Saturday, 21 July 2012

THE INDIAN CONTRACT ACT, 1872



THE INDIAN CONTRACT ACT, 1872

Q.1 Define a Contract. What are the Essential Elements of a Valid Contract?

A] Definition of Contract: A contract is an agreement to do or not to do an act.

Indian Contract Act defines a contract as an agreement, enforceable by law[Section 2(h)]

Contract = An agreement  + Its enforceability at law.

The two main elements of contracts are:

1. An agreement between two or more persons "To Do" or "Not to Do" something.

2. An enforceability of such an agreement at law i.e. personal rights and personal obligations created and defined by agreement must be recognized by law.

B) Essentials of a Valid Contract: All contracts are agreements but all agreements are not contracts. In order to become a contract, an agreement must satisfy following essential requirements:

1. Offer and Acceptance: For any contract there must be at least two parties, one of them making      the offer and the other one accepting it. The acceptance must be unconditional and absolute.

2. Consideration: Consideration means "something in‑return". It is a benefit moving from one party to another. Consideration need not always be in cash or in kind. It may be an act or promise to do or not to do something. It may be past, present or future. Consideration must be real and lawful.

3. Capacity of the Parties to Contract: The parties to an agreement must have the capacity at law to enter into a valid contract. Section 11 states that every person is competent to contract if-
a) he is of the age of majority,
b) he is of sound mind and
c) he is not disqualified from entering into a contract by any law, to which he is subject.

4. Free Consent: The contract must have been made with free consent of the parties. The parties must be ‘ad‑idem’ i.e. they must agree upon the same thing in the same sense at the same time.             There is absence of free consent if the agreement is induced by a) Coercion b) Undue Influence           c) Fraud d) Misrepresentation e) Mistake.

5. The Agreement must not be Expressly Declared to be Void: The agreements must not have been expressly declared to be void by any law in force in the country. Void agreement is not enforceable by law & they have no legal existence. For example a) Agreement in restraint of Trade       b) Agreement in restraint of Marriage c) Agreement in restraint of Legal Proceedings d) Agreement of Wager etc.

6. Writing and Registration: It is in the interest of the parties that the contract should be in writing. Sometimes it needs to be stamped and registered.

7. Legal Relationship: The parties entering into the contract must have the intention to create legal relationship. If there is no such intention the agreement will not result into a contract.

8. Certainty: The terms of the contract should be very clear. They must not be vague                        (not clearly expressed) or ambiguous (having two or more possible meanings).

9. Possibility of Performance: The performance must not be impossible. The contracts must be capable of being performed. Example- 'A' agrees with 'B' to discover treasure by magic and sharing of the treasure. This agreement cannot be enforced.

10. Lawful Object: The object of the agreement must be lawful i.e. neither fraudulent or forbidden by law, nor opposed to any public policy.

Q.2 Every contract is an agreement but every agreement is not a contract. Discuss.
According to Section 2(h) of Indian contract Act, a contract is an agreement enforceable by Law. An agreement in order to become a contract must be enforceable by law. Agreements, which do not fulfill the essential requirements of a contract, are not enforceable.

Thus when an agreement enables a person to compel another to do something or not to do something it is called a contract. Thus all contracts are agreements but all agreements are not contracts.

In order to become a valid contract an agreement must posses the following essential elements.

1) Offer and Acceptance                   
2) Consideration
3) Capacity of the Parties to contract              
4) Free Consent     
5) Writing and Registration                              
6) Legal Relationship
7) Certainty                                                          
8) Possibility of Performance
9) Lawful Object                                                 
10) The agreement must not be expressly declared to be void

Q.3 Discuss in detail the Types of Contracts.

Following are the different Types of Contracts-


1) Valid Contract: A contract which satisfies all the essentials of a valid contract is known as a valid contract. If one or more essential elements are absent, the contract becomes void, or voidable or illegal.

2) Void Contract: A void contract is that contract which is not enforceable by either of the parties to it. A void contract has no legal effect. A contract may be void from the very beginning or may be valid originally when it was formed but has subsequently became void due to change in circumstances.

3) Voidable Contract: A voidable contract is that contract in which free consent of one of the parties to it is not secured. For example, contracts caused by Frauds, Coercion, Mistake, Undue Influence, Misrepresentation, etc. Such contracts are valid till it is avoided by the injured party.

4) Unenforceable Contract: An unenforceable contract is that contract which cannot be enforced in  courts due to some technical defect, such as absence of writing, payment of inadequate stamp duty etc.

5) Illegal Contract: An illegal agreement is one the object of which is-
a) Fraudulent b) against the provisions of any law c) causes an injury or damage to any person or his property d) immoral or opposed to public policy.

6) Express Contract: In express contracts, the terms are stated in writing expressly.

7) Implied Contract: An implied contract is one which is the result of the conduct of the parties. For example when a person boards a public bus or drinks a cup of tea in a restaurant there is an implied contract and he has to pay the charges for it.

8) Executed Contract: An executed contract is that contract in which both the parties to the contract have performed their respective promises.

9) Executory Contract: An executory contract is that contract in which both the parties to it have yet to perform their promises.

10) Unilateral Contract: A unilateral contract is that contract in which only one party is required to perform his obligation.

11) Bilateral Contract: A bilateral contract is one in which both the parties are required to perform their obligations.

Q.4 Define Offer. What are Essentials of a Valid Offer?

A] Definition of Offer: According to Section 2(a) of Indian Contract Act, 1872, an offer or proposal is defined as when a Person signifies to another his willingness to do, or, to abstain from doing anything, with a view to obtain the assent of that other to such act, or, abstinence, he is said to make a proposal”.


A proposal is an offer. This offer may be express or implied. The words may be spoken or written.     E.g. “I want to sell my house to you for Rs.50,000” is an express offer. An implied offer is not made in words. E.g. a taxi‑driver sitting in the taxi with the meter flag “For Hire” on, is an implied proposal by taxi‑driver that he intends to carry passengers in his taxi.

The first part of the definition explains that the offer must be signified or communicated to the other person. The second part explains that the proposals must be made with an intention to get the acceptance of the other party. The person who makes the proposal is called "Promisor" and the person who accepts the proposal is called "Promisee". If the other person accepts the proposal it becomes a valid contract.

B] Essentials of a Valid Offer:

The following are the rules / essentials of a valid offer.

1. The offer must be Certain: The offer must be certain, clear, specific and definite. The offer must not be based on a condition, which is uncertain or incapable of performance.

2. The offer may be Express or Implied: Offer made in words, spoken or written is an express offer. Offer made by conduct is an implied offer.

3. Offer must be made with an Intention to Legally Bind each other: A proposal must be made with an intention to legally bind each other. If there is no such intention to legally bind each other, the agreement will not result into a contract. Example: A invites B to a dinner party, B promised but does not attend the dinner party. In this case A can not sue B for breach of contract.

4. Offer must be Communicated: A proposal must be communicated to the person or persons, for whom it is made. Until the proposal is communicated, promisee cannot accept it.

5. The Proposal must be made to a Definite Person: By definite person means to a specific individual person or to a definite class of persons or to the world at large. When an offer is made to a definite person or definite class of persons it is called as a special offer. When an offer is made to the world at large it is called as a general offer.

6. How long does an Offer Remain Open: An offer remains open until:

  • It has been accepted or
  • It has been rejected or
  • It has been revoked (withdrawn) or
  • It has been lapsed (passage of time)

7. Until when can an Offer be Accepted: An offer can be accepted until:

  • It has been revoked
  • It has been lapsed.





Q.5 Distinguish between Offer and Invitation to Offer.

An offer must be distinguished from an invitation to offer. Many statements which appear to be offers are not really offers but merely invitations to offers. For example:
1)       Quotations of prices
2)       Prices printed on the goods for sale
3)       Catalogue of goods or books
4)       Advertisements for tenders
5)       Advertisements for auctions etc.
are not offers but invitations to offers. In these cases it is the purchaser who makes the offer and its upto the trader or dealer to accept or reject the offer.


Example: A shopkeeper displays in his shop an article with a lable marking “Price Rs.500”. In this case the person who enters his shop & demands the article is really the proposer & it is upto the shopkeeper to accept or reject the offer. The same rule is applied to Quotations, Catalogues & Price Lists.

An offer when accepted becomes an agreement on the other hand an invitations to offer when accepted becomes only an offer.

Q.6 What is Acceptance? What are the rules regarding Valid Acceptance?

A] Definition of Acceptance: According to Section 2(b) of Indian Contract Act, 1872,           when a person, to whom a proposal is made, signifies his assent thereto, the proposal is said to be accepted. A proposal when accepted becomes a promise”.

The person making the proposal is called promisor & the person accepting it is called the promisee.

B] Essentials of a Valid Acceptance:

1. Who can accept an Offer: An offer can be accepted only by the person or persons to whom it has been made. When an offer is made to a person it can only be accepted by him. When it is made to a class of persons, it can be accepted by any member of that class. Finally, if a proposal is made to the world at large, it can be accepted by any person or persons in the world.

2. Acceptance of an offer must be Absolute & Unconditional: Acceptance of proposals with condition or variations is no acceptance at all. Acceptance must be absolute & unconditional.

3. Acceptance must be made within a Reasonable Time: If the proposer has prescribed the time limit for the acceptance of an offer, acceptance is not legally binding. However, if no time limit is prescribed by the proposer, the acceptance must be made within a reasonable time.

4. Mode of Acceptance: Acceptance must be made in some usual & reasonable manner. That is, by -

a) express written words b) express spoken words c) conduct d) post / telegram e) prescribed manner if any

5. Mental Acceptance is No Acceptance at All: Mere uncommunicated or mental acceptance is no acceptance. Acceptance of the offer must be communicated by the Offeree to the Offeror in some way.

6. Acceptance must be Communicated to the Offeror: Acceptence must be communicated to the offeror only and not to his agent or friend.

7. Acceptance of an Offer is Acceptance of all its Terms: Acceptance of an offer is the acceptance of all the terms even if the Offeree is ignorant of some of the terms of the offer.

8. Act done without the knowledge of the Offer is no Acceptance: If the act is done without the knowledge of the offer it is no acceptance of the offer because to an uncommunicated offer there can be no consent.


Q.7 What is Consideration? What are the rules of Consideration?

A] Definition of Consideration: According to Section 2(d) of Indian Contract Act, 1872,      When, at the desire of the promisor, the promisee, or, any other person, has done, or, abstained from doing, or, does, or, abstains from doing, or, promises to do, or, to abstain from doing something, such act, abstinence, or, promise is called a consideration for the promise”.

Consideration is based on the term quid-pro-quo’ which means something in return’.                When a person makes a promise to other, he does so with an intention to get some benefit from him. This act to do or to refrain from doing something is known as consideration.

B] Essentials of a Valid Consideration:

The following are the essentials of valid consideration:

1. A Consideration must move at the Desire of the Promisor: The first essential of consideration is that the act or abstinence must have done at the desire of the promisor. It follows that any act performed at the desire of the third party cannot be a consideration.

2. A Consideration may be given by the Promisee or by any other Person: Under the Indian Law, it is not necessary that consideration must be given by a promisee only. Consideration may also be given by any other person. A contract is valid as long as consideration is given, whether by the promisee or any other person.
For E.g. Chinnayya v/s Ramaya ‑ In this case 'A' transferred certain property by deed of gift to her daughter 'B', with the condition that 'B' should pay certain annuity to 'A's brother 'C'. 'B' agreed to pay the annuity to her uncle 'C' in writing. Later on, she denied to pay it on the ground that no consideration had moved from 'C' to her (B). It was held that consideration might also move from any other person. Therefore ‘C’ was entitled to maintain a suit.

3. A Stranger to a Contract cannot Sue upon it: Under English Law, neither a stranger to a consideration can sue to enforce the contract nor a stranger to the contract can sue upon it even though the contract may be for his benefit. For example, if there is a contract between A & B, C cannot enforce it even though the contract may be for his benefit.

4. A Consideration may be Past, Present, or Future: The consideration may be past, present, or future. This is clearly indicated by the words, used in the definition of consideration given in the Act.

5. Consideration need not be Adequate: Consideration means "something in return" which need not necessarily be equal in value with "something given". The law simply provides that a contract should be supported by some consideration and the courts of law are not concerned as to its adequacy.

6. Consideration must be Real and not Illusory: Although the consideration may be inadequate, it must be real, competent, and must have some value in the eyes of law. It should be physically, legally possible to be performed. It should not be illusory.

7. Consideration must not be Illegal, Immoral or Opposed to Public Policy: Consideration must not be illegal, immoral, or opposed to public policy. Every agreement, of which the object or consideration is illegal, immoral, or opposed to public policy, is void under Section 23 of Indian Contract Act.

8. Consideration must be something, which the Promisor is not already bound to do.




Q.8 What are the Exceptions to the rule of Consideration?

A] No Consideration, No Contract: Consideration is one of the essential elements to support a valid contract. When a party to an agreement, promises to do something he must get 'something' in return. If he does not get something in return, the contract is not valid. This 'something' is defined as consideration. Therefore, an agreement without consideration is void and cannot become a contract.

B] Exceptions: Following are the exceptions to the rule ‘no consideration, no contract’:

1) An Agreement made on Account of Natural Love and Affection [Section 25 (1)]: When an agreement is made in writing and registered under the law, for the time being in force, for the registration of documents, and is made out of natural love and affection between parties standing in a near relation to each other, no consideration is required in such a case For E.g. An agreement between a father and his son or between a husband and wife.

2) A Promise to Compensate for Past Voluntary Services [Section 25 (2)]: When a promise is made 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, is enforceable at law, even though without consideration. E.g. A supports B’s infant son. B promises to reimburse A’s expenses. This is a contract.

3) A Promise to pay Time Barred Debt [Section 25 (3)]: A promise to pay the time barred debt, in whole or part is enforceable        provided it is in writing and is signed by debtor himself or his agent on his behalf. For E.g. A owes B Rs.1,000 but the debt is time barred. A signs a written promise to pay B     Rs.500 on account of the debt. This is a contract.

4) Creation of an Agency [Section 185]: No consideration is required to create an agency.

5)  Gift [Section 25]: According to Section 25, nothing shall affect the validity as between the donor and donee of any gift actually made.

Q.9 Write short note on Agreement in restraint of trade.

As per the Indian Contract Act, an agreement seeking to restrain (keep under control) a person from exercising a lawful profession, trade or business of any kind is void to that extent. The constitution of India has given a fundamental right to every citizen of India to practice any profession or to carry on any occupation, trade or business. Every agreement, which interferes with this fundamental right, is agreement in restraint of trade. All agreements in restraint of trade, whether the restraint is in general or partial or qualified of unqualified are void. But there are some exceptions to this rule as given below-


1) A seller of goodwill of a business may agree with the buyer to retain from carrying on a similar business, within specified limits as to territory and time so long as the buyer or his representative in title carries on a like business and the restraint appears to the court as reasonable.


2) The Indian Partnership Act permits contracts between partners to provide that a partner shall not carry on any business other than that of the firm while he is a partner.

3) A partner may make an agreement with his co-partners that, on ceasing to be a partner, he will not carry on any business similar to that of the firm within a specified period or within specified local limits and the agreements shall be valid if the restrictions are reasonable.


4) The partner of a firm may upon or in anticipation of the dissolution of the firm, make an agreement that some or all of them will not carry on a business similar to that of the firm within a specified period or specified local limits and such agreement shall be valid if the restriction imposed are reasonable.


5) A partner may upon the sale of the goodwill of a firm, make an agreement that such partner will not carry on any business similar to that of the firm within a specified period or within specified local limits and such agreement shall be valid if the restriction imposed are reasonable.

Q.10 Describe the law relating to Minor’s Agreement.

According to Section 3 of Indian Majority Act, a person becomes a major on completion of 18 years of age. Hence a person who has not completed his or her 18 years of age is known as a minor.

LAW RELATING TO MINORS AGREEMENT: All the rules related to minor's agreement are based on the fundamental that Law always protects the minors’.


The rules regarding minor’s agreement are as under-

1) A minor's agreement is void ab initio: In India an agreement with or by a minor is           void ab initio and inoperative as a minor has no capacity to enter into a contract. A minor is neither liable to perform what he has promised to do under a contract nor is he liable to repay money which he might have received under a contract.
Mohori Bibee V. Dhurmodas Ghose. In this case a minor executed a mortgage for Rs.20,000, out of which he received Rs.8,000 from the mortgagee. Subsequently, the minor sued for setting aside the mortgage. The mortgagee claimed refund of Rs.8,000 paid by him. The Privy Council held that a minor's agreement was absolutely void and the minor was not liable to return the money.

2) A Minor can be a Promisee or a Beneficiary: A minor cannot be bound by contract but he can be a lawful beneficiary. Thus a promissory note executed in favour of a minor can be enforced.

3) A minor's property is liable for necessaries: Under Section 68 of the Indian Contract Act, if a person incapable of entering into a contract, or anyone whom he is bound to support, is supplied by another person, with necessaries suited to his condition in life, the person, who has furnished such supplies is entitled to be reimbursed from the property of such person. It is to be noted that only minor's property is liable, minor is not personally liable for necessaries supplied to him.

4) No estoppel against a minor: The rule of estoppel is only a rule of evidence i.e. a rule of formal law. This rule is not applicable to minors.
A Minor who falsely represents himself to be a major and induces another person to enter into contract, can plead minority as a defence.

5) No subsequent ratification of a minor's agreement: Since a minor's agreement is void ab initio, a minor who has entered into an agreement during his minority cannot subsequently ratify (approve) the contract on attaining majority.
6) No specific performance of a minor's agreement: Neither the minor nor the other party can ask for the specific performance of a minor's agreement.

7) No insolvency for a minor: A Minor is incapable of contracting debts and hence he cannot be adjudged insolvent.

8) A minor can be admitted to the benefits of partnership: A minor cannot enter into an agreement of partnership, however with consent of all the partners he can be admitted to the benefits of partnership.

9) A Minor can act as an agent: A minor can become an agent, and by his acts he binds his principal; however a minor is not personally liable for his principal.

10) A minor cannot be member of a registered company:  This is because a minor is not competent to apply for membership.


Q.11 What is Consent? When Consent is said to be given under Coercion?

A) Consent: Acording to Section 13 of the Indian Contract Act ‘two persons are said to consent, when they agree upon the same thing in the same sense'.
Consent is said to be free when it is not caused by-
(a) Coercion (b) Undue influence (c) Fraud (d) Misrepresentation (e) Mistake

B) Definition of Coercion: Section 15 of the Indian Contract Act, 1872, defines coercion as -
Coercion is 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, with the intention of causing any person to enter into an agreement”.


E.g. A threatens to murder B if he does not sell his house to A, and B agrees to do so. The agreement is bought about by coercion. This agreement is voidable at the option of B.

C) Features of Coercion:

1. Coercion means (i) the committing or threatening to commit any act, which is forbidden by the     Indian Penal Code, or (ii) the unlawful detaining, or threatening to detain, any property.

2. Coercion may proceed from any person including a person, who is not a party to the contract.

3. The act or threat, which constitutes coercion, may be directed against any person and not necessarily against the other party to the agreement.

4. The act must have been actually committed to induce a person to enter into an agreement.

5. It does not matter whether the IPC is or is not in operation, in the place, where coercion is employed.

D) Consequences of Coercion:

Under Section 19, when a contract is brought about by coercion, it is voidable at the option of the party, whose consent was so caused. The aggrieved party has the following options-
      a) have the contract set aside, or
      b) refuse to perform it and defend it on the ground of coercion, or
      c) abide by the contract, if he so desires and insist on its performance by other party.
      d) Under Sec.72, if a person has paid money or delivered anything to another person, by mistake or under coercion, that money must be repaid or the thing received must be returned to him.

Q.12 Define Undue Influence & explain its effect on the validity of a contract.

A] Definition of Undue Influence:  According to Section 16(1) of the Contract Act a contract is said to be induced by undue influence where the relations between the parties are such that one of the parties is in a position to dominate the will of the other & uses that position to obtain an unfair advantage over the other”.


Section 16 (2) presumes some relationship where undue influence may be exercised:
1. When one party holds a real or an apparent authority over the other party.
Example- the relationship between employer and employee.


2. Where one party stands in a fiduciary relation to the other party to the contract. Fiduciary relationship means a relationship of mutual trust and confidence.                              
Example- parents and children, guardian and ward, solicitor and client                                                    

3. Where a person makes a contract with another person, whose mental capacity is temporarily affected by a reason of age, illness, or mental or bodily distress.

B] Consequences of Undue Influence:
An agreement which is caused by undue influence shall be voidable at the option of the party whose consent has been so obtained. Such an agreement may be set aside absolutely or if the party, who was entitled to set aside the contract, has received any benefit, the court may set it aside upon such terms and conditions as may appear to be just.

Q.13 Define Fraud. Explain its main Elements & Effects on the Agreement.

A] Definition of Fraud:

According to Section 17 of Indian Contract Act, 1872, 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 the intention to deceive another party, or, to induce a person to enter into a contract-

1. The suggestion, as a fact, of that which is not true by one who does not believe it to be true.

2. The active concealment of the fact by one who is 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 the law specifically declares to be fraudulent.

B] Constituent Elements / Essentials of a Fraud:

1. There must be a representation and it must be false. In order that the contract is called a fraud there must be statement of assertion about some fact, which is false.

2. The representation must relate to the fact. The statement or the representation must relate to an important fact, past or present.

3. The representation must be made before the conclusion of the contract and with the intention of inducing the other party to act upon it.

4. The party must have relied upon that representation, must have acted upon it and must have suffered a loss.

C] Effects of Fraud:

The person, who has been induced to enter into an agreement by fraud, has the following 3 remedies-

1. As the consent to the agreement is caused by fraud, the contract is voidable at the option of the party, whose consent is so caused.

2. The person, whose consent was so caused, can insist that the contract shall be performed and that he shall be put in the position in which he would have been, if the representation made has been true.

3. As fraud is a civil a wrong, compensation is payable, i.e. the aggrieved person can sue for damages.

D] Mere silence as to facts is not fraud:

Mere silence does not constitute a fraud. According to the explanation to Section 17 of the Indian Contract Act, 1872, “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, regard being had to them, it is the duty of the person keeping silence to speak, or unless his silence is, in itself, equivalent to speech”.

From the above explanation following 3 rules are given:

1. Mere silence is not a fraud.

2. Silence is fraudulent, where duty demands to speak.

3. Silence is fraudulent, where silence is equivalent to speech.


Q.14 Define & explain ‘Mistake’ under Section 20 of Indian Contract Act.

A] Definition of Mistake:

Mistake may be defined under Section 20 of Indian Contract Act, 1872, as "an erroneous belief about something". If the agreement is made under an erroneous belief it cannot be said that the parties enjoyed free consent i.e. both the parties shall understand the same thing in the same sense.

B) Elements of Mistake:

1.   Mistake must be bilateral. Unilateral mistake is no mistake.

2.   The mistake must be in relation to some fact.

3.   The fact concerned must be essential to the agreement.

4.   As regards mistake of law, if there is mistake of about Indian Law then it is not considered as a mistake of fact to an Indian. But a mistake of law of foreign country is a mistake of fact.

C) Effects of Mistake:

1.  If there is a mistake, the agreement is void. But as the mistake is subsequently discovered it is called discovered to be void.

2.   When an agreement is discovered to be void then any party who has received any benefit from the other party shall restore it to him or make compensation for it.

D) Classification / Types of Mistakes: Mistake may be mistake of law or mistake of fact:

1. Mistake of law: Mistake of law may be-

a) A mistake as to a law in the country (India) or

b) A mistake as to a law of foreign country.

2. Mistake of Fact: Mistake of fact can be divided as bilateral and unilateral mistake.


a) Bilateral Mistake:  According to Section 20 "where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement shall be void".

Various cases that fall under bilateral mistake are as follows:

  • Mistake as to the subject matter: Mistake as to the subject matter may be ‑ regarding existence of the subject matter, quality of the subject matter, quantity and price of the subject matter.

  • Mistake as to the possibility of performance: If the parties believe that the agreement is capable of being performed when in fact it is not the case, then the consent is nullified. The agreement is void on the ground of impossibility.

b) Unilateral Mistake: If the mistake is only unilateral, i.e. one party to the contract is                  under a mistake of fact, the contract is not voidable. Unilateral mistakes do not affect the validity of the contract unless they concern some fundamental fact and the other party is aware of the mistake.         An unilateral mistake may be:

  • Mistake as to the nature of the transaction: A contract shall be void if a party to the contract without any fault of his own makes a mistake about the very nature of the contract. It may be because of blindness, illiteracy, or servility of the person signing the contract or due to the trick or fraudulent misrepresentation as to the nature of the document.

  • Mistake as to identity of the contracting parties: The person or with whom the contract is to be made must be identified correctly by the other party. It is a fundamental mistake on the part of the other party not to recognise the correct person. The principle of the contract holds good only when the identity of the contracting party is given importance.


Q.15 Define Misrepresentation? Explain Consequences of Misrepresentation.

A] Definition of Misrepresentation:

The term misrepresentation means a false statement, made by a person who honestly believes it to be true or who does not know it to be false. It also includes non‑disclosure of a material fact or facts without any intent to deceive the other person.


According to the Section 18 of Indian Contract Act, 1872, misrepresentation means and includes      "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".


Positive assertion means an absolute full and clear statement of a fact.

B) Essentials of Misrepresentation:

1. It must be a misrepresentation of the material fact.

2. It must be made before the concluding of the contract to induce other party to enter into a contract.

3. It must be made with the intention that the other party acts on it.

4. The other party must have actually acted upon it.

5. It must be wrong i.e. the person making it must have believed it to be true.

C) Effects of Misrepresentation:

When a misrepresentation has been made, the victim has the following alternative courses open to him:

1. He can treat the contract voidable or

2. He may affirm the contract and insist on the misrepresentation being made good.

3. He may rely upon the misrepresentation as a defense to an action on the contract.

Q.16 Distinguish between Coercion and Undue Influence.

Coercion
Undue Influence
1. How Consent is Obtained
Consent is obtained by committing, or, threatening to commit an offence under I.P.C. or, by detaining or threatening to detain property unlawfully.
Consent is obtained by dominating the will of another person with a view to secure an unfair advantage.
2. Nature
Coercion is basically of physical nature.
Undue influence is mainly of moral/mental nature.
3. Burden of Proof
Burden of proof lies on the person, who alleges employment of coercion.
Burden of proof lies on the party, who is in a position to dominate the will of the other.



Q.17 Write a short note on Quasi Contracts?

Generally a contract comes into existence as a result of offer made by one party and its acceptance by the other party, with free will of both the parties. However under certain conditions even though no will is expressed by both the parties for creating contractual relations, the law creates and enforces legal rights and obligations. Such contracts are known as Quasi Contracts. The principle behind Quasi Contracts is that a person shall not be allowed to enrich himself at the expense of another.

Section 68 to 72 of the Contract Act deals with 5 different kinds of Quasi Contracts explained below:

1. Supply of Necessaries to Incapable Person (Section 68):

If a person incapable of entering into a contract, or anyone whom he is legally bound to support, is supplied by another person with necessaries, suited to his condition in life, the person who has furnished such supplies is entitled to be reimbursed from the property of such incapable person.
Example: A supplies B, a lunatic, with necessaries suitable to his condition in life. A is entitled to be reimbursed from B’s property.

2. Payment by Interested Person (Section 69):

A person, who is interested in payment of money, which another is bound by law to pay, and who therefore, pays it, is entitled to be reimbursed by the other.


Example: A holds land in Bengal on a lease. B is the owner of the land. The land revenue payable by B to the government is in arrears and therefore the government advertised the land for sale to recover the dues. To prevent the sale of land A pays the arrears of land revenue. In this case B is bound to reimburse the amount to A.

3. Payment for Non-gratuitous act (Section 70): 

Where a person lawfully does anything for another person or delivers anything to him not intending to do so gratuitously and such other person enjoys the benefit thereof, the later is bound to make compensation to the former in respect of, or, to restore the thing so done or delivered.

Example: A, a tradesman, leaves his good at B’s house by mistake. B treats the goods as his own and uses them. B is bound to pay for the goods.
4. Liability of Finder of Goods (Section 71):

A person who finds the goods belonging to another, and takes them into his custody is subject to same responsibility as a bailee. He must take reasonable care of the goods and keep them in sound condition and try to find out its true owner.

5. Payment of Delivery by Mistake or under Coercion (Section 72):

A person to whom money has been paid or anything delivered by mistake or under coercion must repay or return it.

Example: A and B jointly owe Rs.5,000 to C. A alone pays this amount to C. B not knowing this again pays Rs.5,000 to C. In this case C is bound to repay Rs.5,000 to B as this amount is paid to him by mistake.


18 Explain in detail Contingent Contracts.

A contingent contract is a conditional contract. Section 31 defines it as: a contract to do or not to do something, if some event, collateral to such contract does or does not happen.


Following are the main elements of contingent contracts:

1.         The performance of contingent contract depends upon the happening or non happening of some event in future.

2. The event must be uncertain

3. The uncertain event must be collateral to the contract.

Rules regarding Contingent Contracts:

1. The Happening of future uncertain event:

A contract contingent upon the happening of future uncertain event cannot be enforced unless and until that event has happened. If that event becomes impossible, then the contract becomes void.

Example: A makes a contract with B, to sell a car to B at a certain price, if C to whom the car has been offered, refuses to buy it. The contract can not be enforced unless & until C refuses to buy the car.

2. The Non Happening of an uncertain future event:

A contract contingent upon the non happening of a future uncertain event can be enforced only when the happening of that event becomes impossible and not before.

Example: A agrees to pay B a certain sum of money if a certain ship does not return. The ship is sunk. The contract can be enforced when the ship sinks.

3.  When Event is Deemed to be Impossible:

If a contract is contingent upon how a person will act at an unspecified time, the event shall be considered to become impossible when such a person does anything which renders it impossible that he should so act within any definite time, or otherwise than under future contingencies.

Example: A agrees to pay B Rs.10,000 if B marries C. C marries D. The marriage of B to C is now considered impossible, although it is possible that D may die and that C may afterwards marry B.

4. The Happening of an event within a Fixed Time:

A contract, which is contingent upon the happening of an event within a fixed time, becomes void if, at the expiration of the time fixed, such an event has not happened or if before the time fixed such event becomes impossible.

Example: A promises to pay B a sum of Rs.1,000 if a certain ship returns within one year. The contract may be enforced if the ship returns within one year and becomes void if the ship is sunk within a year.

5. The Non Happening of an event within a Fixed Time:

A contract contingent upon the non happening of an event within a fixed time, may be enforced when the time fixed has expired and such event has not happened, or, before the time fixed has expired, it becomes certain that such event will not happen.

Example: A promises to pay B a sum of Rs.10,000 if a certain ship does not return within a year.      This contract can be enforced if the ship does not returns within a year or is burnt or sunk within a year.

6. Contract contingent upon the Happening of an Impossible Event:

A contract contingent upon the happening of an impossible event is void whether the impossibility of the event is known or not to the parties, when the contract was formed.

Example: A agrees to pay B a sum of Rs.1,000 if B marries A’s daughter C. C was dead at the time of the agreement. The agreement is void.

Q.19 Explain in detail Agreements of Wager.

A wager is an agreement between two persons to the effect that, if a given uncertain event happens, one person shall pay a certain sun of money to the other and if the uncertain event does not happen, the other person shall pay to the first. The essence of wager is that one person is to win and the other is to lose, when the result of uncertain event is known.

According to Section 30 agreements by way of wager are void.


Example: A & B agree that if it rains on Monday A will pay Rs.100 to B, otherwise B will pay Rs.100 to A.

Essentials of Wagering Agreement:

   1) promise to pay money or money’s worth

   2) uncertain event which may be future event or past event

   3) each party must stand to win or lose

   4) no control over event

   5) no interest in the event

Exceptions of Wager:

   1) prizes for competitions

   2) share market transactions

   3) contracts of insurance

Q.20 Explain the various modes in which a contract can be discharged.

Discharge of contract means termination of contractual relationship between the parties. A contract is said to be discharged when the rights and duties created by it come to an end. A contract may be discharged by any of the following ways-

1) Discharge by Performance:


When both the parties to a contract perform their respective promises, the contract is discharged by performance. The performance must be complete, precise & according to the terms of the agreement.

2) Discharge by Agreement:


A contract is the result of an agreement. In the same way a contract can also be discharged by agreement in the following ways-

·   Novation: Novation means forming a new contract in place of the existing contract by the same or different parties.

Example: Ram owes Shyam Rs.5,000 under a contract. It has been agreed between Ram, Shyam and Ghanshyam that Shyam shall henceforth accept Ghanshyam as his debtor instead of Ram. In this case the contract between Ram and Shyam is replaced by contract between Shyam and Ghanshyam.

·   Alteration: Alteration means change in one or more of the terms of the contract. If the parties to the contract agree to alter it, the original contract need not be performed. Alteration is valid only if it is done with the consent of all the parties.

·   Remission: Remission means acceptance of lesser fulfillment of the promise made.
Example: A owes B a sum of Rs.5,000. B pays A Rs.2,000, and A accepts it in full settlement. In this case the whole debt is discharged.

·   Recission: Recission of the contract takes place when all or some of the terms of the contract are cancelled. Recission may be total or partial. Total recission is the discharge of the entire contract whereas partial recission is the variation of the original contract by altering only some of the terms of the contract.

3) Discharge by Lapse of Time:

According to Limitation Act, a contract should be performed within a specified period called as limitation period. If the contract is not performed, and no action is taken by the promisee within a specified time, the contract is discharged and the aggrieved party is deprived of legal remedy.

4) Discharge by Impossibility:

   i) Precontractual Impossibility:

            a) when a person has promised to so something which at the time of entering into contract is impossible to perform, the contract is void.

            b) if the fact of impossibility was known to the promisee only at the time of making of the contract then he must compensate the promisee for any loss suffered to the promisee due to non performance of the contract.

            c) where at the time of making of the contract, the fact of impossibility is unknown to all the parties to the contract, the contract is void on the ground of mutual mistake.

   ii) Post Contractual Impossibility:

When the contract is originally capable of being performed but later on due to change in circumstances its performance becomes impossible, the contract becomes void. It is also called as supervening impossibility. Supervening impossibility may occur in the following circumstance-

   a) By destruction of the subject matter.           
   b) By death or disablement of the parties.
   c) By change in law.                          
   d) By declaration of war.
   e) By change in the state of things.

5) Discharge by Operation of Law:


Sometimes a contract is terminated, even if the parties do not wish to terminate it. This is termination by operation of law.

Termination by operation of law may take place-

   a) By Death: Where the performance of the contract depends on the personal skill, quality or qualification of the promisor, the contract is discharged on the death of the promisor.

   b) By Insolvency: When a person is adjudged insolvent he is discharged from all liabilities incurred by him prior to his adjudication.

   c) By Merger: Merger takes place when an inferior right of a party merges into a superior right of the same party.

   d) By Unauthorised Alteration of Terms: If one party makes some alterations in the written agreement without the consent of the other party, then the other party can avoid the contract.

6) Discharge by Breach of Contract:

The breach of contract can be divided into 2 main types-

   a) Actual Breach of Contract: Actual breach of contract takes place when one of the parties to a contract fails to perform his promise, when the performance is due. For example A agrees to deliver certain goods to B on a certain date. A does not supply those goods on that date. This is actual breach of the contract.

   b) Anticipatory Breach of Contract: Anticipatory breach of contract occurs when a party to the contract declares his intention of not performing the contract, before the performance is due. For example,      A contracts to supply certain goods to B on 1st January. Just before this date, A informs B that he will not supply those goods. This is anticipatory breach of contract.


Q.21 Write a short note on Agreement in Restraint of Marriage.

Agreement in restraint of Marriage: According to Section 20, every agreement in restraint of the marriage of any person other than a minor is void. Such an agreement is considered to be opposed to public policy. The expression “restraint of marriage” means any restriction or limitation, imposed on individual's rights to marry.

Example:  'A' promised to marry 'B' only and none else and to pay 'B' a sum of Rs.2,000 if he married someone else. 'A' married 'G’. It was held that the agreement was void.

Q.22 Explain law relating to Agreement in Restraint of Legal Proceedings.

Agreement in restraint of legal Proceedings: According to Section 28 of Indian Contract Act, every agreement, by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceeding in the ordinary tribunals, or which limits the time within which he may thus enforce his rights, is void to that extent”.

Section 28 contains two points as under:

1. An agreement, which wholly or partially restricts the parties from having recourse to a court of law, is void to that extent, being opposed to public policy.

2. An agreement, which cuts the period of limitation, prescribed by the law of limitation, is void to that extent, as its object is to defeat the provisions of law.

Exceptions -

1. A contract by which two or more persons agree to refer future disputes arising out of the contract, to arbitration, is valid and binding.

2. A contract in writing, by which two or more persons agree to refer a pending dispute to arbitration, is not rendered illegal by Section 28.

It may be pointed out that Section 28 applies only to rights arising out of a contract. It does not apply to civil wrongs or torts.

Q.23 Explain the Doctrine of Frustration of contract.

Doctrine of Frustration: A contract, which was capable of being performed at the time, when it was entered into, may subsequently become impossible to perform because of some event or circumstances beyond the control of the parties, as a result of which, the performance becomes impossible or unlawful. This is known as the doctrine of supervening (subsequent) impossibility or the doctrine of frustration.
Supervening impossibility is of three types- physical, legal and frustration.

1) Physical Impossibility: The performance of a contract is made impossible by destruction of the specific thing essential to the performance of the contract.

2) Legal Impossibility: Here the performance of the contract is made legally impossible either by a change in the law or by operation of the law. The law may actually forbid the doing of some act undertaken in the contract. In legal impossibility the original contract becomes void.

3) Frustration: Here there is change of circumstances so that the very purpose or object of the contract fails to materialize. In Krell V/s. Henry, ‘H’ hired a room from ‘K’ for two days with the object              (both parties knew) of using the room for viewing the coronation procession of Edward VII. Due to the king’s illness, the procession was cancelled. It was held that, the contract was discharged and ‘H’ was not liable to pay the room rent, as the existence of the procession was the basis of the agreement.

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