue
influence lies upon the person in a position to dominate the will of the other
(Sec. 16).
Relationships which raise presumption of undue influence:

• Parent and Child.
• Trustee and Beneficiary.
• Religious Guru and Disciple.
• Guardian and Ward.
• Solicitor and Client
• Doctor and Patient.
• Fiance and Fiancee.
21. Doctrine of Constructive Notice
Every outsider dealing with a company is deemed to have notice of the contents
of the Memorandum & the Articles of Association. These documents, on
registration with the Registrar, assume the character of public documents. This is
known as constructive notice of Memorandum and Articles.
The Memorandum and Articles, on registration, assume the character of public

documents. The office of the Registrar is a public office and documents registered
there are open and accessible to the public at large. Therefore, every outsider
dealing with the company is deemed to have notice of the contents of the
Memorandum and Articles. This is known as Constructive
Notice of Memorandum and Articles.
Under the doctrine of ‘constructive notice’, every person dealing or proposing to

enter into a contract with the company is deemed to have constructive notice of
the contents of its Memorandum and Articles. Whether he actually reads them or
not, it is presumed that he has read these documents and has ascertained the
exact powers of the company to enter into contract, the extent to which these
powers have been delegated to the directors and the limitations to such powers.
He is presumed not only to have read them, but to have understood them properly.
Consequently, if a person enters into a contract which is ultra vires the
Memorandum, or beyond the authority of the directors conferred by the Articles,
then the contract becomes invalid and he cannot enforce it, not-withstanding the
fact that he acted in good faith and money was applied for the purposes of the
company.
22. Doctrine of Indoor Management
There is one limitation to the doctrine of constructive notice of the Memorandum &
the Articles of company. The outsiders dealing with the company are entitled to
assume that as far as the internal proceedings of the company are concerned,
everything has been regularly done. They are presumed to have read these
documents & to see that the proposed dealing is not inconsistent therewith, but
they are not bound to do more; they need not inquire into the regularity of the
internal proceedings as required by the memorandum & the Articles. They can
presume that all in being done regularly. This limitation of the doctrine of
constructive notice is known as the “doctrine of indoor management”.
The doctrine of indoor management follows from the doctrine of ‘constructive

notice’ laid down in various judicial decisions. The hardships caused to outsiders
dealing with a company by the rule of ‘constructive notice’ have been sought to be
softened under the principle of ‘indoor management’. It affords some protection
to the outsiders against the company.
According to this doctrine, after satisfying themselves that the proposed

transaction is intra vires the memorandum and articles, persons dealing with the
company are not bound to enquire whether the internal proceedings were correctly
followed. They are entitled to assume that the internal proceedings relating to the
contract are regular as per the memorandum and articles. When an outsider enters
into a contract with the company, he is presumed to have knowledge of the
provisions of memorandum and articles as per the doctrine of constructive notice.
But he is not required to go beyond that and to enquire whether the internal
proceedings required by these documents have been regularly followed by the
company. They need not enquire whether the necessary meeting was convened
and held properly or whether necessary resolution was passed properly. They are
entitled to take it for granted that the company had gone through all
these proceedings in a regular manner. This is known as theDoctrine of Indoor
Management.
23. Who shall enter a Contract
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.
A person who
a. is of the age of majority according to the law to which he is subject
b. is of sound mind 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.
c. is not disqualified from contracting by any law to which he is subject
is competent to contract.
Therefore a minor is not competent to contract and an agreement by a minor is

void ab initio. He cannot ratify an agreement on attaining the age of majority and
validate the same. (Void ab initio means it has at no time had any legal validity).
The following persons are therefore incompetent to contract
Minor
A minor is a person who has not completed eighteen years of age. But where a
guardian has been appointed to a minor under the Guardians and Wards Act or
where a minor is under the guardianship of the Court of Wards, he attains majority
at the age of twenty-one.
Persons of unsound mind
Lunatics. A lunatic can enter into a contract when he is of sound mind.
Idiots. An agreement of an idiot like that of a minor is altogether void.
Drunken or Intoxicated persons. Their position is similar to that of lunatics.

These persons, like a minor, are liable for necessaries supplied to them or their
minor dependants.
Other persons.
Alien enemies. During the war an Indian citizen cannot enter into a contract with
a alien enemy. Contracts made before the war are either suspended or dissolved.
Foreign sovereigns and accredited representatives of a foreign state. They
can enter into contracts and enforce these contracts in our Courts. But they cannot
be sued in our Courts without the prior sanction of the Central Government.
Corporations. The contractual capacity of a statutory corporation is limited by the

Statute governing it. As regards a company registered under the Companies Act,
1956, its contractual capacity is regulated by its Memorandum of Association and
the Companies Act, 1956.
Insolvents. When a debtor is adjudged insolvent he is deprived of his power to

deal in his property divisible among his creditors.
Convicts. A Convict when undergoing imprisonment is incapable of entering into

a contract.
24. Quasi Contract
In certain cases the law imposes an obligation and allows an action to be brought
on it as if it arose out of an agreement, though none was present in fact. Such
cases, strictly speaking, are not contracts, but the law recognises them as “certain
relations resembling those created by contracts”. In English Law, such relations
are called quasi-contracts.
Quasi contracts rest on the ground of equity that a person shall not be allowed to
enrich himself unjustly at the expense of another.
Secs. 68 to 72 deal with the following quasi-contracts:

[1] Claim for necessaries supplied to a person incapable of contracting or on
his account.
[2] Reimbursement of a person paying money due by another in payment of
which he is interested
[3] Obligation of a person enjoying benefit of a non-gratuitous act
[4] Responsibility of finder of goods
[5] Liability of person to whom money is paid or thing delivered by mistake or
under coercion
25. Quantum Meruit
A right to sue on a quantum meruit (as much as earned) arises where a contract,
partly performed by one party, has become discharged by the breach of the
contract by the other party. This right is founded on an implied promise by the
other party arising from the acceptance of a benefit by that party.
Ex – A, a singer contracts with B, the manager of a theatre, to sing at his theatre

for two nights in every week during the next two months, and B engages to pay
her Rs. 100 for each night’s performance. On the sixth night, A wilfully absents
herself from the theatre and B in consequence, rescinds the contract. B is entitled
to claim compensation for the damages for which he has sustained through the
non-fulfilment of the contract.
26. Essentials of a Contract of Sale of goods
“A contract of sale of goods is a contract whereby the seller transfers or agrees to

transfer the property in goods to the buyer for a price.” [Sec. (4) 1]. Important
features of a contract of sale
Two Parties: The first essential is that there must be two distinct parties to a
contract of sale, viz, a buyer and a seller, as a person cannot buy his own goods.
However, there may be a contract of sale between one part-owner and another
part-owner [Section 4(1)]. A partner may, therefore, buy the goods from the firm in
which he is a partner and vice-versa.
Mutual Consent: Just the presence of two parties is not sufficient. The parties
must agree on the transfer of property
Transfer of Property: What a contract of sale stipulates is the transfer of property

i.e. the ownership of the goods and not the possession of the goods.
Goods: Goods means every kind of movable property other than actionable
claims and money. But it includes stock and shares, growing crops, grass and
things attached to or forming part of the land which are agreed to be severed before
sale or under the contract of sale. [Sec. 2(7)]. Since the price of the goods is
expressed in terms of the money, money itself cannot be bought, and hence,
money is not considered as goods.
Price: Under a contract of sale, property in the goods is transferred to the buyer
for a price. Price is the money consideration for the goods
Varied requirement as to delivery and payment: The contract may provide for
the immediate delivery of goods or immediate payment of the price or both,
Requires no formalities: The sale of goods act does not provide for a valid
contract; mere offer and acceptance thereof forms a contract; it can be made either
of the two and accepted by the other. Neither the payment nor delivery is
necessary at the point of making the contract. It can either be verbal or in writing
or both or understood through the conduct of parties involved.
Absolute or Conditional: An absolute contract of sale is technically called a

‘sale’. Thus “where under a contract of sale the property in the goods is transferred
from the seller to the buyer, the contract is called a sale. Thus a contract
of sale is a generic term including ‘Sale’ as well as ‘an agreement to sell.’
27. Acceptance, Rules as to acceptance
The communication of an acceptance is complete – as against the purposer when

it is put into a course of transmission to him, so as to be out of the power of the
acceptor; as against the acceptor, when it comes to the knowledge of the proposer.
Acceptance has been defined as “When the person to whom the proposal is made
signifies his assent thereto, the proposal is said to be accepted”.
Acceptance how made

The offeree is deemed to have given his acceptance when he gives his assent to
the proposal. The assent may be express or implied. It is express when the
acceptance has been signified either in writing, or by word of mouth, or by
performance of some required act.
Legal Rules as to Acceptance

1. It must be absolute and unqualified.
2. It must be communicated to the offeror.
3. It must be according to the prescribed or usual mode.
4. It must be given within the prescribed or reasonable time.
5. It must be given by the specific person to whom the offer is made. If the
offer is general, it may be accepted by any person.
6. It must show an intention to fulfil the promise.
7. It cannot precede an offer.
8. It must be given before the offer lapses.
9. Mental acceptance is no acceptance.
28. Ignorantia juris non excusat
Ignorantia juris non excusat or ignorantia legis neminem excusat (Latin for
"ignorance of the law excuses not"[1] and "ignorance of law excuses no
one"[2] respectively) is a legal principle holding that a person who is unaware of a
law may not escape liability for violating that law merely because one was unaware
of its content.
The rationale of the doctrine is that if ignorance were an excuse, a person charged
with criminal offenses or a subject of a civil lawsuit would merely claim that one
was unaware of the law in question to avoid liability, even if that person really does
know what the law in question is. Thus, the law imputes knowledge of all laws to
all persons within the jurisdiction no matter how transiently. Even though it would
be impossible, even for someone with substantial legal training, to be aware of
every law in operation in every aspect of a state's activities, this is the price paid
to ensure that willful blindness cannot become the basis of exculpation. Thus, it is
well settled that persons engaged in any undertakings outside what is common for
a normal person, such as running a nuclear power plant, will make themselves
aware of the laws necessary to engage in that undertaking. If they do not, they
cannot complain if they incur liability.
The doctrine assumes that the law in question has been properly promulgated—
published and distributed, for example, by being printed in a government gazette,
made available over the internet, or printed in volumes available for sale to the
public at affordable prices. A law can bind only when it is reasonably possible for
those to whom it applies to acquire knowledge of it in order to observe it, even if
actual knowledge of the law is absent for a particular individual. A secret law is no
law at all.
29. Difference between Public Ltd and Private Ltd
Minimum number:- The minimum number of persons required to form a public

company is 7. It is ‘2’ in case of a private company.
Maximum number:- There is no restriction on maximum number of member in a

public company, whereas the maximum number cannot exceed 50 in a private
company.
Minimum capital:- A public company must have a minimum of Rs. 5, 00,000 as

capital. A private limited company must have a minimum capital of Rs. 1,00,000/-
Number of Directors:- A public company must have at least 3 directors
whereas private directors must have 2 directors.
Restriction on appointment on directors:- In the case of public company the

directors must file with the Registrar consent to act the directors or sign as
undertaking for their qualification shares. The directors of a private company
need not to do so.
Restriction on Invitation to subscribe for shares:- A public company invites

the general public to subscribe for the shares in or the debentures of the
company. A private company by its articles prohibits any such invitation to the
public.
Transferability of shares or debentures:- In a public company the shares and

debentures are freely transferable. In a private company the right to transfer
shares and debentures is restricted by the articles.
Special privileges:- A private company enjoys some special privileges. A public

company enjoys no such privileges.
Quorum:- If the articles of a company do not provide for a larger Quorum, five
members personally present in the case of Public company is Quorum for a
meeting of the company. It is 2 in the case of private company.
Managerial remuneration:- Total Managerial Remuneration in a public company

cannot exceed 11% on the net profits. No such restriction applies to a private
company.
30. Winding up of a Company and different modes
Winding up of a company is a process of putting an end to the life of the company.

It is a proceeding by means of which a company is dissolved and in the course of
such dissolution, its assets are collected, its debts are paid off out of the assets of
the company and if any surplus is left, it is distributed among the members in
accordance with their rights
At any time after a company has passed a resolution for voluntary winding up, the
court may make an order that the voluntary winding up will continue, but subject to
the supervision of the court and with such liberty of creditors, contributors and
others to apply to the court on such terms and conditions as the court thinks fit.
Compulsory winding up by court
A company may be wound up by an order of court under following grounds,

• If the company has by a special resolution resolved that it may be wound
up by the court.
• Default in delivering statutory report
• Failure to commence business within a year of incorporation
• If the number of members is reduced below 7 in case of a public Ltd
company and below 2 in case of a Pvt Ltd company
• Failure to repay its debts
• On just and equitable grounds.
Voluntary Winding up
The object of a voluntary winding up is that the company and its creditors are left
to settle their affairs without going to the court, but they may apply to the court for
any directions or orders if and when necessary.
It may be :
Member’s voluntary winding up

This type of winding up takes place only when the company is in a position to pay
its debts. Declaration of solvency is made by the director. A meeting of members
is called and a liquidator is appointed. No committee of inspection is formed.
The liquidator can exercise some powers with the sanction of a special resolution
of the company. The meeting of members is again called on the completion of the
proceedings of winding up.
Creditor’s voluntary winding up.

This type of winding up takes place only if the company is not in a position to pay
off its debts. Here the meeting of the members and the creditors is called. The
liquidator is appointed by the creditors and the remuneration is fixed by the
committee of inspection. The liquidator exercises power with sanction of the court.
31. Distinguish between fraud and misrepresentation? What is the effect on

validity of the contract?
“Misrepresentation is a mis-statement of a material fact made innocently with a

honest belief as to its truth or non-disclosure of a material fact, without any intent
to deceive the other party.
“Fraud” exists when it is shown that a false representation has been made.
• Knowingly, or
• Without belief in its truth, or
• recklessly, not caring whether it is true or false, and
• the maker intends the other party to act upon it.
• It also exists when there is a concealment of a material fact.
Basis for Comparison Fraud Misrepresentation
Meaning A deceptive act done The representation of a
intentionally by one misstatement, made
party in order to innocently, which
influence the other party persuades other party to
to enter into the contract enter into the contract, is
is known as Fraud. known as
misrepresentation.
Purpose to deceive the Yes No

other party
Variation in extent of In a fraud, the party In misrepresentation, the
truth making the party making the
representation knows representation believes
that the statement is not the statement made by
true. him is true, which
subsequently turned out
as false.
Claim The aggrieved party, The aggrieved party has

has the right to claim for no right to sue the other
damages. party for damages.
Voidable The contract is voidable The contract is not

even if the truth can be voidable if the truth can
discovered in normal be discovered in normal
diligence. diligence.
32. Explain clearly the nature of contract of sale of goods and bring out clearly
the difference between Sale and an agreement to sell
Contract of sale.
A contract of sale of goods is a contract whereby the seller transfers or agrees to
transfer the property in goods to the buyer for a price.
Sale and agreement to sell.
Where under a contract of sale the property in the goods is transferred from the
seller to the buyer, the contract is called a sale, but where the transfer of the
property in the goods is to take place at a future time or subject to some condition
thereafter to be fulfilled the contract is called an agreement to sell. An agreement
to sell becomes a sale when the time elapses or the conditions are fulfilled subject
to which the property in the goods is to be transferred.
The following are the differences:
1. Transfer of Goods :-
Sale : In case of sale property is transfers from seller to buyer.
Agreement to sell : In case of agreement only promise is made to transfer the

goods.
2. Nature of Performance :-
Sale : A sale is a contract which is being performed.
Agreement to sell : An agreement to sell is a contract which is to be performed.
3. Rights of Buyer and Seller :-
Sale : Goods become the property of the buyer in case of sale.
Agreement to sell : Goods remain the property of the seller in case of

agreement.
4. Insolvency of Buyer :-
Sale : In a sale case seller can use his right of lien or stoppage.
Agreement to sell : In case of agreement seller can refuse to deliver the goods
if price is not paid.
5. Buyer's Default :-
Sale : In case of sale, a seller can claim for the price of goods.
Agreement to sell : In case an agreement the seller can claim only for
damages.
6. Seller's Insolvency :-
Sale : In case of sale a buyer has no risk.
Agreement to sell : In case of agreement a buyer can claim only dividend.
7. Seller's Default :-
Sale : In case of sale the buyer has a personal remedy.
Agreement to sell : In case of agreement the buyer can claim only for damages.
8. Responsibility of Loss :-
Sale : In case of sale the responsibility of loss by accident falls on the buyers.
Agreement to sell : In case an agreement to sell responsibility of loss falls on

the sellers.
33. Under what circumstance is party entitled to specific performance
In a breach of contract case, the court can consider ordering specific

performance as long as the innocent party asks for that remedy. This equitable
remedy orders the breaching party to comply with the terms of the contract. This
means that the breaching party will be required to do whatever the party originally
promised to do.
The court will consider this option when money damages won't provide the innocent
party with adequate compensation for the breach. Specific performance is most
common in sales contracts. This remedy is sometimes used when a sales contract
involves something unique, such as a particular tract of land, a rare heirloom, or a
priceless art piece.
Specific performance is best understood by considering an example. Let's say that

Arty is an art dealer. He acquires a rare, ancient Egyptian statue that is thought to
have belonged to Cleopatra. Andrea collects Egyptian art and makes a sizable offer
to buy the piece. Arty agrees, and the two make a valid legal contract. Arty then
decides that he'd rather keep the piece for now. He breaches his contract with Andrea.
Andrea sues Arty for breach of contract. The court decides that the piece is truly
priceless, and Andrea can't acquire another comparable piece no matter how much
money the court awards her. Instead, the court decides that Arty should comply with
the terms of the contract, and sell the piece to Andrea for the price she already agreed
to pay. This is specific performance.
34. What are the various ways in which contract may be discharged?
A contract is said to be discharged when the obligations created by it come to an

end. The various modes of discharge of a contract are as follows:
Discharge by performance.
Discharge of a contract by performance takes place when the parties to the

contract fulfill their obligations arising under the contract within the time and in
the manner prescribed. The performance may be
(i) actual performance, or

(ii) attempted performance
Discharge by agreement or consent.
A contract rests on the agreement of the parties. As it is agreement which binds

them, so by their agreement or consent they may be discharged. The discharge
by consent may be express or implied. Discharge by implied consent takes place
by–
(a) Novation, i.e., when a new contract is substituted for an existing one, either
between the same parties or between one of the parties and a third party.
(b) Alteration, i.e., when one or more of the terms of the contract is/are altered
by the mutual consent of the parties to the contract.
(c) Rescission, i.e., when all or some of the terms of the contract are cancelled.
(d) Remission, i.e., acceptance of a lesser fulfillment of the promise made.
(e) Waiver which means intentional relinquishment or giving up of a right by a
party entitled thereto under a contract.
(f) Merger, i.e., when an inferior right accruing to a party under a contract merges
into a superior right accruing to the same party under a new contract.
Discharge by impossibility.
Impossibility of performance may be-

Initial impossibility. An agreement to do an act impossible in itself is
void.
Supervening impossibility. Impossibility which arises subsequent to the

formation of a contract (which could be performed at the time when the
contract was entered into) is called subsequent or supervening
impossibility.
Discharge by lapse of time.
If a contract is not performed within the period of limitation and if no action is

taken by the promisee in a Law Court, the contract is discharged.
Discharge by operation of law.

This includes discharge by
(a) death,
(b) merger,
(c) insolvency,
(d) unauthorised alteration of the terms of a written agreement, and
(e) rights and liabilities becoming vested in the same person.
35. When is seller of goods, deemed to be unpaid seller. What are his rights
against
1. the goods
2. the buyer
A seller of goods is deemed to be an unpaid seller

a. when the whole of the price has not been paid or tendered;
b. When a bill of exchange or other negotiable instrument has been received
as a conditional payment, and the condition on which it was received has
not been fulfilled by reason of the dishonour of the instrument, or otherwise.
An unpaid seller has the rights –
As against the goods.
Right of lien. It is available to the unpaid seller when

a) The goods have been sold without any stipulation as to credit;
b) The goods have been sold on credit, but the term of the credit has
expired;
c) The buyer becomes insolvent
Right of stoppage in transit. when the buyer of goods becomes insolvent the
unpaid seller who has parted with the possession of the goods has the right of
stopping them in transit. The seller may resume possession of the goods, as long
as they are in the course of transit and may retain them until payment or tender of
the price.
The unpaid seller may exercise this right of stoppage in transit either by taking
actual possession of the goods, or by giving notice of his claim to the carrier or
other bailee in whose possession the goods are.
Right of re-sale. The unpaid seller can re-sell the goods
a) Where the goods are of a perishable nature;
b) Where he was exercised his right of lien or stoppage in transit and
given notice to the buyer of his intention to re-sell the goods and
where the buyer has not within a reasonable time paid the price; and
c) Where the seller expressly reserves a right of re-sale in case the
buyer should make default
Right of withholding delivery

Where the property in goods has not passed to the buyer, the unpaid seller has,
in addition to his other remedies, a right of withholding delivery similar to and co-
extensive with his rights to lien and stoppage in transit where the property has
passed to the buyer
As against the buyer personally.
Suit for price. Where under a contract of sale the property in the goods has
passed to the buyer and the buyer wrongfully neglects or refuses to pay for the
goods according to the terms of the contract, the seller may sue him for the price
of the goods [Sec. 55].
Damages for non-acceptance. Where the buyer wrongfully neglects or refuses

to pay for the goods, the seller may sue him for damages for non-acceptance
Repudiation of contract before due date. Where the buyer in a contract of sale
repudiates the contract before the date of delivery, the seller may either treat the
contract as subsisting and wait till the date of delivery, or he may treat the contract
as rescinded and sue for damages for the breach
Suit for interest. The seller can recover interest on price from the date on which
the payment became due, if there is a special agreement to that effect.
Executive Post Graduate Diploma in Management
Subject: Legal Aspects of Business
Sample Question paper (Reference only)
Level 1: Objective Type (2 marks each)
1. A person cannot be a Director at the same time in more than____________________companies.
20 15 25 10 30
2. A contract in which the terms are started in word (written or spoken) by the parties is known as
____________________contract.
Express Mutual Written Term None of the above
3. A's nephew was missing. A sent his munim B in search of the missing boy. In the meanwhile A
issued hand bills offering Rs.5,000/- to any person who would find out the missing boy. B could trace
the boy and brought him home. Later on, he came to know about the reward and sued A for the
reward. Will he succeed?
(a) Yes
(b) No
4. A sent a telegram to B, "Will you sell your car? Quote lowest price". B sent a reply "Lowest price
Rs.25,000/-". A sent a second telegram to B, "I agree to buy your car for Rs.25,000/-". B thereafter
refuses to sell.
(a) Can A compel B to do so?
(b) Is there a contract between A and B?
(a) Yes
(b) No
5. X at Delhi on 1st August, 1974 sends a letter to Y in Mumbai offering to sell his car for Rs.16,000/-.
Y on 2nd August, 1974 sends a letter to X accepting the offer. This acceptance letter reaches X on
4th August, 1974. But on 3rd August X has sold the car to Z and wired Y revoking the offer. This wire
reaches on 3rd August, 1974 itself. Is there a breach of contract committed by X?
(a) Yes
(b) No
6. X lent to Y three sums of Rs.100/-, Rs.200/- and Rs.500/-. Y sent a sum of Rs.100/- asking X to
appropriate this money towards the third debt of Rs.500/-. X wants to appropriate this money to the
first loan. Can he do so?
(a) Yes
(b) No
7. X agreed to supply certain goods to Y. The goods were to be procured from Algeria. Due to riots and
civil disturbances in that country, goods could not be procured. Can X be discharged on the ground
of riots, etc.?
(a) Yes
(b) No
8. A, a tradesman, sends some goods ordered by B. A's servant delivers the goods by mistake at C's
house. C uses the goods. Can A recover the price of the goods from C?
(a) Yes
(b) No
9. A minor fraudulently represented to a moneylender that he was of full age and executed a mortgage
deed for Rs.10,000/-. Has the moneylender any right of action against the minor for the money lent
or for damages for fraudulent misrepresentation?
(a) Yes
(b) No
10. A executed a pronote in favour of B while he was a minor. The pronote was renewed by A in favour
of B when he attained the age of majority. B brings a suit against A on the basis of the second
pronote. Will he succeed?
(a) Yes
(b) No
11. A tells his wife that he would commit suicide, if she did not transfer her personal assets to him. She
does so under this threat. Can the wife avoid the contract?
(a) Yes
(b) No
12. A pays some money to B by mistake. It is really due to C. Can C recover the amount from B?
(a) Yes
(b) No
13. 5 persons are the only members of a private company. All of them go in a boat on a pleasure trip
into the open sea. The boat capsizes and all the 5 die being drowned. Does the private company
cease to exist?
(a) Yes
(b) No
14. During the war, all the members of a private company, while in general meeting, were killed by a
bomb. Does the company cease to exist because all the members died?
(a) Yes
(b) No
15. The promoters of a company, before its incorporation, enter into an agreement with P to buy a plot of
land on behalf of the company. After incorporation, the company refuses to buy the said plot of land.
Has P any remedy either against the promoters or against the company?
(a) Yes
(b) No
16. The secretary of a company issued in favour of R a certificate which apparently complied with the
company's articles as it purported to be signed by 2 Directors and the secretary and it had the
company's seal affixed to it. In fact the secretary had forged the signatures of the Director's and
affixed the seal without authority. Is the certificate binding on the company?
(a) Yes
(b) No
17. To foster better industrial relations, Directors of A.B. Ltd agree with its trade union to offer 1,000
shares of Rs.100/- each, fully paid upto its employees and to receive amount thereon in 10 equal
installments of Rs.10/- per share. Can the company make such an issue?
(a) Yes
(b) No
18. The secretary of a company purchased some stationery for the company but he took it home and put
it to his private use. The company refused to pay to the supplier of the stationery on the plea that it
never received the stationery. Is the company liable?
(a) Yes
(b) No
19. Anil aged 17 years, borrowed money from a moneylender by representing himself to be of 21 years.
(a) a) Anil can be sued for fraud
(b) b) Anil cannot be sued for fraud
(c) c) Anil is liable to repay the amount
(d) d) Guardian of Anil is liable to repay the amount
(e) Both (a) and (c)
20. An agreement made under coercion, renders the contract:-
(a) Unenforceable
(b) Illegal
(c) Voidable
(d) Valid
(e) Void
21. The contract entered with a lunatic during the times of his sound mind is:-
(a) Valid
(b) Void
(c) Void abinitio
(d) Not enforceable
(e) Voidable
22. 'A' accepts 'B's invitation to dinner by phone. This is not a contract as:-
(a) a) There is no consensus between the two parties
(b) b) Acceptance is given orally
(c) c) There is no intention to create a legal relationship
(d) Both (b) and (c)
(e) None of the above
23. 'A' agreed to sell his car to 'B'. His consent was given at gun point. This contract is voidable as it
involves:-
(a) Under influence
(b) Extortion
(c) Compulsion
(d) Coercion
24. A contract where consent is obtained by coercion is:-

(a) Voidable at the option of the party whose consent was obtained by coercion
(b) An illegal contract
(c) Voidable at the option of either of the parties to the contract
(d) A void contract
(e) Voidable only if coercion proceeds from one of the parties to the contract and not from a third
Party
If choice a is selected set score to 2.

25. A contract which is wholly performed by both the parties is called:-
(a) Executory contract
(b) Executed contract
(c) Quasi contract
(d) Unilateral contract
(e) Bilateral contract
26. The right of lien exercised by an unpaid seller is to:-

(a) a) Retain possession
(b) b) Recover possession
(c) c) Recover price and other charges
(d) d) Damages
(e) Both (c) and (d)
27. A private company must have atleast:-

(a) Five Directors
(b) Seven Directors
(c) Four Directors
(d) Two Directors
(e) Three Directors
28. A person dealing with a company having satisfied himself that the proposed transaction is not in its
nature inconsistent with the Memorandum and Articles, is not bound to enquire into the regularly of
the internal proceedings. This is known as:-
(a) Doctrine of Ultravires
(b) Doctrine of Lispendens
(c) Doctrine of Indoor Management
(d) Doctrine of Fraudulent Transfer
(e) Doctrine of Constructive Notice
29. Every person dealing with a company is presumed to have read the Memorandum and Articles and
understood them in their true perspective. This is known as:-
(a) Doctrine of Election
(b) Doctrine of Lispendens
(c) Doctrine of Fraudulent Transfer
(d) Doctrine of Indoor Management
(e) Doctrine of Constructive Notice

(a) a) Can commence business once Certificate of Incorporation is received
(b) b) Is required to file a prospectus and declaration of statutory compliance under Section 149
with the registrar
(c) c) Can commence business after receiving the Certificate of Commencement of Business
(d) Both (a) and (b)
(e) Both (b) and (c)
31. The transferee becomes a member of the company when:-

(a) The instrument of transfer according to section 108 (1-
A) along with the share certificates or letters of allotment are delivered to the company
(b) The company acknowledges receipt of the instrument of transfer
(c) The instrument of transfer is delivered to the company
(d) The instrument of transfer along with the share certificates are delivered to the company
(e) The transfer is registered by the company
32. Transmission of shares:-

(a) Is a voluntary act of the transferor
(b) Requires an application to be made by the person to whom shares are transmitted
(c) Requires an instrument of transfer to be delivered to the company by the transmittee of share
s
(d) Results in cessation of all original liabilities relating to those shares
(e) Can take place only by order of the court of law
33. Total managerial remuneration payable by a public company to its Directors:-

(a) Cannot exceed 11% of gross profits for the financial year
(b) Shall be less than 10% of net profits for the financial year
(c) Is left to the discretion of the company
(d) Can exceed 11% but not 15% of gross profits
(e) Cannot exceed 11% of net profits for the financial year
34. The maximum number of Directors in the Board of a public limited company can be:-
(a) a) Decided by articles
(b) b) 12 but excluding nominee
(c) c) Decided by articles but no.12
(d) d) 12 without the approval of the Central Government
(e) Both (a) and (d)
35. Portion of uncalled capital, to be called in the event of winding-up is called:-

(a) Capital Reserve
(b) Reserve Capital
(c) Working Capital
(d) Unpaid Capital
(e) Fixed Capital
36. Inserting a coin in the slot of a weighing machine installed at the railway station is an example of:-
(a) Express acceptance
(b) No acceptance
(c) Implied acceptance
(d) Offer
37. Mr.A accepts Mr.B's telephonic invitation for dinner. This is:-
(a) Not a contract
(b) A voidable contract
(c) A void contract
(d) A valid contract
(e) An invalid contract
38. Who can be a beneficiary to a contract?

(a) a) A major
(b) b) A minor
(c) c) An alien enemy
(d) d) An insolvent
(e) Both (a) and (b)
39. The liability of members in a company limited by shares:-

(a) Is limited to the guarantee given by members
(b) Can be decided at the time of winding up
(c) Is nil, if the shares are fully paid-up
(d) Is limited to the called-up values on shares
(e) Is unlimited

(a) Can commence allotment of shares before the minimum subscription is subscribed for
(b) Must have atleast 3 Directors
(c) Need not hold the statutory meeting
(d) Cannot have more than 100 members
(e) Can commence business immediately on incorporation

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Elements of MERCANTILE LAW

3. An agreement is a voidable contract when it is

4. An agreement not enforceable by law is said to be

6. The transactions collateral to an illegal agreement are

True or False Questions

1. Which of the following result/results in an offer?

2. A specific offer can be accepted by

4. Acceptance may be revoked by the acceptor

5. An advertisement to sell a thing by auction is

7. An offer is made to Mani in a crowd. It

9. There is a counter offer when

True or False Questions

1. Consideration must move at the desire of

4. Consideration must be something that the promisor

5. Compromise of dispute claims

7. A person who is not a party to a contract

9. An agreement made without consideration is

True or False Questions

1. Consideration must result in a benefit to both the parties to a contract. False

2. On attaining the age of majority a minor’s agreement-

3. A minor, by misrepresenting his age, borrows some money.

5. A person is usually of unsound mind, but occasionally of sound mind-

8. The contractual capacity of a company is regulated by

10. Flaw in capacity to contract may arise from

1. A minor is a person who has not completed 21 years of age. False

1. Where consent is caused by fraud or misrepresentation, the contract is

8. When consent to an agreement is obtained by undue influence, the agreement is a

9. Which of the following relationships raise presumption of undue influence?

10. If there is error in causa, the contract is

11. If there is error in consensus, the agreement is

13. If there is a fraudulent misrepresentation as to the contents of a document, the contract is

16. A promise made without the intention of performing it amounts to

True or False Questions

1. When there is no consent, there is no contract. True

1. The collateral transactions to an illegal agreement are

2. An agreement made with an alien enemy is

4. Regulations as to the opening and closing of business in a market are

True or False Questions

2. An agreement, the meaning of which is not certain, is

3. Which of the following are wagering agreements?

2. A contract of insurance is a wagering agreement. False

2. Which of the following are contingent contracts?

3. A contract of insurance is not a contingent contract. False

5. A wagering agreement is essentially of a contingent nature. True

6. In a contingent contract the future event is only collateral. True

8. Contracts of indemnity are contingent contracts. True

Multiple Choice Questions

1. Promises forming consideration for each other are known as

4. Sale of good for cash is an example of

5. When a party to a contract transfers his contractual rights to another, it is known as

8. Assignment by operation of law takes place

True or False Questions

2) An agreement to do an act impossible in itself –

3) If a new contract is substituted in place of an existing contract, it is called –

4) The case of Taylor v. Caldwell (1883) deals with

True or False Questions

3) Specific performance may be ordered by the court when –

5) The case of Hadley v. Baxendale (1854) deals with

6) Anticipatory breach of a contract takes place –

8) Ordinary damages are damages which---

1. Where there is a right, there is a remedy. True

6. Nominal damages are awarded if there is no breach of contract. False