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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 commerce discharge and breach of a contract remedies for breach of contract performance, discharge, breach and remedies of contract business law and contract act

In case of anticipatory breach, where the Promise elects to keep the contract alive, if during the time the contract remains open, some event happens discharging the Promisor from his liability, the Contract becomes _________.

  1. Illegal

  2. Void

  3. Voidable

  4. contingent
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

If the promisee keeps the contract alive, they remain subject to the risks of the contract. If a supervening event makes performance impossible or illegal during that time, the contract is discharged and becomes void.

Multiple choice commerce discharge and breach of a contract remedies for breach of contract performance, discharge, breach and remedies of contract business law and contract act

S, a singer, contracts with H, manager of a theatre, a sing at his theatre for two nights every week during next two months. H agrees to pay her Rs.1000 for each night's performance. On sixth night, S willfully absents herself, and H, in consequence, rescinds the contract. In this case ________.

  1. H has no obligations to S

  2. H must pay S for five nights on which she had performed

  3. S has no remedy against H

  4. The contract is illegal
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

When a contract is divisible, the party who has performed part of the obligations is entitled to payment for the work done before the contract was rescinded. H must pay S for the nights she actually performed.

Multiple choice commerce discharge and breach of a contract remedies for breach of contract performance, discharge, breach and remedies of contract business law and contract act

B chartered A's ship and agreed to load it with a cargo in Odessa within 45 days. B was unable to supply the cargo, but A continued to demand it. Meanwhile war broke out, rendering the performance impossible. In such case _________.

  1. contract is discharged

  2. A cannot sue for damages

  3. both (a) and (b)

  4. neither (a) nor (b)
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

When performance becomes impossible due to a supervening event like war, the contract is discharged by frustration. Consequently, neither party can sue the other for damages arising from the non-performance.

Multiple choice commerce discharge and breach of a contract remedies for breach of contract performance, discharge, breach and remedies of contract business law and contract act

A who was badly in need of money offered to sell his piano worth Rs. 8,500 to B fro Rs. 5,000. B refused to buy. A gradually lowered his price until Rs. 2500 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 to pay damages to B for faiiure to carry out part of contract?

  1. No, as the consideration was inadequate A cancelled the contract

  2. Yes, A is liable to pay damages to B for failure to carry out his part of the contract

  3. No, as the contract was made due to Undue Influence

  4. Any of the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Under contract law, the adequacy of consideration is not a requirement for a valid contract. If the parties freely agreed to the price, the contract is binding regardless of whether the price was lower than market value.

Multiple choice book keeping and accountancy accounting for bills of exchange meaning, definition and characteristics of promissory note promissory note bills of exchange and promissory note nature, advantages and types of cheques

A negotiable instrument does not require the signature of its maker.

  1. True

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

A negotiable instrument must bear the signature of its maker. Without the signature of the drawer or the maker, the instrument shall not be a valid one. ... Any negotiable instrument like a cheque or a promissory note is not complete till it is delivered to its payee.

Multiple choice book keeping and accountancy accounting for bills of exchange meaning, definition and characteristics of promissory note promissory note bills of exchange and promissory note nature, advantages and types of cheques

The person to whom the amount mentioned in the promissory note is payable is known as promise.

  1. True

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

A Promissory Note must always be written by hand. It must include all the mandatory elements such as the legal names of the payee and maker's name, amount being loaned / to be repaid, full terms of the agreement and the full amount of liability, beside other elements.

Multiple choice book keeping and accountancy accounting for bills of exchange meaning, definition and characteristics of promissory note promissory note bills of exchange and promissory note nature, advantages and types of cheques

In a promissory note, the person who makes the promise to pay is called as Promisor.

  1. True

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

The drawer issues the promissory note and promises to pay a certain amount to the drawee (payee). He is also called the promisor. The drawer of a promissory note can theoretically consist of 2 or more parties.

Multiple choice book keeping and accountancy accounting for bills of exchange meaning, definition and characteristics of promissory note promissory note bills of exchange and promissory note nature, advantages and types of cheques

A negotiable instrument is not freely transferable.

  1. True

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

Negotiable instrument must be freely transferable from one party to another party: negotiable instruments are easily and freely transferable. There are no formalities or much paperwork involved in such a transfer. The ownership of an instrument can transfer simply by delivery or by a valid endorsement.

Multiple choice book keeping and accountancy accounting for bills of exchange meaning, definition and characteristics of promissory note promissory note bills of exchange and promissory note nature, advantages and types of cheques

The time of payment of a negotiable instrument need not be certain.

  1. True

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

Time of Payment must be Certain: If the order is to pay when convenient then such an order is not a negotiable instrument. Payee also must be certain: The person to whom the payment is to be made must be a specific person or persons. Also, there can be more than one payee for a negotiable instrument.

Multiple choice book keeping and accountancy accounting for bills of exchange meaning, definition and characteristics of promissory note promissory note bills of exchange and promissory note nature, advantages and types of cheques

__________ is not required in Promissory Note.

  1. Acceptance

  2. Noting

  3. Discounting

  4. None of the above
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

A promissory note is an instrument signed by the maker to pay a certain sum. It does not require acceptance by the payee, unlike a bill of exchange.

Multiple choice book keeping and accountancy accounting for bills of exchange meaning, definition and characteristics of promissory note promissory note bills of exchange and promissory note nature, advantages and types of cheques

________ is not an essential requirement of a valid promissory note?

  1. Acceptance

  2. Unconditonality

  3. Maker and payee

  4. All the three
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

According to the Negotiable Instruments Act, 1881, a promissory note is defined as an instrument in writing, containing an unconditional undertaking signed by the maker, to pay a certain sum of money only to or to the order of a certain person, or to the bearer of the instrument. The following are the features of a promissory note:

1. It must be in writing.
2. It must contain an unconditional promise to pay.
3. The sum payable must be certain.
4. It must be signed by the maker.
Acceptance is not an essential requirement of a valid promissory note.

Multiple choice book keeping and accountancy accounting for bills of exchange meaning, definition and characteristics of promissory note promissory note bills of exchange and promissory note nature, advantages and types of cheques

A promissory note is a/ an ________.

  1. unconditional order to pay

  2. unconditional undertaking to pay

  3. conditional order to pay

  4. conditional undertaking to pay
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

According to the Negotiable Instruments Act, 1881, a promissory note is defined as an instrument in writing (not being a bank note or a currency note), containing an unconditional undertaking signed by the maker, to pay a certain sum of money only to or to the order of a certain person, or to the bearer of the instrument. However, according to the Reserve Bank of India Act, a promissory note payable to bearer is illegal. Therefore, a promissory note cannot be made payable to the bearer.

Multiple choice book keeping and accountancy accounting for bills of exchange meaning, definition and characteristics of promissory note promissory note bills of exchange and promissory note nature, advantages and types of cheques

The term Promissory notes is defined in section _______ of the Negotiable Instruments Act.

  1. $3$
  2. $4$
  3. $6$
  4. $8$
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

According to section 4 of the Negotiable Instruments Act, 1881, a promissory note is defined as an instrument in writing, containing an unconditional undertaking signed by the maker, to pay a certain sum of money only to or to the order of a certain person, or to the bearer of the instrument. However, according to the Reserve Bank of India Act, a promissory note payable to bearer is illegal. 

Multiple choice book keeping and accountancy accounting for bills of exchange meaning, definition and characteristics of promissory note promissory note bills of exchange and promissory note nature, advantages and types of cheques

A promissory note cannot be made payable to bearer.

  1. True

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

 There are only two parties to a Promissory Note, one is the maker or the payer and another one is the payee.The sum should be payable to a certain person. It is not transferable and thus, the amount is not payable to the bearer.

Multiple choice book keeping and accountancy accounting for bills of exchange meaning, definition and characteristics of promissory note promissory note bills of exchange and promissory note nature, advantages and types of cheques

A promissory note can be made payable to bearer.

  1. True

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

 The sum should be payable to a certain person. There are only two parties to a Promissory Note, one is the maker or the payer and another one is the payee. It is not transferable and thus, the amount is not payable to the bearer.