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

The correct answer is an agreement.

Key Points

• Under Section 2(e) of the Indian Contract Act, 1872, the law defines agreement as:
  • “Every promise and every set of promises, forming the consideration for each other, is an agreement.”
  • So, when two parties make promises to each other, and those promises form the consideration for one another, it is called an agreement.
• Promise – Defined in Section 2(b) as:
  • "When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal when accepted becomes a promise."
• Consideration – The something in return (benefit or detriment) that each party provides to the other.
• So, when there are mutual promises that form consideration for each other, it becomes an agreement.

The correct answer is 'void.'

Key Points

• Void Agreements:
  • As per Section 2(g) of the Indian Contract Act, 1872, an agreement not enforceable by law is said to be void.
  • A void agreement has no legal effect and cannot be enforced in a court of law. Essentially, it is as if the agreement never existed.
  • Examples of void agreements include agreements that involve illegal activities, agreements made with parties who lack the capacity to contract, and agreements that are inherently impossible to perform.

Additional Information

• Voidable Agreements:
  • A voidable agreement is one that is initially valid and enforceable but can be rejected or voided by one of the parties under certain conditions, typically due to factors like misrepresentation, undue influence, or coercion.
  • Until it is voided by the aggrieved party, it remains enforceable in a court of law.
• Valid Agreements:
  • A valid agreement is one that meets all the essential elements of a contract as per the Indian Contract Act, 1872, and is fully enforceable by law.
  • These elements include free consent, lawful consideration, competent parties, and a lawful object.
• Invalid Agreements:
  • The term "invalid" is not specifically defined in the Indian Contract Act, but it generally refers to agreements that are either void or voidable.
  • An invalid agreement lacks legal enforceability and is not recognized by the law.

The correct answer is 'promise under Section 2(b)'

Key Points

• Promise under Section 2(b) of the Indian Contract Act, 1872:
  • According to Section 2(b) of the Indian Contract Act, 1872, when the person to whom a proposal is made signifies their assent, the proposal becomes a promise.
  • A proposal is also known as an "offer," and once it is accepted, it transforms into a "promise," which is a crucial step in contract formation.
  • This promise lays the foundation for an agreement, and once legal enforceability is established, it results in a contract under the Act.

Additional Information

• Agreement under Section 2(e):
  • Section 2(e) defines an "agreement" as every promise and every set of promises forming the consideration for each other.
  • A promise is a part of an agreement, but an agreement itself consists of mutual obligations between the parties.
  • Hence, an accepted proposal does not immediately become an agreement; instead, it first becomes a promise.
• Contract under Section 2(h):
  • According to Section 2(h), a contract is an agreement enforceable by law.
  • An accepted proposal (promise) does not automatically turn into a contract unless it fulfills all legal requirements, such as lawful consideration and capacity of parties.
  • Therefore, an accepted proposal is only the initial step towards forming a contract but is not a contract by itself.
• Mere formality under the provisions:
  • Considering an accepted proposal as a mere formality is incorrect because it is a legally significant step in contract formation.
  • Every contract begins with a proposal, and acceptance converts it into a promise, which further progresses to an agreement and then a contract.
  • Thus, calling an accepted proposal a mere formality undermines its importance in the legal framework of contracts.

The correct answer is Option 1.

Key Points Under the Indian Contract Act, 1872:

• Reciprocal promises are defined as promises which form the consideration or part of the consideration for each other (see Section 2(f) of the Indian Contract Act, 1872). Essentially, each party's promise is the consideration for the other party's promise, making them reciprocal.

The correct answer is Option 1.

Key Points Privity of Contract:

• Definition:
  The doctrine of privity of contract states that only the parties to a contract have the right to sue each other for the enforcement of contractual obligations.

  • A third party, even if they stand to benefit from the contract, generally cannot sue for its enforcement.

• Example:
  If A and B enter into a contract, and C (a third party) benefits from the contract, C cannot sue A or B for non-fulfillment of the contract unless they are a party to the agreement.

• Key Case Law:

  • Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge & Co. Ltd.:
    • The House of Lords upheld the principle that a third party cannot enforce a contract unless they are a party to it.

The correct answer is Option 2.

Key Points The law of contract creates jus in personam, which is a privilege against a particular individual. 
A contract is a legally binding agreement between two or more parties. Once signed, a contract creates a promise that each party will fulfill certain rights and obligations. 

Additional InformationMeaning of Jus in Personam: Jus in personam is a Latin term that refers to a legal right or claim against a specific person. This right is enforceable only against the particular individual or entity who is the subject of the claim. It is a personal right that creates an obligation on a particular individual or entity.

Enforcement of Jus in personam: The enforcement of jus in personam claims is limited to the parties involved in the case. This means that the right is enforceable only against the party who is the subject of the claim. The legal system has the power to enforce jus in personam claims by imposing penalties or fines on the subject of the claim. 

Distinction between Jus in personam and Jus in rem: The main difference between jus in personam and jus in rem is the subject of the right. Jus in personam refers to a right against a specific person, while jus in rem refers to a right against a specific thing or property. Jus in rem is enforceable against anyone who possesses or interacts with that property.

Examples of Jus in personam: Examples of jus in personam include contractual rights, such as the right to receive payment for services rendered, and tort claims, such as the right to seek damages for injuries caused by another person's negligence.

The correct answer is No agreement as the acceptance was never communicated to the proposer

Key Points

• Section 2(e) of the Contract Act defines an agreement as a combination of promises, where each promise serves as the consideration for the other. In practical terms, a promise is equivalent to a proposal or an offer, which becomes a binding agreement upon acceptance. ​
• For instance, if Ramesh proposes to sell his TV to Shyam for Rs. 8,000, and Shyam accepts the offer, a valid agreement is formed between them. In simpler terms, an agreement is the result of an offer made by one party and its subsequent acceptance by another.
• This can be expressed as Agreement = Offer + Acceptance.
• It's crucial to note that an agreement necessitates at least two parties – one making the offer and the other accepting it.
• An individual cannot form an agreement with themselves. Additionally, a fundamental requirement for a valid agreement is the existence of a consensus-ad-idem, which means that the parties involved must share a common understanding regarding the subject matter.
• In a scenario where there is a lack of agreement on the same thing in the same sense, often referred to as consensus-ad-idem, the agreement is considered invalid. 
• For instance, if Party A offers to sell their house in North Delhi, but Party B mistakenly believes they are purchasing the house in South Delhi, there is no consensus or agreement, as both parties have different perceptions and expectations regarding the subject matter. 

Additional Information In the pivotal case of Powell v Lee, the court established a crucial principle regarding the formation of contracts.

• It ruled that for a contract to be valid, the acceptance of an offer must be communicated to the offeror.
• The court emphasized that the act of acceptance itself is not sufficient; it must be effectively conveyed to the party making the offer. Importantly, the court clarified that in the absence of such communication of acceptance, no contract exists, regardless of any actions taken by the offeree under the assumption of a contractual agreement.
• This decision underscores the significance of clear and explicit communication in the formation of contracts.

The correct answer is option 4.

Key Points

•  A voidable contract is a valid contract that may be affirmed or rejected at the option of one or more of the parties involved. 

• Enforceability by Law:

        The agreement is legally binding and enforceable.

• Option to One or More Parties:
  • The contract contains a provision that allows one or more parties to exercise an option.
  • This means that certain conditions or circumstances give one or more parties the right to choose whether to affirm or void the contract.
• Not at the Option of Others:

       The option to affirm or void the contract is not available to all parties involved. It may be limited to specific individuals or conditions.

• Voidable Nature:
  • The contract is voidable, meaning that it is valid and binding unless the party with the option chooses to avoid it.
  • Once the option is exercised, the contract becomes void.
• Voidable contracts often arise in situations where there may be issues such as misrepresentation, fraud, coercion, undue influence, or a lack of free consent. If any of these elements are present, the party affected by them typically has the option to either affirm the contract or reject it.

 

Additional Information

•   The term "voidable" is distinct from "void." A void contract is one that lacks legal validity from the beginning, while a voidable contract is initially valid but can be rendered void if the affected party chooses to exercise the option to avoid it.
•  Section 2(i) of Indian Contract Act- An agreement which is enforceable by law at the option of one or more of the parties thereto,
  but not at the option of the other or others, is a voidable contract.

The correct answer is Option 1. 

Key Points In case of Tata Cellular v. Union of India, 1994, it was held that:- 

A tender is an offer. It is something which invites and is communicated to notify acceptance.

Broadly stated, the following are the requisites of a valid tender :

1. It must be unconditional.
2. Must be made at the proper place.
3. Must conform to the terms of obligation.
4. Must be made at the proper time.
5. Must be made in the proper form.
6. The person by whom the tender is made must be able and willing to perform his obligations.
7. There must be reasonable opportunity for inspection.
8. Tender must be made to the proper person.
9. It must be of full amount.

The correct answer is Only 2

Key Points

• The Indian Contract Act codifies the way we enter into a contract, execute it and the way we implement its provisions. The act is divided into total 266 sections. Important sections among those are
  • Section 1 to 75 – General Provisions
  • Section 76 to 123 – Sales of Goods.
  • Section 124 to 147 – Indemnity and Guarantee.
  • Section 148 to 181 – Bailment and Pledges.
  • Section 182 to 238 – Agency.
  • Section 239 to 266 – Partnership.
• There are specific areas that deal with property, movable goods, etc. In 1930 the sections related to Sales and Goods were separated and Sales and Goods act was enacted. 
• Similarly Indian Partnership Act 1932 was enacted by separating partnership related section from the Indian Contract Act 1872.
• Also, the Indian Contract Act 1872 is not retrospective in nature which means a contract entered into before 1st September 1872, even though to be performed after passing of this Act is not affected by this Act.
• Hence, the basic framework of contracting is covered in the Indian Contract Act and it is an important area of law.

Important Points

Features of Indian Contract Act 1872:

• There must be a valid contract among the parties involved.
• A valid contract is enforceable by law.
• A valid contract must involve at least two parties.
• There must be an intention of the parties to enter the contract.
• The parties must be competent or should be of a sound mind to perform the contract.
• Any person disqualified by the law if enters into a contract then such contract becomes invalid
• The intention of the parties and the contract must be lawful in nature and any unlawful intentions lead to invalidity of the contract.
• The contract must be practical so that it can be performed and must be possible to perform by the parties involved.
• There must be a consideration for fulfilling the contract.
• Remedies in the case of breach
  • In case of breach, an aggrieved party can file for damages which is dealt by the Indian Contract Act
  • Also Specific Relief Act 1963 can also be used for specific cases.
• Major cases related to contract in India:

1. Laxman Shukla VS Gauri Dutt 1930, related to communication of offer.
2. Mohori Bibee VS Dharmodas Ghose, related to minors capacity to contract.

• In 1930 and 1932 the government separated some sections from the Indian Contract Act and created separate act to deal with them. These acts are

1. Sale of Goods Act, 1930.
2. Indian Partnership Act, 1932

The correct answer is Option 3.

Key Points

• Balfour v. Balfour (1919) 2KB 571 primarily highlights the significance of intention to create legal obligations.
• The "intention to create legal obligations" is a fundamental principle in contract law that determines whether parties entering into an agreement intend for it to be legally enforceable.
• For a contract to be valid and legally binding, both parties must possess the intention to be bound by the terms of the agreement. This intention refers to the willingness of the parties to enter into a legally enforceable contract rather than a casual promise, social arrangement, or mere expression of goodwill.

The correct option is A right available against the whole world.

Key Points

• "In rem" is a Latin term that means "against the thing."
• In legal contexts, it typically refers to rights that are exercisable against the world at large, rather than against a specific person.
• These rights are often associated with ownership or property interests.
• When a right is considered "in rem," it means that the right exists about a specific piece of property and it can be asserted against anyone who interferes with that property right, regardless of who they are.
• Example:
  • Property rights, such as ownership of land are considered in rem rights.
  • If someone violates our property rights by trespassing or interfering with our land, we can assert our rights against that person, regardless of their identity.
  • This is in contrast to "in personam" rights, which are rights that are available against a specific individual.
• So, "a right available against the whole world" is the correct interpretation of "right in rem."

Explanation - This phrase is used with a view to expressing the state of minds of parties that enters into a contract with absolutely presence of mind. It is a common law concept that requires both parties, entering into contract, to have a mutual consent to go on with contract with each other. Consensus as idem in contract law means that meeting of the mind of both parties to the contract on the same thing in the same sense.

The correct answer is Tacit Contract

Key Points

Option	Explanation
1. Tacit Contract	A tacit term of a contract is an unexpressed provision of the contract which derives from the common intention of the parties, as inferred by the court from the express provisions of the contract and the surrounding circumstances. Usually, people quote for a tacit contract, the cash withdrawal through ATM, and sale by fall of the hammer at an auction sale.
2. E-contract	An E-contract is any kind of contract formed in the course of e-commerce by the interaction of two or more individuals using electronic means, such as e-mail, the interaction of an individual with an electronic agent, such as a computer program. Therefore, this is not applicable.
3. Banking Contract	A bank contract is a security or portfolio of securities that offer a guaranteed rate of return. This is not applicable.
4. Quasi Contract	A quasi-contract is a retroactive arrangement between two parties who have no previous obligations to one another. It is created by a judge to correct a circumstance in which one party acquires something at the expense of the other. Thus, this is not applicable.

The correct option is lack of acceptance.

Key Points

• For a valid contract, there must be an offer, acceptance, intention to create legal relations and consideration.
• In the context of a cross offer both parties are making offers simultaneously.
• However, for a contract to be formed, one party must accept the offer made by the other. 
• In a cross offer, neither party has accepted the other's offer because they are making offers at the same time.
• Acceptance is a main element in the formation of a contract and without it, a contract is not concluded.
• The absence of a clear acceptance is the primary reason why a cross offer does not constitute a contract.
• Example:
  • Person A offers to sell a car to Person B for $10,000. At the same time, Person B offers to sell a different car to Person A for $10,000. In this situation, neither party has accepted the other's offer. If Person A accepts the offer to buy Person B's car, it would be considered a new offer or counteroffer, not an acceptance of Person B's original offer.