CMA Laws and Ethics Contract Basic Concepts Question and Answers

Contract Basic Concepts

Question 1. Meaning of Contract
Answer:

• Sec.2(h) of the Indian Contract Act defines a contract as:

“An agreement enforceable by law.”

Contract = Agreement + enforceability by law

• Contract is made by acceptance of one party of an offer made to him by the other party, to do or abstain from doing some act.

Contract = Agreement + Obligation

Question 2.Meaning of Agreement and Promise
Answer:

Sec.2(e) of the Indian Contract Act defines it as, “Every’ promise or every act of promises forming consideration for each other.”

It has two characteristics:

1. Two or more persons are required to agree.
2. Both parties must agree to the same thing in the same sense.(Consensus – ad- idem).

Sec. 2(b) of the Indian Contract defines a promise as “A proposal when accepted becomes a promise”.

Agreement = Promise

= Accepted Proposal

= Offer + Acceptance

Question 3. Essential elements of a valid contract
Answer:

Sec. 10 of the Indian Contract Act says, “All, agreements are contracts, if they are made-

1. By free consent of patties, competent to contract,
2. For a lawful consideration.
3. With a lawful object, and
4. Not at this moment expressly declared to be void.

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It includes:

1. Offer and Acceptance
2. Intention to create a legal relationship
3. Lawful consideration
4. Capacity to contract
5. Free consent
6. Lawful object
7. Agreement not expressly declared void.
8. Consensus -ad-idem i.e. meeting of minds
9. Certainty of meaning
10. Possibility of performance
11. Legal formalities

Question 4. Offer or Proposal
Answer:

• It refers to a proposal by one party to another to enter into a legally binding agreement with him.
• Sec. 2(a) of the Act defines it as-
• ‘ When one person signifies to another his willingness to do or abstain from doing anything to obtaining the assent of that other to such act or abstinence, he is said to propose.”
• Offeror or Promisor: The party making an offer.
• Offeree or Promisee: The party to whom the offer is made.

Question 5.Rules relating to the offer
Answer:

• Offer must be capable of creating legal relations
• Offer must be certain, definite, and not vague
• Offer may be expressed or implied
• Offer must be distinguished from an invitation to Oiler
• Offer may be specific or general
• Offer must be communicated
• Offer must be made to obtain the consent of the offeree
• Offer may be conditional
• Offer should contain the term noncompliance which would amount to acceptance

Question 6.Types of offer
Answer:

General; Specific, Cross, Counter, Open, etc.

1. General and Specific Offer:
   • Offer made to the public at large with or without any time limit is a general offer.
   • An offer made to a particular and specified person/ persons that can be accepted by that specific person/ persons only is a specific offer.
2. Cross offer:
   • it occurs when two persons make identical offers to each other, in ignorance of each other’s offer.
   • It leads to the termination of the original offer.
3. Counteroffer:
   • Upon receipt of an offer from an offeror, if the offeree instead of accepting it straightaway, modifies or varies the offer, he is said to make a counteroffer.
   • It leads to rejection of the original offer.
4. Standing, Continuing, Open Offer:
   • Offer is made to the public and kept open for public acceptance for a certain period.
   • It refers to a tender to supply goods as and when required.
   • Each successive order given creates a separate contract.
   • It does not bind either party unless and until such orders are given. Offer and Invitation to offer:
5. Offer is made to get the consent of the other party.
   • An invitation to offer is made to initiate the offer according to the invitation.
   • Offer is made with an object to make a contract.
   • Invitation to offer does not result in any contract formation.

Question 7.Acceptance
Answer:

Acceptance means giving consent to the offer,

Sec. 2(b) of the Contract Act, defines it as “A proposal is said to be accepted when the person to whom the proposal is made signifies his assent to it.”

Question 8. Essentials of a valid acceptance
Answer:

• Valid Acceptance must be absolute and unqualified.
• Valid Acceptance  must be communicated to the offeror.
• Valid Acceptance  must be in the mode prescribed.
• Valid Acceptance must be given within a reasonable time.
• Mere silence is not acceptance offeror can prescribe the mode of acceptance but not the mode of rejection.
• Valid Acceptance must be given before the offer lapses or is revoked.
•  Valid Acceptance must emanate from the offer.

Question 9. Rules of a valid Consideration
Answer:

• Valid Consideration must move at the desire of the promisor.
• Valid Consideration may be done by the promisee himself or by any other person.
•  Valid Consideration may be past, present, or future.
• Valid Consideration  must be real and not vague.
• Valid Consideration must be legal. –
• Valid Consideration need not be adequate. (But if not adequate then consent must be free)
• Valid Consideration must be something more than the promisee is already bound to do for the promisor.

Question 10.Kinds of Consideration
Answer:

• Past Consideration – It refers to something wholly done, forgone, or suffered before agreeing.
• Under English law, “Past consideration is no consideration.”
• The consideration that is completed or performed at the time of the contract is called present consideration.
• But past consideration is a consideration as per the Indian Law.
• Present or Executed Consideration – It moves simultaneously with promise. The consideration that is completed or performed at the time of the contract is called present consideration.
• Future or Executory Consideration – It is to be moved at a future date i.e. promise is to be performed in the future.

Question 11. Exceptions to the Rules, “No consideration, No contract”
Answer:

• An agreement made is valid if
  • expressed in writing and registered under the law,
  • made on account of natural love and affection,
  • between parties standing in near relation to each other.
• A promise is valid if-
  • It is a promise to compensate wholly or in part, a person who has already voluntarily done something for the promisor.
  • Something which the promisor was legally compellable to do.
• A promise to pay, wholly or in part, a debt, which is barred by law of limitation can be enforced if
  • it is in writing,
  • it is signed by the debtor or his authorized agent.
• It does not apply to completed gifts i.e. gifts given and accepted.
• Consideration is not required to effect a valid bailment of goods i.e. gratuitous bailment.
• Not required to create an agency.
• If a person promises to contribute anything to a charity and on his faith, the promisee undertakes a liability to that extent, the contract shall be valid.

Question 12. The Doctrine of Privity of Contract
Answer:

• It means that only those persons, who are parties to a contract, can sue and be sued upon the contract.
• It refers to the relationship between parties who have entered into the contracts.
• The third party cannot sue upon it, even though the contract may be for his benefit.
• Thus, “a stranger to the contract” cannot bring a valid suit under the contract.
• It is different from “stranger to consideration”.

Question 13. Legal Agreement
Answer:

An agreement that can be enforced legally.

Illegal Agreements:

• It goes beyond the basic public policy and, thus is not enforceable by law.
• It is not only void between immediate parties but the collateral transactions also become illegal.

Its consequences:

• Entirely void
• No action can be brought by or against any party.
• Money paid or property transferred under it cannot be recovered If its two parts legal and illegal are separable, only the legal part can be enforced by the courts Agreement collateral to it is also illegal.

Question 14. Void Agreement
Answer:

• Agreements not enforceable by law are void.
• They are not always illegal and their collateral transactions are legal.
• It cannot give rise to any legal consequence
• It is void -ab- initio (i.e- void from the very beginning)
• For Example  minor’s contract

Question 15. Void Contracts
Answer:

• It is not a contract at all as it is without any legal effect.
• Section 2(j) of the Indian Contract Act, of 1872, defines it as “A contract which ceases to be enforceable by law becomes void when| it ceases to be enforceable.”

Question 16. Voidable Contracts.
Answer:

• It is an agreement that is binding and enforceable but due to lack of one or more of the essentials of a valid contract, it may be repudiated.
• Section 2(i) of the Indian Contract Act, of 1872 defines it as “ All agreements which are enforceable at the option of any one of the parties, and other party has no such option, are known as voidable contracts.”

Question 17. Competency, Capacity of Parties to Contract
Answer:

• It means that parties to the agreement must have the capacity to enter into a valid contract.
• People may be either natural or artificial.
• Natural persons means human beings.
• Artificial persons means corporations.

Question 18. Position of minor’s agreement
Answer:

1. An agreement entered into by a minor is altogether void i.e. void ab initio
2. Minor can be a promisee or a beneficiary
3. Minor can always plead minority
4. Minor’s agreement cannot be ratified by him
5. Contract by guardian is enforceable if-
   • It is within his competence and authority,
   • For the benefit of the minor.
6. Minor’s property is liable for necessaries.
7. The court can never direct the specific performance of the contract
8. Minor cannot be a partner in a partnership firm. He can however be admitted to the benefits of the partnership firm.
9. Minor can act as an agent and bind his principal without incurring any personal liability.
10. Minor can never be adjudicated as an insolvent.

Question 19. Lunatics Agreement
Answer:

• As per Section 12 of the Indian Contract Act, “A person is said to be of sound mind to make a contract if, at the time when he makes it, he is capable of undertaking it and of forming a rational judgment as to its effects upon his interests.”
• A person of unsound mind includes:
  • Lunatics
  • idiots
  • drunkards
• Such an agreement is void.
• The lunatic estate will be liable for any necessaries supplied to him or his family.
• A person who is usually of unsound mind, but occasionally of sound mind, may make a contract when he is of sound mind and he will be bound by it.
• A person who is usually of sound mind, but occasionally of unsound mind, may not make a contract when he is of unsound mind.

Question 20. Persons disqualified by law from entering into a contract
Answer:

Alien Enemy-

• Alien is a person who is not an Indian citizen.
• He becomes an alien enemy on the declaration of war between India and his country.
• He cannot enter into a contract with an Indian subject.

Foreign Sovereigns and Ambassadors

• They enjoy certain special privileges due to which they cannot be legally proceeded against in Indian Courts.
• If contracts are entered into through agents, then agents become personally responsible for the performance.

Convicts:

• Cannot enter into a valid contract while undergoing sentence, nor he can sue.

Question 21.Free Consent
Answer:

• As per the Indian Contract Act,
• “ Two or more persons are said to consent when they agree upon the same thing in the same sense.” (Consensus-ad-idem)
• Free consent means consent given by parties out of their free will. their own without any fear, without any force, without any compulsion or threat from the other party.
• As per Section14, consent is said to be free when it is not caused by

1. 1. Coercion
   2. Undue influence
   3. Fraud
   4. Misrepresentation
   5. Mistake

• In the absence of free consent, the contract is usually voidable at the option of the party whose consent is not free.

Question 22.Coercion
Answer:

• “It is the committing, or threatening to commit, any act forbidden by the Indian Penal Code (IRC), or the unlawful detaining, or threatening to detain any property, to the prejudice of any person, whatever, to cause any person to agree.”

Exceptions of coercion:

The following threats are not coercion-

1. Threat to file a suit,
2. Consent is given based on legal obligations,
3. Threat by workers,
4. Threat to detain property by mortgager.

Relevant Case Law:

Ram Chandra Vs. Bank of Kolhapur

It may proceed from any person and may be directed against any person or goods.

Question 23.Undue Influence
Answer:

• A contract is said to be induced by ‘undue influence’ where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other.
• It has the following two elements:
  • A dominant position,
  • The use of it to obtain an unfair advantage.
• A person is deemed to dominate the will of another if-
  • He holds a real or apparent authority over the other, or
  • He stands in a fiduciary relation to the other; or
  • He makes a contract with a person whose mental capacity is temporarily or permanently affected because of age, illness, or mental or bodily distress.
• Relationships that are presumed to have undue influence include:
  • Parent and Child
  • Guardian and Ward
  • Religious, Spiritual Guru, and Discipline
  • Doctor and Patient
  • Solicitor and Client
  • Trustee and Beneficiary
  • Ranee and Rancee
• A relationship where the dominant position is not presumed but has to be proved by the aggrieved party:
  • Creditor and Debtor
  • Landlord and Tenant
  • Husband and Wife.

Question 24.Fraud
Answer:

• Also known as wilful misrepresentation.
• Fraud means and includes any of the following acts committed by a party to a contract, or with his connivance or by his agent with intent to deceive another party thereto or his party, or to induce him to enter into the contract

1. 1. The suggestion, as to fact, of that which is not true by one who does not believe it is true,
   2. The active concealment of a fact by one having knowledge or belief of the fact,
   3. A promise made without any intention of performing it,
   4. Any other act fitted to deceive,
   5. Any such act or omission as to law is specially declared to be fraudulent.

Question 25.Misrepresentation
Answer:

• Where a person asserts something that is not true, though he believes it to be true, his assertion amounts to misrepresentation.
• Misrepresentation made by a person may be either

1. 1. Innocent, or
   2. Without any reasonable ground

• The aggrieved party can avoid the contract, but cannot sue for damages in normal circumstances,
• Its damages can be obtained in the following cases:

1. 1. From a director or promoter making an innocent misrepresentation in the company’s prospectus.
   2. From an agent committing a breach of warranty of authority
   3. A person who has made a certain statement in the Court, relying upon which a party has suffered damages, is stopped by the Court from denying it.
   4. Negligent representation made by one person to another between v/horn there exists a confidential relationship.

Question 26.Mistake
Answer:

• It refers to miscalculation or judgmental error by both or either of the parties.
• It must be a “vital operative mistake.”
• When both parties to an agreement are under a mistake to a matter of fact essential to the agreement, the agreement is altogether void.
• A unilateral mistake means a mistake on the part of only one party.
• Unilateral Mistake is not void.

Question 27. Mistake as to the identity of a person operates if
Answer:

• Identity is of material importance to the contracts, and
• A mistake is known to the other person.
• The following conditions need to be fulfilled, for the mistake to be void:
  • The fact is material to the agreement.
  • There is a mistake of fact.
  • Both parties are at mistake.

Question 28.Transaction with Pardanashin women
Answer:

• It means complete seclusion.
• Women fixing and collecting rent from tenants and communicating business matters with men other than their family members are not pardanashin women.
• It is founded on equity and good conscience.
• A person entering into a contract with pardanashin women has to prove that:

1. 1. no undue influence was used
   2. she had free and independent advice
   3. she fully understood the contents of the contract
   4. she exercised her free will
   5. She has been given a special cloak of protection by law

Question 29. Agreement Expressly Declared Void
Answer:

• Certain agreements have been expressly declared void by the Contract Act.
• They are void ab initio.
• It includes:

1. Consideration up awful in part (Sec.24)

• “If any part of a single consideration for one or more objects, or any one or any part of any one of several considerations for a single object, is unlawful, the agreement is void.”
• Where the legal part of a contract can be severed from the illegal part, the bad part may be rejected and the good one can be retained”
• Where the illegal part cannot be severed, the contract is altogether void.

2. Agreement the meaning of which is uncertain (Sec. 29)

• An agreement, the meaning of which is not certain, is void but where the meaning thereof is capable of being made certain, the agreement is valid.

3. Wagering Agreement (Sec. 30)

• Wager means ‘bet’.
• They are ordinary betting agreements.
• It refers to an agreement between two parties by which one promises to pay money or money’s worth on the happening of some uncertain event in consideration of the other party’s promise to pay if the event does not happen.
• Such an agreement is void.
• If one of the parties has control over the event, the agreement is not a wager.
• Though wagering contracts are void, transactions incidental to wagering transactions are not void.

Contract Basic Concepts Short Note Question And Answers

Question 1. Write Short Notes on the Counteroffer;
Answer:

A counteroffer is a new offer Suppose A offers to make in response to an offer made earlier, s house to B for INR10.0 lacs, and B offers to buy B would be called a Counteroffer. In general, the offer is the same for the counteroffer as well.

Question 2. Write a short note on Lawful consideration
Answer:

Question 3. Write short notes on the following E – E-contracts
Answer:

E-Contracts:

Electronic contracts are paperless contracts. It is in electronic form. It is the change of technology and legal requirements that lead the contract to be in electronic form.

• An E-contract is a contract modeled, specified, executed, and deployed by a software system.
• They are conceptually very similar to traditional commercial contracts. E-contract also requires the basic elements of a contract.

The following are the ingredients of the e-contracts:

• An offer is to be made;
• Offer is to be accepted;
• There shall be a lawful consideration;
• There shall be an intention to create legal relations;
• The parties must be competent to contract;
• There must be free and genuine consent;
• The object of the contract must be lawful;
• There must be certainty and possibility of performance.

Question 4. Write a short note on out of the following term Undue Influence.
Answer:

Undue Influence :

• When two parties enter into a contract with each other and one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other party, such contract is said to be induced by ‘undue influence’.
• If a person has a dominant position over another person and enters into a contract with such person then the burden of proof that the contract was not done under undue influence, is on the person holding the dominant position.
• A person is said to be having a dominant position if.
  • He makes contact with a person who is not of sound mind because of age, illness, mental instability bodily distress, etc.
  • He holds some control over the other person
  • He holds some monetary obligation over the other person.

Question 5. Write short notes on the Agreement without consideration
Answer:

Agreement without consideration:

Section 25 provides that an agreement made without consideration is void unless:

1. It is in writing and registered: It is expressed in writing and registered under the law for the time being in force for the registration of documents and is made on account of natural love and affection between parties standing in a near relation to each other; or unless
2. It is a promise to compensate for something done: It is a promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor, or something which the promisor was legally compellable to do; or unless
3. It is a promise to pay a debt, barred by limitation law: It is a promise, made in writing and signed by the person to be charged therewith, or by his agent generally or specially authorized on that behalf, to pay wholly or in part a debt of which the creditor might have enforced payment but for the law for the limitation of suits.
4. In any of these cases, such an agreement is a contract.

Question 6. Write a short note on the following term Misrepresentation
Answer:

Misrepresentation : (Section 18 of the Indian Contract Act, 1872) Where a person asserts something that is not true, though he believes it to be true, his assertion amounts to misrepresentation. Misrepresentation may be either innocent or without reasonable grounds.

Misrepresentation means and includes:

1. The 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;
2. Any breach of duty which, without an intent to deceive, gains an advantage to the person committing it, or anyone claiming under him, by misleading another to his prejudice or the prejudice of anyone claiming under him;
3. Causing, however innocently, a party to an agreement to make a mistake as to the substance of the thing which is the subject of the agreement.

Question 7. Write Short Notes on Coercion
Answer:

Coercion: The term “Coercion” has been defined in Section 15 of the Indian Contact Act, 1872 as the committing or threatening to commit, any act forbidden by the Indian Penal Code, or the unlawful detaining, or threatening to detain, any property, to the prejudice of any person whatever, to cause any person to agree.

Explanation: It is immaterial whether the Indian Penal Code is or is not in force in the place where the coercion is employed.

• From the above definition of coercion given in section 15, consent is said to be caused by coercion, when it is obtained by any one of the following;
• Committing or threatening to commit any act forbidden by the Indian Penal Code;
• Unlawful detaining or threatening to detain the property of another person. Coercion may come from a person party to the contract or even a third person not connected with the contract directly.

Contract Basic Concepts Descriptive Question And Answers

Question 1. Comment on the following based on legal provisions: (b) Remaining silent concerning the known defects is fraudulent.
Answer: The statement is false. Silence is not a fraud. Silence may be treated as fraud if it leads to a breach of trust between the two parties.

Question 2. State the essentials of a valid contract.
Answer:

A legal relationship is an imperative (means important, basic, essential) component of the agreement. Some certain conditions and ingredients make an agreement enforceable by law and make this a valid contract as per the Law of Contract. These elements are described below:

Question 3. A deceit that does not deceive is not fraud. Comment.
Answer: Fraud should exist to take action against it. If no one is deceived, there is no case of fraud. A fraud attempt is not fraud unless the party is deceived.

Question 4. While discussing, Rajib told his friends that Contracts need not be performed under certain circumstances. Deepak objected to it. State the correct position.
Answer:

Yes, it is possible. Sections 62 to 67 of the Contract Act are listed under the heading “Contracts which need not be performed. The relevant provisions are as follows.

1. If by mutual agreement there is Novation, Rescission, or Alteration, the original contract need not be performed (Sec. 62).
2. Where the promisee waives or remits the performance of the promise made to him, wholly or in part, or extends the time of performance or accepts any other satisfaction for it (Sec. 63).
3. When a voidable contract is rescinded, the other party need not perform his promise (Sec. 64).
4. If the promisee neglects or refuses to afford the promisor reasonable facilities of the performance of his promise, the promisor is excused by such neglect or refusal as to any non-performance caused thereby (Sec. 67).

Under the Law of Contract, the following agreements need not be performed.

1. Unlawful consideration and object – Sec. 23.
2. Where the performance is unlawful or illegal – Sec. 56.
3. When performance becomes impossible.

Question 5. A patient in a lunatic asylum can also enter into a valid contract. State the position based on legal provision.
Answer: A person having a sound mind can enter into a valid contract. If a person is usually of unsound mind, who is at intervals of sound mind, may contract during those intervals when he is of sound mind

Question 6. Does silence amount to fraud?
Answer:

• When a party to a contract maintains silence over some of the facts relating to the contract, such silence may or may not amount to fraud depending upon the circumstances and facts of each case.
• Explanation to Section 17 of the Indian Contract Act, 1872, provides that mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud unless the circumstances of the case are such that having regard to them it is the duty of the person keeping silence to speak or unless silence itself is equivalent to speech.
• When the circumstances of a contract are such that a person should speak and he does not speak but keeps silent then such silence will be treated as fraud.

Exceptions to the General Rule:

The general rule that silence does not amount to fraud has the following exceptions:(In the following cases silence will amount to fraud)

1. When the parties stand in the fiduciary relationship (i.e., relationship of faith and trust, parent and child, etc.)’
2. Where silence is equivalent to speech.
3. Half Truth – It is worse than a blatant lie. Partial truthful disclosures may easily deceive the other party

Question 7. X buys from Y a painting that both believe to be work of an old masterpiece and for which X pays a high price. The painting turns out to be only a modern copy. Discuss the validity of the contract.
Answer:

The Contract is void as there is a mutual mistake of both the parties as to the substance or quality of the subject matter going to be the very root of the contract. In case of a bilateral mistake of essential fact, the agreement is void ab initio, as per Section 20 of the Indian Contract Act,1872.

Question 8. What are the essential elements of a valid acceptance?
Answer:

Question 9. Does silence amount to fraud? Explain which exceptions and types of silence amount to fraud.
Answer:

Fraud: [Sec. 17]

Explanation to Section 17 of the Indian Contract Act provides that mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud unless the circumstances of the case are such that having regard to them it is the duty of the person keeping silence to speak or unless silence itself is equivalent to speech.

Thus we can say that there is an exception to the rule that mere silence does not amount to fraud. These two exceptions are provided in explanation to Section 17 which we have already discussed above.

1. When there is a duty to speak.
2. Where silence is equivalent to speech.

However, in the following two types of cases, silence amounts to fraud, as held by the courts in various cases:

1. Where there is a change in circumstances: A representation may be true when made but with the passage of time or changed circumstances it may become false. Accordingly, this must be communicated to the other party otherwise it amounts to fraud.
2. When there is half-truth: Thus even when a person is not bound to disclose a fact he may be held guilty of fraud if he volunteers to disclose a state of fact partly. This is so when the undisclosed part renders the disclosed part false.

Question 10. What is the position of Minor’s agreement and the effect thereof?
Answer:

The position of Minor’s agreement and effect thereof is as under:

1. An agreement with a minor is void ab initio.
2. The law of estoppel does not apply against a minor. It means a minor can always plead his minority despite earlier misrepresenting to be a major.
3. In other words, he cannot be held liable on an agreement on the ground that since earlier he had asserted that he had attained majority.
4. The doctrine of Restitution does not apply against a minor. In India, the rules of restitution by minors are similar to those found in English laws.
5. The scope of restitution of contract by a minor was examined by the Privy Council in the Mohiri Bibi case when it held that the restitution of money under section 64 of the Indian Contract Act cannot be granted under section 65 because a minor’s agreement is not voidable but void ab-initio.
6. Similarly, no relief can be granted under section 65 as this section is applicable where the agreement is discovered to be void or the contract becomes void.
7. No Ratification on Attaining Majority – Ratification means approval or confirmation. A minor cannot confirm an agreement made by him during minority on attaining majority. If he wants to ratify the agreement, a fresh agreement and fresh consideration for the new agreement are required.
8. Contract beneficial to Minor – A minor is entitled to enforce a contract that is of some benefit to him.
9. Minority is a personal privilege and a minor can take advantage of it and bind other parties.
10. Minor as an agent – A minor can be appointed an agent, but he is not personally liable for any of his acts.
11. Minor’s liability for necessities – If somebody has supplied a minor or his dependents with necessities, the minor’s property is liable but a minor cannot be held personally liable.
12. A minor cannot be adjudged insolvent as he is incapable of entering into a contract.
13. Where a minor and an adult jointly agree with another person the minor is not liable and the contract can be enforced against the major person.

Question 11. Discuss the different modes of terminating the contractual relationship between the parties.
Answer:

When the rights and obligations created by a contract come to an end, the contract is said to be discharged. Discharge of contract means termination of the contractual relationship between the parties. The following are the different methods by which a contract is discharged:

1. Discharge by performance: Performance is the usual mode of discharge of a contract. Performance may be (i) actual performance or (ii) attempted performance. Actual performance is the fulfillment of the obligations arising from a contract by the parties to it, under the terms of the contract. Offer of performance is called attempted performance or tender of performance. A valid tender of performance is equivalent to performance.
2. Discharge by agreement: The parties may agree to terminate the existence of the contract in any of the following ways:
   1. Novation: Substitution of a new contract in place of the existing contract is known as “Novation of Contract”. It discharges the original contract. The new contract may be between the same parties or between different parties. Novation can take place only with the consent of all the parties.
   2. Alteration: Alteration means a change in one or more of the terms of the contract. In case of novation there may be a change of the parties, while in the case of alteration, the parties remain the same.
   3. Rescission: Rescission means “cancellation”. All or some of the terms of a contract may be canceled. Rescission results in the discharge of the contract.
   4. Remission: Remission means acceptance of a lesser performance than what is due under the contract. There is no need for any consideration for remission.
   5. Waiver: Waiver means giving up or foregoing certain rights. When a party agrees to give up its rights, the contract is discharged.
   6. Discharge by lapse of time: Every contract must be performed within a fixed or reasonable period. A lapse of time discharges the contract. The Indian Limitation Act has prescribed the period within which the existing rights can be enforced in courts of law.
3. Discharge by operation of law: A contract may be discharged by operation of law in the following cases:
   1. Death: In contracts involving personal skill or ability, death terminates the contracts. In other cases, the rights and liabilities of the deceased person will be passed on to his legal representatives.
   2. Insolvency: The insolvency of the promisor discharges the contract. The promisor is discharged from all liabilities incurred before his adjudication. ,
   3. Unauthorized material alteration: Material alteration in the terms of the contract without the consent of the other party discharges the contract. Changes in the amount of money to be paid, date of payment, place of payment, etc. are examples of material alteration.
   4. Merger: When the inferior rights of a person under a contract merge with superior rights under a new contract, the contract with inferior rights will come to an end.
4. Discharge by the impossibility of performance: Impossibility of performance results in the discharge of the contract. An impossible agreement is void because the law does not compel us to do impossible things.
5. Discharge by breach: Breach means failure of a party to perform his obligations under a contract. Breach brings an end to the obligations created by a contract.
   1. Instance: X and Y wanted to marry each other. Before the time is fixed for marriage, A goes mad. The contract becomes void.
   2. Termination of Contract: The proper way, in which the agreement could have been terminated is by issuing a notice to the plaintiff, calling upon them to complete the transaction within a particular time, failing which the contract will The treated as canceled.

The proper way of terminating the contract is cleared from what has been observed in “Narayana Swami Pillantiff. Dhanakodi Ammal”, that when the contract is for the sale of immovable property the vendor must give reasonable notice requiring the performance within a certain time.

Question 12. Discuss the remedies available the to buyer again the st seller for breach of contract.
Answer:

Remedies available the to buyer again the st seller for breach of contract (Section 57 to 60).

These are as under:

1. Suit for Damages for Non-Delivery: When the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may sue the seller for damages for non-delivery.
2. Suit for price: Where the buyer has paid the price and the goods are
   ‘ not delivered to him, he can recover the amount paid.
3. Suit for specific performance: When the goods are specific or ascertained, a buyer may sue the seller for specific performance of the contract and compel him to deliver the same goods.
4. Suit for Breach of Warranty: Where there is a breach of warranty by the seller, or where the buyer elects or is compelled to treat the breach of condition as a breach of warranty; the buyer cannot reject the goods. The buyer may –
   • set up the breach of warranty in extinction or diminution of the price payable by him, or
   • sue the seller for the damages for breach of warranty.
5. Repudiation the of contract before the due date: Section 60 provides that where either party to a contract of sale repudiates the contract before the date of delivery the other may either treat the contract as subsisting or wait till the date of delivery, or he may treat the contract as rescinded and sue for damages for the breach.
6. Suit for Interest: The buyer may recover such interest or special damages, as may be recoverable by law. He may also recover the money paid where the consideration for the payment of it has failed.

Contract Basic Concepts Practical Question And Answers

Question 1. Arun seeing a watch in Barun’s shop marked for sale for INR 1,0entersred the shop, places INR 1000 on the coun,ter and asks for the watch. Barun refused. Can Barun refuse to sell the watch? Give reasons.
Answer:

• No, Barun is not bound to sell the watch. Prilabelsbel’s article only amounts to an invitation to offer and not an offer.
• Placing $ 1,000 by Arun amounts to an that may or may not be accepted by Barun. [Ref. Pharmaceutical Society of Great Britain-Vs-Boots Cash Chemists Ltd, (1953) 1 Q. B. 401].

Question 2. Comment on the following based on legal provisions: Mr. Menon offered on 1st December 2012 to sell his house to Mr. Poison at IThirty-Fiveive Lakhs. Mr. Poison accepted by email on 2nd December, 2012 at 8 A.M. At 10 A.M. Mr. Poison sent a Fax revoking the acceptance. Both email (therefore acceptance) and Fax (therefore revocation) reached Menon at the same time. Hence this was valid.
Answer:

• When the letter of acceptance and letter of revocation of acceptance reaches the person at the same time, the effective letter will be that letter that the receiver opens first.
• In the given case, if Menon opens the letter of acceptance first, the contract would be treated as accepted.
• If Menon opens the letter of revocation (cancellation) first the contract would be treated as revoked (canceled).

Question 3. Comment on the following based on legal provisions: (a) Mr. A offers to buy Mr. B’s house on certain terms. Acceptance was to be sent by ‘B’ within 6 (six) weeks. B within one week sent a letter accepting the offer with an alteration of one term. A then withdrew his offer. B writes again within three weeks accepting the terms originally proposed by ‘A’. Hence this is a valid contract.
Answer:

• The original proposal of A was altered by B. This amounts to the death of the original proposal. B’s proposal is a counter offer which is to be treated as a fresh proposal.
• This is not a valid contract even if B agrees to accept the original terms because the original contract was dead when its terms were first altered.

Question 4. Referring to a quarrel and disagreement between husband and wife, the husband agreed to execute and register a document in favor of his wife to transfer one of his properties to his wife. Later, on husband refused. Whether wife can enjoy it?
Answer:

• The wife will not succeed because the contract is without consideration.
• If the transfer is without consideration but there is an existence of mutual love and affection, such transfer is valid in the eyes the of law.
• In the present case, the transfer is due to quarrels and arguments and is without consideration, this does not fulfill the essentials of a valid contract.

Question 5. Arun, Va, run and Tarun are part of the software business and jointly promise to pay INR 60,000 to Karun. Sometimes, Varun becomes insolvent, but his assets are sufficient to pay one-fourth of his debts. Tarun is compelled to pay the whole. Decide whether Tarun is required to pay the whole amount to Karun in the discharge of the ng joint prom.se.
Answer:

• According to Section 43 of Indian Contract A of ct,1872 when two or more persons make a joint promisee, the promisee may, in the absence of an express agreement to the contrary compel any one or more for such joint promisors to perform the whole of the promise.
• Further, if any one of two or more joint promisors maka es default in such contribution, the remaining joint promisors must bear the loss arising from such default in equal shares.
• Therefore, in this case, Tarun is entitled to receive INR 500one-fourth of Varun’s share of debt) from Varun’s assets and a balance of INR 27500 from Arun.

Question 6 W offered to sell his house to M for? 40 lakhs. M replied purporting to accept the offer and enclosed a cheque or? 20 lakhs. He also promised to pay the balance amount in twenty equal installments. Examine the validity of. the contract.
Answer:

• Conditional acceptance is no acceptance at all. Acceptance of an offer must be absolute and unqualified i.e., it must conform to the offer.
• An acceptance to be binding must be absolute and unqualified [Sec. 7(1)] in respect of all terms of the offer, whether material or immaterial, major or minor.
• In the case provided, the acceptance qualified; hence it would not result in a valid contract.

Question 7. W, the wife of H,’ who is a lunatic, purchases a diamond set of? 10 lacs from a jeweler on credit. Referring to the provisions of the Indian Contract Act, of 1872, decide whether the jeweler is entitled to claim the above amount from the property of H.
Answer:

• The problem relates to the provisions of quasi-contract. It is to be noted that minors, persons of unsound mind or lunate, and other disqualified ’ persons are incompetent to contract.
• But, under the provisions of Section 68 the of Indian Contract Act, 1872 “if  are supplied to a person, who is incompetent to contract, the supplier is entitled to claim the reimbursement from the estate of such person”,
• A supplier would also be entitled to recover the price of necessary supplies to the wives or children of the incompetent person, as he is legally bound to support them.
• Also, necessaries would mean ‘goods suitable to the condition in the life of such person’ and not luxuries.
• Again personal liability is not accrued for minors and lunatics; it is only their estate that would be liable. If there is no property nothing would be realizable.
• To establish his claim the supplier must prove not only that the goods were supplied to the person who was a minor or a lunatic, but also that they were suitable to his requirement at the time of sale and delivery.
• It is also to be noted that a person of unsound mind, who has intervals of sound mind can enter into a contract during such period.
• Thus the burden to prove that H is lunatic and he was of unsound mind when entered into the contract lies on the seller.
• In the given problem, the jeweler would not be entitled to the claim, as a diamond set worth? 10 lakhs for the wife of H, is not a necessity and is surely a luxury.

Question 8.

1. Abhay, a UG degree student was induced by his lecturer to sell his brand new car to the latter at less than the purchase price to secure more marks in the University examination. Accordingly, the car was sold. However, the father of Abhay persuaded him to sue his lecturer. State whether Abhay can sue the lecturer.
Answer:

• Yes, Abhay can sue his lecturer on the grounds of influence under the provisions of the Indian Contract Act, of 1872.
• A contract brought as a result of coercion, undue influence, fraud, or misrepresentation would be voidable at the option of the person whose consent was caused.
• As per Sec. 19-A when consent to an agreement is caused by undue influence, the agreement is a contract voidable at the option of the party whose consent was so caused.
• Any such contract may be set aside either absolutely or, if the party who was entitled to avoid it has received any benefit there-under, upon such terms and conditions as the Court may seem just.

2. Anita and Binita are friends, Binita treats Anita during Anita’s illness. Binita does not accept payment from Anita for treatment and Anita promises Binita’s son Sunit to pay him. 12,000. Anita being in poor circumstances is unable to pay. Sunit sues Anita for the money. Can Sunit recover?
Answer:

• No, Sunit cannot recover the money from Anita. The agreement between Sunit and Anita is not a contract in the absence of consideration. In this case, Sunit’s mother, Binita, voluntarily treats Anita during her illness.
• It is not a valid consideration because it is voluntary whereas consideration to be valid must be given at the desire of the promisor-void Section 2(d).
• The question now is whether this case is covered by the exception given in Section 25(2) which inter-alia provides.
• “If it is a promise to compensate a person who has already voluntarily done something for the promisor ”
• Thus as per the exception, the promise must be to compensate a person who has himself done something for the promisor and not to a person who has done nothing for the promisor.
• As Binila’s son, Sunit to whom the promise was made, did nothing for Anita, So Anita’s promise is not enforceable even under the exception.

3. Arvinda took a bet of? 20,000 with Bannerjee that a certain horse would win the race. Arvinda and Bannerjee are both residents of Kolkata. Arvinda borrowed? 20,000 from his friend Chatterjee for this purpose. Arvinda lost the bet and paid. 20,000 to Bannerjee. Can Chatterjee recover the loan amount from Arvinda? Give reasons. What would have been the difference had the transaction taken place in Ahmedabad between the parties residing there?
Answer:

• Yes, Chatterjee can recover the loan amount from Arvinda.
• The transaction between Arvinda and Chatterjee is a collateral transaction which is valid, though the main transaction between Arvinda and Bannerjee is void, being a wager.
• Had the transaction taken place in Ahmedabad, Chatterjee could not have recovered the loan as in Ahmedabad the wager transactions are illegal and a transaction collateral to it is also void on the grounds of illegality

Question 9. The father of a minor girl, Anu, agreed to her marriage with Vishal. Afterwards, Vishal refused to marry Anu. On attaining majority, Anu filed a suit against Vishal for damages for breach of promises to marry. Vishal contended that Anu could not enforce the contract as she was not a party to the agreement between him and Anu’s father. Is Vishal’s contention valid?
Answer:

• An agreement is made in connection with marriage, partition, or other family arrangements, and a provision is made for the benefit of some person.
• In such cases, a person, for whose benefit the provision is made in such family arrangements, can enforce the agreement even if he is not a party to it.
• It may, however, be noted that provision must be made for the benefit of the person who wants to enforce such marriage arrangements.
• No, Vishal’s consent is not valid.
• The marriage agreement or other family arrangements where a provision is made for the benefit of some person can be enforced by the beneficiary even if he is not a party to the same.

Question 10. X Father promised to pay his son Y a sum of? One lakh if Y (son of X) passed the CMA examination on the first attempt. Y passed the CMA examination on his first attempt, but X failed to pay the amount as promised. Y files a suit for recovery of the said amount. State along with reasons whether Y can recover the amount under the Indian Contract Act, 1872.
Answer:

• The problem asked in the question is based on the provisions of the Indian Contract Act, of 1872 as contained in Section 10.
• According to the provisions, there should be an intention to create a legal relationship between the parties.
• Agreements of a social nature or domestic nature do not contemplate legal relationships and as such are not contracts, that can be enforced.
• This principle has been laid down in the case of Balfour Vs. Balfour.
• Accordingly, applying the provisions and the ease decision, in the case Y cannot recover the amount of Rupees one lakh from X for the reasons explained above.

Question 11. A, aged 16 years, was studying in an engineering college. On 1 June 2015, he took a loan of ? 2 Lakhs from B for the payment of his college fees and agreed to pay by 31st July 2016. A possesses assets worth $ 20 Lakhs. On the due date, A fails to pay back the loan to B. B now wants to recover the loan from A out of his assets. Whether B would succeed? Decide, referring to the provisions of the Indian Contract Act, of 1872.
Answer:

• The problem in question is covered under the exceptions. As per Section 68 of the Indian Contract Act, 1872 a minor is not personally liable to pay the price of necessaries supplied to him or money lent for the purpose.
• This supplier or lender will be entitled to claim the money, price of goods, or services which are necessary suited to his condition of life provided that the minor has a property.
• The liability of the minor is only to the extent of the minor’s property. This type of contract is called a Quasi-contract and the right of the supplier/tender is based on the principle of equity.
• Hence, in the given case B will be entitled to recover the amount of loan given to A for payment of college fees from the property of A, the minor.

Question 12.A agreed to become an assistant for five years to B who was a doctor practicing at Chennai. It was also agreed that during the term of the agreement, A will not practice on his account in Chennai. At the end of one year, A left the assistantship of B and began to practice on his account. Referring to the provisions of the Indian Contract Act, of 1872, decide whether A could be restrained from doing so.
Answer:

According to the provisions of the Indian Contract Act, 1872, as contained – Section 27 any agreement through which a person is restrained from exercising a lawful profession or trade or business is void.

• But an agreement of service by which a person binds himself during the term of the agreement not to take service with anyone else directly or indirectly to promote any business in direct competition with that of his employer is not in restraint of trade.
• Therefore, ‘A’ cannot be restrained by an injunction from doing so.

Question 13. C is the wife of A. She purchased some sarees on credit from B. B demanded the amount from A. A refused. B filed a suit against A for the said amount. Decide in the light of provisions of the Indian Contract Act, of 1872, whether B would succeed.
Answer:

The agency may be created by a legal presumption; in a case of cohabitation by a married woman (therefore wife is considered as an implied married agent, of her husband).

If a wife lives with her husband, there is a legal presumption that a wife has the authority to pledge her husband’s credit for necessities.

• But the legal presumption can be rebutted in the following cases:
  1. Where the goods purchased on credit are not necessary.
  2. Where the wife is given sufficient money for purchasing necessaries.
  3. Where the wife is forbidden from purchasing anything on credit or contracting debts.
  4. Where the trader has been expressly warned not to give credit to his wife.
• If the wife lives apart for no fault on her part, the wife has the authority to pledge her husband’s credit for necessities.
• This legal presumption can be rebutted only in cases (3) and (4).
• In the Present Case: ‘B’ will succeed. He can recover the said amount from ‘A’ if sarees purchased by ‘C’ are necessary for her.

Question 14. Sunil, aged 16 years, was studying in a Medical College. On 1st March 2017, he took a loan of $ 3 lakhs from Anil for the payment of his college fees and agreed to pay by 31st May 2018. Sunil possesses assets worth $ 15 lakhs. On the due date, Sunil fails to pay back the loan to Anil. Anil now wants to recover the loan from Sunil out of his assets. Whether Anil would succeed? Decide, referring to the provisions of the Indian Contract Act, of 1872.
Answer:

1. According to Section 11 of the Indian Contract Act, of 1872, a person who is of the age of majority to the law to which he is subject is competent to enter into any contract. A person who has completed the age of 18 years is a major and otherwise, he will be treated as a minor.
2. Thus, Sunil who is a minor is incompetent to contract and any agreement with him is void [Mohori Bibi Vs Dharmodas Ghose 1903, 30 Cal, 539 (PC)].
3. Section 68 of the Indian Contract Act, 1872 however, prescribes the liability of a minor for the supply of the things which are the necessaries of life to him.
4. It says that though a minor is not personally liable to pay the price of necessaries supplied to him or money lent for the purpose, the supplier or lender will be entitled to claim the money/price of goods or services which are necessaries suited to his condition of life provided that the minor has a property.
5. The liability of the minor is only to the extent of the minor’s property.
6. This type of contract is called a Quasi-contract and the right of the supplier or lender is based on the principle of equity.
7. Hence, according to the above provision, Anil will be entitled to recover the amount of the loan given to Sunil for payment of the college fees from the property of the minor.

Question 15. Essential elements of a contract of bailment:
Answer:

1. Contract: The “first condition is that there must be a contract between the two parties for the delivery of goods. Such contract may be express or implied written or oral.
2. Delivery of Goods: This contract is for the delivery of some movable goods from one person (bailor) to another person (bailee) or his authorized agent. If the goods are immovable the contract will not be a contract of bailment.
3. Change of Possession: The possession of goods must be affected by such contract. Mere custody without possession is not a contract of bailment.
4. Purpose of Delivery: The delivery of the goods is for temporary purposes. It may be for safe custody, repair, carriage, or gratuitous use by the bailee.
5. Number of Parties: There are two parties tender such contract e.g., the bailor and bailee. The person delivering the goods is called the bailor and the person to whom the goods are bailed is called the bailee.
6. Right of Ownership: In a contract of bailment, the right of ownership remains with an owner (bailor) and is not changed. If the ownership is transferred, the contract will be a contract of sale and ’ is not of bailment.
7. Change of Form: If the goods bailed are altered in form by the bailee, such as cloth is converted into a shirt still, the contract is one of bailment.
8. Goods in Possession of Bailee: The delivery of the goods is not essential if the goods are already in the possession of the person who enters into the contract as bailee.
9. Redelivery of Goods: Under such contract, the goods are redelivered to the bailor or according to his directions upon the fulfillment of the purpose by the bailee.
10. Right of Reward: In a contract of bailment, both the parties bailor ‘ and the bailee can get a reward but it depends on the nature of the transaction.

Question 16. Anita and Sonali are friends, Sonali treats Anita during Anita’s illness. Sonali does not accept payment from Anita for treatment and Anita promises Sonali’s daughter Tania to pay her. 75,000. Anita being in poor circumstances is unable to pay.
Or
Tania sues Anita for the money. Can Tania recover? Offer your views based on provisions of the Indian Contracts Act, of 1872.
Answer:

No, Tania cannot recover the money from Anita. The agreement between Tania and Anita is not a contract in the absence of consideration.

In this case, Tania’s mother Sonali, voluntarily treats Anita during her illness.

• It is not a valid consideration because it is voluntary whereas consideration to be valid must be given at the desire of the promisor-void Section 2(d).
• The question now is whether this case is covered by the exception given in Section 25(2) which inter-alia provides.
• “If it is a promise to compensate a person who has already voluntarily done something for the promisor….”
• Hence as per the exception, the promise must be to compensate a person who has himself done something for the promisor and not to a person who has done nothing for the promisor.
• As Sonalfs daughter, Tania to whom the promise was made, did nothing for Anita, therefore Anita’s promise is not enforceable even under the. exception.