BUSINESS REGULATORY FRAMEWORK

MODULE 1
2 MARK QUESTIONS
1. Contract
A valid contract is an agreement, which is binding and enforceable. In
valid contract all the parties are legally bound to perform the contract.
According to Section 2 (h) of the Contract Act, “an agreement
enforceable by law is a contract.”
2. Void contract
A Contract which is not enforceable in a court of law is called Void
Contract. Example: there is a Contract between X and Y where Y is a
minor who has no capacity to contract. It is Void Contract.
3. Unenforceable contract
A contract which has not properly fulfilled legal formalities is called
unenforceable contract. That means unenforceable contract suffers from
some technical defect like insufficient stamp etc.
4. Express Contract
A contract is said to be an express contract, if the terms of a contract are
expressly agreed upon between the parties (either by words spoken or written)
at the time of formation of the contract. An express promise results in express
contract. A promise is said to be an express promise, when the offer or
acceptance of any promise is made in words.
5. Implied Contract
An implied contract is one for which the proposal or acceptance is made
otherwise than in words.
Implied contracts are inferred from the circumstances of the case and conduct of
the parties.
For example, when A takes a cup of milk in a hotel, there is an implied contract.
6. Quasi – Contract
A quasi-contract is one, which is created by law. In the quasi-contract, there is
no intention on either side to make a contract. In a quasi-contract, rights and
obligations arise not by an agreement but by operations of law.
For example, where certain letters are delivered to a wrong addressee, the
addressee is under an obligation to return the letters.
 7. Unilateral Contract
It is also called as one-sided contract. In a unilateral contract, only one party has
to satisfy his obligation at the time of the formation of it, the other party having
fulfilled his obligation at the time of the contract or before the contract comes
into existence.
A typical example is an offer for a reward. A promise to reward any person who
finds his missing dog. In this case no obligation to anyone. If B finds it A will
be obliged to pay the reward
8. Bilateral Contract
A contract is said to be a bilateral contract where the obligations of both the
parties to the contract are pending at the time of formation of the contract. In
this type of contract, a promise on one side is exchanged for a promise on the
other
For example, A promises to stitch a blouse and B promises to pay Rs.30. Here
A promises to stitch the blouse and B promises to pay. Thus, each party is both
a promisor and a promisee.
9. Acceptance: Giving consent to the offer.
10. Counter Offer: A conditional acceptance or a fresh offer instead of
accepting the original offer.
11. Cross Offer: Similar offers made by two parties to each other without
knowing about the offer made by the other party. It does not amount to
acceptance.
12. Express Offer: An offer made expressly by words spoken or written.
13. General Offer: Offer made to the world at large.
14. Implied Offer: An offer inferred from the conduct of the party or the
circumstances of the case. Invitation to Offer: Offer invited from others
by giving an ad, quotations, or price list, etc.
15. Offer: Expression of a proposal to do or its abstaining from doing
something with a view to obtain the consent of the offeree.
16. Revocation: Taking back or cancelling an offer or the acceptance.
17. Specific Offer: Offer made to a definite person.
18. Standing Offer: A continuous offer in the form a tender.
19. Offer and Acceptance
Section2 (a) defines the term 'proposal' as follows: "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 t.0 make a proposal."
The person making the offer is called the 'offered' or the 'promisor' and the
person to whom it is made is called the 'offeree'. When the offeree accepts
the offer, he is called the 'acceptor' or the 'promise'. For example, Ram offers
to sell his scooter to Prem for Rs. 10,000 This is an offer by Ram. He is the
offeror or the promisor. Prem to whom the offer has been made is the offeree
and if he agrees to buy the scooter for Rs. 10,000 he becomes the acceptor or
the promisee.
20. Cross offer
Two offers which are similar in all respects, made by two parties to each
other, in ignorance of each other's offer are known as 'cross offers". Cross
offers do not amount to acceptance of one's offer by the other and as such
no contract is concluded. For example, A of Delhi, by a letter offers to
sell his house to B of Bombay for Rs. 10 lakh. At the same time, B of
Bombay also makes an offer to A to buy A's house for Rs. 10 lakhs
21. Acceptance
Section 2(b) of the Indian Contract Act defines the term 'acceptance' as
"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. " For example, A offers to sell his book to B for Rs.
20. B agrees to buy the book for Rs. 20. This is an acceptance of A's offer
by B.
22. Consideration
‘Consideration’ means “something in return”, . Consideration is an
essential component of a valid contract. Consideration is the price
for the contract. An agreement without consideration is void and
thus not enforceable by law except under certain circumstances.
According to Sir Frederick Pollock. Consideration is the price for
which the promise of the other is bought, and the promise thus given
for value is enforceable.”
23. Privity of Contract or stranger to contract
Only the parties of the suit are bound by the terms and conditions
as well as by the consequences of the contract. A stranger to
contract, cannot file a suit to enforce any of the right or liability
arising out of the contract
24. Privity of Consideration or stranger to consideration
Privity of Consideration means that although the party is stranger to
consideration as he or she has not paid the consideration, but
someone has paid consideration for the benefit of the beneficiary.
So, the beneficiary may file a suit to execute the contract.
25. promisor. A promisor is the party who makes the promise.
 26. promisee. A promisee is the party to whom a promise is made.
27. Pastconsideration:
Past consideration is a promise for a voluntary act done in the past
to help the party who is making promise to pay or to do something
subsequently
28. Present consideration
When the promisor receives consideration simultaneously with his
promise, the consideration is termed as Present Consideration.
29. Undue Influence

A contract is said to be induced by ‘undue influence’ where the relations

subsisting between the parties are such that one of the parties is in a position to
dominate the will of the other and uses that position to obtain an unfair
advantage over the other.

30. Coercion

Coercion is defined in section as follows. Coercion is the committing or

threatening to commit any act forbidden by the Indian Penal Code, or the
unlawful detaining or threatening to detain, any property to the prejudice of any
person whatever with the intention of causing any person to enter into an
agreement.

31. Mistake

Mistake may be defined as an erroneous belief about something mistake usually

has serious consequence in a contract. The area of mistake is divided into two
categories. (i) Mistake of law, and (ii) mistake of fact.

32. Misrepresentation

Misrepresentation is a false statement which the person making it honestly

believes to be true or which he does not know to be false. It also includes non-
disclosure of a material fact or facts without any intent to deceive the other
party.

33. Bilateral mistake

Section 20 of the act provides that “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. From this definition it is clear that two requirements should be met,
namely;

a. There must be a common or mutual mistake; ie., the mistake should be

shared by both the parties.
b. The mistake must relate to a matter of fact essential to the agreement.
34. Essential requirements of misrepresentation
 There must be a representation.
 The representation must be of a material fact.
 The representation must be made before the conclusion of the contract
with a view to induce the other party to enter into a contract.
 The representation must be made with an intention that it should be acted
upon by the person to whom it is addressed.
 It must have actually been acted upon and have induced the contract.
 It must be wrong but the person who made it honestly believed it to be
true.
 It must be made without any intention to deceive the other party.
35. Free Consent
Free consent is one of the essential elements of a valid contract. Section
13 provides that “two or more persons are said to consent when they agree to
upon the same thing in the same sense. This meeting of minds is also termed
as consensus ad idem.

36. Fraud

When a false statement is made to another person to induce him to enter

into a contract and the person making the statement has an intension to
deceive the other person, it can be termed as fraud. Fraud is the willful
representation made by the party to a contract with the intent to deceive the
other party or to induce such party to enter into a contract.

37. Explain the expression ‘champerty’.

Champerty is an agreement whereby one party assists another to bring an
action for recovering money or property and to share in the proceeds of
the action.
38. What is a ‘maintenance’ agreement?
Maintenance is an agreement to give assistance to another to enable him
to bring or defend legal proceedings when the person giving assistance
has got no legal interest of his own.
39. Explain the term ‘absolute contract’.
It is a contract in which the parties must perform their promises in all
events.
40. Define ‘Contingent contract’.
It is a contract to do or not to do something if some event, collateral to
such contract does or does not happen.
41. Define ‘tender’.
When the promisor expresses his willingness to perform the obligation,
but the promise refuses to accept, it is termed as ‘attempted performance’
or ‘tender’.
42. What is meant by ‘assignment of contracts’?
The word ‘assignment’ means ‘transfer’. Assignment of contract means
transfer of contractual rights or obligations by the party to the contract to
some other person.
43. Explain the circumstances in which rules of appropriation of
payment take effect.
The rules relating to appropriation of payment is contained in section 59
to 61 of the act.
  Appropriation by debtor
 Appropriation by the creditor
 Where the debtor does not intimate and the creditor fails to appropriate.
44. Briefly point out the essentials of a valid tender of performance.
(i) It must be unconditional.
(ii) It must be made at a proper time and place.
(iii) Reasonable opportunity must be given to the other party to inspect and
satisfy that performance is in accordance with the terms of the
contract.
(iv) It must be made by the proper person.
(v) Tender must be whole and not in part.
(vi) Tender for delivery of goods must be for the quantity and quality as
stipulated in the contract.
(vii) Tender of money should be in current notes or coins.
(viii) Tender made to one of the several joint premises has the same legal
consequence as to tender to all of them.
45. What is meant by performance of a contract?
When the parties to the contract fulfill their obligations under a contract,
the contract is to have been performed and the contract comes to an end.
46. What is an attempted performance?

When the promisor expresses his willingness to perform the obligation, but the
promise refuses to accept, it is termed as ‘attempted performance’ or ‘tender’.

47. What is Novation?

Novation means substituting a new contract in the place of an old contract.

The essential requirement of novation is that this new agreement is entered
into in consideration for the old agreement.

48. Explain Merger.

Merger takes place when an inferior right accruing to a party under a
contract merges into a superior right accruing to the same party under same
or some other contract.

49. What is ‘waiver’?

It is a deliberate abandonment of the rights which parties to the contract

mutually have against each other. No consideration is necessary for waiver.

50. Explain the meaning of the term ‘rescission’.

Rescission is the revocation of a contract. When a contract is broken by
one party, the other party may sue for rescission and refuse further
performance.
51. What is damages?
Damages are a monetary compensation allowed by the court, to the
injured party for the loss or injury suffered by him by the breach of the
contract.
52. Explain the term ‘nominal damages’.
Nominal damages are very small or name sake compensation. These are
awarded in situations where the injured party has not in fact suffered any
loss by reason of the breach of contract.
53. What is ‘special damages?
Special damages are compensation amounts which may be claimed by the
aggrieved party over and above the ordinary damages because of special
circumstances known to both the parties.
54. Give the meaning of the term ‘quantum meruit’.
The term ‘quantum meruit’ means “as much as merited” or “as much
earned”. A right to sue on a quantum meruit arises where a contract,
partly performed by one party, has become discharged by breach of the
contract by the other party. This right to claim the remuneration for the
services rendered is not founded on the original contract.
55. Explain liquidated damages.
Sometimes the parties to a contract may stipulate in the contract itself that
on its breach a specified sum will become payable as damages. Such a
sum may either be “liquidated damages” or “penalty”.
56. What do you mean by rescission?
Rescission is the revocation of a contract. When a contract is broken by
one party, the other party may sue for rescission and refuse further
performance.
57. Write note on vindictive damages
Damages are usually awarded only for repairing the loss of the injured
party. However, in exceptional situations the court may award damages
with an intention to punish the wrong doer of the injury caused.
58. What is specific performance?
In certain cases of breach of contract, damages may not be an adequate
remedy. In such cases the court may, in its discretion, grant specific
performance and compel the party in breach to do what he had promised
to do.
59. What is meant by injunction?
An injunction is an order of the court to restrain the wrong doer from
doing or continuing a wrongful act. Injunctions are usually granted to
enforce negative stipulations in a contract.
60. What are exemplary damages?
Damages are usually awarded only for repairing the loss of the injured
party. However, in exceptional situations the court may award damages
with an intention to punish the wrong doer of the injury caused.
61. What is the legal consequence of money paid by mistake?
Section 72 provides that a person to whom money has been paid, or
anything delivered by mistake, or under coercion, must repay or return it.
Payment by mistake under this section refers to a payment which is not
 legally due. The person who makes the payment thinks that the money is
due; when in fact it is not due. This mistake may be either a mistake of
fact or of law.
62. Who is an addressee under the Information Technology Act.

Addressee means a person who is intended by the originator to receive the

electronic record but does not include any intermediary.

63. Who is an addressee under the Information Technology Act?

“Addressee” means a person who is intended by the originator to receive the

electronic record but does not include any intermediary.

64. What is Digital Signature?

Digital signature is a type of electronic signature used to validate the

authenticity and integrity of a message. It treats as digital fingerprint that is
unique to a person or entity and are used to identify users and protect
information in digital messages or documents. In e-mails, the email content
itself become part of the digital signature.

65. Who is a Minor?

A person who has not completed 18 years of age is a minor.
66. What is the meaning of the expression ‘necessaries’?
Necessaries are those goods which are suited to the station in life of the
minor. It is not just necessities. It does not include luxuries also. Thus the
term necessaries is a relative fact, to be determined with reference to the
standard of living and circumstances of the particulars minor.
67. List out the persons disqualified by law to enter into a valid contract.
 Minors
 Persons of unsound mind
 Persons disqualified from contracting by any law
 68. List out the different persons considered as “persons of unsound
mind”.
An agreement entered in to by a person of unsound mind is void. A
person is said to be of sound mind for the purpose of making contract, if
at the time when he makes it, he is capable of understanding it and of
forming a rational judgment as to its effects upon his interests.
a. Idiocy
b. Lunacy
c. Drunkenness
69. Who are competent to Contract?

Every person is competent to contract who is of the age of majority

according to the law to which he is subject, and who is of a sound mind, and
is not disqualified by any law to which he is subject.

70. Meaning of the term Restitution.

Restitution means the return of objects that were lost or stolen or a payment
made for a loss or damage. Restitution can either be a legal remedy or it can
be an equitable remedy.

5 MARK QUESTIONS
1. Classification of contracts on the basis of Validity
Void Agreements Section 2(g) defines it as “an agreement not enforceable
by law”. I f the agreement could not be enforced through a court, then the
agreement is void
Examples. Agreement entered into minors or agreement without
consideration
Valid contract: An agreement enforceable at law is valid contract. An
agreement becomes a contract when it satisfies all the essential features of a
contract
 Void contract A Contract which is not enforceable in a court of law is called
Void Contract. Example: there is a Contract between X and Y where Y is a
minor who has no capacity to contract. It is Void Contract
Voidable: A Contract which is deficient in only free consent, is called Voidable
Contract. That means it is a Contract which is made under certain pressure
either physical or mental. At the option of suffering party, a voidable contract
may become either Valid or Void in future. For example: there is a Contract
between A and B where B has forcibly made A involved in the Contract. It is
voidable at the option of A.
Illegal: If the contract has unlawful object, it is called Illegal Contract.
Example: There is a contract between X and Z according to which Z has to
murder Y for consideration Rs. 10000/- from X. It is illegal contract.
Unenforceable contract: A contract which has not properly fulfilled legal
formalities is called unenforceable contract. That means unenforceable contract
suffers from some technical defect like insufficient stamp etc. After rectification
of that technical defect, it becomes enforceable or valid contract. Example: A
and B have drafted their agreement on Rs. 10/- stamp where it is to be written
actually on Rs.100/- stamp. It is unenforceable contract.
2. All illegal Contracts are void, but all void contracts are not illegal
: An illegal Contract will not be implemented by court. So, illegal contract is
Void. A void contract may not be illegal because it’s object may be lawful.
The Contracts which are collateral to illegal contract are void, But the contracts
which are collateral to Void contract may be Valid: An illegal makes not only
itself Void but also the contracts connected to it. But a contract collateral to
void contract may attain Validity because object of main contract is lawful.
A void agreement is an agreement which is not legally binding, i.e., an
agreement which lacks enforceability by law is void.
Certain agreements are void ab initio as per Indian Contract Act, which are –
Agreement in restraint of marriage, agreement in restraint of trade, agreement in
restraint of legal proceeding, agreement with minor, agreement whose object or
consideration is unlawful, wagering agreement, etc.
3. Distinction between Voidable Contract and Void Agreement
1. A voidable contract is voidable at the option of one of the parties thereto. But
a void agreement cannot be enforced by any one of the parties thereto.
2. The defect in the case of voidable contract is curable and may be condoned,
whereas a void agreement is void ab initio, and its defects are not curable.
3. A voidable contract does not become void unless the party at whose option it
is voidable repudiates it. But a void agreement is void ab initio.
4. A voidable contract implies a contract, in which the consent of one of the
parties to contract is not free, whereas a void agreement denotes an agreement,
which does not fulfill the essentials of a valid contract.
5. In case of a voidable contract, a person is entitled to compensation for loss or
damages suffered by him on account of the non-performance of contract. But in
a void agreement, as it is unenforceable at law there does not arise any question
of compensation due to the non-performance of the agreement.
4. Contracts According to formation
According to the mode of formation of contracts, contracts may be classified
into three namely
1. Express Contract,
2. Implied Contract, and
3. Quasi – Contract
Express Contract
A contract is said to be an express contract, if the terms of a contract are
expressly agreed upon between the parties (either by words spoken or written)
at the time of formation of the contract. An express promise results in express
contract. A promise is said to be an express promise, when the offer or
acceptance of any promise is made in words
. Implied Contract
An implied contract is one for which the proposal or acceptance is made
otherwise than in words.
Implied contracts are inferred from the circumstances of the case and conduct of
the parties.
For example, when A takes a cup of milk in a hotel, there is an implied contract.
Quasi – Contract
A quasi-contract is one, which is created by law. In the quasi-contract, there is
no intention on either side to make a contract. In a quasi-contract, rights and
obligations arise not by an agreement but by operations of law.
For example, where certain letters are delivered to a wrong addressee, the
addressee is under an obligation to return the letters.
[Link] of Contracts according to performance
According to the extent of performance of contracts, contracts may be
classified as
1. Unilateral Contract
2. Bilateral Contracts
3. Executed contracts
4. Executory contracts
Unilateral Contract
It is also called as one-sided contract. In a unilateral contract, only one party has
to satisfy his obligation at the time of the formation of it, the other party having
fulfilled his obligation at the time of the contract or before the contract comes
into existence.
A typical example is an offer for a reward. A promise to reward any person who
finds his missing dog. In this case no obligation to anyone. If B finds it A will
be obliged to pay the reward
2. Bilateral Contract
A contract is said to be a bilateral contract where the obligations of both the
parties to the contract are pending at the time of formation of the contract. In
this type of contract, a promise on one side is exchanged for a promise on the
other
For example, A promises to stitch a blouse and B promises to pay Rs.30. Here
A promises to stitch the blouse and B promises to pay. Thus, each party is both
a promisor and a promisee.
3. Executed Contract
A contract is said to be executed contract when both the parties to contract have
performed their share of obligation. When a person purchases a pen from a shop
and the price is paid it can be termed as an executed contract
4. Executory contract
An executory contract is one, which is either wholly unperformed, or something
remains in there to be done by both the parties to contract. Sometimes, a
contract may be partly executed and partly executory.
For Example, if an agreed to sell his house to B for 20 lakhs. If the contract is to
be performed on next month it is an executory contract
6. Classification according to English Law
:1. Formal Contracts: English Contract Act recognizes formal contracts.
Validity of these contracts depends upon their form and they are valid even
without consideration.
They are of two types: -
i) Contracts under Seal, and
ii) Contracts of Record.
iii) ‘Contracts under seal’ are in writing and signed by the parties to them.
The following contracts should be under seal, otherwise they will not be
valid:-(a) Contracts without consideration;(b) Lease of land for a period
of more than three years;(c) Contracts by corporations; and(d) Contracts
with British Shipping
iv) ‘Contracts of Records’ include the court judgments and recognizances.
Obligations in such cases arise out of court judgments and not under
contracts.
v) Simple Contracts: All contracts other than the formal ones are called
simple contracts. They may either be in writing or oral. Consideration is
also necessary for their validity.
7. Kinds of Offer
1. Standing offer
Sometimes an offer may be of a continuous nature. In that case it is
known as standing offers. A agrees to supply coal of any quantity to B
at a certain price as will be ordered by B during the period of 12
months. It is a standing offer.
2. Cross offer
Two offers which are similar in all respects, made by two parties to
each other, in ignorance of each other's offer are known as 'cross
offers”. For example, A of Delhi, by a letter offers to sell his house to
B of Bombay for Rs. 10 lakhs. At the same time, B of Bombay also
 makes an offer to A to buy A's house for Rs. 101 lakhs. The two
letters cross each other.
3. Counter offer
If the offeree communicates any terms deviating from the offer while
giving his acceptance, then it cannot be termed as a contract, it is to be
termed as a counter offer. For example, a seller wants to sell a vehicle
for $20,000. A buyer arrives and offers $15,000 for the vehicle. It is a
counter offer
8. Essentials of a valid acceptance
a. Acceptance must be absolute and unqualified: If while giving
acceptance, any variation is made in the terms of the offer the
acceptance will not be valid and there will be no contract. For
example, A offers to sell his scooter to B for Rs. 8,000 and B agrees to
buy it for Rs. 7,500. It is a counter offer and not an acceptance.
b. Acceptance must be in the prescribed manner: Where the offeror has
prescribed a mode of acceptance, it must be accepted in that very
manner. For example, A makes an offer to B and says "send your
acceptance by telegram ". B sends his acceptance by a letter. A can
refuse this acceptance on the ground that it was not accepted in the
prescribed manner
c. Acceptance must be communicated: The acceptance is complete only
when it has been communicated to the offeror. In Brogen v.
Metropolitan Railway Co.'s case an offer to supply coal to the railway
Co. was made. The manager wrote on the letter 'accepted', put it in his
drawer and forgot all about it. It was held that no contract was made
because acceptance was not commumicated.
d. Acceptance must be made within the time prescribed or within a
reasonable time: Sometimes the offeror while making the offer fixes
the period within which the offer should be accepted. What is the
reasonable time depending upon the facts of the case.
e. Acceptance must be given before the offer lapses or is withdrawn: The
acceptance must be given while the offer is in force. Once an offer has
been withdrawn or stands lapsed, it cannot be accepted.
9. When does an offer come to an end?
An offer may come to an end by revocation or lapse or rejection.
Revocation or lapse of offer: Section 6 of the Indian Contract Act 1872
deals with various modes of revocation of the offer.

(1) By the communication of notice of revocation by the proposer to the

other party;
 (2) By the lapse of the time prescribed in such proposal for its acceptance,
or, if no time is so prescribed, by the lapse of a reasonable time, without
communication of the acceptance;

(3) By the failure of the acceptor to fulfil a condition precedent to

acceptance; or

(4) By the death or insanity of the proposer, if the fact of the death or
insanity comes to the knowledge of the acceptor before acceptance.

In addition, an offer is also revoked -

(5) If Counter offer is made to it

(6) If an offer is not accepted according to the prescribed or usual mode.

10. “No consideration No Contract” State the exceptions

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 :

[Link] made on account of natural love and affection

i. When a contract is made on account of natural love and

affection between the parties.
ii. The parties are standing in a near relation to each other, and
iii. The contract is in writing and registered under the law for the
time being in force for the registration of documents.

a. Examples: A, out of his love and affection, promises to

give his wife, ` 10,000. This promise is put into writing
and is registered. It will be a valid contract without
consideration.
2. Compensation for voluntary services.
 When a promise is given to compensate a voluntary service done,
the promise may be enforceable eventhough it is not supported by
consideration
3. Promise to pay a time barred debt: According to section 25(30), a
promise by a debtor to pay a time barred debt is enforceable it is
made in writing and is signed by the debtor or by his agent
4. Agency: Consideration is not necessary to create an agency.
5. Complete gift: The rule ‘no consideration, no contract’ does not
apply to completed gifts. Even if the absence of consideration any
gift between two persons actually executed would be valid.

11. What are the essential elements of a valid consideration?

1. Consideration must proceed at the desire of the Promisor
An act must have been done at the desire or request of the promis or.
Voluntary acts or acts done at the desire of the third party is not a
consideration in the eyes of law

2. Consideration may move from the promisee or any other person

Consideration may proceed from the promisee or any person.

3. Consideration may be past, present or future

a. Pastconsideration:
Past consideration is a promise for a voluntary act done in the
past to help the party who is making promise to pay or to do
something subsequently
b. Present consideration
When the promisor receives consideration simultaneously
with his promise, the consideration is termed as Present
Consideration.
Example:

A purchased goods from a shopkeeper of the worth of ` 10,000

A pays money to the shopkeeper immediately. Consideration
is “Present”.
c. Futu ror Executory Consideration:
When a promise is to be executed on a future date it is called
executory consideration or future consideration.

4. Consideration need not be Adequate

Consideration may or may not be adequate. Consideration should

be of some value in the eyes of the law. E.g. A agreed to sell his
 Mobile worth ` 40,000 for ` 2,000 with his free consent. This is a
valid Contract.

5. Consideration must be Real and Not Illusory or Impossible

Real consideration means that the consideration should not be

physically or legally impossible.

Physical Impossibility: If a promise is made to do impossible

things that are not possible to do physically, it is not real. For
example, A promises to pay B ` 1,00,000 if he will be able to run
200 km in 5 minutes. This is not a valid consideration as it is
physically impossible for anybody to do this.
Legal Impossibility: If a promise is made to do things that are
prohibited by law then also it is not valid consideration. For
example, A enters into contract with B that he will pay ` 5,00,000 to
B if B will murder C. This contract cannot be executed as
consideration is illegal.
Uncertain Consideration: Consideration must be certain otherwise
it is impossible to carry out an agreement.

6. Consideration must be Lawful

Consideration should be lawful, otherwise the agreement becomes

void. According to section 23 of the Indian Contract Act
consideration is not lawful in the following situations:

a. When it is made of an act forbidden by law

b. When it causes injury to a person or property of another
person.
c. When it is declared as immoral or opposed to public policy.

7. Define undue influence. Explain the provisions as per Sec. 16(1) in

the contract act regarding undue influence.

A contract is said to be induced by ‘undue influence’ where the relations

subsisting between the parties are such that one of the parties is in a position
to dominate the will of the other and uses that position to obtain an unfair
advantage over the other.
 A person is deemed to be in a position to dominate the will of the other in
the following situations;

a. Where he holds real or apparent authority over the others

b. Where he stands in a fiduciary relation to the other; fiduciary relation
means a relation involving trust and confidence.
c. Where he makes a contract with a person whose mental capacity is
temporarily or permanently by a reason of age, illness or mental or bodily
distress.

If the person who wants to avoid the contract on the ground of undue
influence is able to establish that the contract is apparently unconscionable,
the law presumes that the consent must have been obtained by undue
influence. The burden is shifted to the dominant party to prove that he has
not used undue influence.

The presumption of undue influence can be rebutted by showing the

following facts:

a. That there has been full disclosure of material facts;

b. That the consideration was adequate, and

That the other party was in receipt of independent advise

8. What is fraud? How does it differ from misrepresentation?

When a false statement is made to another person to induce him to enter into
a contract and the person making the statement has an intension to deceive the
other person, it can be termed as fraud. Fraud is the willful representation made
by the party to a contract with the intent to deceive the other party or to induce
such party to enter into a contract.

Misrepresentation is a false statement which the person making it honestly

believes to be true or which he does not know to be false. It also includes non-
disclosure of a material fact or facts without any intent to deceive the other
party.

The following are the differences between fraud and misrepresentation:

1. In misrepresentation there is no intention to deceive the other party. In

fraud there is intention to deceive the other party.
2. In misrepresentation the making false statement honestly believes it to be
true. In the case of fraud the person making the statement knows it to be
false or makes it recklessly – not caring whether it is true or false.
3. In misrepresentation the aggrieved party has no right to sue for damages.
In fraud there is a right to claim damages.
4. Fraud is usually an offence under criminal law for it involves cheating.
There is no criminal element in misrepresentation.
5. In case of misrepresentation the aggrieved party cannot avoid the contract
if he could have discovered the truth with ordinary diligence. In case of
fraud, the aggrieved party could avoid the contract even though he could
discover the truth with ordinary diligence.
9. Distinguish between coercion and undue influence.

Coercion is defined in section as follows. Coercion is the committing or

threatening to commit any act forbidden by the Indian Penal Code, or the
unlawful detaining or threatening to detain, any property to the prejudice of
any person whatever with the intention of causing any person to enter into an
agreement.

A contract is said to be induced by ‘undue influence’ where the relations

subsisting between the parties are such that one of the parties is in a position to
dominate the will of the other and uses that position to obtain an unfair
advantage over the other.

The following are the differences between coercion and undue influence:
1. Coercion involves the use of physical force while undue influence
involves only moral pressure.
2. In the case of undue influence the relationship between the parties should
be such that one is in a position to dominate the will of the other. In the
case of coercion, there may not be any relationship between the parties.
Even a stranger to contract can exercise coercion.
3. Coercion involves criminal liability whereas undue influence does not
involve any criminal liability.
4. In the case of certain relationships there is a presumption of undue
influence, whereas there are no such presumptions in coercion.
5. When the consent of the promisor is obtained by coercion the contract is
voidable. In the case of undue influence the contract is either voidable or
the court may set aside it or enforce it in a modified form.
10. What is mistake? Explain unilateral and bilateral mistake.

Mistake may be defined as an erroneous belief about something mistake

usually has serious consequence in a contract. The area of mistake is divided
into two categories. (i) Mistake of law, and (ii) mistake of fact.

Bilateral Mistake

Section 20 of the act provides that “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. From this definition it is clear that two requirements
should be met, namely;

a. There must be a common or mutual mistake; ie., the mistake should be

shared by both the parties, and
b. The mistake must relate to a manner of fact essential to the agreement.

Bilateral mistake could be classified into two categories ; (i) Mistake as to

subject matter, and (ii) mistake as to possibility of performing the contract.
[Link] as to the subject matter

Where both the parties to an agreement are under a mistake relating to the
subject matter, the agreement is void. Mistakes as to the subject matter may
be of the following types.

a. Mistake as to the existence of the subject matter

Sometimes the parties may be mistaken as to the existence of the subject

matter of the contract. If without the knowledge of the parties the subject
matter had ceased to exist, the contract becomes void.

b. Mistake as to the identity of the subject matter

If both the parties are mistaken about the identity of the subject matter, the
contract shall be void.

c. Mistake as to the title of the subject matter

If the seller attempting to sell a thing which he is not entitled to sell and both
the parties are acting under a mistake, the agreement is void.

d. Mistake as to the quality of the subject matter

If the subject matter is something which is qualitatively very much different

from what the parties thought to be, the agreement is void.

e. Mistake as to the quantity of the subject matter

When the quantity sold and the quantity intended to be purchased is

fundamentally different, the mistake may invalidate the contract.

2. Mistake to the possibility of performing the contract

If both the parties believe that an agreement is capable of being performed

when in fact this is not the case, the agreement is void.

a. Physical Impossibility
b. Legal Impossibility
c. Unilateral Mistake

Two widely recognized exceptions to the general rule that unilateral

mistakes cannot be ground for avoiding a contract is provided below:

a. Mistake as to the identity of the person contracting with

If one of the parties represents himself to be some person other than the rally
is, there is a mistake as to the identity of the person contracted with.

b. Mistake as to the nature of the contract.

A contract shall be void if a person contracts in a mistaken belief that he is

signing a different type of document. If the true nature of the document is
not revealed to the person who sign it, it can be said that the mind of the
person singing the document does not go with the signature. This mistake
would invalidate the contract.

11. Whether silence would amount of fraud? Explain.

The act provides that mere silence as to facts likely to affect the
willingness of a person to enter into contract is not fraud. Thus a party to
a contract is under no obligation to disclose the whole truth to the other
party. But in exceptional situations a party to the contract may have a
responsibility to speak and in such situations silence may amount to
fraud. The following are those situations:
a. Duty to speak
If the circumstances are such that it is the duty of the person keeping
silence to speak, silence would amount to fraud. The following are those
situations where a person has a duty to speak;
(i) Contract of utmost good faith

Certain contracts like insurance are treated as uberrimaefideicontracts.

(ii) Where the parties stand in near relationship

If the contracting parties are having fiduciary relationship the parties are
under obligation to disclose the whole truth.

b. Where silence itself is equivalent to speech

For example, A says to B “if you don’t deny this I shall presume that the car
you are selling me has not met with an accident. If B says nothing his silence
is equivalent to speech.

c. Other Exceptions;
(i) Change of Circumstances

If a representation becomes false dues to change of circumstances at the time

when the contract is entered into, although it was true at the time when it was
made, it is the duty of the person who made the representation to
communicate the change of circumstances.

(ii) Latent Defects

If a seller fails to inform the buyer as to a latent defects, his silence amounts
to fraud. .

12. “An agreement in restraint of trade is void.” Discuss the law,

giving exceptions to it any.
An agreement seeking to restrain a person from exercising a lawful
profession, trade or business of any kind is void to that extent. Therefore
any agreement which places undue restriction on this right is void.
However there are few restrictions which are recognized by the statues
itself. The following are those exceptions:
a. Sale of good will
On the sale of the goodwill of a business, the seller may agree not to
carry on similar business within specified local limits so long as the
 buyer carries on like business. One additional requirement is that the
court should find these restrictions as reasonable.
b. Exceptions under the Partnership Act, 1932
The partnership act offers few exceptions.
(i) A partner shall carry on any business other than that of the firm while
he is a partner.
(ii) An outgoing partner may agree with his partners to carry on a business
similar to that of the firm within a specified period or within specified
local limits.
(iii) Partners may upon or in anticipation of the dissolution of the firm,
make an agreement that some or all of them will not carry on a
business similar to that of the firm within a specified period or within
specified local limits.
(iv) Where the goodwill of the firm is sold after discussion, partner may
carry on a business competing with that of the buyer and he may
adverse such business.
(v) Any partner may, upon the sale of goodwill of the firm, makes an
agreement with the buyer that such partner will not carry on any
business similar to that of the firm within a specified period or within
specified local limits. These restrictions will be valid if the court finds
them reasonable.

© Exceptions under the common law

The above restrictions are provided by the statutes. There are a few more valid
restrictions possible based on English case laws.

(i) Service Agreements

An employer may prevent an employee from working anywhere else during

the term of the contract of employment. These restrictions are generally
considered as valid. However, a restriction on an employee to not engage in
a similar employment after the termination of the service is void.

(ii) Trade Combinations

An agreement between different firms in the nature of a trade combination in

order to maintain a price level is not illegal.

13. What are the essentials of a wagering agreement?

It is defined as an agreement between two parties by which one promises to

pay money or money’s worth on the happening of some uncertain event in
consideration of the other party’s promises to pay if the even does not
happen. Agreement by way of wager are void.

The following are the essentials of a wagering agreement;

a. There must be a promise to pay money or money’s worth.

b. Promise is conditional on the happening or not happening of an event.
c. The event is uncertain.
d. There must be two parties and each party may stand to win or lose.
e. The parties should not have any control over the event.
f. The parties should have no interest other than the stake involved.
14. Explain the law relating to restitution.

When a contract becomes void, the party who has received any benefit under
it must restore it to the other party or must compensate the other party by the
value of the benefit. This restoration of the benefit is called restitution. The
principle of restitution is carried in the following situations.

a. A party rescinding a voidable contract shall, if he has received any

benefit under it shall restore it to the person from whom he received it.
b. When an agreement is discovered to be void or when a contract 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.

Section 65, it may be noted, applies to contracts,” discovered to be void” and

“contracts which become void”. It does not apply to;

a. Contracts which are known to be void when they are entered into : and
b. Contract of parties who are incompetent to contract.
15. The rules regarding contingent contracts.

The following are the essentials of a contingent contract;

a. There must be a contract to do or not to do something.

b. It must depend on the happening or non-happening of an uncertain event.
c. The event must be collateral to the contract.
16. Who is bound to perform a contract?
(i) The promisor
As a general rule, a contract may be performed by the promisor, either
personally or through any other competent person. However, if the intention
of the parties as reflected in the contract is that it should be performed by the
promisor himself, it should be performed by him.
(ii) The agent
Where a contract does not involve personal skill or competence it may be
performed by any competent person appointed be the promisor.
(iii) The legal representative
A contract involving personal skill comes to an end on the death of the
promisor. If no such personal element is involved, the legal representative is
bound to perform it unless a contrary intention appears from the terms of the
contract.
(iv) Third parties
When a promise accepts performance of the promise from a third person, he
cannot afterwards enforce it against the promisor.
17. What is meant by appropriation of payment? Explain the rules.
 The rule relating to appropriation of payment is contained in section 59 to
61 of the Act.
a. Appropriation by debtor
Where the debtor makes an express or implied intimation as to the debts to
which his payments must be applied, the creditor must apply the sum to that
specific debt.
b. Appropriation by the creditor
Where the debtor does not intimate at the time of payment as to which
particular debt the payment is to be applied, the creditor may apply the
payment to any lawful debt. The creditor may apply the amount even to the
time barred debt.
© Where the debtor does not intimate and the creditor fails to appropriate
Where the debtor does not expressly intimate and where the creditor fails to
make any appropriation, the payment shall be applied in discharge of the debts
in chronological order, ie., in the order of time. If the debts are of equal
standing, the payment is to be applied proportionately.
18. Explain the rules regarding performance of joint promises.
When two or more persons have made a joint promise, all of them must jointly
fulfill the promise. The following are the rules regarding joint promisors.
(a) Joint performance by all promisors
When two or more persons have made a joint promise, all of them must jointly
fulfill the promise. The following are the rules regarding joint promisors. If any
of the joint promisors made, his legal representatives will be jointly liable for
performance along with the surviving promisor or promisors. If all of the
original promisors die, the legal representatives of all such promisors will be
jointly responsible for the performance of the promise.
(b) Joint promisors may be compelled to perform
When two or more persons make a joint promise and there is no express
contract to the contrary, the promise may compel any one or more of the joint
promisors to perform the whole of the promise.
(c) Right to claim contribution
If any of the joint promisors is compelled to perform the whole of the promise,
he may require the other joint promisor to contribute equally with himself to the
performance of the promise. The rule is again subject to a contract to the
contrary.
(d) Sharing of loss arising from default
If any one of the joint promisors make default in the contribution, the
remaining joint promisors must bear the loss arising from such default in
equal shares.
(e) Release of a joint promisor
A release by the promise of any of the joint promisor does not discharge the
other joint promisors from liability. The released joint promisor continuous
to be liable to the other joint promisors.
19. What is supervening impossibility?
Supervening impossibility is the impossibility arising after the performance
of contract. However this arise at the time when the promisor performance is
due. Such impossibility usually arise due to fact that the promisor had no
reason to anticipate and did not contribute the occurrence.
(a) Destruction of subject matter of contract
When the subject matter of a contract, subsequent to its formation is
destroyed without any fault of the parties to the contract, the contract is
discharged.
(b) Non – existence or non-occurrence of a particular state of things.
Sometimes a contract may be entered into on the basis of a continued
existence or occurrence of a particular state of things. If there is any change
in the state of things, or if the state of things which ought to have occurred
does not occur, the contract is discharged.
(c) Death or personal incapacity
Where the performance of a contract depends on the personal skills or
qualification of a party, the contract is discharged on the illness or incapacity
or death of the party.
(d) Change of law or stepping in of a person with statutory authority.
Sometimes after the formation of a contract law may undergo some changes
or a statutory authority may intervene which may make the performance of
contract impossible. The contract gets discharged in those situations.
(e) Outbreak of war
A contract entered into with the national of the enemy country is unlawful
and could not be performed contracts entered into before the outbreak of war
are suspended during the war and may be revived after the war is over.
20. What are the different types of damages available?
Damages are a monetary compensation allowed by the court, to the
injured party for the loss or injury suffered by him by the breach of the
contract. The object of awarding compensation for the breach of contract
is to put the injured party in the same position in which he would have
been had there been performance and not breach. The following are the
major types of damages;
a. General or Ordinary damages

These are damages which arise naturally in the usual course of things
from the breach of contract.

b. Special damages

Special damages are compensation amounts which may be claimed by the

aggrieved party over and above the ordinary damages because of special
circumstances known to both the parties.

c. Vindictive or exemplary damages

Damages are usually awarded only for repairing the loss of the injured
party. However, in exceptional situations the court may award damages
with an intention to punish the wrong doer of the injury caused.

d. Nominal damages

Nominal damages are very small or name sake compensation. These are
awarded in situations where the injured party has not in fact suffered any
loss by reason of the breach of contract.

21. Explain the terms ‘penalty’ and ‘liquidated damages’.

 ‘Penalty’ is a sum named in the contract at the time of its formation, which is
disproportionate to the damage likely to accrue as a result of the breach.

‘Liquidated damages’ represent a fair and genuine pre-estimate of the

probable loss that might ensue as a result of the breach of contract.

22. Secret key cryptography

It is also known as symmetric key cryptography. In this cryptography method,

the single key needed to encrypt and decrypt message is a shared secret between
the communicating parties. The main problem with this method is that the secret
key must be communicated through an external mechanism separate from the
communication channel over which the encrypted text flows.

23. Public Key cryptography

It is also known as asymmetric cryptography. It is a class of cryptographic

protocols based on algorithms. This method of cryptography requires two
separate keys one that is private or secret and me that is public. Public key
cryptography uses a pair of keys to encrypt and decrypt date of protect it against
unauthorized access or use. Network users receive a public and private key pair
from certification authorities. If other users want to encrypt data, they get the
intended receipts public key from a public directory.

[Link] we say that a person is of unsound mind? What are the various
types of insanity?

[Link]: An idiot is a person whose mental faculties are not fully developed.
He is a person of arrested mental growth. Such persons could never enter into
contracts.

b. Lunacy: When a person losses his mental balance and faculties due to reason
like mental strains, diseases etc., they may become incapable of contracting.
c. Drunkenness: A person who is under the heavy influence of intoxicants is
capable of entering into contracts and such persons are also treated as persons of
unsound mind for the purpose of contract law.

24.“A minor is liable for necessaries”. Comment.

Though minors are not generally liable for the agreements they enter into, they
may be made liable for the agreements they enter into, they may be made liable
if it is proved that the agreement was for necessaries. Necessaries are those
goods which are suited to the station in life of the minor. It is not just
necessities. It does not include luxuries also. Thus the term necessaries is a
relative fact, to be determined with reference to the standard of living and
circumstances of the particulars minor.

To make something a ‘necessary’ two conditions must be satisfied. (a)

The contracts must be for goods reasonably necessary for his support and
station in life, and (b) he must not already have a sufficient supply of these
goods. Necessaries do not mean goods alone. Sometimes it may be contracts
entered into for providing services. If the services agreed to be provided is
beneficial to the minor it can be treated as valid.

[Link] is meant by restitution? How far it is applicable to minors?

If the minor has received any benefit under a void agreement, he cannot be
asked to pay for the same. However if the minor represents his age and thereby
gains an unfair advantage the court may ask the minor to give back the benefit.

15 MARK QUESTIONS
1. Essential elements of a valid contract
a. Agreement:
Agreement is fundamental to a contract. When one person makes a
valid proposal and the other person accepts it, we can say that there is
an agreement.
b. Consensus ad idem
 The Latin expression consensus ad idem means identity of minds
between parties. Both the parties to an agreement must agree about the
subject matter of the agreement in the same sense and at the same time
c. Lawful Consideration
Consideration is “something in return.” It may be some benefit to the
party. Consideration has been defined as the price paid by one party
for the promise of the other. An agreement is enforceable only when
both the parties get something and give something
A agrees to sell his house to B for Rs.10 Lac is the consideration for
A’s promise to sell the house, and A’s promise to sell the house is the
consideration for B’s promise to pay Rs.10 Lac. These are lawful
considerations.

E.g., A promise to obtain for B employment in the public service, and

B promise to pay 10,000 rupees to A. the agreement is void, as the
consideration for it is unlawful.
d. Capacity of parties
It means that the parities to an agreement must be competent to
contract. According to Section 11, in order to be competent to contract
the parties must be of the age of majority and of sound mind and must
not be disqualified from contracting by any law to which they are
subject. A contract by a person of unsound mind is void ab-initio
(from the beginning).
Example: M, a person of unsound mind, enters into an agreement with
S to sell his house for Rs.2 lac. It is not a valid contract because M is
not competent to contract.
e. Free Consent: Consent means that the parties must have agreed upon
the same thing in the same sense. For a valid contract it is necessary
that the consent of parties to the contact must be free.
Example: A compels B to enter into a contract on the point of pistol. It
is not a valid contract as the consent of B is not free.
f. Lawful Objects:
It is also necessary that agreement should be made for a lawful object.
The object for which the agreement has been entered into must not be
fraudulent, illegal, immoral, or opposed to public policy or must not
imply injury to the person or property of another.
Example:
A promise to pay B Rs.5 thousand if B beats C. The agreement is
illegal as its object is unlawful.
g. Not Expressly Declared Void:
An agreement must not be one of those, which have been expressly
declared to be void by the Act. An agreement in restraint of trade and
an agreement by way of wager have been expressly declared void.
 h. Possibility of Performance: The valid contract must be capable of
performance section 56 lays down that. “An agreement to do an act
impossible in itself is void.” If the act is legally or physically
impossible to perform, the agreement cannot be enforced at law.
Example:
1. A agrees with B to discover treasure by magic, the agreement is not
enforceable.

2. A agrees with B to put life into B’s dead brother. The agreement is
void as it is impossible of performance.
i. Certainty:
According to Section 29 of the Contract Act, “Agreements the
meaning of which are not certain or capable of being made certain are
void.” In order to give rise to a valid contract the terms of the
agreement, must not be vague or uncertain.
E.g., A agrees to sell B a hundred tons of oil. It is not clear what is the
kind of oil. The agreement is void because of its uncertainty.
2. Classification of contract
Contracts According to formation
According to the mode of formation of contracts, contracts may be classified
into three namely
 Express Contract,
 Implied Contract, and
 Quasi – Contract
Express Contract
A contract is said to be an express contract, if the terms of a contract are
expressly agreed upon between the parties (either by words spoken or written)
at the time of formation of the contract. An express promise results in express
contract. A promise is said to be an express promise, when the offer or
acceptance of any promise is made in words
. Implied Contract
An implied contract is one for which the proposal or acceptance is made
otherwise than in words.
Implied contracts are inferred from the circumstances of the case and conduct of
the parties.
For example, when A takes a cup of milk in a hotel, there is an implied contract.
Quasi – Contract
A quasi-contract is one, which is created by law. In the quasi-contract, there is
no intention on either side to make a contract. In a quasi-contract, rights and
obligations arise not by an agreement but by operations of law.
For example, where certain letters are delivered to a wrong addressee, the
addressee is under an obligation to return the letters.
Classification of Contracts according to performance
According to the extent of performance of contracts, contracts may be
classified as
 Unilateral Contract
 Bilateral Contracts
 Executed contracts
 Executory contracts
 Unilateral Contract
It is also called as one-sided contract. In a unilateral contract, only one party has
to satisfy his obligation at the time of the formation of it, the other party having
fulfilled his obligation at the time of the contract or before the contract comes
into existence.
A typical example is an offer for a reward. A promise to reward any person who
finds his missing dog. In this case no obligation to anyone. If B finds it A will
be obliged to pay the reward
2. Bilateral Contract
A contract is said to be a bilateral contract where the obligations of both the
parties to the contract are pending at the time of formation of the contract. In
this type of contract, a promise on one side is exchanged for a promise on the
other
For example, A promises to stitch a blouse and B promises to pay Rs.30. Here
A promises to stitch the blouse and B promises to pay. Thus, each party is both
a promisor and a promisee.
3. Executed Contract
A contract is said to be executed contract when both the parties to contract have
performed their share of obligation. When a person purchases a pen from a shop
and the price is paid it can be termed as an executed contract
4. Executory contract
An executory contract is one, which is either wholly unperformed, or something
remains in there to be done by both the parties to contract. Sometimes, a
contract may be partly executed and partly executory.
For Example, if an agreed to sell his house to B for 20 lakhs. If the contract is to
be performed on next month it is an executory contract
Classification according to English Law
:1. Formal Contracts: English Contract Act recognizes formal contracts.
Validity of these contracts depends upon their form and they are valid even
without consideration.
They are of two types: -
7. Contracts under Seal, and
8. Contracts of Record.
9. ‘Contracts under seal’ are in writing and signed by the parties to them.
The following contracts should be under seal, otherwise they will not be
valid:-(a) Contracts without consideration;(b) Lease of land for a period
of more than three years;(c) Contracts by corporations; and(d) Contracts
with British Shipping
10. ‘Contracts of Records’ include the court judgments and recognizances.
Obligations in such cases arise out of court judgments and not under
contracts.
Simple Contracts: All contracts other than the formal ones are called
simple contracts. They may either be in writing or oral. Consideration
is also necessary for their validity.
2. Essentials of a valid offer
a. Offer must intend to create legal relations: An offer will not become a
promise even after it has been accepted unless it is made with a view
to create legal obligations. A mere social invitation cannot be regarded
as an offer because if such an invitation is accepted it will not give rise
to any legal relationship. For example, A invites his friend B to a
dinner and B accepts the invitation. If B fails to turn up for dinner, A
cannot go to the court to claim his loss.
b. Terms of offer must be certain, definite and not vague: No contract
can be formed if the terms of the offer are vague, loose and indefinite.
When the offer itself is vague or loose or uncertain, it will not be clear
 as to what exactly the parties intended to do. For Example, when A
agrees to sell his car to B for Rs. 30,000 after making necessary
repairs. What are necessary repairs is a debatable question and as such
the offer is not valid.
c. The offer must be distinguished from a mere declaration of intention:
Sometimes a person may. Make a statement without any intention of
creating a binding obligation. Such statement or declaration only
indicate that he is willing to negotiate and an offer will be made or
invited in future. For example, an auctioneer advertised in a
newspaper that a sale of office furniture will be held on a certain date.
A person with the intention to buy furniture came. from a distant place
for the auction, but the auction was cancelled. He cannot file a suit
against the auctioneer for his loss of time and expenses because the
advertisement was merely a declaration of intention to hold auction
d. Offer must be distinguished from an invitation to offer: An offer must
be distinguished from an invitation to receive an ~offer or to make on
offer or to negotiate. For example, you must have noticed that
shopkeepers generally display their goods in showcases with price
tags attached. The shopkeeper in such cases is not making an offer so
that you can accept it.
e. The offer must be communicated: An offer must be communicated to
the person to whom it is made. the first part of the definition of
proposal emphasises this fact by saying that. When one person
signifies to another his willingness to or to abstain ..............." It means
that an offer is complete only when it is communicated to the offeree
case Law Lalman Shukla v. Gauri Datt, G sent his servant E to trace
his lost nephew. When the servant had left, G announced a reward of
Rs. 501 to anyone who traces the boy. L found the boy and brought
him home. When He came to know of the reward, he decided to claim
it. It was held that L was not entitled to the reward because he did not
know about the offer when he found the missing boy.
f. Offer should not contain a term the non-compliance of which would
amount to acceptance: While making the offer, the offeror cannot say
that if the offer is not accepted before a certain date, it will be
presumed to have been accepted. Unless the offeree sends his reply,
no contract will arise. For example, A. writes to B "I offer to sell my
scooter to you for Rs. 7,000. If I do not receive a reply by Wednesday
next, I shall assume that you have accepted the offer." If B does not
reply, it shall not imply that he has accepted the offer. Hence, there
will be no contract
 g. Special terms or conditions in an offer must also be communicated:
The offeror is free to lay down any terms and conditions in his offer,
and, if the other party accepts the offer, then he will be bound by those
terms and conditions. The important point is that if there are some
special terms and conditions they should also be duly. communicated,
For example, a couple hired a room in a hotel for a week. When they
entered the room, they found a notice on the wall disclaiming the
owner’s liability for damage, loss or theft of articles. Some of their
items- were stolen. The owner of the hotel! vas held liable since the
notice was not a part of the contract as it came to the knowledge of the
client after the contract has been entered into
h. An offer may be general or specific
A specific offer is made to a specific individual or a definite group of
individuals. When the offer is made to the world at large it is said to
be general.
i. An offer may be conditional
If an offer is made subject to a condition it can be accepted only if the
condition is satisfied
3. What is meant by free consent? Explain situations where consent is
not free.
Free consent is one of the essential elements of a valid contract. Section
13 provides that “two or more persons are said to consent when they
agree to upon the same thing in the same sense. This meeting of minds is
also termed as consensus ad idem.
Section 14 provides that “Consent is said to be free when it is not caused
by
a. Coercion, as defined in section 15, or
b. Undue influence, as defined in section 16
c. Fraud as defined in section 17, or
d. Misrepresentation, as defined in section 18, or
e. Mistake subject to the provisions of sections 20, 21 and 22.

In case of coercion, undue influence, fraud and misrepresentation consent

exists but it is not free. This is called “error in causa” or error in the
inducing cause. In the case of mistake, consent may be altogether absent
and in such situations it is termed as “error in consensus” or absence of
consent.

a. Coercion

Coercion is defined in section as follows. Coercion is the committing or

threatening to commit any act forbidden by the Indian Penal Code, or the
unlawful detaining or threatening to detain, any property to the prejudice
of any person whatever with the intention of causing any person to enter
into an agreement.

Duress

In the place of the Indian expression coercion the term used in England is
duress. Duress involves actual or threatened violence over the person of
another with a view to obtaining his consent to the agreement. No such
immediate violence is required in the case of coercion. Detention of
property is not treated as duress. Coercion includes detention of property
also.

b. Undue Influence

A contract is said to be induced by ‘undue influence’ where the relations

subsisting between the parties are such that one of the parties is in a
position to dominate the will of the other and uses that position to obtain
an unfair advantage over the other.

c. Fraud

When a false statement is made to another person to induce him to enter

into a contract and the person making the statement has an intension to
deceive the other person, it can be termed as fraud. Fraud is the willful
 representation made by the party to a contract with the intent to deceive
the other party or to induce such party to enter into a contract.

d. Misrepresentation

Misrepresentation is a false statement which the person making it

honestly believes to be true or which he does not know to be false. It also
includes non- disclosure of a material fact or facts without any intent to
deceive the other party.

e. Mistake

Mistake may be defined as an erroneous belief about something mistake

usually has serious consequence in a contract. The area of mistake is
divided into two categories. (i) Mistake of law, and (ii) mistake of fact.

Duress

In the place of the Indian expression coercion the term used in England is
duress. Duress involves actual or threatened violence over the person of another
with a view to obtaining his consent to the agreement. No such immediate
violence is required in the case of coercion. Detention of property is not treated
as duress. Coercion includes detention of property also.

Essential element of fraud

There must be false representation.

The fraud must have been committed by a party to the contract or with his
connivance or by his agent.

The representation must be made with the knowledge that it is false.

The representation must be made with the intension to deceive the other party.

The party to the contract must have been deceived and should have suffered
damage or loss.
Maintenance

Maintenance is an agreement to give assistance to another to enable him to

bring or defend legal proceedings when the person giving assistance has got no
legal interest of his own.

Champerty

Champerty is an agreement whereby one party assists another to bring an action

for recovering money or property and is to share in the proceeds of the action.

Wagering Agreement or Wager

It is defined as an agreement between two parties by which one promises to pay

money or money’s worth on the happening of some uncertain event in
consideration of the other party’s promise to pay if the event does not happen.
Agreements by way of wager are void.

Restitution

When a contract become void, the party who has received any benefit under it
must restore it to the other party or must compensate the other party by the
value of the benefit. This restoration of the benefit is called restitution.

Absolute Contract

It is a contract in which the parties must perform their promises in all events.

Contingent Contract

It is a contract to do or not to do something if some event, collateral to such

contract does or does not happen.

Essential Characteristics of a Contingent Contract

 There must be a contract to do or not to do something.

 It must depend on the happening or non-happening of an uncertain event.
  The event must be collateral to the contract.

Differences between Wagering Agreement and Contingent Contract

A wagering agreement consists of reciprocal promises whereas a contingent

contract may not contain reciprocal promises.

In a wagering agreement the parties have no other interest in the subject matter
of the agreement except the winning or losing of the amount of the wager. But
in a contingent contract parties may have some interest in the subject matter.

Wagering agreements are contingent in nature, whereas contingent contracts are

not wagering in nature.

In a wagering agreement the future event is the sole determining factor while in
a contingent contract the future event is only collateral.

Attempted Performance or Tender

When the promisor expresses his willingness to perform the obligation, but the
promise refuses to accept, it is termed as attempted performance or tender.

Performance of Contract

When the parties to the contract fulfill their obligations under a contract, the
contract is said to have been performed and the contract comes to an end.
Section 37 lays down that the parties to a contract must either perform or to
perform, their respective promises, unless such performance is dispensed with
or excused.

Quasi Contract

A Quasi contract is a retroactive arrangement between two parties who have no

previous obligations to one another. It is created by a judge to correct a
circumstance in which one party acquires something at the expense of the other.
The contract aims to prevent one party from unfairly benefiting from the
situation at the party’s expense.

Assignment of Contracts

The word ‘Assignment’ means transfer. Assignment of contract means transfer

of contractual rights or obligations by a party to the contract to some other
person. Transfer of contractual obligations may happen either by (i) the act of
the parties or by (ii) operation of law.

Discharge of Contract

Discharge of contract means the termination of contractual relationship between

the parties. When a contract is discharged, the rights and obligations created by
it comes to an end.

Novation

Novation means substituting a new contract in the place of an old contract.

Sometimes the same parties may adopt a new contract in the place of an old
one, or there could be a change of parties. The essential requirement of novation
is that this new agreement is entered into in consideration for the old agreement.

Rescission of the Contract

Rescission is the revocation of a contract. When a contract is broken by one

party, the other party may sue for rescission and refuse further performance. He
is freed from all obligations under the contract.

Damages

Damages are the monetary compensation allowed by the court, to the injured
party for the loss or injury suffered by him by the breach of the contract. The
word ‘damages’ literally means compensation. The object of awarding
compensation for the breach of contract is to put the injured party in the same
position in which it would have been had there been performance and not
breach.

Special Damages

Special damages are compensation amounts which may be claimed by the

aggrieved party over and above the ordinary damages because of special
circumstances known to both the parties.

Vindictive or Exemplary damages

Damages are usually awarded only for repairing the loss of the injured party.
However, in exceptional situations the court may award damages with an
intention to publish the wrong doer for injury caused. The situations are
(a)breach of a promise to marry, and (b) dishonor of a cheque by a banker
wrongfully when the possess sufficient funds to the credit of the customer.

Liquidated damages and penalty

Liquidated damages represent a fair and genuine pre-estimate of the probable

loss that might ensue as a result of the breach of contract. Penalty is a sum
named in the contract at the time of its formation, which is disproportionate to
the damage likely to accrue as a result of the breach.

Quantum Meruit

The term quatum meruit means “ as much as merited” or as much as earned. A

right to sue on a quantum meruit arises where a contract, partly performed by
one party, has become discharged by breach of the contract by the other party.
This right to claim the remuneration for the service rendered is not founded on
the original contract. That contract is either discharged by the breach of contract
or it has become void.

Injunction
An injunction is an order of the court to restrain the wrong doer from doing or
continuing a wrongful act. Injunctions are usually granted to enforce negative
stipulations in a contract. It is a preventive relief and is granted at the discretion
of the court.

4. What are the circumstances where the object or consideration of a

contract is termed as unlawful?

The object or consideration of an agreement shall be unlawful in the following

situations:

a. If it is forbidden by the law

If the consideration or the object of an agreement is forbidden by law it shall

be void.

b. If it is of such a nature that if permits it would defeat the provisions of

any law.

The agreement may not be providing for something against the provisions of
law. But if the agreements is permitted to be performed some other valid
legislation may be violated in its spirit.

c. If it is fraudulent

An agreement which is made for a fraudulent purpose is void.

d. If it involves or implies injury to the person or property of another

If the purpose of an agreement or the consideration of the agreement is

inflicting some injury to the person or property of another the agreement
would become void under section 23.

e. If the court regards it as immoral

If an agreement involves committing of an immoral act, especially sexual
immorality, then the agreement would be void.
 f. If the court regards it as opposed to public policy.

The term public policy is not defined by the contract act. An agreement is
said to be opposed to public policy when it is harmful to public welfare.

5. Discuss the rules regarding enforcement of contingent contracts.

Distinguish between contingent contracts and wagering contracts.

Section 32 to 36 of the contract act provide some rules regarding contingent

contracts.

a. Contingent contracts on the happening of an event.

Contingent contracts to do or not to do anything if an uncertain future event

happens cannot be enforced by law unless and until that event has happened. If
the event becomes impossible, such contracts become void. The contracts would
become void if the events becomes impossible.

b. Contracts dependent on the non-happening of an event.

Contingent contracts to do or not to do anything if an uncertain future event

does not happen can be enforce when the happening of the event becomes
impossible and not before.

c. Contracts contingent upon the future conduct of a person

If the future contingent event consists of how a person will act at an

unspecified time, that event shall be considered to have become impossible if
such person does anything which renders it impossible that he should so act
within any definite time or otherwise than under further contingencies.

d. Contracts contingent upon happening of a specified event within a

fixed time

Contingent contracts to do or not to do anything if a specified uncertain

event happens within a fixed time becomes void if at the expiration of the
time fixed, such event has not happened or if, before the time fixed, such
events become impossible.

e. Contracts contingent upon non- happening of a specified event within

a fixed time.

Contingent contracts to do or not to do anything if a specified uncertain

event does not happen within a fixed time, may be enforced by law when the
time fixed has expired and such event has not happened, or before the time
fixed has expired, if it becomes certain that such event will not happen.

f. Contracts contingent upon the happening of an impossible event.

Contingent agreements to do or not to do anything, if an impossible event

happens are void, whether the impossibility of the event is known or not to
the parties to the agreement at the time when it is made.

Differences between wagering agreement and contingent contract

a. A wagering agreement consists of reciprocal promises whereas a

contingent contract may not certain reciprocal promises.
b. In a wagering agreement the parties have no other interest in the subject
matter of the agreement except the winning or losing of the amount of the
wager. But in a contingent contract parties may have some interest in the
subject matter.
c. Wagering contracts are contingent in nature, whereas contingent contracts
are not wagering in nature.
d. A wagering agreement is void whereas a contingent contract is valid.
e. In a wagering agreement the future event is the sole determining factor
while in a contingent contract the future event is only collateral.
6. State the rules relating to time and place of performance of a
contract.
(a) Where no application is to be made and no time is specified.
 If a promisor has to perform his promise without application by the
promisee, and no time for performance is specified, it has to be performed
within a reasonable time.
(b) Where time is specified but no application is to be made.
Where a promise is to be performed on a certain day, and the promisor has
undertaken to perform it without application by the promisee, the promisor
may perform it at any time during the usual hours of business on such day
and at the place at which the promise ought to be performed.
(c) Application for performance on a certain day and at a proper time and
place.
When a promise is to be performed on a certain day, the promisor may
undertake to perform it after application by the promisee to that effect. In
such a case, it is the duty of the promisee, to apply for performance at a
proper place and within the usual hours of business.
(d) Place of performance where neither application is required nor a
place of performance fixed
When a promise is to be performed without application by the promisee and
no time is fixed for its performance, it is the duty of the promisor to apply to
the promisee to appoint a reasonable place for the performance of the
promise and to perform it at such place.
(e) Performance as prescribed by the promisee
The performance of a promise may be made in any manner or at any time
which the promisee prescribes or sanctions.
7. Explain the rules relating to devolution of joint rights and liabilities.
Sometimes two or more persons may jointly hold rights or liabilities. The
following are the rules regarding joint promisors.
(f) Joint performance by all promisors
When two or more persons have made a joint promise, all of them must jointly
fulfill the promise. The following are the rules regarding joint promisors. If any
of the joint promisors made, his legal representatives will be jointly liable for
performance along with the surviving promisor or promisors. If all of the
original promisors die, the legal representatives of all such promisors will be
jointly responsible for the performance of the promise.
(g) Joint promisors may be compelled to perform
When two or more persons make a joint promise and there is no express
contract to the contrary, the promise may compel any one or more of the joint
promisors to perform the whole of the promise.
(h) Right to claim contribution
If any of the joint promisors is compelled to perform the whole of the promise,
he may require the other joint promisor to contribute equally with himself to the
performance of the promise. The rule is again subject to a contract to the
contrary.
(i) Sharing of loss arising from default
If any one of the joint promisors make default in the contribution, the
remaining joint promisors must bear the loss arising from such default in
equal shares.
(j) Release of a joint promisor
A release by the promise of any of the joint promisor does not discharge the
other joint promisors from liability. The released joint promisor continuous
to be liable to the other joint promisors.
Devolution of Joint rights
Where a promise has been made to several persons jointly, then unless a
contrary intention appears from the contract, the right to claim performance
rests with all of them. On the death of one of them, the rests vests with the
representatives of the deceased promises jointly with the survivors. On the
death of all the promises, it rest with the legal representatives of all the joint
promises.
8. What are the various ways in which a contract may be discharged?
Discharge of contract means termination of contractual relationship between
the parties. When a contract is discharged the rights and obligations created
by it comes to an end. A contract may be discharged by the following modes.
(a) Discharge by performance
When the parties to the contract fulfill their respective obligations the contracts
gets discharged by performance.
(i) Actual Performance
When both the parties perform their obligations exactly as per the terms of
the contract, the contract is performed by actual performance.
(ii) Attempted performance or tender
When the promisor offers to perform the contractual obligation and the
promisee is not willing to accept the performance the contract is deemed to
be discharged by attempted performance.
(b) Discharge by Agreement
(i) Novation
Novation means substituting a new contract in the place of an old contract.
The essential requirement of novation is that this new agreement is entered
into in consideration for the old agreement.

(ii) Rescission

Parties to the contract may decide to cancel a contract on the basis of mutual
consent and consideration. When such a rescission happens the original
contract gets discharged.

(iii) Alteration

Alteration of a contract takes place when one or more of the terms of the
contract is / are altered by mutual consent of the parties of the contract.

(iv) Remission

It means acceptance of a lesser performance than what was due under the
original contract.

(v) Waiver

It is a deliberate abandonment of the rights which parties to the contract

mutually have against each other. No consideration is necessary for waiver.

(vi) Merger

Merger takes place when an inferior right accruing to a party under a

contract merges into a superior right accruing to the same party under same
or some other contract.
(c) Discharge by impossibility of performance
(i) Impossibility to know to the parties at the time of making of contract.
(ii) Impossibility unknown to the promisor alone

Where at the time of making of the contract both the parties are ignorant of
the impossibility, the contract is void on the ground of mutual mistake.

(iii) Impossibility know to the promisor alone

If the promisor alone is aware of the impossibility of performance at the time

of making of the contract, he shall have to compensate the promisee for any
loss which such promisee sustains through non-performance of the promise.

(iv) Impossibility which arises subsequent to the formation of the

contract.

When a contract which was capable of performance at the beginning

subsequently due to change of circumstances becomes impossible of
performance, the contracts becomes void.

(d) Discharge by lapse of time

The limitation act, 1963 lays down the duration within which an affected
party has to file case. If a contractual obligation is not performed by the
promisor and no legal action is taken by the promisee within the period of
limitation, he is deprived of his remedy at law. For all practical purposes the
contract has got the effect of termination.

(e) Discharge by operation of law

A contract may be discharged by operation of law also.

(i) By death

In case of contracts involving personal skill or ability, the contract is

terminated on the death of the promisor.
(ii) By Insolvency

When a person is declared as insolvent and an order of discharge is passed

against him he is released from all past liabilities.

(iii) Unauthorized alteration

Any material alteration of a written contract made without the consent of the
other party has the effect of discharging contract.

(f) Discharge by breach of contract

Breach of contract means breaking of a contractual obligation by a party to

the contract without lawful excuse. When a party to a contract fails to
perform the obligation imposed upon him, he is said to have committed a
breach of contract.

(i) Actual breach of contract

Actual breach may take place either;

At the time of when the performance of the contract is due.

During the performance of a contract, if one party to the contract fails to

perform his obligation under the contract, it is an instance of actual breach of
contract.

(ii) Anticipatory breach of contract

If a party to a contract repudiates or renounces his obligation before the time

fixed for performance, it can be treated as anticipatory breach of contract.

9. State the rules relating to time and place of performance of a

contract.
(f) Where no application is to be made and no time is specified.
If a promisor has to perform his promise without application by the
promisee, and no time for performance is specified, it has to be performed
within a reasonable time.
(a) Where time is specified but no application is to be made.
Where a promise is to be performed on a certain day, and the promisor has
undertaken to perform it without application by the promisee, the promisor
may perform it at any time during the usual hours of business on such day
and at the place at which the promise ought to be performed.
(b) Application for performance on a certain day and at a proper time and
place.
When a promise is to be performed on a certain day, the promisor may
undertake to perform it after application by the promisee to that effect. In
such a case, it is the duty of the promisee, to apply for performance at a
proper place and within the usual hours of business.
©Place of performance where neither application is required nor a place of
performance fixed
When a promise is to be performed without application by the promisee and
no time is fixed for its performance, it is the duty of the promisor to apply to
the promisee to appoint a reasonable place for the performance of the
promise and to perform it at such place.
(d) Performance as prescribed by the promisee
The performance of a promise may be made in any manner or at any time
which the promisee prescribes or sanctions
10. What remedies are available to a party in case of a breach of
contract?
(i) Rescission of the contract

Rescission is the revocation of a contract. When a contract is broken by one

party, the other party may sue for rescission and refuse further performance.

The court may grant rescission in the following cases;

a. Where the contract is voidable at the opinion of the plaintiff.

b. Where the contract is unlawful for causes not apparent on its face and the
defendant is more to blame than the plaintiff.
(ii) Damages
 Damages are a monetary compensation allowed by the court, to the injured
party for the loss or injury suffered by him by the breach of the contract. The
object of awarding compensation for the breach of contract is to put the
injured party in the same position in which he would have been had there
been performance and not breach.

(iii) Quantum Meruit

The term ‘quantum meruit’ means “as much as merited” or “as much
earned”. A right to sue on a quantum meruit arises where a contract, partly
performed by one party, has become discharged by breach of the contract by
the other party. This right to claim the remuneration for the services rendered
is not founded on the original contract.

(iv) Special Performance

In certain cases of breach of contract, damages may not be an adequate

remedy. In such cases the court may, in its discretion, grant specific
performance and compel the party in breach to do what he had promised to
do.

(v) Injunction

An injunction is an order of the court to restrain the wrong doer from doing
or continuing a wrongful act. Injunctions are usually granted to enforce
negative stipulations in a contract.

11. Who is a minor? Discuss the law relating to agreements made by a

minor in India.

a. An agreement with or by a minor is void

Section 10 requires that the parties to a contract must be competent and section
11 declares that a minor is not competent.
b.A minor can be a promise or beneficiary

If a contract is beneficial to a minor it can be enforced by him. Such contracts

are enforceable at the option of the minor and not at the option of the other or
others.

c. No ratification

An agreement with a minor is void from the very beginning. Therefore a

minor cannot ratify an agreement even on attaining majority.

d. No restitution

If a minor has received any benefit under a void agreement, he cannot be

asked to pay for the same. However if a minor misrepresents his age and
thereby gains an unfair advantage the court may ask the minor to give back
the benefit.

e. No specific performance

The minor’s agreement being void from the very beginning is not capable of
specific performance.

f. No estoppel

Even if a minor misrepresents his age and fraudulently induces another to

contract with him, he cannot be estopped from pleading infancy as a defence.

g. No insolvency

A minor is incompetent to contract and therefore he cannot be declared

insolvent.

h. Tortious Liability

A minor is liable for tortious (civil wrongs). However if a tort is connected

with a contract, it cannot be enforced by invoking tort law.
i. Minor can be an agent
A minor can act as an agent for principal who is competent to contract.
But such a minor will not be liable to his principal.
j. Minor as a partner

A minor cannot be a partner in a firm. However, in section 30 of the

partnership act permits a minor to be admitted to the benefits of a partnership
with the consent of all the partners.

k. Minor is liable for necessaries

Though minors are not generally liable for the agreements they enter into,
they may be made liable for the agreements they enter into, they may be
made liable if it is proved that the agreement was for necessaries.
Necessaries are those goods which are suited to the station in life of the
minor. It is not just necessities. It does not include luxuries also. Thus the
term necessaries is a relative fact, to be determined with reference to the
standard of living and circumstances of the particulars minor.