Institute of Cost and Management Accountants of Pakistan

Mercantile Law (Contract Act 1872)

Test No 1
Name:__________________________

1) Wasi, with intent to deceive Tipu, falsely represented that twenty thousand motorcycles are
manufactured annually at his factory and induced him to buy the factory. The contract is:
a) void
b) voidable
c) illegal
d) valid

2) The term “Quid pro quo” means:

a) something in return
b) something important
c) something of value
d) something relevant

3) Which of the following is not an essential element of a valid contract:

a) adequacy of consideration
b) capacity to contract
c) free consent
d) none of the above

4) If a contract provides for the payment of a certain amount on breach of a contract, such
payment is termed as:
a) special damages
b) nominal damages
c) liquidated damages
d) compensatory damages

5) Karim borrowed Rs. 500,000 from Bashir in 2002. The debt became time-barred under the
limitation law. However, Karim met Bashir in 2009 and verbally acknowledged his liability to
the extent of Rs. 300,000. Can Bashir hold Karim liable?
a) No, the promise should be for entire debt.
b) Yes, the promise is valid as an exception to agreement without consideration.
c) No, because it is not a written and signed promise.
d) Yes, he admitted his liability partly in satisfaction of whole debt.

6) The effect of refusal to accept a properly made offer of performance is that:

a) the promisor is not responsible for non-performance and can sue the promisee for the
breach of contract.
b) such offer lapses on rejection by the offeree.
c) the contract is rendered voidable at the option of promisor.
d) the contract is discharged by anticipatory breach.
 Institute of Cost and Management Accountants of Pakistan
Mercantile Law (Contract Act 1872)
Test No 1
7) A surety is NOT discharged from his liability:
a) if terms of contract are varied without his consent.
b) if the creditor gives time to the principal debtor without his consent.
c) if the creditor releases the other co-surety.
d) if the creditor releases the principal debtor.

8) Which of the following case is not covered by the concept of supervening impossibility?
a) Destruction of subject matter
b) Death or incapacity of the promisor
c) Outbreak of war
d) Difficulty of performance

9) Abdul Majid contracted to supply a specialized machine at Sultan’s factory in Lahore. Sultan
informed him that if the machine does not reach his factory on time, he will incur an
average loss of Rs. 20,000 per day. Abdul Majid delivered the machine a week after the
agreed time owing to his other commitments. Due to this delay, Sultan lost a contract which
could have generated a profit of Rs. 250,000. Sultan is entitled to receive from Abdul Majid a
compensation of:
a) Rs. 250,000
b) Rs. 140,000
c) Rs. 390,000
d) any amount which the Court deems fit subject to a maximum of Rs. 390,000

10) In which of the following circumstances a contract can be treated as discharged under the
concept of supervening impossibility?
a) spurt in prices
b) change in import policy
c) non-receipt of raw material from the supplier
d) shortage of working capital

11) Under the Contract Act, 1872 a person is said to be of sound mind for the purpose of making
a contract if:
a) he is not illiterate and can read and understand the terms of the contract.
b) he is capable of understanding the contract and forming a rational judgement as to its
effect upon his interests.
c) he is of the age of majority and is not disqualified from contracting by any law to which
he is subject.
d) he is not suffering from any mental disease or distress.
 Institute of Cost and Management Accountants of Pakistan
Mercantile Law (Contract Act 1872)
Test No 1
12) Pervaiz contracted with Dilbar, a comedian, for performance in a live show and paid Rs.
200,000 in advance. Before the show, Dilbar had an accident and was hospitalized. He could
not appear in the show due to which Pervaiz suffered a loss of Rs. 500,000. Dilbar is liable to
pay Pervaiz:
a) Rs. 200,000
b) Rs. 500,000
c) Rs. 700,000
d) Nothing as his absence was not wilful.

13) A positive assertion, in a manner not warranted by the information of the person making it,
of that which is not true, though he believes it to be true is said to be a:
a) fraud
b) misrepresentation
c) mistake
d) misinterpretation
14) A minor can:
a) be an agent
b) be a principal
c) both
d) none

15) The consent is said to be free when:

a) two or more persons agree upon same thing in the same sense.
b) all parties to the contract benefit from the contract.
c) it is not the result of coercion or undue influence or fraud or misrepresentation or
mistake.
d) all of the above.

16) Liquidated damages mean:

a) A sum calculated at the time of breach of contract, equivalent to difference between the
contract price and market price, at the place of performance.
b) A sum fixed at the time of entering into a contract which compensates the aggrieved
party for direct/indirect loss arising from the breach.
c) A sum fixed as compensation for any loss or damage which the parties knew, when they
made the contract, to be the likely result from the breach of contract.
d) None of the above.

17) C refused to sell certain goods to D at the previously agreed price of Rs. 240 thousand. D
sued C for breach of contract. If identical goods are readily available in the market at a price
of Rs. 220 thousand, which one of the following is correct?
a) D is entitled to an order of specific performance, forcing C to carry out the contract.
b) D is entitled to damages of Rs. 20,000.
c) D is entitled to nominal damages only.
d) D is not entitled to damages.
 Institute of Cost and Management Accountants of Pakistan
Mercantile Law (Contract Act 1872)
Test No 1
18) A owns some land, part of which is woodland. He sells the land to B who covenants in the
contract that he will not cut down the trees. One year later, B prepares to cut down the
trees. What remedy can A seek?
a) damages.
b) specific performance.
c) injunction.
d) rescission.

19) Which of the following may employ an agent?

a) any person who is capable of understanding the contract and forming a rational
judgment as to its effect upon his interest.
b) any person who is engaged in business or profession.
c) any person who is of the age of majority according to the law to which he is subject and
who is of sound mind.
d) all of the above.

20) Shahid pledged gold with Mehreen against a loan of Rs. 100,000 at a markup of 15% per
annum. Being concerned with the growing incidences of burglary in the city, Mehreen
insured the gold. At the time of repayment, Mehreen claimed the cost of insurance cover in
addition to the principal sum due and interest thereon. In the light of Contract Act, 1872
briefly explain whether Mehreen is justified in her claim.
a) Mehreen can’t recover the cost of insurance
b) Mehreen has to choose between insurance cost and interest what she want to recover.
c) Mehreen has to reduce the interest rate.
d) Mehreen is entitled to claim the cost of insurance in addition to principal and interest.

21) Raheel leased a building from Atif, on five years term, for a rent of Rs. 200,000 per annum
and the payment was guaranteed by Kamal. Raheel defaulted in payment of the rent in the
third year. Atif sued Kamal and recovered the rent from him. Later, Kamal gave a notice to
Atif for revoking his guarantee for the remaining period of lease.
Under the Contract Act, 1872 can Kamal revoke his guarantee?
a) No, Kamal is not competent to revoke his guarantee
b) Yes, Kamal can revoke his guarantee
c) Yes, Kamal can revoke only for remaining 2 years
d) Yes, Kamal can revoke his guarantee only for the past year.

22) Bashir supplies goods worth Rs. 100,000 each month to Anwar under a contract which is due
to expire on December 31, 2009. Ameen has guaranteed that he will compensate Bashir in
case of default by Anwar.
On August 29, 2008 the amount due to Bashir is Rs. 325,700. Ameen intends to revoke his
guarantee. Can he do so?
a) Yes, but he is liable for Rs. 325,700.
b) No he can’t revoke
c) Yes he can revoke and he will not be liable for any sum
d) No he can’t revoke but he is liable only for Rs. 325,700
 Institute of Cost and Management Accountants of Pakistan
Mercantile Law (Contract Act 1872)
Test No 1
23) Talib was indebted to Bashir for Rs. 10,000. On Talib’s request Bashir agreed to accept
Jahangir as his debtor, in place of Talib. Jahangir failed to make payment on due date. Under
the provisions of Contract Act, 1872 Bashir can now demand payment from Talib.?
a) Yes, he can demand for Talib
b) No, he can’t demand from Talib
c) He can demand half of the amount from Talib
d) Either a or c

24) Maimar promised to manufacture and deliver to Nasir, remote-controlled toy helicopters of
agreed specifications in first week of March 2011. Nasir in turn promised to pay for them by
second week of March 2011. Maimar did not deliver the toys according to his promise.
Should Nasir keep his promise and what remedy, if any, is available to him?
a) No, Nasir need not to perform his promise and Maimar must compensate Nasir for any
loss which Nasir may sustain due to Maimar non performance.
b) Yes, Nasir need to perform his promise and give Maimar more time for delivery

25) Sami rented his house to Qurban for a period of one year at an agreed sum of Rs. 10,000 per
month. After the first two months, Qurban defaulted in making payment of the rent. Baqir, a
neighbour, being concerned with the strained relationship between Sami and Qurban, paid
the rent with good intention. Subsequently, on Qurban’s refusal to reimburse the amount,
Baqir filed a suit against him on the grounds that he made the payment to Sami which
Qurban was legally bound to make and being a quasi contract Baqir is entitled to the
reimbursement
Is Law allows Baqir for the reimbursement on the ground of Quasi Contract?
a) Yes
b) No
c) Can recover only for 1 month
d) Law is silent on this

26) Asim agreed to construct a bungalow for Ali at a cost of Rs. 50 million. However, it was
agreed that payment would only be made on completion of the project. Is this a contingent
contract under the Contract Act, 1872?
a) Yes
b) No
c) Either a or b
d) None of these

27) Asif stole cash and merchandise from the ABC Store. Basit, the owner of store, initiated legal
proceedings against him. Asif contacted Basit with an offer to return the stolen cash and
merchandise if Basit withdraws the suit. Basit accepted the offer. Is it a valid agreement?
a) Yes
b) No
c) Law is silent on this
d) None of these
 Institute of Cost and Management Accountants of Pakistan
Mercantile Law (Contract Act 1872)
Test No 1
28) Arif told Bano, his wife, that he would divorce her, if she does not transfer her personal
assets to him. She agreed to transfer her assets to him. Can Bano avoid the contract?
a) Yes
b) No
c) Both a and b
d) None of these

29) Bader, who is the owner of Mashoor Associates, sent one of his employees Aftab in search
of his pet horse which had been missing for 5 days. Bader advertised a reward of Rs. 20,000
in a newspaper for anyone who finds his missing horse. Aftab, unaware of the newspaper
advertisement, traced the horse. Subsequently, on knowing about the reward Aftab claimed
it from Bader.
Under the provisions of the Contract Act, 1872 state whether Aftab would
a) Be able to Claim the reward
b) Not be able to claim the reward
c) Be able to claim on the will of Mr. Badar
d) None of these

30) Vindictive Damages have been awarded

a) for a breach of promise to marry.
b) for a wrongful dishonor of a cheque by a banker possessing adequate funds of the
customer.
c) Either 1 or 2
d) Both 1 and 2

31) Mr. B offers to sale his car to Mr. A for Rs. 100,000/- A accepts to purchase it for Rs. 95,000/-
Mr. B refuse to sale the car for Rs. 95,000/-. Subsequently A agrees to purchase the car for
Rs.100,000/- but Mr. B refuses to sale. A sued for the specific performance of contract.
Therefore,
a) Mr. B have to sale the car
b) Mr. B no need to sell the car.
c) Mr. A get compensation
d) None of these

32) There is a constant quarrel between Asif and Alia due to which there is a martial discord
between two. As a part of settlement the husband agrees to pay sum of Rs. 50,000/- per
month as maintenance allowance of his wife. Provided she stays separately. The agreement
between them is
a) Valid
b) Void
c) Contingent
d) None of these
 Institute of Cost and Management Accountants of Pakistan
Mercantile Law (Contract Act 1872)
Test No 1
33) Mr. A developed a shopping mall at Karachi at the request of Mr. B who is a municipal
corporater. Mr. C makes an agreement to pay Rs. 250,000/-. Mr. A accepts the proposal of
Mr. C. The consideration between Mr. A and Mr. C is
a) A present consideration
b) A lawful consideration
c) An unlawful consideration
d) A past consideration

34) The contract of general insurance is

a) Contingent
b) Valid
c) Voidable
d) None of these

35) The basis of Quasi contractual relation is the

a) Existence of a valid contract between the parties
b) Prevention of unjust enrichment at the expense of others
c) Existence of a voidable contract between the parties
d) Provisions contained in section 10 of contract act

36) In a contract both the parties believe that the subject matter of the contract is in existence
but which is in fact not is existence. Agreement shall be
a) Valid
b) Void
c) Void due to bilateral mistake
d) Void due to unilateral mistake

37) A minor’s estate is liable for the _______ supplied to him.

a) Luxuries
b) Cheaper goods
c) Necessaries
d) All the things

38) Bilateral mistake as to fact renders an agreement void since,

a) There is no consideration
b) Such agreement are unlawful
c) There is no agreement as there is absence of consensus.
d) It is opposed to public policy

39) Assignment by operation of law takes place

a) By the mutual consent of the parties
b) By the will of the either party
c) When the subject matter of a contract ceases to exist
d) By the death of a party to a contract
 Institute of Cost and Management Accountants of Pakistan
Mercantile Law (Contract Act 1872)
Test No 1
40) Mr. A contracts to act at a theatre for six months for Rs. 50,000/- paid in advance by Mr. B.
On several occasions Mr. A is too ill to act. The contract to act becomes void on those
occasions due to,
a) Initial impossibility
b) Subsequent illegality
c) Subsequent impossibility
d) Destruction of subject matter

41) An agreement made on account of natural love and affection, but without consideration is
valid if it is
a) Expressed in writing
b) Registered under law for the time being in force for registration of documents
c) Made between parties standing in a near relation to each other
d) All of the above

42) Mere silence as to facts, likely to affect the willingness of a person to enter into a contract is
not fraud.
a) True
b) Partly True
c) False
d) None of the above

43) Mr. X owes Rs. 10,000/- to Mr. Y under a contract it is agreed among X,Y and Z that Y shall
henceforth accept Z as his debtor instead of X for the same amount. Old debt of X is
discharged, and a new debt from Z to Y is contracted. This is:
a) Alteration of contract
b) Rescission of contract
c) Novation of contract
d) All of the above

44) Mr. Azhar out of natural love and affection promises to give his newly wedded daughter in
law a golden necklace worth Rs. 100,000/-, Mr. Azhar made the promise in writing and
signed it and delivered the same to the daughter in law. This is:
a) Valid
b) Without consideration
c) Unenforceable
d) Voidable

45) A Quasi contract under contract act has

a) Is an agreement
b) Is a contract
c) Has only a legal obligation
d) None of these
 Institute of Cost and Management Accountants of Pakistan
Mercantile Law (Contract Act 1872)
Test No 1
46) Offering the relief by way of specific performance of contract is:
a) At the discretion of the court
b) Right of a person and court must give it
c) Provided in the contract act
d) Both 2 and 3

47) No contract arise, if the

a) Offer is not made to an ascertained person
b) Acceptance is made by an unascertained person
c) Offer is made to an ascertained person
d) Acceptance is made by an ascertained person

48) A contingent contract to do or not to do anything on the happening of an uncertain future

event
a) Is never enforceable
b) Is enforceable at the time of making it
c) Becomes enforceable in the immediate possibility of happening of that event
d) Becomes enforceable only on the happening of that event

49) An advertisement inviting tender is

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

50) A proposes, by letter to sell a horse to B at a certain price. The communication of proposal is
complete when
a) A puts letter in letter box
b) B receives the letter
c) B puts reply in letter box
d) A receives reply of B

51) An agreement which is enforceable by law at the option of one or more of the parties there
to but not at the option of other or others is
a) A void contract
b) A voidable contract
c) A valid contract
d) None of these

52) "Reciprocal" Contracts means

a) One sided Contract
b) Bilateral Contract
c) Trilateral Contract
d) None of these
 Institute of Cost and Management Accountants of Pakistan
Mercantile Law (Contract Act 1872)
Test No 1
53) When one person signifies to another his willingness to do or to abstain from doing anything
with a view to obtaining the assent of that other person to such act or abstinence he is said
to make a
a) Proposal
b) Promise
c) Coercion
d) Undue influence

54) The Contract Act consist of _____ sections.

a) 238
b) 248
c) 266
d) 514

55) Choose the incorrect statement:

To constitute a wager, following elements should be present in the agreement:
a) Uncertain event
b) Each party must pay in a win or lose situation
c) Neither party should have any contract over the event
d) There should be a promise to pay money only

56) Which of the following statement is true?

a) Proposal and offer one and same thing for all practical purposes
b) Offer is always made to a group of people
c) Offer is made doing for some act only
d) Offer has legal consequences

57) Lawful offer is

a) Promise
b) Legal relation
c) Proposal
d) Presentation

58) Offer, when accepted becomes

a) Promise
b) Contract
c) Agreement
d) Proposal

59) A person cannot make an offer

a) To the citizen of foreign country
b) To his friend
c) To himself
d) To a lunatic person
 Institute of Cost and Management Accountants of Pakistan
Mercantile Law (Contract Act 1872)
Test No 1
60) An offer cannot be made
a) By the words of mouth
b) By the conduct of the parties
c) By the circumstances
d) By the promise of the party

61) An offer gets legal consequences

a) As soon as it is made
b) As soon as it is communicated
c) As soon as it is revoked
d) As soon as it is accepted

62) Implied acceptance is inferred

a) From the silence of offeree
b) From the conduct of the offeree
c) From his gesture of the offeree
d) From oral statement of the offeree

63) An offer is said to be revoked

a) By non-fulfillment of condition precedent to acceptance
b) Acceptance is not in prescribed mode, but offeror does not reject it
c) Acceptance is not given with in reasonable period of time
d) Misunderstanding has arisen between offeror and offeree

64) Which of the following statement is true

a) A proposal be revoked at any time before the communication of its acceptance is
complete as against the offeree
b) Acceptance may be revoked at any time, before the communication of acceptance is
complete as against the acceptor
c) An offer initially rejected may subsequently be accepted
d) Letter of offer and letter of revocation can be sent together

65) Two or more things are said to have consent if

a) They agreed upon different thing in same sense
b) They agreed upon same thing in same sense
c) They agreed upon various things in the same sense
d) They agreed upon many things in the same sense

66) Relationship between the parties must exist to use

a) Fraud
b) Undue influence
c) Coercion
d) Mistake
 Institute of Cost and Management Accountants of Pakistan
Mercantile Law (Contract Act 1872)
Test No 1
67) Which one is fraud
a) False statement for praising own goods by trader
b) A mere expression of opinion regarding subject matter
c) False statement made intentionally
d) A mere non-disclosure of facts

68) Appropriation of payment means

a) Application of money received for discharging debt
b) Using money for any other purpose
c) Using money for paying bank loan
d) Using money paying for interest loan

69) Liabilities in a contract

a) Can be assigned
b) Cannot be assigned
c) Can be assigned in some situation
d) Can be assigned with the consent of promise

70) In every contract of_____ there is implied contract of indemnity

a) Sales
b) Offer
c) Perform
d) Guarantee

71) X makes a promise to his wife Y to give her pocket money of Rs. 1,000/- per month. After 6
months, he stops making the payment; Can Y claim damages for X?
a) Y cannot claim any damages from X.
b) Y can claim damages from X
c) Y can only claim half of the damages
d) Y can claim damages before expiry of 3 years times

72) X, a broker of Karachi wrote to Y, a merchant of Lahore stating the terms on which he is
willing to do business. Is the letter a valid offer by X to Y?
a) This is a valid offer
b) The letter was a mere statement of intention
c) Law is silent on this.
d) None of above

73) X delivered a coat to Y, dry cleaner for dry cleaning and took the receipt. On the back of the
receipt, certain conditions were printed. One of the conditions printed on the back was “The
liability of the dry cleaner company shall be limited to 50% of the cost of the goods”. X never
looked at the back of the receipt X’s coat was lost and X claimed the actual value of the coat.
Choose the legal position of X.
a) X was entitled to claim compensation for the whole value of coat
b) X can claim only 50% of the value because it’s his mistake that he never looked back
c) Both a and b
 Institute of Cost and Management Accountants of Pakistan
Mercantile Law (Contract Act 1872)
Test No 1
74) X owes Y Rs. 10,000/- but this debt is time barred. In a birthday party of Z, who is a friend of
X and Y, X promises Y to pay this debt. Later, X refuses to Y. Can Y recover the promised
amount from X?
a) Y can recover
b) Y cannot recover anything from X
c) It depends on the willingness of Y because he is X friend so he can waive
d) All of the above

75) Alia, a poor widow was in great need of money to establish her right to maintenance. She
took a loan of Rs. 20,000/- bearing a rate of 100% per annum.
a) The transaction appears to be an unconscionable
b) This is a valid contract
c) The husband is responsible for the debt
d) Law is silent on this

76) X granted a loan to Y a guardian of minor to enable him to celebrate the minor’s marriage.
Can X recover his loan from Y?
a) X cannot recover his loan from Y
b) X can recover his loan from minor’s property
c) X can recover his loan from minor on attaining him the age of majority
d) X can recover his loan from Y

77) A clause in the life insurance policy was that “no suit to recover under the policy shall be
brought after one year from the date of death of assured”. X died and his legal
representatives filed a suit to recover the assured sum after two and half years. Is this suit
maintainable?
a) This suit maintainable
b) This suit not maintainable because it was already mentioned in the policy
c) Law is silent on this
d) None of the above

78) X contracts to repair Y’s house in a certain manner and receives payment in advance. X
repairs the house but not according to the contract. Y incurs Rs. 1,000/- to remedy the
defect. Can Y recover Rs. 1,000/- from X.
a) Y can recover Rs. 1,000/- from X
b) Y cannot recover Rs. 1,000/- because the payment was made on advance
c) Law is silent on this
d) The agreement was social