Download contarct law question paper and more Summaries Law of Obligations in PDF only on Docsity!
MODEL ANSWERS NOV- 2018
1 st^ SEMESTER 3 YEARS LL.B
SUBJECT: CONTRACT-I
Duration: 2 Hours 30 Min Max Marks: 80 Unit 1: (a) Define offer. Explain the rules regarding to valid offer with the help of examples. Introduction: Every day we directly or indirectly enter into agreements for the purpose of carrying out various activities. Agreements can be for social/family or for legal relationships. An agreement entered for legal purpose which intends to have legal relationship can be termed as Contract. It is the Contract which is considered to be legally enforceable in the eyes of Law as per section 2(h) of the Indian Contract Act, 1872. Every Contract to be valid has to satisfy certain essential elements as laid down under the Contract Act, 1872. The first and foremost essential element for a valid Contract if- Meaning: An Offer is intimation by words or by conduct of a willingness to enter into a legally binding Contract. Definition: Section 2(a) of the Indian Contract Act, 1872 defines the term "Proposal" as follows: “when one person signifies to another his willingness to do or to abstain from doing something with a view to obtaining the assent of the other to such an act or abstinence, he is said to make a proposal”. The person making the 'proposal' or 'offer' is called the 'promisor' or 'offeror' and the person to whom the offer is made is called the 'offeree'.
Essentials of valid offer:
1. It may be express or implied: An offer may be made either by words or by conduct. An offer, which is made by words spoken or written, is called an express offer. The offer, which is made by the conduct of a person, is called an implied offer. Example:
- M says to N that he will sell his motorcycle to him for RS. 40,000. It is an express offer.
- A railway coolie carries the luggage of B without being asked to do so B allows him to do so. It is an implied offer.
- The new Khan Transport Company runs buses on different routes to carry passengers at the scheduled fares. This is an implied offer by the company. 2. It must create legal relation: The offer must be made in order to create legal relations otherwise, there will be no agreement. If an offer does into give rise to legal obligations between the parties it is not a valid offer in the eye of law. Example:
- A invites B to dinner B accept the invitation. It does not create any legal relations, so there is no agreement.
- A offers to sell his watch to B for Rs.200 and B agrees. There is an agreement because here the parties intend to create legal relations.
- Three friends joined to enter a newspaper competition and agreed to share any winnings. It was held the intended to create legal relations and their agreement was therefore a contract. 3. It must be definite & clear: An offer must be definite and clear, if the terms of an offer are not definite and clear, it cannot be called a valid offer. If such offer is accepted it cannot create a
- A announces in a newspaper a reward of Rs.1,000 for any one who will return his lost radio. It is general offer. 6. It must be communicated to the offeree: An offer is effective only when it is communicated to the offeree. If an offer is not communicated to the offeree it cannot be accepted. Thus an offer, which is not communicated, is not a valid offer. It applies to both specific and general offers. Example: A without knowing that a reward has been offered for the arrest of a particular criminal, catches the criminal and informs the police. A cannot recover the reward as he was not aware of it. 7. It should not contain negative condition: An offer should not contain a condition the non-compliance of which may be assumed as acceptance. An offeror cannot say that if acceptance is not communicated up to a certain date, the offer would be presumed to have been accepted. If the offeree does not reply, there is no contract, because no obligation to reply can be imposed on him, on the ground of justice no agreement because such condition cannot be imposed on the offeree. It is only a one sided offer. Example: A wrote to B offering to sell his book for Rs.500 adding that if he didn’t reply within 5 days, the offeree would be presumed to have been accepted. There is no agreement b/c such condition can’t be imposed on the offeree. It is only a one sided offer. 8. It may be subject to any terms & conditions: An offeror may attach any terms and conditions to the offer he makes. He may even prescribe the mode of acceptance. There is no contract, unless all the terms of the offer are accepted in the mode prescribed by the offeror. It must be noted that if the offeror asks for sending the acceptance by telegram and the offeree sends the acceptance by letter, and the offeror may reject such acceptance.
Example: A asks B to send the reply of his offer by telegram but B sends reply by letter, A may reject such acceptance because it is opposed to the prescribed mode of communication.
9. It must not contain cross offers: When two parties make similar offers to each other, in ignorance of each other’s such offers are called cross-offers. The acceptance of cross-offers does not result in complete agreement. Example: On 23 rd^ December 2007, A wrote B to sell him 100 ton of iron at Rs.10,000 per ton. On the same day, B wrote to A to buy 100 tons of iron at Rs.10,000 per ton. There is no contract between A & B because the offers wee similar and made in ignorance of the other and so there is no acceptance of each other’s offer. Conclusion: Therefore, Offer is very important element for starting a Contract. Offer should be clearly differentiated between invitation to offer. Offer is legal binding one whereas invitation to offer is merely an invitation. Quotations, catalogues of prices or display of goods with prices marked thereon do not constitute an offer. They are instead an invitation for offer and hence if a customer asks for goods or makes an offer, the shopkeeper is free to accept the offer or not. OR “All contracts are agreements are but all agreements are not contracts. Explain. I NTRODUCTION: No doubt it is a valid and true statement. Before critically discussing the statement, we must know the exact and basic meanings of the two terms contract
As per section 2 (e) of Contract At 1872: ” Every promise and every set of promises, forming the consideration for each other, is an agreement.” Thus it is clear from this definition that a ‘promise’ is an agreement. What is a ‘promise ‘? The answer to this question is contained in section 2 (b) which defines the term.” When the person to whom the proposal is made signifies his assent thereto the proposal is said to be accepted. A proposal, when accepted, becomes a promise.” An agreement, therefore, comes into existence only when one party makes a proposal or offer to the other party and that other party signifies his assent thereto. All agreements are not contracts: As stated above, an agreement to become a contract must give rise to a legal obligation. If an agreement is incapable of creating a duty enforceable by law. It is not a contract. Thus an agreement is a wider term than a contract. Agreements of moral, religious or social nature e.g., a promise to lunch together at a friend’s house or to take a walk together are not contracts because they are not likely to create a duty enforceable by law for the simple reason that the parties never intended that they should be attended by legal consequences on the other hand, legal agreements are contracts because they create legal relations between the parties. EXAMPLE: a- A Invites B to dinner. B accepts this invitation but does not attend the dinner. A cannot sue B for damages. It is social agreement because it does not create legal obligation. So it is not a contract. b- A promises to sell his car to B for one million. It is legal agreement because it creates legal obligations between the parties. So it is a contract. c- The leading case on this point is Balfour Vs Balfour case (1919).
According to section 10 of the contract act 1872, “All agreements are contracts if they are made by the free consent of the parties, competent to contract, for a lawful consideration and with a lawful object and not hereby declared to be void.” Thus an agreement becomes a contract when at least the following conditions are satisfied. 1 - free consent 2 - competency of the parties’ 3 - lawful consideration 4 - lawful object 5 - two or more parties 6 - Offer and Acceptance 7 - Intention to create legal relationship 8 - Certainty of meaning 9 - Possibility of performance 10 - Legal formalities Conclusion: In a nut shell, an agreement is the basis of a contract and contract is the structure constructed on this basis. An agreement starts from an offer and ends on consideration while a contract has to achieve another milestone that is enforceability. Due to this, breach of an agreement does not give rise to any legal remedy to the aggrieved party while breach of contract provides legal remedy to the aggrieved party against the guilty party. Thus we can say that all contracts are agreements but all agreements are not contracts. (b): In a self-service departmental store a customer picks up the article and takes into cash counter, cashier refuses to sell. Has the customer any right against the owner of the shop? In this case, the customer doesn’t have any right against the shop owner,
Contracts can be classified into five broad divisions namely
- The method of formation of a contract
- The time of performance of contract
- The parties of the contract
- The method of legality of the contract 1. The method of formation of a contract Under the method of formation of a contract may be three kinds Ø Express contract Ø Implied contract Ø Quasi contract Express contract: Express contract is one which expressed in words spoken or written. When such a contract is formal, there is no difficulty in understanding the rights and obligations of the parties. Implied contract: The condition of an implied contract is to be understood form the acts, the contract of the parties or the course of dealing between them. Quasi contract: There are certain dealings which are not contracts strictly, though the parties act as if there is a contract. The contract Act specifies the various situations which come within what is called Quasi contract. 2.The time of performance of contract Under the method of the time of performance of contract may be two kinds Ø Executed Contract Ø Executory Contract Executed Contract: There are contracts where the parties perform their obligations immediately, as soon as the contract is formed. Executory Contract: In this contract the obligations of the parties are to be performed at a later time.
3. The parties of the contract Under the method of the parties of the contract may be two kinds Ø Bilateral Contract Ø Unilateral Contract Bilateral Contract: There must be at last two parties to the contract. Therefore all contracts are bilateral or multilateral. Unilateral Contract: In certain contracts one party has to fulfill his obligations where as the other party has already performed his obligations. Such a contract is called unilateral contract. 5.The method of legality of the contract Under the method of the method of legality of the contract may be five kinds 1. Valid Contract 2. Void Agreement 3. Void able Contract 4. Unenforceable Agreement 5. Illegal Agreement Valid Contract: An agreement which satisfied all the essential of a contract and which is enforceable through the court is called valid contract. Void Agreement: An agreement which is failed to satisfied all or any of the essential element of a contract and which is not enforceable by the court is called void agreement. An agreement not enforceable by law is said to be void. A void agreement has no legal fact. It confers no right on any person and created no obligation. Example: An agreement made by a minor. Voidable Contract: An agreement which is enforceable by law at the open of one or more parties of the contract but not at the open of the other or others is a void able contract.
When there is no consent at all, the agreement is void ab-initio, i.e. it is not enforceable at the option of either party. Ex: X has one Maruti car and one fiat car. He wants to sell fiat car. Y does not know that X has two cars. Y offers to buy X's Maruti car Rs 50,000. X accepts the offer thinking it to be an offer for his Fiat car. Here, there is no identity of mind in respect of the subject of the subject matter. Hence there is no consent at all and the agreement is void ab-initio. Meaning of Free consent: It is one of the essential elements of a valid contract as it is evidenced by section 10 which provides that all agreements are contracts if they are made by the free consent of the parties... according to section 14, consent is said to be free when it is not caused by (a) Coercion, or (b)Undue influence, or (c) Fraud, or (d) Misrepresentation, or (e) Mistake. When there is consent but it is not free, the contract is usually voidable at the option of the party whose consent was so caused. Coercion (sec 15) It means compelling a person to enter into a contract, by use of physical force/activities forbidden by Indian penal code, or threatens to do activities forbidden by I.P.C, or threatens to damages the property. Effect of coercion: Voidable and can be canceled at the option of aggrieved party. OR A 'suicide and a 'threat to commit suicide' are not punishable but an attempt to commit suicide is punishable under the Indian penal code. Ex: X threatens to kill Y if he does not sell his house for Rs. 1,00,000 to X. Y sells his house to X and receives the payments. Here, V's consent has been obtained by coercion. Hence, this contract is voidable at the option of Y. If Y decides to avoid the contract, he will have to return Rs 1,00,000 which he had received from X. Undue Influence (sec 16)
The term 'undue influence' means dominating the will of the other person to obtain an unfair advantage over the other. According to section 16(1), a contract is said to be induced by undue influence where the relations subsisting between the parties are such that one of them is in a position to dominate the will of the other, and the dominant party uses that position to obtain an unfair advantage over the other. When two-partner are in relation, and one of them is dominant and other is in weaker position and dominant person takes undue-Advantage, then it is called "Undue- influence." Ex: Father and son, Teacher and student, Doctor and patient Effect of undue influence: 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. Fraud (sec17) The term 'fraud' means a false representation of fact made willfully with a view to deceive the other party. Fraud includes:
- Wrong suggestion about a fact, knowing that it is not-true; Ex: X sells to Y locally manufactured goods as imported goods charging a higher price, it amounts to fraud.
- Active concealment (Hide) of defect in goods: Ex: X a furniture dealer, conceals the cracks in furniture sold by him by using some packing material and polishing it in such a way that the buyer even after reasonable examination cannot trace the defect, it would amount to fraud through active concealment.
- Promise made without intention to perform: Ex: A farmer agrees to supply 100kg potato that will be produced by him out of his field, after three months. Two months has been lapsed, but the farmer neither implant seeds, nor does cultivation. This is case of fraud.
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. Essential elements of misrepresentation: By a party to a contract: The representation must be made by a party to a contract or by anyone with his connivance or by his agent. Thus, the misrepresentation by a stranger to the contract does not affect the validity of the contract. There must be a false representation and it must be made without the knowledge of its falsehood i.e. the person making it must honestly even it is to be true. "Innocent misstatement made into good faith OR without any intention to cause loss" E.g. A farmer says that his land is very productive and produces 100 quintal per acre. This is misrepresentation and buyer can cancel the contract. Effect of misrepresentation: Right to rescind the contract The party whose consent was caused by misrepresentation can rescind (cancel) the contract but he cannot do so in the following cases: where the party whose consent was caused by misrepresentation had the means of discovering the truth with ordinary diligence; where the party gave the consent in ignorance of misrepresentation; where the party after becoming aware of the misrepresentation, takes a benefit under the contract; where an innocent third party, before the contract is rescinded, acquires for consideration some interest in the property passing under the contract; where the parties cannot be restored to their original position. (b) Right to insist upon performance The party whose consent was caused by misrepresentation may if he thinks fit, 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 had been true.
Mistake (Section 20) A mistake is said to have occurred where the parties intending to do one thing by error do something else. Mistake is "erroneous belief" concerning something. Classification of Mistake of Law: (a) Mistake of Indian Law (In sense of penalty): The contract is not voidable because everyone is supposed to know the law of his country. e.g. disobeying traffic rules" (b) Mistake of Foreign Law(void-ab-initio): A mistake of foreign law is treated as mistake of fact, i.e. the contract is void if both the parties are under a mistake as to a foreign law because one cannot be expected to know the law of other country. Mistake of fact: Mistake of fact be either Unilateral mistake or Bilateral mistake.
- Unilateral mistake (section 22): The term 'unilateral mistake' means where only one party to the agreement is under a mistake. According to section 22, "A contract is not voidable merely because it was caused by one of the parties to it being under a mistake as to matter of fact."
- Bilateral mistake (section 22): The term 'bilateral mistake' means where both the parties to the agreement are under a 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 is void." thus, the following conditions must be satisfied before declaring a contract void under this section: Both the parties must be under a mistake Mistake must be of fact but not of law. Conclusion: Hence it is concluded that without free consent a contract cannot be enforced before the court of law. If there are any flaws in the contract, then the party who suffered loss due to it can terminate the contract.
These agreements are being discussed here. Agreements made by incompetent person: Section 11 of contract act deals with the competency of parties and provides every person is competent to contract. It is follows that the following persons are incompetent to contract i. Minor ii. Person of unsound mind iii. Person disqualified by any law to which they are subject. Contracts entered into by persons mentioned above are void. Illustration: Mohari bibi Vs Dharmo Das Ghose 1903. In this case the court was held that mortgage by a minor was void. Agreements made under Mistake of Facts: Agreement made under a mutual mistake as a matter of where both the parties to agreement are under a mistake as to a matter of fact essential to the agreement. Illustration: A agrees to purchase a house from B who is distant relation of his father, never knowing that he is the actual owner of the house. After getting registration of transfer deed in his favor he comes to know of his ownership of the said house but could not get back the consideration money from B. Agreements having unlawful objects and Consideration: The agreements declared as void if their object is unlawful. If either object or consideration of an agreement is unlawful then the agreement becomes void. Illustration: An agreement for sale or purchase of smuggled goods. An agreement to kill/harm someone.
An agreement to do immoral activities An agreement to publish a defamatory statement in newspaper etc. Agreement made without considered as Section 25: Every agreement to be enforceable at law must be supported by valid consideration. An agreement made without consideration is void and is unenforceable except in certain cases, section 25 specifies the cases where an agreement though made without consideration will be valid. Agreement in restraint of marriage: Agreements in restraint of marriage have been declared void u/s 26 of the Indian Contract Act since they are illegal. Sec. 26 states, “Every agreement in restraint of the marriage of any person, other than a minor, is void. This is because of the fact that every person has got a right as well as freedom of choice to marry. If an agreement is made interfering in this right, that is unlawful. Illustration: A promised to marry B only and none else, and in default to pay rupees 2000. But A Married C. B file a suit, here suit was dismissed on the ground that agreement was in restraint of marriage and so, void. Agreement in restraint of trade: Every person has a lawful right to do or adopt any lawful profession, trade or business. If any agreement is made to put restriction over this right, that shall be an infringement of his fundamental right and shall also be against Public Policy. This is why the Indian Contract Act has specifically declared such agreements void. Agreement in restraint of legal proceedings: 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 proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights, is void to that extent. Agreements to do impossible acts:
