CLAT PG Practice Questions on Contracts

CLAT PG Practice Questions on Contracts

Passage​​ 

(Excerpted from the judgment of​​ M/S Versatile Commotrade Private​​ vs Smt Kesar Devi And Ors)

In the present case, defendants have led no evidence of any loss caused to them, and therefore, assuming that plaintiff is guilty of breach of contract, yet, the defendants cannot forfeit the amount of Rs.15 lacs lying with them. A huge amount of Rs.15 lacs out of the total sale consideration of Rs.79,50,000/- cannot in law be called earnest money. By giving a stamp of „earnest money‟ to advance price, the latter cannot become the former. What is to be seen is the substance and not the label. Only a nominal amount can be said to be earnest money and not an amount of Rs.15 lacs out of Rs.79.50 lacs, by noting that if suppose an amount of Rs. 30 lacs or 40 lacs would be called as earnest money by the parties, that would not take away the fact that such amount cannot be earnest money but would in fact be part of the price to be paid for sale. In view of the above and having regard to the fact that a huge amount has been paid under the Agreement to Sell, it cannot be treated as earnest money. Besides in Kailash Nath (supra), the Supreme Court has held that forfeiture of earnest money has to be in accordance with Section 74 of the Indian Contract Act. The Court has held that without any loss, forfeiture of a huge amount would be arbitrary. Under Section 74, forfeiture of entire earnest money can be upheld only if the damage or loss is difficult or impossible to prove. This is not the case here. Defendants claim that they are entitled to forfeit as the Plaintiff is in breach and the terms of the contract allow forfeiture. The earnest money cannot also be considered to a genuine pre-estimation of damages, as it cannot be said that damage or loss is incapable of being proved. Notably, damage or loss has not even been pleaded and therefore, even if the amount received by the Defendants is accepted to be earnest money, the forfeiture of the entire amount is impermissible. The Defendants contention that the question of damage and loss requires to be proved by leading evidence, cannot be accepted. It is settled law that evidence can be permitted only for the facts stated in the pleadings. Since, the Defendants have not pleaded any loss caused to them on account of breach of Contract by the Plaintiff; there is no ground for framing issues in the​​ present case and affording an opportunity to the Defendants to lead evidence. Order XV of the CPC requires the Court to frame issues only on substantial disputed questions of law and the written statement of the Defendants does not raise any substantial question of fact which if proved would disentitle the Plaintiff to the relief of recovery of money. Further the scheme of Order XIV of the Code of Civil Procedure dealing with settlement of issues shows that an issue arises only when a material proposition of fact or law is affirmed by one party and denied by the other. (Makhan Lal Bangal v. Manas Bhunia, (2001). Since, Defendants herein have not denied the subject agreement or the amount received thereunder, Plaintiff is entitled to the relief of recovery of amount paid, without framing of issues.

Questions

  • A stipulation in a bond for payment of compound interest on failure to pay simple interest at the same rate as was payable upon the principal is not a penalty within the meaning of:

  • Section 74 of the Indian Contract Act, 1872

  • Section 75 of the Indian Contract Act, 1872

  • Section 76 of the Indian Contract Act, 1872

  • ​​ None of these

Ans. a

  • A supports B’s infant son. B promise to pay A’s expenses in so doing.

  • This is not a contract

  • This is a contract

  • either (A) or (B)

  • None of these

Ans. b

  • A undertakes to repay B a loan of Rs.1,000 by five equal monthly instalments with a stipulation that, in default of payment of any instalment, the whole shall become due.

  • This stipulation is by way of penalty, and the contract cannot be enforced according to its terms

  • This stipulation is not by way of penalty, and the contract cannot be enforced according to its terms

  • This stipulation is not by way of penalty, and the contract may be enforced according to its terms

  • None of these

Ans. c

  • A, a merchant in England, directs B, his agent or Bombay, who accepts the agency, to send him 100 bales of cotton by a certain ship. B, having it in his power to send the cotton, omits to do so. The ship arrives safely in England. Soon after her arrival, the price of cotton rises.

  • B is not bound to make good to A profit which he might have made by 100 bales of cotton at the time the ship arrived

  • B is bound to make good to A any profit he might have made by the subsequent rise

  • B is bound to make good to A profit which he might have made by 100 bales of cotton at the time the ship arrived. But not any profit he might have made by the subsequent rise

  • None of these

Ans. c

 

  • A, a signer, contracts with B, the manager of a theatre for two nights in every week during the next two months, and B engages to pay her a hundred rupees for each night’s performance. On the sixth night, A willfully absents herself from the theatre, and B, in consequence rescinds the contract.

  • B must pay A for the three nights on which she had sung

  • B must pay A for the four nights on which she had sung

  • B must pay A for the five nights on which she had sung

  • None of these

Ans. c

  • The judgement in the given passage has been pronounced by

  • Delhi High Court

  • Gujarat High Court

  • Chandigarh High Court

  • Allahabad High Court

Ans. a

  • in Maula Bux v. Union of India (UOI), it was held:​​ "Forfeiture of earnest money under a contract for sale of property-movable or immovable-if the amount is reasonable,​​ ______ within Section 74

  • falls

  • does not fall

  • both a and b

  • none of the above

Ans. b

  • Section 74 applies to cases of forfeiture of earnest money under a contract. Where, forfeiture takes place under the terms and conditions of a public auction before agreement is reached, Section 74 would _____

  • Be applicable

  • Will have no application

  • Not sure

  • None of the above

Ans. b

  • A, a tradesman, leaves goods at B’s house by mistake. B treats the goods as his own.

  • He is not bound to pay A for them

  • He is bound to pay partially A for them

  • He is bound to pay A for them

  • None of these

Ans. c

  • A, an agent for the sale of goods, having authority to sell on credit, sells to B on credit, without making the proper and usual inquires as to the solvency of B. B at the time of such sale is insolvent.

  • A need not make compensation to his principal in respect of any loss thereby sustained

  • A can partially make compensation to his principal in respect of any loss thereby sustained

  • A must make compensation to his principal in respect of any loss thereby sustained

  • None of these

Ans. c

 

 

 

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