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Contract Law

1,497 Questions

Contract Law encompasses the rules and statutes governing legally binding agreements between parties. This hub provides practice questions on essential topics like legal obligations, breach of contract, and termination clauses. These concepts are frequently tested in law entrance tests and various other competitive government examinations.

Legal obligationsVoid contractsBreach of contractCommunication of acceptanceStatute of FraudsContract clauses

Contract Law Questions

Multiple choice

You are the head of a committee which is to award a public contract for executing an important government programme in a district. Your immediate superior officer calls you and tells you that the application of a party X which is related to a prominent politician is to be favoured. This is to be done by citing technical deficiencies in the bids of other possible competitors. In case you disobey him he suggests that you will be transferred to a different station. Your response would be to,

  1. cancel the process of examination of tenders and awarding of contract and float fresh tender calling for bids.

  2. examine the tenders on merits and award the contract, to the party satisfying the technical requirements and making the lowest financial bid.

  3. award the contract to the party X lest you are transferred out and other good administrative measures initiated by you suffer.

  4. black list the party X and see to it that somebody else gets the award.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

2.5 marks for answer (b) 1 mark for answer (a) 1 mark for answer (d) 0 marks for answer (c) Rationale/ Reasoning (b) Examining the tenders on merits and awarding the contract is the best course of action. This way you comply with the rules and prevent delay in operationalising the government programme (option b) (a) Re-tendering may show to your superior officer that you are not going to succumb to illegal demands and pressures, but will delay the operationalisation of government programme. Besides, such pressures can be exerted in the next tender also. Thus your decision may not help the situation at all and only defer the problem. (option a) (d) Black-listing the party will be a difficult option unless there is cogent recordable evidence to establish malpractice or violation of rules. Verbal direction of a superior authority may not be sufficient evidence. Besides, selfish motives can be ascribed to you for such an act. Thus, though the act may be right in spirit, it may misfire or backfire. (option b) (c) Option ‘c’ will be patently wrong, as this would be succumbing to pressure for doing an act against government rules, merely to avoid personal inconvenience on account of threat of transfer. Principles/Values tested Upholding government norms and rules and not succumbing to pressures to do an illegal act or an act which is against the government norms and rules.   

Multiple choice

Principle: An unconscionable transaction is a transaction in which a person in a dominant position makes unreasonable use of his position or power over the other party and enters into a contract, which is so much to his advantage that it “shocks the conscience” or makes an exorbitant profit of the other’s distress, without transgressing the boundaries of law.

Which of the following is not a suitable illustration of “unconscionable transaction”?

  1. During the floods in Uttarakhand, a vendor sells potable water for Rs. 100/150 ml.

  2. A money lender contracts to charge 60% interest to a farmer as a loan to have a tube well dug to irrigate his fields.

  3. A doctor demanded five times the normal fees to attend a patient who has severe fever.

  4. The army appropriates the houses of residents living near the border in anticipation of a major cease fire violation by the neighbouring country.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Option 1: This indeed is an illustration of unconscionable transaction. Option 2: This is a suitable illustration as 60% interest is too high.  Option 3: This is a suitable illustration as a doctor is not expected of such conduct.  Option 4: This was the need of the hour. Hence, the army cannot be blamed for any unconscionable conduct. It was basically for the good of the people living near the border.

Multiple choice

Principle: A “Contingent Contract” is a contract to do or not to do something if some event, collateral to such contract, does or does not happen. Agreements contingent on impossible events are void.

Which of the following contracts is not a Contingent Contract?

  1. A contracts to pay B Rs. 10,000 if B’s house is burnt.

  2. A agrees to pay B a sum of money if a certain ship does not return. The ship sinks.

  3. A agrees to accompany B to USA next month if B pays for his travel and stay. A had been denied the visa thrice. However, he could apply again after 3 months.

  4. A agrees to marry B, whenever B gets a divorce. B is expected to get a divorce next year in January.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Option 1: Yes, this is a contingent contract. In case of such eventuality as to the burning of B’s house, A is obligated to pay Rs. 10,000 to B. Option 2: Yes, this is a contingent contract. Since the ship sinks, A would need to pay B a certain sum of money. Option 3: No, this is not a contingent contract, but a void agreement. Since A cannot apply for a visa before the end of three months, it is not possible for him to accompany B to the US. Option 4: Yes, this is a contingent contract. Though the event of divorce is uncertain in its happenstance and time of happening, the agreement shall come into force whenever the same divorce happens.

Multiple choice

A contract made without the free consent of one of the parties to it is voidable at its option.

David and Goliath agree to contract the deal. However, if David had known beforehand that there was a vein of ore on Goliath’s property, and then had made sure by undue use of his influence that Goliath did not come to know of it so that David could actually be able to buy the property at a much lower value than what the house would have been priced at. If properly assessed with the new discovery in mind, then would the nature of the contract change?

  1. It does not change the position as Goliath being the owner himself was not aware of the presence of the ore.

  2. Yes, the nature of the contract changes as this would constitute fraud on the part of David.

  3. No, the nature of the contract does not change as Goliath is not made to sell the property under any threat or force.

  4. The ore belongs to the government and the land should be handed over to the authorities.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Option 1: No, Goliath was not kept aware as David had used his influence to ensure that he never came to know of the discovery or the real value of the house/property.

Option 2: The contract can at any time be deemed void by Goliath as Goliath's consent to the contractual price is based on his ignorance of the discovery of a rich resource on his property.

Option 3: No, still David exercised his influence to not lend any opportunity to Goliath to be able to know about the discovery of ore on his land.

Option 4: Yes, the ore being a mineral resource, belongs to the government. However, land/house/property is owned by Goliath and the government cannot seize it.

Multiple choice

The doctrine of caveat emptor – let the buyer beware, applies in certain contracts to the extent that even mere silence as to facts that would have otherwise affected the willingness of the party to enter into the contract, would not constitute fraud.

Ali sells at an auction to David, a horse which he knows is in unsound condition because of its age. He does not mention that fact to David. Does this constitute fraud by Ali?

  1. Yes, this constitutes fraud as Ali knows the horse’s unsoundness, which he knowingly concealed.

  2. No, this does not constitute fraud as the buyer is supposed to find out all possible defects in the commodity before purchasing it.

  3. No, this does not constitute fraud as horses do become unsound due to age and the buyer is supposed to know that.

  4. Yes, this constitutes fraud as Ali was under the duty to speak here, being in the position of a seller of a commodity and was legally bound to do so.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Option 1: No, as per caveat emptor, buyer in an auction is allowed inspection of the object of auction and has to exercise his own awareness while making a decision.

Option 2: No, the buyer needs to be aware of the characteristics of the product he is showing his interest in to buy. He needs to exercise his awareness.

Option 3: No, not necessarily should he be knowing this particular fact. He, however, may have had the horse examined by any person experienced in the trade and could then have possibly rejected the offer.

Option 4: No, under the stated principle of caveat emptor, the seller need not explicitly mention any particular characteristic of the product being sold/auctioned.

Multiple choice

Principle: A contract to do an act, which, after the contract is made, becomes impossible, or, by reason of some event which the promisor could not prevent, unlawful, becomes void, when the act becomes impossible or unlawful.

Fact: A, who is married to B, contracts to marry C in the month of January, next year. A, meanwhile, immediately, files for divorce from his present wife. B contests the divorce for the next two years. Which of the following is valid?

  1. C can wait another year.

  2. A must make compensation to C.

  3. C must understand that getting a divorce takes time.

  4. A need not make any compensation to C.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Option 1: It all depends on C, to wait or not to wait. We are not sure. Option 2: A need not compensate C as the contract becomes void. A cannot marry C in January, as he is still in a matrimonial relationship with another at the time. Option 3: It all depends on C, to wait or not to wait. We are not sure. Option 4: Yes, A is under no obligation to make any compensation to C as the contract becomes void.

Multiple choice

Principle: A person is said to be of sound mind for the purpose of making a contract if at the time he makes it, he is capable of understanding it, and of forming a rational judgment as to its effect upon his interests. Which of the conditions given below makes for a valid contract?

  1. A person suffering from minor interludes of insanity signs a contract during one such period.

  2. An idiot agrees to marry another idiot’s daughter.

  3. A person after taking drugs with liquor feels euphoric and signs off all his pending project contracts.

  4. A lunatic agrees to buy raw material for his new business in a period of sanity.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Option 1: Contract made during a period of insanity is not valid.

Option 2: An idiot is one who doesn’t understand things in the same perspective or manner as a normal person does. Hence, it is not a valid contract.

Option 3: Contracting in a state of induced euphoria is liable to affect one’s judgment; hence, it is not valid.

Option 4: If a lunatic who has occasional periods of sanity makes a contract during one such period, then this contract is valid.

Multiple choice

Assertion (A): Law of contract recently is facing a problem due to frequent use of contract of Adhesion. Reason (R): One party to contract has no choice to negotiate, but to accept it.

  1. (A) is correct, but (R) is wrong.

  2. (A) is wrong, but (R) is correct.

  3. (A) and (R) are both correct and (R) is the correct explanation of (A).

  4. (A) and (R) are both correct, but (R) is not the correct explanation of (A).
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

A contract of adhesion refers to a contract drafted by one party in a position of power, leaving the weaker party to “take it or leave it.” Adhesion contracts are generally created by businesses providing goods or services in which the customer must either sign the boilerplate contract or seek services elsewhere.

Multiple choice

Assertion (A): Collateral transaction to wagering agreement is not enforceable by law. Reason (R): Wagering agreement is not illegal.

  1. Both Assertion (A) and Reason (R) are correct.

  2. Assertion (A) is correct, but Reason (R) is wrong.

  3. Both Assertion (A) and Reason (R) are wrong.

  4. Reason (R) is correct, but Assertion (A) is wrong.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Wagering agreements are void, not illegal. Though a wagering agreement is void, transactions collateral to wagering agreements are valid and enforceable by law. For example, a broker in a wagering agreement can recover his brokerage.

Multiple choice

Assertion (A): Every expression of willingness to enter into a contract is not an offer. Reason (R): Sometimes an expression of willingness may be preliminary step in the formation of contract.

  1. Both (A) and (R) are true and (R) is the correct explanation of (A).

  2. Both (A) and (R) are true and (R) is not the correct explanation of (A).

  3. (A) is true, but (R) is false.

  4. (A) is false, but (R) is true.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The mere expression of willingness does not constitute an offer. To constitute a valid offer, an expression of willingness must be made to obtain the acceptance of the other.

Multiple choice

Assertion (A): Mere informal promises are not to be enforced. Reason (R): Ordinary agreements coming up in social arrangements are only bare promises without any intention to create legal obligations.

  1. Both (A) and (R) are true and (R) is the correct explanation of (A).

  2. Both (A) and (R) are true and (R) is not the correct explanation of (A).

  3. (A) is true, but (R) is false

  4. (A) is false, but (R) is true
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

One of the essential points of a valid contract is that it must create legal obligation. Mere informal promises are not enforceable by law.

Multiple choice

Assertion (A): X relying on misrepresentation in a prospectus agrees to purchase, but later, avoids the purchase. Reason (R): A contract entered into by a person can be avoided at any time.

  1. Both (A) and (R) are true and (R) is the correct explanation of (A).

  2. Both (A) and (R) are true, but (R) is not the correct explanation of (A).

  3. (A) is true, but (R) is false.

  4. (A) is false, but (R) is true.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

When consent to a contract is obtained by misrepresentation, such a contract is voidable at the option of the party whose consent was so obtained. A contract entered into by a person can be avoided within a reasonable time.

Multiple choice

Assertion (A): Even when there is no actual loss to a party on the breach of a contract; nominal compensation will be paid. Reason (R): There is a right, so there should be a remedy.

  1. (A) is right, but (R) is wrong.

  2. (A) is wrong, but (R) is right.

  3. (A) and (R) both are right and (R) is the right explanation of (A).

  4. (A) and (R) both are right, but (R) is not the explanation of (A).
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Nominal damages are awarded where the plantiff has proved that there has been a breach of contract, but he/she has not suffered any real loss. It is awarded just to establish the right to decree for the breach of contract.

Multiple choice civics consumer in the market consumer awareness, education and protection consumers and their rights consumer : satisfaction and protection

You have joined an educational institution and paid fees for the entire year but you found that the institution is not providing what it promised. Now you want to change the institution but the management refused to refund your fees? Which of your right is being violated?

  1. Right to be safety

  2. Right to choose

  3. Right to be informed

  4. Right to be information
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The definition of Right to Choose as per the Consumer Protection Act 1986 is ‘the right to be assured, wherever possible, to have access to a variety of goods and services at competitive prices’. For regulating the market place, there is just one factor required and that is competition.

Multiple choice elements of business operative activities in business concept and types of commerce and industry nature of industries and commerce role, branches and types of industry and commerce business as an activity meaning and types of trade trade and aids to trade
The Memorandum of Association is an unalterable document.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

True, section 16 of the act provides that a company shall not alter the conditions contained in its memorandum except in the case in the manner and to the extend provided by the act.

According to Lord Salborne, “The memorandum of association is an important and unalterable (excluding a few conditions) charter. The company is incorporated only for such objects which are given in the Memorandum.”