Contract Law : Multiple Choice Questions

These are some Multiple Choice Question I drafted on contract law.
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Anticipatory breach
  • S has agreed to supply raw material to P on 15 Feb 2019. P pays an advance of 25% of price. Their contract mentions “The date of delivery is vital, and time is of essence. The purchaser’s production depends on the supply. The supplier shall strive to deliver material on or before that date”. On 5 Jan 2019, the supplier informs: “I have personal difficulties that I cannot describe, and will not be able to supply the goods. Kindly understand and excuse me. Please find a cheque for the amount of advance with 12 % interest.” S also sends the cheque. P approaches you on 10 Jan 2019 for advice. Advise P.

(a) P can terminate the contract.

(b) P can wait till 15 Feb, and decide at that time.

(c) P can deposit the cheque.

(d) All of above

Bank guarantee
  • Which of these statements is incorrect (in relation to a bank guarantee)?

(a) A bank guarantee is a guarantee given by a bank at the request of its customer to the party with whom the customer has a contract.

(b) A court should not grant injunction to stop payment under a bank guarantee.

(c) A bank can refuse to pay the amount claimed by the creditor of the guarantee if its customer requests for stopping the payment.

(d) A court can grant injunction restraining a bank from making payment in case of fraud of egregious nature.

  • Which of these statements is correct (in relation to an unconditional bank guarantee)?

(a) A court can grant injunction to stop payment under a bank guarantee.

(b) A bank guarantee is a guarantee given by a bank at the request of its customer to the party with whom the customer has a contract.

(c) A bank can refuse to pay the amount claimed by the creditor of the guarantee if its customer requests for stopping the payment.

(d) The bank is liable to pay the amount claimed under the guarantee only if decreed by a court.

Choice of jurisdiction
  • A supplier of goods (having business at Pune) sends to a prospective purchaser (having business at Nagpur) a quotation for his goods stating the terms of delivery and payment of price, and asking for 25 % of price as advance. The supplier has agreed to deliver goods at Nagpur. The proposal does not contain any jurisdiction clause. The purchaser responds by email: “the quotation is accepted. Please send 50000 items. This transaction will be subject to jurisdiction of Pune courts”. The purchaser also sends a cheque for an advance (50% of price). The supplier deposits the cheque and sends a receipt to the purchaser. Disputes arise and the supplier wishes to file a suit for recovery of price. Which of the statements is correct?

(a) Suit can be filed at Pune or Nagpur

(b) Suit can be filed only at Pune

(c) Suit can be filed only at Nagpur

(d) Suit cannot be filed because there is no contract.

  • C carrying on business in Chennai has made a contract with M who carries on business in Mumbai, under the terms of which M must deliver goods at Ahmedabad. The contract contains a clause “Subject to Chennai jurisdiction”. M does not deliver the goods.

(a) C must file the suit in Chennai only, because it is the chosen jurisdiction.

(b) C can file the suit in Ahmedabad (where the cause of action arose) or Mumbai (where the defendant carries on business), but not in Chennai.

(c) C can file the suit at his choice in Chennai, Ahmedabad or Mumbai.

(d) C can file suit only in Mumbai.

Contingent contract
  • S agreed to supply goods “prepared by the V Mills as soon as they are supplied to us by the Mills”. Before the date agreed for delivery, the Mills had closed down, and the S failed to deliver the goods. This obligation is

(a) absolute, and the purchaser is entitled to compensation

(b) contingent on the supply by the Mills; and the contract has become void.

(c) S is excused under the doctrine of impossibility.

(d) S is not liable to compensation, but must return any price that he has received in advance.

  • S agreed to supply to B goods “prepared by the V Mills as soon as they are supplied to us by the Mills”. Before the date agreed for delivery, the Mills had closed down, and the S failed to deliver the goods. Which of these statements is correct

(a) S can supply goods made by any other mills, and B is bound to accept them.

(b) B cannot claim compensation as performance was contingent upon timely supply of goods.

(c) B cannot claim compensation as the contract has become void by operation of the doctrine of impossibility.

(d) B can claim compensation for loss.

Exclusion clause
  • P owns land. Q has claimed it under a will made by P’s father in Q’s favour. Q has a serious claim. Can P sell the land to S, who is aware of Q’s claim, and is willing to buy it at 60% of its market value?

(a) Since P’s title is under a cloud, P is disqualified from selling the land, and hence cannot sell it.

(b) Since S is aware of Q’s claim, he is disqualified from purchasing the property.

(c) P can sell the land ‘on as is where is basis’, i.e., without liability, if Q succeeds in his claim.

(d) P can sell the land only if he undertakes to indemnify S against Q’s claim.

  • P owns land. He has agreed to sell it to Q under a duly registered ‘agreement of sale’. Some differences occur between them, and Q continues to ask P for a meeting to settle those differences. Z has approached P to buy the land by a sale-deed at a price 25 % higher than the price agreed with Q. Z also agrees to take the risk of Q’s claims. Which statement is correct?

(a) Since P has agreed to sell land to Q under a registered agreement, he cannot sell the land to Z.

(b) Since Z is aware of Q’s claim, he is disqualified from purchasing the land.

(c) P can sell ‘on as is where is basis’, i.e., without taking liability of Q’s claim.

(d) P can sell the land only if he undertakes to indemnify Z against Q’s claim.

Force majeure
  • A force majeure clause in a contract can provide for termination of a contract in case of

(a) non-availability of material

(b) earthquakes, floods, fire or other natural causes

(c) strikes and lockouts

(d) all of above

  • A force majeure clause in a contract can provide for suspension of the performance of a contract in case of

(a) non-availability of material

(b) earthquakes, floods, fire or other natural causes

(c) strikes and lockouts

(d) all of above

Formation : proposal and acceptance
  • X writes to Y: If you wish to buy my car for Rs 50000, you make the offer. This is

(a) A proposal

(b) An offer

(c) An invitation to offer

(d) An enquiry

  • X writes to Y: “Will you buy my car for Rs 60000?” Y replies: “I will buy it for Rs 60000, and will pay Rs 30000 when I take delivery, and balance of Rs 30000 a month after taking delivery of the car.” Y’s reply is

(a) A tender

(b) A counter-proposal

(c) A promise

(d) An acceptance

  • A supplier of goods sends to a prospective purchaser a quotation for his goods stating the terms of delivery and payment of price, and asking for 25 % of price as advance. The proposal does not contain any jurisdiction clause. The purchaser responds by email: “the quotation is accepted. Please send 50000 items. This transaction will be subject to jurisdiction of Pune courts”. The purchaser also sends a cheque for advance. The purchaser’s email is :

(a) A valid and effective acceptance;

(b) A conditional acceptance;

(c) A counter-offer

(d) None of above.

  • A supplier of goods (having business at Pune) sends to a prospective purchaser (having business at Nagpur) a quotation for his goods stating the terms of delivery and payment of price, and asking for 25 % of price as advance. The supplier has agreed to deliver goods at Nagpur. The proposal does not contain any jurisdiction clause. The purchaser responds by email: “the quotation is accepted. Please send 50000 items. This transaction will be subject to jurisdiction of Pune courts”. The purchaser also sends a cheque for an advance (50% of price). The supplier deposits the cheque and sends a receipt to the purchaser. Disputes arise and the supplier wishes to file a suit for recovery of price. Which of the statements is correct?

(a) Suit can be filed at Pune or Nagpur

(b) Suit can be filed only at Pune

(c) Suit can be filed only at Nagpur

(d) Suit cannot be filed because there is no contract.

Indemnity
  • A clause in a contract runs as follows: “The Contractors shall be liable for, and shall indemnify the Company against any liability, loss, claim or proceedings whatsoever in respect of personal injury or to death of any person whosoever arising out of or in the course of or caused by carrying out of the works”. A suit is filed by a person for personal injury (covered by this clause) against the contractor and the company. The suit is dismissed with costs.

(a) The company can claim the expenses of litigation, even though the suit is dismissed.

(b) The company cannot claim any amount from the contractor because the suit is dismissed with costs.

(c) The clause is invalid, because the company should be liable for any loss or liability that occurs while carrying out the works.

(d) None of above.

  • A clause in a works contract runs as follows:
    “The Contractors shall be liable for, and shall indemnify the Company against any liability, loss, claim or proceedings whatsoever in respect of personal injury or to death of any person whosoever arising out of or in the course of or caused by carrying out of the works”.
    A suit is filed by a person for death against the company, and in the proceedings, the contractor is also added as a defendant. The suit is dismissed with costs against both. Which of the following statements is correct?

(a) The company can claim expenses of litigation from the contractor.

(b) The company cannot claim any amount from the contractor because the suit is dismissed with costs.

(c) The clause is void as against public policy, because the company cannot avoid liability for death occurring on the site of the works.

(d) None of above.

Interpretation
  • Interpretation of contract involves

(a) finding the intention of the parties at the time they made the contract.

(b) finding the intention of the parties at the time disputes arose.

(c) finding the intention of that party against whom the suit is filed

(d) using the dictionary to find meaning of words used by the parties

  • Interpretation of contract involves:

(a) applying the rules of interpretation of statutes to the language of the contract.

(b) finding the intention that the party seeking to enforce the contract had at the time the contract was made.

(c) applying to the words under interpretation the meaning intended by the party against whom those words are used

(d) finding the intention of all parties when they made the contract.

  • S agreed to supply goods “prepared by the V Mills as soon as they are supplied to us by the Mills”. Before the date agreed for delivery, the Mills had closed down, and the S failed to deliver the goods. This obligation is

(a) absolute, and the purchaser is entitled to compensation

(b) contingent on the supply by the Mills; and the contract has become void.

(c) S is excused under the doctrine of impossibility.

(d) S is not liable to compensation, but must return any price that he has received in advance.

  • S agreed to supply to B goods “prepared by the V Mills as soon as they are supplied to us by the Mills”. Before the date agreed for delivery, the Mills had closed down, and the S failed to deliver the goods. Which of these statements is correct

(a) S can supply goods made by any other mills, and B is bound to accept them.

(b) B cannot claim compensation as performance was contingent upon timely supply of goods.

(c) B cannot claim compensation as the contract has become void by operation of the doctrine of impossibility.

(d) B can claim compensation for loss.

Joint debtors
  • X and Y have taken a loan together from a financial institution F. X has mortgaged her plot of land as security, and Y has pledged his gold and shares. In the pledge agreement, F has reserved the right of direct sale of gold and shares in case of default. X and Y do not pay the amount on due date. F wishes to recover the entire loan by selling Y’s gold and shares. Y objects on the ground that F should recover it from the plot of X. Which of these statements is correct?

(a) F can sell the gold and shares directly after giving notice.

(b) F cannot recover the amount due from the secured properties unless F has obtained a decree against X and Y in a suit, including a decree ordering sale of secured properties.

(c) F cannot recover the entire loan from Y’s securities, because F cannot recover more than half of the amount from Y.

(d) None of above.

Parol evidence
  • Once a term of a contract is proved, any oral statement contradicting the term cannot be proved. This is principle of

(a) primary evidence

(b) parole evidence

(c) promissory estoppel

(d) merger

  • Any oral statement contradicting the term of a written contract cannot be proved:

(a) to show that the contract was without consideration

(b) to show a custom inconsistent with express terms of the written contract

(c) to show that the contract has been varied subsequently

(d) to show in what manner the language of the document relates to existing facts.

Pledge
  • X and Y have taken a loan together from a financial institution F. X has mortgaged her plot of land as security, and Y has pledged his gold and shares. In the pledge agreement, F has reserved the right of direct sale of gold and shares in case of default. X and Y do not pay the amount on due date. F wishes to recover the entire loan by selling Y’s gold and shares. Y objects on the ground that F should recover it from the plot of X. Which of these statements is correct?

(a) F can sell the gold and shares directly after giving notice.

(b) F cannot recover the amount due from the secured properties unless F has obtained a decree against X and Y in a suit, including a decree ordering sale of secured properties.

(c) F cannot recover the entire loan from Y’s securities, because F cannot recover more than half of the amount from Y.

(d) None of above.

Privity
  • What is the doctrine of privity?

(a) Parties must keep their discussions private and confidential.

(b) A person who is not a party to a contract can neither enforce it, nor be liable under it.

(c) A person who is not a party to a contract cannot enforce it, but can be made liable.

(d) A person who is not a party to a contract can enforce it, but cannot be made liable.

  • A person who is not a party to a contract can neither enforce it, nor be liable under it. This is

(a) The doctrine of privity.

(b) The doctrine of remoteness

(c) The doctrine of substantial compliance

(d) The doctrine of consideration, i.e., consideration moving from a person other than the promisee.

Remedies
  • S has agreed to supply raw material to P on 15 Jan 2019. S does not supply. Their contract mentions “The date of delivery is vital, and time is of essence. The purchaser’s production depends on the supply. The supplier shall strive to deliver material on or before that date”. What are P’s remedies

(a) P can terminate the contract.

(b) P can claim compensation, even if he terminates the contract.

(c) P need not terminate the contract

(d) All of above.

  • S has agreed to supply raw material to P on 15 Feb 2019. P pays an advance of 25% of price. Their contract mentions “The date of delivery is vital, and time is of essence. The purchaser’s production depends on the supply. The supplier shall strive to deliver material on or before that date”. On 5 Jan 2019, the supplier informs: “I have personal difficulties that I cannot describe, and will not be able to supply the goods. Kindly understand and excuse me. Please find a cheque for the amount of advance with 12 % interest.” S also sends the cheque. P approaches you on 10 Jan 2109 for advice. Advise P.

(a) P can terminate the contract.

(b) P can wait till 15 Feb, and decide at that time.

(c) P can deposit the cheque.

(d) All of above.

Restraint of trade
  • Under a dealership agreement D is appointed a dealer of M, a car manufacturer, for three years. The agreement provides that
    (i) so long as this dealership agreement is in force, D will not deal in vehicles manufactured by other manufacturers, and
    (ii) after the determination or earlier termination of the dealership agreement, D will not deal in vehicles manufactured by other manufacturers for three months within two kilometres from of the dealer’s showroom…”

(a) clause (i) is valid, but clause (ii) is void

(b) clause (i) and (ii) are void

(c) clause (i) is void, but clause (ii) is valid.

(d) None of above.

  • Under an agreement D is appointed a dealer of M, a manufacturer of agricultural equipments, for a period of three years for the entire of Maharashtra. The agreement provides that (i) so long as this dealership agreement is in force, D will not deal in equipment except equipment manufactured by M, (ii) after the determination or earlier termination of the dealership agreement, D will not deal in equipment manufactured by other manufacturers for three months within Maharashtra …”. Which of these statements is correct with reference to the English law?

(a) clause (i) is valid, but clause (ii) is void

(b) both clauses are valid

(c) clause (i) is void, but clause (ii) is valid.

(d) None of above.

Sale of goods
  • If goods sold under a contract are not according to the description stated by the supplier in his quotation, it is

(a) a breach of a condition implied by law

(b) a breach of express warranty

(c) a false representation

(d) none of above

  • Which of the following statements is correct.

(a) If goods are sold under a description, and they do not comply with that description, the buyer can reject the goods.

(b) If goods are sold by sample, and they are not according to the sample, the buyer can keep the goods, and claim compensation.

(c) If the buyer has made known to the seller his purpose of buying the goods, and the goods are not fit for that purpose, the buyer can reject the goods only if the seller is a trader of those goods.

(d) all of above

Self-help remedies
  • Which of these are self-help remedies for breach of contract?

(a) calling payment of bank guarantee.

(b) filing suit in a court

(c) filing claim before arbitration

(d) none of above

  • Which of these are ‘self-help’ remedies for breach of contract, i.e., which can be exercised without filing suit or claim in arbitration ?

(a) calling payment of bank guarantee

(b) forfeiting security deposit for non-performance of a contract

(c) sale of pledge property for recovery of pledge amount

(d) all of above

Time of essence
  • S has agreed to supply raw material to P on 15 Jan 2019. S does not supply. Their contract mentions “The date of delivery is vital, and time is of essence. The purchaser’s production depends on the supply. The supplier shall strive to deliver material on or before that date”. What are P’s remedies

(a) P can terminate the contract.

(b) P can claim compensation, even if he terminates the contract.

(c) P need not terminate the contract

(d) All of above.

Valid clauses
  • Which of these terms can parties incorporate into their contract?

(a) Party A will not be liable to pay any compensation for breach.

(b) Party X can terminate the contract without giving any reason, and at any time.

(c) If raw material is not available, the supplier need not perform the contract.

(d) All of above

  • Which of these terms are void?

(a) So long as a dealer deals in goods of manufacturer ‘X’, he will not deal in goods of any other manufacturer.

(b) One party to the contract can terminate it at any time and without any reason.

(c) If raw material is not available, the contract for sale of goods shall end.

(d) None of above

  • Which of these clauses is valid in a contract between X and Y?

(a) The liability of X for breach of this contract is limited to Rs 1 crore.

(b) The liability of X for delay in completing the work will be 1 % of the contract price per week.

(c) X will not be liable for any loss caused to Y because of the conduct of the workmen and contractors of X.

(d) All of above.

  • Which of these clauses is valid in a contract between X and Y?

(a) The total liability of X under the contract will not exceed Rs 1 crore.

(b) If X does not complete the works under the contract before 15 October 2018, X shall pay compensation @ 1 % of the contract price per day for 30 days.

(c) The total liability of X under the contract will not exceed the contract price.

(d) All of above.

Valid contract
  • X and Y had a meeting together for discussion of a contract under which X shall erect a machine for Y on Y’s premises. All terms are agreed and finalised. They write these down under the title “minutes of meeting”.

(a) This is an enforceable contract.

(b) The agreement contained in the minutes is not enforceable.

(c) This is an agreement and is not enforceable unless the formal document on stamp paper is prepared and signed by X and Y.

(d) There is no agreement, but merely notes made during negotiations.

  • X and Y had a meeting together for discussion of a contract under which X shall erect a machine for Y on Y’s premises. All terms are discussed and agreed. They write these down under a title: “minutes of meeting”. This document states: “Further discussions will happen on 15 June.” The document:

(a) is an enforceable contract.

(b) is not enforceable before 15 June.

(c) is not a contract.

(d) is enforceable if discussions do not happen on 15 June.

  • Which of these statements is correct?

(a) A Letter-of-Intent (LOI) and a Memorandum of Understanding (MOU) are both enforceable contracts.

(b) An LOI is a contract, but an MOU is not.

(c) An LOI is not enforceable, but an MOU is a contract.

(d) Whether the LOI or the MOU is a contract depends of its terms.

  • An MOU (Memorandum of Understanding) :

(a) is a contract, but not enforceable.

(b) is an enforceable contract.

(c) is always enforceable, unless it expressly indicates that it is not enforceable.

(d) whether it is enforceable depends on its terms.

Void agreements
  • Which agreement is prohibited by the Indian Contract Act?

(a) a wager

(b) an agreement with a minor

(c) a sham agreement, i.e., an agreement that will remain on paper, intended not to be acted upon.

(d) none of above

  • Which of the following agreements are forbidden?

(a) a sham agreement, i.e., an agreement on paper, intended not to be acted upon.

(b) an agreement with a person of unsound mind

(c) a wagering agreement

(d) none of above

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