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Law of Contract MCQs for CLAT PG

CLAT PG Law of Contract questions 1-25 of 100, with answer keys and explanations covering offer, acceptance, consideration, capacity, free consent, discharge, breach, remedies, indemnity, guarantee, bailment, and agency.

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Revise core LLB subjects through CLAT PG MCQs, passage-led questions, answer keys, explanations, statutes, and exam-oriented legal principles.

  • Agency by Estoppel and Holding Out5
  • Anticipatory Breach and its Consequences5
  • Consideration - Section 2(d) ICA and Privity5
  • Contingent Contracts vs Wagering Agreements5
  • Contracts with Government: Article 299 and Ultra Vires Doctrine5
  • Damages - Section 73 and Hadley v. Baxendale5
  • Discharge by Merger, Accord and Satisfaction5
  • Doctrine of Frustration and Restitution - Section 56 and 655
  • Doctrine of Part Performance and Section 53A Transfer of Property Act5
  • Frustration - Section 56 ICA5
  • Liquidated Damages - Section 74 ICA5
  • Minor's Agreement - Mohori Bibee5
  • Nemo Dat and Exceptions under Sale of Goods Act5
  • Offer and Acceptance - Carlill v. Carbolic Smoke Ball Co.5
  • Performance by Agent vs Personal Performance5
  • Restraint of Trade - Section 27 ICA5
  • Sale of Goods: Passing of Property and Risk5
  • Section 73 ICA and Remoteness of Damage5
  • Undue Influence - Section 16 ICA5
  • Wagering Agreement - Section 30 ICA5
Passage or principleICA 1872 / Freeman and Lockyer v. Buckhurst Park Properties (1964) CA

The doctrine of agency by estoppel, or agency by holding out, operates to bind a principal to contracts made by a person who was not actually authorised to make those contracts. The doctrine applies when a principal, by his words or conduct, represents to a third party that a particular person has authority to act on the principal's behalf, and the third party in reliance on that representation deals with the person as the principal's agent. In Freeman and Lockyer v. Buckhurst Park Properties (Mangal) Ltd (1964), the English Court of Appeal formulated the requirements: first, a representation must be made by a person having actual authority to manage the business of the company or principal (the representation cannot be made by the alleged agent himself); second, the representation must have been made to the contracting third party; third, the third party must have relied on the representation in entering the contract; and fourth, the company or principal must be capable as a matter of law of making the contract through a properly authorised agent. The key principle from this case is that the representation which creates apparent authority must emanate from the principal, not from the agent. An agent cannot create his own authority by claiming to be authorised. Additionally, the third party must demonstrate actual reliance on the representation: merely having knowledge that a person holds a particular position is not enough if the third party did not specifically rely on that position as evidence of authority for the particular transaction in question.

Question 1EasyAgency by Estoppel and Holding Out

The doctrine of agency by estoppel operates when:

  1. A

    The agent has actual authority to make all contracts

  2. B

    A principal by words or conduct represents to a third party that a person has authority to act on his behalf, and the third party in reliance deals with that person as the agent

  3. C

    The agent has been paid his commission

  4. D

    The principal is a corporation

View answer and explanation

Correct answer: B. A principal by words or conduct represents to a third party that a person has authority to act on his behalf, and the third party in reliance deals with that person as the agent

The passage states: 'The doctrine applies when a principal, by his words or conduct, represents to a third party that a particular person has authority to act on the principal's behalf, and the third party in reliance on that representation deals with the person as the principal's agent.'

Source note: ICA 1872 / Freeman and Lockyer v. Buckhurst Park Properties (1964) CA

Question 2MediumAgency by Estoppel and Holding Out

In Freeman and Lockyer v. Buckhurst Park Properties, who must make the representation for apparent authority to arise?

  1. A

    The alleged agent, who claims to have authority

  2. B

    A person having actual authority to manage the business of the principal; the representation cannot be made by the alleged agent himself

  3. C

    Any employee of the company

  4. D

    The third party who wishes to contract

View answer and explanation

Correct answer: B. A person having actual authority to manage the business of the principal; the representation cannot be made by the alleged agent himself

The passage states: 'a representation must be made by a person having actual authority to manage the business of the company or principal (the representation cannot be made by the alleged agent himself).'

Source note: ICA 1872 / Freeman and Lockyer v. Buckhurst Park Properties (1964) CA

Question 3MediumAgency by Estoppel and Holding Out

According to the passage, why cannot an agent create his own apparent authority by claiming to be authorised?

  1. A

    Because agents are always subordinate to principals

  2. B

    Because the representation creating apparent authority must emanate from the principal, not from the agent; a self-serving claim of authority by the agent is not a representation by the principal

  3. C

    Because the agent's statements are always considered unreliable

  4. D

    Because the third party must always verify authority directly with the principal

View answer and explanation

Correct answer: B. Because the representation creating apparent authority must emanate from the principal, not from the agent; a self-serving claim of authority by the agent is not a representation by the principal

The passage states: 'the representation which creates apparent authority must emanate from the principal, not from the agent. An agent cannot create his own authority by claiming to be authorised.'

Source note: ICA 1872 / Freeman and Lockyer v. Buckhurst Park Properties (1964) CA

Question 4HardAgency by Estoppel and Holding Out

For the doctrine of apparent authority to apply, the third party must demonstrate:

  1. A

    Any awareness of the agent's position in the organization

  2. B

    Actual reliance on the specific representation as evidence of authority for the particular transaction; merely knowing the person holds a title is not enough if the third party did not specifically rely on that as authority for the particular contract

  3. C

    Receipt of payment or goods from the agent

  4. D

    Prior dealings with the same agent

View answer and explanation

Correct answer: B. Actual reliance on the specific representation as evidence of authority for the particular transaction; merely knowing the person holds a title is not enough if the third party did not specifically rely on that as authority for the particular contract

The passage states: 'the third party must demonstrate actual reliance on the representation...merely having knowledge that a person holds a particular position is not enough if the third party did not specifically rely on that position as evidence of authority for the particular transaction in question.'

Source note: ICA 1872 / Freeman and Lockyer v. Buckhurst Park Properties (1964) CA

Question 5HardAgency by Estoppel and Holding Out

A company's Board knew that Director D was negotiating a contract with supplier S on the company's behalf and did not stop him, though D had no formal Board resolution authorizing the specific transaction. S, knowing D was a Director, entered the contract. Which argument best supports S's claim against the company?

  1. A

    The company should have passed a Board resolution

  2. B

    The Board's knowledge of D's negotiations without objection constitutes a representation by the company (through those with actual authority) that D had authority; S in reliance on D's directorship and the company's acquiescence in the negotiations entered the contract, satisfying all Freeman and Lockyer requirements

  3. C

    D as Director always has authority for all company transactions

  4. D

    S should have obtained a copy of D's appointment letter

View answer and explanation

Correct answer: B. The Board's knowledge of D's negotiations without objection constitutes a representation by the company (through those with actual authority) that D had authority; S in reliance on D's directorship and the company's acquiescence in the negotiations entered the contract, satisfying all Freeman and Lockyer requirements

The passage's Freeman and Lockyer requirements are: (1) representation by one with actual authority (the Board, by acquiescing, made the representation); (2) to S; (3) S relied on it; (4) the company can make contracts. All four elements are arguably satisfied.

Source note: ICA 1872 / Freeman and Lockyer v. Buckhurst Park Properties (1964) CA

Passage or principleICA 1872 Sections 39, 73 / Hochster v. De La Tour (1853) / Avery v. Bowden (1855)

Section 39 of the Indian Contract Act 1872 provides that when a party to a contract has refused to perform, or disabled himself from performing, his promise in its entirety, the promisee may put an end to the contract, unless he has signified, by words or conduct, his acquiescence in the continuance of the contract. This provision codifies the doctrine of anticipatory breach: a renunciation of the contract by one party before the date for performance entitles the other party to treat the contract as immediately broken and to sue at once for damages, even before the performance date arrives. The doctrine was established in English law in Hochster v. De La Tour (1853), where the defendant cancelled a contract of employment before it was to begin, and the court held the plaintiff could sue immediately without waiting for the performance date. The crucial choice available to the innocent party on anticipatory breach is the election between two courses of action: first, to accept the repudiation, treat the contract as terminated, and sue immediately for damages; second, to affirm the contract, disregard the anticipatory breach, and wait for the performance date, keeping the contract alive for both parties. The risk of the second option was graphically illustrated in Avery v. Bowden (1855): the innocent party kept the contract alive after the defendant's anticipatory breach, but before the performance date the Crimean War broke out and frustrated the contract, depriving the innocent party of the right to damages he would have had if he had accepted the repudiation immediately.

Question 6EasyAnticipatory Breach and its Consequences

Under Section 39 ICA, the doctrine of anticipatory breach entitles the innocent party to:

  1. A

    Wait indefinitely before responding to the repudiation

  2. B

    Treat the contract as immediately broken upon the other party's renunciation before the performance date, and sue at once for damages without waiting for the performance date to arrive

  3. C

    Claim only nominal damages for the early repudiation

  4. D

    Demand that the repudiating party give security for future performance

View answer and explanation

Correct answer: B. Treat the contract as immediately broken upon the other party's renunciation before the performance date, and sue at once for damages without waiting for the performance date to arrive

The passage states: 'a renunciation of the contract by one party before the date for performance entitles the other party to treat the contract as immediately broken and to sue at once for damages, even before the performance date arrives.'

Source note: ICA 1872 Sections 39, 73 / Hochster v. De La Tour (1853) / Avery v. Bowden (1855)

Question 7EasyAnticipatory Breach and its Consequences

In Hochster v. De La Tour (1853), which was established about anticipatory breach?

  1. A

    That a party cannot sue before the performance date under any circumstances

  2. B

    That where the defendant cancelled the contract before performance was to begin, the plaintiff could sue immediately without waiting for the performance date

  3. C

    That anticipatory breach is not recognized in English law

  4. D

    That only the party causing the breach can sue first

View answer and explanation

Correct answer: B. That where the defendant cancelled the contract before performance was to begin, the plaintiff could sue immediately without waiting for the performance date

The passage states: 'in Hochster v. De La Tour (1853), where the defendant cancelled a contract of employment before it was to begin, and the court held the plaintiff could sue immediately without waiting for the performance date.'

Source note: ICA 1872 Sections 39, 73 / Hochster v. De La Tour (1853) / Avery v. Bowden (1855)

Question 8MediumAnticipatory Breach and its Consequences

On anticipatory breach, the innocent party has two options as described in the passage. What is the risk associated with the second option (affirming the contract)?

  1. A

    The risk of the defendant performing adequately after all

  2. B

    By keeping the contract alive, the innocent party takes the risk of supervening events (like frustration) that may discharge the contract before the performance date; if such an event occurs, the innocent party loses the damages he would have obtained by accepting the repudiation earlier

  3. C

    The risk of paying higher court fees for a later lawsuit

  4. D

    The risk that the defendant will withdraw the repudiation

View answer and explanation

Correct answer: B. By keeping the contract alive, the innocent party takes the risk of supervening events (like frustration) that may discharge the contract before the performance date; if such an event occurs, the innocent party loses the damages he would have obtained by accepting the repudiation earlier

The passage states: 'The risk of the second option was graphically illustrated in Avery v. Bowden (1855): the innocent party kept the contract alive after the defendant's anticipatory breach, but before the performance date the Crimean War broke out and frustrated the contract, depriving the innocent party of the right to damages he would have had if he had accepted the repudiation immediately.'

Source note: ICA 1872 Sections 39, 73 / Hochster v. De La Tour (1853) / Avery v. Bowden (1855)

Question 9HardAnticipatory Breach and its Consequences

In Avery v. Bowden, the innocent party who elected to affirm the contract after anticipatory breach:

  1. A

    Successfully recovered full damages because the defendant had breached

  2. B

    Lost the right to damages because keeping the contract alive meant the subsequent frustration discharged all parties; the innocent party bore the risk of supervening events by choosing to affirm

  3. C

    Recovered partial damages for the period before the war

  4. D

    Successfully obtained specific performance of the contract

View answer and explanation

Correct answer: B. Lost the right to damages because keeping the contract alive meant the subsequent frustration discharged all parties; the innocent party bore the risk of supervening events by choosing to affirm

The passage states the innocent party was 'depriving the innocent party of the right to damages he would have had if he had accepted the repudiation immediately' because frustration discharged the contract after affirmation.

Source note: ICA 1872 Sections 39, 73 / Hochster v. De La Tour (1853) / Avery v. Bowden (1855)

Question 10HardAnticipatory Breach and its Consequences

A building contractor C tells the employer E on 1st January that C will not be starting the construction scheduled to begin on 1st March. E acknowledges C's message but says 'let's see how things develop.' On 15th February, an unprecedented earthquake destroys the site, making construction impossible. What is E's position regarding damages from C?

  1. A

    E can recover full damages from C since C repudiated on 1st January

  2. B

    E's response 'let's see how things develop' constitutes affirmation of the contract under Section 39; by keeping the contract alive, E took the risk of supervening events.

  3. C

    E can recover damages for the period between 1st January and 15th February

  4. D

    C has no liability because the earthquake destroyed the site

View answer and explanation

Correct answer: B. E's response 'let's see how things develop' constitutes affirmation of the contract under Section 39; by keeping the contract alive, E took the risk of supervening events.

Applying the Avery v. Bowden principle from the passage: E's response amounts to signifying 'acquiescence in the continuance of the contract' under Section 39, which means affirmation. The subsequent earthquake frustrates the contract, and E bears the consequence of having chosen to affirm.

Source note: ICA 1872 Sections 39, 73 / Hochster v. De La Tour (1853) / Avery v. Bowden (1855)

Passage or principleICA 1872 Sections 30-36 / Gherulal Parakh v. Mahadeodas (AIR 1959 SC)

Section 31 of the Indian Contract Act 1872 defines a contingent contract as a contract to do or not to do something if some event, collateral to such contract, does or does not happen. The characteristic feature of a contingent contract is that the performance of the promisor's obligation is dependent on the occurrence of an uncertain future event that is not within the direct control of the contracting parties and is collateral to the main contractual obligation. Section 32 provides that contingent contracts to do or not do anything if an uncertain future event happens cannot be enforced by law until that event has happened, and if the event becomes impossible, such contracts become void. Contingent contracts must be distinguished from wagering agreements, which Section 30 declares void. In Gherulal Parakh v. Mahadeodas Maiya (AIR 1959 SC 781), the Supreme Court drew the essential distinction: in a wagering agreement, both parties take opposite views about an uncertain event and each stands to win or lose depending solely on the outcome, with neither party having any independent interest in the event beyond the stake. In a contingent contract such as insurance, the party who may receive payment has a pre-existing independent interest in the subject matter that exists separately from the contract itself. An insured who suffers a fire genuinely wanted the fire not to occur; his interest in the property predates the insurance contract and is entirely independent of it. By contrast, a wagering party has no pre-existing interest in the event; his only interest in the outcome is the possibility of winning the stake.

Question 11EasyContingent Contracts vs Wagering Agreements

According to the passage, what is the key characteristic of a contingent contract?

  1. A

    The performance is immediate and unconditional

  2. B

    Performance of the promisor's obligation depends on an uncertain future event that is collateral to the main contractual obligation and not within direct control of the parties

  3. C

    The parties agree in advance on the price to be paid

  4. D

    The contract can be terminated by either party at any time

View answer and explanation

Correct answer: B. Performance of the promisor's obligation depends on an uncertain future event that is collateral to the main contractual obligation and not within direct control of the parties

The passage states: 'The characteristic feature of a contingent contract is that the performance of the promisor's obligation is dependent on the occurrence of an uncertain future event that is not within the direct control of the contracting parties and is collateral to the main contractual obligation.'

Source note: ICA 1872 Sections 30-36 / Gherulal Parakh v. Mahadeodas (AIR 1959 SC)

Question 12EasyContingent Contracts vs Wagering Agreements

Under Section 32 ICA as described in the passage, what happens to a contingent contract when the contingent event becomes impossible?

  1. A

    The promisor must still perform

  2. B

    The contract becomes void

  3. C

    The promisor must pay damages for non-performance

  4. D

    The promisee can demand an alternative performance

View answer and explanation

Correct answer: B. The contract becomes void

The passage states: 'if the event becomes impossible, such contracts become void.'

Source note: ICA 1872 Sections 30-36 / Gherulal Parakh v. Mahadeodas (AIR 1959 SC)

Question 13MediumContingent Contracts vs Wagering Agreements

The distinction between a contingent contract and a wagering agreement drawn by the Supreme Court in Gherulal Parakh, as described in the passage, rests primarily on:

  1. A

    The amount of money involved in each

  2. B

    Whether the party who may benefit has a pre-existing independent interest in the subject matter that exists separately from the contract itself

  3. C

    Whether the agreement is in writing

  4. D

    Whether both parties agreed to the uncertain event

View answer and explanation

Correct answer: B. Whether the party who may benefit has a pre-existing independent interest in the subject matter that exists separately from the contract itself

The passage states the key distinction: 'in a wagering agreement...neither party having any independent interest in the event beyond the stake. In a contingent contract such as insurance, the party who may receive payment has a pre-existing independent interest in the subject matter that exists separately from the contract itself.'

Source note: ICA 1872 Sections 30-36 / Gherulal Parakh v. Mahadeodas (AIR 1959 SC)

Question 14MediumContingent Contracts vs Wagering Agreements

According to the passage, in an insurance contract the insured's interest in the property:

  1. A

    Arises from and depends on the insurance contract itself

  2. B

    Pre-dates the insurance contract and is entirely independent of it; the insured genuinely wanted the loss event not to occur

  3. C

    Is created by the payment of the premium

  4. D

    Is equivalent to the interest of a wagering party in the outcome of an uncertain event

View answer and explanation

Correct answer: B. Pre-dates the insurance contract and is entirely independent of it; the insured genuinely wanted the loss event not to occur

The passage states: 'An insured who suffers a fire genuinely wanted the fire not to occur; his interest in the property predates the insurance contract and is entirely independent of it.'

Source note: ICA 1872 Sections 30-36 / Gherulal Parakh v. Mahadeodas (AIR 1959 SC)

Question 15HardContingent Contracts vs Wagering Agreements

Which of the following best illustrates the principle that distinguishes a wagering agreement from a contingent contract according to the passage?

  1. A

    A contract to supply wheat if the government approves the supplier's application

  2. B

    An agreement between X and Y where X wins Rs. 10,000 from Y if Team A wins today's cricket match and Y wins Rs. 10,000 from X if Team B wins; neither X nor Y has any other interest in which team wins

  3. C

    A life insurance policy under which the insurer pays on the insured's death

  4. D

    A contract to purchase shares if the company's stock rises above a certain level

View answer and explanation

Correct answer: B. An agreement between X and Y where X wins Rs. 10,000 from Y if Team A wins today's cricket match and Y wins Rs. 10,000 from X if Team B wins; neither X nor Y has any other interest in which team wins

The passage describes wagering as: 'each stands to win or lose depending solely on the outcome, with neither party having any independent interest in the event beyond the stake.' Option B perfectly matches this description.

Source note: ICA 1872 Sections 30-36 / Gherulal Parakh v. Mahadeodas (AIR 1959 SC)

Passage or principleConstitution of India Article 299 / ICA 1872 Section 70 / State of West Bengal v. BK Mondal (AIR 1962 SC)

Article 299 of the Constitution of India imposes specific requirements on contracts made by the Union or a State Government: all such contracts must be expressed to be made by the President of India or the Governor of the State, as the case may be, and must be executed by persons authorised by the President or Governor. These formal requirements are mandatory, not merely directory. In State of Rajasthan v. Deen Mohammad (1963), the court held that a contract which does not comply with Article 299 formalities is not enforceable as a contract against the government. However, the courts have addressed the resulting injustice to private parties who have performed services under such defective contracts. In State of West Bengal v. B.K. Mondal and Sons (AIR 1962 SC 779), the Supreme Court held that even where a government contract fails to comply with Article 299 formalities rendering the contract unenforceable, the contractor who has performed work under the void contract may recover the value of the work on a quasi-contractual basis under Section 70 of the Indian Contract Act if: first, the work was done lawfully; second, it was not intended to be done gratuitously; and third, the government accepted and enjoyed the benefit of the work. The underlying principle is that the government should not be allowed to retain a benefit obtained under a void contract without paying for it; to permit such retention would constitute unjust enrichment.

Question 16EasyContracts with Government: Article 299 and Ultra Vires Doctrine

Article 299 of the Constitution requires government contracts to:

  1. A

    Be in writing and witnessed by two independent witnesses

  2. B

    Be expressed in the name of the President or Governor and executed by persons authorised by them

  3. C

    Be approved by the Parliament or State Legislature

  4. D

    Be registered under the Registration Act 1908

View answer and explanation

Correct answer: B. Be expressed in the name of the President or Governor and executed by persons authorised by them

The passage states: 'all such contracts must be expressed to be made by the President of India or the Governor of the State, as the case may be, and must be executed by persons authorised by the President or Governor.'

Source note: Constitution of India Article 299 / ICA 1872 Section 70 / State of West Bengal v. BK Mondal (AIR 1962 SC)

Question 17EasyContracts with Government: Article 299 and Ultra Vires Doctrine

A government contract that fails to comply with Article 299 formalities is:

  1. A

    Valid but subject to challenge in court

  2. B

    Not enforceable as a contract against the government; the contractor cannot sue the government on the contract itself

  3. C

    Valid if both parties have performed their obligations

  4. D

    Valid if the contractor acted in good faith

View answer and explanation

Correct answer: B. Not enforceable as a contract against the government; the contractor cannot sue the government on the contract itself

The passage states: 'a contract which does not comply with Article 299 formalities is not enforceable as a contract against the government.'

Source note: Constitution of India Article 299 / ICA 1872 Section 70 / State of West Bengal v. BK Mondal (AIR 1962 SC)

Question 18MediumContracts with Government: Article 299 and Ultra Vires Doctrine

Under the principle established in State of West Bengal v. B.K. Mondal, a contractor who performed work under a void government contract can recover if:

  1. A

    The government specifically approved the work after it was done

  2. B

    Three conditions are met: the work was done lawfully; it was not intended to be done gratuitously; and the government accepted and enjoyed the benefit

  3. C

    The contractor files a suit within 30 days of completing the work

  4. D

    The contractor's representative was present when the work was used

View answer and explanation

Correct answer: B. Three conditions are met: the work was done lawfully; it was not intended to be done gratuitously; and the government accepted and enjoyed the benefit

The passage states the three conditions from B.K. Mondal: 'the work was done lawfully; second, it was not intended to be done gratuitously; and third, the government accepted and enjoyed the benefit of the work.'

Source note: Constitution of India Article 299 / ICA 1872 Section 70 / State of West Bengal v. BK Mondal (AIR 1962 SC)

Question 19MediumContracts with Government: Article 299 and Ultra Vires Doctrine

The quasi-contractual basis for recovery in B.K. Mondal is Section 70 ICA. What policy justification does the passage give for allowing this recovery?

  1. A

    That government should always pay for all services received

  2. B

    That the government should not be allowed to retain a benefit obtained under a void contract without paying; permitting such retention would constitute unjust enrichment

  3. C

    That Article 299 formalities are merely procedural and should not affect substantive rights

  4. D

    That contractors should not suffer for the government's own procedural failures

View answer and explanation

Correct answer: B. That the government should not be allowed to retain a benefit obtained under a void contract without paying; permitting such retention would constitute unjust enrichment

The passage states: 'The underlying principle is that the government should not be allowed to retain a benefit obtained under a void contract without paying for it; to permit such retention would constitute unjust enrichment.'

Source note: Constitution of India Article 299 / ICA 1872 Section 70 / State of West Bengal v. BK Mondal (AIR 1962 SC)

Question 20HardContracts with Government: Article 299 and Ultra Vires Doctrine

A civil engineering company CC constructed a bridge for a State Government under a contract signed by the District Collector without the Governor's authorisation. The government used the bridge for 3 years. The government now refuses to pay the remaining amount claiming the contract is void under Article 299. Which argument best supports CC's claim for payment?

  1. A

    The District Collector had apparent authority to enter the contract

  2. B

    Although the contract is void under Article 299, CC can recover under Section 70 ICA quasi-contractual principles: the work was lawfully done, not gratuitously, and the government has accepted and enjoyed the benefit by using the bridge for 3 years; unjust enrichment requires the government to compensate CC

  3. C

    The contract should be treated as validly ratified by the government's use of the bridge

  4. D

    CC should have verified the Collector's authority before starting work

View answer and explanation

Correct answer: B. Although the contract is void under Article 299, CC can recover under Section 70 ICA quasi-contractual principles: the work was lawfully done, not gratuitously, and the government has accepted and enjoyed the benefit by using the bridge for 3 years; unjust enrichment requires the government to compensate CC

Directly applying the B.K. Mondal principle from the passage: the three Section 70 conditions (lawful work, not gratuitous, government enjoyed benefit by using bridge for 3 years) are all satisfied.

Source note: Constitution of India Article 299 / ICA 1872 Section 70 / State of West Bengal v. BK Mondal (AIR 1962 SC)

Passage or principleICA 1872 Sections 62, 63 / Anson's Law of Contract

Discharge of a contract may occur in a number of ways besides actual performance. Discharge by agreement is one important mode, encompassing novation, rescission, alteration, and remission under Sections 62 and 63 of the Indian Contract Act 1872. Discharge by merger occurs when a person who has a contractual right and also has a higher right arising from a deed or judgment, the lower right merges into the higher and is extinguished. Accord and satisfaction is a distinct method of discharge: an 'accord' is an agreement to accept something different from (and usually less than) what was contractually due, and 'satisfaction' is the performance of that accord. The distinction from novation is that in novation, the new contract immediately replaces the old one from the moment of agreement; in accord and satisfaction, the old contractual obligation is discharged only when the accord is PERFORMED (the satisfaction). Until satisfaction is provided, the creditor can still sue on either the original obligation or the accord, as both remain enforceable. In Indian law, Section 63 ICA addresses remission: a promisee may dispense with or remit performance, or accept any satisfaction he thinks fit. Where a creditor accepts a lesser sum in full settlement, this amounts to a remission under Section 63 and is binding without fresh consideration, distinguishing the Indian position from the English rule in Pinnel's Case (1602) which required consideration for a valid promise to accept less.

Question 21MediumDischarge by Merger, Accord and Satisfaction

Discharge by merger under the principle described in the passage occurs when:

  1. A

    A company merges with another company, cancelling all contracts

  2. B

    A person has both a contractual right and a higher right (from a deed or judgment); the lower right merges into the higher and is extinguished

  3. C

    Both parties agree to merge their contractual obligations

  4. D

    A creditor assigns his right to a third party

View answer and explanation

Correct answer: B. A person has both a contractual right and a higher right (from a deed or judgment); the lower right merges into the higher and is extinguished

The passage states: 'Discharge by merger occurs when a person who has a contractual right and also has a higher right arising from a deed or judgment, the lower right merges into the higher and is extinguished.'

Source note: ICA 1872 Sections 62, 63 / Anson's Law of Contract

Question 22MediumDischarge by Merger, Accord and Satisfaction

In accord and satisfaction, when is the original contractual obligation finally discharged?

  1. A

    When the accord (agreement to accept something different) is made

  2. B

    Only when the accord is performed, i.e., when satisfaction is provided; until satisfaction, the creditor can sue on either the original obligation or the accord

  3. C

    When the court approves the accord

  4. D

    When the debtor promises to provide satisfaction within 30 days

View answer and explanation

Correct answer: B. Only when the accord is performed, i.e., when satisfaction is provided; until satisfaction, the creditor can sue on either the original obligation or the accord

The passage states: 'in accord and satisfaction, the old contractual obligation is discharged only when the accord is PERFORMED (the satisfaction). Until satisfaction is provided, the creditor can still sue on either the original obligation or the accord.'

Source note: ICA 1872 Sections 62, 63 / Anson's Law of Contract

Question 23HardDischarge by Merger, Accord and Satisfaction

The distinction between novation and accord and satisfaction as described in the passage is:

  1. A

    Both are identical in legal effect

  2. B

    In novation, the new contract immediately replaces the old one from the moment of agreement; in accord and satisfaction, the old obligation is discharged only when the accord is performed, not when the agreement for a substitute performance is made

  3. C

    Novation requires court approval; accord does not

  4. D

    Novation can only occur between corporations; accord can occur between individuals

View answer and explanation

Correct answer: B. In novation, the new contract immediately replaces the old one from the moment of agreement; in accord and satisfaction, the old obligation is discharged only when the accord is performed, not when the agreement for a substitute performance is made

The passage explicitly states: 'in novation, the new contract immediately replaces the old one from the moment of agreement; in accord and satisfaction, the old contractual obligation is discharged only when the accord is PERFORMED.'

Source note: ICA 1872 Sections 62, 63 / Anson's Law of Contract

Question 24HardDischarge by Merger, Accord and Satisfaction

Section 63 ICA on remission distinguishes the Indian position from English law (Pinnel's Case) in that under Section 63:

  1. A

    Indian law follows Pinnel's Case exactly

  2. B

    Under Section 63 ICA, a creditor's acceptance of a lesser sum in full settlement is binding without fresh consideration from the debtor; the Indian position does not require consideration for a valid remission, unlike the English position under Pinnel's Case

  3. C

    Indian law requires consideration for remission like English law

  4. D

    Section 63 only applies to government contracts

View answer and explanation

Correct answer: B. Under Section 63 ICA, a creditor's acceptance of a lesser sum in full settlement is binding without fresh consideration from the debtor; the Indian position does not require consideration for a valid remission, unlike the English position under Pinnel's Case

The passage states: 'Section 63 ICA addresses remission...Where a creditor accepts a lesser sum in full settlement, this amounts to a remission under Section 63 and is binding without fresh consideration, distinguishing the Indian position from the English rule in Pinnel's Case (1602) which required consideration.'

Source note: ICA 1872 Sections 62, 63 / Anson's Law of Contract

Question 25HardDischarge by Merger, Accord and Satisfaction

D owes C Rs. 50,000. They agree that D will provide C with consulting services worth Rs. 30,000 instead of paying the cash. D provides the services. C now sues D for the remaining Rs. 20,000 claiming the consulting services were unsatisfactory. How should this dispute be analyzed based on the passage?

  1. A

    C can recover Rs. 20,000 since Rs. 50,000 was originally owed

  2. B

    This is an accord (agreement to accept consulting services) and satisfaction (provision of those services); the original Rs. 50,000 obligation was discharged when the services were provided (the satisfaction); if C accepted the services without immediately objecting to their quality, the original obligation was discharged and C's remedy is for breach of the accord itself (quality of services), not recovery of the original Rs. 20,000 difference

  3. C

    The accord is void because no consideration was provided for giving up Rs. 20,000

  4. D

    C can only recover if D failed to provide any services at all

View answer and explanation

Correct answer: B. This is an accord (agreement to accept consulting services) and satisfaction (provision of those services); the original Rs. 50,000 obligation was discharged when the services were provided (the satisfaction); if C accepted the services without immediately objecting to their quality, the original obligation was discharged and C's remedy is for breach of the accord itself (quality of services), not recovery of the original Rs. 20,000 difference

The passage explains that in accord and satisfaction, discharge occurs when the accord is performed (satisfaction). D provided the services (satisfaction), extinguishing the original Rs. 50,000 obligation. C's complaint about quality is a separate issue from whether the original debt was discharged.

Source note: ICA 1872 Sections 62, 63 / Anson's Law of Contract

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