Under the Indian Contract Act, 1872, a contract is formed when there is a lawful offer and

acceptance, along with lawful consideration and an intention to create legal obligations. An
offer becomes complete when it is communicated to the offeree. Acceptance of an offer is
valid when it is absolute, unqualified, and communicated in a prescribed manner (if any).

When no mode of acceptance is prescribed, it should be made in a reasonable manner.

Acceptance must be communicated before the offer lapses or is revoked. According to
Section 4 of the Act, the communication of acceptance is complete as against the proposer
when it is put into transmission (e.g., when a letter is posted), and as against the acceptor
when it comes to the knowledge of the proposer.

Revocation of an offer is effective only when it is communicated before the acceptance is

dispatched by the offeree. Once acceptance is dispatched, the proposer cannot revoke the
offer. The “postal rule” provides that a letter of acceptance, once properly posted, binds the
offeror even before it reaches him. However, the revocation must reach the offeree before he
dispatches his acceptance. The same rules apply to instantaneous modes like emails and
messages, but timing is judged based on when the communication actually reaches the
person, not when it is sent.

Questions:

1. Ankit offers to sell his painting to Bhavya on 1st May by letter. Bhavya receives the letter
on 3rd May and posts her acceptance on 4th May. Meanwhile, Ankit sends a revocation letter
on 2nd May, which reaches Bhavya on 5th May. Is there a valid contract?

A. Yes, because Bhavya accepted before receiving the revocation

B. No, because the revocation was sent before acceptance

C. No, because Bhavya accepted too late

D. Yes, because revocation does not matter in postal communication

2. Aarav sends an email offering to sell his car to Meera for ₹4 lakhs. Meera reads the email
but doesn’t reply for two days. On the third day, she replies accepting the offer. Aarav,
however, had sold the car the previous day to someone else. Is there a contract?
A. Yes, because Aarav’s offer was still open

B. No, because silence does not constitute acceptance

C. Yes, because Meera accepted within a reasonable time

D. No, because the offer was revoked before acceptance

3. Priya offers to sell her iPad to Nikhil for ₹30,000 and says, “Let me know by Saturday.”
On Friday, Nikhil posts a letter of acceptance. Priya receives it on Monday and claims no
contract exists as she sold it to someone else on Saturday morning. Is Priya correct?

A. Yes, because the acceptance reached her after the deadline

B. No, because the acceptance was posted before the deadline

C. Yes, because the offer lapsed on Saturday morning

D. No, because verbal communication is not necessary

4. Kartik offers to sell a guitar to Sahil for ₹5,000. Sahil says, “I will buy it if you give me a
case free with it.” Kartik refuses. Sahil then agrees to buy it without the case. Is there a
contract?

A. Yes, because Sahil finally accepted

B. No, because the original offer was terminated by the counter-offer

C. Yes, because the case was an accessory item

D. No, because the negotiation went on too long

5. Anjali makes an offer to Tanya through a message. Tanya replies through another app with
“I accept,” but Anjali never sees the message due to a technical glitch. Is this acceptance
valid?

A. Yes, because acceptance was communicated

B. No, because acceptance never came to Anjali’s knowledge

C. Yes, because a reply was made in a reasonable manner

D. No, because it was not in writing

6. Neha offers to sell her guitar for ₹10,000 to Rahul via a letter and states, “Please confirm
only by email.” Rahul sends a letter of acceptance instead. Is there a valid acceptance?

A. Yes, because any mode of communication is valid

B. No, because the prescribed mode was not followed

C. Yes, because posting the letter completes acceptance

D. No, because the contract was about a musical instrument

Answer Key:

1. A – Acceptance was posted before revocation was received, so contract is valid.

2. D – The offer was revoked (by selling the car) before acceptance.
3. B – Acceptance was posted before the deadline; Priya is still bound.
4. B – A counter-offer rejects the original offer; original offer is no longer open.
5. B – Acceptance must come to the knowledge of the proposer.
6. B – Prescribed mode of communication must be followed if mandatory.

Passage 2: Consideration & Privity of Contract

Under Indian contract law, consideration refers to the price paid by one party for the promise
of another. As per Section 2(d) of the Indian Contract Act, 1872, consideration may be past,
present, or future, but must move at the desire of the promisor. The famous maxim “quid pro
quo”—something for something—forms the basis of consideration. However, a gratuitous
promise, i.e., a promise made without consideration, is generally not enforceable unless it
falls under exceptions such as natural love and affection (if made in writing and registered),
compensation for past voluntary service, or a promise to pay a time-barred debt.
The doctrine of privity of contract implies that only those who are parties to a contract can
sue or be sued on it. This means a stranger to a contract cannot enforce its terms, even if the
contract was made for their benefit. However, Indian law recognizes certain exceptions: for
example, beneficiaries under a trust, family settlements, acknowledgment of liability, or
contractual arrangements involving agency.

While English law has adopted statutory exceptions (such as in the Contracts [Rights of Third
Parties] Act, 1999), Indian law largely depends on case law for recognizing situations where
a third party may be allowed to enforce a contract.

In essence, both valid consideration and proper parties are key elements of an enforceable
contract. The absence of either typically renders a contract void or unenforceable.

Questions:

1. Raj promises to gift his nephew ₹1 lakh on his birthday. The promise is in writing but not
registered. Can the nephew enforce this promise?

A. Yes, because it is in writing

B. No, because there is no consideration

C. Yes, because family members are exceptions

D. No, because it was a future promise

2. A agrees to pay B ₹10,000 if B paints C’s house. B does the work, but A refuses to pay.
Can B sue A?

A. No, because C benefited from the contract, not B

B. Yes, because the consideration moved at A’s desire

C. No, because B is not a party to the contract

D. Yes, because painting is not a contractual act

3. X contracts with Y to pay ₹50,000 to Z if Z marries X’s daughter. Z marries her but X
refuses to pay. Can Z sue X?

A. No, because Z was not a party to the contract

B. Yes, because Z was the intended beneficiary

C. No, because marriage is not valid consideration

D. Yes, because love and affection are enough

4. A owes B ₹1,000, a debt barred by limitation. A signs a written promise to pay B ₹500. Is
this enforceable?

A. No, because the debt is time-barred

B. Yes, because part-payment is a fresh contract

C. No, because the amount is less than the debt

D. Yes, because it is a written promise to pay a time-barred debt

5. Priya voluntarily repairs damage to Anu’s gate. Later, Anu promises to pay ₹2,000. Can
Priya enforce the promise?

A. Yes, because there was consideration

B. No, because the act was voluntary

C. Yes, because past voluntary service is an exception

D. No, because the promise was not registered

6. In a family arrangement, Uncle A promises to pay Riya’s tuition fees. She is not a party to
the agreement but is the intended recipient. A refuses to pay. Can Riya sue?
A. No, because she is a stranger to the contract

B. Yes, because family settlements are exceptions to privity

C. No, because she gave no consideration

D. Yes, because promises to minors are enforceable

Answer Key:

1. B – Mere writing isn’t enough; must be registered + consideration missing.

2. B – B provided consideration at A’s desire; he can sue.
3. B – Z was a beneficiary and the contract was for his benefit.
4. D – Written promise to pay a time-barred debt is enforceable.
5. C – Past voluntary services are enforceable if acknowledged later.
6. B – Family arrangements are recognized exceptions to privity.

Passage 3: Capacity to Contract

The capacity to contract is governed by Section 11 of the Indian Contract Act, 1872, which
states that every person is competent to contract who is of the age of majority, is of sound
mind, and is not disqualified from contracting by any law. A contract entered into by a person
who lacks legal capacity is either void or voidable, depending on the circumstances.

A minor (a person below 18 years of age) is not competent to contract, and any agreement
with a minor is void ab initio—i.e., it is void from the beginning. The law aims to protect
minors from contractual liability. A minor also cannot ratify such a contract upon attaining
majority, since ratification relates back to the date of the original agreement. However, a
minor can be a beneficiary in a contract or act through a guardian in certain cases.

Persons of unsound mind—including those suffering from mental illness, intoxication, or

temporary delusions—are incapable of entering into valid contracts at the time of contracting.
A contract made during a lucid interval (a period of sanity) by a mentally ill person is valid.
On the other hand, persons disqualified by law (such as foreign sovereigns, convicts, or
insolvents) may not have full contractual capacity due to public policy concerns or statutory
restrictions.
Capacity is a foundational requirement. Even if all other elements of a contract exist—such
as offer, acceptance, and consideration—the agreement remains void if entered into by
someone lacking the capacity to contract.

Questions:

1. Riya, a 17-year-old, buys a laptop on credit. Later, she refuses to pay. Can the seller
enforce the contract?

A. Yes, because she agreed to buy

B. No, because the contract is void ab initio

C. Yes, if she uses it for education

D. No, unless she turns 18 and ratifies it

2. Kabir, a minor, enters into a contract for the purchase of a bike. When he turns 18, he
writes to confirm the deal. Is this ratification valid?

A. Yes, as he’s now an adult

B. No, because ratification can’t validate a void contract

C. Yes, but only if the seller agrees again

D. No, unless it is registered

3. A contract is entered into by Ravi, who is intoxicated and unable to understand the terms.
Is the contract valid?

A. Yes, because intoxication doesn’t affect contracts

B. No, because he lacked understanding at the time

C. Yes, if the other party was unaware

D. No, unless it is registered

4. A contract is made by a person of unsound mind during a lucid interval. What is the status
of the contract?

A. Void

B. Valid

C. Voidable

D. Illegal

5. A foreign ambassador enters into a contract to buy a property in India. Later, he refuses to
pay. Can the seller sue him?

A. Yes, because everyone has equal rights under contract law

B. No, because he is disqualified by law

C. Yes, if the government permits

D. No, because the property is in India

6. A minor enters into a contract through his guardian for necessary medical treatment. The
hospital sues for charges. Is the suit valid?

A. No, because the minor is not liable

B. Yes, because minors can be sued in all contracts

C. Yes, because the contract was for necessities

D. No, because the guardian didn’t pay

Answer Key:

1. B – A minor’s contract is void ab initio.

2. B – Ratification of a void contract is not valid.
3. B – Lack of understanding due to intoxication makes the contract void.
4. B – Contracts during lucid intervals are valid.
5. B – Foreign ambassadors are disqualified by law from being sued unless they waive
immunity.
6. C – A minor can be held liable for necessities supplied to them.

Passage 4: Free Consent – Coercion, Undue Influence,

Fraud, Misrepresentation & Mistake

The Indian Contract Act, 1872, under Section 13, defines consent as when two or more
parties agree upon the same thing in the same sense (consensus ad idem). However, consent
is not sufficient unless it is free. According to Section 14, consent is said to be free when it is
not caused by coercion, undue influence, fraud, misrepresentation, or mistake.

Coercion (Section 15) means committing or threatening to commit any act forbidden by the
Indian Penal Code or unlawfully detaining property to force someone to enter into an
agreement. A contract induced by coercion is voidable at the option of the coerced party.

Undue Influence (Section 16) arises when one party is in a position to dominate the will of
another—such as in fiduciary relationships—and uses that position to gain unfair advantage.
If a contract appears unconscionable, the burden of proving absence of undue influence lies
on the dominant party.

Fraud (Section 17) includes deliberate concealment, false representation, or promises made
without intention to perform. Misrepresentation (Section 18), on the other hand, refers to
false statements made innocently without intent to deceive. Both render a contract voidable,
but in the case of misrepresentation, the contract is not voidable if the aggrieved party had the
means to discover the truth with ordinary diligence.

A contract based on a mutual mistake of fact is void under Section 20, but a mistake of law or
unilateral mistake does not render a contract void, unless it defeats the very foundation of the
agreement.
Questions:

1. Meera signs a contract to sell her land after Rohit threatens to file a false police case
against her brother. What is the legal status of the contract?

A. Valid, as she signed it

B. Voidable at Rohit’s option

C. Voidable at Meera’s option due to coercion

D. Void, since threats are illegal

2. A spiritual guru convinces an old follower to gift him all his property. The court finds the
transaction unconscionable. Who bears the burden of proof?

A. The follower, to show undue influence

B. The guru, to prove absence of undue influence

C. The court, to determine intent

D. No one, as it’s a gift

3. Sameer sells a car to Arjun, stating it’s in perfect condition, though he knows the engine is
damaged. Arjun buys it without checking. Later, he sues for fraud. Is he entitled to relief?

A. No, because Arjun didn’t inspect it

B. Yes, as Sameer knew and concealed the truth

C. No, because the buyer had the means to discover it

D. Yes, because misrepresentation occurred

4. Priya tells Avni, “To the best of my knowledge, this necklace is pure gold.” It turns out to
be gold-plated, but Priya didn’t know. Can Avni avoid the contract?

A. Yes, because of fraud

B. No, because there was no intention to deceive

C. Yes, because misrepresentation occurred

D. B and C

5. Two parties contract believing a painting is by a famous artist, which later turns out to be
false. Neither knew the truth at the time. What is the status of the contract?

A. Valid, as both agreed

B. Void due to mutual mistake of fact

C. Voidable due to misrepresentation

D. Unenforceable due to uncertainty

6. A agrees to sell land to B believing that the law permits such transfer. Later, it is found that
law prohibits the sale. Can B sue A?

A. Yes, for breach

B. No, because mistake of law does not void contract

C. Yes, because A misrepresented the law

D. No, because it was a mutual mistake

Answer Key:

1. C – Threatening false charges = coercion; Meera can void it.

2. B – Dominant party (guru) must disprove undue influence in unconscionable
transactions.
 3. B – This is fraud: knowingly concealing defects. Buyer’s failure to inspect doesn’t
protect fraud.
4. D – Misrepresentation occurred, though not fraud.
5. B – Mutual mistake of fact (authenticity) = void contract.
6. B – Mistake of Indian law does not void a contract.

Awesome — here’s Passage 5, covering Legality of Object and Public Policy, with a bump in
abstract difficulty and real CLAT-style reasoning traps.

Passage 5: Legality of Object and Public Policy

Under the Indian Contract Act, 1872, for a contract to be valid, its object and consideration
must be lawful. As per Section 23, a contract is void if its object or consideration is forbidden
by law, defeats the purpose of any law, is fraudulent, involves injury to person or property, or
is immoral or opposed to public policy.

The term “public policy” is not precisely defined and is interpreted by courts in a case-by-
case manner. It includes a broad range of situations where enforcement of a contract would
harm the public good. Contracts that restrain legal proceedings, promote corruption, or
interfere with marital duties are often held void on this ground.

Additionally, contracts with illegal consideration or object are void ab initio, and the courts
will not enforce any rights under such agreements. Further, under the principle “ex turpi
causa non oritur actio” (no action arises from a dishonorable cause), even collateral
agreements connected to the illegal contract may also be rendered unenforceable.

However, the courts distinguish between illegal and immoral or unethical agreements, and
between void and unenforceable ones. A key complexity lies in cases where only part of the
agreement is unlawful, and whether such a part can be severed to save the rest of the contract.

Questions:
1. A agrees to pay B ₹1 lakh to secure a government job for his son through “contacts.” B
takes the money but does nothing. Can A recover the amount?

A. Yes, because B didn’t fulfill his promise

B. No, because the object of the agreement is illegal

C. Yes, because no job was actually obtained

D. No, unless B admits fraud

2. Rohan enters into an agreement to publish a defamatory article about a rival. He pays the
writer in advance. Later, he asks for the money back. Is the agreement enforceable?

A. Yes, because the article wasn’t published

B. No, because it involved injury to reputation

C. Yes, since it was a private arrangement

D. No, unless there was deception

3. Two businessmen agree that one will not compete in the same city for 5 years after selling
his business. Is the agreement valid?

A. Yes, because restraint is reasonable in business

B. No, because it restrains trade

C. Yes, only if approved by court

D. No, unless both benefit equally

4. A married woman agrees to live with a man in exchange for monthly payments. When he
stops paying, she sues. What is the legal status?
A. Valid, as cohabitation agreements are enforceable

B. Void, as the object is immoral and opposed to public policy

C. Valid, if both consented

D. Enforceable under personal law

5. A hires B, a professional killer, to eliminate a rival. After the act, A refuses to pay. Can B
sue?

A. Yes, because a service was rendered

B. No, because the object was illegal

C. Yes, under quantum meruit

D. No, unless the agreement was written

6. A enters into a contract to bribe a government official, but B, the middleman, backs out
before paying the bribe. A sues B for breach. What is the likely outcome?

A. B must compensate for breach

B. A can recover the money already paid

C. The court will not assist either party

D. B is criminally liable but contract is valid

Answer Key:

1. B – Securing a job through illegal means = unlawful object = void contract

2. B – Defamation causes injury = illegal object = unenforceable
3. A – Reasonable restraint in sale of business is valid (exception under Sec. 27)
4. B – Agreements involving immorality (esp. marital violations) are void
5. B – A contract to commit a crime is illegal; no relief available
6. C – Court will not enforce or help either party in an illegal contract
Passage 6: Void Agreements & Contingent Contracts

Under the Indian Contract Act, 1872, certain agreements are expressly declared void under
specific sections, regardless of the consent of parties. These include agreements in restraint of
marriage (Sec. 26), restraint of trade (Sec. 27), restraint of legal proceedings (Sec. 28), and
agreements that are uncertain (Sec. 29) or wagering agreements (Sec. 30).

A wagering agreement is one where two parties agree that a sum of money or other
consideration shall be payable upon the outcome of an uncertain event, and neither party has
any control or genuine interest in the outcome. Such agreements are void but not illegal in
most states, meaning collateral transactions are generally valid. However, in states like
Gujarat and Maharashtra, wagering agreements are treated as illegal, and even collateral
contracts are tainted.

On the other hand, contingent contracts are defined under Section 31 as contracts to do or not
to do something if some event, collateral to the contract, happens or does not happen. These
are valid contracts, but their enforceability depends on the occurrence or non-occurrence of
the specified event. Contingent contracts based on impossible events are void.

The distinction between wagers and contingent contracts often lies in the genuine commercial
interest of the parties. In contingent contracts, one or both parties usually have a real stake or
connection to the outcome.

Questions:

1. A and B bet ₹10,000 on a cricket match. B borrows ₹5,000 from C to pay A if he loses.
Later, B loses and refuses to pay C. Can C recover the amount?

A. Yes, because the loan is collateral to a void agreement

B. No, because the main agreement is void

C. No, because wagering contracts are illegal

D. Yes, only if C was unaware it was a wager

2. X promises to pay Y ₹1 lakh if India wins the World Cup. Is this a valid contract?

A. Yes, because it depends on a future event

B. No, because it’s a wagering agreement

C. Yes, because both parties agreed

D. Valid only if registered

3. Arjun agrees to sell his car to Rina if she gets a promotion. This is an example of:

A. Void agreement

B. Contingent contract

C. Wagering agreement

D. Illegal agreement

4. Sita agrees not to marry for five years in exchange for ₹5 lakhs. Later, she sues for
payment. Is the agreement valid?

A. Yes, because it was consensual

B. No, because it restrains marriage

C. Yes, if it was written and registered

D. Valid only if society accepts it

5. An agreement is made to pay ₹50,000 if a particular ship, already sunk unknown to both
parties, arrives at port. What is its legal status?
A. Valid, since both parties agreed

B. Voidable at the option of the promisor

C. Void, as the event is impossible

D. Enforceable on equitable grounds

6. Two parties agree not to file a suit against each other, even if wronged, in exchange for
compensation. What is the legal nature of this agreement?

A. Valid, if consideration exists

B. Void, as it restrains legal proceedings

C. Voidable if one party later suffers loss

D. Valid if mutually signed

Answer Key:

1. A – Loan (collateral) to wager is valid if wagering is not illegal in that state

2. B – Wagering agreement: outcome of uncertain event, no control = void
3. B – Rina’s promotion is a collateral event = contingent contract
4. B – Any restraint of marriage = void under Section 26
5. C – Agreement depends on an impossible event = void under Section 36
6. B – Agreement restricting legal proceedings = void under Section 28

Passage 7: Performance & Discharge of Contracts

The performance of a contract refers to the fulfillment of the obligations stipulated in the
agreement by the parties involved. Section 37 of the Indian Contract Act provides that the
parties to a contract must perform their promises, unless performance is excused or prevented
by law. Performance may be executed either by the promisor themselves or by someone on
their behalf. In case the performance is to be done by the promisor alone, no one else can
substitute them unless agreed upon.
A contract is discharged when the parties are no longer bound by the obligations in the
contract. This discharge can occur in several ways:

1. Performance: When both parties fulfill their respective promises under the contract.
2. Agreement: The contract can be discharged by mutual agreement, where both parties
consent to terminate the contract before it is fully executed.
3. Frustration (Impossibility of Performance): If the performance becomes impossible
due to a change in circumstances, the contract may be discharged. For example, if a
contract for the sale of goods becomes impossible because the goods are destroyed,
the contract is considered discharged under the doctrine of frustration.
4. Breach: If one party fails to perform as agreed, the other party may treat the contract
as breached and seek remedies.

In the case of anticipatory breach, one party indicates that they will not perform their
obligations, even before the time for performance arrives. This allows the non-breaching
party to immediately take action.

Questions:

1. A agrees to sell goods to B, but the goods are destroyed in a fire before delivery. What
happens to the contract?

A. The contract is voidable

B. The contract is discharged by frustration

C. The contract is still enforceable with compensation

D. The contract is valid, and A must compensate

2. X agrees to deliver 100 boxes of fruit to Y, but fails to deliver on the agreed date. Y
decides to terminate the contract immediately. What is the legal status of the contract?

A. X is entitled to additional time for performance

B. Y can terminate the contract and sue for damages

C. Y must give X more time to perform

D. X’s failure doesn’t affect the contract

3. A hires B to repair a vehicle. B completes the work but A refuses to pay. What is the status
of the contract?

A. The contract is void

B. A can still be bound to pay if B completed performance

C. The contract is voidable at A’s option

D. B can demand payment even if the work wasn’t completed

4. An agreement is made for the sale of a painting that is destroyed by accident. The seller
was not at fault. Which of the following applies?

A. The contract is voidable

B. The contract is discharged by frustration

C. The seller is liable to compensate

D. The buyer can demand a replacement

5. A agrees to perform a task by a certain date but declares in advance that they will not be
able to perform. This is known as:

A. Actual breach

B. Anticipatory breach

C. Impossibility of performance

D. Frustration
6. If a contract is discharged by agreement between the parties, which of the following is
true?

A. The parties must go to court to validate the discharge

B. The discharge is automatic upon agreement

C. One party must sue for the discharge to be effective

D. The contract remains valid but unenforced

Answer Key:

1. B – The destruction of the subject matter makes the contract impossible to perform,
thus discharged by frustration.
2. B – If the contract is not performed, the other party may terminate and claim
damages.
3. B – If performance is completed, A must pay, unless there is an issue with
performance quality.
4. B – The destruction of the subject matter discharges the contract under the doctrine of
frustration.
5. B – When one party announces beforehand that they will not perform, it’s anticipatory
breach.
6. B – An agreement by mutual consent can discharge the contract.

Passage 8: Remedies for Breach of Contract

When a party breaches a contract, the non-breaching party is entitled to remedies under the
law. These remedies can be divided into several categories, primarily focusing on
compensatory and equitable relief.

1. Damages: The primary remedy for breach of contract. Section 73 of the Indian
Contract Act stipulates that the non-breaching party is entitled to damages, which are
meant to compensate for the loss suffered as a result of the breach. Compensatory
damages are calculated based on the actual loss suffered, while consequential
damages are those that arise as a natural consequence of the breach.
2. Specific Performance: Section 10 of the Specific Relief Act, 1963, grants a party the
right to seek specific performance of the contract if damages are an inadequate
remedy. This remedy requires the breaching party to perform their obligations under
the contract rather than just paying for the breach. Specific performance is usually
available in contracts involving unique goods or property.
 3. Injunctions: An injunction is an order from the court to prevent a party from doing
something that would constitute a breach of the contract. Interim injunctions are
issued before a final decision is made in the case, while permanent injunctions are
issued after a ruling.
4. Restitution: Restitution involves restoring the party who has performed under the
contract to the position they were in before the contract was made. If the contract is
rescinded, the parties must return any benefits conferred upon them.

In certain cases, a contract may provide for liquidated damages, where the parties have
agreed upon a set amount to be paid in case of breach. These damages are enforceable if they
represent a genuine pre-estimate of loss and not a penalty.

Questions:

1. X breaches a contract by not delivering goods as agreed. Y claims ₹50,000 as

compensation. The actual loss caused by the breach is ₹30,000. What can Y claim?

A. Only ₹30,000 as compensatory damages

B. ₹50,000 as per the contract

C. ₹50,000 as liquidated damages

D. No compensation, as the actual loss is lower

2. A unique painting is not delivered as per the contract. The buyer wants the painting and not
just monetary compensation. What remedy is available?

A. Specific performance

B. Damages for breach

C. Restitution

D. Injunction
3. A agrees to pay ₹1 lakh if B completes a task by a certain date. B fails to do so. The
contract specifies liquidated damages of ₹10,000 in case of breach. What is the likely
remedy?

A. B is liable for ₹10,000 liquidated damages

B. A can claim unlimited damages

C. The contract will be voided

D. A can only claim restitution

4. B is prohibited by a contract from entering a particular market. If B violates this term, A

can seek:

A. Specific performance

B. Liquidated damages

C. An injunction

D. Restitution

5. A contract provides that in case of breach, the breaching party must pay a fixed sum,
irrespective of the actual loss. This is an example of:

A. Liquidated damages

B. Consequential damages

C. Restitution

D. Specific performance

6. A agrees to sell a rare antique to B, but later refuses to perform. What is B’s likely
remedy?
A. Restitution

B. Specific performance

C. Damages

D. Injunction

Answer Key:

1. A – Y can only claim the actual loss suffered (₹30,000), not more.
2. A – Specific performance applies to unique items like the painting.
3. A – Liquidated damages are enforceable as agreed upon in the contract.
4. C – An injunction can prevent the breach of a non-compete clause.
5. A – A fixed sum for breach represents liquidated damages, not a penalty.
6. B – Specific performance is appropriate for unique items like antiques.

Passage 9: Partnership

A partnership is defined under the Indian Partnership Act, 1932. It is a relationship between
two or more persons who have agreed to share the profits of a business carried on by all or
any of them acting for all. The essential elements of a partnership include:

1. Agreement: A partnership must arise out of a contract between the partners. There
must be an agreement to carry on a business together.
2. Sharing of Profits: Partners agree to share the profits (and sometimes losses) arising
from the business. The sharing of profits is a significant characteristic of a
partnership.
3. Business: The business must be carried on by all or any of the partners acting for the
partnership.

A partnership may be formed by a partnership deed, a written agreement that governs the
terms of the partnership, including the rights and duties of the partners, the manner of sharing
profits and losses, and the duration of the partnership.

The Partnership Act recognizes two types of partners:

• Active partners: Partners who participate in the day-to-day management of the

business.
• Sleeping or dormant partners: Partners who invest capital in the business but do not
participate in its daily operations.
The liability of partners is joint and several. This means that if the partnership faces debts,
each partner is personally liable for the debts of the business to the full extent of their
personal assets.

In case of a dispute or difference, partners may dissolve the partnership, either by mutual
consent or through legal proceedings. The dissolution may also occur due to specific events,
such as the death or bankruptcy of a partner.

Questions:

1. A, B, and C form a partnership. The profits and losses of the business are shared equally
among the partners. However, after some time, A claims that he should receive a higher share
of the profits due to his greater involvement in the business. What is the likely legal
outcome?

A. A is entitled to a larger share of profits based on his involvement.

B. The agreement will govern the profit-sharing, and A cannot change the terms unilaterally.

C. A can claim a higher share if he is an active partner.

D. The partnership will be dissolved as A cannot change the agreement.

2. X and Y are partners in a business. X dies, and Y continues the business alone. What
happens to the partnership?

A. The partnership continues as per the agreement.

B. The partnership is dissolved by the death of X unless the partnership deed provides
otherwise.

C. Y can continue as the sole proprietor of the business.

D. Y must pay compensation to X’s heirs.

3. Z and W are in a partnership. Z has contributed capital, but W is the active partner
managing the business. If the business incurs a loss, who will bear the loss?

A. Z will bear the loss as he contributed capital.

B. W will bear the loss as he is the active partner.

C. Both Z and W will share the loss according to their profit-sharing ratio.

D. Only W will bear the loss.

4. A partnership is formed for a business dealing in textiles. After five years, A decides to
retire from the partnership. What happens to the partnership?

A. The partnership continues as A’s retirement does not affect it.

B. The partnership may be dissolved unless the agreement allows A to retire.

C. The partnership is automatically dissolved upon A’s retirement.

D. A must sell his share to the remaining partners.

5. A, B, and C are partners in a business. C is a sleeping partner, and A is the active partner.
If the business incurs a debt and A defaults in repaying it, what is the liability of the partners?

A. Only A is liable for the debt.

B. A and B are jointly liable, and C’s liability is limited to the amount invested.

C. A, B, and C are jointly and severally liable for the debt.

D. C is not liable for the debt as a sleeping partner.

6. If a partnership agreement does not specify the terms of profit-sharing, how will the profits
and losses be divided?
A. According to the investment made by each partner.

B. Equally among the partners.

C. In the ratio of their respective activities.

D. As per the discretion of the active partner.

Answer Key:

1. B – The partnership agreement governs profit-sharing, and A cannot unilaterally

change it.
2. B – The partnership is dissolved by the death of a partner unless the partnership deed
states otherwise.
3. C – Losses are typically shared according to the profit-sharing ratio.
4. B – The partnership may be dissolved unless the partnership deed allows for
retirement.
5. C – All partners, including sleeping partners, are jointly and severally liable for the
debts.
6. B – In the absence of a specified agreement, profits and losses are divided equally.