Law of Contract MCQs for Judiciary, Page 6

Correct answer: B. A minor's contract is void ab initio; a contract by a person of unsound mind may be voidable - depending on whether the other party knew of the unsoundness

There is a nuanced difference between contracts by minors and contracts by persons of unsound mind under Indian law. A MINOR'S CONTRACT is uniformly VOID AB INITIO (Mohori Bibee) regardless of whether the other party knew of the minority. A CONTRACT BY A PERSON OF UNSOUND MIND - the position is less clear. Section 12 ICA says such a person is not competent to contract, suggesting void. However, English law (Molton v. Camroux) treats it as voidable if the other party was unaware of the unsoundness and contracted in good faith. Some Indian courts have followed this approach. The better view under Indian law is that it is void, but some courts treat it as voidable depending on the circumstances and whether the party seeking to avoid it can show unsoundness at the material time.

Source note: ICA 1872 Section 11-12

Correct answer: C. An alien friend in times of peace

Section 11 ICA provides that persons disqualified from contracting include: (1) minors; (2) persons of unsound mind; (3) persons disqualified by law. 'Disqualified by law' covers: (a) alien enemies (cannot contract with citizens of a country at war with India - contract is void as against public policy; but ALIEN FRIENDS in peacetime CAN contract); (b) foreign sovereigns and ambassadors (immune from suit but CAN contract; enforcement is difficult); (c) convicts during sentence (limited capacity); (d) undischarged insolvents (as to property vested in Official Assignee). An ALIEN FRIEND in peacetime has full contractual capacity - he can sue and be sued in Indian courts on contracts. Therefore, option (C) is the correct answer - an alien friend is NOT disqualified.

Source note: ICA 1872 Section 11

Correct answer: C. The promisee or any other person

Section 2(d) ICA 1872: 'When at the desire of the promisor, the promisee OR ANY OTHER PERSON has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise.' The crucial Indian law position: CONSIDERATION CAN MOVE FROM A THIRD PARTY - unlike English law where consideration must move from the promisee (Tweddle v. Atkinson, 1861). This was authoritatively settled in Venkata Chinnaya Rau v. Venkataramaya Garu (1881) Mad. HC, where the Court held that a sister could enforce a promise made by her brothers in favour of third parties (including her) even though she gave no consideration herself.

Source note: ICA 1872 Section 2(d) / Venkata Chinnaya Rau case

Correct answer: A. A promise to pay a time-barred debt, a promise made for natural love and affection in a registered document, and a promise to compensate a person who has voluntarily done something for the promisor

Section 25 ICA states that an agreement without consideration is void, BUT it provides three important exceptions: (1) Section 25(1) - Natural love and affection: a promise in writing registered, made on account of natural love and affection between parties standing in near relation to each other (e.g., Bhira v. Ram - a father's deed giving property to son out of natural love); (2) Section 25(2) - Past voluntary service: a promise to compensate a person who has already voluntarily done something for the promisor (not illegal); (3) Section 25(3) - Time-barred debt: a promise in writing signed by the debtor or his authorised agent to pay a wholly or partly time-barred debt. Additionally, completed gifts (Explanation 1 to Section 25) do not need consideration.

Source note: ICA 1872 Section 25

Correct answer: C. A subscription to build a public hall is enforceable if the promisee has incurred obligations on the faith of the promise - promissory estoppel applies

Kedarnath Bhattacharji v. Gorie Mahomed (1886) 14 ILR Calcutta is the foundational Indian case on promissory estoppel and subscription liability. GM subscribed to contribute towards construction of a town hall. The building was constructed on the faith of this and other subscriptions. When GM refused to pay, KB sued. The Calcutta HC held the promise was enforceable because the promisee (KB) had incurred obligations (contracted for construction) on the faith of the promise - the promise had acted as consideration for the obligations incurred. This case is frequently cited for: (1) promissory estoppel; (2) the principle that consideration need not flow directly from the promisee as long as the promisee has suffered detriment on the faith of the promise.

Source note: Kedarnath Bhattacharji v. Gorie Mahomed (1886)

Correct answer: A. Only parties to a contract can sue on it - a stranger to the contract has no right of action

The Privity of Contract doctrine (Tweddle v. Atkinson, 1861; Dunlop v. Selfridge, 1915) holds that only a party to a contract can sue or be sued under it. A 'stranger to the contract' - even if the contract was made for their benefit - cannot enforce it. However, India recognises EXCEPTIONS: (1) Beneficiary under a trust (Nawab Khwaja Muhammad Khan v. Nawab Husaini Begam, 1910 - Privy Council held a daughter could enforce a contract made for her benefit); (2) Acknowledgment creating legal relationship with third party; (3) Assignment of benefits; (4) Estoppel; (5) Agency. In Beswick v. Beswick (1968) - an English case - a widow enforced a contract as administratrix of her husband's estate since she could not do so personally as a third party.

Source note: Avtar Singh Chapter 4 / Tweddle v. Atkinson

Correct answer: B. Inadequate

Explanation 2 to Section 25 ICA 1872 explicitly states: 'An agreement to which the consent of the promisor is freely given is not void merely because the consideration is inadequate.' This embodies the principle that courts do not inquire into the adequacy of consideration - they only ask whether consideration exists, not whether it is fair or proportionate (Thomas v. Thomas, 1842 - £1 per year rent was adequate consideration). HOWEVER, gross inadequacy of consideration may be taken into account as evidence of fraud, coercion or undue influence under Section 25 Explanation 2 itself: 'the inadequacy of the consideration may be taken into account by the Court in determining the question whether the consent of the promisor was freely given.'

Source note: ICA 1872 Section 25 Explanation 2

Correct answer: B. Valid under Section 2(d) ICA because the definition includes acts already done at the desire of the promisor

The position on past consideration differs between English and Indian law. Under English law, past consideration is generally not good consideration (Roscorla v. Thomas, 1842 - past sale does not support a subsequent promise about the goods). Under INDIAN LAW, Section 2(d) ICA includes in its definition 'has done or abstained from doing' - an act already done. This clearly encompasses past acts. So a past voluntary act done at the desire of the promisor CAN be valid consideration in India. This is confirmed by Section 25(2) which allows enforcement of a promise to compensate a person who has already voluntarily done something for the promisor. Key distinction: the past act must have been done at the DESIRE of the promisor - a completely voluntary act not requested does not qualify.

Source note: ICA 1872 Section 2(d) / Section 25(2)

Correct answer: B. No act was done in reliance on the subscription - no consideration had moved

Abdul Aziz v. Masum Ali (AIR 1914 Allahabad) must be read alongside Kedarnath Bhattacharji to understand when a charitable subscription becomes enforceable. In this case, the subscription for construction of a mosque was held unenforceable because no work had been done in reliance on the promise - no consideration had moved from the promisee. The Court drew a critical distinction: if the promisee acts in reliance on the promise and incurs obligations (as in Kedarnath), the promise becomes enforceable; but if the promisee has done nothing in reliance, there is no consideration and the promise remains a bare promise. The key test is therefore whether the promisee has altered his position in reliance on the promise.

Source note: Abdul Aziz v. Masum Ali (AIR 1914 All.)

Correct answer: B. An act done without the promisor's request cannot constitute consideration - as held in Durga Prasad v. Baldeo (1880)

Section 2(d) ICA expressly requires that the act or abstinence constituting consideration must be done 'at the desire of the promisor.' In Durga Prasad v. Baldeo (1880), DP built a market at the request of the Collector (a government officer). Baldeo (a shop owner in the market) promised to pay DP a commission. DP sued on this promise. The Court held the promise was unenforceable because the market was built at the desire of the Collector, NOT at the desire of Baldeo. Since consideration (building the market) was not moved at the desire of the promisor (Baldeo), it could not support Baldeo's promise. This rule prevents strangers from imposing obligations on parties by performing unrequested acts.

Source note: Durga Prasad v. Baldeo (1880)

Correct answer: B. The promise must be in writing, registered, made on account of natural love and affection, between parties standing in near relation

Section 25(1) ICA 1872: An agreement made without consideration is valid if it is expressed in writing AND registered under the law for registration of documents AND is made on account of natural love and affection AND is between parties standing in near relation to each other. ALL FOUR elements must co-exist: (1) Expressed in writing; (2) Registered; (3) Made on account of natural love and affection (there must actually be affection - not just a legal relationship); (4) Near relation (not defined in the ICA but understood to mean close family members). A mere recital of natural love and affection does not suffice if there is no genuine affection. Key case: RE Bhira v. Ram - a deed by a father giving property to his son was enforced under this exception.

Source note: ICA 1872 Section 25(1)

Correct answer: B. It is forbidden by law, would defeat provisions of any law, is fraudulent, involves injury to a person or property of another, or the court regards it as immoral or opposed to public policy

Section 23 ICA 1872 lists the circumstances when consideration or object is unlawful. It is unlawful if: (1) Forbidden by law - directly prohibited by statute or regulation; (2) Would defeat provisions of any law - even if not directly prohibited, if enforcing the contract would undermine a statutory objective; (3) Fraudulent - the contract involves deception; (4) Injures a person or property - harm to third parties; (5) Immoral - courts assess by contemporary standards; (6) Opposed to public policy - this is the widest and most flexible ground, including trading with enemy, agreements to defraud creditors, and agreements in restraint of marriage. Gherulal Parakh v. Mahadeodas (AIR 1959 SC 781) clarifies that a wager is void under Section 30 but not, by that fact alone, unlawful under Section 23.

Source note: ICA 1872 Section 23

Correct answer: B. A promise to contribute to completion of a partially built temple was unenforceable where no consideration was established - the subsequent promise was not supported by fresh consideration

Doraswami Iyer v. Arunachala Ayyar (1935) 43 LW 259 (Madras) is frequently compared with Kedarnath Bhattacharji to illustrate when a charitable subscription is NOT enforceable. In Doraswami, the defendant promised to contribute towards completion of a partially built temple. No work was done in reliance on his specific promise. The Madras HC held the promise was unenforceable. The distinction from Kedarnath is critical: in Kedarnath, the promisee (KB) incurred obligations/contracted for construction in reliance on the subscription - creating consideration through detriment. In Doraswami, no reliance-based detriment occurred after the promise. This confirms the rule: a charitable subscription becomes enforceable only when the promisee acts to his detriment in reliance on the promise - not before.

Source note: Doraswami Iyer v. Arunachala Ayyar (1935 Mad.)

Correct answer: B. Voidable at the option of the party whose consent was so obtained

Section 19 ICA 1872 provides: 'When consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused.' VOIDABLE - not void. The injured party has the option to affirm (keep the contract alive) or avoid (rescind). If the contract is rescinded: Section 64 - the party rescinding must restore benefits received; Section 65 - restitution applies. The only exception is MISTAKE - if consent is caused by mistake of fact (Section 20 - bilateral mistake on essential matter), the agreement is VOID, not voidable. If consent is caused by unilateral mistake (Section 22), the contract is NOT voidable. Parties can still claim damages for misrepresentation under the law of torts.

Source note: ICA 1872 Section 19

Correct answer: B. Under Section 15 ICA, coercion includes threatening to commit an act forbidden by the IPC even if the act is committed or threatened against a stranger - not just the contracting party; English duress requires the threat to be against the contracting party or his family

Section 15 ICA defines coercion: 'Coercion is the committing, or threatening to commit, any act forbidden by the Indian Penal Code, OR the unlawful detaining, or threatening to detain, any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement.' The phrase 'to the prejudice of any person whatever' is crucial - it means coercion can be directed against ANY person (including a complete stranger), not necessarily the contracting party. Under English common law duress, the threat must be directed at the contracting party or someone closely connected. Also, Section 15 is wider - it includes threats to property (unlawful detention), not just threats of physical violence. Ranganayakamma v. Alwar Setti (1889) Mad. - preventing a dead body from being removed unless a widow signed a deed was held coercion.

Source note: ICA 1872 Section 15

Correct answer: B. Where one party is in a position to dominate the will of the other - specifically where there exists a relationship of active confidence (parent-child, guardian-ward, trustee-beneficiary, religious adviser-devotee, doctor-patient)

Section 16 ICA 1872: Undue influence is where a person in a position to dominate the will of another uses that position to obtain an unfair advantage. Section 16(2) creates a PRESUMPTION of domination in cases of: (a) real or apparent authority (employer-employee, creditor-debtor - not automatically but may apply); (b) fiduciary relationship (parent-child, guardian-ward, trustee-beneficiary, solicitor-client, doctor-patient, religious adviser-devotee); (c) mental distress, infirmity or senility. Raghunath Prasad v. Sarju Prasad (1923) Privy Council - a distressed debtor mortgaging property at unconscionable terms: the Court presumed undue influence because of the debtor's vulnerability. The EFFECT of proving undue influence: agreement is voidable under Section 19A - but the party must RESTORE benefits received to rescind.

Source note: ICA 1872 Section 16

Correct answer: C. A mere non-disclosure of a fact which the other party could have discovered by reasonable diligence, where there is no duty to disclose

Section 17 ICA 1872 defines fraud as: (1) a false suggestion of fact by one who does not believe it to be true; (2) active concealment of a fact (not mere non-disclosure); (3) a promise made without intention to perform; (4) any other act fitted to deceive; (5) any such act or omission as the law specifically declares fraudulent. The KEY distinction is between ACTIVE CONCEALMENT (fraud - suppression of a fact that ought to be disclosed) and MERE NON-DISCLOSURE (not fraud - unless there is a legal or equitable duty to disclose). Section 17 Explanation: mere silence is not fraud UNLESS: (a) there is a duty to speak (contracts uberrimae fidei - utmost good faith - like insurance, partnership, family settlements); or (b) silence itself is equivalent to speech in the circumstances. Compare: non-disclosure in insurance is treated as fraud under the Insurance Act (duty of utmost good faith).

Source note: ICA 1872 Section 17

Correct answer: B. Fraud requires dishonest belief in the falsity; misrepresentation is an innocent false statement made without knowledge of falsity or without intention to deceive

The critical distinction between fraud (Section 17) and misrepresentation (Section 18): FRAUD requires a dishonest state of mind - the person knows the statement is false, believes it to be false, or makes it recklessly as to its truth. MISREPRESENTATION is an innocent false statement - the person believes it to be true but it is objectively false. Legal consequences: Both make the contract VOIDABLE under Section 19 - the innocent party can rescind. The difference is that for FRAUD, the innocent party can additionally claim DAMAGES under the law of torts/Section 17. For INNOCENT MISREPRESENTATION, only rescission is available (no damages under ICA) unless the misrepresentation was also negligent. Derry v. Peek (1889) HL established the English law of fraudulent misrepresentation - dishonest belief or recklessness is required.

Source note: ICA 1872 Sections 17-18

Correct answer: B. Void - both parties under a mistake as to a matter of fact essential to the agreement

Section 20 ICA 1872: 'Where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void.' THREE elements must be present: (1) BILATERAL - both parties must be mistaken (not just one); (2) MISTAKE OF FACT - not a mistake of law (Section 21 - mistake of law does not affect validity, though this principle has been modified by later cases); (3) ESSENTIAL MATTER - the mistake must go to the root of the agreement (identity of parties, existence of subject matter, or quality of subject matter in some cases). Bell v. Lever Brothers (1932) HL - not every mistake as to quality voids a contract; only those that make the subject matter essentially different from what was contracted for. Couturier v. Hastie (1856) - goods had already perished before contract; void under Section 20 read with Section 7 ICA.

Source note: ICA 1872 Section 20

Correct answer: C. Not voidable - the contract stands

Section 22 ICA 1872: 'A contract is not voidable merely because it was caused by one of the parties to it being under a mistake as to a matter of fact.' Unilateral mistake does NOT affect the validity of a contract - the contract remains binding. The rationale: it would be unfair to allow one party to escape a contract simply because they made a private mistake. The innocent party (who was not mistaken) should not suffer because of the other's unilateral error. EXCEPTION: If the non-mistaken party KNEW of the other's mistake and exploited it, the contract may be voidable for fraud or misrepresentation. Smith v. Hughes (1871) - A thought he was buying old oats; B knew A wanted old oats but remained silent; no duty to correct A's mistake - contract valid. If B had actively misrepresented, it would be fraud.

Source note: ICA 1872 Section 22

Correct answer: B. Undue influence renders an agreement voidable and the party must restore benefits received - the Court can grant conditional relief under Section 19A

Tarsem Singh v. Sukhminder Singh (1998) 3 SCC 471 is significant for the application of Section 19A ICA - the remedy for undue influence. The Supreme Court affirmed that when a contract is set aside on grounds of undue influence, the Court may require the party seeking to rescind to restore benefits received under the contract. Section 19A provides: 'When consent to an agreement is caused by undue influence, the agreement is a contract voidable at the option of the party whose consent was so caused. Any such contract may be set aside absolutely or, if the party who was entitled to avoid it has received any benefit thereunder, upon such terms and conditions as to the Court may seem just.' This introduces a principle of conditional rescission - equity prevents unjust enrichment.

Source note: Tarsem Singh v. Sukhminder Singh (1998) SC

Correct answer: B. Before the contract is performed and before third party rights are acquired - delay and affirmation may bar rescission

Rescission for misrepresentation (and fraud) is an equitable remedy subject to the following bars: (1) AFFIRMATION - if the innocent party, with knowledge of the misrepresentation, elects to affirm the contract (continues with it), rescission is no longer available; (2) LACHES - unreasonable delay in exercising the right of rescission; (3) THIRD PARTY RIGHTS - if a bona fide purchaser for value without notice has acquired an interest in the subject matter, rescission against that third party is barred (though the original misrepresentor may still be liable in damages); (4) IMPOSSIBILITY OF RESTITUTION - if the parties cannot be restored to their original positions (e.g., goods consumed), rescission may be refused. Long v. Lloyd (1958) CA - delayed rescission after affirmation was barred.

Source note: ICA 1872 Section 19 / Avtar Singh Chapter 6

Correct answer: B. Mere existence of a fiduciary relationship does not establish undue influence - the party must also show the relationship was used to obtain an unfair advantage

Subhas Chandra Das Mushib v. Ganga Prasad Das Mushib (AIR 1967 SC 878) is an important Supreme Court case refining the law of undue influence. An elderly grandfather gave property to his grandson (not to his own children). The Court rejected the claim that undue influence was established. The Supreme Court held: (1) Mere existence of a relationship that could potentially give rise to undue influence (even a close family relationship) is NOT itself sufficient; (2) There must be evidence that the position was USED to obtain an unfair advantage; (3) Ordinary natural gifts to family members, even without independent advice, are not necessarily tainted by undue influence. The party alleging undue influence must prove: (a) that the other was in a position to dominate; and (b) that the position was used to obtain an unfair advantage.

Source note: Subhas Chandra Das Mushib v. Ganga Prasad Das Mushib (AIR 1967 SC 878)

Correct answer: B. Is not affected - a mistake of law of the land does not render the contract voidable

Section 21 ICA 1872 provides: 'A contract is not voidable because it was caused by a mistake as to any law in force in India; but a mistake as to a law not in force in India has the same effect as a mistake of fact.' The general rule: MISTAKE OF LAW (law of the land) does NOT affect the validity of a contract. The rationale is the maxim 'ignorantia juris non excusat' (ignorance of law is no excuse). However, in ENGLISH LAW (and modified by later Indian cases), a mistake of private rights may be treated as a mistake of fact - for example, a mistaken belief about who owns property. Additionally, money paid under a mistake of law was long held irrecoverable in England but can now be recovered following Kleinwort Benson v. Lincoln CC (1998) HL - this position has been adopted in some Indian decisions too.

Source note: ICA 1872 Section 21

Correct answer: B. A transaction between a dominant party and a weaker party (here, a niece acting under religious guidance of an uncle-trustee) can be set aside for undue influence when it was unconscionable and the dominant party did not ensure independent advice

Lakshmi Amma v. T. Narayana Bhatta (1970) 3 SCC 159 involves a niece who, under the influence of her uncle (who was also the family trustee and had religious authority over her), gave up valuable property rights. The Supreme Court set aside the transaction for undue influence. Key principles: (1) Religious authority combined with a position of trust creates a strong presumption of undue influence; (2) Where a transaction is unconscionable (giving up substantial rights for little benefit), and there is a dominant relationship, the burden shifts to the dominant party to show the transaction was fair and that independent advice was available; (3) 'Real and apparent authority' plus 'mental distress' - Section 16(2)(a) and (c) - can both apply in the same transaction.

Source note: Lakshmi Amma v. T. Narayana Bhatta (1970 SC)