Contract Act MCQ Quiz - Objective Question with Answer for Contract Act - Download Free PDF

The correct answer is  Section 128

Key Points

• Section 128 of the Indian Contract Act, 1872 provides that:
  • "The liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract."
• This means the surety is liable to the same extent as the principal debtor — whether for the entire amount or part of it — unless a contract specifies a different extent of liability.

Additional Information

• Section 126 – Defines Contract of Guarantee and roles of parties (surety, principal debtor, creditor).
• Section 127 – Deals with consideration for a guarantee.
• Section 129 – Pertains to continuing guarantees, not extent of liability.

The correct answer is If consideration is unlawful

Key Points

• Under Section 24 of the Indian Contract Act, 1872, an agreement is void if:
  • "The consideration or object of the agreement is unlawful in whole or in part, and the unlawful part cannot be separated from the lawful part."
  • So, if the consideration (i.e., what is being exchanged) is unlawful, the agreement is void from the beginning.

Additional Information

• If caused by fraud – Makes the contract voidable, not void (Section 19).
• If caused by coercion – Also makes the contract voidable (Section 19).
• None of the above – Incorrect; unlawful consideration makes the agreement void under Section 24

The correct answer is Section 124

Key Points

• Section 124 of the Indian Contract Act, 1872 defines a Contract of Indemnity as:
  • "A contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person."
• This is a two-party agreement where one party promises to compensate the other for any loss suffered.

Additional Information

• Section 125 – Relates to the rights of the indemnity holder.
• Section 126 – Defines Contract of Guarantee, not indemnity.
• Section 127 – Deals with the consideration for a guarantee.

The correct answer is Void

Key Points

• Section 20 of the Indian Contract Act, 1872 deals with agreements made under mutual mistake of fact.
• It states:
  • "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."
• So, if both parties misunderstand a fundamental fact, the contract is considered to have no legal effect.

Additional Information

• Valid –  Wrong; mutual mistake of essential fact renders the agreement unenforceable.
• Invalid – Vague term; the correct legal term is void.
• Voidable – Incorrect; mutual mistake leads to void, not voidable contracts.

The correct answer is Section 191

Key Points

• Section 191 of the Indian Contract Act, 1872 defines a “Sub-Agent” as:
  • "A person employed by, and acting under the control of, the original agent in the business of the agency."
• A sub-agent is appointed by an agent, not directly by the principal.
• The sub-agent works under the agent’s control, and not independently.

Additional Information

• Section 190 – Deals with when an agent can lawfully appoint a sub-agent.
• Section 192 – Covers responsibility of the principal for acts of sub-agents.
• None of the above – Incorrect; Section 191 specifically defines "Sub-Agent".

The correct answer is option 1.

Key Points

Section 24 of Indian Contract Act says Agreements void, if considerations and objects unlawful in part.—If any part of a single consideration for one or more objects, or any one or any part of any one of several considerations for a single object, is unlawful, the agreement is void. —If any part of a single consideration for one or more objects, or any one or any part of any one of several considerations for a single object, is unlawful, the agreement is void."

Illustration A promises to superintend, on behalf of B, a legal manufacturer of indigo, and an illegal traffic in other articles. B promises to pay to A a salary of 10,000 rupees a year. The agreement is void, the object of A’s promise, and the consideration for B’s promise, being in part unlawful. A promises to superintend, on behalf of B, a legal manufacturer of indigo, and an illegal traffic in other articles. B promises to pay to A a salary of 10,000 rupees a year. The agreement is void, the object of A’s promise, and the consideration for B’s promise, being in part unlawful." 

The correct answer is Option 1

Key Points“Agency is a relationship which exists where one person (the principal) authorizes another (the agent) to act on his behalf, and the agent agrees to do so.” 

chapter 10 (section 182-238) of the Indian Contract act,1872  deals with contract of agency   A contract of agency is a fiduciary relationship between two parties where one party (the principal) contracts-with and authorizes (implicitly or explicitly) another person (the agent) to act on his behalf and provides him with the capacity to create legal relationships between the principal and third parties. 

Additional InformationSection182. ‘Agent’ and ‘principal’ defined.—An ‘agent’ is a person employed to do any act for another, or to represent another in dealings with third person. The person for whom such act is done, or who is so represented, is called the ‘principal’. —An ‘agent’ is a person employed to do any act for another, or to represent another in dealings with third person. The person for whom such act is done, or who is so represented, is called the ‘principal’.

The correct answer is Option 3.

Key Points Section 25(3) in The Indian Contract Act, 1872
It is a promise, made in writing and signed by the person to be charged therewith, or by his agent generally or specially authorized in that behalf, to pay wholly or in part a debt of which the creditor might have enforced payment but for the law for the limitation of suits. In any of these cases, such an agreement is a contract.

Explanation 1.—Nothing in this section shall affect the validity, as between the donor and donee, of any gift actually made.

Explanation 2.—An Agreement to which the consent of the promisor is freely given is not void merely because the consideration is inadequate; but 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.

Illustrations: 

(e) A owes B Rs. 1,000, but the debt is barred by the Limitation Act. A signs a written promise to pay B Rs. 500 on account of the debt. This is a contract."

This question is based in illustration (e) of Section 25(3) of the Contract Act, 1872. 

The assignment is not the obvious mode of discharge of a contract.

All agreements are not contract. Only those agreements which are enforceable by law are ‘contracts’.

Following are the essential requirements of a valid contract.

1. Offer and its acceptance '
2. Free consent of both parties
3. Mutual and lawful consideration for agreement
4.  It should be enforceable by law. Hence, the intention should be to create a legal relationship. Agreements of social or domestic nature are not contracts
5. Parties should be competent to contract
6. An object should be lawful
7. Certainty and possibility of performance
8. The contract should not have been declared as void under the Contract Act or any other law.

1. Performance:

• The contract is discharged when both parties fulfil their respective obligations as per the terms and conditions of the contract.
• Once the performance is completed, the contract comes to an end.

2. Agreement:

• The parties can mutually agree to terminate the contract by entering into a new agreement or by modifying the existing contract.
• This agreement may be in the form of a mutual release, rescission, or novation.

3. Impossibility:

• If the performance of the contract becomes impossible due to unforeseen circumstances or events beyond the control of the parties (such as natural disasters or government regulations), the contract is discharged.

4. Operation of Law:

• A contract can be discharged by the operation of law in certain situations.
• This includes cases such as death or bankruptcy of either party, supervening illegality, or frustration of the contract.

5. Breach:

• If one party fails to fulfil their obligations under the contract without any lawful justification, it is considered a breach of contract.
• The innocent party may then have the option to terminate the contract and seek remedies for the breach.

The correct answer is option 2 (A) and (B) only

Key Points

A contract is deemed to be dissolved because of impending impossibility if the act becomes unlawful or impossible.

Destruction of the subject matter of the contract where neither party is obligated to perform. In such cases, the original contract becomes void.

Death of the parties: The death of the promisor terminates the existing contract.

Important PointsIn contract law, rescission is defined as the cancellation of a contract between parties. Rescission is the reversal of a transaction. This is done in order to restore the parties, as far as possible,  to the position they were in before they entered into a contract Rescission.

Remission of a contract relieves the promisor of his obligations by merely paying a lesser amount or performance under the promise. Section 63 of the Indian Contract Act, 1872, contains three essential elements- acceptance of lesser amount, waiver, and extension of time.

The correct answer is Section 194.

Key Points

• Section 194 of the Indian Contract Act 1872 provides for Substituted Agent.
• Section 194- Relation between principal and person duly appointed by agent to act in business of agency—Where an agent, holding an express or implied authority to name another person to act for the principal in the business of the agency, has named another person accordingly, such person is not a sub-agent, but an agent of the principal for such part of the business of the agency as is entrusted to him.

The correct answer is Option 3. 

Key Points A contract of agency is a legal relationship where one person (the principal) appoints another person (the agent) to perform transactions on their behalf. The agent is subject to the principal's control. 

• Section 182 defines an agent as someone who is employed to perform an act for another person or to represent them in dealings with third parties. The person who gives the agent authority is called the principal.

An agency contract is a legal agreement between a company and a third-party agent. It defines the terms and conditions of their working relationship, including: 

• The scope of services to be provided
• The commission rate
• The duration of the contract

The Indian Contract Act of 1872 governs the legal relationship between the principal and agent.

Essentials for the formation of contract of agency
Principal’s competency

• Section 183 of the Indian Contract Act 1872 explains the eligibility requirement of the principal for the formation of a contract.
• According to this section, any person can employ an agent who is of sound mind and has attended the majority as per law. 

Agent’s competency

• Section 184 of the Indian Contract Act of 1872 explains the eligibility requirements for agents.
• Any person could be appointed as an agent except for those who are either of unsound mind or have not reached the majority age as per law.

Consideration is not essential

• Section 185 of the Indian Contract Act 1872, there is no consideration for the formation of the agency contract.
• Mostly, commission is paid to the agent for providing services, but no payment is required while appointing an agent.

Creation of Agency
The following are the ways to create an agency:

• Expressed
  • Any competent principal person can appoint an agent as his representative through a contract. The appointment contract can be in oral or also in written form.
• Implied
  • The principal person can appoint an agent indirectly, and an implied agency will be created. The formation of the implied agency can be through relationships or certain situations.
• By Subsequent Ratification of Unauthorised Act
  • If the principal does not authorise the act of the agent initially by later the agent authorises it, then the principal accepts the act as done on behalf of him. Such authorisation is the ratification.

The correct answer is Hiring of bank locker is a contract of Bailment

Key PointsContract of Bailment -

• The Indian Contract Act, 1872's section 148 defines bailment as the conveyance of commodities from one person to another for a certain purpose.
• When that goal is achieved, the recipient of the items returns them or otherwise disposes of them in accordance with the instructions of the sender.
• The bailor is the person who delivers the goods. The recipient of such items is referred to as the bailee.
• A contract of bailment only results in a change of possession, not ownership.
• Hiring of bank locker is a contract of Bailment - A bailment is made when you place money, jewels, etc. in a bank locker

Mistake Points

As per the official answer key by UGC, the answer is "Hiring of bank locker is a contract of Bailment"

However, according to the judgement of Atul Mehra v. Bank of Maharastra case,

• The court, in this case, held that exclusive possession of the goods is sine qua non for bailment.
• Therefore, mere hiring of a locker would not be sufficient to constitute a contract of bailment as provided under Section 148 of the Indian Contract Act, 1872
• And it was also added that the question of reasonable care and quantum of damages would arise only after it has been shown that actual exclusive possession of the property was given by the bailee to the bailor, i.e. the bank.

The correct answer is All of the above.

Key Points

•  Section 38 of the Indian Contract Act deals with the effect of refusal to accept offer of performance.
• It states that where a promisor has made an offer of performance to the promisee, and the offer has not been accepted, the promisor is not responsible for non-performance, nor does he thereby lose his rights under the contract.
• Every such offer must fulfil the following conditions:—
• (1) it must be unconditional;
• (2) it must be made at a proper time and place, and under such circumstances that the person to whom it is made may have a reasonable opportunity of ascertaining that the person by whom it is made is able and willing there and then to do the whole of what he is bound by his promise to do;
• (3) if the offer is an offer to deliver anything to the promisee, the promisee must have a reasonable opportunity of seeing that the thing offered is the thing which the promisor is bound by his promise to deliver.
• An offer to one of several joint promisees has the same legal consequences as an offer to all of them.

The correct answer is "When an indivisible contract for a lumpsum is partly performed."

Key Points Quantum Meruit:

• The phrase "as much as is earned" is literally translated as "quantum meruit."
• When one party to a contract is prevented from completing his contract performance by the other party, he can sue for quantum meruit.
• As a result, he must be compensated fairly for the portion of the contract that he has already completed.

Important Points

•  Quantum Meruit is, payment in proportion to the amount of work done, where one of his parties has fulfilled part of his promise and then the contract person is breached, then a claim for quantum merit arises.
• When the original contract is discharged, i.e. when the indivisible contract for a lump sum amount of a debt is partly executed, then the claim of quantum merit cannot be successful.