material on indian contract act

7/28/2019 Material on Indian Contract Act

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1. The Indian Contract Act, 1872 extends to the whole of India except the State ofAns: Jammu & Kashmir

Sec 1

2. In this Act the following words and expressions are used in the following senses,unless a contrary intention appears from the context:-(a) When one person signifies to another his willingness to do or to abstain from doinganything, with a view to obtaining the assent of that other to such act or abstinence, heis said to make a proposal:(b) When the person to whom the proposal is made signifies his assent thereto, the

proposal is said to be accepted. A proposal, when accepted, becomes a promise:(c) The person making the proposal is called the " promisor and the person acceptingthe proposal is called the It promisee":(e) Every promise and every set of promises, forming the consideration for each other,

is an agreement:(h) An agreement enforceable by law is a contract:

Sec 2

3. Who are competent to contract?Ans:Every person is competent to contract who is of the age of majority according to thelaw to which he is subject

Sec 11

4. Who cannot make a valid contract?Ans: (i) Minors (ii) persons in a state of unsound mind(iii) persons who are disqualified from contracting by any law to which they are subject

Sec 11

5. What is a sound mind for the purpose of contracting?Ans: A person is said to be of sound mind for the purpose of making a contract if, at thetime when he makes it, he is capable of understanding it and of forming a rational

judgment as to its effect upon his interests. Sec 12

6. What is free consent under Indian Contract Act?Consent is said to be free when it is not caused by(1) coercion, as defined in section 15, or(2) undue influence, as defined in section 16, or(3) fraud, as defined in section 17, or(4) misrepresentation, as defined in section 18, or(5) mistake, subject to the provisions of sections 20, 21 and 22.

Sec 14


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7. What is Undue influence under Indian Contract Act?Ans: A contract is said to be induced by "undue influence where the relationssubsisting between the parties are such that one of the parties is in a position todominate the will of the other and uses that position to obtain an unfair advantage over

the other.Sec 16(1)

8. Mr A is in a position to dominate MrB, Aenters into a contract with B andthe transaction appears to be unconscionable. Then the burden of proving thatsuch contract was not induced by undue influence shall lie on

Ans: Mr ASec 16(3)

9. Define fraud as per Indian Contract Act?Ans:Fraud means any of the following acts committed by a party to a contract with theintention of deceiving another party or to induce him to enter into the contract:-(1) the suggestion, as a fact, of that which is not true,

by one who does not believe it to be true ;(2) the active concealment of a fact by one havingknowledge or belief of the fact ;(3) a promise made without any intention of performing it(4) any other act fitted to deceive ;(5) any such act or omission as the law specially declaresto be fraudulent.

Sec 17

10. An Agreement is a contract voidable at the option of the party whose consent tothat agreement was caused by

(i) Coercion(ii) Undue influence(iii) Fraud(iv) Misrepresentation(v)

Ans:a) (i), (ii) & (iii) aboveb) (ii), (iii) & (iv) abovec) all of the aboved) (i), (ii) & (iv) above

Sec 19 & 19A

11. Mr A intending to deceive Mr B that one thousand kgs of sugar is made annually at s factory and induces B to buy the factory. The contract isvoidable at the option ofAns:

A orBSec 19


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12. X is entitled to succeed to an estate at the death of . Then Y dies and Z

having received information of Ys death prevents the information reaching Xand induces X to sell him his interest in the estate. This sale is voidable at theoption of:-

Ans:a) X

b) Ys legal heirc) Z

Sec 19

13. A, a money lender advances Rs 1000 to B an agriculturist and by undue influenceinduces B to execute a bond for Rs 2000 with interest at 5% per month. The courtmay set the bond aside, ordering B to repay

Ans:a) Rs 1000b) Rs 1000 with such interest a may seem justc) Rs 2000 with interest @ 5 %d)Rs 2000 without interest

Sec 19 A

14. Where both parties to an agreement are under a mistake as to a matter of factessential to the agreement, the agreement is

Ans; Void orNot void Sec 2015. A agrees to buy a horse from B. But the horse was dead at the time of the

bargain and both A and B were not aware of the fact. This agreement is

Ans: Void orNot voidSec 20

16. The consideration or object of an agreement is unlawful wheni)it is forbiddenii)it would defeat the provision of any lawiii)it is fraudulent

iv)it involves or implies injury to the person or property of another or immoralAns:a) (i), (ii), & (iii) above

b) (i), (iii), & (iv) abovec) (ii), (iii), & (iv) aboved) (i) to (iv) above

Sec 23

17. A promises to obtain an employment in public service and B promises to payRs 10000 to A. This agreement is

Ans: Void orNot voidSec 23


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18. Agreement in restraint of marriage voidEvery agreement in restraint of the marriage of any person, other than a minor, is void.

Sec.2618.A Every agreement is restraint of the marriage of any person is void if the person is

of age of

a) 15 yearsb) 16 yearsc) 17 yearsd)18 years

Sec 2619. Agreement are void if the meaning is

i)certainii) not certain

Sec 2920. A agrees to sell B one thousand litres of oil. There is nothing to show what

kind of oil will be sold

Ans: The agreement is void for uncertaintySec 29

21. An agreement to subscribe or contribute, made or entered with for any plate, prizeor sum of money of the value of Rupees__________ and above to be awarded tothe winner of a horse race shall not be deemed to render unlawful

Ans: 1000 Sec 30

22. What is a contingent contract under Indian Contract Act?Ans: It is a contract to do or not to do something, if some event, collateral to suchcontract, does or does not happen

Sec31

23. Example for a contingent contract?Ans: A contracts to pay B Rs. 10,000 if B's house is burnt. This is acontingent contract

Sec 3124. Which of the following statement is incorrect.(a) Contingent contracts to do or not to do anything if an uncertainfuture event happens become void if the event becomes impossible(b)Contingent contract to do or not to do anything if a specified uncertain event happenwithin a fixed time, become void if such event has not happened within such fixed timeor such event becomes impossible before such fixed time.(c)Contingent agreements to do or not to do anything if an impossible event happensare void whether the impossibility of the event is known or not to the parties to theagreement at the time of making it

(d) None of the aboveSec 32,35&36


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25. Which of the following agreements is not void?

a) P promises to pay Q a sum of money if a certain ship return within a year. Thisship was burnt within a year

b) M promises to pay N a sum of money if a certain ship does not returnwithin a year. The ship was burnt within a year.c) X agrees to apy Y Rs 10000 if two straight lines should enclose a spaced)A agrees to pay B Rs 5000 if B will marry As daughter C. C was dead at thetime of agreement

Sec 35 and 3626. Where, by the contract, a promisor is to perform his promise without application by the

promisee, and no time for performance is specified, the engagement must be performedwithin

a) a month

b) two monthsc) reasonable timed)any time

Sec 46Note: Reasonable time is in particular case, a question of fact.

27. When promise is to be performed on a certain day, and the promisor has undertaken toperform it without application by the promisee, the promisor may perform it at the placeat which the promise ought to be performed and

a) at any time during the usual hours of business on such day

b) at any time during such dayc) on the next dayd) none of the above

Sec 4728. What is a reasonable time?

Ans: It is in each particular case, a question of fact.Explanation to Sec 46

29. promises to deliver goods at Bs warehouse on first December. On that day brings the goods to Bs warehouse, but after the usual hour for closing it and hence thegoods were not received at the warehouse. State whetherA has

Ans: (i) performed his promise (ii) not performed his promise Sec 4730. When a promise is to be performed on a certain day and the promisor has not

undertaken to perform it without application by the promise, it is the duty of thepromise to apply for performance(i)at a proper place (ii) within the usual hours of business

Ans:a) (i) above only

b) (ii) above onlyc) both (i) and (ii) above

d) neither (i) nor (ii) aboveSec 48


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31. The performance of any promise may be made in any manner or at any timeprescribed or sanctioned by

Ans:a) the promisor

b) the promiseec) both promisor and promiseed)neither promisor nor promise

Sec 50

32. n agreement to do act impossible in itself is(a)Void (b)not void

Sec 5633. In which of the following circumstances the contract becomes void

a) agrees with Bto discover treasure by magicb) & Bcontracts to marry each other. Before the time fixed for the marriage, goes madc) contracts to act at a theatre for 6 months in consideration of a lumpsum paid inadvance by B. on several occasions is too ill to actd) All of the above

Sec 5634. Alternative promise:

In the case of an alternative promise when one alternative is legal and the other

illegal, then the legal alternative alone can be enforced.e.gX and Y agree that A shall pay Rs 10000 to B, for which B shall afterwardsdeliver to A, either rice or smuggled opium. Here it is a valid contract to deliverrice and a void agreement as to the opium.

Sec 5835. Responsibility of finder of goods.-A person who finds goods

belonging to another, and takes them into his custody, is subject tothe same responsibility as a bailee.i.e.he is bound to take as much care of the goods as a man of ordinary prudencewould take care of his own goods.

Sec 71 r/w 151

36. A person to whom money had been paid or anything delivered, by mistake orunder coercion must repay or return it.e.g. A&B jointly owes Rs 1000 to C. A alone pays the amount to C and B withoutknowing that fact paid Rs 1000 to C. Now C is bound to repay the amount to B

Sec 7237. Compensation for the loss or damage caused by breach of contract is payable by

the party who has broken the contract to the party who suffers from such breachSec 73

38. Such compensation is not payable for any remote and indirect loss or damagesustained by the reason of the breach

Sec 73


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39. Illustration of Sec 73(a) A contracts to sell and deliver 50 maunds of saltpetre to B, at a certain price to

be paid on delivery. A breaks his promise. B is entitled to receive from A, byway of compensation, the sum, if any, by which the contract price falls short of the

price for which B might have obtained 50 maunds of saltpetre of like quality at thetime when the saltpetre ought to have been delivered.(b) A contracts to buy B's ship for 60,000 rupees, but breaks his promise. A must

pay to B, by way of compensation, the excess, if any, of the contract price over theprice which B can obtain for the ship at the time of the breach of promise.(c) A contracts to repair B's house in a certain manner, and receives payment inadvance. A repairs the house, but not according to contract. B is entitled to recoverfrom A the cost of making the repairs conform to the contract.(d) A contracts to supply B with a certain quantity of iron at a fixed price, being ahigher price than that for which A could procure and deliver the iron. B wrongfullyrefuses to receive the iron. B must pay to A, by way of compensation, the

difference between the contract price of the iron and the sum for which A could haveobtained and delivered it.

40. When a penalty is stipulated in a contract for breach of the contract, then theperson complaining of such breach is entitled to receive from the party who hasbroken the contract, reasonable compensation not exceeding the penalty stipulatedfor.

Sec 74

41. Illustrations for Sec 74(a) A contracts with B to pay B Rs. 1,000, if he fails to pay B Rs. 500 on a givenday. A fails to pay B Rs. 500 on that day. B is entitled to recover from A suchcompensation, not exceeding Rs. 1,000, as the Court considers reasonable.

b) A undertakes to repay B a loan of Rs. 1,000 by five equal monthly instalments,with a stipulation that" in default of payment of any instalment, the whole shall becomedue. This stipulation is not by way of penalty, and the contract may be enforcedaccording to its terms.

42. Contract of indemnityA contract by which one party promises to save the other from loss caused to him bythe conduct of the promisor himself, or by the conduct of any other person, is called a

" contract of indemnity". Sec 124

43. Illustration for contract of indemnityA contracts to indemnify B against the consequences of any proceedings whichC may take against B in respect of a certain sum. This is a contract of indemnity.


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44. Contract of guaranteeA "contract of guarantee " is a contract to perform the

promise, or discharge the liability, of a third person in case of hisdefault.

The person who gives the guarantee is called the " surety"; the person in respect ofwhose default the guarantee is given is called the " principal debtor ", and the person towhom the guarantee is given is called the " creditor ".

Sec 12645. A guarantee may also be oral

Ans:*(i) correct (ii) incorrect

Sec 12646. Consideration for guarantee.

Anything done, or any promise made, for the benefit of the principal debtor, may be asufficient consideration to the surety for giving the guarantee.

Sec 12747. Illustration for Consideration for guarantee.

(a) B requests A to sell and deliver to him goods on credit. A agrees to do so,provided C will guarantee the payment of the price of the goods. C promises toguarantee the payment in consideration of A's promise to deliver the goods. This is asufficient consideration for C's promise.(b) A sells and delivers goods to B. C afterwards requests A to forbear to sue

B for the debt for a year, and promises that, if he does so, C will pay for them indefault of payment by B. A agrees to forbear as requested. This is a sufficientconsideration for C's promise.(c) A sells and delivers goods to B. C afterwards, without consideration, agreesto pay for them in default ofB. The agreement is void.

48. Surety's liability.The liability of the surety is coextensive with that of the principal debtor, unless it isotherwise provided by the contract.

Sec 12849. Illustration for Surety's liability.

A guarantees to B the payment of a bill of exchange by C, the acceptor. The billis dishonoured by C. A is liable not only for the amount of the bill but also for anyinterest and charges which may have become due on it.

50. "Continuing guarantee".A guarantee which extends to a series of transactions is called a "continuing guarantee".

Sec 129


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51. Illustration for Continuing Guarantee(a) A, in consideration that B will employ C in collecting the rent of B'szamindari, promises B to be responsible, to the amount of 5,000 rupees, for the duecollection and payment by C of those rents.

This is a continuing guarantee.(b) A guarantees payment to B of the price of five sacks of flour to be delivered byB toC and to be paid for in a month. B delivers five sacks to C. C pays forthem. Afterwards B delivers four sacks to C, which C does not pay for. Theguarantee given by A was not a continuing guarantee, and accordingly he is not liablefor the four sacks.

52. A continuing guarantee may be revoked (i) at any time by the surety bynotice to the creditor or, (ii) in the event of death of the suretyso far as regards to future transactions

Sec 130 & 13153. Creditor's forbearance to sue does not discharge surety.-

Mere forbearance on the part of the creditor to sue the principal debtor or to enforce anyother remedy against him does not, in the absence of any provision in the guarantee tothe contrary, discharge the surety.

Sec 13754. Illustration to Sec 137

B owes to C a debt guaranteed by A. The debt becomes payable. C does notsue B for a year after the debt has become payable. A is not discharged from hissuretyship.

55.

Release of one co-surety does not discharge others.Where there are co-sureties, a release by the creditor of one of them does not dischargethe others; neither does it free the surety so released from his responsibility to the othersureties.

Sec 13856. Circumstances in which the guarantee becomes invalid

(i) Any guarantee which has been obtained by means of misrepresentationmade by the creditor

(ii) Any guarantee which the creditor has obtained by means of keeping silenceas to material circumstances (concealment)

(iii) When a co-surety does not join in a guarantee which has a clause that theguarantee cannot be acted upon until the co-surety joins.Sec 142,143&144

57. Illustrations for Section 142 and 143(a) A guarantees to C payment for iron to be supplied by him to B to the amountof 2,000 tons. B and C have privately agreed that B should pay five rupees perton beyond the market price, such excess to be applied in liquidation of an old debt.This agreement is concealed from A. A is not liable as a surety.(b) A engages B as clerk to collect money for him. B fails to account for some ofhis receipts, and A in consequence calls upon him to furnish security for his duly

accounting. C gives his guarantee for B's duly accounting. A does not acquaint Cwith B's previous conduct. B afterwards makes default. The guarantee is invalid.


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58. Liability of co-sureties bound in different sums.

Co-sureties who are bound in different sums are liable to pay equally as far as the limitsof their respective obligations permit.

Sec 14759. Illustration for Section 147

(a)A, B and C, as sureties for D, enter into three several bonds, each in a differentpenalty, namely, A in the penalty of 10,000 rupees, B in that of 20,000 rupees, C in thatof 40,000 rupees, conditioned for D's duly accounting to E. D makes default to theextent of 30,000 rupees. A, B and C are liable to pay 10,000 rupees each.(b)A, B and C, as sureties for D, enter into three several bonds, each in a different

penalty, namely, A in the penalty of 10,000 rupees, B in that of 20,000 rupees, C in thatof 40,000 rupees, conditioned for D's duly accounting to E. D makes default to theextent of 40,000 rupees. A is liable to pay 10,000 rupees, and B and C 15,000 rupees

each.(c)A, B and C, as sureties for D, enter into three several bonds, each in a different

penalty, namely, A in the penalty of 10,000 rupees, B in that of 20,000 rupees, C in thatof 40,000 rupees,conditioned for D's duly accounting to E. D makes default to theextent of 70,000 rupees. A, B and C have to pay each the full penalty of his bond.

60. What is Bailment?A " bailment " is the delivery of goods by one person to another for some purpose, upona contract that they shall, when the purpose is accomplished, be returned or otherwise

disposed of according to the directions of the person delivering them. The persondelivering the goods is called the "bailor". The person to whom they are delivered iscalled, the " bailee ".

Sec 148

61.The person delivering the goods is called : BailorThe person whom the goods are delivered is called : Bailee

62. If there are faults in the goods bailed, the bailor is bound to disclose the same to thebailee if he (bailor) is aware of it, and if the faults would expose the bailee to

extraordinary risks. If the bailor does not make such disclosure, heis reposible for anydamage to bailee of such faults.

(a)Correct(b)Incorrect

Secc 150

63. If the goods are bailed for hire then the bailor is not responsible for such damage if hewas not aware of the existence of such faults in the goods bailed.

(a)Correct(b)Incorrect

Sec 150


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64. (a)A lends a horse, which he knows to be vicious, to B. He does not disclose the factthat the horse is vicious. The horse runs away. B is thrown and injured. A is responsibleto B for damage sustained.(b)A hires a carriage of B. The carriage is unsafe, though B is not aware of it, and A isinjured. B is responsible to A for the injury.

65. The bailee should take care of the goods bailed as if it was his own goods. The baileeis, however, not responsible for any loss, destruction or deterioration of the goods if hehas taken care of it as if it were his own goods. This is, of course, subject to theabsence of any special contract.

Sec 151&15266. If the bailee, with the consent of the bailor, mixes the goods of the bailor with his own

goods, then who shall have an interest in the mixture produced.

a) Bailorb) Baileec) Both of them in proportion to their respective shares

Sec 15567. If the mixing is done by the bailee without the consent of the bailor, and if the goods

can be separated or divided then who is bound to bear the expenses for the separation ordivision and for any damage arising from the mixture.

a) Bailorb) Baileec) Both of them in equal share

Sec 15668. In the case of mixing of goods by the bailee without the consent of the bailor and if the

goods cannot be separated or divided and delivered back, then the bailee is liable tocompensate the bailor for the loss of the goods.Sec 157

69. Illustration for Sec 157A bails a barrel of Cape flour worth Rs. 45 to B. B, without A'sconsent, mixes the flour with country flour of his own, worth only Rs.25 a barrel. B must compensate A for the loss of his flour.

70. After the purpose for which the goods were bailed has been accomplished, the baileeshould return the goods on demand

(a)Correct(b)IncorrectSec 160

71. A gratuitous(given free of cost) bailment is terminated on the death of the(i) Bailor(ii) Bailee(a) Item (i)above(b)Item (ii) above(c)Either (i) or (ii) above(d)None of the above

Sect 162


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72. Right of finder of goods; may sue for specific reward offered.The finder of goods has no right to sue the owner for compensation for trouble andexpense voluntarily incurred by him to preserve the goods and to find out the owner;

but he may retain the goods against the owner until he receives such compensation;

and,where the owner has offered a specific reward for the return of goods lost, thefinder may sue for such reward, and may retain the goods until he receives it.

73. When a thing which is commonly the subject of sale is lost, if the owner cannot withreasonable diligence be found, or if he refuses, upon demand, to pay the lawful chargesof the finder, the finder may sell it, when the lawful charges of the finder in respect ofthe things found amount to

(i) 50% of its value(ii) 75% of its value(iii) Two third of its value

Sec 169

74. The bailment of goods as security for payment of a dept or performance of a promise iscalledPledge

The bailor in this case is called-PawnerThe bailee in this case is called-Pawnee

Sec 17275. Pawnee's right as to extraordinary expenses incurred. The pawnee is entitled to receive

from the pawnor extraordinary expenses incurred by him for the preservation of thegoods pledged.

Sec 175

76.

When the goods are pledged and the pawnor makes default in payment of the debt, orperformance, at the stipulated time of the promise, the pawnee may either,

(i) the pawnee may bring a suit against the pawnor upon the debt or promise,and retain the goods pledge as a collateral security; or

(ii) he may sell the thing pledged, on giving the pawnor reasonable notice of thesale.

Sec 17677. Definition of Agent and Principal

An "agent" is a person employed to do any act for another or to represent another in

dealings with third persons.Principal is a person for whom such act is done or for whom an agent represents.Sec 182

78. Condition for employment of an agent.An agent may be employed by a person who

(i) Any person who is of the age of majority according to the law to which he issubject

(ii) Is of sound mind(both the above conditions are to be satisfied)

Sec 183


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79. Who may be an agent?Any person who

(i) Is of age of majority and(ii) Is of sound mind

Sec 18480. No consideration is necessary to create an agency

(i) Correct(ii) Incorrect

Sec 18581. Agents authority may be

(i) Expressed(ii) Implied(iii)

a) (i) above only

b) (ii) above onlyc) both (i) and (ii)d)neither (i) or (ii) above

Sec 18682. Definition of sub-agent?

A " sub-agent " is a person employed by, and acting under the control of, the originalagent in the business of the agency.

Sec 19183. Except in the case of fraud or wilful wrong, the sub-agent is responsible for his acts to

the agent, but not to the principal. Sec 19284. Termination of agency

An agency is terminated in the following circumstances,(i) by the principal revoking his authority; or(ii) by the agent renouncing the business of the agency; or(iii) by the business of the agency being completed; or(iv) by either the principal or agent dying or(v) becoming of unsound mind; or(vi) by the principal being adjudicated an insolvent under

the provisions of any Sec 20185. Agent's accounts.-An agent is bound to render proper accounts

to his principal on demand.Sec 213

86. Agent's duty to communicate with principal.-It is the duty of an agent, in cases ofdifficulty, to use all reasonable diligence in communicating with his principal, and inseeking to obtain his instructions.

Sec 21487. Agent not entitled to remuneration for business misconducted.- An agent who is guilty

of misconduct in the business of the agency is not entitled to any remuneration in

respect of that part of the business which he has misconducted.Sec 220


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88. Illustration of sec 220A employs B to recover 1,000 rupees from C. Through B's misconduct the money is notrecovered. B is entitled to no remuneration for his services, and must make good theloss.

89. Compensation to agent for injury caused by principal's neglect.-The principal mustmake compensation to his agent in respect of injury caused to such agent by theprincipal's neglect or want of skill.

Sec 22590. Illustration of sec 225

A employs B as a bricklayer in building a house, and puts up the scaffolding himself.The scaffolding is unskilfully put up, and B is in consequence hurt. A must makecompensation to B.

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