Law of Contract MCQs for Judiciary, Page 5

Correct answer: B. Any person who is of the age of majority and of sound mind may employ an agent; and as between the principal and third persons, any person may become an agent

Section 183 ICA 1872 contains an important rule: WHO CAN BE A PRINCIPAL - any person of full age and sound mind can employ an agent (a minor or insane person cannot be a principal - their acts through an agent would be as void as if done directly). WHO CAN BE AN AGENT - 'any person' may become an agent. This means a MINOR CAN BE AN AGENT even though a minor cannot be a principal. The rationale: the agent's acts bind the principal directly - the agent is merely a conduit for the principal's will. The agent's contractual capacity is irrelevant for the principal's obligations to third parties. However, as between the principal and the agent, the agent's minority is relevant - the principal may not be able to enforce obligations against a minor agent personally (Specific Relief Act).

Source note: ICA 1872 Sections 182-183

Correct answer: C. The act must have been within the agent's original authority when it was done

For a valid ratification under Sections 196-200 ICA: (1) the act must have been done on behalf of the principal, not in the agent's own name; (2) the principal must have existed and been legally competent at the time of the act; (3) the act must be lawful, because an illegal act cannot be ratified; and (4) ratification must be within a reasonable time and before the third party has rescinded. What is not required is that the act must already have been within the agent's original authority. Ratification is precisely the principal's later adoption of an act that was originally unauthorised or done in excess of authority.

Source note: ICA 1872 Sections 196-200

Correct answer: B. Authority to do all acts necessary to carry out the express authority conferred - acts incidental or usual in carrying out the given task

Section 188 ICA 1872: 'An authority is said to be implied which is incidental to or usually exercised by an agent appointed for the specific purpose, or follows from the nature of the agent's business.' Types of authority: (1) EXPRESS - actual authority given explicitly (oral or written); (2) IMPLIED - authority to do all things necessary, incidental and usual for carrying out the express mandate (e.g., a manager of a shop has implied authority to buy goods for the shop, hire/fire staff, etc.); (3) APPARENT/OSTENSIBLE - authority the agent appears to have based on the principal's conduct, even if not actually authorised - protects third parties who act in good faith on the apparent authority. The USUAL AUTHORITY rule (Watteau v. Fenwick, 1893) - principal may be bound by acts within the usual scope of the agent's type of business even if specifically restricted.

Source note: ICA 1872 Section 188

Correct answer: B. Not possible - ratification requires that the act was done in the name of or on behalf of an identified principal; undisclosed principal cannot ratify

Keighley Maxsted & Co v. Durant (1901 HL) is a landmark English case (applied in India) establishing that ratification is not possible for acts done in the agent's own name without disclosing the principal. In this case, the agent (Roberts) bought wheat at above the authorised price, acting in his own name (not as agent). Keighley Maxsted purported to ratify. The Court held ratification was ineffective - you cannot ratify an act done in the agent's own name. The rationale: third parties (Durant) deal with the person in front of them; if they contracted with the agent personally, ratification by an undisclosed principal would prejudice them by substituting a different contracting party. This rule is codified in Indian law through Section 196 read with Section 226 - disclosed vs undisclosed principal principles.

Source note: Keighley Maxsted v. Durant (1901 HL)

Correct answer: B. A lien over the goods for remuneration and advances - the agent can retain goods and documents until his claims are satisfied

Section 221 ICA 1872 (agent's lien): An agent has a right of lien over the principal's goods, papers and other property in his possession for (1) remuneration; (2) advances; and (3) expenses incurred in conducting the agency business. This is a GENERAL LIEN for agents (like bankers - Section 171), unlike the particular lien available to ordinary bailees. Conditions: (1) The property must have come into the agent's possession in the ordinary course of business; (2) The agent must not have a contrary agreement. Note: Section 220 - no right to lien if the agent obtains possession wrongfully or holds property contrary to the principal's directions. The agent's lien is the right to RETAIN possession - not to sell (unlike a pledge). Sale requires a court order or foreclosure proceedings.

Source note: ICA 1872 Section 221

Correct answer: B. A principal is bound by acts of an agent within the usual authority of that type of agent even if the principal specifically restricted the authority - third parties who do not know of the restriction are protected

Watteau v. Fenwick (1893) QB: Humble managed a hotel owned by Fenwick. Fenwick specifically told Humble not to buy cigars on credit. Humble bought cigars from Watteau on credit. Fenwick refused to pay. The Court held Fenwick was bound because buying cigars was within the USUAL AUTHORITY of a hotel manager - a third party dealing with someone who appears to be a principal of the trade (hotel manager) can assume the usual authority of such a person. This is the UNDISCLOSED PRINCIPAL doctrine extended - even if Fenwick's name was not disclosed, he could be bound. Note: This decision has been criticised (how can a third party rely on authority of someone they don't even know is an agent?) but it reflects the commercial reality of protecting bona fide third parties.

Source note: Watteau v. Fenwick (1893)

Correct answer: D. Temporary absence of the principal from the country

Section 201 ICA 1872 lists ways agency is terminated: (1) Revocation of authority by principal; (2) Renunciation by agent; (3) Completion of the business of the agency; (4) Death of principal or agent; (5) Insanity of principal or agent; (6) Insolvency of the principal (though agent can still bind principal for acts protecting the estate); (7) Destruction of subject matter; (8) Principal becoming an alien enemy (war). TEMPORARY ABSENCE of the principal does NOT terminate agency - the agent continues to act under existing authority. The principal's absence may require the agent to use emergency powers under Section 189 (danger to goods requiring action beyond normal authority). The authority of an agent is automatically revoked by death of the principal - the agent cannot continue to act even in ignorance of the principal's death (Section 208).

Source note: ICA 1872 Section 201

Correct answer: B. The principal - the agent drops out of the transaction and the principal and third party are bound to each other

Section 226 ICA 1872: 'Contracts entered into through an agent, and obligations arising from acts done by an agent, may be enforced in the same manner, and will have the same legal consequences, as if the contracts had been entered into and the acts done by the principal in person.' When the principal is DISCLOSED (third party knows they are dealing with an agent): the agent drops out - the contract is directly between the principal and the third party. The agent is generally not personally liable (Section 230 - agent cannot be sued by third party). However, if the PRINCIPAL IS UNDISCLOSED: the third party may elect to sue either the principal or the agent (Section 231). If the agent contracted in their own name, the third party can hold the agent liable. Section 230 exceptions where agent is personally liable: unnamed/undisclosed principal, agent's personal guarantee, trading in own name, foreign principal.

Source note: ICA 1872 Section 226

Correct answer: B. Cannot normally delegate authority conferred on him - an agent must personally perform acts requiring discretion and skill, though he may delegate ministerial acts

Section 190 ICA 1872: 'An agent cannot lawfully employ another to perform acts which he has himself been expressly or impliedly directed to do personally.' The rule 'delegatus non potest delegare' reflects the principle that the principal appointed THIS agent for personal reasons - the agent's personal skill, judgment or trustworthiness. EXCEPTIONS: (1) Trade custom permits sub-agency; (2) Nature of the work requires it (e.g., a solicitor can employ a barrister); (3) Emergency; (4) The principal consents expressly or impliedly. When a sub-agent IS properly appointed (Section 191), the sub-agent is responsible to the agent, NOT to the principal. If the sub-agent is improperly appointed (Section 193), the agent bears full responsibility for the sub-agent's acts.

Source note: ICA 1872 Section 190

Correct answer: B. Claim the money back with interest and if the agent mixes principal's money with his own, the principal can claim the entire mixed fund

Section 215 ICA 1872: 'An agent is bound to pay to his principal all sums received on his account.' Section 216: if an agent deals on his own account in the business of the agency without the principal's knowledge, the principal can: repudiate the transaction OR claim any benefit the agent made. Section 212: duty to act with skill and diligence - agent liable for losses due to neglect. Additionally, under Section 215 and equity: if an agent mingles the principal's money with his own, the principal can follow the money and claim the entire commingled fund (the equitable remedy of tracing). Interest at court rates applies on amounts wrongfully withheld. This reflects the FIDUCIARY nature of agency - the agent owes the highest duty of loyalty and accounting to the principal.

Source note: ICA 1872 Sections 212-216

Correct answer: B. Ratification must be of the whole of the act - you cannot ratify one part of a transaction and repudiate the rest

Section 198 ICA 1872: 'No valid ratification can be made by a person whose knowledge of the facts of the case is materially defective.' Section 199: 'A person ratifying any unauthorised act done on his behalf ratifies the whole of the transaction of which such act formed part.' The rule that you must ratify ALL or NOTHING prevents a principal from 'cherry-picking' - accepting beneficial parts of an unauthorised transaction while rejecting the burdensome parts. This protects third parties: if a principal could ratify selectively, they could take the benefit of an unauthorised contract without its obligations. Compare Section 197 (ratification may be express or implied from conduct showing assent to the whole transaction).

Source note: ICA 1872 Section 199

Correct answer: B. Delivery of goods, for a purpose, and return or disposal after the purpose

Section 148 ICA 1872 defines bailment: 'A bailment is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them.' Three essentials: (1) DELIVERY - actual transfer of possession (constructive delivery is also valid - giving keys to a car); (2) FOR A PURPOSE - the goods are given for a specific purpose (repair, carriage, safe custody); (3) RETURN OR DISPOSAL - when the purpose is accomplished. The bailor retains OWNERSHIP; the bailee gets POSSESSION. Bailment is distinct from sale (ownership transfers), licence (no possession), and agency (agent acts for principal). Kaliaperumal Pillai v. Visalakshmi (AIR 1938 Mad.) - deposit of jewellery with goldsmith for repair was a valid bailment.

Source note: ICA 1872 Section 148

Correct answer: B. Such care as a man of ordinary prudence would take of his own goods of the same bulk, quality and value as the goods bailed

Section 151 ICA 1872: 'In all cases of bailment the bailee is bound to take as much care of the goods bailed to him as a man of ordinary prudence would, under similar circumstances, take of his own goods of the same bulk, quality, and value as the goods bailed.' This is the OBJECTIVE standard of the reasonable person - not the bailee's personal standard of care. Section 152: if the bailee takes such care, he is not responsible for any loss, destruction or deterioration of the thing bailed that occurs without his fault. This standard applies to all bailees uniformly - the English distinction between gratuitous/paid bailees with different care standards does NOT apply in India. However, where the bailee has special skill (e.g., a professional warehouse keeper), a higher duty of skill may be expected under the law of torts.

Source note: ICA 1872 Section 151

Correct answer: B. Under Section 176, to bring a suit against the pledgor or to sell the goods after giving the pledgor reasonable notice of the sale

Section 172 ICA 1872: Pledge (or pawn) = bailment of goods as security for a debt or promise. The pledgee (pawnee) takes possession but does NOT get ownership. On default by the pledgor (pawnor): Section 176 gives the pawnee two remedies: (1) Bring a suit against the pawnor for the debt AND RETAIN the goods as security/collateral; OR (2) SELL the goods - but only after giving the pawnor REASONABLE NOTICE of the intended sale. If the sale realises more than the debt, the surplus goes to the pawnor; if less, the pawnor remains liable for the deficit. Key distinction from mortgage: in mortgage of movables, the mortgagee has the right of foreclosure and sale without the need for notice under the Transfer of Property Act - pledge under ICA requires notice.

Source note: ICA 1872 Section 176

Correct answer: B. Retain only the specific goods on which skill or labour has been expended until charges for that specific work are paid

Section 168 ICA 1872: PARTICULAR LIEN - 'Where the bailee has, in accordance with the purpose of the bailment, rendered any service involving the exercise of labour or skill in respect of the goods bailed, he has, in the absence of a contract to the contrary, a right to retain such goods until he receives due remuneration for the services he has rendered in respect of them.' Particular lien is available only for the specific goods on which work was done. Example: a tailor can retain the suit he made until payment for that suit - he cannot retain the bailor's other goods. Section 170: GENERAL LIEN - bankers, factors, wharfingers, attorneys and policy brokers have a general lien over ALL goods of the client in their possession for any claim against the client, not just the specific goods.

Source note: ICA 1872 Section 168

Correct answer: B. A mercantile agent, with the owner's consent, pledges goods in the ordinary course of business of a mercantile agent - the pledgee acting in good faith without notice of the agent's lack of authority gets good title

Section 178 ICA 1872 is an important exception to the nemo dat quod non habet (no one can give better title than they have) principle. It protects bona fide purchasers/pledgees from mercantile agents: if a mercantile agent (Section 2(9) Sale of Goods Act - having usual authority to sell, buy, or raise money on the security of goods) pledges goods (1) with the owner's consent as to possession, (2) in the ordinary course of business, (3) to a pledgee acting in good faith without notice of the agent's lack of authority - the pledge is as valid as if the agent had the owner's express authority. This protects the commercial world - banks and lenders accepting goods from apparent owners should not be prejudiced by secret restrictions on the agent's authority.

Source note: ICA 1872 Section 178

Correct answer: B. Bailment is delivery of goods for a general purpose (repair, safekeeping, carriage) with no security interest; pledge is delivery specifically as security for debt/promise - the pledgee has the right to sell on default, which an ordinary bailee does not

Bailment (Section 148) vs. Pledge (Section 172): (1) PURPOSE - Bailment: any lawful purpose (repair, safe custody, carriage, loan for use); Pledge: SPECIFICALLY as security for a debt or performance of a promise; (2) RIGHTS ON DEFAULT - Bailee: no right to sell the goods (only lien under Section 168 - retain until charges paid); Pledgee: under Section 176, right to SELL after notice; (3) NATURE - Bailment is a wider category - pledge is a special species of bailment; (4) CONSIDERATION - gratuitous bailment is possible (deposit for safekeeping with a friend); pledge always involves a debt or obligation.

Source note: ICA 1872 Sections 148 vs 172

Correct answer: B. The bailee must return the goods together with any natural increase or profits accruing from them - a bailee of a cow must return the calf born during bailment

Section 163 ICA 1872: 'In the absence of any contract to the contrary, the bailee is bound to deliver to the bailor, or according to his directions, any increase or profit which may have accrued from the goods bailed.' The classic illustration: a bailee of a cow must return the calf born during the period of bailment. A bailee of shares must return the dividends received. A bailee of a house (if movable property - unusual case) must return any rent. This rule reflects that the bailor retains ownership - accretions to owned property belong to the owner, not to the temporary possessor. The exception would be where the bailee has a contract explicitly entitling him to retain profits in lieu of remuneration.

Source note: ICA 1872 Section 163

Correct answer: B. Void ab initio - absolutely void and cannot be ratified even after the minor attains majority

Mohori Bibee v. Dhurmodas Ghose (1903) 30 IA 114 (Privy Council) is the foundational case establishing that a contract with a minor is VOID AB INITIO - not voidable, not valid, but absolutely void from the beginning. In this case, Dhurmodas Ghose (a minor) mortgaged his property to Brahmo Dutt (a moneylender) through Mohori Bibee. The Privy Council, interpreting Section 11 ICA (persons of full age are competent to contract), held that a minor is not competent to contract and therefore any purported contract with a minor is void from its inception. Key consequences: (1) Cannot be ratified after majority (unlike voidable contracts); (2) No estoppel against minor - minor cannot be prevented from pleading minority even if he misrepresented his age (Khan Gul v. Lakha Singh, 1928 Lah.).

Source note: Mohori Bibee v. Dhurmodas Ghose (1903)

Correct answer: B. Necessaries supplied to him - the supplier can claim reimbursement from the minor's property (not personal liability)

Section 68 ICA 1872 is the ONLY provision creating any financial liability in relation to a minor's contracts. It provides: 'If a person, incapable of entering into a contract, or any one whom he is legally bound to support, is supplied by another person with necessaries suited to his condition in life, the person who has furnished such supplies is entitled to be reimbursed from the property of such incapable person.' Key points: (1) This is not a contractual liability - it is a quasi-contractual or restitutionary right; (2) The claim is against the minor's PROPERTY, not against the minor personally; (3) 'Necessaries' must be suited to his condition in life - not luxuries. Nash v. Inman (1908) English case: wild clothing for a Cambridge student who was already adequately clothed - held NOT necessaries.

Source note: ICA 1872 Section 68

Correct answer: C. No estoppel can be raised against a minor - the minor is not prevented from pleading minority even if he misrepresented his age

Khan Gul v. Lakha Singh (1928 Lah. HC) is the leading Indian authority on estoppel and minors. The Court held that an estoppel cannot operate against a minor who has misrepresented his age to induce a contract. The reasoning: a minor's incapacity is a legal protection - to allow estoppel would be to enforce a void contract by the back door. The ICA protects minors comprehensively: (1) Void ab initio (Mohori Bibee); (2) No ratification after majority - a fresh contract with fresh consideration needed (Ajudhia Prasad v. Chandan Lal, 1937 All.); (3) No estoppel (Khan Gul); (4) A minor CAN sue on a contract for his benefit - a minor can be a beneficiary but cannot be bound as a contracting party; (5) Section 68 provides the narrow exception for necessaries.

Source note: Khan Gul v. Lakha Singh (1928 Lah.)

Correct answer: B. He is capable of understanding the contract and of forming a rational judgment as to its effect upon his interests at the time of making it

Section 12 ICA 1872 provides the test for contractual capacity regarding soundness of mind: 'A person is said to be of sound mind for the purpose of making a contract if, at the time when he makes it, he is capable of understanding it AND of forming a rational judgment as to its effect upon his interests.' Two cumulative requirements: (1) Understanding the contract; (2) Forming rational judgment about its effect on his interests. Section 12 also addresses situations where a person is usually of unsound mind but occasionally of sound mind - such a person may contract during a lucid interval. A person usually of sound mind but occasionally of unsound mind may not contract during a period of unsoundness. The test is applied at the TIME OF MAKING the contract.

Source note: ICA 1872 Section 12

Correct answer: B. At 21 years if a guardian has been appointed by a court; at 18 years in all other cases

The Indian Majority Act 1875, as amended, provides: The age of majority is 18 years in all cases. However, after the Guardian and Wards Act 1890 (which replaced the earlier guardianship provisions), the distinction relating to court-appointed guardians has been modified. Under current law, the age of majority is uniformly 18 years. For exam purposes: the original provision under the 1875 Act distinguished between cases where a guardian was appointed by a court (21 years) vs. others (18 years) - this is still tested in examinations. Courts apply Section 11 ICA read with the Majority Act.

Source note: Indian Majority Act 1875

Correct answer: B. Remains intact for personal matters but he cannot deal with his property - which vests in the Resolution Professional/Insolvency Administrator

Under the Insolvency and Bankruptcy Code 2016 (and earlier under the Presidency Towns Insolvency Act and Provincial Insolvency Act), an adjudicated insolvent is not stripped of legal capacity to contract generally. However, his PROPERTY vests in the Official Assignee/Resolution Professional/Insolvency Administrator - he cannot deal with that property. He retains contractual capacity for: (1) personal services contracts; (2) contracts relating to future earnings; (3) contracts not involving the vested property. Section 11 ICA lists 'persons disqualified by law from contracting' as a category of incompetent persons - insolvency falls under this in specific statutory contexts. Upon discharge from insolvency, the disqualification is lifted.

Source note: ICA 1872 Section 11 / IBC 2016

Correct answer: B. Ratification of a void contract is impossible - a void contract cannot be ratified; a fresh contract with fresh consideration is required after majority

Ajudhia Prasad v. Chandan Lal (AIR 1937 All. HC) firmly establishes the position that a void contract - which a minor's contract is - cannot be ratified. Ratification legally relates back to the original transaction and adopts it as binding from the beginning. But since a minor's contract is void ab initio (not merely voidable), there is nothing to ratify - you cannot breathe life into a nullity. For a minor who wishes to be bound by a similar obligation after attaining majority, the parties must enter into a FRESH CONTRACT with FRESH CONSIDERATION. A mere promise to fulfil the obligation undertaken during minority, without fresh consideration, is also void (it lacks consideration - the original contract being void provides no consideration).

Source note: Ajudhia Prasad v. Chandan Lal (AIR 1937 All.)