Special contracts: indemnity, guarantee, bailment, pledge, agency - Question Bank

1. Which of the following statements best describes the duty of a surety to the creditor?
A) The surety must pay only if the principal debtor is insolvent.
B) The surety's liability is co-extensive with that of the principal debtor.
C) The surety can demand that the creditor first exhaust all remedies against the principal debtor.
D) The surety can avoid liability by proving the principal debtor is not at fault.
2. The rights of a finder of goods are similar to those of a:
A) Bailor
B) Agent
C) Bailee
D) Principal
3. A person who finds goods belonging to another and takes them into his custody is known as a:
A) Finder of goods
B) Bailee
C) Agent
D) Pledgee
4. When goods are bailed for a specific purpose, the bailee must:
A) Use the goods for any purpose he deems fit.
B) Use the goods strictly according to the purpose for which they were bailed.
C) Return the goods without using them.
D) Sell the goods if the purpose is no longer achievable.
5. The liability of the principal debtor is primary, whereas the liability of the surety is:
A) Secondary and conditional
B) Primary and absolute
C) Secondary and absolute
D) Primary and conditional
6. In the case of indemnity, the indemnified party can sue for damages:
A) Only after paying the third party.
B) Even before paying the third party, if liability has accrued.
C) Only if the indemnifier refuses to pay.
D) Never, as it's a promise to pay for future loss.
7. Which of the following is a form of termination of agency?
A) Performance of the contract.
B) Death of the principal or agent.
C) Completion of the business entrusted to the agent.
D) All of the above.
8. The principal is not bound by the acts of an agent done outside the scope of his authority, unless:
A) The agent acts in good faith.
B) The principal subsequently ratifies the acts.
C) The third party is unaware of the scope of authority.
D) The acts benefit the principal.
9. A pledge created by a mercantile agent in possession of goods with the owner's consent is valid even if the agent exceeds his authority, provided the pledgee acts in good faith. This is an exception to the rule of 'nemo dat quod non habet' and is covered under:
A) Section 172 of the Indian Contract Act
B) Section 173 of the Indian Contract Act
C) Section 176 of the Indian Contract Act
D) The Sale of Goods Act, 1930
10. If goods bailed are returned in a damaged condition due to the bailee's negligence, the bailor has the right to:
A) Claim compensation for the damage.
B) Terminate the bailment immediately.
C) Sue the bailee for criminal negligence.
D) Return the goods without claiming compensation.
11. A gratuitous bailment is a bailment where:
A) The bailee receives payment for his services.
B) No consideration is given by either party.
C) The goods are bailed for sale.
D) The bailee is responsible for all loss, even if not negligent.
12. What is the effect of a material alteration in the terms of the contract between the principal debtor and the creditor, without the surety's consent?
A) The surety remains liable.
B) The surety is discharged from liability.
C) The surety's liability is increased.
D) The contract of guarantee becomes voidable at the creditor's option.
13. In a contract of guarantee, the concept of 'co-extensive liability' means:
A) The surety's liability is limited to the amount guaranteed.
B) The surety's liability is equal to the principal debtor's liability, unless otherwise agreed.
C) The surety is only liable if the principal debtor is insolvent.
D) The creditor must sue the principal debtor first.
14. Which of the following types of indemnity is recognized by Indian law?
A) Specific Indemnity
B) General Indemnity
C) Both specific and general indemnity
D) Neither specific nor general indemnity
15. The liability of the principal for the acts of the agent is based on the principle:
A) Res ipsa loquitur
B) Respondeat superior
C) Volenti non fit injuria
D) Caveat emptor
16. Which of the following is a right of the agent?
A) To receive remuneration agreed upon.
B) To delegate all his duties.
C) To act against the principal's instructions.
D) To claim ownership of property acquired in the course of agency.
17. An agent is bound to render proper accounts to his principal.
A) Only when demanded by the principal.
B) At reasonable intervals, or when required by the principal.
C) Only at the termination of the agency.
D) Never, unless specifically agreed.
18. What is the duty of an agent towards the principal?
A) To act according to his own discretion, even if it goes against the principal's instructions.
B) To conduct the business of the agency with reasonable diligence and skill.
C) To disclose all information received from third parties, even if irrelevant.
D) To delegate all important tasks to sub-agents without consent.
19. If the pledgor defaults in payment, the pledgee can sell the pledged goods after:
A) Giving reasonable notice to the pledgor.
B) Immediately selling the goods.
C) Obtaining a court order.
D) Waiting for one year.
20. What right does a pledgee have over the pledged goods?
A) The right to sell the goods only if the pledgor defaults.
B) The right to use the goods for personal benefit.
C) The right to transfer ownership of the goods to himself.
D) The right to dispose of the goods without notice to the pledgor.
21. If a bailee makes an unauthorized use of the goods bailed, resulting in their damage, what is the consequence?
A) The bailee is not liable if the damage was accidental.
B) The bailee is liable to the bailor for any damage arising from such use.
C) The bailor must bear the loss.
D) The contract of bailment is automatically terminated.
22. Which of the following is a duty of the bailee?
A) To use the goods only for the purpose for which they were bailed.
B) To mix the bailed goods with his own goods.
C) To return the goods to any person claiming them.
D) To claim ownership of the bailed goods after the purpose is accomplished.
23. The right of subrogation in a contract of guarantee means:
A) The surety can sue the principal debtor for the debt.
B) The creditor can sue the surety without suing the principal debtor.
C) Upon payment of the guaranteed debt, the surety steps into the shoes of the creditor and acquires all rights against the principal debtor.
D) The surety can recover money from co-sureties.
24. In a contract of guarantee, when does the liability of the surety arise?
A) Immediately upon the formation of the contract.
B) Only upon the default of the principal debtor.
C) When the creditor demands payment from the surety.
D) After the creditor has exhausted all remedies against the principal debtor.
25. Under Section 125 of the Indian Contract Act, 1872, the indemnified person can recover from the indemnifier the costs which he may be compelled to pay concerning any suit.
A) Only if the indemnifier was a party to the suit.
B) If he acted as authorized by the indemnifier, or in the absence of the indemnifier, acted prudently.
C) Only if the suit was lost.
D) Only if the suit was filed by the indemnifier.
26. Which of the following statements about the rights of an indemnified person is correct?
A) They can sue the indemnifier even before suffering any loss.
B) They can recover costs incurred in defending suits, if the indemnifier has authorized them to do so.
C) They can only recover actual losses suffered.
D) They cannot recover costs of defending suits.
27. An agency by necessity arises when:
A) The principal expressly authorizes the agent.
B) The agent acts in the principal's best interest due to an emergency.
C) The agent ratifies an unauthorized act.
D) There is a mutual agreement between principal and agent.
28. What is 'ratification' in the context of agency?
A) The agent acting without authority and the principal later approving the act.
B) The principal revoking the agent's authority.
C) The agent exceeding their authority.
D) The principal appointing a new agent.
29. How can an agency be created?
A) Only by express written agreement.
B) By express or implied agreement, ratification, or necessity.
C) Only by direct appointment by the principal.
D) Only through a court order.
30. The person who acts on behalf of another in an agency is known as the:
A) Principal
B) Agent
C) Creditor
D) Bailee
31. In an agency, the person who is represented is called the:
A) Agent
B) Principal
C) Third Party
D) Surety
32. What is an agency relationship?
A) A contract where one party agrees to indemnify another.
B) A contract where one party guarantees the performance of another.
C) The relationship where one person (the agent) is authorized to act on behalf of another person (the principal) in dealing with third parties.
D) The delivery of goods for a specific purpose.
33. The relationship of agency is created by which section of the Indian Contract Act, 1872?
A) Section 126
B) Section 148
C) Section 172
D) Section 182
34. What is the main difference between bailment and pledge?
A) Bailment always involves payment, pledge does not.
B) Pledge is for security of a debt, while bailment is for any purpose.
C) Bailment requires written agreement, pledge can be oral.
D) Pledge involves transfer of ownership, bailment does not.
35. The person who receives the goods as security in a pledge is known as the:
A) Pledgor
B) Pledgee
C) Debtor
D) Bailee
36. In a contract of pledge, the owner of the goods who delivers them as security is called the:
A) Pledgee
B) Bailor
C) Pledgor
D) Creditor
37. A contract of pledge is a special type of bailment. What is the primary purpose of a pledge?
A) To deliver goods for repair.
B) To deliver goods for safe custody.
C) To deliver goods as security for a debt or a promise.
D) To deliver goods for gratuitous use.
38. Which of the following is a key characteristic of bailment?
A) Transfer of ownership.
B) Transfer of possession only.
C) Creation of a principal-agent relationship.
D) Discharge of a third-party liability.
39. The person to whom the goods are delivered in a bailment is known as the:
A) Bailor
B) Bailee
C) Surety
D) Principal Debtor
40. In a contract of bailment, the person who delivers the goods is called the:
A) Bailee
B) Bailor
C) Pledgee
D) Pledgor
41. What is bailment?
A) The act of transferring ownership of goods.
B) The delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them.
C) A promise to answer for the debt of another.
D) An agreement to compensate for loss.
42. A contract of bailment is defined under which section of the Indian Contract Act, 1872?
A) Section 126
B) Section 148
C) Section 172
D) Section 182
43. Which of the following is NOT a necessary element of a valid contract of guarantee?
A) Existence of a principal debt or obligation.
B) Consideration for the surety.
C) Consent of the principal debtor.
D) The guarantee must be in writing.
44. What is the primary purpose of a contract of guarantee?
A) To transfer possession of goods for a specific purpose.
B) To provide security to a creditor against the default of a debtor.
C) To represent another person in dealings with third parties.
D) To compensate for a loss that may or may not happen.
45. The person for whom the guarantee is given is called the:
A) Principal Debtor
B) Surety
C) Creditor
D) Indemnified
46. In a contract of guarantee, the person who gives the guarantee is known as the:
A) Principal Debtor
B) Creditor
C) Surety
D) Indemnifier
47. A contract of guarantee is a contract to perform the promise, or discharge the liability, of a third person in case of his default. This is stated in which section of the Indian Contract Act, 1872?
A) Section 124
B) Section 125
C) Section 126
D) Section 148
48. Which section of the Indian Contract Act, 1872 deals with the definition of a contract of indemnity?
A) Section 124
B) Section 125
C) Section 148
D) Section 172
49. In a contract of indemnity, the party who promises to save the other from loss is called the:
A) Indemnified
B) Indemnifier
C) Principal
D) Agent
50. What is the primary characteristic of a contract of indemnity?
A) It involves the transfer of ownership of goods.
B) It is a contingent contract where one party promises to save the other from loss.
C) It requires mutual promises between two or more parties.
D) It is always in writing and registered.
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