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MODELQUESTIONPAPER
CONTRACT
Unit 1
Q. 1
a.DefineContract.Describethevariousrequisites
ofavalidcontract.
Lawmeansa‘setofrules’whichgovernsourbehaviourand
relatinginacivilizedsociety.Oneshouldknowthelawtowhichheis
subjectbecause“Ignoranceoflawisnoexcuse”.
ContractsasdefinedbyEminentJurists
- “Everyagreementandpromiseenforceableatlawisacontract.”-
Pollock
- “AContractisanagreementbetweentwoormorepersons,which
isintendedtobeenforceableatlawandiscontractedbytheacceptance
byonepartyofanoffermadetohim bytheotherparty,todoorabstain
from doingsomeact”–Halsbury
- “Acontractisanagreementcreatinganddefiningobligation
betweentheparties”–Salmond
Contract 2 (h):-AnagreementenforceablebyLawisacontract.
Sec. 10 :-“Allagreementsarecontracts,iftheyaremade-byfree
consentoftheparties,competenttocontract,foralawfulconsideration
andwithalawfulobject,andnotherebyexpresslydeclaredtobevoid;”
ESSENTIALSOFAVALIDCONTRACT
Offer+acceptance=Promise+consideration=Agreement
EnforceabilitybyLaw=contract.
- Properofferandproperacceptancewithintentiontocreatelegal
relationship
Cases–AandBagreetogotoamovieoncomingSunday.A
doesnotturninresultinginlossofB’stime. B cannotclaim any
damagesfrom A,since theagreementtowatchamovieis
adomesticagreement,whichdoesnotresultinacontract.Incaseof
socialagreement,thereisnointentiontocreatelegalrelationshipand
thereisnocontract(Balfourv.Balfour)
In caseofcommercialagreements,thelaw presumethatthe
partieshadtheintentiontocreatelegalrelations.
(anagreementofapurelydomesticorsocialnatureisnota
contract)
- Lawfulconsideration:-Consideration must notbe unlawful, immoral
oropposedtocontract.
- Capacity:-Thepartiestoacontractmusthavecapacity(Legal ability)tomakevalidcontact,
Section1 1 :-oftheIndianContractActspecifythateverypersonis
competenttocontract,provided,
(i) Isoftheageofmajority,accordingtotheLaw,whichheissubject;
and
(ii) Whoisofsoundmind;and
(iii) Isnotdisqualifiedfrom contractingbyanylaw towhichheis
subjectto.
Personofunsoundmindcanenterintoacontractduringhislucid
interval
Analienenemy,foreignsovereignsandaccreditedrepresentatives ofa foreignstate.
Insolventsandconvictsarenotcompetenttocontract.
- Freeconsent:-Consentofthepartiesmustbegenuineconsent, meansagreedupon samethinginthesamesensei.e.thereshould
Acontract maybeoralorinwriting.Whereaparticulartypeofcontract isrequiredbylaw tobeinwritingandregistered,itmustcomplywith necessaryformalitiesastowriting,registrationandattestation.Iflegal formalitiesarenotcarriedout,thenthecontractisnotenforceableby law. Example-Apromisetopayatimebarreddebt,mustbein writing. Agreementis a widerterm than contract,whereas,all contractareagreements,allagreementsarenotcontracts. Thusweseethat,anagreementmaybeormaynotbe, enforceablebylaw. Soallagreementsarenotcontracts. Onlythoseagreementsarecontracts,whichareenforceable by law. Hence we can conclude,“Allcontract are agreements,butallagreementsarenotcontract.” Contract=Agreement+enforceabilitybylaw.
b.Definetypesorclassificationofcontracts.
ExplaintheessentialsandrulesofvalidProposal
(Offer)withillustrations.
TypesorClassificationofContracts
- Valid-Anagreementwhichhasalltheessentialelementsofa
contract,iscalledavalidcontract.
- Void-(Section 2 (j)-Itisacontract,whichceasestobe
enforceablebylaw.Acontractwhenordinarilyenteredinto,maybevalid
orbindingontheparties;butitmaysubsequentlybecomevoid.
- Voidable-(Section2(i)-Anagreement,whichisenforceableby
law,attheoptionofoneormoreofthepartiesthereto,butnotatthe
optionofotherorothers,isavoidablecontract.
- IllegalContract-Acontractisillegal,ifitisforbiddenbylaworis ofsuchnaturethat,ifpermitted,woulddefeattheprovisionsofanylaw orisfraudulent;orinvolvesorimpliesinjurytoapersonorpropertyof another,orcourtregardsitasimmoraloropposedtopublicpolicy. Theseagreementsarepunishablebylaw.Thesearevoid-ab-initio.
“Allillegalagreementsarevoidagreementsbutallvoidagreementsare
notillegal”.
- UnenforceableContract–Whereacontractisgoodinsubstance,
butbecauseofsometechnicaldefect,cannotbeenforceablebylaw,is
calledUnenforceableContract.Thesecontractsareneithervoidnor
voidable.
Onthebasisofformation
a.ExpressContract
b.ImpliedContract
c.QuasiContract
Onthebasisofperformance
a.ExecutedContract
b.ExecutoryContract
c.UnilateralContract
d.BilateralContract
PROPOSAL– Sec 2 (a)-oftheIndianContractsAct,definesproposalas: onepersonsignifiestoanotherhiswillingnesstodoortoabstain
from doing
anything,withaviewofobtainingtheassentofthatothertosuchact
or
abstinence,saidtomakeaproposal.Theterm ‘proposal’is
equivalenttothe
term ‘offer’. Section2(b)defines“promise” Section2(c)defines“promisor”or“promisee” Section2(f)definesreciprocalpromises. The“proposal”acceptedbecomesa“promise”.Aproposal- 1 )Thepersonmakingitsignifieshiswillingnessordesiretoanother. 2 )Thiswillingnessistheexpressionofdesiretodoortoabstain from doingsomething. 3 )Objectoftheexpressionofthiswillingnessistoabstaintheassent ofthat
6 )Offermustbeaddressed:Anoffermustbeaddressedtotheworld atlargeortoaspecificperson.Anofferaddressedtotheworldis called“generaloffer”andanofferaddressedtoaspecificperson iscalled“specificoffer”.Anoffercannottakeeffectsoasto createabindingcontract,unlessanduntilithasbeenbroughtto theknowledgeofthe persontowhom itismade. 7 )Wordsorconduct:Anoffermaybemadebywordsofmouthorby writingoritmayevenbemadebyconduct.Amongthese3ways, theoffermadebywritingisconsideredalways,thebest.Anoffer whichismadebyconductiscalledan“impliedoffer”.Anoffer whichis expressedbywords,writtenorspokeniscalled“expressoffer”. (Section9oftheICA, 1872 ) 8 )Communication:Anoffermustbecommunicatedtotheofferee. Communicationmaybedoneinfollowingways:- i) Inperson:a)bywordsofmouth;b)bywriting;c)byconduct. ii) Bypost iii) Bytelephone iv) Bytelegraph v) Bytelex vi) Byinternet vii) Bye-mailwebsite viii) Byradioortelevision ix) Byfax x) BySMSetc.. 9 )Invitationtooffer:Invitationforofferisdifferentform oflegaloffer. Itisjustanenquiry.Themerestatementofpricesinacatalogue isanexampleofinvitationtooffer.Catalogueisnotanoffer.Itis an invitationtooffer.
Balfourv/sBelfour( 1919 )2KB5 7
Anoffermustbedistinguishedfrom invitationtooffer. Aprospectusissuedbyacompanyforsubscriptionofits sharesbythepublic,isaninvitationtooffer. Theoffermustnotcontainaterm,thenon-complianceofwhich,
maybeassumedtoamounttheacceptance.
Crossoffers:Where2partiesmakeidenticalofferstoeachother,in
ignoranceofeachother’soffer:theoffersareknownascrossoffersand
neitherofthe2canbecalledanacceptanceoftheotherandtherefore
thereisnocontract.
Q. 2
a.Aoutofnaturalloveandaffectionpromisesto
givehisson,BRs. 100 0underaregistered
document.Isitvalidcontract?
Yes
Itisavalidcontract/document
Itisenforceableunderthelaw
Reasons-Sec 2 (d)defines:consideration-somethingwhichisof somevalueintheeyeoflaw.
Itmayconsisteitherofsomerights,interest,profit,benefitgetting
accruingtoonepartyorsomeforbearance,detriment,lossor
responsibilitygiven,sufferedorundertakenbytheotherathisrequest.
Anagreementmadewithoutconsiderationisenforceableinthese
occasions.
Sec 25 - 1 )Promiseduetonaturalloveandaffection(Sec 25 ( 1 ))
“A”ismadeinfavourofnearrelationonaccountofnaturalloveand
affection,thesameisvalid,eventhoughtherewasnoconsiderationfor
suchapromise.Itislawfulandbinding.
i) Thepartiestotheagreementmustbestandinginanear relationshiptoeachother.Father–son
ii) Itismadeby“A”(Father)partyoutofnaturalloveand affectionfortheson“B”
iii) Thepromiseshouldbeinwritingandregistered.Hereitis registereddocument.
intoaGeneralOfferand SpecificOffer.
6 .Anoffercontainslegal requirements.
5 .Therearenosuchdivisions amongtheinvitationtooffer.
6 .Aninvitationtoofferdoes notcontainlegal requirements.
Unit 2
Q. 1
a.Whatisfreeconsent?Explaininbriefwhenthe
consentissaidtobefreeaccordingtoIndian
ContractAct, 1872?
Sec 13 :Twopersonshavesaidtohaveconsentedwhentheyagreeupon
samethinginthesamesense.InEnglishLawthisiscalled“ Consensus
adidem”
Effectofabsenceofconsent:Whenthereisnoconsentatall,the
agreementisvoid-an-initio.Itisnotenforceableattheoptionofeither
party.
Example 1 :Xhavetwocars,oneMaruticarandanotherisHondacar.Y
doesnotknowthatXhastwocarsYofferstobuyacaratRs. 50 , 000 /¬-
Herethereisnoidentityofmindinrespectofthesubjectmatter.Hence
thereisnoconsentatallandtheagreementisvoid-ab-initio.
Example 2 :Anilliteratewomansignedagiftdeedthinkingthatitwasa
PowerofAttorney–noconsentatallandtheagreementwasvoid-ab-
nitio(BalaDeviv/sManumdats)
FreeConsent
Consentissaidtobefree,whenitisnotcausedby(Section1 4 )
a. Coercion(Section 15 ) b. Undueinfluence(Section1 6 ) c. Fraud(Section1 7 )
d. Misrepresentation(Section1 8 ) e. Mistake(Section2 0 , 21 , 22 )
EffectofabsenceofFreeconsent:-Ifconsentiscausedbycoercion,
undueinfluence,fraud,misrepresentation,thecontractisvoidableatthe
optionoftheparty,whoseconsentwasnotfree( 19 , 19 A)
Coercion(Section1 5 ) Force,compulsion,treatsofviolence,(Voidable) Duressismoreseverethancoercion
Essentialelementsofcoercion:-
a. Committinganyact,whichisforbiddenbytheIPC b. Threateningtocommitanyact,whichisforbiddenbytheIPC c. Unlawfuldetainingofanypropertyor d. Threateningtodetainanyproperty e. Coercionneednotnecessaryproceedfrom partytocontract f. Coercionneednotnecessarybedirectedagainsttheother contractingparty. g. ItisimmaterialwhethertheIPCisorisnotinforceatthetime orattheplace,wherethecoercionisemployed(BayofBengal Caption) h. Theconsentisobtainedbythreatofanoffenceandtheperson isforcedtogivehisconsent. i. Itismainlyofaphysicalcharacter j. Thefreedom ofwillisimpaired k. Itisofaviolentcharacter l. Theburdenofproofliesuponplaintiff m. Itmustbeutteredwiththeintentionofcausingplaintifftoenter intoanagreement Threattostrikeisnocoercion Compulsionoflawisnotcoercion
Effectofthreattofileasuit:-Athreattofileasuit(Whethercivilor
criminal)doesnotamountto coercion,unlessthe suitison false
charges.Threattofileasuitonfalsechargesisanactforbiddenbythe
IPCandthuswillamounttoanactofcoercion
Eg:-Ahusbandinducedhiswifetoenterintoacontractinthreatof
committingsuicide(Chikham AmmirjajuvSeshama)
Betweenthepartiestothecontract Onepartydominatetheotherparty VoidableorCourtsetaside Benefit-OrderoftheCourt-Back
- LandlordandTenant
- CreditorandDebtor
- HusbandandWife(otherthanPardanashin)
- PrincipalandAgent Itismoralorpsychologicalnature Thepersonindominatecharacterexploitstheweakerperson. Thecontractiseithervoidableorthecourtmayenforceitina modifiedform. Itisbetweenthepartiestotheagreement Unconscionablebargains. Urgentneedofmoney,nodistress Statutorycompulsion,nodistress. Sec30ofTheSpecificReliefAct, 1963 – Suchreliefisgrantedto restore,whichmayhavereceivedfrom theotherpartyandtomake anycompensationtohim,whichjusticemayrequire. Example:-A appliestoabankerforaloanatatime,whenthereis stringencyinthemoneymarket.Thebankerdeclinestomaketheloan excepttoanunusuallyhighrateofinterest.Aacceptstheloanonthese terms.Thisisatransactionintheordinarycourseofbusinessandthe contractisnotinducedbyundueinfluence. Example:-Aspiritualguruinducedhischelatodonateallhispropertyto theashram andsaidthat,inreturnofit,hewillcertainlygetsalvation. Thechela didthesame.Heldthat,thisacaseofundueinfluence,soitbecomes
void.
Fraud(Section1 7 ) SeeSection1 9 (Voidable) Theterm fraudmean,afakerepresentationoffactsmadewillfully witha viewtodeceivetheotherparty,dishonesttrict,criminaldeception.
- --Section1 7 - Fraudmeansanyactcommittedbyapartytothecontract orwithhisconnivanceorbyhisagentwithintenttodeceiveanother partytheretoorhis agentortoinducetoenterintocontract.
Contractsuberrimafides(Contractsofutmostgoodfaith) Silencedoesnotamounttoarepresentationandsocannotamountto
fraud.
EssentialsofFraud:-
a. Falsestatement,madeknowinglyorwithoutbeliefinitstruthor recklesslycareless,whetheritbetrueorfalse. Byapartytothecontract b. There mustbe representation – (An opinion,a statementof expression- doesnofraud) c. Therepresentationmustbefalse(Causetobelievesomethingthat isnot true d. Beforeconclusionofcontract e. Themisrepresentationmustbemadewillfully f. Themisrepresentationmustbemadewithaview todeceivethe other party g. Theotherpartymusthaveactuallybeendeceived. h. Theotherpartyhavesufferedaloss i. Thesuggestion,astoafact,ofwhat,whichisnottrue,byonewho doesnotbelieveittobetrue. j. Theactiveconcealmentofafactbyonehavingknowledgeor beliefof thefact k. Apromisemadewithoutanyintentionofperformingit. l. Anyotheractfittedtodeceive m. Anysuchactoromissionasthelaw speciallydeclarestobe
fraudulent.
Intentionallymisrepresentationistheessenceoffraud.
Thesuggestion,astothefactofthat,whichisnottruebyone,whodoes notbelieveittobetrue. Theactiveconcealmentofafactbyonehavingknowledgeorbeliefof
thefact.
Example-Asells,byauction,toB,ahorse,whichAsaysnothingtoB, abouttheunsoundnessofthehorse.ThisnotfraudinA.
- Astatementuntrueinfactmustbeuntrueinthebeliefofperson makingit
- A mereexpressionofopiniondoesnotamounttofraud,ifthe opinionishonestlyheld.
- Meresilenceisnofraud.
- Caveatemptor(Letthepurchasebeware). Itisthedutyofthe buyertobecareful,whilepurchasingthegoods.
misrepresentation Discoveringthetruthwithordinarydiligence Itneednotbemadedirectlytotheplaintiff.Itcanbemadetoa third person with the intention ofcommunicating itto the plaintiff,alsoamountstomisrepresentation. Itmaybe express bywords written in the form ofplans, drawings. Itmusthavecausedtheconsentoftheotherpartytocontract. Itrequiresuberrimafidesafiduciaryrelationshipexists. Itshouldhavebecomeuntrue.
EffectofMisrepresentation:- Rescission–Section 19 Remedy– Section 7 5 /Section 3 0 /Section 6 6 /Section 6 4 /Section 3 5 (SpecificReliefAct)
RighttoRescindcontract:- Can’tdo Discoveringthetruthwithordinarydiligence Giveconsentinignoranceofmisrepresentation Becomeawareofmisrepresentation,takesabenefit. Whereaninnocentthird party,beforethecontractisrescinds acquires consideration,someinterestintheproperty,passingunderthe contract. Wherethepartiescannotberestoredtotheiroriginalposition.
Righttoinsistuponperformance Ex–Unlikefraud,hecannotsuefordamages.
MISTAKE(Section2 0 - 22 ) (Void) MistakeErroneousBeliefaboutsomefacts Whereboththepartiestoanagreementareunderamistake,astothe matterofthefact,essentialtoanagreementandtheAgreementisvoid. MistakeofFact/MistakeofLaw-(Section2 1 ) Unilateral(Section2 2 ),Bilateral(Section2 0 ). Exception–Wherecontractisnotvalid(Void) Section2 0 – Agreementvoid,wherebothpartiesareundermistakeas tomatteroffact. Section2 1 – effectofmistakesastolaw. Section2 2 – contractcausedbymistakeofonepartyastomatterof
fact
Illustration Aagreestobuyfrom B,acertainhorse.Itturnsoutthatthehorsewas deadatthetimeofbargain,thoughneitherpartywasawareofthefact. Theagreementisvoid. The courtmay reform the contractand rectify the written instrument Ignorantiajurisnonexcusat(Ignoranceoflawisnotexcuse) Classificationofmistake:- 1 .Commonmistake 2 .Mutual mistake- subject matter/title/substance of thing/root/identity/price 3 .Unilateralmistake
Mistakeoffact 1 .Errorintheexpressionofcontract(Language) 2 .Errorwithregardtothenatureoftermsofthecontract 3 .Errormayrelatetoreasonorincause Mistakewithregardtothelawofthecountry Mistakewithregardtoforeignlaw Mistakewithregardtoprivaterights.
b.StatebrieflythevariousVoidAgreementsinthe
IndianContractActwithillustrations.
VOIDAGREEMENTS
Section2(g)–Anagreementnotenforceablebylawissaidtobevoid.
1 .Agreementunlawfulinparty(Section2 3 / 24 ) 2 .Agreementwithoutconsideration(Section2 5 ) 3 .Agreementinrestraintofmarriage(Section2 6 ) 4 .Agreementinrestraintoftrade(Section2 7 ) 5 .Agreementinrestraintoflegalproceedings(Section2 8 ) 6 .Agreementwhichisambiguousanduncertain(Section2 9 ) 7 .AgreementbywayofWager(Section3 0 ) 8 .Agreementtodoanimpossibleact(Section5 6 )
Agreementunlawfulinparty(Section2 3 / 24 )
1 .Agreementunlawfulinparty(Section2 3 / 24 )
Unlawfulagreements:-Section23defines–theconsiderationoran
objectofagreementislawfulunless:-
Forexample-Anagreementtolandmoneytoawomanin considerationof hergettingadivorceandmarryingthelender,isvoid.
Agreementinrestraintoftrade(Section2 7 )
Everyagreementbywhichanyoneisretrainedfrom exercisinga lawfulprofession,tradeorbusinessofanykind,istothatextent, void. Aim – avoidingcompetitionandhasmonopolistictendency Anagreementnottocarryonsomebusinessforaperiodof 3 yearsortoclosedownamillfor3monthsinayear,isvoid. Boththegeneralaswellaspartialrestraintoftradeisprimafacie, void.
EXCEPTIONS:
1 .Saleofgoodwill:-Apersonwithitsgoodwill,thesellerofthe business,maymakeanagreementwiththebuyer,nottocarryon thebusinessincompetitionwiththebuyer.Suchanagreement,if imposesareasonablerestrictionontheseller’srighttocarryon businessisvalid. 2 .ExceptionundertheIndianPartnershipAct, 1923 :- Section1 1 ( 2 ):Thepurposeisthatthepartnerswillnotcarryon theirownbusinessignoringthepartnershipbusiness.Suchan agreementisvalid. Section3 6 ( 2 ):Itmaybemadebetweentheoutgoingpartnerand theremainingpartners,whocontinuethebusinessofthefirm. Section5 4 :Itmaybemadeuponorinanticipationofthe dissolutionoffirm. Section5 5 ( 3 ):Whenapersonpurchasesthegoodwillofa business,hisinterestmaybeprotectedbyacovenantbytheseller ofgoodwill,thatthelatterwillnotcarryonbusinesssimilartothe onewhichhasbeensold. 3 .Restraintbyacontractofservice:Anagreementofaserviceunder whichanemployeeagreesthathewillserveaparticularemployer forcertaindurationandthathewillnotserveanyoneelseduring thatperiod,isvalid. 4 .Tradecombination:Sometradersandmanufacturerscombine togethertoeliminatecompetitionasbetweenthemselvesand makeagreementfixingminimum price,regulatingthesupplyof
goodsandputtingprofitsinacommonpoolanddivingthesame amongstthemselves. 5 .Solusagreements:Thesellerorthemanufacturersofacertain productmayagreethathewillapplythewholeofhisproducttoa particularsinglebuyeronlyorsimilarlyabuyermayagreethathe willpurchaseallhisrequirementsofacertaincommodityfrom a particularselleror manufactureronlyandoneelse;isvalid.
Agreementinrestraintoflegalproceedings(Section2 8 )
Section2 8 :AnAgreementabsolutelyrestrainingapartyfrom enforcing
hisrightsthroughacourtoflaw,oranagreementwhichplacesalimitas
totimewithinarightcanbeenforceableisvoid.
TwokindsofAgreementsarevoid.
1 .Agreementbyonepartyisabsolutelybarredfrom enforcinghis rightsthroughusuallegalproceedings 2 .Agreementwhichplacesatimeforenforcingarightthroughlegal proceedings.
AmbiguousanduncertainAgreements(Section2 9 )
Section2 9 :Whichisnotcertainorcapableofbeingmadecertain,are
void.Itis
necessarythatthereshouldbenoambiguityaboutwhatthatparties
intend.
Illustrations:‘A’agreestosellto‘B’ahundredtonsofoil.Thereis
nothingwhatevertoshowwhatkindofoilwasintended.Theagreement
wasvoidfor
uncertainty.
Agreementbywayofwager(Section3 0 )
EssentialsofWageragreement:
i. Thepartieshaveoppositeviewsregardinganuncertainevent.
ii. Therearechancesofgainorlosstothepartiesonthe determinationofthe eventonewayoftheother.
iii. Thepartieshavenootherinterestexceptwinningorlosingabet.
‘A’agreestopay‘B’Rs. 100 ,ifitdoesnotrainon 1 st January.Next
