Business Law – The Practice Book Chapter 3 Validity of Contracts and Agreements

CHAPTER 3
VALIDITY OF CONTRACTS AND
AGREEMENTS
QUESTIONS

MULTIPLE CHOICE QUESTIONS

1. The minimum age for a person who makes a contract is:

(a) Twenty years
(b) Sixteen years
(c) Eighteen years
(d) None of these

2. A, aged 18 for whom a court has appointed a guardian, wants to make a contact. He can make a contract:
(a) After attaining the age of twenty years
(b) After attaining the age of twenty-one years
(c) He can immediately make a contract
(d) None of these

3. A person on attaining age of majority:

(a) Can ratify an agreement made by him during his minority.
(b) Cannot ratify an agreement made by him during his minority.

4. A person who has attained the age of 18 while under guardian:

(a) Is competent to contract
(b) Is not competent to contract
(c) None of these

5. A person who is usually of unsound mind:

(a) Can make a contract during the interval when he is of sound mind.
(b) Cannot make a contract during the interval when he is of sound mind.
(c) None of these.

6. Consideration may be
(a) Past only
(b) Present only
(c) Future only
(d) Past, present and future

7. Terry teaches the son of Garry on his request in the month of July. In August Garry promised to pay a sum of Rs. 2,000 to
Terry for his services. This is the example of:
(a) Present consideration
(b) Past consideration
(c) Future consideration
(d) None of these

8. When consideration is given simultaneously from one party to another at the time of contract, it is called:
(a) Past consideration
(b) Present consideration
(c) Future consideration
(d) None of the above

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 Business Law – The Practice Book Chapter 3 Validity of Contracts and Agreements

9. If the consideration for an agreement is inadequate, the agreement:

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

10. 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.

11. 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.

12. Incapacity to contract may be due to:

(a) Absence of legal formalities.
(b) Lack of consideration.
(c) Minority.
(d) Absence of free consent.

13. 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.

14.* The term “Quid pro quo” means:

(i) Something in return
(ii) Something important
(iii) Something of value
(iv) Something relevant

15.* Kabeer, during his employment with Catfish Jewellers, stole a diamond set worth Rs. 1,000,000. Basheer, the watchman at
the shop, came to know about this fact. However, Basheer agreed not to disclose it to anyone when Kabeer offered to pay
Rs. 100,000 to him. This agreement is:
(a) void
(b) valid
(c) voidable at the option of Kabeer
(d) voidable at the option of Basheer

16.* Which of the following statements regarding wagering agreements is NOT true?
(a) Wagering agreements are void
(b) Parties cannot file suit to recover money won under the wagering agreements
(c) Parties to a wagering agreement have no control on the happening of event
(d) Prize competitions involving games of skill are considered as wagering agreements

17. Lawful consideration is essential for:

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

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 Business Law – The Practice Book Chapter 3 Validity of Contracts and Agreements

18. X promises Y to make alive his dead father if he is given Rs.50,000. This is not a valid contract because;
(a) The other party does not have the amount.
(b) There is impossibility of performance
(c) Y does not want this
(d) None of the above

19. A valid contract is that which:

(a) Cannot be enforced by either party
(b) Cannot be enforced by one party
(c) Can be enforced by either party
(d) None of the above

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

21. When the performance of the contract becomes impossible due to any incident which took place after the contract was
made is called:
(a) Voidable contract
(b) Valid contract
(c) Void contract
(d) None of these

22. Destruction of subject-matter gives rise to:

(a) Valid contract
(b) Void contract
(c) Unenforceable contract
(d) Illegal contract

23. X promises to marry C but one day before the marriage, "C" becomes insane. The contract becomes:
(a) Voidable
(b) Void
(c) Unenforceable
(d) Illegal

24. When the consent of one of the parties to the contract is not free, the contract, is called:
(a) Voidable
(b) Void
(c) Illegal
(d) None of these

25. Which of the following statement is true

(a) Minor cannot be appointed as an agent
(b) Minor is not allowed to plead his minority always
(c) An agreement with a minor is void
(d) Minor can ratify void agreement, when he becomes major

26. Alex made a contract with Martin that he (Alex) would not marry Maria. This contract is:
(a) Valid
(b) Void
(c) Voidable
(d) Illegal

27. Every agreement in restraint of the marriage of any person, other than a minor is a:
(a) Void contract
(b) Valid contract
(c) Void agreement
(d) Voidable contract

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 Business Law – The Practice Book Chapter 3 Validity of Contracts and Agreements

28. Abdullah, a Muslim at the time of his marriage with his first wife, made a promise with her that he would not marry any
other girl during her life. This agreement is void because it is one of those agreements which:
(a) Becomes void after making
(b) Becomes voidable immediately after making
(c) Expressly declared void by the law
(d) None of the above

29. Every agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind, is:
(a) To that extent valid
(b) To that extent void
(c) To that extent voidable
(d) None of these

30. When undue influence is used in a contract by one party against the other, the contract becomes:
(a) Void
(b) Voidable
(c) Illegal
(d) None of these

31. 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

32. Which of the following statement is false

(a) Minor cannot become partner in a firm
(b) Education loan taken by the minor is recoverable from his property
(c) Minor can be declared as an insolvent
(d) An agreement with a minor is void against him

33. 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

34.* Amir had offered both Behram and Ahmed to sell his piano at a discounted price of Rs. 25,000. Behram responded
immediately and refused to accept the offer. Amir who was in urgent need of money, lowered the offered price to Rs. 15,000
which was finally accepted by Behram. Before delivering the piano to Behram, Amir received acceptance from Ahmed on
his initially offered price. Therefore, Amir has refused to deliver the piano to Behram.
Can Behram claim damages upon Amir’s refusal?
(a) No, because Amir refused the delivery to Behram due to inadequate consideration
(b) No, because Amir had agreed to deliver piano to Behram under undue influence
(c) Yes, because the contract was completed on acceptance of revised offer price
(d) Yes, because Behram responded first to the Amir’s offer

35. Which of the following statement is true

(a) Act done at the request of the third party will form consideration
(b) Act done by the promisor voluntarily constitutes consideration
(c) Act done by third party will constitute consideration
(d) Act done at the request of promisee will constitute consideration

36. Which of the following statement is true

(a) Contract remains valid, if one promise is performed in past and other is to be performed in future.
(b) Past consideration is not as good as present consideration
(c) A promise to accept lesser fulfilment of promise requires consideration
(d) Consideration affects validity of completed gift.

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 Business Law – The Practice Book Chapter 3 Validity of Contracts and Agreements

37. According to the Contract Act which consideration is not valid

(a) Past consideration
(b) Present consideration
(c) Future consideration
(d) Illusory consideration

38. Consideration must be given at the desire of

(a) Promisee
(b) Promisor
(c) Both of them
(d) Third party

39. The promisor is bound to donate money

(a) If he has made promise to donate
(b) If he has charitable bent of mind
(c) If the promisee has undertaken some liability on the basis of such promise
(d) Under none of the above condition

40. Consideration must be something which the promisor

(a) Is already bound to do
(b) Is not already bound to do
(c) May voluntarily do
(d) Must not do

41. Consideration
(a) Must move from the promisor
(b) May move from the promisor or any other person
(c) Must move from the third party
(d) May move from the promisor

42. Which of the following statement is true

(a) No action is allowed in illegal agreement
(b) Partial action is allowed in illegal agreement
(c) One party of illegal agreement may be allowed to take action on it
(d) Law may allow action on such agreement

43. Criminals should be prosecuted and punished. An agreement for stifling prosecution is
(a) Valid agreement
(b) Voidable contract
(c) Unenforceable agreement
(d) Illegal agreement

44. Agreements opposed to public policy are those,

(a) Which are not liked by the public
(b) Which are against their personal interest
(c) Which injure the interest of public at large
(d) Which do not favour public

45. Agreement made with alien-enemy during the period of war is

(a) Void agreement
(b) Valid agreement
(c) Voidable agreement
(d) Unenforceable agreement

46. Object of an agreement is said to be unlawful if it is

(a) Not Punishable by law
(b) Forbidden by law
(c) Not prohibited by special legislation
(d) All of the above

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 Business Law – The Practice Book Chapter 3 Validity of Contracts and Agreements

47. Which of the following agreement is valid

(a) Agreement to pay money for procuring wife
(b) Agreement to pay money in consideration for breaking a marriage
(c) Agreement to procure employment in public office in consideration of money
(d) Agreement to adopt a child duly made under Pakistan’s law

48. Which one of the following is not against the public policy?
(a) Stifling criminal prosecution
(b) Sale of public offices
(c) Trading with alien friend
(d) Marriage brokerage agreement

49. Mr. T agrees to buy share at premium in a joint stock company through a broker Mr. S who has given the false impression
to the public that shares were useful of being purchased at a premium. Later on he found that broker has sold his own
shares to him and not purchased any shares from the market. What is the status of this agreement?
(a) The agreement is valid as it is a business transaction
(b) The agreement is void because the consent is obtained by coercion
(c) The agreement is valid because it is in the favour of Mr. T
(d) The agreement is void because it was aimed at cheating the public

50. Due to unlawful object, agreement is

(a) Enforceable
(b) Voidable
(c) Unenforceable
(d) Void

51. The collateral transaction to an illegal agreement is

(a) Valid
(b) Not to be enforced
(c) Voidable
(d) Not affected at all

52. Agreement made with a minor for basic necessities is

(a) Valid
(b) Voidable
(c) Unenforceable
(d) Void, but money involved is recoverable from estate of minor

53. There are some disqualifications imposed on certain persons in respect of their capacity to contract. Choose the incorrect
one from the following
(a) Convict
(b) Alien enemy
(c) Solvent
(d) Foreign sovereign

54. Alien enemy cannot make agreement with Pakistani citizen because
(a) He is not allowed to do so, by the Government of his country
(b) Agreement made by him may not be in his interest
(c) He is legally disqualified from making contract
(d) Agreement may not be in the interest of citizen of Pakistan

55. A convict may be debarred from making agreement

(a) For one month only
(b) Forever
(c) For a particular period of time

56. Which of the following statement is true

(a) Corporation or company can enter into a contract
(b) Foreign Ambassador can be sued in by Pakistani citizen for enforcing rights of agreement
(c) Married woman can make agreement regarding joint property of husband and wife
(d) Lunatic has no contractual capacity at all

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 Business Law – The Practice Book Chapter 3 Validity of Contracts and Agreements

57. A minor becomes liable for basic necessities supplied to him

(a) After attaining age of majority
(b) After minor makes promise to pay for
(c) From his personal property if any
(d) He is not at all liable

58. Contract entered before the declaration of war are

(a) Either suspended or terminated during the period of war
(b) Executory contract
(c) Voidable
(d) Void ab initio

59.* Furqan gifted a property to his spouse Nadira on completion of her post-graduation. Subsequently, on Furqan’s request,
Nadira agreed to transfer the property in Furqan’s name if, at any time in future, he incurs heavy loss in business due to any
reason. After five years, Furqan incurred heavy loss in business due to COVID-19 pandemic and asked Nadira to transfer
the property in his name which she refused.

Can Furqan hold Nadira responsible for the breach of contract?

(a) Yes, because the agreement was contingent on incurring of heavy loss in business
(b) Yes, because all agreements made verbally are enforceable by law
(c) No, because the agreement is void due to lack of consideration
(d) No, because the agreement was made by Nadira under undue influence (1.5)

60. On 5 February 2023, Nadia agreed to sell her Mercedes Benz to her brother Fahad. Nadia wanted to sell the car at market
price and Fahad wanted to purchase it at cost price. They decided that the sale price shall be determined by their eldest
brother Noman. On 20 February 2023, Noman decided the price in Fahad’s favor.

In the above scenario, can Nadia refuse to sell her car to Fahad?
(a) Yes, because Nadia was unduly influenced to make the contract
(b) Yes, because Nadia has not given consent to the sale price
(c) No, Nadia is bound to sell the car under the contract dated 5 February 2023
(d) No, Nadia is bound to sell the car under the contract dated 20 February 2023 (1.5)

PRACTICE QUESTIONS

Q.1 Under the provisions of the Contract Act, 1872 explain the circumstances in which an agreement without consideration is
considered to be a valid contract. (05)
(ICAP, CAF 04 Level – Spring 2022, Q. # 10b)
(ICAP Book: Chapter 3 – Practice Question # 08)

Q.2 Bromine Traders (BT) is engaged in the business of import, purchase and supply of electronic items. During the year, BT
agreed to supply 250 rice cookers to Francium & Co. (FC) against an advance payment of Rs. 500,000. BT specified that the
rice cookers would either be imported or smuggled from Korea.
Discuss status of contract between BT and FC. (03)
(ICAP, CAF 04 Level – Spring 2022, Q. # 5ii)
(ICAP Book: Chapter 7 – Practice Question # 11)

Q.3 On 4 March 2021, Aliya agreed to sell her ancestral jewels to Salma at a discounted price. However, on the next day when
Salma came to take the delivery, Aliya’s brother being custodian of the jewels refused to honour the delivery on the premise
that Aliya was admitted to the mental hospital and, therefore, her earlier agreement to sell the jewels was not valid.
Under the provisions of the Contract Act, 1872 discuss whether Aliya’s brother is justified in refusing to deliver the jewels
to Salma. (03)
(ICAP, CAF 04 Level – Spring 2021, Q. # 4a)
(ICAP Book: Chapter 3 – Practice Question # 02)

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 Business Law – The Practice Book Chapter 3 Validity of Contracts and Agreements

Q.4 Explain the meaning of the term ‘consideration’ under the Contract Act, 1872. What is the difference between an agreement
without consideration and an agreement having inadequate consideration? (04)
(ICAP, CAF 04 Level – Spring 2007, Q. # 3)

Q.5 Aamir, a minor falsely representing himself to be of age (of majority), enters into an agreement to sell his property to Arif
and receives from him as price a sum of Rs. 720,000 in advance. Out of this sum, the minor purchases a car for Rs. 600,000
and spends the rest on pleasure trip. After the minor has attained majority, Arif sues him for the transfer of the property or
in the alternate for the refund of Rs. 720,000 and damages. How would you decide?
(ICMA Pakistan, Spring 2015)

Q.6 Fahad advances money to his son Aftab during his minority. Upon Aftab’s coming of age, Fahad obtains by misuse of parental
influence, a bond from Aftab for a greater amount than the sum due in respect of the advance. Is Aftab bound by the bond?
(ICMA Pakistan, Spring 2015)

Q.7 Sajid supplied necessaries of life to Hilal, a minor. Can Sajid be allowed by law to recover the value from Hilal’s property?
Elaborate. (01)
(ICMA Pakistan – Summer 2011)

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 Business Law – The Practice Book Chapter 3 Validity of Contracts and Agreements

SUGGESTED SOLUTIONS

MULTIPLE CHOICE QUESTIONS

SUGGESTED SOLUTIONS
MCQ # Correct Option MCQ # Correct Option MCQ # Correct Option
1 c 21 c 41. (b)
2 b 22 b 42. (a)
3 b 23 b 43. (d)
4 b 24 a 44. (c)
5 a 25. (c) 45. (a)
6. d 26 B 46. (b)
7 b 27 C 47. (d)
8 b 28 C 48. (c)
9 a 29 B 49. (d)
10 b 30 B 50. (d)
11 c 31 B 51. (b)
12 c 32 (c) 52 (a)
13 b 33 A 53 (c)
14 a 34 C 54 (c)
15 a 35. (d) 55 (c)
16 d 36. (a) 56 (a)
17 b 37. (d) 57 (c)
18 b 38. (a) 58 (a)
19 c 39. (c) 59 (c)
20 B 40. (b) 60 C

PRACTICE QUESTIONS

A.1 Under following circumstances an agreement without consideration is considered valid:

Agreement made on account of natural love and affection:

Such an agreement is valid even without consideration if it is:
 Between parties having a near relation to each other, and
 Made on account of natural love and affection, and
 Expressed in writing, and
 Registered under the law for registration of documents.

Agreement to compensate for past voluntary service:

A promise to compensate a person who has already done something voluntarily for the promisor, is valid even without
consideration.

Agreement to pay a time-barred debt:

An agreement to pay a time-barred debt is enforceable provided:
 Debt cannot be recovered because of law of limitation, and
 It is made in writing, and
 Signed by debtor or his authorized agent.

Completed Gift:
Gifts are property given by one person (called donor) to another person (called donee) without consideration. Any gift is
valid without consideration if it is completed (i.e. transferred), written and registered.

Contribution to charity:
A promise to contribute to charity would be enforceable if, on the faith of the promise, promisee takes step and undertakes
a liability.

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 Business Law – The Practice Book Chapter 3 Validity of Contracts and Agreements

Other contracts:
Consideration is not necessary in:
 contract of bailment.
 contract of guarantee.
 contract of agency.

Examiners’ Comments:
Good performance was observed in this part of the question.

Marking Plan:
 Up to 1.5 marks for explaining each circumstance 5.0

Passing Percentage:
56%

A.2 Relevant Legal Provision:

if there are alternate promises and one of them is illegal, only the legal one can be enforced.

Decision and Basis of Decision:

This agreement is valid. However, BT is liable to provide only imported rice cookers. Promise to provide smuggled rice
cooker is void, being illegal.

A.3 Relevant legal Provision:

If a person is of unsound mind at time of making agreement, such agreement will be void.

Decision and Basis of Decision:

If Aliya was of sound mind at time of making agreement:
Aliya’s brother is not justified in this case, and contract will be performed as agreed.

If Aliya was of unsound mind at time of making agreement:

Aliya’s brother is justified in refusing because this agreement will be void in that case.

Burden of Proof:
If Aliya is usually of sound mind, then she or her borther will have to prove that she was of unsound mind at time of contract.
If Aliya is usually of unsound mind, then Salma will have to prove that she was of sound mind at time of contract.

Examiners’ Comments:
 Some of the examinees were not able to ascertain that the validity of the contract was entirely dependent on Aliya’s state
of mind at the time of making the agreement with Salma.
 Few examinees only provided conclusion without providing the grounds on which conclusion was based.

Marking Plan:
 Discussing grounds on which Aliya’s brother is justified in refusing delivery 2.0 marks
 Discussing when agreement will be considered void 1.0 marks

Passing Percentage:
37%

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 Business Law – The Practice Book Chapter 3 Validity of Contracts and Agreements

A.4 Meaning of Consideration:

When at the desire of the promisor, the promisee (or his agent) has done or does or promises to do (or not to do) something,
such act is called a consideration for the promise.
Simply consideration means something in return.

Agreement without consideration:

Agreement without considerations are void, except in certain cases.

Agreement having inadequate consideration:

Agreement with inadequate consideration are valid, provided consent is free.

Examiners’ Comments:
This was a well-attempted question and 84% students secured passing marks. However, very few were able to explain that the
inadequacy of consideration may be considered by the court in determining whether the consent was freely given.

A.5 Relevant legal Provision:

Agreement by a minor cannot be enforced against him. A minor can only be liable to pay if a person supplies necessities of
life (e.g. paying expenses for living, medicine, studies) to a minor. Such person can recover the reasonable price from the
property of minor.

Decision and Basis of Decision:

Property of minor:
Arif cannot receive property of minor because agreement was made when Aamir was minor, and hence void against him.

Refund of Rs. 720,000:

Arif can also not recover this amount, because it was not given for necessities of life. However, he can take back (i.e.
restore/restitution) property bought from his money which is still in the hands of minor i.e. Car.

A.6 Relevant legal Provision:

If a person supplies necessities of life to a minor, he can recover reasonable price from the property of minor.

Decision and Basis of Decision:

Aftab is not liable to pay the amount of bond, because consent was not free as his father exercised undue influence. He is
liable to pay only reasonable amount which is due.

A.7 Yes. If a person supplies necessities of life to a minor, he can recover reasonable price from the property of minor.

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