Law of Contract MCQs for Judiciary, Page 8

Correct answer: B. Restore the benefit or make compensation to the person from whom it was received - restitution applies to avoid unjust enrichment

Section 65 ICA 1872: 'When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it, to the person from whom he received it.' This is the principle of RESTITUTION or unjust enrichment prevention. It applies: (1) To agreements discovered to be void (e.g., a contract with a minor that the other party didn't know about); (2) To contracts that BECOME void (e.g., frustration under Section 56 - benefits received before frustration must be restored). An important application: in contracts rendered void by illegality, Section 65 may not apply if the party seeking restitution is in pari delicto (equally at fault). Compare Section 64 - restitution when a voidable contract is rescinded.

Source note: ICA 1872 Section 65

Correct answer: B. A general rule - courts shall ordinarily grant specific performance, shifting from discretion to the default remedy (subject only to statutory bars in Section 14 and 16)

The Specific Relief (Amendment) Act 2018 made a landmark change to Section 10 SRA 1963 - it replaced 'the court may in its discretion' with 'the court shall' grant specific performance. This shifts specific performance from a DISCRETIONARY remedy to a DEFAULT remedy. Pre-2018, English principles (specific performance only when damages were inadequate) heavily influenced Indian courts. Post-2018: specific performance is available as of right subject only to the bars in: Section 14 (contracts not specifically enforceable - e.g., personal service contracts, contracts requiring constant supervision); Section 16 (personal bars - plaintiff's own breach or inequitable conduct); Section 11(2) (part performance). The 2018 Amendment was intended to assist real estate transactions by making performance of development agreements enforceable.

Source note: Specific Relief Act 1963 Section 10 (as amended 2018)

Correct answer: B. Substitution of a new contract in place of the old one - the old contract is discharged and replaced by the new agreement (either with new parties or new terms)

Section 62 ICA 1872: 'If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed.' NOVATION involves: (1) A new contract substituted for the old one; (2) The old contract is extinguished; (3) All parties must consent. Types: (i) Novation as to parties - a third party substituted for one of the original parties (e.g., in firm dissolution, a new partner takes over an existing partner's obligations); (ii) Novation as to terms - the parties agree to new terms replacing the old ones. Novation must be distinguished from: (a) VARIATION - modification of some terms without replacing the whole contract; (b) ACCORD AND SATISFACTION - performance by a different method; (c) RESCISSION - extinguishing the contract without replacing it. Consideration for novation flows from the new obligations.

Source note: ICA 1872 Section 62

Correct answer: B. The contract becomes voidable at the option of the promisee - the promisee may set it aside or keep it alive and claim compensation for time-loss

Section 55 ICA 1872: Contracts where time is expressly or impliedly of the essence - if the promisor fails to perform at the specified time, the contract becomes VOIDABLE at the option of the promisee (Section 55 para 1). Additionally: the promisee may claim compensation for any loss occasioned by the failure (Section 55 para 2). If time is NOT of the essence (the usual position in equity for contracts relating to sale of immovable property under Indian law), failure to perform at the specified time does not void the contract but only entitles the promisee to compensation for the delay (Section 55 para 3). The courts have held that in commercial contracts (especially commodities), time is generally of the essence. In contracts for sale of land, time is generally NOT of the essence unless expressly stated.

Source note: ICA 1872 Section 55

Correct answer: B. It is void - being unlawful under Section 23, courts will not enforce it and will not award restitution if both parties are in pari delicto

Section 23 ICA makes the consideration/object 'unlawful' in specified circumstances including being opposed to public policy - and Section 24 provides that every agreement of which the object or consideration is unlawful is VOID. The doctrine of 'in pari delicto potior est conditio defendentis' applies: if both parties are equally at fault (both knowing of and participating in the illegal purpose), neither can sue the other - the court leaves them where they are. However, if one party is less guilty (locus poenitentiae - opportunity to withdraw before the illegal purpose is executed), they may be entitled to recover (e.g., the defrauded party, or one who was pressured). Key cases: Pearce v. Brooks (1866) - carriage hire knowing it was for prostitution; Indian case: K.D. Gaur v. State Bank of India - illegal consideration in loan for bribery - unenforceable.

Source note: ICA 1872 Sections 23-24

Correct answer: B. The plaintiff must take all reasonable steps to minimise the loss arising from the breach - failure to mitigate reduces the damages recoverable

Section 73 ICA 1872 provides: 'Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach' - this implicitly includes the mitigation requirement. In Indian and English law, the injured party must take reasonable steps to minimise loss. It is NOT a contractual obligation - the plaintiff does not have to mitigate; but if they do not, they cannot recover losses that COULD have been avoided by reasonable steps. The standard is 'reasonable' - not 'all possible' steps. Payzu v. Saunders (1919) CA - buyer who refused to accept the seller's offer to deliver on cash terms (after seller's earlier breach) could not recover losses that would have been avoided. In employment cases: a dismissed employee should seek alternative employment - British Westinghouse Electric v. Underground Electric Railways (1912).

Source note: ICA 1872 Section 73

Correct answer: D. Section 37 - obligation to perform promises

Sections 68-72 ICA contain quasi-contractual or restitutionary obligations - obligations imposed by law to prevent unjust enrichment, not arising from agreement: Section 68 - Necessaries supplied to persons incapable of contracting; Section 69 - Payment by interested person (one who pays money that another is bound to pay can recover from that other); Section 70 - Obligation of person enjoying benefit of non-gratuitous act (if a person lawfully does something for another and the other enjoys the benefit, the other must compensate - Moon v. Durning); Section 71 - Finder of goods (obligation of finder to take care and restore); Section 72 - Liability for money paid by mistake or under coercion (can recover). Section 37 is part of the law of CONTRACT performance, not quasi-contract.

Source note: ICA 1872 Sections 68-72

Correct answer: B. Within a reasonable time and at the usual place of business - determined by what is reasonable in all the circumstances

Sections 46-50 ICA deal with time and place of performance: Section 46 - where no time is specified, the promisor must perform within a reasonable time; Section 47 - where time is specified but no application has been made by promisee, performance must be at a reasonable hour on that day; Section 48 - where place is not specified and no application is required, the promisor must ask the promisee where performance is required and must perform there; Section 49 - for delivery of goods at a reasonable time. The concept of 'reasonable time' is objective - what a reasonable person would regard as appropriate given the nature of the subject matter, trade custom, and the circumstances of the particular contract.

Source note: ICA 1872 Sections 46-50

Correct answer: B. Dispense with or remit, wholly or in part, the performance of the promise made to him - this is called remission

Section 63 ICA 1872 introduces the concept of REMISSION: 'Every promisee may dispense with or remit, wholly or in part, the performance of the promise made to him, or may extend the time for such performance, or may accept instead of it any satisfaction which he thinks fit.' This is an important provision enabling: (1) Full remission - promisee waives the entire performance (gift of the debt); (2) Partial remission - reduces the obligation (common in debt settlements); (3) Extension of time - giving the promisor more time; (4) Accord and satisfaction - accepting a different performance in substitution. No consideration is needed for a valid remission under Section 63 - the promisee's agreement to accept less or different is binding even without consideration (modification of the Pinnel's Case rule which required consideration in English law).

Source note: ICA 1872 Section 63

Correct answer: B. Now the default remedy - courts shall ordinarily grant specific performance unless barred by Section 14 or 16 sra

The Specific Relief (Amendment) Act 2018 amended Section 10 SRA 1963 to replace 'the court may in its discretion' with 'the court shall enforce specific performance' - making specific performance the DEFAULT remedy. The aim was primarily to facilitate enforcement of real estate development agreements and infrastructure contracts where project-specific obligations cannot be adequately compensated in money. The court must grant specific performance UNLESS: Section 14 SRA bars it (non-specifically enforceable contracts - contracts for personal service, constant supervision, uncertain terms, inequitable contracts); Section 16 SRA bars it (personal disqualification of plaintiff - plaintiff himself in breach, not ready and willing to perform, has obtained the contract through fraud). Section 20 SRA: substituted performance - even if the plaintiff seeks to get the work done through another, the defendant must compensate.

Source note: Specific Relief Act 1963 Section 10 as amended

Correct answer: C. A contract for sale of a unique plot of land in a specific location

Section 14 SRA 1963 (before and after amendment) lists contracts NOT specifically enforceable, which in effect means all OTHER contracts ARE specifically enforceable. NOT specifically enforceable: (a) Compensation in money is an adequate remedy; (b) Contract for personal services (employer-employee, artist's performance - cannot be compelled); (c) Contract that depends on personal volition of the promisor (trust and confidence situations); (d) Contract requiring constant supervision (courts cannot act as ongoing supervisors); (e) Contracts of uncertain terms. A contract for sale of UNIQUE LAND (a specific plot at a specific location) is specifically enforceable because land is unique - damages are inadequate since no two plots are identical. This was the traditional basis before 2018 and remains a strong ground post-2018.

Source note: Specific Relief Act 1963 Section 14

Correct answer: B. Defence - a transferee who has taken possession and acted on the contract can resist the transferor's suit to recover possession even if the contract was not registered

Section 53A Transfer of Property Act 1882 (Indian version of English doctrine of part performance): If a person contracts to transfer immovable property and the transferee: (1) Has taken possession (or continued possession), AND (2) Has done some act in furtherance of the contract, AND (3) Has performed or is willing to perform his part of the contract - THEN the transferor cannot enforce any right in respect of the property inconsistent with the contract. This is a SHIELD, not a SWORD - Section 53A is a DEFENCE only. The transferee cannot use it to sue for specific performance or to claim title. Compare English Maddison v. Alderson (1883) and the Law of Property (Miscellaneous Provisions) Act 1989. Section 53A was amended in 2001 to require that the contract must be in writing and signed by the transferor.

Source note: Transfer of Property Act 1882 Section 53A

Correct answer: B. Any person entitled to any legal character or any right as to any property is denied or clouded - the court can declare the right and the declaration is binding

Section 34 SRA 1963: 'Any person entitled to any legal character, or to any right as to any property, may institute a suit against any person denying, or interested to deny, his title to such character or right, and the court may in its discretion make therein a declaration that he is so entitled, and the plaintiff need not in such suit ask for any further relief.' Key features: (1) The plaintiff must have a PRESENT existing right or character - not a future contingent right; (2) There must be an adversarial interest - someone denying or interested in denying the right; (3) The suit for declaration is DISCRETIONARY - the court need not declare if no immediate relief will flow; (4) Proviso: if the plaintiff can seek further consequential relief (e.g., possession) and does not do so, the court shall refuse the declaration. Bai Vijli v. Nansa Nagar - a plaintiff who does not ask for possession along with title declaration may be refused.

Source note: Specific Relief Act 1963 Section 34

Correct answer: B. Commands the defendant to do a positive act to undo a wrongful act already committed - it is a discretionary remedy awarded sparingly and only in exceptional circumstances

Section 39 SRA 1963: 'When to prevent the breach of an obligation it is necessary to compel the performance of certain acts which the court is capable of enforcing, the court may in its discretion grant an injunction to prevent the breach complained of, and also to compel performance of the requisite acts.' MANDATORY INJUNCTION - commands the defendant to DO something (positive act), as opposed to PROHIBITORY INJUNCTION which commands them NOT to do something. Because it compels positive action, courts grant mandatory injunctions MORE RELUCTANTLY: (1) The wrong must be clearly established; (2) The balance of convenience must strongly favour granting; (3) The wrongdoer must be in a position to comply; (4) Damages must be inadequate. Redland Bricks Ltd v. Morris (1970 HL) - defendant's excavation caused plaintiff's land to slip; mandatory injunction to restore support was granted.

Source note: Specific Relief Act 1963 Section 39

Correct answer: B. The party who has suffered by the breach to get the contract performed by a third party at the expense of the party in default - a new remedy introduced by the 2018 Amendment

Section 20 SRA 1963 (inserted by the Specific Relief Amendment Act 2018) introduces SUBSTITUTED PERFORMANCE as a new remedy: 'Without prejudice to the generality of the provisions contained in the Indian Contract Act, 1872, and, except as otherwise agreed upon by the parties of the contract, where a contract is broken due to non-performance of promise by any party, the party who suffers by such breach shall have the right to obtain substituted performance through a third party or by its own agency, and to recover the expenses and other costs actually incurred, spent or suffered by him, from the party committing such breach.' This allows the innocent party to get the work done by another party and recover costs - without going through lengthy court proceedings. It is an alternative to specific performance.

Source note: Specific Relief Act 1963 Section 20 as amended 2018

Correct answer: B. The plaintiff must plead and prove continuous readiness and willingness.

Section 16(c) SRA 1963: specific performance shall not be granted to a plaintiff 'who fails to aver and prove that he has performed or has always been ready and willing to perform the essential terms of the contract which are to be performed by him.' READINESS AND WILLINGNESS: (1) Must be pleaded specifically in the plaint - failure to plead is fatal (Jagdish Singh v. Natthu Singh, AIR 1992 SC); (2) Must be continuous from date of contract to date of decree - a temporary inability may not be fatal if circumstances explain it; (3) Includes financial readiness - the plaintiff must be able to pay the consideration. Saradamani Kandappan v. S. Rajalakshmi (2011 SC) - the Supreme Court held that readiness and willingness is a condition precedent that must be specifically pleaded and proved.

Source note: Specific Relief Act 1963 Section 16(c)

Correct answer: B. The sale of goodwill of a business - seller may be restrained from carrying on similar business within reasonable limits of place and time

Section 27 ICA 1872 provides: 'Every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void.' This is an absolute rule in India - unlike English law where a restraint is valid if 'reasonable' (Nordenfelt v. Maxim Nordenfelt Gun Co., 1894). The EXCEPTION in Section 27 itself: the sale of the goodwill of a business - the buyer can restrain the seller from carrying on a similar business within specified local limits and within a reasonable time, as long as those limits are reasonable considering the nature of the business. Niranjan Shankar Golikari v. Century Spinning (AIR 1967 SC) - restraints during the period of employment ARE valid; only post-employment restraints are void under Section 27. Superintendence Co. of India v. Krishan Murgai (AIR 1980 SC) confirmed post-employment non-compete clauses are void.

Source note: ICA 1872 Section 27

Correct answer: B. Wagering agreements are void but not illegal under Section 30 ICA - therefore a collateral transaction (e.g., a loan to fund the wager) is valid and enforceable

Gherulal Parakh v. Mahadeodas Maiya (AIR 1959 SC 781) is the landmark Supreme Court case distinguishing void from illegal agreements in the context of wagering contracts. Section 30 ICA makes wagering agreements void, but not illegal. The ordinary consequence is that a collateral transaction to a void but not illegal wager is not automatically unlawful under Section 23. That is why the case is routinely cited for the distinction between a void agreement and an illegal one.

Source note: Gherulal Parakh v. Mahadeodas Maiya (AIR 1959 SC 781)

Correct answer: B. Agreements to refer disputes to arbitration are valid - Section 28 does not apply to valid arbitration agreements

Section 28 ICA 1872 (as amended by the Arbitration and Conciliation Act 1996 amendment): Agreements that restrict parties from enforcing rights by legal proceedings in ordinary tribunals, or that limit the time for legal proceedings, are void. EXCEPTIONS: (1) Arbitration agreements - these are valid and expressly protected (Section 28 was amended to align with the Arbitration and Conciliation Act 1996); (2) The Limitation Act's prescribed periods for suits cannot be shortened by contract, but can parties agree on extended limitation? Generally no. (3) Agreements for exclusive jurisdiction clauses designating one court among courts that otherwise have jurisdiction - VALID (not a complete ouster of jurisdiction). AVM v. State of Madras (1977) SC - exclusive jurisdiction clauses selecting one competent court are valid.

Source note: ICA 1872 Section 28

Correct answer: B. A negative covenant in an employment contract restraining an employee from working for a competitor during the term of service is valid - the Section 27 void-ness applies only to post-service restraints

Niranjan Shankar Golikari v. Century Spinning and Manufacturing Co. Ltd. (AIR 1967 SC) is the seminal Supreme Court case distinguishing pre-service/during-service restraints from post-service restraints. The employee had signed a negative covenant not to work for any competitor during the 5-year term of service. The SC held this restraint VALID because: (1) during the period of service an employee is expected to devote himself exclusively to the employer - this is a reasonable incident of employment; (2) Section 27 ICA's prohibition on restraint of trade applies primarily to POST-EMPLOYMENT restraints; (3) the restraint was for the limited period of employment and was not perpetual. However, post-employment restraints restraining an employee from practising his trade are VOID under Section 27 - Superintendence Company of India v. Krishan Murgai (AIR 1980 SC).

Source note: Niranjan Shankar Golikari v. Century Spinning (AIR 1967 SC)

Correct answer: B. Mutual promises contingent on an uncertain event where one party must win and the other must lose - neither party has any interest in the event other than the stake

A wagering agreement has the following essential elements (as laid down by courts interpreting Section 30): (1) Mutual promises to pay money or money's worth; (2) Contingent on an uncertain future event OR an event whose result is uncertain at the time of the agreement; (3) Each party must win or lose - there is a 'win-lose' structure; (4) Neither party should have any interest in the event other than the stake (no insurable interest distinguishes wager from insurance); (5) No party should have control over the event (this is not strictly required but is usually present). Section 30 declares such agreements VOID. The key distinction from contingent contracts (Section 31): a contingent contract requires one party to perform on the happening of an event - it may be a genuine commercial transaction (insurance, guarantee) unlike a wagering agreement.

Source note: ICA 1872 Section 30

Correct answer: C. Void entirely

Section 24 ICA 1872: 'If any part of a single consideration for one or more objects, or any one of several considerations for a single object, is unlawful, the agreement is void.' This is the rule of SEVERABILITY (or rather, its ABSENCE in Indian contract law). Unlike English law where an illegal term can sometimes be severed (blue pencil test), Section 24 ICA takes a stricter approach: if ANY part of the consideration or ANY ONE OF SEVERAL considerations is unlawful, the ENTIRE agreement is void - not just the unlawful part. However, Section 57 (reciprocal promises, partly legal and partly illegal) provides a narrow exception: the legal part can be enforced if it is separable. The courts apply Section 57 carefully - the legal promise must be genuinely separable from the illegal one.

Source note: ICA 1872 Section 24

Correct answer: B. Void

Section 29 ICA 1872: 'Agreements, the meaning of which is not certain, or capable of being made certain, are void.' The basis: contractual obligations must be defined with sufficient precision - vagueness defeats enforceability. However, courts lean heavily AGAINST finding vagueness and will strive to interpret contracts so as to give them effect. If the meaning IS capable of being made certain (by reference to trade custom, prior dealings, or objective standards), the contract is valid even if initially ambiguous. Scammel v. Ouston (1941) HL - 'hire purchase terms' without further specification was too uncertain. Compare: 'fair and reasonable' price - generally capable of being made certain by reference to market price or expert valuation under Section 9 Sale of Goods Act.

Source note: ICA 1872 Section 29

Correct answer: B. Agreements restraining any person (not being a minor) from marrying at all or marrying any particular person or class of persons - this is void

Section 26 ICA 1872: 'Every agreement in restraint of the marriage of any person, other than a minor, is void.' The rationale: personal liberty includes freedom to marry; agreements that restrict this freedom are contrary to public policy. Note: the restraint must be a TOTAL restraint or a PARTIAL restraint - both are void (unlike restraint of trade where a partial restraint might be valid under English law but is generally void under Indian Section 27). An agreement NOT to marry a SPECIFIC person (e.g., 'I will not marry X') is also void under Section 26. The exception 'other than a minor' means: an agreement by or for a minor not to marry before majority could technically be valid - but the Prohibition of Child Marriage Act 2006 governs child marriages.

Source note: ICA 1872 Section 26

Correct answer: B. An open-textured and flexible test - courts determine case by case whether an agreement injures the public interest, defeats the purposes of law, or is contrary to established public benefit, using existing categories while cautiously recognising new ones

The concept of 'public policy' under Section 23 is famously described as an 'unruly horse' (Richardson v. Mellish, 1824 - a phrase quoted in Indian cases including Gherulal Parakh). It is flexible and evolving, not confined to a fixed list. Established categories in Indian law include: trading with enemy, agreements to commit crimes, agreements to obstruct justice, maintenance and champerty, bribery, agreements affecting freedom of marriage, agreements that undermine constitutional rights. New categories can be recognised but courts do so cautiously to avoid uncertainty. Gherulal Parakh confirms that 'immoral' and 'opposed to public policy' are distinct grounds, while also warning courts against mechanically expanding public-policy invalidity.

Source note: ICA 1872 Section 23 / Gherulal Parakh