#Business Law- (Important Questions-Unit1)

Class-B.com (Hons) 1-Sem

ANSWERS

#Que1): All Contracts Are The Agreement But All Agreements Are Not Contract?
Discuss The Statement And Explain The Essential Elements Of Valid Contract.
Ans):
#All Contracts Are Agreements- All Contracts Are Agreements As For The Formation Of A
Contract, An Agreement Is Always Necessary. There Cannot Be A Contract Where There Is No
Agreement. Without An Agreement, A Contract Cannot Be Formed. Therefore, All Contracts Are
Agreements.
#All Agreements Are Not Contracts- Only Those Agreements Become Contract Which
Gives Rise To A Legal Obligation. If No Legal Duty Is Enforceable By An Agreement, It Can
Never Be A Contract. And Hence Agreement Is A Broader Term Than Contract.
#Meaning Of Contract: Section 2 (H) Of The Indian Contract Act, 1872 Defines A Contract As An
Agreement Enforceable By Law. In Other Words, An Agreement Which Can Be Enforced In A Court Of
Law Is Contract. Rajeev Defines A Contract As An Agreement Creating And Defining Obligations between
The Parties. According To Pollock “Every Agreement And Promise Enforceable At A Court Of Law Is A
Contract.” Hence, A Contract Is An Agreement Between Two Or More Persons Which Is Intended To
Have Legal Consequences.
#There Are Two Elements Of A Contract-
#Agreement: According To Section 2 (E) Every Promise And Set Of Promises (Two Or More Promises)
Forming The Consideration For Each Other Is An Agreement. Promise Is Defined In Section 2 (B) In These
Words. 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. Therefore, Every Agreement Is
Composed Of A Proposal From One Side And Its Acceptance From The Other.
#Thus, Agreement = Offer Or Proposal + Acceptance Of Offer
The Agreement Must Give Rise To Legal Obligation, I.E.: It Should Be Enforceable By Law: Agreements
Creating Social, Religious Or Moral Obligations Are Not Contracts. All Contracts Are Agreements But All
Agreements Are Not Contracts. All Agreements Are Not Contracts. An Agreement May Or May Not
Create A Legal Obligation. If No Legal Binding Is Intended, A Contract Does Not Arise. Agreements Of
Moral, Religious Or Social Nature Are Not Contracts Because Parties Never Intend To Create Legal
Obligation. In Such Cases, No One Can Sue The Other Party In Case Of Default. On The Other Hand, All
Contracts Are Agreements Because For Making A Contract, There Must Be An Agreement Enforceable By
Law.
Essential Elements Of A Valid Contract Are:
 Offer And Acceptance: In Order To Create A Valid Contract, There Must Be An Agreement
Between The Two Parties. An Offer From One Party To Do Or Abstain From Doing A Particular
Act And Its Acceptance By The Other Party Are Two Basic Elements Of An Agreement. Both Offer
And Acceptance Should Be Lawful. The Offer Must Be Certain And Must Be Communicated To
 The Offerer. Similarly, Acceptance Must Be Absolute And Unconditional, It Must Be Given In The
Mode Prescribed And Should Be Communicated.
 Intention To Create Legal Relationship: There Should Be An Intention On The Part Of The
Parties To The Agreement To Create A Legal Relationship.
 Lawful Consideration: The Agreement Must Be Supported By A Lawful Consideration On Both
Sides.
 Parties Competent To Contract: The Parties To A Contract Must Be Capable Of Entering Into
A Valid Contract. According To Section 11, Every Person Is Competent To Contract If He (I) Is Of
The Age Of Majority, (Ii) Is Of Sound Mind, And (Iii) Is Not Disqualified From Contracting By Any
Law To Which He Is Subject.
 Free Consent: The Contract Must Have Been, Made With The Free Consent Of The Parties.
Consent Is Said To Be Free If It Is Not Induced By Coercion, Undue Influence, Fraud,
Misrepresentation Or Mistake.
 Lawful Object: The Object Of The Agreement Should Be Lawful And Not The One Which The
Law Disapproves.
 Not Expressly Declared Void: The Agreement Must Not Have Been Expressly Declared To Be
Void. There Are Certain Agreements Which Have Been Expressly Declared Void By The Indian
Contract Act, Like, Agreements In Restraint Of Marriage, Agreements In Restraint Of Trade Or
Agreements In Restraint Of Legal Proceedings, Agreements With Uncertain Meaning Etc.
 Certainty Of Meaning: The Meaning Of The Agreement Must Be Certain, Otherwise The
Agreement Will Not Be Enforceable By Law. For Example, If X Agrees To Sell To Y 500 Liters Of
Oil @ 50 Per Liter, The Agreement Is Not Enforceable As There Is Nothing To Show The Type Of
Oil Being Sold.
 Possibility Of Performance: The Act Contemplated In The Agreement Should Be Capable Of
Performance. An Agreement To Do An Act Impossible In Itself Cannot Be Enforced.
 Necessary Legal Formalities: The Prescribed Legal Formalities Of Writing, Registration Etc.,
Must Be Observed, Wherever Required.
#Que2): Distinguish Between Void And Voidable Contract.
Ans): Definition Of Void Contract-

A Void Contract Is A Contract Which Is Not Enforceable In The Court Of Law. At The Time Of
Formation Of The Contract, The Contract Is Valid As It Fulfills All The Necessary Conditions
Required To Constitute A Valid Contract, I.E. Free Consent, Capacity, Consideration, A Lawful
Object, Etc. But Due To A Subsequent Change In Any Law Or Impossibility Of An Act, Which
Are Beyond The Imagination And Control Of The Parties To The Contract, The Contract Cannot
Be Performed, And Hence, It Becomes Void. Further, No Party Cannot Sue The Other Party For
The Non-Performance Of The Contract.

The Contract Becomes Void Due To The Change In Any Law Or Any Government Policy For
The Time Being In Force In India. Along With That, The Contracts Which Are Opposed To
Public Policy Also Ceases Its Enforceability. Contracts With Incompetent Persons Are Also
Declared Void Like Minor, Persons Of Unsound Mind, Alien Enemy Or Convict, Etc.
 Definition Of Voidable Contract-

Voidable Contract Is The Contract Which Can Be Enforceable Only At The Option Of One Of
The Two Parties To The Contract. In This Type Of Contract, One Party Is Legally Authorized To
Make A Decision To Perform Or Not To Perform His Part. The Aggrieved Party Is Independent
To Choose The Action. The Right May Arise Because The Consent Of The Concerned Party Is
Influenced By Coercion, Undue Influence, Fraud Or Misrepresentation, Etc.

The Contract Becomes Valid Until The Aggrieved Party Does Not Cancel It. Moreover, The
Party Aggrieved Party Has The Right To Claim Damages From The Other Party.

Examples-

A Promises B To Sell His Horse After One Month To B For Rs. 50,000. Before The Completion
Of One Month, The Horse Died. Now, The Contract Becomes Void As The Contract Cannot Be
Performed, I.E. The Object On Which The Parties Agreed Is No More, So There Is An
Impossibility Of Performance Of The Contract. This Type Of Contract Is Known As Void
Contract.

X Says To Y, That He Should Sell His New Bungalow To Him At A Nominal Price Otherwise, He
Will Damage His Property And Y Enters Into A Contract Due To Fear. In This Situation, The
Contract Voidable As The Consent Of Y Is Not Free, So He Has The Right To Avoid The
Performance Of His Part. As Well As He Can Claim For Any Damages Caused To Him.

Comparison Chart-

Basis For
Void Contract Voidable Contract
Comparison

Meaning The Type Of Contract Which Cannot The Contract In Which One Of The Two Parties
Be Enforceable Is Known As Void Has The Option To Enforce Or Rescind It, Is
Contract. Known As Voidable Contract.

Defined In Section 2 (J) Of The Indian Contract Section 2 (I) Of The Indian Contract Act, 1872.
Act, 1872.

Nature The Contract Is Valid, But The Contract Is Valid, Until The Party Whose
Subsequently Becomes Invalid Due Consent Is Not Free, Does Not Revokes It.
To Some Reasons.

Reasons Subsequent Illegality Or Impossibility If The Consent Of The Parties Is Not Independent.
Of Any Act Which Is To Be Performed
In The Future.
 Basis For
Void Contract Voidable Contract
Comparison

Rights To Party No Yes, But Only To The Aggrieved Party.

Suit For Not Given By Any Party To Another Damages Can Be Claimed By The Aggrieved
Damages Party For The Non-Performance, But Party.
Any Benefit Received By Any Party
Must Be Restored Back.

#Que3): Define The Term Offer? Explain The Legal Rules Regarding Valid Offer.

Ans): Offer- According To Indian Contract Act, 1872 (Act No.9 Of 1872) “Offer” Is Define Under
Section 2(A): “When One Person Signifies To Another His Willingness To Do Or To Abstain From Doing
Anything, With A View To Obtaining The Assent Of That Other To Such Act Or Abstinence, He Is Said To
Make A Proposal”.

The Person Who Is Making The Proposal Is Called Offeror Or Promisor Or Proposer And The Person To
Whom The Proposal Is Made Is Called As Offeree Or Promise.

For Example, “A” Made An Offer To” B” To Buy The House. Here “A” Is The Offeror Or Promisor Or
Proposer And “B” Is The Offeree Or Promise

Essentials Of A Valid Offer-

1. Offer Must Be Communicated:-

Communication Of Offer Is The Most Primary Thing Which Is To Be Done For A Valid Offer. The Offeror
Must Communicate Offer To The Offeree. The Communication Can Be Either In Oral Or Written Form.
The Offer Can Directly Communicate To The Person Specific To Whom It Is Offered Or It Can Be In
General In Nature.

For Example: “A” Wants To Sell His Car And He Has Published An Advertisement In Newspaper Which Is
A Form To Communicate The Offer To General Public. Hence It Is A Valid Offer.

In Case Of Lalman Shukla V. Gauri Dutt: High Court Of Allahabad That Knowledge And Acceptance Of
A Proposal Must Be Communicated To People Are The Basic Essentials In Order To Constitute A Valid
Contract. The Person Can Claim Reward If He Gives His Consent And Perform The Terms Of The
Proposal.

2. Must Create Legal Relationship:-A Valid Offer Creates A Legal Relationship Which Means There
Must Be An Intention Of The Offeror To Work Under Legal Obligation Or To Be Legally Bounded By Law
Not Under Social Obligation.

For Example: “X” (Father Of Y) Says To “Y”, If He Pass The Exam He Will Get A New Video Game. “Y”
Passed The Exam Asked His Father To Give Him Video Game As He Had Promised To Y. Here X Is Not
Legally Bound As The Offer Doesn’t Create Any Legal Obligation Against X.
 In Case Of Balfour V. Balfour. They Were Married Couple. Husband Promised To His Wife To Send £30
Per Month. But Husband Failed To Do So. Then Wife Filed The Case Against Him And It Was Held That
There Was No Intention To Create Legal Relation. Thus The Agreement Was Not Valid.

3. Definite, Unambiguous And Certain In Nature:-

Offer Must Be Certain As Specified In [Section 29], It Must Be Unambiguous Means That The Thing
Offered Must Clearly Specified.

For Example: Mitesh Offered To Sell His Car To Tanmay. Mitesh Is Owned Two Cars One Is Of Ford &
Other Is Of Bmw And Mitesh Offered His Ford Car To Tanmay But Tanmay Thought Mitesh If Offering
Him His Bmw One. As In The Offer It Was Not Definite Which Car Mitesh Wants To Sell, Thus This Is Not
A Valid Offer.

4. It Must Distinguished From Invitation To Offer:-

The Offer Makes A Person To Enter Into A Legally Binding Contract Whereas Invitation To Offer Invites
The Person To Enter Into Contract.

For Example: A Suit Was Displayed With A Price Tag In A Shop. This Is Not A Offer It Is Invitation To
Offer.

5. It May Be General Or Specific In Nature:-

The Offer Can Be Given To Public At Large In General By Advertisement In Newspaper Etc. Or It Can Be
Given Specific Person Too.

6. Offer Must Be Made With A View To Obtain The Assent:- The Offeror Must Obtain Consent
Which Should Be “Free” In Nature As Define Under Section 14 As It Define It Should Not Be Taken Under
Coercion [Section 15], Undue Influence [Section 16], Fraud [Section 17], Misrepresentation [Section 18] &
Mistake [Section 20, 21 And 22].

OR

Essential Requirements Of A Valid Offer-

 It Should Be An Expression Of Willingness To Do Or To Abstain From Doing Something.

 It Must Be Made To Another Person. There Can Be No ‘Proposal’ By A Person To Himself.
 It Must Be Made With A View To Obtain The Assent Of That Other To Such An Act Or
Abstinence.

Legal Rules Regarding A Valid Offer:

# The Offer Must Be Capable Of Creating Legal Relationship: If The Offer Does Not Intend

To Give Rise To Legal Consequences, It Is Not A Valid Offer In The Eyes Of Law. Sometimes, Offers Are

Made Which Are Social In Nature. Such Social Agreements Do Not Make A Valid Contract Because In

These Cases The Intention Is Not To Form A Legal Relationship. It Is Very Important For A Valid Offer To
Intend To Give Rise To A Legal Relationship, Otherwise The Offer Is Not Considered Valid. In Business

Agreements, It Is Taken For Granted That Parties Intend To Create Legal Relationship.

# The Terms Of The Offer Must Be Clear, Definite And Certain And Not Loose Or

Vague: An Offer Must Be Definite And Certain. An Indefinite Or Vague Offer Cannot Be Accepted

Because The Courts, In Such Cases, Cannot Tell What The Parties Are To Do. The Intention Of The

Parties Must Be Very Clear, As To What They Intend To Do.

# An Offer Must Be Distinguished From A Mere Declaration Of Intention: Sometimes,

There May Be A Preliminary Discussion Or An Invitation By One Party To The Other To Negotiate Terms

Or Simply Declaration Of Intention. Such Declaration Merely Indicates That An Offer Will Be Made In

Future.

# An Invitation To Offer Is Not An Offer: An Offer Must Be Distinguished From An Invitation To

Offer. In The Case Of An ‘Invitation To Offer, The Person Making An Invitation Invites Others To Make An

Offer To Him. For Example, Quotations, Catalogs Of Prices Or Display Of Goods With Prices Marked

Thereon Do Not Constitute An Offer.

# An Offer Must Be Communicated To The Offeree: An Offer Must Be Communicated To The

Person To Whom The Same Is Addressed. Communication Of Offer Is Important To Conclude An

Agreement Because Acceptance Can Be Given Only After One Knows About The Offer. This Applies To

Both ‘Specific’ As Well As ‘General’ Offer. Section 4 States That Communication Of A Proposal Is

Complete When It Comes To The Knowledge Of The Person To Whom Is Made.

# An Offer Should Not Contain A Term The Non-Compliance Of Which Would Amount

To Acceptance: The Offeror Cannot Say That If The Offeree Does Not Communicate Acceptance By

A Certain Time Offer Would Have Been Deemed To Be Accepted. The Burden Of Communication Of

Rejection Of Offer Cannot Be Imposed On The Offeree. If The Offeree Sends No Reply, There Is No

Contract.

# Two Identical Cross-Offers Do Not Make A Contract: Where Two Parties Make Identical

Offers To Each Other, In Ignorance Of Each Other’s Offer, The Offers Are Known As Cross-Offers.
 ‘Cross-Offers’ Do Not Constitute Acceptance Of One’s Offer By The Other And As Such There Is No

Completed Agreement.

#Que4): Explain The Term Consideration And State The Exceptions To The Rule ʻ
No Consideration No Contract ʼ.

Ans): Consideration- In Common Parlance, Consideration Refers To Something Paid To

Someone In Return For Something Else. In Legal Terminology, It Can Be Understood As
The Price Or Compensation Which Has To Be Paid By The Promisee To The Promisor For
Doing Or Not Doing An Act. Consideration Is Necessary For A Valid Contract, In The
Absence Of Which A Promise Cannot Be Enforceable. It May Inhere Some Benefit, Right Or
Interest, To Be Received By The Promisor, Or Loss, Detriment, Or Obligation Causing To The
Promisee. Therefore, Consideration Can Be A Promise Or Performance Of An Act Which The
Parties To The Contract Exchange With One Another. It Is The Base Of A Contract.

A Promise Without Consideration Cannot Create A Legal Obligation. The General Rule Is That
An Agreement Made Without Consideration Is Void. This Rule Is Contained In Section 25 Of
The Indian Contract Act, Which Declares That ‘An Agreement Made Without Consideration Is
Void’. This Means That Consideration Is A Must In All The Cases. But This Section Provides
Certain Exceptions Where An Agreement Is Valid Even Without Consideration. These Cases
Are:

Agreement Made On Account Of Natural Love And Affection : An Agreement Without

Consideration Is Enforceable If, 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 Rove And Affection, Between The Parties Standing In Near Relation To Each Other.

The Following Conditions Must Be Satisfied For The Application Of The Exception:

 The Agreement Is In Writing

 It Is Registered.
 It Is Made On Account Of Natural Love And Affection
 It Is Between Parties Standing In Near Relation To Each Other.

Example: A, Out Of Natural Love And Affection, Promises To Give His Son B 5,000. A Puts

His Promise To B In Writing And Registers It. This Is A Valid Contract. The Expressions ‘Near

Relations’ And ‘Natural Love And Affection’ Have Not Been Defined In The Indian Contract

Act.
 However, The Expression ‘Near Relations’ Will Include Parties Related By Blood Or Marriage.

Some Kind Of Natural Love And Affection Is Also Implied. But Love And Affection May,

Sometimes, Be Overruled By External Circumstances.

For Example, In Rajlakhi Devi Vs. Bhootnath, Husband Promised To Pay His Wife A

Fixed Sum Of Money Every Month For Her Separate Residence And Maintenance. The

Agreement Was Contained In The Registered Document Which Mentioned Certain Quarrels

And Disagreements Between The Two.

The Court Refused To Hold The Agreement Valid As It Could Not Find Any Love And Affection

Between The Parties Whose Quarrels Had Compelled Them To Separate.

Agreement To Compensate For Past Voluntary Services: An Agreement Without

Consideration Is Enforceable, If It Is A Promise To Compensate Wholly, Or In Part) A Person

Who Has Already Voluntarily Done Something For The Promiser, Or Something Which The

Promiser Was Legally Bound To Do. Example: A Finds B’s Purse And Gives It To Him. B

Promises To Give Him 100. This Is A Contract.

In Order That A Promise To Pay For Past Voluntary Services Be Binding, The Following

Conditions Must Be Satisfied:

 The Services Should Have Been Rendered Voluntarily.

 The Services Must Have Been. Rendered For The Promiser And Not Anybody Else

Agreement To Pay Time-Barred Debt: According To This Exception, A Promise To Pay A

Time-Barred Debt Wholly Or In Part Is Enforceable If Such Promise Is In Writing And Signed By

The Debtor Or His Authorized Agent. A Time Barred Debt-Cannot Be Recovered And,

Therefore, A Promise To Repay Such Debt Is Without Consideration.

 The Following Conditions Must Be Satisfied For The Application Of This Exception:

 The Promise Should Be In Writing.

 It Should Be Signed By The Promiser Or His Authorized Agent.
 The Debt Must Be Time-Barred I.E., The Limitation Period For The Recovery Of The Debt
Must Have Expired
 There Must Be An Express Promise To Pay. It May Be To Pay Whole Or Part Of The Debt.

Completed Gift: The Gift Actually Made By A Donor And Accepted By The Done Will Be Valid

Even Without The Consideration. So In Case Of A Gift Actually Made, Consideration Is Not

Necessary.

Contract Of Agency: Section 185 Specifically States That No Consideration Is Necessary To

Create An Agency. Thus, When A Person Is Appointed As An Agent, His Appointment Is Valid

Even If There Is No Consideration. Although, Generally, An Agent Gets Remuneration By Way

Of Commission For The Services Rendered, But No Consideration Is Immediately Necessary At

The Time Of Appointment.

#Que5): Discuss The Suitable Illustration The Law Relating To Validity Of

Contracts By Minor.

Ans): Contractual Capacity - Section 11 Of The Contract Act, 1872 Explains The
Requirements Of Competency For Entering Into Contracts. Individuals Or Entities Can Create
Contracts Only If They Meet These Requirements. The Very First Such Requirement Is That Of
Majority Age.

The General Rule Of Contracts Is That Every Person, Whether Natural Or Artificial, Can Enter Into
Contractual Obligations. Section 11, However, Lays Down Certain Exceptions. For Example,
Minors, Persons Of Unsound Mind And Those Whom The Law Specifically Disqualifies Are The
Exceptions. The Rationale Behind Section 11 Is That All Parties To A Contract Must Be Competent
To Understand Their

Obligations. Since A Mature Mind Is Important For This Purpose, The Law Prohibits Agreement
With Minor Parties.This Is Because Minors Would Find It Difficult To Comprehend And Fulfil Their
Obligations. Hence, The Law Itself Prohibits Them From Creating Contracts.
Agreement With Minor Parties

Section 11 States That Only Persons Who Have Attained Majority According To The Law Are
Competent To Contract. Therefore, There Must Be A Law That Defines The Age Of Majority.

In India, The Indian Majority Act, 1875 Declares The Age Of Majority Of All Persons To Be 18
Years. If A Minor Has A Guardian Or Court Of Ward Looking After Him, His Age Of Majority
Becomes 21 Years. Hence, Any Contract With A Party Below The Age Of 18 Years Is Invalid As
Per The Act.

OR

A Minor Is One Who Has Not Attained The Age Of 18, And For Every Contract, The Majority Is
A Condition Precedent. By Looking At The Indian Law, Minor’s Agreement Is A Void One,
Meaning Thereby That It Has No Value In The Eye Of The Law, And It Is Null And Void As It
Cannot Be Enforced By Either Party To The Contract. And Even After He Attains Majority, The
Same Agreement Could Not Be Ratified By Him. Here, The Difference Is That Minor’s Contract
Is Void/Null, But Is Not Illegal As There Is No Statutory Provision Upon This.

A Very Important Case That Had Explained This Issue Is Mohiri Bibi V. Dharmodas Ghose. In
This Case, A Minor Had Borrowed Some Money From A Money-Lender By Mortgaging His House.

The Money-Lender Moved To Take Possession Of The Minor’s House When He Defaulted
Payment. The Court, However, Said Since An Agreement With Minor Parties Is Void, The Money-
Lender Could Not Enforce This Contract.

Indian Courts Have Repeatedly Used This Judgment To Abrogate Minors From Contractual
Obligations. Hence, Minors Cannot Enter Into Agreements Unless Some Legal Provisions Allow
Them.

For Example, A Minor Cannot Transfer Property As Per The Transfer Of Property Act. He Can,
However, Receive Property From Other Persons Under A Legal Contract.

Rules Relating To Agreement With Minor Parties

Although, As A General Rule, A Contract With Minors Is Void, We Must Keep In Mind The Following Rules As Well:

1) A Contract With A Minor Is Void And, Hence, No Obligations Can Ever Arise On Him
Thereunder.

2) The Minor Party Cannot Ratify The Contract Upon Attaining Majority Unless A Law Specifically
Allows This.
3) No Court Can Allow Specific Performance Of A Contract With Minors Because It Is Void
Altogether.

4) The Partnership Act Also Prohibits Minors From Becoming Partners In A Firm. They Can,
However, Receive The Benefits Of Partnership And Ratify The Same Upon Attaining Majority.

5) The Rule Of Estoppel Under Evidence Law Does Not Apply To Minors Under Contractual
Obligations. In Other Words, Even If A Minor Forms A Contract Claiming Majority Age, Legal
Obligations Cannot Arise Against Him.

6) Parents Or Guardians Of Minors Can Name Them In Contracts Only If It Benefits Them. But
Even In This Case, The Minor Cannot Be Personally Liable.

#Que6): Mere Silence As To Fact Is Not Fraud. Explain This Illustration.

Ans): "Fraud" Means And Includes Any Of The Following Acts Committed By A Party To A
Contract, Or With His Connivance, Or By His Agent1 , With Intent To Deceive Another Party
Thereto Of His Agent, Or To Induce Him To Enter Into The 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 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 The Law Specially Declares To Be Fraudulent.

Explanation.—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 2 , Or

Unless His Silence Is, In Itself, Equivalent To Speech.

Illustrations

(A) A Sells, By Auction, To B, A Horse Which A Knows To Be Unsound. A Says Nothing To B

About The Horses Unsoundness. This Is Not Fraud In A.
(B) B Is As Daughter And Has Just Come Of Age. Here, The Relation Between The Parties
Would Make It As Duty To Tell B If The Horse Is Unsound.
 (C) B Says To A—"If You Do Not Deny It, I Shall Assume That The Horse Is Sound." A Says
Nothing. Here, As Silence Is Equivalent To Speech.

(D) A And B, Being Traders, Enter Upon A Contract. A Has Private Information Of A Change In

Prices Which Would Affect B’s Willingness To Proceed With The Contract. A Is Not Bound To

Inform B.

#Que7): A Contract Caused By Unilateral Mistake May Be Valid, Voidable Or Void.

Explain.

Ans): Free Consent

According To Section 14 Of The Indian Contract Act 1857, Free Consent Is Defined As “Consent Is
Said To Be Free When It Is Not Caused By Coercion, Under Influence, Fraud, Misrepresentation,
And Mistake.” One Important Factor Of A Valid Contract Is Free Consent. Both The Parties Involved
In The Contract Must Enter The Contract Willingly And Under No Pressure

A Mistake Is An Erroneous Belief That Is Innocent In Nature. It Leads To A Misunderstanding

Between The Two Parties. Now When Talking About A Mistake, The Law Identifies Two Types Of
Mistakes, Namely

i. A Mistake Of Law

ii. A Mistake Of Fact

Mistake Of Fact-
Then There Is The Other Type Of Mistake, A Mistake Of Fact. This Is When Both The Parties
Misunderstand Each Other Leaving Them At A Crossroads. Such A Mistake Can Be Because Of
An Error In Understanding, Or Ignorance Or Omission Etc. But A Mistake Is Never Intentional, It Is
An Innocent Overlooking. These Mistakes Can Either Be Unilateral Or Bilateral.

Unilateral Mistake-

A Unilateral Mistake Is When Only One Party To The Contract Is Under A Mistake. In Such A Case
The Contract Will Not Be Void. So The Section 22 Of The Act States That Just Because One Party
Was Under A Mistake Of Fact The Contract Will Not Be Void Or Voidable. So If Only One Party
Has Made A Mistake Of Fact The Contract Remains A Valid Contract. However, There Are Some
Exceptions To This. In Certain Conditions, Even A Unilateral Mistake Of Fact Can Lead To A Void
Or Voidable Agreement.
Let’s See A Few Of These Exceptions Via Some Examples And Case Studies.

1. When Unilateral Mistake Is As To The Nature Of The Contract: In Such A Case

The Contract Can Be Held As Void. Let Us See The Example Of Dularia Devi V. Janardan
Singh. Here An Illiterate Woman Put Her Thumb Impression On Two Documents Thinking
They Were The Same. She Thought The Document Was To Gift Some Property To Her
Daughters. But The Other Document Was A Sale Deed To Defraud The Women Out Of
More Of Her Property. This Contract Was Held Void By The Courts

2. When The Mistake Is Regarding The Quality Of The Promise: There Was An
Auction Being Held By A To Sell Hemp And Tow. B Thinking The Auction Was Only For
Hemp, Mistakenly Bid For A Tow. The Amount Bid Was On Par For Hemp But Very High
For A Tow. Hence The Contract Was Held As Voidable.

3. Mistake Of The Identity Of The Person Contracted With: For Example, When A
Wants To Enter Into A Contract With B But Mistakenly Enters Into A Contract With C
Believing Him To Be B.

#Que8): Discuss The Doctrine Of Public Policy.

Ans): Doctrine Of Public Policy-

The Doctrine Of Public Policy, In The Context Of Arbitration, Entails That Not All Subject Matter
Of Dispute Between Two Or More Parties Can Be Subjected To Arbitration Owing To The
‘Public’ Nature Of The Subject Matter. In Other Words, If The Subject Matter Is Such That
Impacts Society At Large, Then, It Shall Not Be Allowed To Be Settled By A Tribunal
Constituted At The Whim Of The Contracting Parties And Shall Not Be Enforceable In Rem.
Matters Affecting The General Public Shall Be Decided By The Lawful Public Authorities Of The
Country, I.E. The Courts And Tribunal Constituted Under Statutory Authority, In Pursuance Of
The Interest Of Its Citizens And Furtherance Of National Law, Which May Or May Not Be In
Accordance With International Law. E.G. Disputes Relating To Fraud, Corruption, Crime,
Human Rights, Foreign Policy, Etc.

Article V (2) Of The New York Convention Of Recognition And Enforcement Of Foreign Arbitral
Awards, 1958, Gives The Signatory Countries Leeway To Not Enforce A Foreign Arbitral Award
If:

 It Is Found To Deal With A Subject Matter Which Is Not Arbitrable Under The Laws
Of That Country
 It Is Found To Be Contrary To Public Policy Of That Country
Sections 34 And 48 Of The Arbitration And Conciliation Act, 1996, Based On Article 34 Of The
Uncitral Model Law Also Provide For The Same Conditions. Section 23 Of The Indian Contract
Act, 1872, Encapsulates The Concept Of Public Policy As Follows:

“The Consideration Or Object Of An Agreement Is Lawful, Unless It Is Forbidden By Law; Or Is

Such A Nature That, If Permitted, It Would Defeat The Provisions Of Any Law, Or Is Fraudulent;
Or Involves Or Implies Injury To The Person Or Property Of Another; Or The Court Regards It
As Immoral Or Opposed To Public Policy. In Each Of These Cases, The Consideration Or
Object Of An Agreement Is Said To Be Unlawful. Every Agreement, Of Which The Object Or
Consideration Is Unlawful, Is Void”.

Section 68 Of The English Arbitration Act, 1996, Provides That An Award Can Be Set Aside In
Whole Or In Part On The Ground Of Serious Irregularity. Section 68(2)(G) States That “Serious
Irregularity Means An Irregularity Of One Or More Of The Following Kinds Which The Court
Considers Has Caused Or Will Cause Substantial Injustice To The Applicant: (G)The Award
Being Obtained By Fraud Or The Award Or The Way In Which It Was Procured Being Contrary
To Public Policy.” Setting Aside An Award Under Section 68(2) (G) Of The English Arbitration
Act, 1996, Has A Higher Threshold Than Under Article 34(B) (Ii) Of The Model Law. Recognition
And Enforcement Of Arbitral Awards: Emerging Trend

OR

In Private International Law, The Public Policy Doctrine Or Ordre Public (French: Lit. "Public
Order") Concerns The Body Of Principles That Underpin The Operation Of Legal Systems In
Each State. This Addresses The Social, Moral And Economic Values That Tie A Society Together:
Values That Vary In Different Cultures And Change Over Time. Law Regulates Behavior Either To
Reinforce Existing Social Expectations Or To Encourage Constructive Change, And Laws Are
Most Likely To Be Effective When They Are Consistent With The Most Generally Accepted
Societal Norms And Reflect The Collective Morality Of The Society.
In Performing This Function, Cappalli has Suggested That The Critical Values Of Any Legal
System Include Impartiality, Neutrality, Certainty, Equality, Openness, Flexibility, And Growth.
This Assumes That A State's Courts Function As Dispute Resolution Systems, Which Avoid The
Violence That Often Otherwise Accompanies Private Resolution Of Disputes. That
Is, Citizens Have To Be Encouraged To Use The Court System To Resolve Their Disputes. The
More Certain And Predictable The Outcome Of A Court Action, The Less Incentive There Is To
Go To Court Where A Loss Is Probable. But Certainty Must Be Subject To The Needs Of
Individual Justice, Hence The Development Of Equity.
A Judge Should Always Consider The Underlying Policies To Determine Whether A Rule Should
Be Applied To A Specific Factual Dispute. If Laws Are Applied Too Strictly And Mechanically, The
Law Cannot Keep Pace With Social Innovation. Similarly, If There Is An Entirely New Situation, A
Return To The Policies Forming The Basic Assumptions Underpinning Potentially Relevant Rules
Of Law Identifies The Best Guidelines For Resolving The Immediate Dispute. Over Time, These
Policies Evolve, Becoming More Clearly Defined And More Deeply Embedded In The Legal
System.

#Que9): What Is Wager? Is Any Agreement By Way Of Wager Void Or Illegal?

Ans): Agreements By The Way Of Wager-
The Word Wager Means Bet, It Is A Promise Between Two People To Pay Money Or Assets Previously
On The Basis Of The Outcome Of An Uncertain Event.

Agreements By Way Of Wager Are Void Under The Section 20 Of Indian Contract Act, 1872.

Agreements By Way Of Wager Are Not Enforceable By Law, And Hence Are Considered Illegal, However
The Indian Contract Act, 1872 Does Not Define Wager Or Agreements By Way Of Wager It Simply States
That Agreements By The Way Of Wager Are Void, And No Party Can Take An Action To File A Suit For
Recovery Of The Waging Amount In Any Form Of Court, Wagering Agreements Have Characteristics Of
Contingent Contract, But Cannot Be Enforced By Law Under Section 30.

According To Supreme Court Agreements By The Way Of Wager Are Void And Hence Illegal, But Not
Forbidden By The Law.

Essentials Of Agreements By The Way Of Wager:

There Are Four Basic Elements In Agreements By The Way Of Wager, They Are:

1. Different Views Of The Parties On An Uncertain Event:

Foremost Rule Is That Both The Parties Should Have Different Views On The Outcome Of The
Xyz Event.

Mutual Chance Of Gain/Loss:

The Agreement Would Not Be Considered A Wager If There Is Not The Possibility Of Both The
Parties Winning Or Losing. It Could Not Be Considered As A Wager If Only One Party Has The
100% Possibility Of Winning Or Losing

2. Neither Party Should Have Control Over The Outcome Of Event:

If A Party Has Ability To Manipulate The Outcome Of A Wager It Cannot Be Considered As An
Agreement By The Way Of Wager Because This Would Clash With The Abovementioned
Essential.

3. The Parties Do Not Have Any Interest In The Event Apart From The Sum/Wager Mentioned:
Wagering Agreement Are Considered As Void Ab Initio, According To Section 65 Of Indian
Contract Act Has No Application On It. Wagering Agreement Is Lawful Under The Section 23 Of
The Contract Act And Therefore The Transaction Collateral To The Main Transaction Is Valid And
Enforceable.

#Que10): Distinguish between contingent contract and wagering agreement.

Ans): WAGERING AGREEMENTS-
Sec. 30 of The Indian Contract Act explains the wagering agreement. According to Sec. 30,
“Agreements by way of wager are void; and no suit shall be brought for recovering anything
alleged to be won on any wager, or entrusted to any person to abide the result of any game or
other uncertain event on which any wager is made.” These wagering agreements are only
based on winning or losing, just for money. There is no real interest in the contract. They are not
enforceable by law and thus, void.

CONTINGENT CONTRACTS (Sec. 31 of The Indian Contract Act, 1872)-

“Contingent contract defined”. – A “contingent contract” is a contract to do or not to do

something, if some event, collateral to such contract, does or does not happen.
For example

A contract to pay B Rs. 10,000 if B’s house is burnt. This is a contingent contract.

In other words, when the contract is dependent or conditional upon the happening or non-
happening of a certain future event the contract is contingent. In the above illustration, the
payment of the amount is contingent on the happening of a collateral event, i.e. the burning of
the house. All the contracts of insurance or indemnity aim at the payment of money only after a
certain event happens, or the loss is caused, and, therefore, they are contingent contracts.

DIFFERENCE BETWEEN CONTINGENT CONTRACT AND WAGERING AGREEMENT

CONTINGENT CONTRACT WAGERING AGREEMENT

Contingent contract is defined

Wagering agreement is defined under section
under Section 31 of The Indian
30 of The Indian Contract Act, 1872.
Contract Act, 1872.

Contingent contract is valid. Wagering agreement is void.

According to Section 30, “Agreements by way

According to Section 31, “A
of wager are void; and no suit shall be brought
contingent contract is a contract to
for recovering anything alleged to be won on
do or not to do something, if some
any wager, or entrusted to any person to abide
event, collateral to such contract,
the result of any game or other uncertain event
does or does not happen.”
on which any wager is made.”

In wagering agreement, there is no real

In contingent contract, we have
interest. It is concerned with winning and losing
real interest in the contract.
only.

Contingent contract is to do or
Wagering agreement, on the other hand, is just
not to do something if a certain
for money purposes.
event does or does not happen.

#Que11): Discuss the doctrine of supervening impossibility.

Ans): Doctrine of Impossibility-
A contract is an agreement to be fulfilled by the parties to the contract and a contract to
be valid must be capable of being performed. But sometimes the performance of a
contract is or becomes impossible due to its own nature or due to some circumstances
which are beyond the control of the parties (ultra vires) which renders the performance
of contract impossible and the purpose of the contract ceases to subsist.

Like most of the laws in India, Indian Contract Act 1872 is also influenced by English
laws, as, Section-56 (i.e.) an agreement to do an impossible act.

This section talks about two Impossibilities (i.e.) Initial Impossibility and Subsequent
Impossibility. Initial impossibility implies that the impossibility exists at the time of the
formation of the contract which may be known or unknown to the parties. If it is known
to the party then the agreement is void ab initio. For example, discovering treasure
through magic.

In case of Subsequent Impossibility the performance of the contract is possible at the

time of the agreement, but subsequently the performance becomes impossible or
unlawful due to some events which are beyond the control of the parties. For example,
A agrees to sell his land to B. Later on the land was acquired by government. The
contract becomes void on the ground of impossibility.

Evolution of the Doctrine of Impossibility or Frustration?

The origin of this doctrine is Rome as its application was seen in the Roman Contract
Law where the parties were discharged from the contract because the purpose of the
contract has become impossible.

The origin of Doctrine of Impossibility is closely related to the English Rule: Subsequent
Impossibility of performance cannot be a valid defence in cases of breach of an
obligation under the contract. This rule was laid down in Paradine vs. Jane 82 Eng.Rep.
897(1647). So, before we dwell into the rationale of a judgment let’s have a look on the
facts of the case: Paradine (Plaintiff) sued Jane (Defendant) under a lease for three
years for unpaid rent. Defendant pleaded that due to invasion by the German Prince; he
was forced out of possession and therefore he was unable to take the benefits. So, he
refused to pay Plaintiff rent for the duration he was forced out.

However, the court gave judgment in favor of the Plaintiff and the defence was not held
valid; as obligation under the contract was absolute with no exceptions. The judge held
that liability under the contract should be followed under all circumstances.

This Doctrine of Impossibility was evolved as a reflection of the aforementioned case.

There were cases where the contract could not be performed due to circumstances
through no fault of the defendant, and the rigidity of the English rule was found to be
unreasonable, unfair, therefore an exception to the rule was need of the time.
Salient Features of the Doctrine of Impossibility-

a. There must be a valid and existing contract between the parties;

b. There must be some part of the contract yet to be performed;
c. That part of the contract, which is yet to be performed, should become impossible or
unlawful; and
d. That the impossibility should be by reasons of some event which the promisor could not
prevent.

Effects of Supervening Impossibility:

i. Contract becomes void.

ii. Restoration or refund of benefit received.
iii. Innocent promisee entitled to compensation.

#Que12): What are quasi contract? Discuss the quasi contracts deal with under
the Indian contract act.
Ans): What is a Quasi Contract-
A Quasi contract is a contract that is created by court’s order in absence of any agreement
between the parties. A Quasi contract does not involve any essentials of a valid contract as
defined under Indian Contract Act 1872.

Though Indian Contract Act 1872 has not defined Quasi contracts, Sec 68-72 deals with ‘certain
relations resembling those created by contracts’. Quasi contract can be defined ‘as an obligation
enforced by the law on one party to avoid unjust enrichment of that party’. There is no prior
agreement, offer and acceptance in a Quasi contract. Quasi contract is enforced when any
person enjoys the benefit of something but does not pay for it or the other person might have to
bear the burden of it.

For eg-A contracts with B to deliver goods to A’s residence. B accidentally delivers it to C who
consumes these goods and refuses to pay for it.

Now in the above case C has enjoyed the benefit of goods but does not pay for it and B has to
bear all the burden of it. In such cases courts order C to pay back to B as he has enjoyed the
benefit of the goods. The intention of the courts on enforcing such obligations on the person
who enjoys the benefit of goods or any sum of amount is to hold the same person to also
compensate the other person who is the provider of goods .It is to be noted that The Indian
Contract, 1872 has not used the words ‘Quasi Contracts’ rather used certain relations
resembling as contracts’ as per Sex 68 of the Act. This indicates that these are not contracts but
are deemed to be contracts when the law puts certain obligations.
The Indian Contract Act 1872 has mentioned 5 situations which are deemed to be
Quasi contracts or quasi contracts are imposed.

Sec 68-Necessaries supplied to a person who is incapable of contracting-

When any necessary goods which are important for one’s survival are supplied to a person who
is not capable of contract, then the person who is supplying such goods has the right to recover
the amount from such person’s property. For example Jay sends goods to Ajay who is a lunatic
and for the welfare of Ajay’s young son and daughter .Jay is entitled to receive the money from
Ajay’s property.

Sec 69-Reimbursement by an interested party-

When one person who is interested in certain property/goods pays the amount on the behalf of
the owner of the person who is liable in the first place, then the one paying shall claim.it later
from the one who is liable to pay in the first place, i.e. the owner of the goods.

Sec 70-Obligation of a person who enjoys the benefit of any non-gratuitous act-
When one person enjoys the benefit of any act done by other person lawfully and intending to
do it non gratuitously then the former person who has benefited from it is liable to compensate
the later for his act .For eg A delivered goods to C at his residence accidentally and C assuming
that goods belong to him used such goods. Now C is liable to compensate A for using the
goods.

Sec 71 -Finder of the goods-

When any person who finds the goods and knows that such goods belong to another person
then he is responsible for the safety of the goods and to return it back to the owner of such
goods. For eg A came to A shop owned by B and while purchasing forgot his Mobile in the
shop. B came to know that A has forgotten his mobile. B is now responsible to keep the mobile
safely with him and return it to A.

Sec 72-Liability of a person to whom payment is made, by mistake or under

coercion-
Where any person receives payment under some misunderstanding or coercion then he is liable
to return such payment made to him by the other person. For eg Z and Y owe money to D,
jointly and Z pays the money to D owed by both of them. Y unaware of the transaction pays the
amount to D again. Now D is liable to return the money to Y.

#Que13): Discuss briefly the remedies of breach of contract.

Ans): Remedies for Breach of Contract-
When a promise or agreement is broken by any of the parties we call it a breach of contract. So
when either of the parties does not keep their end of the agreement or does not fulfil their obligation
as per the terms of the contract, it is a breach of contract. There are a few remedies for breach of
contract available to the wronged party. Let us take a look.

1] Recession of Contract- When one of the parties to a contract does not fulfil his obligations,
then the other party can rescind the contract and refuse the performance of his obligations.

As per section 65 of the Indian Contract Act, the party that rescinds the contract must restore any
benefits he got under the said agreement. And section 75 states that the party that rescinds the
contract is entitled to receive damages and/or compensation for such a recession.

2] Sue for Damages- Section 73 clearly states that the party who has suffered, since the other
party has broken promises, can claim compensation for loss or damages caused to them in the
normal course of business.

Such damages will not be payable if the loss is abnormal in nature, i.e. not in the ordinary course of
business. There are two types of damages according to the Act,

 Liquidated Damages: Sometimes the parties to a contract will agree to the amount payable
in case of a breach. This is known as liquidated damages.

 Unliquidated Damages: Here the amount payable due to the breach of contract is
assessed by the courts or any appropriate authorities.

3] Sue for Specific Performance- This means the party in breach will actually have to carry
out his duties according to the contract. In certain cases, the courts may insist that the party carry
out the agreement.

So if any of the parties fails to perform the contract, the court may order them to do so. This is a
decree of specific performance and is granted instead of damages.

For example, A decided to buy a parcel of land from B. B then refuses to sell. The courts can order
B to perform his duties under the contract and sell the land to A.

4] Injunction-An injunction is basically like a decree for specific performance but for a negative
contract. An injunction is a court order restraining a person from doing a particular act.

So a court may grant an injunction to stop a party of a contract from doing something he promised
not to do. In a prohibitory injunction, the court stops the commission of an act and in a mandatory
injunction, it will stop the continuance of an act that is unlawful.
5] Quantum Meruit- Quantum meruit literally translates to “as much is earned”. At times when
one party of the contract is prevented from finishing his performance of the contract by the other
party, he can claim quantum meruit.

So he must be paid a reasonable remuneration for the part of the contract he has already
performed. This could be the remuneration of the services he has provided or the value of the work
he has already done.

#Que14): What is meant by Quantum Meruit? Under what circumstances claim

arise?
Ans): Meaning of Quantum Meruit
Quantum meruit is a Latin phrase and is related to the Indian Contract Act, 1872.
The term quantum meruit means ‘as much as is merited’ or ‘as much as is earned’. In other
words, it means payment in proportion to the amount of work done. Where one party has
performed part of his promise and then there is breach of contract, or the contract is discovered
void or become void, claim for quantum meruit arises.
Unlike suit for damages, the right to claim on ‘quantum meruit’ does not arise out of a contract.
In fact, it is a claim on the quasi-contractual obligations which is implied by the circumstances.
The claim for quantum meruit arises only when the original contract is discharged.

For example-A engages B, a contractor, to build a three storied house. After a part is
constructed A prevents B from working any more. B, the contractor, is entitled to get reasonable
compensation for work done under the doctrine of quantum meruit in addition to damages for
breach of contract.

How to claim remedy under quantum meruit

The aggrieved party may file a suit upon quantum meruit and may claim payment in proportion
to work done or goods supplied in the following cases:

a) In case of void agreement or contract that becomes void [Section 65] -

When an agreement is discovered to be void or when a contract subsequently becomes void,
any person who has received any advantage under such agreement or contract is bound to
restore it, or to make compensation for it, to the person from whom he received it. In simple
words, this is a case in which an agreement is either void-ab-initio or the contract becomes void
at a later time. Hence, the benefit received by either party shall have to be returned to the other
party.

For example-A pays ₹10,000 to B, in consideration of B’s promise to sell his horse to A. But
unknown to both the parties, the horse is dead at the time of promise. The agreement is void
and B must repay ₹10,000 to A.

b) In case of non-gratuitous act [Section 70]-

The obligation to pay arises if the following three conditions are satisfied:
i) The thing must have been or delivered lawfully
ii) The person who had done or delivered the thing must have not intended to do so gratuitously;
and
iii) The person for whom the act is done must have enjoyed the benefit of the Act.
For example-A, a trader, leaves certain goods at B’s house by mistake. B treats the goods as
his own. He is bound to pay A for them.

c) In case of act preventing the completion of contract -

If a party does not complete the contract or prevents the other party to complete the contract,
the aggrieved party can sue on quantum meruit.

For example-P agreed to write a volume on ancient armour to be published in a magazine

owned by C. For this, he was to receive $100 on completion. When he had completed part of
the work, C abandoned the magazine. P was held entitled to claim damages for breach of
contract and payment under quantum meruit for the part already completed. (Planche vs
Colbum)

d)In case of divisible contract-

The party at default may sue on quantum meruit if the following conditions are satisfied:
(i) If the contract is divisible; and
(ii) If the party not at default has enjoyed benefits of the part performance.

For example-X agreed to repair Y’s house for ₹1 lakh. But he abandoned the contract after
having done 3/4th of the work. Afterwards, Y got the work completed. X cannot recover anything
for the work done because the contract was indivisible, and he was entitled to the payment
only on the completion of the work.

e)In case of indivisible contract performed completely but badly -

The party at default may claim lump sum less deduction for bad work if the contract is indivisible
but is performed completely though badly.

For example-X agreed to decorate Y’s flat for a lump sum of ₹20,000. X completed the work,
but Y complained of faulty workmanship. Y spent another ₹5,000 to correct the defect. It was
held that X could recover only ₹15,000 from Y.