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Paper-2

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Includes ICAI Study Material, RTP, MTP & Previous
Year Questions & Answers in Chapterwise Format.

SAMPLE MATERIAL

Modified as per the

NEW Scheme

Applicable for
May’25, Sept’25
& Jan’26
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Table of Contents
Sr. No. Particulars Page Number
1 Indian Regulatory Framework 1.1 – 1.2
2 The Indian Contract Act,1872
2.1 Nature of Contracts 2.1.1 – 2.1.12
2.2 Consideration 2.2.1 – 2.2.6
2.3 Other Essential Elements of a Contract 2.3.1 – 2.3.18
2.4 Performance of a Contract 2.4.1 – 2.4.11
2.5 Breach of Contract & Its Remedies 2.5.1 – 2.5.10
2.6 Contingent & Quasi Contracts 2.6.1 – 2.6.8
2.7 Contract of Indemnity & Guarantee 2.7.1 – 2.7.12
2.8 Bailment & Pledge 2.8.1 – 2.8.7
2.9 Agency 2.9.1 – 2.9.10
3 Sale of Goods Act, 1930
3.1 Formation of the Contract of Sale 3.1.1 – 3.1.12
3.2 Conditions & Warranties 3.2.1 – 3.2.14
3.3 Transfer of Ownership & Delivery of Goods 3.3.1 – 3.3.10
3.4 Unpaid Seller 3.4.1 – 3.4.11
4 The Indian Partnership Act, 1932
4.1 General Nature of Partnership 4.1.1 – 4.1.9
4.2 Relations of Partners 4.2.1 – 4.2.16
4.3 Registration & Dissolution of Firm 4.3.1 – 4.3.11
5 The Limited Liability Partnership Act, 2008 5.1 – 5.10
6 The Companies Act, 2013 6.1 – 6.31
7 The Negotiable Instruments Act, 1881 7.1 – 7.27
 1.1

Chapter 1
Indian Regulatory Framework

Section A: Study Material Questions

Multiple Choice Questions

1. A Chartered Accountant should be aware of law because
(a) He has to be an expert in law
(b) He has to argue in High court and Supreme court
(c) He has to advice management and clients on legal matters at a basic or threshold
level.
(d) None of the above.
Answer: (c)

2. Which of the following is not a MAIN source of law in India?

(a) Legal text books
(b) The Parliament
(c) State Assemblies
(d) The Constitution
Answer: (a)

3. In India we follow the federal system of Government. This means that

(a) All the power is with the President of India
(b) Powers are distributed between Centre and States
(c) All the power is with the Centre
(d) There are no restrictions on the power of States
Answer: (b)

4. The Constitution of India was adopted in

(a) 1947
(b) 1949
(c) 1950
(d) 1951
Answer:(c)

5. Income Tax Act, 1961 is a part of the

(a) Central list
(b) State list
(c) Joint list
(d) None of the above
Answer:(a)

6. The law concerned with violation of the rule of law and punishment of the same is called -
(a) Family law
(b) Criminal law
(c) Civil law
(d) Property law
Answer:(b)

7. Which of the following is NOT an example of Civil law?

(a) Breach of contract
(b) Non-delivery of goods
(c) Traffic offenses
(d) Non-payment of dues
Answer:(c)
Chapter 1 Indian Regulatory Framework
 1.2

8. When a law is proposed in Parliament it is called

(a) Act
(b) Statute
(c) Bill
(d) Notification
Answer:(c)

9. Which of the following is NOT a department of the Ministry of Finance?

(a) Department of Economic Affairs
(b) Department of Expenditure
(c) Department of States
(d) Department of Revenue
Answer:(c)

10.Courts get territorial limits based on

(a) The local limits within which the party resides
(b) The local limits within which the property under dispute is located
(c) either a or b
(d) None of the above
Answer:(c)

Section B: RTP, MTP & PYP Questions

Question 1
What do you understand by Indian Judicial System and what are its various functions? (RTP Jun’24)
Answer 1
Indian Judicial System is a branch which through the enforcement of Law resolves dispute between
citizens or between citizens and the Government.
The functions of judiciary system of India are:
• Regulation of the interpretation of the Acts and Codes,
• Dispute Resolution,
• Promotion of fairness among the citizens of the land.
Indian Judicial System performs his functions through the hierarchy ofcourts, the Supreme Court is at the
top, followed by the High Courts, District Courts and Metropolitan Courts. Decisions of a High Court are
binding in the respective state but are only persuasive in other states. Decisions of the Supreme Court are
binding on all High Courts under Article 141 of the Indian Constitution. In fact, a Supreme Court decision
is the final word on the matter.

Chapter 1 Indian Regulatory Framework

 2.1 - 1

Chapter 2.1
Nature of Contracts

Section A: Study Material Questions

Multiple Choice Questions

1. An agreement enforceable by law is a
(a) Promise
(b) Contract
(c) Obligation
(d) Lawful promise
Answer:(b)

2. A void agreement is one which is -

(a) Valid but not enforceable
(b) Enforceable at the option of both the parties
(c) Enforceable at the option of one party
(d) Not enforceable in a court of law.
Answer:(d)

3. An agreement which is enforceable by law at the option of one or more of the parties thereon but not at
the option of the other or others is a
(a) Valid Contract
(b) Void contract
(c) Voidable contract
(d) Illegal contract
Answer:(c)

4. When the consent of a party is not free, the contract is

(a) Void
(b) Voidable
(c) Valid
(d) Illegal
Answer:(b)

5. In case of illegal agreements, the collateral agreements are:

(a) Valid
(b) Void
(c) Voidable
(d) None of these
Answer:(b)

6. An offer may lapse by:

(a) Revocation
(b) Counter Offer
(c) Rejection of offer by offeree
(d) All of these
Answer:(d)

7. A proposal when accepted becomes a

(a) Promise
(b) Contract
(c) Offer
(d) Acceptance
Answer:(a)
Chapter 2.1 Nature of Contracts
 2.1 - 2

8. If A says to B “I offer to sell my house to you for ₹ 40,00,000” and B accepts the offer by saying clearly “I
accept your offer”, it is a/an
(a) Implied offer
(b) Express offer
(c) General offer
(d) None of the above
Answer:(b)

9. ‘A’ offered a reward of ₹ 1,00,000 for recovery of some valuable missing articles. ‘B’ who did not know of
this offer, found the missing articles. Which one of the following is the correct solution to this problem?
(a) Giving delivery of articles to ‘A’ amounts to an acceptance and hence ‘B’ is entitled to get the
reward of ₹ 1,00,000
(b) Giving delivery of articles to ‘A’ amounts to performance of a condition precedent to an offer
and hence there is valid acceptance. So ‘B’ must get the reward of ₹ 1,00,000
(c) As there is no acceptance of an offer due to want of Knowledge, ‘B’, is not entitledto get the
reward of ₹ 1,00,000
(d) In the absence of any legal obligation on ‘A’, no claim for reward of ₹ 1,00,000 is maintainable
by ‘B’.
Answer:(c)

10. Arun has two cars- one of white colour and another of red colour. He offers to sell one of the cars to
Basu thinking that he is selling the car which has white colour. Basu agrees to buy the car thinking that
Arun is selling the car which has red colour. Will this agreement become a valid contract?
(a) Yes
(b) No
(c) Insufficient information
(d) None of the above.
Answer:(b)

11. A dress is displayed in the showroom with a price tag attached to the dress. A buyer interested in the
dress and ready to pay the price mentioned in the tag approached the shopkeeper for purchasing the
dress.
(a) The shopkeeper can refuse to sell the dress as display of dress is just an invitation to offer.
(b) The shopkeeper cannot refuse to sell the dress as the buyer has accepted the offer
(c) In case of refusal, the shopkeeper will be liable for breach of contract
(d) The shopkeeper cannot refuse to sell the dress but may charge higher price
Answer:(a)

12. A agrees to pay ₹ 1,000 to B if a certain ship returns within a year. However, the ship sinks within the
year. In this case, the contract becomes
(a) Valid
(b) Void
(c) Voidable
(d) Illegal
Answer:(b)

13. A notice in the newspaper inviting tenders is

(a) a proposal
(b) An invitation to proposal
(c) A promise
(d) An invitation for negotiation
Answer:(b)

Chapter 2.1 Nature of Contracts

 2.1 - 3

14. A telephonic acceptance is complete when the offer is

(a) spoken into the telephone
(b) heard but not understood by the offeror
(c) heard and understood by the offeror
(d) is received, heard and understood by some person in the offeror’s house.
Answer:(c)

15. A and B agree to deal in smuggled goods and share the profits. A refuses to give B’s share of profit. In
this case:
(a) B can enforce the agreement in the court
(b) B can only claim damages
(c) B has no remedy as the contract is illegal
(d) B can enforce the contract and claim damages
Answer:(c)

16. Which one of the following statements is correct?

(a) Void agreements are always illegal
(b) Illegal agreements are voidable
(c) Illegal agreement can be ratified by the parties
(d) Illegal agreements are always void
Answer:(d)

17. A voidable contract is one which

(a) Can be enforced at the option of aggrieved party
(b) Can be enforced at the option of both the parties
(c) Cannot be enforced in a court of law
(d) Courts prohibit
Answer: (a)

18. When offer is made to a definite person, it is known as

(a) General Offer
(b) Cross Offer
(c) Counter offer
(d) Special offer
Answer: (d)

19. On the face of a ticket, it is mentioned that to look for the terms and conditions look behind. Mr. A
bought the ticket but didn’t read the terms and conditions. He:
(a) is not bound by the terms and condition
(b) may decide to bound by certain terms and ignore others
(c) is bound by all the terms and conditions whether he read it or not
(d) none of the above
Answer: (c)

20. It does not effect the free consent of the parties,

(a) Fraud
(b) Coercion
(c) Incompetency of parties
(d) Undue Influence
Answer: (c)

Chapter 2.1 Nature of Contracts

 2.1 - 4

21. contract is made without intention of parties.

(a) Express
(b) Implied
(c) Quasi
(d) Executory
Answer: (c)

22. A offers B to supply Books at Rs. 500 each. B accepts the same with condition of 30% discount. It is
_______
(a) Counter Offer
(b) Cross Offer
(c) Specific Offer
(d) General Offer
Answer:(a)

Question Answers
Question 1
A sends an offer to B to sell his second-car for ₹ 1,40,000 with a condition that if B does not reply within
a week, he (A) shall treat the offer as accepted. Is A correct in his proposition?
Answer 1
Acceptance to an offer cannot be implied merely from the silence of the offeree, evenif it is expressly
stated in the offer itself. Unless the offeree has by his previous conduct indicated that his silence amount
to acceptance, it cannot be taken as valid acceptance. So, in the given problem, if B remains silent, it does
not amount to acceptance. The acceptance must be made within the time limit prescribed by the offer.
Theacceptance of an offer after the time prescribed by the offeror has elapsed will not avail to turn the
offer into a contract.

Question 2
State whether there is any contract in following cases:
(a) A engages B to do certain work and remuneration to be paid as fixed by C.
(b) A and B promise to pay for the studies of their maid’s son
(c) A takes a seat in public bus.
(d) A, a chartered accountant promises to help his friend to file his return.
Answer 2
(a) It is a valid express contract
(b) It is not a contract as it is a social agreement
(c) It is an implied contract. A is bound to pay for the bus fare.
(d) It is a social agreement without any intention to create a legal relationship.

Question 3
Miss Shakuntala puts an application to be a teacher in the school. She was appointed by the trust of the
school. Her friend who works in the same school informs her about her appointment informally. But later
due to some internal reasons her appointment was cancelled. Can Miss Shakuntala claim for damages?
Answer 3
No, Miss Shakuntala cannot claim damages. As per Section 4, communication of acceptance is complete as
against proposer when it is put in the course of transmission to him. In the present case, school authorities
have not put any offer letter in transmission. Her information from a third person will not form part of
contract.

Chapter 2.1 Nature of Contracts

 2.1 - 5

Section B: RTP, MTP & PYP Questions

Question 1
State which of the following agreements are valid contract under the Indian Contract Act, 1872?
(a) A, who owns two cars is selling red car to B. B thinks he is purchasing the black car.
(b) A threatened to shoot B if he (B) does not lend him ₹2,00,000 and B agreed to it.
(c) A agrees to sell his house to B against 100 kgs of cocaine (drugs).
(d) A ask B if he wants to buy his bike for ₹ 50,000. B agrees to buy bike.
(e) Mr. X agrees to write a book with a publisher. But after few days, X dies in an accident.
(RTP May’23)
Answer 1
(a) A, who owns two cars is selling red car to B. B thinks he is purchasing the black car. There is no
consensus ad idem and hence not a valid contract.
(b) A threatened to shoot B if he (B) does not lend him ₹2,00,000 and B agreed to it. Here the agreement
is entered into under coercion and hence not a valid contract.
(c) A agrees to sell his house to B against 100 kgs of cocaine (drugs). Such agreement is illegal as the
consideration is unlawful.
(d) A ask B if he wants to buy his bike for ₹ 50,000. B agrees to buy bike. It is agreement which is
enforceable by law. Hence, it is a valid contract.
(e) Mr. X agrees to write a book with a publisher. But after few days, X dies in an accident. Here the
contract becomes void due to the impossibility of performance of the contract.

Question 2
Mr. Parth applied for a job as principal of a school. The school management decided to appoint him. One
member of the school management committee privately informed Mr. Parth that he was appointed but
official communication was not given by the school. Later, the management of the school decided to
appoint someone else as a principal. Mr. Parth filed a suit against the school for cancellation of his
appointment and claimed damages for loss of salary. State with reasons, will Mr. Parth be successful in
suit filed against school under the Indian Contract Act, 1872?
(RTP Jun’24, Nov’21)
Answer 2
As per the rules of acceptance, the acceptance should be communicated to offer or by offeree himself
or by his authorized agent. Communication of acceptance by third person cannot be concluded as valid
acceptance. In the instant case, Mr. Parth applied for a job as principal of a schooland one member of
the school management committee privately informed Mr. Parth that he was appointed. Later, the
management of the school appointed someone else as a principal. On the basis of the above provisions
and facts, communication of appointment of Mr. Parth should be made by the school management
committee or by any authorised agent. Communication by third person cannot be termed as
communication of acceptance. Therefore, no valid contract was formed between Mr. Parth and the school
and Mr. Parth cannot file a suit against the school for cancellation of his appointment.

Question 3
Mr. Joy owns two flats in a building. He wanted to sell flat no.101 to Mr. Roy. Mr. Joy offered to sell
his flat no. 101 to Mr. Roy, but Mr. Roy thought that Mr. Joy wanted to sell flat no. 102 and said yes
for the agreement. Considering the provisions of Indian Contract Act, 1872, discuss the validity of such
a contract. (MTP Jun’22 4 Marks)
Answer 3
Section 10 of Indian Contract Act, 1872 laid done the essential elements of a valid contract. One of the
essential elements of valid contract is free consent. Consent is an express willingness or giving voluntary
permission or agreeing to something. Section 13 further clarify" two or more persons are said to consent
when they agree upon the same thing in the same sense". In the present case, both the parties have
given a free consent but they are not consenting for the same thing in the same sense. Mr. Joy wants to
sell flat no. 101 and Mr. Roy has agreed the contract thinking that it's flat no. 102. Hence, the agreement
would be invalidated at the inception (beginning) stage itself because both the parties did not agree
about a thing (sale of flat) in the same sense. Hence, both the parties did not have mutual consent for
the contract; therefore it is not a valid contract.
Chapter 2.1 Nature of Contracts
 2.1 - 6

Question 4
“All contracts are agreements, but all agreements are not contracts”. Comment.
(MTP Jun’22 4 Marks) (SM) (MTP 4 Marks, Nov’21)
Answer 4
An agreement comes into existence when one party makes a proposal or offer to the other party and
that other party gives his acceptance to it. A contract is an agreement enforceable by law. It means that
to become a contract, an agreement must give rise to a legal obligation i.e. duly enforceable by law. If
an agreement is incapable of creating a duly enforceable by law, it is not a contract. There can be
agreements which are not enforceable by law, such as social, moral or religious agreements. The
agreement is a wider term than the contract. All agreements need not necessarily become contracts but
all contracts shall always be agreements. All agreements are not contracts: When there is an agreement
between the parties and they do not intend to create a legal relationship, it is not a contract. All contracts
are agreements: For a contract there must be two things (a) an agreement and (b) enforceability by law.
Thus, existence of an agreement is a pre-requisite existence of a contract. Therefore, it is true to say that
all contracts are agreements. Thus, we can say that there can be an agreement without it becoming a
contract, but we can’t have a contract without an agreement.

Question 5
Explain the type of contracts in the following agreements under the Indian Contract Act, 1872:
(a) A coolie in uniform picks up the luggage of A to be carried out of the railway station without being
asked by A and A allows him to do so.
(b) Obligation of finder of lost goods to return them to the true owner.
(c) A contract with B (owner of the factory) for the supply of 10 tons of sugar, but before the supply
is affected, the fire caught in the factory, and everything was destroyed.
(MTP Nov’22 4 Marks)(SM)
Answer 5
(a) It is an implied contract and A must pay for the services of the coolie detailed by him.
Implied Contracts: Implied contracts come into existence by implication. Most often the implication
is by law and or by action. Section 9 of the Act contemplates such implied contracts when it lays
down that in so far as such proposal or acceptance is made otherwise than in words, the promise is
said to be implied.
(b) Obligation of finder of lost goods to return them to the true owner cannot be said to arise out of a
contract even in its remotest sense, as there is neither offer and acceptance nor consent. These are
said to be quasi-contracts.
Quasi-Contract: A quasi-contract is not an actual contract but it resembles a contract. It is created
by law under certain circumstances. The law creates and enforces legal rights and obligations when
no real contract exists. Such obligations are known as quasi-contracts. In other words, it is a contract
in which there is no intention on part of either party to make a contract, but law imposes a contract
upon the parties.
(c) The above contract is a void contract.
Void Contract: Section 2 (j) states as follows: “A contract which ceases to be enforceable by law
becomes void when it ceases to be enforceable”. Thus, a void contract is one which cannot be
enforced by a court of law.

Question 6
Ashwin goes to super market to buy a Air Conditioner. He selects a branded Air Conditioner having a
price tag of ₹ 40,000 after a discount of ₹ 3000. Ashwin reaches at cash counter for making the
payment, but cashier says, “Sorry sir, the discount was up-to yesterday. There is no discount from
today. Hence you have to pay ₹ 43,000.” Ashwin got angry and insists for ₹ 40,000. State with reasons
whether under Indian Contract Act, 1872, Ashwin can enforce the cashier to sell at discounted price
i.e. ₹ 40,000. (MTP Apr’23 4 Marks) RTP May’22 (PYP Dec’23 3 Marks) (MTP 4 Marks, Oct’21)
Answer 6
An invitation to offer is different from offer. Quotations, menu cards, price tags, advertisements in
newspaper for sale are not offer. These are merely invitations to public to make an offer. An invitation
to offer is an act precedent to making an offer. Acceptance of an invitation to an offer does not result in
the contract and only an offer emerges in the process of negotiation. In the instant case, Ashwin reaches
Chapter 2.1 Nature of Contracts
 2.1 - 7

to super market and selects a Air Conditioner with a discounted price tag of ₹ 40,000 but cashier denied
to sell at discounted price by saying that discount is closed from today and request to make full payment.
But Ashwin insists to purchase at discounted price. On the basis of above provisions and facts, the price
tag with Air Conditioner was not offer. It is merely an invitation to offer. Hence, it is the Ashwin who is
making the offer not the super market. Cashier has right to reject the Ashwin’s offer. Therefore, Ashwin
cannot enforce cashier to sell at discounted price.

Question 7
Mr. Ayush is the principal in Modern Public School. He needs 2000 packets of Biscuits to be distributed
to students in his school on the occasion of Republic Day celebration. For this purpose, he contracted
with Yograj Biscuit Company. Mr. Ayush visited the workshop of Yograj Biscuit Company and was very
much satisfied with the quality of biscuits. He also found that a large number of varieties of biscuits
are manufactured in the workshop. He ordered 2000 packs of biscuits and gave the token money but
did not specify the category of biscuits, he needed. Yograj Biscuit Company did not supply the biscuits
on the due date. Mr. Ayush filed the suit against Yograj Biscuit Company for compensation. State with
reasons, whether Yograj Biscuit Company is liable under Indian Contract Act, 1872?
(MTP Nov’23 4 Marks)
Answer 7
According to the Indian Contract Act 1872, the meaning of agreement must be certain and not vague or
indefinite. If the meaning of agreement is not certain, the agreement is not enforceable by law. In the
instant case, Mr. Ayush is being principal in Modern Public School ordered 2000 packs of biscuits to
Yograj Biscuit Company for the purpose of distribution on Republic Day among students. He also gave
the token money but did not specify the category of biscuits. Yograj Biscuit Company did not supply the
biscuits on the due date and Mr. Ayush filed the suit for compensation. On the basis of above provisions
and facts, it can be said that the agreement was not enforceable for want of certainty of meaning as Mr.
Ayush did not specify the category of biscuits. Hence, Yograj Biscuit Company is not liable to pay any
compensation to Mr. Ayush.

Question 8
Mr. Nikhil has decided to get interior work for his new office. For this purpose, he entered into a
contract with M/s Sherry Fine Interiors. It was agreed that M/s Sherry Fine Interiors will complete the
interior work latest by 31st January, 2023. On 31st January, 2023, Mr. Nikhil observed that only 20%
to 30% work has been completed. He decided to cancel the contract with M/s Sherry Fine Interiors.
On cancellation of the contract, M/s Sherry Fine Interiors filed a suit against Mr. Nikhil for recovery of
the cost which it has incurred on the interior work. Mr. Nikhil argued that M/s Sherry Fine Interiors
did not complete the work within the time as per contract and further the work done till 31st January,
2023 by M/s Sherry Fine Interiors was of no use for him as he has to appoint a new interior designer.
Explain, whether Mr. Nikhil is liable to pay the cost of work done by M/s Sherry Fine Interiors under
the provisions of Indian Contract Act, 1872? (MTP Dec’23 4 Marks)
Answer 8
Section 2(i) of Indian Contract Act, 1872 provides that an agreement which is enforceable by law at the
option of one or more parties thereto, but not at the option of the other or others is a voidable contract.
Further, when a party to a contract promise to perform a work within a specified time, could not perform
with in that time, the contract is voidable at the option of the promisee. If promisee has received any
benefit, he must return to promisor. In the given problem, the contract is voidable at the option of Mr.
Nikhil as work is not completed within the time agreed in the contract. Further, Mr. Nikhil is not liable
to pay the cost incurred by M/s Sherry Fine Interiors as that cost did not provide any benefit to him and
he has to appoint a new interior designer.

Question 9 (Includes concepts of 2.3- Other essential elements of a contract)

X agrees to pay Y ₹ 1,00,000/-, if Y kills Z. To pay Y, X borrows ₹ 1,00,000/- from W, who is also aware
of the purpose of the loan. Y kills Z but X refuses to pay. X also to repay the loan to W. Explain the
validity of the contract.
(i) Between X and Y.
(ii) Between X and W (PYP Nov’22 4 Marks)

Chapter 2.1 Nature of Contracts

 2.1 - 8

Answer 9
Illegal Agreement: It is an agreement which the law forbids to be made. As an essential condition, the
lawful consideration and object is must to make the agreement valid. (Section 10). As per Section 23 of
the Indian Contract Act, 1872, an agreement is illegal and void, if the consideration and object is unlawful
/ contrary to law i.e. if forbidden by law. Such an agreement is void and is not enforceable by law. Even
the connected agreements or collateral transactions to illegal agreements are also void.
In the present case,
(i) X agrees to give ₹ 1,00,000 to Y if Y kills Z. Thus, the agreement between X and Y is void agreement being
illegal in nature.
(ii) X borrows ₹ 1,00,000 from W and W is also aware of the purpose of the loan. Thus, the agreement
between X and W is void as the connected agreements of an illegal agreements are also void.

Question 10
Radha invited her ten close friends to celebrate her 25th birthday party on 1st January, 2023 at 7.30
P.M. at a well-known "Hi-Fi Restaurant" at Tonk Road, Jaipur. All invited friends accepted the
invitation and promised to attend the said party. On request of the hotel manager, Radha deposited
₹ 5,000/- as non-refundable security for the said party. On the scheduled date and time, three among
ten invited friends did not turn up for the birthday party and did not convey any prior communication
to her. Radha, enraged with the behaviour of the three friends, wanted to sue them for loss incurred
in the said party. Advise as per the provisions of the Indian Contract Act, 1872. Would your answer
differ if the said party had been a "Contributory 2023 New Year celebration Party" organized by
Radha? (PYP Jun’23 4 Marks)
Answer 10
As per one of the requirements of Section 10 of the Indian Contract Act, 1872, there must be an intention
on the part of the parties to create legal relationship between them. Social or domestic agreements are
not enforceable in court of law and hence they do not result into contracts. In the instant case, Radha
cannot sue her three friends for the loss incurred in the said party as the agreement between her and
her ten friends was a social agreement, and the parties did not intend to create any legal relationship. If
the said party organised by Radha had been a “Contributory 2023 New year celebration party”, then
Radha could have sued her three friends for the loss incurred in the said party as the agreement between
her and her friends would have legal backing; on the basis of which Radha deposited the advance amount
and the parties here intended to create legal relationship.

Question 11
Distinguish between Void Contract and Voidable Contract according to the Indian Contract Act, 1872.
(PYP Jun’23 5 Marks)
Answer 11
The differences between void contract and voidable contract are as follows:
Sr. Basis Void Contract Voidable Contract
No.
1 Meaning A Contract which ceases to be An agreement which is enforceable by law
enforceable by law becomes void at the option of one or more of the
when it ceases to be enforceable. parties thereto, but not at the option of
the other or others, is a voidable contract.
2 Enforceability A void contract cannot be It is enforceable only at the option of
enforced at all. aggrieved party and not at the option of
the other party.
3 Cause A contract becomes void due to A contract becomes a voidable contract if
change in law or change in the consent of a party was not free.
circumstances beyond the
contemplation of parties.
4 Performance A void contract cannot be If the aggrieved party does not, within
of contract performed. reasonable time, exercise his right to
avoid the contract, any party can sue the
other for claiming the performance of the
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contract.
5 Rights A void contract does not grant any The party whose consent was not free has
legal remedy to any party. the right to rescind the contract within a
reasonable time. If so rescinded it
becomes a void contract. If it is not
rescinded it becomes a valid contract.

Question 12
Explain the type of contracts in the following agreements under the Indian Contract Act, 1872:
(i) X promise to sell his scooter to Y for ₹ 1 Lac. However, the consent of X has been procured by Y
at a gun point.
(ii) A bought goods from B in 2015. But no payment was made till 2019.
(iii) G agrees to give tuitions to H, a pre-engineering student, from the next month and H in
consideration promises to pay G ₹ 5,000 per month. (RTP May’21)
Answer 12
(i) In the instant case, X is an aggrieved party and the contract is voidable at his option but not at the
option of Y. It means if X accepts the contract, the contract becomes a valid contract then Y has no
option of rescinding the contract.
(ii) B cannot sue A for the payment in 2019 as it has crossed three years and barred by Limitation Act.
A good debt becomes unenforceable after the period of three years as barred by Limitation Act.
(iii) Where, G agrees to give tuitions to H, a pre-engineering student, from the next month and H in
consideration promises to pay G ₹ 5,000 per month, the contract is executory because it is yet to
be carried out.

Question 13
Mr. S aged 58 years was employed in a Government Department. He was going to retire after two years.
Mr. D made a proposal to Mr. S to apply for voluntary retirement from his post so that Mr. D can be
appointed in his place. Mr. D offered a sum of ₹10 Lakhs as consideration to Mr. S in order to induce him
to retire. Mr. S refused at first instance but when he evaluated the amount offered as consideration is
just double of his cumulative remuneration to be received during the tenure of two years of
employment, he agreed to receive the consideration and accepted the above agreement to receive
money to retire from his office. Whether the above agreement is valid? Explain with reference to
provision of Indian Contract Act, 1872. (PYP 4 Marks, Jan’21)
Answer 13
Section 10 of the Indian Contract Act, 1872 provides for the legality of consideration and objects thereto.
Section 23 of the said Act also states that every agreement of which the object or consideration is unlawful
is void. The given problem talks about entering into an agreement for traffic relating to public office, which
is opposed to public policy. Public policy requires that there should be no money consideration for the
appointment to an office in which the public is interested. Such consideration paid, being opposed to public
policy, is unlawful. In the given case, Mr. S, who was going to be retired after two years was proposed by
Mr. D, to apply for voluntary retirement from his post, in order that he can be appointed in his place. In
lieu of that Mr. D offered Mr. S a sum of ₹ 10 lakh as consideration. Mr. S refused initially but later accepted
the said offer to receive money to retire from his office. Here, Mr. S’s promise of sale for Mr. D, an
employment in the public services is the consideration for Mr. D’s promise to pay ₹10 lakh. Therefore, in
terms of the above provisions of the Indian Contract Act, the said agreement is not valid. It is void, as the
consideration being opposed to public policy, is unlawful.

Question 14
Define the term acceptance under the Indian Contract Act, 1872. Explain the legal rules regarding a valid
acceptance. (PYP 7 Marks, Jan’21)
Answer 14
Definition of Acceptance: In terms of Section 2(b) of the Indian Contract Act, 1872 the term acceptance is
defined as “When the person to whom the proposal is made signifies his assent thereto, proposal is said
to be accepted. The proposal, when accepted, becomes a promise”.

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Legal Rules regarding a valid acceptance

(1) Acceptance can be given only by the person to whom offer is made. In case of a specific offer, it can
be accepted only by the person to whom it is made. In case of a general offer, it can be accepted by
any person who has the knowledge of the offer.
(2) Acceptance must be absolute and unqualified: As per section 7 of the Act, acceptance is valid only
when it is absolute and unqualified and is also expressed in some usual and reasonable manner unless
the proposal prescribes the manner in which it must be accepted. If the proposal prescribes the
manner in which it must be accepted, then it must be accepted accordingly
(3) The acceptance must be communicated: To conclude a contract between the parties, the acceptance
must be communicated in some perceptible form. Further when a proposal is accepted, the offeree
must have the knowledge of the offer made to him. If he does not have the knowledge, there can be
no acceptance. The acceptance must relate specifically to the offer made. Then only it can materialize
into a contract.
(4) Acceptance must be in the prescribed mode: Where the mode of acceptance is prescribed in the
proposal, it must be accepted in that manner. But if the proposer does not insist on the proposal being
accepted in the manner prescribed after it has been accepted otherwise, i.e., not in the prescribed
manner, the proposer is presumed to have consented to the acceptance.
(5) Time: Acceptance must be given within the specified time limit, if any, and if no time is stipulated,
acceptance must be given within the reasonable time and before the offer lapses.
(6) Mere silence is not acceptance: The acceptance of an offer cannot be implied from the silence of the
offeree or his failure to answer, unless the offeree has in any previous conduct indicated that his
silence is the evidence of acceptance.
(7) Acceptance by conduct/ Implied Acceptance: Section 8 of the Act lays down that “the performance
of the conditions of a proposal, or the acceptance of any consideration for a reciprocal promise which
may be offered with a proposal, constitutes an acceptance of the proposal. This section provides the
acceptance of the proposal by conduct as against other modes of acceptance i.e. verbal or written
communication.
Therefore, when a person performs the act intended by the proposer as the consideration for the promise
offered by him, the performance of the act constitutes acceptance.

Question 15
Mr. B makes a proposal to Mr. S by post to sell his house for ₹ 10 lakhs and posted the letter on 10th
April 2020 and the letter reaches to Mr. S on 12th April 2020. He reads the letter on 13th April 2020.
Mr. S sends his letter of acceptance on 16th April 2020 and the letter reaches Mr. B on 20th April 2020.
On 17th April Mr. S changed his mind and sends a telegram withdrawing his acceptance. Telegram
reaches to Mr. B on 19th April 2020.
Examine with reference to the Indian Contract Act, 1872:
(1) On which date, the offer made by Mr. B will complete?
(2) Discuss the validity of acceptance.
(3) What would be validity of acceptance if letter of revocation and letter of acceptance reached
together? (PYP 6 Marks, Jan’21)
Answer 15
(i) According to Section 4 of the Indian Contract Act, 1872, “the communication of offer is complete when
it comes to the knowledge of the person to whom it is made”.
When a proposal is made by post, its communication will be complete when the letter containing the
proposal reaches the person to whom it is made. Further, mere receiving of the letter is not sufficient,
he must receive or read the message contained in the letter.
In the given question, Mr. B makes a proposal by post to Mr. S to sell his house. The letter was posted
on 10th April 2020 and the letter reaches to Mr. S on 12th April 2020 but he reads the letter on 13th
April 2020.
Thus, the offer made by Mr. B will complete on the day when Mr. S reads the letter,
i.e. 13th April 2020.
(ii) When communication of acceptance is complete: Where a proposal is accepted by a letter sent by
the post, in terms of Section 4 of the Act, the communication of acceptance will be complete as against
the proposer when the letter of acceptance is posted and as against the acceptor when the letter
reaches the proposer.
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Revocation of Acceptance: The acceptor can revoke his acceptance any time before the letter of
acceptance reaches the offeror, if the revocation telegram arrives before or at the same time with the
letter of acceptance, the revocation is absolute. In the given question, when Mr. S accepts Mr. B’s
proposal and sends his acceptance by post on 16th April 2020, the communication of acceptance as
against Mr. B is complete on 16th April 2020, when the letter is posted. As against Mr. S acceptance
will be complete, when the letter reaches Mr. B i.e. 20th April 2020. Whereas, acceptor, will be bound
by his acceptance only when the letter of acceptance has reached the proposer.
The telegram for revocation of acceptance reached Mr. B on 19th April 2020 i.e. before the letter of
acceptance of offer (20th April 2020). Hence, the revocation is absolute. Therefore, acceptance to an
offer is invalid.
(iii) It will not make any difference even if the telegram of revocation and letter of acceptance would have
reached on the same day, i.e. the revocation then also would have been absolute. As per law,
acceptance can be revoked anytime before the communication of acceptance is complete. Since
revocation was made before the communication of acceptance was complete and communication can
be considered as complete only when the letter of acceptance reaches the proposer i.e. Mr. B.

Question 16
State with reason(s) whether the following agreements are valid or void:
(i) A clause in a contract provided that no action should be brought upon in case of breach.
(ii) Where two courts have jurisdiction to try a suit, an agreement between the parties that the suit
should be filed in one of those courts alone and not in the other.
(iii) X offers to sell his Maruti car to Y. Y believes that X has only Wagon R Car but agrees to buy it.
(iv) X, a physician and surgeon, employs Y as an assistant on a salary of ₹ 75,000 per month for a term
of two years and Y agrees not to practice as a surgeon and physician during these two years.
(PYP 4 Marks, Jul’21)
Answer 16
(i) The given agreement is void.
Reason: As per Section 28 of the Indian Contract Act, 1872, this clause is in restraint of legal
proceedings because it restricts both the parties from enforcing their legal rights.
Note: Alternatively, as per Section 23 of the Indian Contract Act, 1872, this clause in the agreement
defeats the provision of law and therefore, being unlawful, is treated as void.
(ii) The given agreement is valid.
Reason: An agreement in restraint of legal proceeding is the one by which any party thereto is
restricted absolutely from enforcing his rights under a contract through a Court. A contract of this
nature is void. However, in the given statement, no absolute restriction is marked on parties on filing
of suit. As per the agreement suit may be filed in one of the courts having jurisdiction.
(iii) The said agreement is void.
Reason: This agreement is void as the two parties are thinking about different subject matters so that
there is no real consent and the agreement may be treated as void because of mistake of fact as well
as absence of consensus.
(iv) The said agreement is valid.
Reason: An agreement by which any person is restrained from exercising a lawful profession, trade or
business of any kind, is to that extent void. But, as an exception, agreement of service by which an
employee binds himself, during the term of his agreement, not to compete with his employer is not
in restraint of trade.

Question 17
Shambhu Dayal started “self service” system in his shop. Smt. Prakash entered the shop, took a basket
and after taking articles of her choice into the basket reached the cashier for payments. The cashier
refuses to accept the price. Can Shambhu Dayal be compelled to sell the said articles to Smt. Prakash?
Decide as per the provisions of the Indian Contract Act, 1872.
(MTP 4 Marks, Apr’21) (SM) (MTP 3 Marks, Nov’21)

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Answer 17
Invitation to offer: The offer should be distinguished from an invitation to offer. An offer is the final
expression of willingness by the offeror to be bound by his offer should the party chooses to accept it.
Where a party, without expressing his final willingness, proposes certain terms on which he is willing to
negotiate, he does not make an offer, but invites only the other party to make an offer on those terms.
This is the basic distinction between offer and invitation to offer. The display of articles with a price in it in
a self-service shop is merely an invitation to offer. It is in no sense an offer for sale, the acceptance of which
constitutes a contract. In this case, Smt. Prakash by selecting some articles and approaching the cashier for
payment simply made an offer to buy the articles selected by her. If the cashier does not accept the price,
the interested buyer cannot compel him to sell.

Question 18
Mr. Shekhar wants to sell his car. For this purpose, he appoints Mr. Nadan, a minor as his agent. Mr.
Shekhar instructs Mr. Nadan that car should not be sold at price less than Rs. 1,00,000. Mr. Nadan ignores
the instruction of Mr. Shekhar and sells the car to Mr. Masoom for Rs. 80,000. Explain the legal position
of contract under the Indian Contract Act, 1872 whether:
(i) Mr. Shekhar can recover the loss of Rs. 20,000 from Mr. Nadan?
(ii) Mr. Shekhar can recover his car from Mr. Masoom? (MTP 4 Marks, Nov’21)
Answer 18
According to the provisions of Section 11 of the Indian Contract Act, 1872, a minor is disqualified from
contracting. A contract with minor is void-ab-initio but minor can act as an agent. But he will not be liable
to his principal for his acts.
In the instant case, Mr. Shekhar appoints Mr. Nadan, a minor as his agent to sale his car. Mr. Shekhar
clearly instructed to Mr. Nadan that the minimum sale price of the car should be Rs. 1,00,000 yet Mr.
Nadan sold the car to Mr. Masoom for Rs. 80,000.
(i) Considering the facts, although the contract between Mr. Shekhar and Mr. Nadan is valid, Mr. Nadan will
not be liable to his principal for his acts. Hence, Mr. Shekhar cannot recover the loss of Rs. 20,000.
(ii) Further, Mr. Masoom purchased the car from agent of Mr. Shekhar, he got good title. Hence, Mr. Shekhar
cannot recover his car from Mr. Masoom.

Chapter 2.1 Nature of Contracts