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Law of Contract MCQs for CLAT PG, Page 2

CLAT PG Law of Contract questions 26-50 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 principleTransfer of Property Act 1882 Section 53A / ICA 1872 Section 10

Section 53A of the Transfer of Property Act 1882 provides statutory recognition to the equitable doctrine of part performance in India. The section provides that where any person contracts to transfer for consideration any immovable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty, and the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract, and the transferee has performed or is willing to perform his part of the contract, then notwithstanding that where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefore by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee any right in respect of the property of which the transferee has taken or continued in possession. Section 53A is therefore a shield available only to the transferee: it protects a transferee in possession against the transferor seeking to recover possession, but it does not create a sword that the transferee can use to compel transfer of title or to sue the transferor for specific performance. The 2001 amendment to Section 53A made written and signed contracts a prerequisite, removing the earlier position under which oral contracts could support part performance claims.

Question 26EasyDoctrine of Part Performance and Section 53A Transfer of Property Act

Section 53A of the Transfer of Property Act 1882 embodies which legal doctrine?

  1. A

    The doctrine of frustration

  2. B

    The equitable doctrine of part performance, which protects a transferee in possession from being dispossessed by the transferor despite an incomplete formal transfer

  3. C

    The doctrine of promissory estoppel in general contracts

  4. D

    The doctrine of laches

View answer and explanation

Correct answer: B. The equitable doctrine of part performance, which protects a transferee in possession from being dispossessed by the transferor despite an incomplete formal transfer

The passage states: 'Section 53A of the Transfer of Property Act 1882 provides statutory recognition to the equitable doctrine of part performance in India.'

Source note: Transfer of Property Act 1882 Section 53A / ICA 1872 Section 10

Question 27MediumDoctrine of Part Performance and Section 53A Transfer of Property Act

For Section 53A to apply, the transferee must satisfy which conditions according to the passage?

  1. A

    The transferee must have paid the full consideration before the transfer

  2. B

    The transferee must have taken possession (or continued possession) in part performance of the contract and done some act in furtherance of the contract and performed or be willing to perform his part

  3. C

    The transferee must have registered the unfinished agreement

  4. D

    The transferee must have obtained court permission to take possession

View answer and explanation

Correct answer: B. The transferee must have taken possession (or continued possession) in part performance of the contract and done some act in furtherance of the contract and performed or be willing to perform his part

The passage states the conditions: 'the transferee has, in part performance of the contract, taken possession...or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract, and the transferee has performed or is willing to perform his part of the contract.'

Source note: Transfer of Property Act 1882 Section 53A / ICA 1872 Section 10

Question 28EasyDoctrine of Part Performance and Section 53A Transfer of Property Act

According to the passage, Section 53A operates as:

  1. A

    Both a shield and a sword for the transferee

  2. B

    Only as a shield protecting the transferee in possession from being dispossessed; it is not a sword that the transferee can use to compel transfer of title or sue for specific performance

  3. C

    Only as a remedy for the transferor

  4. D

    As a mechanism for automatic completion of the contract

View answer and explanation

Correct answer: B. Only as a shield protecting the transferee in possession from being dispossessed; it is not a sword that the transferee can use to compel transfer of title or sue for specific performance

The passage explicitly states: 'Section 53A is therefore a shield available only to the transferee: it protects a transferee in possession against the transferor seeking to recover possession, but it does not create a sword that the transferee can use to compel transfer of title or to sue the transferor for specific performance.'

Source note: Transfer of Property Act 1882 Section 53A / ICA 1872 Section 10

Question 29MediumDoctrine of Part Performance and Section 53A Transfer of Property Act

The 2001 amendment to Section 53A changed the position on oral contracts by:

  1. A

    Allowing oral contracts to support part performance claims in all cases

  2. B

    Making written and signed contracts a prerequisite for Section 53A protection; oral contracts can no longer support part performance claims

  3. C

    Requiring all contracts to be registered under the Registration Act

  4. D

    Removing the requirement of possession

View answer and explanation

Correct answer: B. Making written and signed contracts a prerequisite for Section 53A protection; oral contracts can no longer support part performance claims

The passage states: 'The 2001 amendment to Section 53A made written and signed contracts a prerequisite, removing the earlier position under which oral contracts could support part performance claims.'

Source note: Transfer of Property Act 1882 Section 53A / ICA 1872 Section 10

Question 30HardDoctrine of Part Performance and Section 53A Transfer of Property Act

X contracted in writing to purchase a farm from Y. X paid part of the price and took possession of the farm with Y's knowledge and consent. X has been in possession for 2 years, cultivating the farm. Y now wants to sell the farm to Z at a higher price and asks X to vacate. Based on the passage, which statement best describes X's legal position?

  1. A

    X must vacate since the formal transfer was not completed

  2. B

    X can rely on Section 53A to resist Y's claim for possession; Y is debarred from enforcing rights against X as Y's transferee in possession under a written signed contract who has taken possession in part performance and is willing to perform

  3. C

    X can sue Y for specific performance using Section 53A as a sword

  4. D

    X has no rights because the transfer was not registered

View answer and explanation

Correct answer: B. X can rely on Section 53A to resist Y's claim for possession; Y is debarred from enforcing rights against X as Y's transferee in possession under a written signed contract who has taken possession in part performance and is willing to perform

The passage states Section 53A 'shall be debarred from enforcing against the transferee any right in respect of the property of which the transferee has taken or continued in possession.' X's situation matches all Section 53A requirements.

Source note: Transfer of Property Act 1882 Section 53A / ICA 1872 Section 10

Passage or principleSale of Goods Act 1930 Sections 27-30 / Cundy v. Lindsay (1878)

The Latin maxim nemo dat quod non habet (no one can give what he does not have) is embodied in Section 27 of the Sale of Goods Act 1930: where goods are sold by a person who is not the owner thereof and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had. This fundamental principle protects the true owner's right to property from being defeated by unauthorized sales. However, the absolute application of nemo dat would seriously hamper commercial transactions by creating uncertainty about title in the stream of trade. The SOGA therefore creates several exceptions that protect bona fide purchasers for value without notice. Section 29 provides that when the seller of goods has obtained goods or documents of title under a voidable contract and the contract has not been rescinded at the time of the sale, the buyer acquires a good title if he buys in good faith without notice of the seller's defect in title. This exception was explained in the context of mistaken identity cases in Cundy v. Lindsay (1878), where the mistake about identity made the original contract void (not merely voidable) and no title could pass to subsequent purchasers. Where fraud induces a voidable contract (the owner can rescind but has not done so), a subsequent bona fide purchaser without notice gets a good title under Section 29. Section 30 creates two further exceptions through seller-in-possession and buyer-in-possession provisions.

Question 31EasyNemo Dat and Exceptions under Sale of Goods Act

The nemo dat rule in Section 27 SOGA provides that a buyer from a non-owner:

  1. A

    Always gets good title if he pays a fair price

  2. B

    Acquires no better title to the goods than the seller had; an unauthorized seller cannot transfer a better title than he himself possesses

  3. C

    Gets good title after 5 years of possession

  4. D

    Gets good title if the seller had possession of the goods

View answer and explanation

Correct answer: B. Acquires no better title to the goods than the seller had; an unauthorized seller cannot transfer a better title than he himself possesses

The passage states: 'where goods are sold by a person who is not the owner thereof and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had.'

Source note: Sale of Goods Act 1930 Sections 27-30 / Cundy v. Lindsay (1878)

Question 32MediumNemo Dat and Exceptions under Sale of Goods Act

Section 29 SOGA protects a subsequent bona fide purchaser when the original contract was voidable (not void). This distinction is critical because:

  1. A

    All contracts are either void or voidable equally

  2. B

    A void contract passes no title to the fraudster so no subsequent buyer can get good title; a voidable contract does pass title until it is rescinded.

  3. C

    Section 29 applies equally to void and voidable contracts

  4. D

    The distinction only matters for government property

View answer and explanation

Correct answer: B. A void contract passes no title to the fraudster so no subsequent buyer can get good title; a voidable contract does pass title until it is rescinded.

The passage explains: 'when the seller of goods has obtained goods or documents of title under a voidable contract and the contract has not been rescinded at the time of the sale, the buyer acquires a good title if he buys in good faith without notice of the seller's defect in title.'

Source note: Sale of Goods Act 1930 Sections 27-30 / Cundy v. Lindsay (1878)

Question 33MediumNemo Dat and Exceptions under Sale of Goods Act

In Cundy v. Lindsay (1878), no title passed to the subsequent purchaser because:

  1. A

    The subsequent purchaser did not pay enough

  2. B

    The original contract was void (not voidable) due to mistaken identity; under a void contract, no property passes even to the immediate buyer, so no subsequent buyer can acquire good title through the nemo dat principle

  3. C

    The seller had already rescinded the original contract before the subsequent sale

  4. D

    The goods were stolen before the subsequent sale

View answer and explanation

Correct answer: B. The original contract was void (not voidable) due to mistaken identity; under a void contract, no property passes even to the immediate buyer, so no subsequent buyer can acquire good title through the nemo dat principle

The passage states: 'in Cundy v. Lindsay (1878), where the mistake about identity made the original contract void (not merely voidable) and no title could pass to subsequent purchasers.'

Source note: Sale of Goods Act 1930 Sections 27-30 / Cundy v. Lindsay (1878)

Question 34EasyNemo Dat and Exceptions under Sale of Goods Act

For Section 29 SOGA protection to apply to a subsequent purchaser, the passage indicates the subsequent purchaser must be:

  1. A

    A registered commercial dealer

  2. B

    A bona fide purchaser without notice of the seller's defect in title; good faith and absence of notice are both required

  3. C

    Purchasing goods at or above market value

  4. D

    Purchasing from a registered seller

View answer and explanation

Correct answer: B. A bona fide purchaser without notice of the seller's defect in title; good faith and absence of notice are both required

The passage states: 'the buyer acquires a good title if he buys in good faith without notice of the seller's defect in title.'

Source note: Sale of Goods Act 1930 Sections 27-30 / Cundy v. Lindsay (1878)

Question 35HardNemo Dat and Exceptions under Sale of Goods Act

A fraudster F obtained a valuable watch from its owner O by fraud. O could have rescinded the contract but had not done so yet. F sold the watch to T, who was completely unaware of the fraud and paid market price. O then discovered the fraud and wants to recover the watch from T. Based on the passage, what is the likely outcome?

  1. A

    O can recover the watch because F had no right to sell it

  2. B

    T likely has a good title under Section 29 SOGA: F obtained the watch under a voidable contract (fraud makes it voidable, not void); O had not rescinded the contract before F sold to T.

  3. C

    T must return the watch to O but is entitled to compensation from O

  4. D

    The result depends on who pays the higher price in court

View answer and explanation

Correct answer: B. T likely has a good title under Section 29 SOGA: F obtained the watch under a voidable contract (fraud makes it voidable, not void); O had not rescinded the contract before F sold to T.

The passage describes Section 29: voidable contract (fraud is voidable, not void), not rescinded before subsequent sale, bona fide purchaser without notice gets good title. All three elements apply to T's situation.

Source note: Sale of Goods Act 1930 Sections 27-30 / Cundy v. Lindsay (1878)

Passage or principleICA 1872 Sections 37, 190 / Delegatus non potest delegare

Section 37 of the Indian Contract Act 1872 provides that parties to a contract must either perform, or offer to perform, their respective promises. Where the promisor has promised to do something that depends on his personal skill, taste, judgment or character, the promisor must perform personally and cannot delegate the performance to another. Where there is no element of personal performance required, performance may be made through an agent, the legal representative of a deceased promisor, or any other person designated by the promisor. The principle of non-delegation in agency is captured by the maxim delegatus non potest delegare: a delegate cannot further delegate. Section 190 of the Indian Contract Act embodies this maxim by providing that an agent cannot lawfully employ another to perform acts which he has himself been expressly or impliedly directed to do personally. The rationale behind both Section 37 and Section 190 is that when a party selects a specific person for a task that requires personal qualities, such as the unique skills of an artist, the special relationships of a solicitor with his client, or the personal creditworthiness of a buyer, the other party contracted for the specific individual and not for an anonymous substitute. However, where a task is of a purely ministerial or mechanical nature requiring no personal skill, an agent may employ a sub-agent or the promisor may delegate to a competent substitute. The test is whether the nature of the work or the circumstances of the contract show an implied requirement of personal performance.

Question 36EasyPerformance by Agent vs Personal Performance

Under Section 37 ICA, when must a promisor perform personally?

  1. A

    In all contracts without exception

  2. B

    When the promise depends on the promisor's personal skill, taste, judgment or character; in such cases the performance cannot be delegated to another

  3. C

    Only when both parties agree to personal performance

  4. D

    Only when the contract is for more than Rs. 1 lakh

View answer and explanation

Correct answer: B. When the promise depends on the promisor's personal skill, taste, judgment or character; in such cases the performance cannot be delegated to another

The passage states: 'Where the promisor has promised to do something that depends on his personal skill, taste, judgment or character, the promisor must perform personally and cannot delegate the performance to another.'

Source note: ICA 1872 Sections 37, 190 / Delegatus non potest delegare

Question 37EasyPerformance by Agent vs Personal Performance

The maxim delegatus non potest delegare as embodied in Section 190 ICA means:

  1. A

    All agents can freely appoint sub-agents for any task

  2. B

    An agent cannot lawfully employ another to perform acts the agent has been expressly or impliedly directed to do personally; a delegate cannot further delegate

  3. C

    Delegation is allowed only with principal's written consent

  4. D

    Sub-agents are always personally liable to the principal

View answer and explanation

Correct answer: B. An agent cannot lawfully employ another to perform acts the agent has been expressly or impliedly directed to do personally; a delegate cannot further delegate

The passage states: 'Section 190 of the Indian Contract Act embodies this maxim by providing that an agent cannot lawfully employ another to perform acts which he has himself been expressly or impliedly directed to do personally.'

Source note: ICA 1872 Sections 37, 190 / Delegatus non potest delegare

Question 38MediumPerformance by Agent vs Personal Performance

The rationale for requiring personal performance in contracts depending on personal skill is:

  1. A

    That personal contracts are more legally complex

  2. B

    That the other party contracted for the specific individual and their unique qualities, not for an anonymous substitute; the personal element is the essence of the bargain

  3. C

    That personal performance is always of higher quality

  4. D

    That delegated performance automatically breaches the contract

View answer and explanation

Correct answer: B. That the other party contracted for the specific individual and their unique qualities, not for an anonymous substitute; the personal element is the essence of the bargain

The passage states: 'the other party contracted for the specific individual and not for an anonymous substitute.'

Source note: ICA 1872 Sections 37, 190 / Delegatus non potest delegare

Question 39MediumPerformance by Agent vs Personal Performance

According to the passage, which type of task can be delegated by an agent?

  1. A

    Tasks requiring personal skill or special relationships

  2. B

    Tasks of a purely ministerial or mechanical nature requiring no personal skill; such tasks may be performed by a sub-agent

  3. C

    Tasks involving financial judgment

  4. D

    Tasks involving negotiation with third parties

View answer and explanation

Correct answer: B. Tasks of a purely ministerial or mechanical nature requiring no personal skill; such tasks may be performed by a sub-agent

The passage states: 'where a task is of a purely ministerial or mechanical nature requiring no personal skill, an agent may employ a sub-agent or the promisor may delegate to a competent substitute.'

Source note: ICA 1872 Sections 37, 190 / Delegatus non potest delegare

Question 40HardPerformance by Agent vs Personal Performance

A famous architect A is contracted to design a unique building for B. A assigns the design work to his junior associate without informing B. The associate produces the design. B refuses to pay. Applying the principles in the passage, which best describes the legal position?

  1. A

    B must pay because the design was produced

  2. B

    B is correct to refuse; the contract was for A's personal skill and judgment.

  3. C

    B must pay if the design meets the specifications

  4. D

    A can always delegate to qualified persons

View answer and explanation

Correct answer: B. B is correct to refuse; the contract was for A's personal skill and judgment.

The passage explains that when performance depends on personal skill (a famous architect's design) it cannot be delegated. This directly applies to A's unauthorized delegation.

Source note: ICA 1872 Sections 37, 190 / Delegatus non potest delegare

Passage or principleSale of Goods Act 1930 Sections 19-26 / Pignataro v. Gilroy (1919)

The relationship between the passing of property and the passing of risk in contracts for the sale of goods is governed by Sections 19 to 26 of the Sale of Goods Act 1930. The fundamental rule under Section 26 is that risk follows property: unless otherwise agreed, goods remain at the seller's risk until property is transferred to the buyer, but when property has been transferred to the buyer, the goods are at the buyer's risk whether or not delivery has been made. Section 20 establishes that for specific goods in a deliverable state, property passes when the contract is made. Section 23 deals with unascertained goods: property passes when goods of the contractual description in a deliverable state are unconditionally appropriated to the contract by one party with the assent of the other. Section 26 also contains a fault exception: where delivery is delayed through the fault of the seller or buyer, the goods are at the risk of the party at fault as regards losses which might not have occurred but for the fault. The interaction between these rules creates important practical consequences. In Pignataro v. Gilroy (1919), the buyer purchased bags of rice but delayed taking delivery despite several notices from the seller. Some rice was stolen before the buyer collected it. The court held that the property in the rice (and therefore the risk) had passed to the buyer before the theft, and the buyer bore the loss, the seller having given reasonable notice for collection.

Question 41EasySale of Goods: Passing of Property and Risk

The fundamental rule in Section 26 of the Sale of Goods Act 1930 about risk and property is:

  1. A

    Risk always remains with the seller until physical delivery

  2. B

    Risk follows property: goods remain at the seller's risk until property transfers to the buyer; once property transfers, goods are at the buyer's risk whether or not delivery has been made

  3. C

    Risk transfers only when the buyer pays the full price

  4. D

    Risk is always shared equally between buyer and seller

View answer and explanation

Correct answer: B. Risk follows property: goods remain at the seller's risk until property transfers to the buyer; once property transfers, goods are at the buyer's risk whether or not delivery has been made

The passage states: 'The fundamental rule under Section 26 is that risk follows property: unless otherwise agreed, goods remain at the seller's risk until property is transferred to the buyer, but when property has been transferred to the buyer, the goods are at the buyer's risk whether or not delivery has been made.'

Source note: Sale of Goods Act 1930 Sections 19-26 / Pignataro v. Gilroy (1919)

Question 42EasySale of Goods: Passing of Property and Risk

Under Section 20 SOGA 1930 for specific goods in a deliverable state, when does property pass?

  1. A

    When the buyer pays the price

  2. B

    When the contract of sale is made

  3. C

    When the seller delivers the goods to the buyer

  4. D

    When the buyer issues a receipt for the goods

View answer and explanation

Correct answer: B. When the contract of sale is made

The passage states: 'Section 20 establishes that for specific goods in a deliverable state, property passes when the contract is made.'

Source note: Sale of Goods Act 1930 Sections 19-26 / Pignataro v. Gilroy (1919)

Question 43MediumSale of Goods: Passing of Property and Risk

The fault exception in Section 26 SOGA provides that where delivery is delayed through the fault of one party:

  1. A

    All risk remains with the seller regardless of fault

  2. B

    The goods are at the risk of the party at fault as regards losses which might not have occurred but for the fault; fault creates an exception to the normal risk-follows-property rule

  3. C

    Risk is transferred immediately to the innocent party

  4. D

    The contract is automatically frustrated by the delay

View answer and explanation

Correct answer: B. The goods are at the risk of the party at fault as regards losses which might not have occurred but for the fault; fault creates an exception to the normal risk-follows-property rule

The passage states: 'Section 26 also contains a fault exception: where delivery is delayed through the fault of the seller or buyer, the goods are at the risk of the party at fault as regards losses which might not have occurred but for the fault.'

Source note: Sale of Goods Act 1930 Sections 19-26 / Pignataro v. Gilroy (1919)

Question 44MediumSale of Goods: Passing of Property and Risk

In Pignataro v. Gilroy (1919), the court held that the buyer bore the loss of the stolen rice because:

  1. A

    The seller was negligent in securing the rice

  2. B

    Property (and therefore risk) had passed to the buyer before the theft; the buyer had delayed taking delivery despite notices from the seller and therefore bore the loss

  3. C

    The theft was the buyer's responsibility under general law

  4. D

    The seller had given notice of the risk of theft

View answer and explanation

Correct answer: B. Property (and therefore risk) had passed to the buyer before the theft; the buyer had delayed taking delivery despite notices from the seller and therefore bore the loss

The passage states: 'the court held that the property in the rice (and therefore the risk) had passed to the buyer before the theft, and the buyer bore the loss, the seller having given reasonable notice for collection.'

Source note: Sale of Goods Act 1930 Sections 19-26 / Pignataro v. Gilroy (1919)

Question 45HardSale of Goods: Passing of Property and Risk

S sells to B a specific painting hanging in S's gallery, contract signed on 1st January. B requests delayed delivery as she is travelling until 1st February. Between 1st January and 1st February, the gallery has a fire (not S's fault) and the painting is destroyed. B refuses to pay claiming S should bear the risk of non-delivery. Applying Section 26 SOGA as described in the passage, who bears the risk?

  1. A

    S bears the risk because delivery was not made

  2. B

    B bears the risk; the painting was a specific good in a deliverable state.

  3. C

    The risk is shared equally since both consented to the delayed delivery arrangement

  4. D

    S bears the risk because the gallery was under S's control

View answer and explanation

Correct answer: B. B bears the risk; the painting was a specific good in a deliverable state.

Applying the passage's rules: specific good (painting) in deliverable state causes property to pass on 1st January (Section 20). Risk follows property under Section 26. Accidental fire is not S's fault so the fault exception does not apply. B bears the loss.

Source note: Sale of Goods Act 1930 Sections 19-26 / Pignataro v. Gilroy (1919)

Passage or principleICA 1872 Section 73 / Hadley v. Baxendale (1854) / Victoria Laundry v. Newman Industries (1949)

Section 73 of the Indian Contract Act 1872 provides that when a contract is broken, the party who suffers by such breach is entitled to receive compensation for any loss or damage caused to him thereby which naturally arose in the usual course of things from such breach or which the parties knew, when they made the contract, to be likely to result from the breach of it. The section further provides that such compensation is not to be given for any remote or indirect loss or damage. This provision codifies the two-limb rule established in the English case of Hadley v. Baxendale (1854), which remains the foundational principle for remoteness of damage in contract law throughout the common law world. The first limb covers losses that arise naturally and in the ordinary course of things from the breach itself, assessed objectively at the time of contracting. The second limb covers losses arising from special circumstances communicated to the breaching party at the time the contract was made, such that a reasonable person in the defendant's position would have contemplated those special losses as a probable consequence of breach. In Victoria Laundry (Windsor) Ltd v. Newman Industries Ltd (1949), the Court of Appeal clarified that what matters is whether a particular type of loss was reasonably foreseeable as a not unlikely result of the breach, not whether the exact amount of the loss was foreseeable. A defendant who knows the general nature of the plaintiff's business knows enough to be responsible for ordinary losses of that type; but exceptional profits from unusually lucrative contracts are not recoverable unless the defendant was specifically informed of them.

Question 46EasySection 73 ICA and Remoteness of Damage

Section 73 ICA entitles the party suffering a breach to compensation for losses that:

  1. A

    Are caused by any event after the breach

  2. B

    Arose naturally in the usual course of things from the breach, or which the parties knew at the time of contracting were likely to result from the breach

  3. C

    Are claimed within 6 months of the breach

  4. D

    Were quantified by the parties in advance

View answer and explanation

Correct answer: B. Arose naturally in the usual course of things from the breach, or which the parties knew at the time of contracting were likely to result from the breach

The passage states Section 73 provides compensation for 'loss or damage caused to him thereby which naturally arose in the usual course of things from such breach or which the parties knew, when they made the contract, to be likely to result from the breach of it.'

Source note: ICA 1872 Section 73 / Hadley v. Baxendale (1854) / Victoria Laundry v. Newman Industries (1949)

Question 47MediumSection 73 ICA and Remoteness of Damage

The second limb of the Hadley v. Baxendale rule as described in the passage covers:

  1. A

    All losses however remote

  2. B

    Losses arising from special circumstances communicated to the breaching party at the time the contract was made such that a reasonable person would have contemplated those losses as probable consequences of breach

  3. C

    Losses occurring after the date of the court order

  4. D

    All losses that the plaintiff can prove were caused by the breach

View answer and explanation

Correct answer: B. Losses arising from special circumstances communicated to the breaching party at the time the contract was made such that a reasonable person would have contemplated those losses as probable consequences of breach

The passage states: 'The second limb covers losses arising from special circumstances communicated to the breaching party at the time the contract was made, such that a reasonable person in the defendant's position would have contemplated those special losses as a probable consequence of breach.'

Source note: ICA 1872 Section 73 / Hadley v. Baxendale (1854) / Victoria Laundry v. Newman Industries (1949)

Question 48MediumSection 73 ICA and Remoteness of Damage

In Victoria Laundry v. Newman Industries, the Court of Appeal clarified that the correct test for remoteness is:

  1. A

    Whether the exact amount of the loss was foreseeable

  2. B

    Whether a particular type of loss was reasonably foreseeable as a not unlikely result of the breach; exact amounts need not be foreseeable

  3. C

    Whether the loss exceeded the contract price

  4. D

    Whether the plaintiff attempted to mitigate the loss

View answer and explanation

Correct answer: B. Whether a particular type of loss was reasonably foreseeable as a not unlikely result of the breach; exact amounts need not be foreseeable

The passage states: 'what matters is whether a particular type of loss was reasonably foreseeable as a not unlikely result of the breach, not whether the exact amount of the loss was foreseeable.'

Source note: ICA 1872 Section 73 / Hadley v. Baxendale (1854) / Victoria Laundry v. Newman Industries (1949)

Question 49HardSection 73 ICA and Remoteness of Damage

According to the passage, when the defendant knows the general nature of the plaintiff's business, what does this knowledge cover for purposes of Section 73?

  1. A

    All losses of any kind suffered by the plaintiff

  2. B

    Ordinary losses of the type that would commonly arise in that kind of business; exceptional profits from unusually lucrative contracts are not recoverable unless the defendant was specifically informed

  3. C

    Only losses from the specific contract breached

  4. D

    Only out-of-pocket expenses incurred by the plaintiff

View answer and explanation

Correct answer: B. Ordinary losses of the type that would commonly arise in that kind of business; exceptional profits from unusually lucrative contracts are not recoverable unless the defendant was specifically informed

The passage states: 'A defendant who knows the general nature of the plaintiff's business knows enough to be responsible for ordinary losses of that type; but exceptional profits from unusually lucrative contracts are not recoverable unless the defendant was specifically informed of them.'

Source note: ICA 1872 Section 73 / Hadley v. Baxendale (1854) / Victoria Laundry v. Newman Industries (1949)

Question 50HardSection 73 ICA and Remoteness of Damage

A software company contracts to deliver a program to a retailer R by 1st December for use in a major seasonal sale. The company knows R is a retailer but does not know the details of R's seasonal sale plans. The program is delivered 2 weeks late, causing R to miss the seasonal sale and lose Rs. 50 lakh in potential profit. Applying the principles in the passage, can R recover the Rs. 50 lakh?

  1. A

    Yes, because the company breached the contract

  2. B

    Only if the company was told of the specific seasonal sale and the magnitude of expected profits at the time of contracting; knowing R is a retailer tells the company that delay causes disruption but not the specific magnitude of loss from a particular seasonal campaign

  3. C

    Yes, because any retailer always has seasonal sales

  4. D

    No, because loss of profit is always too remote

View answer and explanation

Correct answer: B. Only if the company was told of the specific seasonal sale and the magnitude of expected profits at the time of contracting; knowing R is a retailer tells the company that delay causes disruption but not the specific magnitude of loss from a particular seasonal campaign

The passage says ordinary business losses are recoverable if the defendant knows the type of business; but 'exceptional profits from unusually lucrative contracts are not recoverable unless the defendant was specifically informed of them.' The Rs. 50 lakh seasonal sale loss is exceptional and requires specific communication.

Source note: ICA 1872 Section 73 / Hadley v. Baxendale (1854) / Victoria Laundry v. Newman Industries (1949)

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