Business Laws

Formation Of The Contract Of Sale

Sale Of Goods Act, 1930

Section 1: Short title, extent, and commencement.

Section 2: Definitions.

Section 3: Application of provisions of Act 9 of 1872.

Section 4: Sale and agreement to sell.

Section 5: Contract of Sale.

Section 6: Existing or future goods.

Section 7: Goods perishing before making of contract.

Section 8: Goods perishing before sale but after an agreement to sell.

Section 9: Ascertainment of price.

Section 10: Agreement to sell at valuation.

Section 11: Stipulations as to time.

Section 12: Condition and warranty.

Section 13: When condition to be treated as warranty.

Section 14: Implied undertaking as to title, etc.

Section 15: Sale by description.

Section 16: Implied condition as to quality.

Section 17: Sale by Sample.

Section 18: Goods must be ascertained.

Section 19: Property passes when intended to pass.

Section 20: Specific goods in a deliverable state.

Section 21: Specific goods to be put into a deliverable state.

Section 22: Specific goods in a deliverable state, when the seller has to do anything.

Section 23: Sale of unascertained goods and appropriation.

Section 24: Goods sent on approval.

Section 25: Reservation of right of disposal.

Section 26: Risk prima facie passes with property.

Section 27: Sale by person, not the owner.

Section 28: Sale by joint owners.

Section 29: Sale by the person in possession under voidable contract.

Section 30: Seller or buyer in possession after sale.

Section 31: Duties of Seller and Buyer.

Section 32: Payment and Delivery.

Section 33: Delivery.

Section 34: Effect of part delivery.

Section 35: Buyer to apply for delivery.

Section 36: Rules as to delivery.

Section 37: Delivery of wrong quantity.

Section 38: Instalments deliveries.

Section 39: Delivery to carrier.

Section 40: Risk where goods are delivered at distant places.

Section 41: Buyer’s right to examine the goods.

Section 42: Acceptance.

Section 43: Buyer not bound to return rejected goods.

Section 44: Liability of buyer for neglect or reflexing delivery of goods.

Section 45: Unpaid seller.

Section 46: Unpaid seller’s rights.

Section 47: Seller’s lien.

Section 48: Part delivery.

Section 49: Termination of lien.

Section 50: Right of stoppage in transit.

Section 51: Duration of transit.

Section 52: How stoppage in transit is affected.

Section 53: Effect of subscale.

Section 54: Sale not generally rescinded.

Section 55: Suit for price.

Section 56: Damages for non-acceptance.

Section 57: Damages for nondelivery.

Section 58: Specific performance.

Section 59: Remedy for breach of warrant.

Section 60: Repudiation of contract.

Section 61: Interest by way of damages.

Section 62: Exchange of implied terms

Section 63: Reasonable time.

Section 64: Auction sale.

Section 65: Repeal.

Section 66: Savings.

Formation Of The Contract Of Sale Self-Study Questions And Answers

Question 1. Describe the Introduction of Sales of Goods.

Answer:

The Introduction of Sales of Goods

• It is one of the special types of contract.
• Initially, it was the part of Indian Contract Act, 1 872.
• Later it was deleted and a separate Sale of Goods Act was passed in 1930.
• The basic provisions and requirements of the contract equally apply to the Sales of Goods Act.
• It contains and deals with the law relating to the sale of goods and not with mortgage or pledge.
• It received its assent on 15^th March 1930 and came force into on 1^st July 1930.
• It extends to the whole of India except the state of Jammu and Kashmir.

Question 2. What are the Definitions?

Answer:

Buyer: a person who buys or agrees to buy the goods.

Seller: a person who sells or agrees to sell the goods.

Goods: As per section 2(7), it means every kind of movable property other than actionable claims and money and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale.

Money means current money and it includes rate and old coins. Actionable claims mean what a person cannot make a present use of or enjoy, but can recover utilizing a suit or an action.

Existing Goods: It means such goods that are in existence at the time of the contract of sale i.e. owned or possessed by the seller.

• Specific Goods: It means goods identified and agreed upon at the time the contract of sale has been made.
• Ascertained Goods: It means that the goods are identified under the agreement after the contract, of sale has been made.
• Generic or Unascertained Goods: It means the goods that are not specifically identified but are indicated by description.
• Future Goods: As per section 2(6), it means goods to be manufactured produced, or acquired by the seller after making the contract of sale.
• Contingent Goods: This means the goods the acquisition of by the seller depend upon a contingency that may or may not happen.
• Agreement to sell can only be there in respect of future or contingent goods.
• Actual sales can take place only in respect of specific goods.
• Goods are said to be in a deliverable state when they are in such a condition that the buyer would, under contract, be bound to take delivery of them.
• Delivery: it means Voluntary transfer of possession by one person to another.

Document of the title of Goods: It includes a bill of lading, dock- warrant, warehouse keeper’s certain, wharfinger’s certificate, or any other document used in the ordinary course of business as proof of the possession or control of the goods or authoring or purporting to authorize either by endorsement or delivery, the possessor of the document to transfer or receive goods thereby represented.

• Property: It means the general property and not merely a special property.
• Insolvent: a person is said to be insolvent when he ceases to pay his debts in the ordinary course of business.
• Mercantile Agent: Is the agent having in the customary course of business as such agent authority either to sell or consign goods, etc.
• Price: Is the money consideration received for the sale of goods.
• Quality of Goods: It includes their state or condition.

Question 3. Describe the Sale and Agreement to Sell.

Answer:

The Sale and Agreement to Sell

1. As per section 4(3) of the Act, “ where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale.”
2. As per section 4(3) of the Act “where under a contract of sale the transfer of the property in the goods in to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell.”

Question 4. The distinction between a Sale and an Agreement to Sell.

Answer:

The distinction between a Sale and an Agreement to Sell

Question 5. Define the distinguished from other similar contracts:

Answer:

1. Sale and Hire Purchase Agreement:

2. Sale and Bailment:

3. Sale and contract for work and labor:

Question 6. What are Contract of sale how made?

Answer:

1. There may be immediate delivery of goods.
2. There may be immediate payment of the price, but it may be agreed that the delivery is to be made at some future date.
3. There may be immediate delivery of the goods and an immediate payment of the price.
4. It may be agreed that the delivery or payment or both are to be made in installments.
5. It may be agreed that the delivery or payment or both are to be made at some future date.

Question 7. Define the Subject matter of the Contract of sale.

Answer:

As per section 6:

• Subject matter must always be goods which may be existing or future goods.
• Contract can also be made about the goods, the acquisition of which by the seller depends upon a contingency, which may or may not happen. Such contracts are contingent contracts.
• When the seller purports by his contract to effect a sale of future goods, the contract will operate only as an agreement to sell the goods and not as a sale.

Goods perishing before making a contract (section 7):

• The contract is void ab initio.
• If the seller enters into the contract even on being aware of the destruction, he is estoppel from, disputing the contract.
• It also includes the goods that have lost their commercial value.
• Mutual mistake of fact essential to the contract renders the contract void.

Goods Perishing after Agreement to sell (Section 8) without any of the party’s default:

• An agreement becomes void.
• Provided the risk has not passed to the buyer.
• It applies only to the sale of specific goods.
• For uncertain goods sale, the perishing of the whole quantity of such goods in the possession of the seller won’t relieve him of his obligation to deliver.

Question 8. Describe the Ascertainment of price.

Answer:

Price: It means a monetary consideration for the sale of goods.

• It may be money paid or promised to be paid.
• No sale can take place without a price.
• Only money transactions are valid, no dealing in kind.

As per Section 9:

1. Price may be
   • Fixed by a contract,
   • Agreed to be fixed is a manner provided by the contract, or
   • Determined by the course of dealings between the parties.
2. When it cannot be fixed in any of the above ways’, the buyer is bound to pay a reasonable price to the seller.
3. Generally market price would be reasonable price.

As per Section 10:

• Price is to be determined by third-party
• Where there is an agreement to sell goods on the terms that the price is to be fixed by a third party, and he either does not or cannot make such a valuation, the agreement will be void.
• If the third party is prevented by the default of either party from fixing the price, the party at fault will be liable for the damages to the other party who is not at fault.

Formation Of The Contract Of Sale Objective Questions And Answers

Question 1. State with reasons whether the following statement is Correct or Incorrect: Exchange of goods for goods between the two parties amounts to sale under the Sale of Goods Act, 1930.

Answer:

Incorrect: When goods are exchanged for goods, it is not a sale but a barter (Shelon (v) Cox). In sales there must be consideration in the form of money, called the price.

Question 2. State with reasons whether the following statements are Correct or Incorrect:

1. A bailment is the delivery of goods by one person to another for some purpose.
2. Means every kind of movable property other than actionable claims and money.

Answer:

1. Correct: The first important characteristic of bailment is that the goods must be handed over to the bailee for whatever is the purpose of bailment. Once this is done, bailment arises, irrespective of how this happens. Delivery of possession differs from mere custody. However, there is another important requirement for bailment is that the goods must be returned or otherwise disposed of according to the direction of the person delivering them.
2. Correct: Goods means every kind of movable property i.e. property of every description [except immovable property, other than actionable claims and money. Section 2(7) of the Sale of Goods Act, 1930]. According to this definition, money and actionable claims are not goods and cannot be bought or sold.

Question 3. State with reasons whether the following statement is Correct or Incorrect: Contract of Sale can also take place by the conduct of the parties to the contract.

Answer:

Correct: Subject to the provisions, of any law for the time being in force, a contract of sale may be expressed or may be implied from the conduct of the parties (Section 5(2) of the Indian Contract Act, 1872).

Question 4. State with reasons whether the following statement is Correct or Incorrect: ‘Goods’ means every kind of property other than actionable claims and money.

Answer:

Incorrect: Sub-section (7) of Section 2 of the Sale of Goods Act, 1930 defines the term ‘goods’ as “every kind of movable property” other than actionable claims and money. The term property includes both movable and immovable properties. Thus, the subject matter of sale under the said Act is “movable property” only excluding actionable claims and money.

Question 5. State with reasons in brief whether the following is Correct or Incorrect. In an agreement to sell, the property in the goods passes to the buyer immediately.

Answer:

Incorrect: According to Section 4(3) of the Sale of Goods Act 1930, in an agreement to sell, property in the goods is to be transferred to the buyer at some future date, or subject to the fulfillment of some conditions.

Formation Of The Contract Of Sale Short Notes

Question 1. Write a short note on the formalities of a contract of sale.

Answer:

Formalities of contract of Sale: Except where specifically required by any law, no particular form is necessary to constitute a valid contract. The agreement may be expressed or may be implied from the conduct of the parties.

Section 5 of the Sale of Goods Act, of 1930 lays down the rule as to how a contract of sale may be made and has nothing to do with the transfer or passing of the property in the goods.

A contract of sale may be made in any of the following modes:

1. There may be immediate delivery of the goods; or
2. There may be immediate payment of price, but it may be agreed that the delivery is to be made at some future date; or
3. There may be immediate delivery of the goods and an immediate payment of the price; or
4. It may be agreed that the delivery or payment or both are to be made in instalments; or,
5. It may be agreed that the delivery or payment or both are to be made at the same future date.

Question 2. Write a short note on the essentials of appropriation of goods.

Answer:

Essentials of Appropriation of Goods: Appropriation of goods involves the selection of, goods to use in the performance of the contract and with the mutual consent of the seller and the buyer.

The essentials are:

1. The goods should conform to the description and quality stated in the contract.
2. The goods must be in a deliverable state.
3. The goods must be unconditionally (as distinguished from an intention to appropriate) appropriated to the contract either by delivery to the buyer or his agent or the carrier.
4. The appropriation must be made by:
   • The seller with the assent of the buyer, or
   • The buyer with the assent of the seller.
5. The assets may be express or implied.
6. The assent may be given either before or after appropriation.

Question 3. Write a short note on: ‘Goods’ in a Contract of Sale.

Answer:

“Goods” in a Contract of Sale: In the Sales of Goods Act, 1930, ‘Goods’, means every kind of movable property, i.e. property of every description (except immovable property), actionable claims, and money and includes stocks, shares, growing crops, grass and things attached to or forming part
of the land.

For Example. growing trees, machinery fixed or embedded in the earth), which were agreed to be severed before sale or under the contract of sale. [Section 2(7)].

Goods can be of the following types:

1. Existing i.e. which are in existence at the time of sale.
2. Future goods i.e. which are in the process of manufacturing or production or acquisition by the seller after the contract of sale.
3. Specific i.e. which have been identified at the time of sale.

Question 4. Write a short note on the classification of goods in a contract of sale.

Answer:

Goods forming subject matter of the contract of sale may be classified as under:

1. Existing’Goods
   • Specific goods
   • Unascertained goods
   • Ascertained goods.
2. Future Goods
3. Contingent Goods

Existing Goods are those which are in actual existence at the time of the contract of sale. The seller is the owner of goods or he has the possession of such goods.

Existing goods may be of the following three types:

• Specific Goods: Goods that have either been identified or agreed upon by the parties at the time of the contract of sale.
• Ascertained Goods are those identified only after the formation of a contract of sale. When unascertained goods are identified and agreed upon by the parties, the goods are called Ascertained goods.
• Unascertained Goods are those not specifically identified at the time of contract of sale. They are described by the description or sample only.
• Future Goods are those which are not in existence at the time of contract. These goods are to be acquired or produced by the seller after the contract of sale is made. It is an agreement to sell and not sell.
• Contingent goods are like future goods. The acquisition of the goods by the seller depends upon the uncertain contingencies which may or may not happen For Example. goods will be supplied if the ship arrives.

Distinguish Between Formation Of The Contract Of Sale

Question 1. Distinguish between Existing goods and Contingent goods.

Answer:

Existing Goods and Contingent Goods:

The two terms can be distinguished on the following basis:

1. Meaning: Goods that are physically in existence and which are in the seller’s ownership or possession at the time of entering the contract of sale are called existing goods.
   • While goods, the acquisition of which by the seller depends upon an uncertain contingency are called contingent goods.
   • They are a type of future goods. Future goods are the goods to be manufactured, produced, or acquired after the making of the contract.
2. Type: A contract for the sale of contingent goods is always an agreement to sell while existing goods can be the subject matter of sale as well as an agreement of sale.
3. Classification: Existing goods may be classified as specific, ascertained, or unascertained goods while there cannot be any such classification of contingent goods.

Question 2. Difference between Sale and Hire-purchase.

Answer:

Sale and Hire Purchase Agreements:

A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price.

• There may be a contract of sale between one part-owner and another. [Section 4(1) Sale of Goods Act]. A contract of sale may be absolute or conditional. [Section 4(2)].
• A hire purchase agreement is a contract whereby the owner of the goods lets them on hire to another person called hirer on payment of rent to be paid in installments and upon an agreement that when a certain number of such installments is paid, the ownership in goods will pass on to the hirer.
• The hirer may return the goods at any time without any obligation to pay the balance rent. It is not a contract of sale but only a bailment and the property in the goods remains in the owner during the continuance of the bailment.

Question 3. Briefly explain the distinction between Future goods and contingent goods.

Answer:

Future Goods and Contingent Goods: Those goods which are yet to be manufactured or produced or acquired by the seller after the making of the contract of sale, are called, “future goods”.

• Thus, future goods are not in existence at the time of the contract of sale or if they are in existence they have not yet been acquired by the seller by that time.
• When a present sale is made for some future goods, it is not a sale but an agreement to sell. (Section 2(6) and 6(3) of the Sale of Goods Act, 1 930).
• According to Section 6(2) of the Sale of Goods Act, contingent goods are goods the acquisition of which by the seller depends upon a contingency that may or may not happen.
• They are also a type of future goods and therefore, a contract for the sale of contingent goods operates as an agreement to sell.

Contingent goods are different from future goods in the same that the procurement of Contingent goods is dependent upon an uncertain event, whereas the obtaining of future goods does not depend upon any such uncertainty.

Question 4. Point out any four major differences between a sale and an agreement to sell.

Answer:

Difference between a sale and an agreement to sell: According to Section 4 of the Sale of Goods Act, 1930, a contract of goods is a contract whereby the seller transfers or agrees to transfer the property in the goods to the buyer for a price, whereas, under an agreement to sell, the transfer of the property in the goods is to take place at a future date.

• In a sale, the seller can sue the buyer for the price of the goods, but in an agreement to sell, the aggrieved party can sue for damages only and not for the price.
• In a sale, a subsequent loss or destruction of the goods is the liability of the buyer, but the liability remains with the seller if it is agreed to sell.
• In a sale, the seller’s breach gives the buyer to sue for damages and also a remedy of recovery of the goods from third parties who bought them. But in an agreement to sell, the buyer’s remedy is for a suit of damages.

Question 5. Distinguish between sale and agreement to sell under the Sale of Goods Act.

Answer:

Sale and Agreement to sell distinguished:

1. A sale implies an agreement plus a conveyance of property. In an agreement to sell, there is no conveyance, the conveyance takes place at a future date.
2. In a sale, the property in the goods passes to the buyer and risk also passes to the buyer. In agreement to sell, since property does not pass to the buyer, risk also does not pass to the buyer.
3. A sale is an executed contract. An agreement to sell is an executory contract.
4. In a sale, the seller can sue the buyer for the price of the goods. In an agreement to sell; the aggrieved party can sue for damages only and not for the price unless the price was payable at a stated date.
5. In a sale, a subsequent loss or destruction of the goods is the liability of the buyer, but the liability remains with the seller, where the transaction only amounts to an agreement to sell.
6. In an agreement to sell, the seller, being still the owner, may dispose of the goods as the likes and the buyer’s remedy would be to file a suit for damages.
   • In a sale, however, the seller’s breach gives the buyer the double remedy, a suit for damages against the seller, and the remedy of recovering of goods from third parties who bought them.
7. In a sale, in case of default by a buyer, the seller can sue the buyer for the price even if the goods are in his possession and can resell the goods. In an agreement to sell, the seller’s remedy in case of default, is to sue for damages for breach and not the price even though the goods are in the possession of the buyer.
8. In case of sale, if the seller becomes insolvent, while the goods are still in his possession, the buyer shall have a right to claim the goods from the official receiver or assignee.
   • In case of agreement to sell, when the seller becomes insolvent, the buyer’s remedy is to claim a rateable dividend from the estate of the insolvent seller for the price paid and not for the goods, since property in them still rests with the seller.

If the buyer becomes insolvent, the seller can refuse to deliver the goods to the official receiver or assignee unless the price is paid to him, in the case of an agreement to sell.

In the case of a sale, in the absence of a right of lien over the goods, the seller must deliver the goods to the official receiver or assignee of the buyer and is entitled to a rateable dividend only from the estate of the insolvent buyer.

Question 6. Differentiate between Ascertained and Unascertained Goods with example.

Answer:

Difference between Ascertained and Unascertained Goods

The basic point of distinction between ascertained and un-ascertained goods with examples can be discussed as under:

• Ascertained goods are those goods that are identified under the agreement after the contract of sale is made. This term is not defined in the act but has been judicially interpreted.
• In actual practice, the term ‘ascertained’ goods is used in the same sense as ‘specific’ goods’ when from a lot or out of the large quantity of unascertained goods, the number or quantity contracted for is identified, such identified goods are called ascertained goods.

Example: A wholesaler of cotton has 100 bales in his godown. He agreed to sell 50 bales and these bales were selected and set aside. On selection, the goods become ascertained.

• In this case, the contract is for the sale of ascertained goods, as the cotton bales to be sold are identified and agreed upon after the formation of the contract.
• Un-ascertained goods are goods that are not specifically identified or ascertained at the time of the making of the contract. They are indicated or defined only by description or sample.

Example: If A agrees to sell to B one packet of salt out of the lot of one hundred packets lying in his shop, it is a sale of un-ascertained goods because it is not known which packet is to be delivered. As soon as a particular packet is separated from the lot, it becomes ascertained or specific goods.

Question 7. Distinguish between ‘Sale’ and ‘Hire Purchase’ under the Sale of Goods Act, of 1930.

Answer:

The main points of distinction between the ‘sale’ and ‘hire purchase’ are as follows:

Formation Of The Contract Of Sale Descriptive Questions And Answers

Question 1. Describe the conditions implied in a contract for the sale of goods by

1. Description, and
2. Sample.

Answer:

1. Sale by description: Where there is a contract for the sale of goods by description, there is an implied condition that the goods shall correspond with the description. If the description of the article is different in any respect, the other party is not bound to take it.

The sale of goods by description may include:

1. Where the buyer has not seen the goods and relied on the description given by the seller.
2. Where the buyer has seen the goods but he relies not on what he has seen but what was stated to him and the deviation of the goods from the description is not apparent.
3. The packing of the goods may sometimes be a part of the description.

2. Sale by Sample: In the case of a contract for sale by sample, there is an implied condition that

1. The bulk shall correspond with the same in quality.
2. The buyer shall have a reasonable opportunity to compare the bulk with the sample.
3. The goods shall be free from any defect rendering them unmerchantable which would not be apparent on a reasonable examination of the sample.
4. This implied condition applies only to latent defects, i.e., defects that are not discoverable on a reasonable examination of the sample.

The seller is not responsible for the defects which are patent i.e. visible by examination of the goods. In such a case, there is no breach of condition as to merchantability.

Section 15 of the Sale of Goods Act also provides that if the sale is by sample as well as by description, the goods must correspond both with the sample and with the description.

Question 2. How the price of the goods be ascertained in the case of the state of goods?

Answer:

Ascertainment of Price: The meaning of the price and the rule regarding ascertainment of the price of the goods are contained in Sections 2(10), 9, and 10 of the Sale of Goods Act respectively, as follows:

• ‘Price means’ the monetary consideration for the sale of goods. The price may be fixed by the contract or agreed to be fixed in a manner provided by the contract, For Example., by a valuer or determined by the cause of dealings between the parties.
• When it can not be fixed in any of the above ways, the buyer is bound to pay the seller a reasonable price. What is a reasonable price is a question of fact in each case (Section 9).
• Section 10 provides for the determination of price by a third party. Where there is an agreement to sell goods on the terms that the price has to be fixed by the third party and he either does not or cannot make such a valuation, the agreement will be void.
• In case the third party is prevented by the default of either party from fixing the price, the party at fault will be liable for the damages to the others to the other party who is not at fault.

However’ a buyer who has received and appropriated the goods must pay a reasonable price for them in any eventuality.

Question 3. “Agreement to sell, differs from sale.”

Answer:

Sale and Agreement to sell differ to each other:

According to Section 4(3) of the Sale of Goods Act, when the property in the goods is transferred to the buyer immediately on making of a contract, it is called a ‘sale’.

• On the other hand, when the property in the goods is to be transferred on some future date or the fulfillment of certain conditions, it is called an ‘agreement to sell’.
• Section 4(4) further provides that an agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred.

The main points of distinction between t, the two are as under:

Question 4. In a sale of goods ‘goods’ sold must be of merchantable quality.

Answer:

Goods Must be of merchantable Quality: It is one of the implied conditions that the goods sold to a customer must be of merchantable quality.

• Section 16(2) of the Sale of Goods Act provides that where goods are bought by description from a seller who deals in goods of that description (whether he is the manufacturer or producer or not), there is an implied condition that the goods are of merchantable quality.
• The expression “merchantable quality” though not defined in the Act, nevertheless connotes goods of such quality and in such condition that a man of ordinary prudence would accept them as goods of that description.
• Goods should also, be such as are commercially saleable under the description by which they are known in the market at their full value.
• If goods are of such a quality and in such a condition that a reasonable person acting reasonably would accept them after having examined them thoroughly, they are of merchantable quality.

Sub-section (2) of Section 16 further provides that where the buyer has examined the goods, there is an implied condition as regards defects, which such examination ought to have revealed. [Proviso to. Section 16(2)].

Question 5. What are the essentials of a Contract of Sale?

Answer:

Essentials of a Contract of Sale: Section 4(1). of the Sale of Goods Act, 1930, defines a contract of sale, as a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price.

From the above definition, the following essentials can be deduced:

1. There must be at least two parties one seller, and two buyers.
2. There must be an agreement between the two parties for sale or an agreement to sell.
3. The subject matter of the contract must necessarily be goods, may be existing goods or future goods, ascertained goods, or unascertained goods.
4. There should be a price, which is to be paid in money.
5. A transfer of property in goods from seller to buyer must take place.
6. The contract may be absolute or even conditional.
7. All the essential characteristics of a valid contract must exist.

Question 6. What is meant by the delivery of goods under the Sale of Goods Act, of 1930? State various modes of delivery.

Answer:

The delivery of goods under the Sale of Goods Act, of 1930

Delivery means voluntary transfer of possession from one person to another. It may be made by doing anything, which has the effect of putting the goods, in the possession of the buyer, or any person authorized on his behalf.

Various modes of delivery are as follows:

1. Actual delivery: Physical delivery of goods to the buyer.
2. Constructive delivery: When it is effected without change in the custody or actual possession.
3. Symbolic delivery: Where there is a delivery of a thing in token of a transfer of something else.

Question 7. Discuss the essential elements regarding the sale of unascertained goods and its appropriation as per the Sales, of Goods Act, 1930.

Answer:

Sale of unascertained goods and Appropriation:

Appropriation of goods involves the selection of goods to use in the performance of the contract and with the mutual consent of the seller and the buyer.

The essentials are:

• There is a contract for the sale of unascertained or future goods.
• The goods should conform to the description and quality stated in the contract.
• The goods must be in a deliverable state.
• The goods must be unconditionally (as distinguished from an intention to appropriate) appropriated to the contract either by delivery to the buyer or his agent or the carriers.
• The appropriation must be made by:
• The seller with the assent of the buyer; or
• The buyer with the assent of the seller
• The assent may be express or implied
• The assent may be given either before or after appropriation.

Question 8. Sonal went to a Jewellery shop and asked the sales girl to show her diamond bangles with Ruby stones. The jeweler told her that we have a lot of designs of diamond bangles but with red stones if she chooses for herself any special design of diamond bangles with red stones, they will replace red stones with Ruby stones. But for the Ruby stones, they will charge some extra cost. Sonal selected a beautiful set of designer bangles and paid for them. She also paid the extra cost of Ruby stones. The Jeweller requested her to come back a week later for delivery of those bangles. When she came after a week to take delivery of the bangles, she noticed that due to Ruby stones, the design of the bangles had been completely disturbed. Now, she wants to terminate the contract and thus, asked the manager to give her money back, but he denied for the same. Answer the following questions as per the Sale of Goods Act, of 1930.

1. State with reasons whether Sonal can recover the amount from the Jeweller.
2. What would be your answer if Jeweller says that he can change the design, but he will charge extra cost for the same?

Answer:

As per the Sale of Goods Act, of 1930, where under a contract of sale, the property in the goods is transferred from the seller to the buyer, the contract is called that of a sale, but where the transfer of property in goods is to take place at a future date, subject to fulfillment of some condition, the contract is called an agreement to sell.

• An agreement to sell becomes a sale when the time elapses or the conditions one fulfilled subject – to which the property in goods is to be transferred.
• Based on the above provisions and facts given in the question, it can be said that there is an agreement to sell between Sonal and Jeweller but not a sale.
• Even though the payment made was by Sonal, the property in bangles can be transferred only after the fulfillment of conditions fixed between buyer and seller.
• Since, during the replacement of the Ruby stones, the original design was disturbed, Sonal has the right to avoid the agreement to sell and can recover the price paid.

On the other hand, if Jeweller offers to bring the bangles to their original position by repairing them, he cannot charge extra cost from Sonal. Even if he has to bear some expenses for repair, he cannot charge it from Sonal.

Question 9. Mr. A contracted to sell his swift car to Mr. B. Both failed to discuss the price of the said swift car. Later, Mr. A refused to sell his swift car to’ Mr. B because the agreement was void being uncertain about the price. Does Mr. B have any right against Mr. A under the Sale of Goods Act, of 1930?

Answer:

As per section 9 of the Sale of Goods Act, of 1930,

1. The price in a contract of sale may be fixed by the contract or may be left to be fixed in a manner thereby agreed upon or may be determined by the course of dealing between the parties.
2. Where the price is not determined under the foregoing provisions, the buyer shall pay the seller a reasonable price. Estimation of a reasonable price depends upon the circumstances of each particular case.
3. In the above case A contracted to sell his swift car to B but failed to discuss the price.
4. Later, A refused to sell his car to B because the agreement was uncertain as the price was not discussed and declared the contract to be void.

Here B can legally demand the car from A and A can recover a reasonable price of the car from B as the contract of sale is still a valid contract even if the price is uncertain.

Other Essential Elements Of Valid Contract Self-Study Questions And Answers

Question 1. Write Short Notes on the Capacity to Contract.

Answer:

The Capacity to Contract

It means that parties to the agreement must have the capacity to enter into a valid contract.

A person may be either natural or artificial i.e. persons can be human beings or body corporate.

According to Section 11

“Every person is competent to contract, who, according to the law to which he is subject to

• Is of the age of majority,
• Is of sound mind
• Is not disqualified by any other law to which he is subject”

A person is disqualified to enter into contracts if he is:

• A minor
• A person of unsound mind
• Otherwise disqualified by the law of the land to enter into a contract
• An alien enemy
• An insolvent
• A convict undergoing imprisonment.

In India, the age of majority is regulated by the Indian Majority Act, 1 875.

• According to it, every person domiciled in India attains majority on the completion of 18 years of age.
• If any guardian has been appointed for the minors or the minor is under the guardianship of the court of wards, he attains majority on the completion of 21 years of age.

Relevant Case Law :

Mohlri Bibee V/s Dharmo Das Ghose

Facts

• Dharmodas Ghose, a minor, entered into a contract for borrowing a sum of ₹ 20,000 out of which longer paid his ₹ 8,000.
• Minor executed mortgage of property in favor of the lender.
• Minor sued for setting aside mortgage.
• Privacy council hard to ascertain the validity of the mortgage.
• U/s 7 of the Transfer of Property Act, every person competent to contract is competent to the mortgage.

Decision: Any money advanced to a minor cannot be recovered as Sections 10 and 11 make the minor’s contract void.

As per the Transfer of Property Act, a minor cannot transfer a property, but he can be a transferee.

Position of minor’s agreement:

• An agreement entered into by a minor is altogether void, i.e. void-abinitio.
• Minor can be a promisee or a beneficiary.
• Minor can always plead the majority.
• Minor’s agreement cannot be ratified by him.
• Contract by guardian is enforceable if:
  • It is within his competence and authority,
  • For the benefit of the minor.
  • Minor’s property is liable for necessaries.

Necessaries: “Goods suitable to the condition in life of such an infant or other person, and to his actual requirement at the time of sale and delivery.”

It includes:

• • Necessary goods
  • Services rendered
  • Loan incurred to obtain necessaries.
• The court can never direct the specific performance of the contract.
• Minor cannot be a partner in a partnership firm.
• Minor can act as an agent and bind his principal without incurring any personal liability.
• Minor can never be adjudicated as insolvent.
• A minor is liable in a fort i.e. a civil wrong unless the fort in reality is a breach of contract.
• Lunatics Agreement:

As per Section 12 of the Indian Contract Act,

“a person Is said to be of sound mind to make a contract if, at the time when he makes it, he is capable of undertaking it and of forming a rational judgment as to its effects upon his interests.”

• A person of unsound mind includes:
  • Lunatics
  • Idiots
  • Drunkards
• Such an agreement Is void.
• Lunatics Slate will be liable for any necessaries supplied to him or his family.
• A person who is usually of unsound mind, but occasionally of sound mind, may make a contract when he is of sound mind and he will be bound by It.
• A person who is usually of sound mind, but occasionally of unsound mind, may not make a contract when he is of unsound mind.
• Persons disqualified by law from entering into a contract.
  1. Alien Enemy: An alien enemy is a foreigner whose state is at peace with India.
     • Alien is a person who is not an Indian citizen.
     • He becomes an alien enemy on the declaration of war between India and his country.
     • He cannot enter into a contract with an Indian subject.
  2. Foreign Sovereigns and Ambassadors:
     • They enjoy certain special privileges due to which they cannot be legally proceeded against in Indian Courts.
     • If contracts are entered into through agents, then agents become personally responsible for the performance of the contracts.
  3. Convicts
     • Cannot enter into a valid contract while undergoing sentence, nor he can sue.

Note: All of the above points are known as flows in capacity.

Question 2. Define Free Consent under the Indian Contract Act, of 1872.

Answer:

Free Consent under the Indian Contract Act, of 1872.

As per the Indian Contract Act, “Two or more persons are said to consent when they agree upon the same thing in the same sense’ (consensus-ad-idem).

• Free consent means consent given by parties out of their free will on their own without any fear, force, compulsion, or threat from the other party.
• As per Section 1 4, consent is said to be free which is not caused by
  • Coercion
  • Undue Influence
  • Fraud
  • Misrepresentation
  • Mistake
• In the absence of free consent, the contract is usually voidable at the option of the party whose consent is not free.

Question 3. Describe the Elements of Vitiating Free Consent.

Answer:

The Elements of Vitiating Free Consent

1. Coercion:

“It is the committing, or threatening to commit, any act forbidden by the Indian Penal Code (IPC), or the unlawful detaining, or threatening to detain any property, to the prejudice of any person, whatever, to cause any person to agree.” ‘

Exceptions of Coercion:

The following threats are not coercion

1. Threat to file a suit.
2. Consent is given based on legal obligations.
3. Threats by workers.
4. Threats to detain property by mortgager.

It may proceed from any person and may be directed against any person or goods.

2. 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
• It has the following two elements:
  • A dominant position
  • The use of it to obtain an unfair advantage.
• A person is deemed to dominate the will of another if
  • He holds a real or apparent authority over the other, or
  • He stands in a fiduciary relation to the other, or
  • He makes a contract with a person whose mental capacity is temporarily or permanently affected by reasons of age, illness, or mental or bodily distress.
• Relationships that are presumed to have undue influence include:
  • Parent and child
  • Guardian and ward
  • Religious or Spiritual Guru and Discipline
  • Doctor and Patient
  • Solicitor and Client
  • Trustee and Beneficiary
  • Ranee and Fiancee
• A relationship where the dominant position is not presumed has to be proved by the aggrieved party:
  • Creditor and Debtor
  • Landlord and Tenant
  • Husband and Wife
• This presumption can be rebutted by showing that:
• • Full disclosure of all materiai facts was made.
  • Adequate consideration was there, and
  • The weaker party received independent legal advice.

3. Fraud

Also known as wilful misrepresentation.

• Fraud means and includes any of the following acts committed by a party to a contract, or with his connivance or by his agent with intent to deceive another party thereto or his party, or to induce him to enter into the contract.

1. The suggestion, as to fact, of that which is not true by one who does not believe it to be true,
2. The active concealment of a fact by one having knowledge or belief of the fact,
3. A promise made without any intention of performing it,
4. Any other act fitted to deceive,
5. Any such act or omission as to law is specially declared to be fraudulent.

• Mere silence as to facts likely to affect the willingness of a person to enter into a contract is no fraud.
• But silence amounts to fraud in the following cases:
  • Where a person must speak.
  • Where his silence is equivalent to speech.
  • When a person discloses only the half-truth.
• Following are certain contracts upon which the law imposes a special duty to act with utmost good faith (contracts of Uberrimalfidei).
  • Insurance contracts.
  • Prospectus of a company.
  • Contract of sale of land.
  • Contract of family arrangements.
• In all of the above-stated contracts, a person has to disclose all the material information.

4. Misrepresentations

• Where a person asserts something that is not true, though he believes it to be true, his assertion amounts to misrepresentation.
• Misrepresentations made by a person may be either:
  1. Innocent, or
  2. Without any reasonable ground
• The aggrieved party can avoid the contract, but cannot sue for damages in normal circumstances.
• Its damages can be obtained in the following cases:
  1. From a director or promoter making an innocent misrepresentation in the company’s prospectus.
  2. A person who has made a certain statement in the court, relying upon which a party has suffered damages, is stopped by the court from denying it.
  3. From an agent committing a breach of warranty of authority.
  4. Negligent representation made by one person to another between whom there exists a confidential relationship.

Note: When the consent is caused by coercion, undue influence, fraud, and misrepresentation, though the agreement amounts to a contract such a contract is voidable at the option of the party whose consent was so obtained.

Question 4. How Many Types of Mistakes are there?

Answer:

Types of Mistakes

• It refers to miscalculation or judgmental error by both or either of the parties.
• It must be a “vital operative mistake”.
• When both parties to an agreement are under a mistake to a matter of fact essential to the agreement, the agreement is altogether void.

Question 5. Describe the Legality of Object and Consideration as per the Indian Contract Act,1872.

Answer:

The Legality of Object and Consideration as per the Indian Contract Act,1872

• As per Section 23, of the Indian Contract Act, “An agreement whose object or consideration is unlawful is void.”
• Consideration or object is unlawful :
  • If it is forbidden by law.
  • It would, if permitted defeat the provisions of any law or,
  • Is fraudulent or
  • Involves injury to the person or property of another, or
  • Is immoral, or
  • Opposed to public property”.

Circumstances which make the consideration or object unlawful:

• Forbidden by Law: It includes the acts that are punishable under any statute as well as prohibited by regulation or orders made in the exercise of the authority conferred by the legislature.
• Defeat of the provision of law: Agreement defeating the provisions of any statutory law is void. The law includes any legislative enactment or rule of Hindu and Muslim law or any other rule for the time being in force in India.
• Fraudulent: Agreement with an object to defraud others is void.
• Injury to the person or property of another: An agreement having such an object is void.
• Immoral: The object of any agreement being immoral is illegal. It is also legal if its consideration is an act of sexual immorality. It covers a wide range of topics.
• Defeat any rule for the time being in force in India.
• Opposed to Public Policy: Freedom of contract is restricted by law only for the good of the community, some of the agreements that are held to be opposed to public policy include:
  1. Trading with the enemy.
  2. Stifling prosecution i.e. agreement to present proceedings already instituted from running their normal course using forceispervasive and abuse of justice hence void,
  3. Maintenance and champerty i.e. an agreement in which a person agrees to assist another in litigation in exchange for a promise to hand over a portion of the proceeds of the action.
  4. Traffic relating to Public Offices.
  5. Agreements tend to create monopolies.
  6. Marriage brokerage agreements.
  7. Interference with the course of justice.
  8. Interest against obligation.
  9. Consideration was unlawful in part.

Question 6. Define Void Agreements and Give some Examples.

Answer:

Void Agreements

Certain agreements have been expressly declared void by the Contract Act.

• They are void ab initio.
• It includes the
  1. Restrain of marriage: Any agreement restraining any person, other than minor not to marry at all or not to marry any particular person is void.
  2. Restrain of trade (Section 27): Agreement restraining anyone from exercising a lawful profession, trade, or business of any kind, is void.
     • Both total or partial restraints are covered.
     • Restraining must be reasonable.
     • The following agreements are not in restrain trade:
       1. Service agreement by which an employee binds himself, during the term of his agreement, not to compete with the employer.
       2. Agreement by a manufacturer to sell during a certain period his entire production to a wholesale market or merchant.
       3. Agreement among the sellers of a particular commodity not to sell the commodity for less than a fixed price.
  3. Restrain to legal proceedings (Section 28): One party is restricted absolutely from enforcing his rights under a contract through a Court or which abridges the usual period from starting legal proceedings.
  4. Agreement the meaning of which is uncertain (Section 29): An agreement, the meaning of which is not certain, is void but where the meaning thereof is capable of being made certain, the agreement is valid.
  5. Wagering Agreement (Section 30):
     • Wager means ‘bet’.
     • They are ordinary betting agreements.
     • It refers to 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.
     • Such an agreement is void.
     • If one of the parties has control over the event, the agreement is not a wager.
     • Though wagering contracts are void, transactions incidental to wagering transactions are not void.

Transactions similar to wager (Gambling):

• Lottery transactions.
• Crossword Puzzles and competitions.
• Speculative transactions.
• Horse Race transactions.

Transactions resembling wagering transactions but are not void:

• Chit Fund.
• Commercial transactions or share market transactions.
• Games of skill and Athletic competitions.
• Contract of Insurance.

Question 7. Distinguish between a Contract of Insurance and a wagering agreement.

Answer:

Difference between a Contract of Insurance and a wagering agreement

Other Essential Elements Of Valid Contract Objective Questions And Answers

Question 1. State with reason whether the following statement is Correct or Incorrect: A person who is usually of unsound mind cannot enter into a contract even when he is of sound mind.

Answer:

Incorrect: According to Section 12, a person who is usually of unsound mind but occasionally of sound mind can enter into a contract.

Question 2. State with reason whether the following statement is Correct or Incorrect: According to the doctrine of “Privity of Contract, a stranger to a contract, if he is beneficiary, can not enforce the contract.

Answer:

Incorrect: According to the Doctrine of ‘Privity of Contract’, a stranger to a contract cannot sue. But if he is a beneficiary (in whose favor a trust has been created), he can enforce the contract.

Question 3. State with reason whether the following statement is Correct or Incorrect: Transactions incidental to wagering agreements are not void.

Answer:

Correct: In an ordinary sense, a wagering contract is void, but the transactions incidental to wagering agreements are not void. For example, a broker in a wagering transaction can recover his, brokerage. In the same way, money received by the agent on account of a wagering transaction can be taken back by the principal.

Question 4. State with reason whether the following statement is Correct or Incorrect: A contract to take a loan by a boy of sixteen years of age from a moneylender of 50 years old, is a valid contract.

Answer:

Incorrect: In the words of Section 11 of the Indian Contract Act, a person should be major to be competent to contract. A person becomes a major on the attainment of 1 8 years of old as per Indian Majority Act, 1 875. In the case given above contract will be void because the boy is a minor.

Question 5. State with reason whether the following statement is Correct or Incorrect: A person who is usually of sound mind, but occasionally of unsound mind is unable to make the contract.

Answer:

Incorrect: A person who is usually of a sound mind but occasionally of unsound mind is not considered competent to make a contract when he is of unsound mind.

Question 6. State with reason whether the following statement is Correct or Incorrect: It is a mixed question of law and fact whether time was the essence of the contract.

Answer:

Correct: Section 55 of the Indian Contract Act, of 1872, states that time as the essence of a contract means that time is an essential factor and hence the parties concerned with it must perform their promises within the specified time.

Question 7. State with reason whether the following statement is Correct or Incorrect: A minor cannot be appointed as an agent, as he is not competent to contract.

Answer:

Incorrect: A minor can be appointed as an agent. According to Section 184, of Indian Contract Act, 1972 any person can become an agent, between the principal and the third person, irrespective of whether he has the contractual capacity or not

Question 8. State with reason whether the following statement is Correct or Incorrect: A contract can be avoided if consent is caused by fraud.

Answer:

Correct: When consent to an agreement is caused by fraud, though the agreement amounts to a contract, such a contract is voidable at the option of the party, whose consent was so obtained.

Question 9. State with reason whether the following statement is Correct or Incorrect: Social agreements are enforceable in the Courts of India.

Answer:

Incorrect: Social agreements are not enforceable in the courts of India, as they do not contemplate legal relationships.

Question 10. State with reason whether the following statement is Correct or incorrect: A threat to commit suicide does not amount to Coercion.

Answer:

Incorrect: It amounts to coercion since it is forbidden and punishable by the Indian Penal Code.

Question 11. State with reason whether the following statement is Correct or Incorrect: Intentional misrepresentation is ‘fraud’.

Answer:

Correct: It amounts to fraud because it is assumed that the party has a reasonable ground to believe his assertion and his intention to put the other party to loss.

Question 12. State with reason whether the following statement is Correct or Incorrect: A minor can neither undertake a liability nor receive a benefit under a contract.

Answer:

Incorrect: As per the India Contract 1872, no one can prevent a minor from becoming a promise or a beneficiary, the law does not regard a minor as incapable of accepting a benefit.

Question 13. State with reason whether the following statement is Correct or incorrect: To constitute a valid contract, consideration between two parties must be adequate.

Answer:

Incorrect: The Court provides that as long as the contract exists it should be supported by consideration. It is not concerned with its adequacy. The adequacy of the consideration is to be considered by the parties to the agreement.

Question 14. State with reason whether the following statement is Correct or Incorrect: A threat to lodge criminal prosecution on a false charge amounts to coercion.

Answer:

Correct: According to Section 1 5 of the Indian Contract Act, 1872, Coercion is the committing or threatening to commit any act forbidden by the Indian Penal Code 1860. A threat to file or lodge criminal prosecution on a false charge is an offense in itself and hence prohibited. In this way, threat amounts to coercion.

Question 15. State with reason(s) whether the following agreements are valid or void:

1. A clause in a contract provided that no action should be brought upon in case of breach.
2. Where two courts have jurisdiction to try a suit, an agreement between the parties that the suit should be filed in one of those courts alone and not In the other.
3. X, a physician, and surgeon, employs Y as an assistant on a salary of ₹ 75,000 per month for a term of two years and Y agrees not to practice as a surgeon and physician during these two years.

Answer:

1. Void:

An agreement restraining the parties from enforcing their legal rights is void. In this case, the agreement is void. ‘Since the clause in the agreement restricts the parties to bring a legal action even in case of breach of contract.

2. Valid:

If two courts have jurisdiction in a matter to try the suit then an agreement between the parties to that suit should be filed in one of the courts and not in the other is valid. In this case, the agreement is thus valid. Parties are free to choose a single court when they have to have the option of multiple courts to try a suit.

3. Valid:

If an employee agrees with his employer not to compete with him during his employment, is a valid contract. In this case, the agreement is valid. Since Y agreed not to compete with his employer during his employment period.

Other Essential Elements Of Valid Contract Short Notes

Question 1. Write short notes on the following: Capacity of the parties to a contract.

Answer:

Capacity of parties to contract: Capacity means the competence of the parties to enter into a valid contract. Section 11 of the Contract deals with the competency of parties and provides that every person is competent to contract who:

1. Of the age of majority as per law to which he is subject,
2. Of sound mind.
3. Is not disqualified from contracting by any law to which he is subject.

The qualification stated above must be fulfilled by the person competent to contract. The first qualification refers to the age of the contracting person.

• A person attains majority on completing his 1 8 years. In the case of matters of property, the majority is attained after completing 21 years of age.
• The second qualification requires a person to be of a sound mind at the time of making the contract, he must be capable of understanding it and forming a rational judgment as to its effect.
• Following are the people who are not supposed to be of sound mind such as a lunatic, an idiot, or a drunken person.
• The third qualification requires that a person entering into a contract should not be disqualified by his status while entering into such contracts For example; alien enemies, insolvents, convicts, married women, and corporations.

The contract will not be valid if it is entered by persons who are not competent to contract.

Question 2. Write short notes on the following: Free consent.

Answer:

Free Consent: In the words of section 10, of the Indian Contract Act, free consent is one of the essential requirements of a valid contract. The consent which is obtained by the free will of the parties on their own accord is called free consent.

Consent is said to be free when it is not caused by (Section 14):

1. Coercion, or
2. Undue Influence, or
3. Fraud, or
4. Misrepresentation, or
5. Mistake.

The contract becomes voidable when it is obtained by coercion, fraud, undue influence, or misrepresentation. But when the consent is obtained by mistake the contract becomes void.

Question 3. Write short notes on the following: Mere silence as to facts does not amount to fraud.

Answer:

Mere silence as to the facts does not amount to fraud: Mere silence of the party as to certain facts does not amount to fraud. A party to the contract owes no gratitude to disclose the whole truth to the other party.

• The Rule of Caveat Emptor is applicable here is the Buyer Beware principle. This principle means that the buyer should be aware of things while making the contract.
• In these cases, there is no duty to speak and silence does not result in fraud.
• When both parties are aware of the contract, there is no duty to disclose the facts. Hence, silence does not amount to fraud. These are two exceptions to the rule.

These are:

1. Where circumstances create a duty the part of the person keeping silent to speak and
2. Where silence in itself is equivalent to speech.

Question 4. Write a short note on the following: Agreements in restraint of legal proceedings.

Answer:

Agreements in restraint of legal proceedings: Agreements in restraint of legal proceedings come under Section 28, of the Indian Contract Act, 1 872.

• The section provides that every agreement by which any party thereto is restricted completely from following his rights under or in respect of any contract.
• The usual legal proceeding in the ordinary tribunals or which fixes the time within which he may thus enforce his right is void to that extent. There are some exceptions to it;
• The arbitration shall be valid in respect of all future disputes in connection with a contract.
• If the parties agree to refer to arbitration, any question between them. which has already arisen, or which may arise in the future if it is in writing.

Question 5. Write a short note on the following: Coercion.

Answer:

Coercion: In simple terms, coercion means threat or force used by one party against the other to compel him to enter into a contract.

Section 15 of the Contract Act. 1872, defines coercion as, “the committing or threatening to commit any act forbidden by the Indian penal Code or Unlawful detaining or threatening to detain, any property, to the prejudice of any person, to cause any person to agree”.

For example: A threatens to shoot B, a friend of C, if C does not let out his house to him. C agrees to do so. Thus, the agreement has been bought by coercion.

Question 6. Write a short note on the following: When is an agreement in ‘restraint of Trade’ valid?

Answer:

An agreement in restraint of trade is void [Section 27, Indian Contract Act, 1872]: All agreements in restraint of trade, whether general or partial, qualified or unqualified are void.

However, in the following cases, a contract in restraint of trade is valid:

1. Sale of goodwill: Section 27 itself gives one exception. One who sells the goodwill of a business may agree with the buyer to refrain from carrying on or similar business within specified local limits.
2. Partner’s agreements: A contract between partners to provide that a partner shall not carry on any business other than that of the firm while he is a partner. [Section 11(2)].
3. A partner may agree with his partners that on ceasing to be a partner, he will not carry on any business. Similar to that of the firm within a specified period or local limits. [Section 36(2), Indian Partnership Act, 1932],
4. A partner may upon or in anticipation of the dissolution of the firm, make an agreement that some or all of them will not carry on business similar to that of the firm within a specified period or local limits such an agreement is valid provided the restrictions are reasonable. (Section 54 of the Indian Partnership Act, 1932)
5. A partner may upon sale of goodwill of a firm, agree with the buyer of goodwill that such partner will not carry on any business similar to that of the firm, within a specified period or local limits. Such an agreement is valid provided the restrictions are reasonable. [Section 55(3), Indian Partnership Act, 1 932].

Distinguish Between Other Essential Elements Of Valid Contract

Question 1. Distinguish Between the following: Coercion and Undue influence.

Answer:

Distinction between Coercion and Undue Influence

Question 2. Distinguish Between the following: Unilateral and Bilateral mistakes.

Answer:

Difference Between the following: Unilateral and Bilateral mistakes

Question 3. Distinguish Between the following: Fraud and Misrepresentation.

Answer:

The distinction between Fraud and Misrepresentation: Fraud means deliberate misstatement or active concealment of a material fact or any other act fitted to deceive.

Misrepresentation is an incorrect or false statement or breach of duty giving an advantage to the person committing it but the fallacy or failure is not due to any desire to deceive the other party.

The main points of distinction between the two are as follows:

Intention: In Fraud, the party committing fraud intends to deceive the other party, while in Misrepresentation the intention of the party is not to deceive. Misrepresentation is innocent, while fraud is deliberate or willful.

• Belief: In fraud, the person making the suggestion does not believe it to be true, while in misrepresentation, the party making such suggestion believes it to be true.
• Rescission and damages: In misrepresentation, the aggrieved party can rescind the contract or sue for restitution (Sec. 64). But he can not file a suit for damages. In fraud, the remedy available to the aggrieved party is not limited to rescission only, but to damages also.
• Discovery of truth: In case of misrepresentation, the aggrieved party cannot avoid the contract if it had the means to discover the truth with ordinary diligence. But in Fraud, where there is active concealment, the contract is voidable, even though the aggrieved party had the means of discovering the truth with ordinary diligence.

Question 4. Enumerate the differences between ‘Wagering Agreements’ and ‘Contract of Insurance’ concerning the provision of the Indian Contract Act, 1872.

Answer:

The differences between ‘Wagering Agreements’ and ‘Contract of Insurance’ concerning the provision of the Indian Contract Act, 187

Other Essential Elements Of Valid Contract Descriptive Questions And Answers

Question 1. Comment on the following: “A minor is liable to pay for the necessities of life supplied to him”.

Answer:

“A minor is liable to pay for the necessities of life supplied to him”.

Section 68 of the Contract Act, deals with the cases of necessities of life supplied to a minor. The Act provides that “if a person incapable of entering into a contract or anyone.

• When he is legally bound to support is supplied by another person with necessaries suited to his condition in life, the person who has furnished such supplies is entitled to be recovered from the property. of such incapable person.”
• Thus, a minor is not personally liable for the payment of necessities ‘ supplied to him, the payment for such necessities can be recovered only out of the property of the minor.
• The supplier will lose the price of necessities if the minor does not possess any property. What constitutes necessities shall be determined concerning the status and the circumstances of a particular minor.
• A simple example of necessities are food, clothing, and shelter but necessaries will also include a minor’s medical expenses, the cost of defending a minor’s civil or criminal proceedings, provisions for education, etc. Loans taken by a minor to obtain necessities also bind a minor.

The point to be noted is that the parent or guardian of a minor cannot be made responsible for any good supplied to a minor unless these goods are. supplied to a minor as the agent of the parent or guardian.

Question 2. Explain the term ’Fraud’ as per the Indian Contract Act. What are its effects on the validity of a contract?

Answer:

’Fraud’ as per the Indian Contract Act

When a wilful representation is made- by a party to a contract to deceive the other party or to induce such party to enter into a contract is called Fraud.

According to Section 17, fraud means and includes any of the following acts:

1. A false suggestion as to fact known to be false or not believed to be true; or
2. The active concealment of a fact with knowledge or belief of the fact; or
3. A promise made without any intention of performing it; or
4. Doing any other act fitted to deceive; or
5. Doing any such act or making any such omission as the law specifically declares to be fraudulent.

Essential elements of the fraud:

The essential elements of the fraud are as follows: –

1. There must be representation or assertion and it must be false.
2. The representation or assertion must be of a fact.
3. The party acting on the representation must have suffered some loss.
4. Active concealment of the facts also results in fraud.
5. The statement must have been made with a knowledge of its falsity or without belief in its truth or recklessly.
6. The fraud must have deceived the other party.

Effect Of Fraud:

A contract becomes voidable at the option of the party whose consent to an agreement is caused by fraud.

The remedies available to the aggrieved party are as follows:

• He may cancel the contract, or
• He can insist the other party perform the contract so that he shall be put in the position in which he would have been if the representation made had been true.
• He can sue for damages.

Question 3. Comment on the following: A minor can always plead minority.

Answer:

A minor can always plead minority

A minor can always plead minority: A minor’s agreement is void, so no money can be recovered from him on any type of advance made. A minor cannot be stopped from pleading with his minority.

• Even when he procures a loan by falsely representing that he is a major, in a suit to recover the amount. In such a case the suit will stand to be dismissed.
• A minor’s agreement being void, cannot be specifically enforced against the minor under the Specific Relief Act, The fact that the minor misrepresented his age or by fraud.
• Induced the other party to enter into a contract with him, cannot be used to make him liable on his contract. The rule of estoppel cannot be pleaded against the minor.

Question 4. Answer the following: What is coercion? What are the consequences of coercion on the validity of the contract?

Answer:

Coercion: According to Section .15, “Coercion is the committing or threatening to commit any act forbidden by the Indian Penal Code, or the unlawful detaining or threatening to detains any property, to the prejudice of any person whatever, to cause any force in the place where the coercion is employed.” The following are the essential elements of coercion:

1. There should be clear utterance of threat.
2. The threat must be to commit an act forbidden by the Indian penal code.
3. The act must be done to cause the other person to agree.

Effect of Coercion: The effect of coercion is given under section 19 of the Act and they are as follows:

1. An agreement whose consent is obtained by coercion is voidable at the option of the party whose consent is so obtained.
2. A person to whom the money has been paid or anything delivered under coercion must repay or return it (Section 72).

Question 5. Comment on the following: “An agreement by way of wager is not illegal”.

Answer:

Liability of wagering agreement:

1. Wagering Agreements are void as per section 30 of the Indian Contract Act.
2. Though the agreement is void and unenforced it is not forbidden by law.
3. In other words, it can be said that wagering agreements are void but not illegal.
4. But in the States of Gujarat and Maharashtra, wagering agreements are declared to be illegal.
5. Thus, a broker can recover his brokerage in a wagering transaction.

Question 6. Answer the following: Who are disqualified persons to do the contract?

Answer:

Disqualified Persons: The following are the persons who are not complement to the contract as per Section 11 of the Indian Contract Act, 1872:

1. Minor.
2. Person of unsound mind.
3. A person disqualified by law such as:
   • An alien enemy.
   • Foreign sovereigns and ambassadors.
   • Insolvents.
   • Convicts.
   • Corporation.
   • Married Women.
   • Professional person.
4. under Article 299 of the constitution of India, the President of India, the governor of the state and their agents are not personally liable for the contracts made under the concerned government.
5. If a public body or person is empowered by legislation with certain powers and duties, those persons or bodies are not in a position to enter into any contract.

Question 7. What is meant by agreement in restraint of trade? Describe in brief the various exceptions thereto.

Answer:

Agreement in restraint of trade

According to Section 27 of the Indian Contract Act, of 1872 an agreement seeking to hold a person from exercising a lawful profession, trade, or business of any kind is void to that extent.

Public policy wants every person to have at freedom to work for himself and should not be at liberty to prevent himself or the state of his labour, skill, or talent by any contract that he enters into.

This will avoid competition and will have a monopolistic tendency which is not in the favour of the public and society. But there are certain exceptions to this rule; The exceptions are divided into two broad heads:

1. Statutory Exception
2. Common Law exceptions.

1. Statutory Exception is the exception created by statutes:

• Sale of goodwill: If a person purchases the business of another person and pays for its goodwill, then such purchaser can have reasonable restrictions on the trade of the seller of the goodwill (Section 27).
• Partners competing business: As long as a person remains a partner of a firm, he is restrained from carrying on a similar business. (Section 1 1 (2) of the Partnership Act).
• Rights of outgoing partner: A partner may agree with his partners that on leaving the firm, he will not carry on a similar business within a specified period or specified local limits. (Section 36(2) of the Partnership Act).
• Partner’s similar business on dissolution: According to 54 of the Partnership Act. partners may in anticipation of the dissolution of the firm, agree that all as some of them shall not carry on a business similar to that of the firm within specified local limits.
• Agreement in restraint of trade: Any partner on the sale of the goodwill of a firm agrees with the buyer that such partners, will not carry on any business similar to that of the firm within a specified period or local limits (Section 55 (3) of the partnership Act).

2. Exception under the common law arises from the judicial interpretation:

• Service agreement: An agreement of sen/ice, by which a person binds himself during the term of the agreement to not table up service with anyone else. Or not to compete with his employer is valid.
• Trade combination: Trade combination with the object of regulating business is desirable in the public interest.

Question 8. Comment on the following: Mere silence as to facts does not amount to fraud.

Answer:

Mere silence as to the facts does not amount to fraud: Mere silence of the party as to certain facts does not amount to fraud.

• A party to the contract owes no gratitude to disclose the whole truth to the other party, The Rule of Caveat Emptor is applicable here that is Buyer Beware principal.
• This principle means that the buyer should be aware of things while making the contract. In these cases, there is no duty to speak and silence does not result in fraud.
• When both parties are aware of the contract, there is no duty to disclose the facts.

Hence, silence does not amount to fraud. These are two exceptions to the rule. These are:-

1. Where circumstances create a duty the part of the person keeping silent to speak and
2. Where silence in itself is equivalent to speech.

Question 9. State the exceptions to the rule that “a stranger to a contract cannot sue”.

Answer:

Stranger to a Contract: It is a general rule of contract that a person who is not a party to the contract can not sue for it. This specifies that unless there is a privity of contract a party cannot sue on a contract.

Privity of contract means the relationship subsisting between the parties to a contract. It means that no one but the parties to a contract can be bound by it or be entitled under it.

A stranger to a contract cannot sue except in the following cases:

1. In the case of a trust, the beneficiary of the trust is in a position to enforce the contract even though he is a stranger to it.
2. In case the contract is entered into by an agent, it can be enforced by the principal.
3. Where an arrangement is made in connection with marriage, partition, or other family arrangements and a provision is made for the benefit of the person, he can sue although he is not a party to the agreement.
4. Where the promisor himself has created the privity of contract by his conduct he is in a position to sue.
5. A stranger to a contract can sue for the money, made payable to him by it where the money is charged on immovable property.

Question 10. Explain the following: Mistakes of fact.

Answer:

Mistake of fact: Mistake of fact may be divided into two groups that is:

1. Bilateral Mistake
2. Unilateral Mistake

1. Bilateral mistake: According to Section 20 of the Act, a Bilateral mistake is a mistake, “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.”

Bilateral mistake may relate to the existence, identity, title, quantity, and price of the subject matter, However, an erroneous opinion as to the value of a thing which forms the subject matter of the agreement is not to be deemed a mistake as to matter of fact.

2. Unilateral Mistake of fact: Section 22 of the Act deals with a unilateral mistake, “A contract is not voidable merely because it was caused by one of the parties to it being under a mistake as to a matter of fact”.

Question 11. Comment on the following: All illegal agreements are void but all void Agreements are not illegal.

Answer:

All illegal agreements are void but all void agreements are not illegal: The agreement which has no legal effect is void. In the case of an illegal contract, there is no legal effect between the parties but the transaction collateral to such a contract is further affected.

• A contract that is termed illegal and is void ab initio, is treated by law as if it had not been made at all. Thus, parties to an illegal contract cannot get help from a court of law.
• For example, in the case of an illegal contract for the sale of goods, the buyer though has paid the price, cannot sue for non-delivery.
• The price cannot be recovered by the seller who has to make the delivery. No suit can be filed in respect of an illegal contract.

Question 12. Comment on the following: When does the mistake of the parties invalidate a contract?

Answer:

The mistake of the parties invalidate a contract

‘Mistake’ has not been defined anywhere in the Indian Contract Act, of 1872. But Section 20 of the act provides the effect of the term ‘mistake’ which is “when both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is declared void.”

The following conditions must be fulfilled before a contract can be avoided on the ground of mistake:

1. There must be a mistake as to the formation of the contract.
2. The mistake must relate to the matter of fact and not of law.
3. The mistake must be of both parties i.e. bilateral.
4. The matter of fact must be essential to the agreement.

Question 13. Comment on the following: Capacity to contract.

Answer:

Capacity of parties to contract: Capacity means the competence of the parties to enter into a valid contract. Section 11 of the Contract deals with the competency of parties and provides that every person is competent to contract who:

1. Of the age of majority as per law to which he is subject,
2. Of sound mind,
3. Is not disqualified from contracting by any law to which he is subject.

The qualification stated above must be fulfilled by the person competent to contract. The first qualification refers to the age of the contracting person. A person attains majority on completing his 1 8 years.

• In the case of matters of property, the majority is attained after completing 21 years of age. The second qualification requires a person to be of sound mind at the time of making the contract.
• He must be capable of understanding it and of forming a rational judgment as to its effect. Following is the person who is not supposed to be of sound mind such as a lunatic, an idiot, or a drunken person.
• The third qualification requires that a person entering into n contract should not be disqualified by his status while entering into such contracts For example; alien enemies, insolvents, convicts, married women, and corporations.

The contract will not be valid if it is entered by persons who are not competent to contract.

Question 14. Write brief answers to the following: Contract by a person of unsound mind.

Answer:

Contract by a person of unsound mind: A person is said to be of sound mind when he is capable of understanding the terms of the contract and can make a rational decision as to its effect upon his interest.

Thus, the person is of unsound mind when:

• He is not in a position to make a contract or understand it.
• He cannot form a proper and reasonable judgment as to how the contract will affect his interest.

Generally, it is assumed that every person is of a sound mind unless it is proved otherwise. A person who is usually of sound mind but occasionally of unsound mind cannot make a contract, when he is of unsound mind.

Thus, a drunkard is not competent to contract when he is drunk. Hence, a person of unsound mind is not competent to contract.

Question 15. Briefly answer the following: An agreement In restraint of trade la void.

Answer:

An agreement In restraint of trade la void

According to Section 27 of the Indian Contract Act, of 1872 an agreement seeking to hold a person from exorcising a lawful profession, trade, or business of any kind Is void to that extent.

Public policy wants every person to at the freedom to work for himself and should not be at liberty to prevent himself or the state of his labor, skill, or talent by any contract that he enters into.

This will avoid competition and will have a monopolistic tendency which is not in the favour of the public and society. But there are certain exceptions to this rule; The exceptions are divided into two broad heads:

1. Statutory Exception
2. Common Law exceptions.

1. Statutory Exception is the exception created by statutes:

• Sale of goodwill: If a person purchases the business of another person and pays for its goodwill, then such purchaser can have reasonable restriction on the trade of the seller of the goodwill (Section 27).,
• Partners competing business: As long as a person remains a partner of a firm, he is restrained from carrying on a similar business (Section 11 (2) of the Partnership Act)
• Rights of outgoing partner: A partner may agree with his partners that on leaving the firm, he will not carry on a similar business within a specified period or specified local limits. (Section 36(2) of the Partnership Act).
• Partner’s similar business on dissolution: According to 54 of the Partnership Act. partners may in anticipation of the dissolution of the firm, agree that all as some of them shall not carry on a business similar to that of the firm within specified local limits.
• Agreement in restraint of trade: Any partner on the sale of the goodwill of a firm agrees with the buyer that such partners, will not carry on any business similar to that of the firm within a specified period or local limits (Section 55 (3) of the Partnership Act).

2. Exception under the common law arises from the judicial interpretation:

• Service agreement: An agreement of service, by which a person binds himself during the term of the agreement to not table up service with anyone else. Or not to compete with his employer is valid.
• Trade combination: Trade combination with the object of regulating business is desirable in the public interest.

Question 16. Briefly answer the following: Who is disqualified by law from entering into a valid contract?

Answer:

An essential element to form a valid contract, as per Section 11 is stated as “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 sound mind and is not disqualified from contracting by any law to which he is subject”.

Analysis of Section-11

This section deals with the personal capacity of three types of individuals only. Every person is competent to contract who:

• Has attained the age of majority,
• Is of sound mind and
• Is not disqualified from contracting by any law to which he is subject.

Question 17. Briefly answer the following: Law relating to minor’s contracts.

Answer:

The law relating to minor’s contract:

1. An agreement entered into by a minor is altogether void.
2. Minor can be a beneficiary: Though a minor is not competent to contract, there is nothing in the Indian Contract Act, of 1872, that prevents him from making the other party bound to be minor.
3. Minor can always plead minority.
4. Ratification on attaining a majority is not allowed: As a minor’s agreement is void, he cannot validate it by ratification on attaining a majority.
5. Though a minor’s agreement is void, his guardian can under certain circumstances enter into a valid contract on the minor’s behalf.
6. Under section 68 (Indian Contract Act, 1872), any person would be entitled to reimbursement out of the minor’s estate, for necessities supplied to him or his family.

Question 18. Briefly answer the following: Explain Coercion and undue influence in a contract.

Answer:

Coercion and Undue influence may be distinguished in the following manner:

Coercion involves physical force or threat. The aggrieved party is competent to make the contract against its will. While undue influence involves moral or mental pressure. The aggrieved party believes that fie or she would make the contract.

• Coercion involves committing or threatening to commit any act forbidden by the Indian Penal Code, detaining, or threatening to detain the property of another person. But no such illegal act is committed or a threat is given in case of undue influence.
• It is not necessary that in case of coercion, there must be some sort of relationship between the parties. But some sort of relationship between the parties is necessary in the case of undue influence.
• Coercion need not proceed from the promisor nor needlt be directed against the promisor. Undue influence is always exercised between parties to the contract.
• The contract is voidable at the option of the party where consent has been obtained by coercion. Where the consent is induced by undue influence, the contract is either voidable, or the court may set it aside or endorse it in a modified form.
• In case of coercion where the contract is rescinded by the aggrieved party, as per Section 64, any benefit received has to be restored to the other party.
• But in case of undue influence, the court has the discretion to direct the aggrieved party to return the benefit in whole or in part or not to give any such directions.

Question 19. Examine with reason that the given statement is correct or incorrect ‘Minor is liable to pay for the necessaries supplied to him”.

Answer:

A claim for necessaries supplied to a minor is enforceable by law, but a minor is not liable for any price that he may promise and never for more than the value of necessaries.

There is no personal liability on the minor, but only his property (estate) is liable.

Hence, the statement “minor is liable to pay for necessaries supplied to him”. Is incorrect.

Question 20. Define Fraud. Whether“mere silence will amount to fraud” as per the Indian Contract Act. 1872?

Answer:

Fraud means and includes any of the following acts committed by a party to a contract or with his connivance, or by his agent, with an interest to deceive another party thereto or his agent or to induce him to enter into a contract.

1. The suggestion, as a fact is that which is not true, by one who does not believe it to be true.
2. Activeconcealmentoffactby one having knowledge or belief of the fact
3. A promise made without any intention of performing it
4. An ad filed to deceive.
5. Any act declared as fraudulent by law.

Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud unless the circumstances of the case are such that regard being had to them.

• It is the duty of the person keeping silent to speak, unless his silence is, in itself, equivalent to speech.
• A. party under contract is under no obligation to disclose the whole truth to the other party. “Caveat Emptor’ i.e. let the buyer beware is the rule applicable to contracts.

There Is no duty to speak in such cases and silence does not amount to fraud. Similarly. there is no duty to disclose facts that are within the knowledge of both parties.

Question 21. “Mere silence is not fraud” but there are some circumstances where “silence is a fraud”. Explain the circumstances as per the provision of the Indian Contract Act 1872.

Answer:

Mere silence is not fraud:

Mere silence as to the facts likely to affect the willingness of a person to enter into a contract is not fraud unless the circumstances of the case are such that, regard being had to them, it is the duty of the person keeping silence to speak, or unless his silence is, in itself, is equivalent to speech.

• A party to the contract is under no obligation to disclose the whole truth to the other party. ‘Caveat Emptor i.e. let the buyer beware is the rule applicable to contracts. There is no duty to speak in such cases and silence does not amount to fraud.
• Similarly, there is no duty to disclose facts which are within the knowledge of both the parties.

Silence is a fraud:

1. Duty of Person to Speak:

Where the circumstances of the case are such that it is the duty of the person observing silence to speak.

The following contracts come in this category:

• Fiduciary relationship: Here, the person in whom confidence is reposed is under a duty to act with utmost good faith and make full disclosure of all material facts, known to him.
• Contracts of insurance: In such contracts, there is an implied condition that full disclosure of all material facts shall be made, or else the contract is avoidable.
• Contracts of Marriage: Every material fact must be disclosed by the parties to a contract of marriage.
• Contracts of family settlement: These contracts also require full disclosure of material facts within the knowledge of the parties.
• Share Allotment Contracts: The person issuing the “prospectus’ at the time of public issue of shares or debentures, has to disclose all material facts within their knowledge.

2. Where silence itself is equivalent to speech:

For Example, A says to B. “If you do not deny it, I shall assume that the horse is sound,” B says nothing his silence amounts to speech.

In case of fraudulent silence, the contract is not voidable if the party whose consent was so obtained had means of discovering the truth with ordinary diligence.

Question 22. Discuss the essentials of Undue Influence as per the Indian Contract Act, 1 872.

Answer:

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 he uses that position to obtain an unfair advantage over the other.

The essential ingredients of undue influence under the Indian Contract Act, of 1872 are:

1. Relation between the parties: A person can be influenced by the other when a near relation between the two exists.
2. Position to dominate the will: The relation between the parties is such that one of them is in a position to dominate the will of the other.
3. The object must be to take undue advantage: Where the person is in a position to influence the will of the other in getting consent, must have the object to take advantage of the other.
4. The burden of proof: The burden of proving the absence of the use of the dominant position to obtain the unfair advantage will lie on the party who is in a position to dominate the will of the other.

Question 23. Explain the term ‘Coercion’ and what are the effects of coercion under the Indian Contract Act, of 1872.

Answer:

‘Coercion’

“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, to cause any person to agree”.

Effects of coercion under Section 19 of the Indian Contract Act, 1872:

1. A contract induced by coercion is voidable at the option of the party whose consent was so obtained.
2. The party receiving any benefit under the voidable contract must restore such benefit so far as may be to the person from whom it was received.
3. A person to whom money has been paid or delivered under coercion must repay or return it.

Question 24. Define Misrepresentation and Fraud. Explain the difference between Fraud and Misrepresentation as per the Indian Contract Act, of 1872.

Answer:

Misrepresentation and Fraud

According to Section (17) of the Indian Contract Act, 1872: “Fraud means and includes any of the following acts committed by a party to a contract or with his connivance or by his agent, which an intention to deceive another party thereto or his agent, or to induce him to enters into a contract.

Following are some acts:

• The active concealment of the fact by one having knowledge or brief of the fact.
• A promise made without any intention of performing it.
• Any other act filled to deceive.
• Any such act that the law declares to be fraudulent, etc.

For Example: A sells by auction to B, a house which A knows to be unsound, and A says nothing to B. This is not fraud by A.

Silence may sometimes be fraud or will not depend upon the facts and circumstances of the case.

Misrepresentation:

According to Section (18) of the Indian Contract Act, 1 872. Misrepresentation means misstatement of material facts made believing it to be true without any intention of delivering the other party.

For Example: A makes a statement to B that C will be made the director of a company. A makes the statement on information derived, not directly from C but from M. B applies for shares on the faith of the statement which turns out to be false the statement amounts to misrepresentation.

The difference between fraud and misrepresentation is as follows:

Question 25. Mr. X a businessman has been fighting a long-drawn litigation with Mr. Y an industrialist. To support his legal campaign he enlists the services of Mr. C a Judicial officer stating that the amount of? 10 lakhs would be paid to him if he does not take up the brief of Mr. Y. Mr. C agrees but, at the end of the litigation, Mr. X refuses to pay Mr. C. Decide whether Mr. C can recover the amount promised by Mr. X under the provisions of the Indian Contract Act, 1872?

Answer:

Provision: According to the Indian Contract Act, of 1872. All Agreements in restraint of any trade or which are opposed to public policy are void and are such which are expressly declared by law to be a void agreement.

Analysis: In the given case, Mr. X has been fighting a long-drawn litigation with Mr. Y To support his legal campaign he enlists the services of Mr. C who is a judicial officer stating that the amount of ₹ 10 lakhs would be paid to him if he does not take up the brief of Mr. Y.

As this agreement is an agreement which is void and opposed to public policy hence, it cannot be enforced.

Concession: As at the end X refuses to pay Mr. C the decided amount Mr. C cannot recover the amount promised by Mr. X under the provisions of the Indian Contract Act, 1 872 as it is a void agreement between the two.

Question 26. Mr. S aged 58 years was employed in a Govt. Department. He was going to retire after two years. Mr. D proposed Mr. S apply for voluntary retirement from his post so that Mr. D can be appointed in his place. Mr. D offered a sum of ₹ 10 Lakhs as consideration to Mr. S to induce him to retire.

Mr. S refused at first instance but when he evaluated the amount offered as consideration as just double his cumulative remuneration to be received during the tenure of two years of employment, he agreed to receive the consideration and accepted the above agreement to receive money to retire from his office.

Whether the above agreement is valid? Explain the provision of the Indian Contract Act, of 1872.

Answer:

According to the provisions of the Indian Contract Act, of 1872

An agreement to trafficking in public office is opposed to public policy, as it interferes with the appointment of a person best qualified for the service of the public.

Public policy requires that there should be monetary consideration for the appointment to an office in which the public is interested. The following are examples of agreements that are void; since they are tantamount to the sale of public offices.

1. An agreement to pay money to a public servant to induce him to retire from his office so that another person may secure the appointment is void.
2. An agreement to procure a public recognition like Padma Vibhushan for reward is void. In the given case, Mr. D offered? 10 lakh to Mr. S as a consideration to induce him to retire so that Mr. D can be appointed in his place.

The above agreement is opposed to public policy and therefore void.

Question 27. Examine the validity of the following contracts as per the Indian Contract Act, of 1872 giving reasons.

1. X aged 16 years borrowed a loan of ₹ 50,000 for his purposes. A few months later he became major and could not pay back the amount borrowed on the due date. The lender wants to file a suit against X.
2. J contracts to take In cargo for K at a foreign port. J’s government afterward declared war against the country In which the port Is situated and therefore the contract could not be told. K wants to file a suit against J.

Answer:

1. According to section 11 of the Indian Contract Act, 1 872 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 sound mind and is not disqualified from contracting by any law to which he Is subject. A person who has completed the age of 18 years Is a major and otherwise, he will be treated as a minor.

• Thus, X aged 16 years is a minor and is incompetent to contract and any agreement with him is void (Mohori Blbi vs Dharmo Das Ghose 1903) Section 68 of the Indian Contract Act, 1872 however, prescribes the liability of a minor for the supply of the things which are the necessaries of life to him.
• It says that though a minor is not personally liable to pay the price of necessaries supplied to him or money lent for the purpose, the supplier or lender will be entitled to claim the money or price of goods or services which are necessaries suited to his condition of life provided that the minor has a property.
• The liability of the minor is only to the extent of the minor’s property. Thus, according to the above provision, the lender will be entitled to recover the amount of loan given to X for payment of personal purposes from the property of the minor.

2. As per the provisions of the Indian Contract Act, of 1872 any trade with a person owing allegiance to a Government at war with India without the license of the government of India is void, as the object is opposed to public policy.

• Here, the agreement to trade offends against public policy by tending to prejudice the interest of the state in times of war. Such a contract will become void.
• In the present case, J contracts to take in cargo for K at a foreign port. J’s government afterward declares war against the country in which the port is situated and therefore the contract could not be fulfilled.
• Hence the contract becomes void ab initio. The contract made before such war war-like situation may be suspended or dissolved.

Question 28. Srishti, a minor, also representing her age, entered into a fin agreement with an unauthorized Laptop dealer Mr, Ggpta, owner of GP Laptops, lor purchased the Laptop on credit amounting to ₹ 60.000/- for purchasing a Laptop on 1^st August 2021. She promised to pay back the outstanding amount with Interest @ 16% p.a. by 31^st July 2022, She told him that In case she isn’t able to pay the outstanding amount, her lather Mr. Ram would pay it back on her behalf. After one year, when Sriahtl was asked to pay the outstanding amount with Internal she refused to pay the amount and told the owner that the sho Was minor and now he couldn’t recover a single penny from her.

She will be an adult on 1^st January 2024, only after that agreement can be ratified. Explain by which of the following ways Mr. Gupta will succeed in recovering the outstanding amount concerning the Indian Contract Act, of 1872.

1. By filing a case against Srishti, a minor for recovery of the outstanding amount with interest?
2. By filing a case against Mr. Ram, father of Srishti for recovery of the outstanding amount?
3. By filing a case against Srishti, a minor for recovery of the outstanding amount after she attains maturity?

Answer:

1. A minor is not competent to contract and any agreement with or by a minor is void from the very beginning. In the instant case, the agreement between Mr. Gupta and Srishti (minor) is void a9 Srishti is competent to make the contract.

Therefore, Mr. Gupta will not succeed in recovering the outstanding amount with interest by taking legal action against Srishti the minor.

2. Mr. Gupta cannot succeed in recovering the outstanding amount along with interest by filing a case against Mr. Ram, since he will not be liable for the acts done by his daughters moreover, Shrishti is not acting as an agent of his father, thus Mr. Ram (i.e.guardian) is not liable for the acts of his daughter even as a principal.

3. Mr. Gupta cannot succeed in recovering the outstanding amount with interest by filing a case against Srishti even after she attains majority age since minor agreements are void-ab-into and cannot be ratified even after attaining majority age.

Question 29. Mr. Y aged 21 years, lost his mental balance after the death of his parents in an accident. He was left with his grandmother aged 85 years, incapable of walking and dependent upon him. Mr. M their neighbor, out of pity, started supplying food and other necessities to both of them. Mr. Y and his grandmother used to live in the house built by his parents.

Mr. M also provided the grandmother with some financial assistance for her emergency medical treatment. After supplying necessities to Mr. Y for four years, Mr. M approached the former asking him to pay him back ₹ 15 -Lakhs inclusive of ₹  7 Lakhs incurred for the medical treatment of the lady (grandmother).

Mr. Y pleaded that he has his parent’s jewelry to sell to a maximum value of ₹ 4 Lakhs, which may be adjusted against the dues. Mr. M refused and threatened Mr. Y with a legal suit to be brought against him for recovering the money. Now, you are to decide based on the provisions of The Indian Contract Act, of 1872:

1. Will Mr. M succeed in filing the suit to recover the money? Elaborate on the related provisions.
2. What is the maximum amount of money that can be recovered by Mr. M?
3. Shall the provisions of the above act also apply to the medical treatment given to the grandmother?

Answer:

Under Sections 11 and 12 of the Indian Contract Act, 1872, for executing a valid contract, the parties to same should be of sound mind.

As per Section 11: 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 sound mind and is not disqualified from contracting by any law to which he is subject.

As per Section 12: A person is said to be of sound mind to make a contract if, at the time when he makes it, he is capable of understanding it and of forming a rational judgment as to its effect upon his interest.

Whereas, a person who is usually of unsound mind, but occasionally of sound mind, may make a contract when he is of sound mind.

In the given case Mr. Y. is a person of unsound mind and he is looking after his grandmother aged 85 years, incapable of walking and dependent upon him. Mr. M out of kindness started supplying food and other necessities to both of them.

After supplying necessities to Mr. Y. for 4 years he approached to pay back ₹ 15 lakhs inclusive of ₹ 7 lakhs incurred for the medical treatment of the lady.

Now as per the above given scenario following conclusions can be drawn in this case.

1. Mr. Y is an adult and is usually of sound mind but occasionally of unsound mind can make a contract when he is of sound mind. 6o, as per the above provisions Mr. M will succeed in recovering the money and he can file suit against Mr. Y.
2. The maximum amount of money that can be recovered by Mr. M is only to the extent of Mr. Y’s estate i.e. the jewelry of his parents worth ? 4 lakhs can be adjusted against the dues.
3. The provisions of the above act shall also be applied to the medical treatment given by Mr. M to the grandmother of Mr. Y.

Question 30. Mr. A, the employer induced his employee Mr. B to sell his one-room flat to him at less than the market value to secure promotion. Mr. B sold the flat to Mr. A. Later on, Mr. B changed his mind and decided to sue Mr. A. Examine the validity of the contract as per the provisions of the Indian Contract Act, of 1872.

Answer:

According to section 1 6 of the Indian Contract Act, 1 872, 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 he 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 another where he holds a real or apparent authority over the other.
• In the above case, MR. A, the employer induced his employee Mr. B to sell his one-room flat to Mr. A. Later on, Mr. B changed his mind and decided to sue Mr. A. Here, the employer has real authority over the employee.
• Moreover, the employer is in a dominant position to get an unfair advantage from the employee. So law presumes undue influence in this case.
• Therefore, a suit can be fixed here on the grounds of undue influence. Mr. B can sue Mr. A as the contract is voidable on the grounds of undue influence.

Performance Of Contract Self-Study Questions And Answers

Question 1. Describe the Obligations of parties to contract Under the Indian Contract Act, of 1872.

Answer:

Performance of Contract: It is one of the modes of discharging the contract. It is the completion or fulfillment of obligations by the respective parties to a contract.

As per Section 37 of the Indian Contract Act, the parties to the contract must either

1. Perform their respective promises, or
2. Offer to perform the same unless such performance is dispensed with or excused under the provisions of any other law.

Question 2. By Whom a contract may be performed.

Answer:

• Promisor himself: Section 40 states that “if it appears from the nature of the case that it was the intention of the parties to a contract that any promise contained in it needs to be performed by the promisor himself, such promise must be performed by the promisor himself.”
• Contracts involving the exercise of personal skill or diligence, or which are formed on the personal confidence between the parties need to be performed by the promisor himself.
• Agent: If the contract is not found on the personal consideration, the promisor or his representative may employ a competent person to perform it.
• Representatives: Contract involving the use of personal skill or found to be on personal consideration comes to an end on the promisor’s death.
• In other cases, the legal representatives of the deceased partner are bound to perform it unless the contrary intention appears from the contract; but their liability is limited to the value of the property they inherit from the deceased.
• Third person: As per Section 41, “if the promisee accepts the performance of the promise by a third person, he cannot afterward enforce it against the promisor”.
• Joint promisors: In the case of a joint promise, the promisee may compel one or more of the joint promisors in the absence of a contract to the contrary. If any of them dies, his legal representatives must perform the promise jointly with the surviving promisors.

Question 3. Distinguish between Succession and Assignment.

Answer:

Difference between Succession and Assignment

Question 4. Briefly explain the Effects of refusal to accept an offer of performance.

Answer:

The Effects of refusal to accept an offer of performance

The promisor makes an offer of performance to the promisee, but the offer to perform is not accepted by the promisee.

Question 5. How many types of tender are there and Describe the Cements of Tender?

Answer:

• Tender of goods: attempted performance to promise to do something.
• Tender of money: attempted performance of a promise to pay something.

Essentials of valid tender:

• Must be unconditional.
• Must be for the whole obligation.
• Must be given at the proper time.
• Must be given at proper place.
• Must give a reasonable opportunity for inspection.
• The party giving tender must be willing to perform his obligation.
• Must be paid to the proper person.
• Must be made for the exact amount of money.

Question 6. Describe the Effects of the Refusal of the party to perform the promise.

Answer:

The aggrieved party can:

1. Terminate the contract.
2. Indicate by words or by conduct that he is interested in its continuance. If the promisee decides to continue the contract, he would not be entitled to put an end to the contract on this ground immediately. In both cases, the promisee would be entitled to claim damages that he suffered as a result of the breach.

Question 7. What are the Liabilities of Joint Promisor and Promisee?

Answer:

Section 42:

If two or more persons have made a joint promise, ordinarily all of them during their lifetime must jointly fulfill the promise. After the death of any of them, his legal representative jointly with the survivor or survivors should do so.

Section 43:

1. All the joint promisors are jointly and severally liable. However, the contract between joint promisor may provide otherwise.
2. A joint promisor may claim contributions from other joint promisors if he is compelled to perform the whole promise.
3. A joint promisor may claim contribution from other joint promisors if any other joint promisor makes a default in the performance of his promise.

Section 44:

Where one of the joint promisors is released, other joint promisors shall continue to be liable.

Question 8. What are the Rights of joint promises?

Answer:

The Rights of joint promises

• U/s 45, when a person has made a promise to several persons, then unless a contrary intention appears from the contract, the right to claim performance rests between him and them during their lifetime.
• When one of the promisees dies, the right to claim performance rests with the legal representative jointly with the surviving promisees.
• When all the promisees die, the right to claim performance rests with their legal representatives jointly.

Question 9. Describe the Time and place of performance of the promise.

Answer:

Time of Performance:

Section 46: Where no time is specified for the performance of the contracts, the performance must be done within a reasonable time.

Day, Hour, and Place of Performance:

• Section 47: Where the promisor undertaken to perform a promise on a certain day, he may perform it at any time during the usual hours of business, on that particular day and place as decided by the contract.
• Section 48: If a promise is made to perform on a certain day and the promisor has undertaken to perform it without the application by the promisee., the promisee must apply for performance at a proper place and within the usual business hours.
• Section 49: If no specific place of performance is fixed by contract, the promisor must apply to the promisee to appoint a reasonable place for performance.

Manner or Mode of Performance:

Section 50: Performance should be made in the manner or at the time prescribed or sanctioned by the promisee.

Question 10. What do you understand by Reciprocal Promise and Performance of Reciprocal Promise?

Answer:

Reciprocal Promise

If the contract consists of reciprocal promises, performance is not necessary unless the second party is willing to perform a reciprocal promise.

• Reciprocal promises constitute concurrent conditions and the performance of one of the promises is conditional on the performance of the other, hence both promises should be performed simultaneously.
• The order of performance may sometimes be indicated not expressly, but by nature of the transaction, where it is not expressly fixed by contract, they shall be performed in that order which the nature required.
• If the contract contains reciprocal promises, the contract becomes voidable if one party to the contract prevents the other from performing his promise and he is entitled to compensation for any loss suffered due to non-performance.
• If the contract of reciprocal promises cannot be performed till the other promise is performed, the promisor fails to perform his part, and the promisor cannot claim compensation but has to pay compensation for any loss suffered by the other party.

Section 55: Where a party to a contract promises to do a certain thing at or before the specified time, the contract, or so much of it as has not been performed, becomes voidable at the option of the promisee if parties intended that the time should be the essence of the contract.

• If the time was not the essence of the contract and if the contract is not performed at or before the specified time, then the contract does not become voidable but the promisee is entitled to compensation for any loss suffered.
• If due to failure of performance of the contract at the agreed time, the contract became voidable, but the promisee accepts performance at any other time, then he is not entitled to any compensation for loss unless he gives prior notice to the promisor of his intention to do so.
• A contract cannot be avoided where time is not essential, promisee there is only entitled to compensation for delay.
• Even where time was essential, the promisee may waive his right to repudiate the contract and if the promisor fails to perform the promise within the stipulated time, the promisee may accept performance at some other time and is not entitled to any compensation for delay unless he gives prior notice to the promisor of his intention to do so.

If a contract contains a reciprocal promise, first to do certain legal things and secondly, under specified circumstances, to do certain illegal things, the first set of promises is valid while the second being illegal is void agreement.

Question 11. How Many Types of Impossibilities are there?

Answer:

Types of Impossibilities

Section 56: An agreement to do an impossible act is void. Impossibility can be of two types:

Question 12. Describe the Appropriation of payments.

Answer:

The Appropriation of payments

1. If the debt to be discharged is indicated while making payment, then payment is to be applied according to instruction.
2. If the debt to be discharged is not indicated while making payment, the creditor may apply for payment at his discretion to any lawful debt due and payable to him from the debtor whose recovery is not time-barred.
3. If no appropriation regarding payment is made by both parties, the FIFO basis will apply based on time.

Question 13. Which is a Contract which need not be performed with the consent of both parties?

Answer:

• Section 62: If the parties to the contract agree to
  • substitute a new contract for it, or
  • rescind it, or
  • alter it.
• Section 63: If the promisee
  • dispenses with or remits, wholly or. in part, the performance of the promise made to him.
  • extend the time for such performance.
  • accepts any satisfaction for it.
• Section 64: If the person at whose option it is voidable rescinds the contract.
• Section 65: If the agreement contract is discovered to be void, the person who has received advantage under such agreement or contract is required to restore the same or make compensation for it from whom he received it.
• Section 66: A rescission must be communicated to the other party like the communication of a proposal.
• Section 67: If the promisee neglects or refuses to afford the promisor reasonable facilities for the performance of the promisee, a contract need not be performed.

Question 14. How Many Modes of Discharge of Contract are there?

Answer:

It means termination of contractual relations between the parties to a contract.

Modes of Discharge of Contract:

1. By performance: It occurs when the parties to the contract fulfill their obligations arising under the contract within the time and in a prescribed manner. It may be:

• Actual performance
• Attempted performance

2. By mutual agreement: The parties may enter into a fresh agreement that provides for the extinguishment of their rights are liabilities of the original contract. Important methods of discharge by fresh contract.

• Novation: It occurs when an existing contract is substituted by a new one, either between the same parties or between the new ones.
• Rescission: A occurs when only the old contract is canceled and no new contract comes to exist in its place.
• Alteration: It occurs when the terms of the contract are so changed by mutual agreement that have the effect of substituting a new contract for the old one.
• Remission: It refers to the acceptance of less fulfillment of the terms of the promise.
• Waiver: It refers to the abandonment of the rights by the party who is entitled to claim the performance of the contract.
• Acceptance: Of any other satisfaction it occurs when the party entitled to claim performance accepts any other satisfaction instead of the performance of the contract.

3. By Lapse of time: It occurs if a contract is not performed within a specified period as prescribed by the Limitation Act, 1963.

4. By operation of law: It occurs when the contract is discharged by operation of law which includes

• Material Alteration: Where it is done without the knowledge and consent of the other, the contract can be avoided by the other party.
• Insolvency: It can be done under certain particular circumstances.
• Death of a promisor: Contract involving the personal skill or expertise of the promisor. When the promisor dies, it cannot be performed by anyone else and hence comes to an end.
• Merger of rights: If an inferior right in a contract is merged into a superior right by the party.

Question 15. How Many Types of Impossibilities of Performance or Frustration are there Describe them.

Answer:

Types of Impossibilities of Performance

1.

2. Discharge by supervening impossible is done in the following ways:

• Death or personal Incapacity
• Destruction of the subject – Manner
• Non-existence or non-occurrence of certain essential things
• Change of law
• Declaration of war

3. Discharge by supervening illegality: If after making the contract, its performance becomes impossible due to alteration of law or act of any person, it is discharged.

4. Cases not covered by subsequent impossibility:

• Partial impossibility
• Commercial impossibility
• Difficulty of performance
• Default of a third-party
• Strikes, Lockouts, etc.

Question 16 Describe the Types of breach of contract.

Answer:

There are Two Types of Breach of Contract:

1. Actual Breach: If one party defaults in performing his part of the contract on the due date.
2. Anticipatory Breach: When a person repudiates the contract the stipulated time for its performance has arrived.

Performance Of Contract Objective Questions And Answers

Question 1. State with reasons whether the following statements are Correct or Incorrect:

1. Payments made by a debtor are always appropriated in chronological order.
2. Cancellation of a contract by mutual consent of the parties is called a waiver.

Answer:

1. Incorrect: Payments made by a debtor to the creditor are to be appropriated as per the provisions stated under sections 59 to 61 of the Indian Contract Act.
2. Incorrect: It is not a waiver but it is called Rescission.

Question 2. State with reasons whether the following statement is Correct or incorrect: In the discharge of the whole claim a party to the contract agrees to accept a lesser amount than due, from the other party is a valid contract despite inadequate consideration.

Answer:

Correct: According to Section 63 of the Indian Contact Act, ‘1872, a party may dispense with or remit wholly or past, the performance of the promise made to him.

Thus, a promise to accept a lesser amount than due, from the other party is a valid contract despite the inadequate consideration.

Question 3. State with reasons whether the following statement is Correct or Incorrect: If the promises are joint, the right to claim performance is joint and not joint, and several.

Answer:

Correct: Section 45 of the Contract Act lays down that when a person has made a promise to two or more persons jointly, then unless a contrary intention appears from the contract, the right to claim performance rests, as between him and them, with them during their joint lives.

• And after the death of any of them With the representatives of such deceased person jointly with the survivor or survivors, and after the death of the last survivor, with representatives of all jointly.
• This rule is applicable subject to contrary intention being shown by the contract. Accordingly, all the joint promisees should sue the promisor jointly and not jointly and several.

Question 4. State with reasons whether the following statement is Correct or Incorrect: A promise to pay a time-barred debt is not enforceable.

Answer:

A promise to pay a time-barred debt is enforceable, if it is in writing and signed by the promisor or by his agent authorized to do so. The promise may be to pay the whole or any part of the debt [Section 25(3) Indian Contract Act, 1872].

Question 5. State with reasons whether the following statement is Correct or Incorrect: Reciprocal promises to do certain things legal and other illegal, make such promises void.

Answer:

Corrects: Where persons reciprocally promise to do certain things legally and to do certain things illegal, the set to do the things legal is a contract, but to do the things illegal is void agreement (Section 57 of Indian Contract Act, 1872).

Question 6. State with reasons whether the following statement is correct Incorrect: The original contract between the parties must be performed even when the parties agree to substitute it with a new contract.

Answer:

Incorrect: According to Section 62 of the Indian Contract Act, 1872, if the parties to a contract agree to substitute a new contract for the old contract, or to rescind or alter it, the original old contract is not required to be performed since substitution means rescinding the old contract or altering the terms in the old contract. The discharge of old contracts is a consideration for the new ones.

Performance Of Contract Short Notes

Question 1. Write a short note on the appropriation of payment.

Answer:

Appropriation of Payments: Sections 59 to 61 of the Contract Act, of 1872 enacted the rules of appropriation of payment of English Law as laid down in Clayton’s case with certain modifications, which may be reproduced below:

1. Application of Payment where debt to be discharged is indicated (Section 59): Where a debtor, owing several distinct debts to one person, makes a payment to him either with express intimation or under circumstances Implying that the payment is to be applied to the discharge of sotto particular debt, the payment, If accepted, must be applied accordingly.
2. Application of payment where debt to be discharged Is not Indicated (Section 60): Whoro the debts has omitted to Intimate and there are no other circumstances Indicating to which debt the payment Is to be applied, the creditor may apply It at his discretion to any lawful debt due and payable to him from the debtor, whether Its recovery Is or Is not barred by the law In force for the time being os to the limitation of suits.
3. Application of payment where neither party appropriates (Section 61): Whoro neither party makes any appropriation, the payment shall be applied In the discharge of the debts In order of time, whether they are or are not barred by the law in force for the time being as to the limitation of suits. If the debts are of equal standing, the payments shall be applied in the discharge of each proportionately.
4. Appropriation towards Interest: When the debtor makes a part payment without indicating the appropriation (whether towards principal or interest) in such cases, the payment must first be adjusted towards interest and the balance towards the principal amount.

Question 2. Write a short note on Rescission

Answer:

Rescission: Rescission is the electing to avoid a contract and treat it as not binding when it is void or voidable or terminable by a party. It means when a contract is broken by one party, the other party may treat the contract as rescinded.

In such a case is absolved of all his obligations under the contract as rescinded. In such a case is absolved of all his obligations under the contract and is entitled to compensation for any damages that he might have suffered.

Rescission may occur:

1. By mutual consent of the parties, or
2. Where it partly falls In the performance of his obligation, the other party may rescind the contract without proudly to his right to claim compensation for the breach of contract, or
3. By the party whose consent has not been given freely.

Rescission may be total or partial. Total rescission is the discharge of the online contract. Partial rescission Is the variation of the original contract by

• rescinding some of the terms of the contract or
• substituting new terms for the ones which are rescinded, or adding new terms without rescinding any of the terms of the original contract.

Question 3. Write a short note on Appropriation Is a right primarily of the debtor and for his benefit.

Answer:

Appropriation Is a right primarily of the debtor and for his benefit

When a debtor who owes several debts to the same creditor makes a payment that is insufficient to satisfy the whole Indebtedness, a problem arises as to how to appropriate the given payment. Sections 59 to 61 of i.e. Indian Contract Act, of 1872 lay down the following rules:

1. if the debtor expressly states that the payment made by him is to be applied to the discharge of some particular debt, the creditor must act accordingly.
2. if there are no express instructions, then the debtor’s implied intention should be gathered from the circumstances adhering to the payment and the appropriation must be done accordingly.
3. if there are no express or implied directions of the debtor thorn the creditor had the option to apply the payment to any debt lawfully due from the debtor including times observed debt (Clayton’s case).
4. where the debtor as well as the creditor had not made the appropriation. Then the payment is to be applied to the discharge of the debts in order of time,’ whether or not they are time-barred. If the debts are of equal standing, the payment shall be applied In the discharge of each proportionately.
5. if payment has been made without opposingly stating whether it is interest or principal, payment is to be applied towards interest first and then the balance to principal.

Thus, it is quite clear from the above that it is always not the case where appropriation is a right primarily of the debtor and for his benefit. It depends upon the circumstances of a particular case.

Question 4. Write a short note on Reciprocal promises that are to be performed simultaneously.

Answer:

Reciprocal promises that are to be performed simultaneously

According to Section 51 of the Indian Contract Act, of 1872 “when a contract consists of reciprocal promises to be simultaneously performed, no promisor need to perform his promise unless the promisee is ready and willing to perform his reciprocal promise”.

• When the parties agree that the performance of the contract by each part is to be simultaneous, it is necessary that in exchange for the performance of the contract by one party the other party should also be in a position to give simultaneous performance, i.e. he should be ready and willing to perform his reciprocal promise.
• In a contract, of sale of goods, unless otherwise agreed, the delivery of the goods and the payment of the price are concurrent conditions, that is to say, the seller shall be ready and willing to give possession of the goods to the buyer in exchange for the price and the buyer shall be ready to pay the price in exchange for possession of the goods.
• Readiness and willingness to perform the contract do not mean that the buyer should have the hard cash in his- person, or the seller should always continue to have a ready stock of the goods after the making of the contract.
• It is enough that the buyer, has made arrangements to make the payment, which can be done without undue delay, and the seller on his part arranged for the goods which can be delivered soon after the payment is made.
• It is of course, necessary that the person should have the ability to perform the contract. If a person is merely mentally prepared or willing to perform the contract but cannot do so, the other party need not perform the contract.

Thus a person who becomes insolvent does not have means of payment in exchange for the goods, he is deemed to be not ready and willing to perform the contract.

Question 5. Write short notes on the following: State the rules of appropriation of payments, when:

1. The order of discharge of debts is indicated;
2. The order is not indicated.

Answer:

As a normal rule, the debtor while making payment of debts should indicate to the creditor the order of payment or appropriation. This is needed in case several debts are payable by a debtor to his creditor.

• However, the debtor might not indicate the order or payment for one reason or the other, in such cases, the rules laid down in the Indian Contract Act, of 1872 apply.
• Section 59, lays down, “Where a debtor, owing several distinct debts to one person makes a payment to him either with express intimation or under circumstances implying that the payment is to or applied to the discharge of some particular debt, the payment, if accepted, must be applied accordingly.”

Thus in the instance case, the debtor has indicated the order of discharge of debts, the creditor has no other alternative except to appropriate the amount received by him according to the order indicated by the debtor.

• In the second case i.e., where the debtor does not indicate or has not indicated the order of discharges of debts, Section 60 of the Act, makes the position clear. According to this Section 60, “Where the debtor has omitted to intimate and there are no other circumstances indicating to which debt the payment is to apply.
• The creditor may apply the money received at his discretion to any lawful debt due and payable to him from the debtor whether its recovery is or is not barred by the law in force for the time being as to the limitation of suits.”
• Thus it is clear that in the second case, provisions of Section 60 shall apply and the creditor shall be within his rights to appropriate the money against the debts if any barred by law of limitation.

However, if there are several debts due on the same date and the debtor has not indicated the order of payment, the creditor shall have to apply the money proportionately in the discharge of these debts.

Question 6. Write a short note on the Doctrine of Frustration

Answer:

The doctrine of Frustration: Part 2 of Section 56 of the Indian Contract Act, 1872 lays down that if the performance of a contract becomes impossible or unlawful after its making due to some event which is beyond the control of the parties, such contract becomes void when such event has accrued. This is known as the doctrine of frustration. The performance may become impossible legally or physically.

The following are the causes of frustration:

1. Destruction of the subject matter of the contract.
2. Death or personal incapacity of the party.
3. Cancellation of an expected event.
4. Subsequent legal changes.
5. Declaration of war.

Distinguish Between Performance Of Contract

Question 1. Briefly explain the distinction between Succession and Assignment.

Answer:

The distinction between Succession and Assignment

Distinguish between Succession and Assignment: When the benefits of a contract are succeeded to be a process of law, then both the burden and benefits attaching to the contract may sometimes devolve by the legal heir.

• Suppose, a son succeeds to the estate of his father after his death, he will be liable to pay the debts and liabilities of his father owed during his lifetime.
• But if the debts owed by his father exceed the value of the estate inherited by the son then he would not be called upon to pay the excess.
• The liability of the son will be limited to the extent of the property inherited by him. In the matter of assignment, however, the benefit of a contract can only be assigned but not the liabilities thereunder.
• This is because then the liability is assigned, and a third party gets involved therein.

On the other hand, if a creditor assigns the benefits of a promise, he thereby entitles the assignee to realize the debts from the debtor but where the benefits are coupled with liability or when a personal consideration has entered into the making of the contract then the benefit cannot be assigned.

Question 2. Briefly explain the distinction between Innovation and Alteration.

Answer:

Novation and Alteration: The law about novation and alteration is contained in Sections 62 to 67 of the Indian Contract Act, of 1872. In both these cases, the original contract need not be performed. Still, there is a difference between these two:

1. Novation means the substitution of an existing contract with a new one. Novation may be made by changing the terms of the contract or there may be a change in the contracting parties. But in case of alteration, the terms of the contract may be altered by mutual agreements by the contracting parties but the parties to the contract will remain the same.
2. In case of novation there is altogether, a substitution of a new contract in place of the old contract. But in case of alteration, it is not essential to substitute a new contract in place of the old contract. In alteration, there may be a change in some of the terms and conditions of the original agreement.

Question 3. Briefly explain the distinction between Recession and Alteration.

Answer:

Rescission and Alteration: Rescission means cancellation of the contract. If by mutual agreement the parties agree to cancel all or some of the terms of the existing contract.

• It is called rescission of the contract, and then the contract is discharged. A contract can be rescinded before its performance becomes due. Non-performance of a contract by both parties for a long period, without any complaint, amounts to implied rescission.
• Rescission may be total or partial. When all the terms of the contract are canceled, it is total rescission which results in the discharge of the entire contract. When some of the terms are canceled and some new terms are added, it is partial rescission.
• Partial rescission results in the variation of the original contract. Section 62 of the Indian Contract Act, of 1872 lays down that if the parties to a contract agree to rescind it, the original contract need not be performed.
• The alteration, on the other hand, means making a change in the terms of the contract with the consent of all the parties. Alternation discharges the old terms which have been changed and the parties become bound by the original contract with altered terms.

Rescission of the contract may be total or partial but alteration is always partial and the original contract can not be altered wholly. The effect of alteration is the same as laid down in Section 62 of the Indian Contract Act, 1872 i.e. the original contract need not be performed.

Question 4. Differentiate between Novation and Alteration as per The Indian Contract Act, of 1872.

Answer:

Difference between Novation and Alteration:

Performance Of Contract Descriptive Questions And Answers

Question 1. What is “Supervising Impossibility”? What are its effects on the contract?

Answer:

“Supervising Impossibility”

An impossibility that makes the performance of a contract impossible or illegal, by the occurrence of an unexpected event or a change of circumstances beyond the contemplation of parties, is called Supervising Impossibility.

It may arise on account of more than one reason, which may be enumerated below:

1. Accidental destruction of the subject matter of the contract, such as loss of property by the occurrence of accidental fire, death of an artist, or incapacity of an artist by long illness.
2. Non-existence or non-occurrence of a particular state of things, For Example.. postponement of the music concert for which the hall was rented out.
3. Incapacity to perform a contract of personal services illness.
4. Change in law, For Example. acquisition of the property by the government.
5. The outbreak of war makes the contracting parties citizens of enemy countries.

Effects: Supervising impossibility makes the contract void and the parties are released from their obligations. They need not perform their part of the promises which have not accrued till the date of the impossibility.

Question 2. State in brief the grounds upon which a contract may be discharged.

Answer:

Discharge of contracts: A contract is discharged when the obligation created by it comes to an end. A contract may be discharged in any one of the following ways:

1. Discharge by performance: It takes place when the parties to the contract fulfill their obligations arising under the contract within the time and in the manner prescribed. Discharge by performance may be
   1. Actual performance or
   2. Attempted performance.
      • Actual performance is said to have taken place; when each of the parties has done what he has agreed to do under the agreement. When the promisor offers to perform his obligation, but the promisee refuses to accept the performance, it amounts to attempted performance or tender of performance.
2. Discharge by mutual agreement: Section 62 of the Indian Contract Act provides if the parties to a contract agree to substitute a new contract for it, or to refund or remit or alter, the original contract need. not be performed. These principles come in the heads of novation, rescission, alteration remission, accord, and satisfaction, owing to the occurrence of an event and waiver.
3. By impossibility of performance: The impossibility may exist from its initial stage. In that case, it would be impossible an initiate. Alternatively, there may be supervening impossibility which may take place owing to
   1. an unforeseen change in law;
   2. the destruction of the subject matter essential to that performance;
   3. the non-existence or non-occurrence of a particular state of things, which was naturally contemplated for-perfQrming the contract, as a result of some personal incapacity like dangerous malady; the declaration of war (Section 56).
4. Discharge by lapse of time: A contract should be performed within a specified period as prescribed by the Limitation Act, 1 963. If it is not performed and if no action is taken within the specified period of limitation, the party is deprived of remedy at law. For example, if a creditor does not file a suit against the buyer for recovery of the price within three years, the debt becomes time-barred and hence not recoverable.
5. Discharge by operation of law: A contract may be discharged by operation of law which includes by the death of the promisor, merger of inferior right in the superior right by which the inferior right vanishes, by complete loss of evidence, by insolvency, etc.
6. Discharge by breach of contract: Breach of contract may be an actual breach of contract or anticipatory breach of contract. If one party defaults in performing his part of the contract on the due date, he is said to have committed a breach thereof.
   • When on the other hand, a person repudiates a contract before the stipulated time for its performance has arrived, he is deemed to have committed an anticipatory breach. If one of the parties to a contract breaks the promise the party injured thereby, has not only a right of action for damages but he is also discharged from performing his part of the contract. (Section 64).
7. Remission accord and satisfaction: A promise may dispense with or remit the performance of the promise made to him or may accept any satisfaction of things fit. In the first case, the contract will be discharged by remission and in the second by accord and satisfaction.
8. Refusal to afford reasonable facilities: If any promisee, neglects or refuses to afford the promisor reasonable facilities for the performance of his promise, the promisor is excused by such neglect or refusal as to any non-performance caused thereby.

Question 3. Is it required that parties to the contract must perform the contract personally?

Answer:

Who must perform the contract: Except the contracts which require personal skill and labor, the promise under a contract may be performed by the following persons:

1. Promisor himself: If it appears from the nature of the case that it was the intention of the parties to any contract, that any promise contained in it should be performed by the promisor himself, such promise must be performed by the promisor. Contracts involving personal skill or those depending upon personal trust and confidence must be performed by the promisor himself (Sec. 40).
2. Agent: Where personal consideration is not the foundation of a contract, the promisor or his representatives may employ a competent person to perform it (Section 40).
3. The Legal Representatives: Promises bind the representatives of the promisors in case of the death of such promisors before performance, unless a contrary intention appears from the contract.
   • On the death, of the promisor, the promisee can compel his legal representatives to perform the promise unless it involves the personal skill of the promisor.
   • However, the liability of the legal representative will not be personal but shall be limited only to the extent of the value of the estate of the deceased promisor inherited by him. (Section 37).
4. Third Persons: When the promisee accepts the performance of the promise from a third person, he cannot afterward enforce it against the promisor. That is, performance by a stranger, accepted by the promisee, produces the result of discharging the promisor, although the latter has neither authorized nor ratified the act of the third, party (Section 41).
5. Joint Promisors: When two or more persons have made a joint promise, then unless a contrary intention appears from the contract, all such persons must jointly fulfill the promise.

If any of them dies, his legal representatives must, jointly with the surviving promisors, fulfill the promise. If all of them die, the legal representatives of all of them must fulfill the promise jointly (Section 42).

Question 4. Explain the rules under the law of contract as regards to time and place for the performance of the promise.

Answer:

Time and place for the performance of the promise: Sections 46 to 50 of the Indian Contract Act, 1872 are relevant regarding the time and place for the performance of the promise which is as follows:

1. If no time is specified, the promise must be performed within a reasonable time. The expression ‘reasonable’ time is interpreted having regard to the facts and circumstances of a particular case (Section 46).
2. If a promise is to be performed on a specified date but an hour is not mentioned, the promisor may perform it at any time during the usual hours of business, on such day. Moreover, the delivery must be made at the usual place of business (Section 47).
3. Where no place is fixed, the promisor has to ask the promisee to fix a reasonable place for the performance of the promise. In all cases, the promisor must apply to the promisee.
4. Here no distinction is made between an obligation to pay money to the promisee; here no distinction is made between an obligation to pay money and an obligation to deliver goods or discharge any other obligation [Section 49].
5. The foregoing rules regarding the time and place for the performance of the promise apply, only when the promisor undertakes to perform the promise without an application being made by the promisee.
6. Where the promisor has not undertaken to perform the promise without an application by the promisee, and the promise is to be performed on a certain day the promisee must apply for performance at a proper place and within the usual hours of business (Section 48).

Generally, the performance of any promise may be made in any manner, or at any time which the promisee prescribes or sanctions.

Question 5. State the circumstances under which an agreement may be void; since it is impossible to carry it out.

Answer:

Impossibility of Performance [Section 56 of the Indian Contract Act, 1872]: An agreement may be void since it is impossible to carry it out.

A contract to do an act, which after the contract is made, becomes impossible, or, because of some event which are promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful under the following cases:

1. Impossibility existing at the time of contract:
   • if known to the parties.
   • if unknown to the parties.
   • if known to the promisor only.
2. Supervening impossibility (arising after the formation of a contract) like destruction of subject matters, non-existence or non-occurrence of a particular state of things incapacity to perform a contract of personal services or change of law, or outbreak of law or failure of the ultimate purpose.

Question 6. What is meant by the Performance of a Contract? By whom the contract can be performed?

Answer:

Performance of a Contract

Performance of contract consists of doing or causing to be done, that which the promisor has promised shall be done. Performance of the contract is the completion of a legal obligation that arises out of the contract.

• Every party to the control is obliged to perform the contract accordingly unless it is discharged or exempted from the performance.
• The parties to a contract must either perform or offer to perform, their respective promises, unless such performance is disposed with or excused under the provisions of the law of contract or any other law. (Section 37 Indian Contract Act, 1872).
• So that a party could enforce the promises made to him, he should perform his promise or offer to perform then he can ask the other party to perform his promise unless a contrary intention appears from the contract.

Either performance or readiness and willingness to perform the contract is the basic requirement of this section.

By whom contract must be performed?

The promise under a contract may be performed, as the circumstances may permit, by the promisor himself, or by his agent or his legal representative.

1. Promisor himself: If there is something in the contract to show that there was an intention of the parties, that the performance should be made personally, such promise must be performed by the promisor (Section 40). Such contracts involve personal skill or diligence.
2. Agent: Where personal consideration is not required, the promisor or his representative may employ a competent person to perform (Section 40).
3. Representatives: Except the contract which involves personal skill and diligence all contracts may be performed by the legal representatives of the deceased promisors unless a contrary intention appears from the contract (Section 37).
4. However, their liability under a contract is limited to the value of the property they inherit from the deceased. Where personal skill and diligence are the foundation of the performance such contracts come to an end on the death of the promisor.
5. Third Persons: When a promisee accepts performance from a third person, he can not afterward enforce it against the promisor (Section 41).
6. Joint Promisors: When two or more persons have made a joint promise, then, unless a contrary intention appears by the contract all such persons, during their joint lives, and after the death of any of them, his representatives jointly with the survivor or survivors, and after the death of the lost survivor, the representatives of all jointly must fulfill the promise (Section 42 of the Indian Contract Act).

Question 7. When a contract may be discharged by Operation of Law?

Answer:

A contract may be discharged by the operation of law in the following manner:

1. By death: In a contract involving personal skill and or ability, the contract is terminated on the death of the promisor. In other contracts, the rights and liabilities of a deceased person pass on to the legal representatives of the deceased person.
2. By 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 the same or some other contract.
3. By insolvency: When a person is adjudged insolvent he is discharged from all liabilities incurred before his adjudication.
4. By unauthorized attraction of the terms of a written agreement: Where a party to a contract makes any material alteration in the contract without the consent of the other party, the other party can avoid the contract.
5. A material alteration is one that changes, in a significant manner, the legal identity or character of the contract or the rights and liabilities of the parties to the contract.
6. By rights and liabilities becoming vested in the same person: Where the liabilities and rights under a contract vest in the same person, for example, when a bill gets into the hands of the acceptor, the other parties are discharged.

Question 8. State the rules of appropriation of payments, when:

1. the order of discharge of debts is indicated;
2. the order is not indicated.

Answer:

As a normal rule, the debtor while making payment of debts should indicate to the creditor the order of payment or appropriation. This is needed in case several debts are payable by a debtor to his creditor.

• However, the debtor might not indicate the order or payment for one reason or the other. In such cases, the rules laid down in the Indian Contract Act, of 1872 apply.
• Section 59, lays down, “Where a debtor, owing several distinct debts to one person makes a payment to him either with express intimation or under circumstances implying that the payment is to or applied to the discharge of some particular debt, the payment if accepted, must be applied accordingly.”

Thus in the instance case, the debtor has indicated the order of discharge of debts, the creditor has no other alternative except to appropriate the amount received by him according to the order indicated by the debtor.

• In the second case i.e. where the debtor does not indicate or has not indicated the order of discharges of debts, Section 60 of the Act, makes the position clear. According to this Section 60, “Where the debtor has omitted to intimate and there are no other circumstances indicating to which debt the payment is to apply, the creditor may apply for the money.
• Received at his discretion to any lawful debt due and payable to him from the debtor whether its recovery is or is not barred by the law in force for the time being as to the limitation of suits.”
• Thus it is clear that in the second case, provisions of Section 60 shall apply and the creditor shall be within his rights to appropriate the money against the debts if any barred by law of limitation.

However, if there are several debts due on the same date and the debtor has not indicated the order of payment, the creditor shall have to apply the money proportionately in the discharge of these debts.

Question 9. State and explain the various modes whereby a contract may come to an end.

Answer:

Various modes whereby a Contract comes to an end: A contract may be discharged either by an act of the parties or by an operation of law as stated below:

1. Discharge by performance: When the parties to the contract fulfill their part of the promo, the contract comes to an end.
2. Discharge by mutual agreement: When the parties to the contract agree not to perform the contract based on the principles of recession, or narration alteration or remission, the original contract comes to an end.
3. Discharge by impossibility of performance: When the performance of the contract becomes impossible owing to
   • An unforeseen change in law or
   • The destruction of the subject matter essential to the performance of the contract, or
   • The non-existence or non-occurrence of a particular state of things such as personal incapacity like illness or meeting with an accident or
   • The outbreak of war and the party being declared as an alien enemy.
4. Discharge of lapse of time: Where a contract is to be performed within a special time and it is not performed within that time or period, the law of limitation applies and the contract comes to an end For Example. creditor not taking any action against the debtor for the recovery of the debt within 3 years.
5. Discharge by operation of law: Where law operates in the non-performance of a contract say death of the promisor or insolvency or merger etc.
6. Discharge by breach of a contract: Where the party to the contract makes a default in the performance of the contract.
7. Discharge by waiver on the part of either party.
8. Discharge by not providing reasonable facilities for performance by the party to the contract.

Question 10. Explain with examples the principles of Novation, Rescission, Alteration, and Remission where contracts need not be performed.

Answer:

Novation, Rescission, Alteration and Remission:

1. Novation (Section 62): Novation means the substitution of a new contract for the original contract. Such a new contract may be either between the same parties or between different parties. The consideration for the new contract Is the discharge of the original contract.

Example: A Owns B ₹ 10,000/-. A agrees with B and gives B a mortgage or his (A’s) estate for ₹ 5,000/- in place of the debts of ₹ 10,000/. This is a new contract and extinguishes the old.

2. Rescission (Section 62): Rescission means cancellation of the contract by any party or all the parties to a contract.

Examples: X promises Y to sell and deliver 100 Bales of cotton on 1^st October at his godown and Y promises to pay for goods on 1^st November. X does not supply the goods. Y may rescind the contract.

3. Alteration (Section 62): Alteration means a change in the terms of a contract with the mutual consent of the parties. Alteration discharges the original contract and creates a new However, parties to the new contract must not change the contract.

Example: X promises to sell and deliver 100 bales of cotton on 1^st October and Y Promises to pay for goods on 1^st November. Afterward, X and Y mutually decide that the goods shall be delivered in five equal installments at Z’s godown. Here, an original contract has been discharged and a new contract has come into effect.

4. Remission (Section 63): Remission means acceptance, by the promisee of a lesser fulfillment of the promise made. According to Section 63, “Every promisee may dispense with or remit, wholly or in part, the performance of the promise made to him, or may extend the time for such performance, or may accept; instead of it any satisfaction which he thinks fit”.

Example 1: A promises to paint a picture for B. B afterward forbids him to do so. A is no longer to perform the promise.

Example 2: A owes B ₹ 5,000/- A pays to B, and B accepts, in satisfaction of the whole debts, ₹ 2,000/- paid at the time and place at which ₹5,000/- were payable. The whole debt is charged.

Example 3: A owes B, under a contract a sum of money, the amount of which has not been ascertained. A, without ascertained. A, without ascertaining the amount, gives to B, and B, in satisfaction thereof, v accepts the sum of ₹ 2,000/. This is a discharge of the whole debt, whatever may be its amount.

Question 11. Explain any five circumstances under which contracts need not be performed with the consent of both parties.

Answer:

As per the given sections of the Contract Act, 1 872 the circumstances under which contracts need not be performed with the consents of both parties are as follows:

• Section-62: If the parties to the contract agree to
  • Substitute a new contract for it or
  • rescind it Or
  • alter it.
• Section-63: If the promisee k
  • Dispenses with or remits, wholly or in part, the performance of the promise made to him.
  • Extend the time for such performance.
  • Accepts any satisfaction for it
• Section-64: If the person at whose option it is voidable rescinds the contract.
• Section-65: If the agreement contract is discovered to be void, the person who has received advantage under such agreement or contract is required to restore the same or make compensation for it from whom he received it.
• Section-66: A rescission must be communicated to the other party like the communication of the proposal.
• Section 67: If the promisee neglects or refuses to afford the promisor reasonable facilities for the performance of the promises, the contract need not be performed.

Question 12. X and Z are partners in a firm. They jointly promised to pay ₹ 3,00,000 to D. Y become insolvent and his private assets are sufficient to pay 1/5 of his share of debts. X is compelled to pay the whole amount to D. Examining the provisions of the Indian Contract Act, of 1872, decide the extent to which X can recover the amount from Z.

Answer:

According to Section 43 of the Indian Contract Act, of 1872, when two or more persons make a joint promise, the promisee may, in the absence of express agreement to the contrary, compel anyone or more of such joint promisor to perform the whole of the promise.

• Also, each of two or more joint promisors may compel every other joint promisor to contribute equally to the performance of the promise, unless a contrary intention appears from the contract.
• In other words, if one of the joint promisors is made to perform the whole contract, he can call for a contribution from others.
• It also says that if any one of two or more joint promisors makes a default in such contribution, the remaining joint promisor must bear the loss arising from such default in equal shares.
• In the given case X, Y, and Z jointly promised to pay ₹ 3,00,000 to D. Y could pay only ₹ 20,000 (i.e. 1/5 of ₹ 1,00,000), hence loss due to his default i.e. 80,000 will be borne equally by X and Z.

Now since X is compelled to pay the entire amount, he can call for contribution from Z of his share i.e. ₹ 1,00,000. Thus, the extent to which X can recover the amount from Z is ₹ 1,40,000.

Question 13. Mr. X and Mr. Y entered into a contract on 1^st August 2018, by which Mr. X had to supply 50 tons of sugar to Mr. Y at a. certain price strictly within 10 days of the contract. Mr. Y also paid an amount of ₹ 50,000 towards advance as per the terms of the above contract. The mode of transportation available between their places is roadway only. A severe flood came on 2^nd August, 201 8 and the only road connecting their places was damaged and could not be repaired within fifteen days. Mr. X offered to supply sugar on 20^th August, 201 8 for which Mr. Y did not agree. On 1^st September 2018, Mr. X claimed compensation, of ₹ 10,000 from Mr. Y for refusing.to accept the supply of sugar, which was not there within the purview of the contract. On the other hand, Mr. Y claimed a refund of ₹ 50,000, which he had paid in advance in terms of the contract. Analyse the above situation in terms of the provisions of the Indian Contract Act, of 1872 and decide on Y’s contention

Answer:

According to the facts of the case, it can be observed that the contract entered into by the parties Mr. X and Mr. Y demonstrates a case under the applicability of the provisions of Section 56 of the Indian Contract Act, 1872 that States – “A contract to do an act which after the contract is made becomes impossible because of some event which the promisor could not prevent becomes void.”

• In this case, Mr. X has promised to supply 50 tons of sugar to Mr. Y for which Mr. Y has paid an amount of t 50,000 in advance according to the terms of the contract.
• However, due to a severe flood, the only mode of transportation available between their places is damaged which makes the execution of the delivery of 50 tons of sugar to Mr. Y impossible within the stipulated time.
• Now Mr. X claims compensation of ₹ 10,000 from Mr. Y for non-acceptance of delivery after the expiry of the stipulated time
• Period but since the contract has already gone void due to the impossibility of performance within the stipulated time – period there remains no legal room for demanding compensation.

But at the same time the contention of Mr. Y for a refund of his previously advanced sum of ₹ 50,000 stands valid as under the provisions of the Indian Contract Act,1872 if a contract turns void due to any specific reason’ then all previously advanced sums have to be refunded.

Question 14. Mr. Rich aspired to get a self-portrait made by an artist He went to the workshop of Mr. C an artist and asked whether he could sketch the former’s portrait on an oil painting canvas. Mr. C agreed to the offer and asked for ₹ 50,000 as full advance payment for the above creative work. Mr. C clarified that the painting shall be completed in 10 sittings and shall take 3 months.

On reaching the workshop for the 6th sitting, Mr. Rich was informed that Mr. C became paralyzed and would not be able to paint shortly. Mr. C had a son Mr. K who was still pursuing his studies and had not taken up his father’s profession yet. Discuss in light of the Indian Contract Act 1872.

1. Can Mr. Rich ask Mr. K to complete the artistic work instead of his father?
2. Could Mr. Rich ask Mr. K for a refund of money paid in advance to his father?

Answer:

A contract that involves the use of personal skill or is founded on personal consideration comes to an end on the death or inability of the promisor.

• As regards any other contract, the legal representatives of the promisor are bound to perform unless the contrary intention appears from the contract.
• A contract is discharged by the impossibility of performance. Impossibility may be created due to several factors, one of which may be as a result of some personal capacity like a dangerous malady.

In the given case, the promisor (Mr. C) got paralyzed during the performance of a contract, due to which further performance of the contract becomes impossible and the contract becomes void.

1. Mr. Rich, cannot ask Mr. K to complete the artistic work instead his father Mr. C as a legal representative is not responsible for performing in case, of contracts involving personal skill.
2. Mr. Rich cannot ask Mr. K to refund the amount as the contract becomes void and unenforceable due to the impossibility of performance.

Question 15. Mr. Sonumal a wealthy individual provided a loan of ₹ 80,000 to Mr. Datumal on 26.02.201 9. The borrowerMr. Datumal asked for a further loan of ₹ 1,50,000. Mr. Sonumal agreed but provided the loan in parts on different dates. Did he provide ₹1,00,000 on 28.02.2019 and the remaining ₹ 50,000 on 03.03.2019? 

On 10.03.2019 Mr. Datumal while paying off part ₹ 75,000 to Mr. Sonumal insisted that the lender should adjust. 50,000 towards the loan taken on 03.03.2019 and the balance as against the loan on 26.02.2019.

Mr. Sonumal objected to this arrangement and asked the borrower to adjust in the order of data of borrower of funds, Now you decide:

1. Whether the contention of Mr. Datumal correct or otherwise as per the provisions of the Indian Contract Act, 1 872?
2. What would be the answer in case the borrower does not insist on such an order of adjustment of repayment?
3. What would the mode of adjustment or appropriation of such part payment be in case neither Mr. Sonumal nor Mr. Datumal insists on any order of adjustment on their part?

Answer:

Sometimes, a debtor owes several to the same creditor and makes payments which is not sufficient to discharge all the debts. In such cases, the payment is appropriated as per provisions of Sections 59 to 61 of the Indian Contract Act.

1. Application of Payment where debt to be discharged is indicated: Where a debtor, owing several distinct debts to one person, makes a payment to him either with express intimation or that the payment is to be applied in discharge of some particular debt, the payment if accepted, must be applied accordingly.
2. Application of Payment where debt to be discharged is not indicated: Where the debtor has omitted to intimate that payment is to be applied in the discharge of which debt, then the creditor may apply it at his discretion to any lawful debt actually due to him from the debtor (even where it is barred by law).
3. Application of Payment where neither party appropriates: Where neither party makes any appropriation, the payment shall be applied in discharge of the debts in order of time, whether or not they are barred by limitation. If the debts are of equal standing, the payment shall be applied in the discharge of each proportionately.

In the given case the debtor while making the part payment has indicated the debt in which the adjustment is to be made accordingly:

1. Contention of Mr. Datumal is correct as per provisions of the Act, to indicate the debt to be adjusted.
2. If the borrower does not insist on any order of adjustment of repayment, then the lender at his discretion may adjust any debt he wants.
3. In case neither of them appropriates, then repayment will be adjusted to the debt first in time.

Question 16. In light of provisions of the Indian Contract Act, of 1872 answer the following:

1. Mr. S and Mr. R made a contract wherein Mr. S agreed to deliver a paper cup manufacturing machine to Mr. R and to receive payment on delivery. On the delivery date, Mr. R didn’t pay the agreed price. Decide whether Mr. S is bound to fulfill his promise at the time of delivery.
2. Mr. Y gave a loan to Mr. G of INR 30,00,000.Mr. G defaulted on the loan on the due date and the debt became time-barred. After the time-barred debt, Mr. G agreed to settle the full amount to Mr. Y. Whether acceptance of the time-barred debt Contract is enforceable in law?
3. A and B entered into a contract to supply a unique item, the alternative of which is not available in the market. A refused to supply the agreed unique item to B. What directions could be given by the court for breach of such contract?

Answer:

1. According to the Indian Contract Act, of 1872

In the given case Mr. S and Mr. R made a contract wherein Mr. S agreed to deliver a paper cup manufacturing machine to Mr. R and give payment on delivery. On the delivery date, Mr. R didn’t pay the agreed price.

Thus Mr. S is free from his obligation and he is not bound to deliver the manufacturing machine to Mr. R.

2. In this case, Mr. Y gave a loan to Mr. G of INR 30,00,000. Mr. G defaulted on the loan on the due date and the debt became time-barred. After time-barred debt, Mr. G agreed to settle the full amount to Mr. Y.

Thus acceptance of a time-barred debt is enforceable under section(25) of the Indian Contract Act, of 1872. Which states that this agreement to pay a time-barred debt is enforceable even without consideration.

3. A and B entered into a contract to supply unique items the alternative of which is not available in the market. A refused to supply the agreed unique item to B. This court can order A for specific performance and can order him to make the good available to B as it is a unique item only available to him.

Question 17. X, Y, and Z jointly borrowed ₹ 90,000 from L. Decide each of the following in the light of The Indian Contract Act, 1 872:

1. Whether L compel only Y to pay the entire loan of ₹ 90,000?
2. Whether L can compel only the legal representatives of Y to pay the loan of ₹ 90,000 if Z, Y, and Z die?
3. Whether Y and Z are released from their liability to L and X is released from his liability to Y and Z for contribution, if L releases X from his liability and sues Y and Z for payment?

Answer:

1. If a promise is made by two or more persons (called joint promisors) then the promisee may compel anyone or more of the joint promisors to perform the whole contract. Liability under a joint promise is both joint as well as several. Thus, in this case, L can compel only Y also to pay the whole amount of ₹ 90,000/.
2. If a promise is made by two or more persons (called joint promisors) and all of them die then their liability will be borne by the legal representatives and all the legal heirs will be jointly and severally liable for the same. Thus, in this case, L can compel only Y to pay the entire loan of ₹ 90,000.
3. If a promisee discharges/releases one of the several joint promisors, it does not discharge other joint promisors and the joint promisor so discharged remains liable to the other joint promisor. thus, in this case, X will not be released from his liability towards Y and Z even though he is released by’L from contributing.

Question 18. A, B, C, and D are the four partners in a firm. They jointly promised to pay ₹ 6,00,000 to F. B and C have become insolvent. B was unable to pay any amount and C could pay only ₹ 50,000. A is compelled to pay the whole amount to F. Decide the extent to which A can recover the amount from D about the provisions of the Indian Contract Act, of 1872.

Answer:

According to section 43 of the Indian Contract Act, of 1872, when two or more persons make a joint promise, the promises may, in the absence of express agreement to the contrary, compel everyone or anyone or more of such joint promisor to perform the whole of the promise.

• Also, each of two or more joint promisors may compel every other joint promisor to contribute equally with himself to the performance of the promise, unless a contrary intention appears, from the contract. In other words, if one of the joint promisors is made to perform the whole contract, he can call for a contribution from others.
• It also states that if any one of two or more joint promisors makes a default in such contribution, the remaining joint promisor must bear the loss arising from such default in equal shares.
• In the given case A, B, C, and D jointly promised to pay ₹ 6,00,000 to F.B. was unable to pay any amount and C could pay only ₹ 50,000 (i.e., 1/3 of ₹ 150,000). Hence loss due to default i.e., 4,50,000 will be borne equally by A and D.

Now since A is compelled to pay the entire amount, he can call for a contribution from his share is ₹ 1,50,000. Thus, the extent to which A can recover the amount’ from D is ₹ 2,75,000.

Question 19. Sheena was a classical dancer. She entered into an agreement with Shital Vidya Mandir for 60 dance performances. As per the contract, she was supposed to perform -every weekend and she will be paid ₹ 10,000/- per performance. However, after a month, she was absent without informing, me due to her reasons. Answer the following questions as per the Indian Contract Act, of 1872.

1. Whether the management of Shital Vidya Mandir has the right to terminate the contract?
2. If the management of Shital Vidya Mandir informed Sheena about its continuance, can the management still rescind the contract after a month on this ground subsequently?
3. Can the Shital Vidya Mandir claim damages, that it has suffered because of this breach in any of the above cases?

Answer:

1. When the contract is breached the aggrieved party gets the right to rescind the contract and claim damages as well. In the given case, Sheena failed to perform her part of the contract. Therefore, the management of Shital Vidya Mandir can terminate the contract as Sheena breached the contract.
2. If the management of Shital Vidya Mandir decides to continue with the contract, even after non-performanceÿ by Sheena and they intimate about the same to Sheena, then they cannot rescind the contract subsequently on grounds of breach of contract committed by her.
3. Whether the management of Shital Vidya Mandir, decides to terminate the contract or to continue with it, in either case, damages can ‘be claimed by Shital Vidya Mandir.

Question 20. Mr. S promises Mr. M to paint a family picture, for ₹ 20,000. and assures them to complete his assignment by 15 March 2023. Unfortunately, Mr. S died in a road accident on 1 March 2023 and his assignment remains undone.

Can Mr. M bind the legal representative of Mr. S for the promise made by Mr. S? Suppose Mr. S had promised to deliver some photographs to Mr. M on 15 March 2023 against a payment of ₹ 10,000 but he died before that day. Will his representative be bound to deliver the photographs in this situation? Decide as per the provisions of the Indian Contract Act, 1872.

Answer:

As per section 37 of the Indian Contract Act, of 1872, a contract that involves the use of personal skill or is founded on personal consideration comes to an end on the death of the promisor. As regards any other contract, the legal representatives of the deceased promisor are bound to perform unless a contrary intention appears from the contract.

In the above case, Mr. S who promised Mr. M to paint a family picture by 15^th March, 23 died on 1^st March, 23. Here, Mr. M cannot bind the legal representative of Mr. S for the promise made by him, and the legal representative of Mr. S is not bound to deliver the photographs in this situation.

Contingent And Quasi Contracts Self Study Questions And Answers

Question 1. Described the Rules Relating to Enforcement Under the Indian Contract Act, 1872.

Answer:

The Rules Relating to Enforcement Under the Indian Contract Act, 1872

Question 2. State Briefly the Law Relating to Quasi Contracts.

Answer:

Quasi Contracts

An obligation is imposed by law upon a person for the benefit of another even in the absence of a contract. They are known as quasi-contracts.

• They are based on principles of equity, justice, and good conscience.
• They are termed as certain relations resembling those created by contracts.
• It is also known as the Law of Restitution.

It has the following features:

• It does not arise from any agreement between the parties but, is imposed by law.
• It is a right only available against a particular person or persons and not against the entire world.

They are of the following types:

1. Supply of necessaries
2. Reimbursement of money due
3. Obligation to pay for benefit out of the non-gratuitous act
4. Responsibility of finder of goods
5. Persons receiving goods or money by mistake
6. Quantum merit (as much as earned or reasonable remuneration)

Supply of necessaries (Section 68)

• “If a person, incapable of entering into a contract, or anyone whom he is legally bound to support, is supplied by another person, with necessaries suited to his condition in life, the person who has furnished such supplies is entitled to be reimbursed from the property of such incapable person”.
• If necessaries are supplied to a minor or person of unsound mind, the supplier is entitled to claim their prize from the property of such a person.
• If there is no property, nothing will be realizable.

Reimbursement of money due (Section 69)

• “A person, who is interested in the payment of money and pays such money, which another is bound by law to pay, is entitled to be reimbursed by the other.”
• A person who has paid a sum of money that another is obliged to pay is entitled to be reimbursed by that other person provided the payment has been by him to protect his interest.
• Payment must be bona fide.

Obligation to pay for benefit out of non-gratuitous act (Section 70)

“Where a person lawfully does something for another person delivers anything to him, not intending to do so gratuitously and the other person accepts and enjoys the benefits thereof, then he is bound to make compensation to the other in respect of or to rectory the thing so done or delivered”.

Question 3. Explain the Liabilities of a Person receiving goods or money by mistake.

Answer:

The Liabilities of a Person receiving goods or money by mistake

1. A person receiving goods or money by mistake
2. “A person to whom money has been paid, or anything delivered by mistake or under coercion, must repay or return it”.
3. Mistakes, need not be unintentional, they may be even intentional.

Contingent And Quasi-Contract Objective Questions And Answers

Question 1. State with reason whether the following statement is true or false: In Quasi contracts, the promise to pay is always an implication of law and not of facts.

Answer:

Correct: Though quasi-contracts are not contracts in the strict sense (as there is no offer, acceptance, consensus-ad-idem, etc), the law from the circumstances of the case, conduct, and relationship of parties, implies by fiction an obligation on the one party and confirming a right to a money payment in favor of the other.

Question 2. State with reason whether the following statement is true or false: A ‘Contract of indemnity’ is not a ‘Contingent contract’.

Answer:

Incorrect: Indemnity is an act to compensate or protect somebody against loss or to make good the loss suffered (Section 124 of Indian Contract Act, 1872). The contingency upon such the whole contract of indemnity depends upon the event of suffering loss by the other party. Thus, a contract of indemnity is a type of contingent contract.

Distinguish Between Contingent And Quasi Contracts

Question 1. Distinguish Between the following: Wagering agreement and Contingent contract.

Answer:

Wagering agreement and Contingent contract: Agreements by way of wager are void, according to Section 30. In a wagering agreement, two parties have opposite views regarding an uncertain event.

• And they stipulate that upon the determination of the event in a certain way the parties shall win or lose from each other, a certain sum of money, and the parties have no other interest in the event except winning or losing a bet.
• According to Section 31 of the Indian Contract Act, of 1872 a contingent contract is a contract to do or not to do something, if some event collateral to such contract, does or does not happen.

Contracts of Indemnity or insurance are of this type. However, there is a difference between the wagering agreements and contingent contracts which may be enumerated as follows:

1. A wagering agreement consists of reciprocal promises whereas a contingent, contract may not contain reciprocal promises.
2. In a wagering agreement, the uncertain event is the sole determining factor, while in a contingent contract, the event is only collateral.
3. A wagering agreement is essentially contingent whereas a contingent contract may not be wagering.
4. A wagering agreement is void whereas a contingent contract is valid.
5. 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. In other words, a wagering agreement is a game of chance. This is not so in the case of a contingent contract.

Question 2. Distinguish between a wagering agreement and a contract of insurance.

Answer:

Difference between a Contingent Contract or Contract of Insurance and a Wagering Contract:

Contract of Insurance:

Contingent And Quasi Contracts Descriptive Questions And Answers

Question 1. Explain the meaning of ‘Contingent Contracts’ and state the rules relating to such contracts.

Answer:

The meaning of ‘Contingent Contracts’

Essential characteristics of a contingent contract: A contract may be absolute or contingent. A contract is said to be absolute when the promisor undertakes to perform the contract in all events.

• A contingent contract, on the other hand “is a contract to do or not to do something, if some event, collateral to such contract does or does not happen” (Section 31).
• It is a contract in which the performance becomes due only upon the happening of some event that may or may not happen.

For example, A contracts to pay B ₹ 10,000, if he is elected President of a particular association. This is a contingent contract. The essential characteristics of a contingent contract may be listed as follows:

• There must be a contract to do or not to do something.
• The performance of the contract must depend upon the happening or not happening of some event.
• The happening of the event is uncertain.
• The event on which the performance is made to depend upon is an event collateral to the contract i.e. it does not form part of the reciprocal promises which constitute the contract.
• The event should neither be a performance promised, nor a consideration for the promise.
• The contingent event should not be the mere will of the promisor.
• However, where the event is within the promisor’s will, but not merely his will, it may be a contingent contract.

The rules regarding the contingent contract are as follows:

1. Contingent contracts dependent on the happening of an uncertain future event cannot be enforced until the event has happened. If the event becomes impossible, such contracts become void. (Section 32).
2. Where a contingent contract is to be performed if a particular event does not happen, its performance can be enforced only when the happening of that event becomes impossible. (Section 33).
3. If a contract is contingent upon, how a person will act at an unspecified time the event shall be considered to become impossible, when such person does anything which renders it impossible that he should so act within any definite time or otherwise than under further contingencies. (Section 34, 35).
4. The contingent contracts to do or not to do anything if an impossible event happens, are void whether or not the fact is known to the parties. (Section 36).

Question 2. What is meant by Quasi-contract? Explain the types of Quasi-contracts that have been described in the Indian Contract Act,1 872.

Answer:

Quasi-contracts: Under certain circumstances, a person may receive a benefit to which the law regards another person as better entitled, or for which the law considers he should pay to the other person, even though there is no contract between the parties.

Such relationships are termed “Quasi-Contracts”. A quasi-contract rests on the ground of equity that a person shall not be allowed to enrich himself unjustly at the expense of another.

Sections 68 to 72 of the Indian Contract Act have prescribed the following relationships creating quasi-contractual relations:

1. Supply of necessaries: Under Section 68, if a person, incapable of entering into a contract, or anyone whom he is legally bound to support, is supplied by another person with necessaries suited to his conditions in life, the person who has furnished such supplies is entitled to be reimbursed from the property of such incapable person.
2. Payment by an interested person: It has been laid down in Section 69 of the Indian Contract Act that a person who is interested in the payment of money which another is bound by law to pay and who therefore, pays it, is entitled to be reimbursed by the other.
3. Obligation to pay for non-gratuitous Act: Section 70 of the Indian Contract Act states that where a person lawfully does anything for another person or delivers anything to him not intending to do so gratuitously, and such other person enjoys the benefit thereof, the latter is bound to make compensation in respect of or to restore, the thing so done or delivered.
4. Responsibility of finder of goods: Under Section 7 of the Act, a person who finds goods belonging to another and takes them into his custody, is subject to the same responsibility as a bailee.
5. A case where money is paid by mistake or under coercion: Finally, Section 72 of the Indian Contract Act provides that a person to whom money has been paid, or anything delivered by mistake or under coercion, must repay or return it.

Thus, quasi quasi-contractual right is always a right to money and generally though not always to a liquidated sum of money. It does not arise from any agreement of the parties concerned but is imposed by the law.

It is a right that is not available against all the world but against a particular person or persons only. There is no contract between the parties in cases of quasi-contracts, yet they are put in the same position as if there were a contract between them.

Question 3. Explain briefly the following: The duties and liabilities of a finder of goods are treated at par with bailee.

Answer:

Duties and Liabilities of finder of goods: The duties and liabilities of a finder of goods are treated at par with bailee.

• A person who finds goods belonging to another and takes them into his custody is subject to the same responsibility as a bailee. (Section 71 of the Indian Contract Act, 1872).
• He is bound to take as much care of the goods as a man of ordinary prudence would, under similar circumstances, take off his goods of the same bulk quality and value. He must also take all necessary measures to trace its true owner.
• If he does not take it, he will be guilty of wrongful conversion of the property.

Till the owner is found out, the property in the goods will vest in the finder and he can retain the goods as his own against the whole world except the real owner.

He can sell the goods in the following cases:

1. Where the owner cannot with reasonable diligence be found; or
2. When found, he refuses to pay the lawful charges of the finder; or
3. If the thing is in danger of perishing or losing a greater part of its value.
4. If the lawful charges amount to 2/3 of the value of the thing.

Question 4. What is a Contingent Contract? Discuss the essentials of a Contingent Contract as per the Indian Contract Act, of 1872.

Answer:

Contingent Contract

A Contingent Contract is a contract to do or not to do something, if some event, collateral to such contract, does or does not happen. Contracts of insurance, indemnity, and guarantee fall under this category.

The essential constituents of a contingent contract are:

The performance of a contingent contract would depend upon the happening or non-happening of some event or condition.

Example:

Promises to pay ₹ 50,000 to B if it rains on the first of the next month.

1. The event referred to is collateral to the contract. The event is not part of the contract. The event should be neither a performance promised nor a consideration for a promise.
2. The contingent event should not be a more will of the promisor. The event should be contingent in addition to being the will of the promisor.
3. The event must be uncertain. Where the event is certain or bound to happen, the contract is due to be performed, then it is not a contingent contract.

Question 5. Explain the term Contingent Contract concerning The Indian Contract Act, 1872 with the help of an example. Also, discuss the rules relating to the enforcement of a contingent contract.

Answer:

Contingent Contract:

Contingent contract is a contract:

1. To do or not to do something
2. If some event, collateral to such contract,
3. Does or does not happen.

For Example. contracts of Insurance, indemnity, and guarantee fall under this category.

illustration: X advances ₹ 25,000 to B based on a promise made by S (Surety) to repay the amount If X fails to repay it within a month.

Rules relating to the enforcement of a contingent contract:

1. Enforcement of contracts contingent on the ‘happening’ of an event:
   • If the event happens, then the contract becomes valid.
   • If the event does not happen or becomes impossible, then the contract becomes void.
2. Enforcement of contracts contingent on the Not-happening of an event:
   • If the event happens, then the contract becomes void.
   • If the event does not happen or becomes impossible, then the contract becomes valid.
3. A contract contingent upon future conduct of a living person: If the future conduct of the living person fulfills that condition then the contract becomes enforceable if the future conduct renders the happening of such event impossible then the contract becomes void.
4. Contingent happening of specified event within the fixed time: If the event happens within the fixed tune, ‘the contract becomes enforceable else becomes void.
5. Contingent on a specified event not happening within the specified time: If the event happens within the specified time out becomes void else valid and enforceable.
6. Contingent on an impossible event: If performance is based on an impossible event then the contract is void. Whether impossibility is known to the parties or not.

Question 6. What is meant by ‘Quasi-Contract’? State any three salient features of a quasi-contract as per the Indian Contract Act, 1872.

Answer:

Quasi Contracts: Under certain special circumstances, obligation resembling those created by a contract is imposed by law although the parties have never entered into a contract. Such obligations are imposed by law.

• are referred to as ‘Quasi Contracts’. Such a contract resembles a contract so far, as result or effect is concerned but it has little or no affinity with a contract with respect of the mode of creation.
• These contracts are based on the doctrine, that a person shall not be allowed to enrich himself unjustly at the expense of another.

The salient features of a quasi-contract are :

• It does not arise from any agreement of the parties concerned but is imposed by law.
• Duty and not promise is the basis of such a contract.
• The right under it is always a right to money and generally though not always to a liquidated sum of money.
• Such a right is available against a specific person(s) and not against the whole world.
• A suit for its breach may be filed in the same way as in the case of a complete contract.

Question 7. X found a wallet in a restaurant. He enquired of all the customers present there but the true owner could not be found. He handed over the same to the manager of the restaurant to keep till the true owner was found. After a week he went back to the restaurant to enquire about the wallet. The manager refused to return it to X, saying that it did not belong to him. In light of the Indian Contract Act, of 1672, can X recover it from the Manager?

Answer:

The finder of goods has no right to sue the owner for compensation for trouble and expenses voluntarily incurred by him to presume the goods and to find the true owner.

• But he may retain the goods against the owner until he receives such compensation, until then the finder may retain the goods with him.
• in the given case X finds a wallet in a restaurant and hands it over to the manager as the true owner could not be traced.
• After a week he demands the wallet back from the manager, which he refuses to give, saying it did not belong to X.
• Held, the manager must return the wallet to ‘X’ as he being the finder of lost goods was entitled to retain the goods found against everybody except the true owner.

Thus, ‘X’ can recover the wallet from the manager.

Bailment And Pledge Multiple Choice Questions And Answers

Question 1. Bailment involves

1. Change of custody
2. Change of possession
3. Change of custody and possession both
4. Neither change of custody nor possession.

Answer: 2. Change of possession

Question 2. Bailment means

1. The goods are delivered by one person to another for some purpose to be specifically returned or otherwise disposed of as per the order of the bailor
2. The goods delivered to be returned by way of an equivalent in money
3. The goods delivered to be returned by way of an equivalent in other commodities
4. All the above

Answer: 1. The goods are delivered by one person to another for some purpose to be specifically returned or otherwise disposed of as per the order of bailor

Question 3. ‘Bailee’ is a person

1. Who delivers the goods
2. To whom the goods are delivered
3. Through whom the goods are delivered
4. Any of the above depending on the circumstances.

Answer: 2. To whom the goods are delivered

Question 4. Bailor is a person

1. Who delivers the goods
2. To whom the goods are delivered
3. Through whom the goods are delivered
4. Who carries the goods

Answer: 1. Who delivers the goods

Question 5. __________ some purpose, is upon the delivery contract of goods, that they by one shall, person when the to another, purpose is accomplished, be returned or otherwise disposed of, according to the instructions of the person delivering them.

1. Indemnity
2. Bailment
3. Guarantee
4. Sale

Answer: 2. Bailment

Question 6. In a contract of bailment, the person who delivers the goods is called _______.

1. Bailee
2. Bailor
3. Pledger
4. Pledgee

Answer: 2. Bailor

Question 7. In a contract of bailment, the person to whom the goods are- delivered is called__________.

1. Bailee
2. Bailor
3. (1) or (2)
4. All of the above

Answer: 1. Bailee

Question 8. The contract of bailment may be

1. Express
2. Implied
3. Deemed
4. (1) or (2)

Answer: 4. (1) or (2)

Question 9. In a contract of bailment, there is the transfer of

1. Ownership
2. Possession
3. Deemed ownership
4. None of above

Answer: 2. Possession

Question 10. In a contract of bailment, delivery may be ________.

1. Actual
2. Constructive
3. (1) or (2)
4. None of above

Answer: 3. (1) or (2)

Question 11. In a contract of bailment goods.

1. Constructive delivery
2. Actual delivery
3. Symbolic delivery
4. Deemed delivery

Answer: 2. Actual delivery

Question 12. If no consideration passes from bailor to bailee it is known as _______.

1. Gratuitous bailment
2. Non-gratuitous bailment
3. Deemed bailment
4. Actual bailment

Answer: 1. Gratuitous bailment

Question 13. If some consideration passes from bailor to bailee it is known as.

1. Gratuitous bailment
2. Non-gratuitous bailment
3. Deemed bailment
4. Actual bailment

Answer: 2. Non-gratuitous bailment

Question 14. ________ is one in which neither the bailor nor the bailee is entitled to any remuneration.

1. Gratuitous bailment
2. Non-gratuitous bailment
3. Deemed bailment
4. Actual bailment

Answer: 1. Gratuitous bailment

Question 15. The duties of the bailor are

1. In case of a gratuitous bailment – to disclose known faults to the bailee.
2. In case of a non-gratuitous bailment – liable for damages whether or not he was aware of the existence of faults.
3. To indemnify Bailee for loss when the bailor’s title is defective
4. All of above

Answer: 4. All of the above

Question 16. The duties of the bailor are

1. To receive back goods on termination of bailment.
2. In case of a gratuitous bailment – not to disclose known fault to the bailee.
3. In the case of a non-gratuitous bailment – no liability for damages whether or not he was aware of the existence of faults.
4. All of above

Answer: 1. To receive back goods on termination of bailment.

Question 17. The duties of the bailor are

1. In case of a gratuitous bailment – the bailor shall repay all necessary expenses incurred by the bailee for bailment.
2. In case of non-gratuitous bailment – the bailor is liable only for extraordinary expenses.
3. In case of a gratuitous bailment – to disclose known faults to the bailee.
4. All of the above

Answer: 4. All of the above

Question 18. A hires a carriage of B. The carriage is unsafe though B does not know this. A is injured. Is B is liable to A for the injury?

1. Yes. B is liable to A for the injury.
2. No. B is not liable to A for the injury.
3. Partly yes
4. None of above

Answer: 1. Yes. B is liable to A for the injury.

Question 19. If the bailee does any act inconsistent with the conditions of bailment, concerning goods

1. The contract becomes void
2. The contract becomes voidable at the option of the bailee
3. The contract becomes voidable at the option of the bailor
4. The contract remains valid.

Answer: 3. The contract becomes voidable at the option of the bailor

Question 20. If the bailee mixes the goods of the bailor with his goods, without the consent of the bailor

1. The bailee is liable to bear the expenses of separation of goods and damages arising therefrom if the goods can be separated or divided
2. The bailee is liable to compensate the bailor for the loss of goods if the goods can not be separated
3. Both (1) and (2)
4. Neither (1) nor (2)

Answer: 3. Both (1) and (2)

Question 21. In case of a gratuitous bailment, the bailee is

1. Entitled to necessary expenses incurred by him for bailment
2. Not entitled to any expenses
3. Entitled to necessary expenses and additional charges
4. Either (2) or (3).

Answer: 3. Entitled to necessary expenses and additional charges

Question 22. Where the bailee, mixes the goods, bailed with his goods, with the bailor’s consent, both of them shall have interest in _______.

1. Proportion to their shares in the mixture produced
2. Proportion to 40:60 in the mixture produced
3. Proportion to 60:40 in the mixture produced
4. None of above

Answer: 1. Proportion to their shares in the mixture produced

Question 23. Where the bailee, mixes the goods bailed with his goods, without the bailor’s consent, _____ is bound to bear the expenses of separation or division, and also of any damage arising from the mixture.

1. Bailor
2. Bailee
3. Third person
4. A person separating the mixture

Answer: 2. Bailee

Question 24. The bailee must take as much care of the goods bailed to him as a _____ would take under similar circumstances of his goods of the same bulk, quality, and value as the goods bailed

1. Man of extra-ordinary prudence
2. Man of ordinary prudence
3. Man of ordinary economic condition
4. None of above

Answer: 2. Man of ordinary prudence

Question 25. The bailee is under a duty not to use the goods in an unauthorized manner or for unauthorized purposes.

1. True
2. False
3. Partly true
4. None of above

Answer: 1. True

Question 26. If the bailee uses the goods in an unauthorized manner or for unauthorized purposes, the bailor can _______.

1. Terminate the bailment
2. Claim damages for any loss
3. (1)and (2)
4. None of above

Answer: 3. (1)and (2)

Question 27. A lends his car to B for a drive-by only. B allows C, an expert driver, to drive the car. C drives the car with care but hits an electronic pole. The car Is a Dnmagod. A filed suits against B claiming damages. Will he succeed?

1. Yes. B Is liable for the damages to A‘s car.
2. No. B Is not liable for the damage to A’s car.
3. Yes. C 13 a llnblo for the damage to A’s cor.
4. None of above

Answer: 1. Yes. B Is liable for the damage to A‘s car.

Question 28. A hires a car in Delhi from B to go to Varanasi. A drives with care but meets with an accident while going to Haridwar. Advise B.

1. Yes. A is liable for the damage to B’s car.
2. No. A is not liable for the damage to B’s car.
3. A should pay extra charges for going to Haridwar.
4. None of above

Answer: 1. Yes. A is liable for the damage to B’s car.

Question 29. Bailee must not set up, ______ to the goods

1. Perfect title
2. An adverse title
3. Defective title
4. Deemed title

Answer: 2. An adverse title

Question 30. The bailee has to return the goods without demand _______.

1. On the expiry of the time fixed
2. When the purpose is accomplished
3. (1) or (2)
4. All of the above

Answer: 3. (1) or (2)

Question 31. Bailee is bound to take care of goods

1. As an expert
2. As a layman
3. As a man of ordinary prudence
4. Both (2) and (3)

Answer: 3. As a man of ordinary prudence

Question 32. The liability of bailee, as regards the goods is equivalent to that of

1. Of a common carrier
2. An innkeeper
3. Both common carrier and innkeeper.
4. Neither of common carrier nor innkeeper.

Answer: 3. Both common carrier and innkeeper.

Question 33. An agreement by a bailee purporting to exempt him wholly from liability for negligence is

1. Valid
2. Invalid
3. Voidable
4. Void.

Answer: 4. Void.

Question 34. After the expiry of time or accomplishment of the purpose of bailment

1. The bailee is to return the goods without demand
2. The bailee is to return the goods only on demand
3. The bailee is to pay the money equivalent
4. The bailee is to pay the equivalent in another commodity.

Answer: 1. The bailee is to return the goods without demand

Question 35. In case of bailment by joint owners

1. The bailee has to deliver the goods to all the joint owners.
2. The bailee has to deliver the goods to any one of the joint owners with the consent of other joint owners
3. The bailee can deliver the goods to one of the joint owners even without the consent of other joint owners
4. Ether (1) or (3).

Answer: 3. The bailee has to deliver the goods to any one of the joint owners with the consent of other joint owners

Question 36. If Bailee fails to return the goods, he shall be liable for any of the goods even without negligence on his part.

1. Loss
2. Destruction
3. Deterioration
4. Loss, destruction deterioration

Answer: 4. Loss, destruction, or deterioration

Question 37. In the absence of any contract to, the contrary, the bailee is not required to return to the bailor any increase, or profits which may have accrued from the goods bailed.

1. False
2. True
3. Partly true
4. None of above

Answer: 1. False

Question 38. If Ram leaves a cow in the custody of Shyam to be taken care of and the cow gets a calf, Shyam is bound is deliver _______ to Ram

1. The cow
2. The calf
3. The cow as well as the calf
4. Nothing

Answer: 3. The cow as well as the calf

Question 39. Is a right to retain the property of another for a general balance of accounts.

1. Particular lien
2. General lien
3. Deemed lien
4. Tangible lien

Answer: 2. General lien

Question 40. Is a right to retain those goods in respect of which bailee has some service involving the exercise of labor or skill.

1. Particular lien
2. General lien
3. Deemed lien
4. Tangible lien

Answer: 1. Particular lien

Question 41. The right of general lien can be exercised by

1. Bankers
2. Factor
3. Wharfingers
4. All of above

Answer: 4. All of the above

Question 42. The right of general lien can be exercised by

1. Attorneys of the High Court
2. Policy brokers.
3. Bankers
4. All of above

Answer: 4. All of the above

Question 43. A finder of goods is

1. Entitled to claim compensation
2. Entitled to retain the goods
3. Not entitled to claim compensation and thus not entitled to retain the goods
4. Both (1) and (2)

Answer: 4. Both (1) and (2)

Question 44. A finder of goods is

1. Entitled to the specific reward offered by the owner for the return of goods
2. Can retain the goods so long as the specific reward is not given by the owner
3. Both (1) and (2)
4. Either (1) or (2)

Answer: 3. Both (1) and (2)

Question 45. The position of a finder of lost goods is exactly that of a

1. Bailoo
2. Surety
3. Consignee
4. Consignor

Answer: 1. Bailoo

Question 46. Responsibility of finder of goods _______.

1. He need not take care of goods as a man of ordinary prudence.
2. He must not appropriate goods for his use.
3. He can mix the goods with his goods.
4. All of above

Answer: 2. He must not appropriate goods for his use.

Question 47. Responsibility of finder of goods ______.

1. He must try to find out the true owner and restore goods to the owner when the owner is traced.
2. He must not appropriate goods for his use.
3. He must not mix the goods with his goods.
4. All of above

Answer: 4. All of the above

Question 48. Rights of finder of goods: _______.

1. He has a right to retain the goods until he receives compensation for trouble and expenses incurred in preserving the goods and finding out the owner.
2. He cannot sue the owner for payment of any specific reward offered by the owner.
3. He can’t sell the goods found at all.
4. All of above

Answer: 1. He has a right to retain the goods until he receives compensation for trouble and expenses incurred in preserving the goods and finding out the
owner.

Question 49. Finder of goods can sell the goods found, if _________

1. The owner cannot be found with reasonable diligence
2. Owner, if found, does not pay the lawful expenses _______?
3. Both (1) and (2)
4. None of the above

Answer: 3. Both (1) and (2)

Question 50. The finder of goods can sell the goods found if the lawful charges of the finder, amount to ______ of the value of goods

1. 2/3^rd
2. 1/3^rd
3. 1/4^th
4. 2/5^th

Answer: 1. 2/3^rd

Question 51. Ravi found a purse in a computer education center. He deposited the purse with the proprietor of the center so that the real owner could claim it. However, no one claimed the purse. Ravi wants the purse back. Can he succeed?

1. Yes
2. No
3. Partly yes
4. None of above

Answer: 1. Yes

Question 52. Pledge under Section 172 of the Indian Contract Act has been defined as

1. A license to take possession of goods
2. An agreement to give possession of goods
3. Bailment of goods as a security for payment of a debt or for performance of a promise
4. Both (1) and (2).

Answer: 3. Bailment of goods as a security for payment of a debt or for performance of a promise

Question 53. For pledge, delivery of possession of goods

1. Has to be actual.
2. May be constructive
3. Either actual or constructive
4. May be symbolic.

Answer: 3. Either actual or constructive

Question 54. In a pledge, the general property or ownership in ‘goods’

1. Continues in pledgor
2. Transferred to the pledgee
3. Cannot be transferred to the pledgee
4. Either (1) or (2)

Answer: 3. Cannot be transferred to the pledgee

Question 55. A pawnee, in the event of default in payment of debt by the pawner, has a right

1. To retain the goods pledged as collateral security
2. To sue the pawner
3. To sell the goods pledged
4. All of above

Answer: 4. All of the above

Question 56. The pawnee has a right to retain the goods pledged

1. For payment of debt interest and all necessary expenses in respect of goods pledged
2. For payment of debt other than the debt in respect of goods pledged
3. For payment of interest and necessary expenses in respect of goods other than the one-pledged
4. All the above.

Answer: 1. For payment of debt interest and all necessary expenses in respect of goods pledged

Question 57. The pawnee has no right to retain the goods

1. For payment of necessary expenses in respect of goods pledged
2. For payment of extraordinary expenses incurred in the preservation of goods
3. For payment of debt or interest in respect of goods pledged
4. None of the above.

Answer: 4. None of the above.

Question 58. If the pawner makes a default in payment of debt, at the stipulated time

1. The pawnee has a right to sell the goods pledged without notice to the pawner
2. The pawnee has a right to sell the goods pledged after giving reasonable notice of sale to the pawner
3. Has no right to sell the goods pledged but has a right to retain the goods as collateral security for the debt
4. Neither has a right to sell the goods nor retain the goods as collateral security but has a right to sue for pawner upon the debt

Answer: 2. The pawnee has a right to sell the goods pledged after giving reasonable notice of sale to the pawner

Question 59. Goods may be pledged

1. By the owner of goods
2. By the co-owner in possession
3. By the person who is left with the goods for some special purpose
4. All the above.

Answer: 4. All the above

Question 60. Which of the following is correct

1. A pledge made by a mercantile agent is valid
2. A pledge made by a person in possession under a voidable contract is valid
3. A pledge by a person having a limited interest is valid to the extent of that interest
4. All the above

Answer: 4. All the above

Question 61. Pledge is a bailment of goods as security for payment of a _______.

1. Debt
2. Performance of a promise
3. (1) or (2)
4. None of above

Answer: 3. (1) or (2)

Question 62. A pledge is a bailment for security.

1. False
2. True
3. Partly true
4. None of above

Answer: 2. True

Question 63. A person who pledges the goods is known as _______.

1. Pledger
2. Pawnor
3. (1) or (2)
4. Bailor

Answer: 3. (1) or (2)

Question 64. The person to whom goods are pledged is known as

1. Pledgee
2. Pawnee
3. (1) or (2)
4. Bailee

Answer: 3. (1) or (2)

Question 65. The essential ingredients of a pledge

1. The property pledged should be delivered to the Pawnee
2. Delivery should be in pursuance of a contract.
3. Delivery should be for security.
4. All of above

Answer: 4. All of the above

Question 66. Pawnee may retain the goods pledged for

1. Payment of the debt or the performance of the promise
2. Interest due on the debt
3. All necessary expenses by him for possession or for
   preservation of goods pledged.
4. All of above

Answer: 4. All of the above

Question 67. Where the Pawnee incurs necessary expenses to preserve the goods pledged with him, he is not entitled to receive such amount from the Pawnor

1. False
2. True
3. Partly true
4. None of above

Answer: 1. False

Question 68. The Pawnee may retain the goods pledged as collateral security, or sell the goods pledged by giving a reasonable notice to the pawnor.

1. False
2. True
3. Partly true
4. None of above

Answer: 2. True

Question 69. When there is a surplus on sale after due notice to the pawnor, the pawnee shall pay the excess to the pawnor. In case of a deficit, the pawnor shall be liable for the balance amount.

1. False
2. True
3. Partly true
4. None of above

Answer: 2. True

Question 70. Where the pawnee does not give reasonable notice to the pawnor, the sale is valid, but the pawnee is liable to pay damages to the pawnor.

1. True
2. False
3. Partly true
4. None of above

Answer: 1. True

Question 71. The general rule is that only the owner can create a valid pledge. However, even a non-owner can create a valid pledge: _______.

1. A mercantile agent who has goods or of document of title
   to goods, with the consent of the owner
2. When the pawnor has obtained possession of goods under a voidable contract by way of fraud, coercion, etc.
3. Co-owner has goods with the consent of the other co-owner.
4. All of the above

Answer: 4. All of the above

Distinguish Between Bailment And Pledge

Give four differences between Bailment and Pledge.

Answer:

Difference between Contract Bailment and Pledge

Bailment And Pledge Descriptive Questions And Answers

Question 1. What are the rights available to the finder of lost goods under Section 168 and Section 169 of the Indian Contract Act, of 1872?

Answer:

The rights available to the finder of lost goods under Section 168 and Section 169 of the Indian Contract Act, of 1872

The finding is not keeping. The finder must make reasonable efforts to locate the real owner and may also spend reasonable money in taking care of the goods found. However, he earns’ certain rights also as against the goods found as well as the owner of those goods. His rights are:

1. He has a right of lien over the goods for his expenses. But he has no right to sue the owner for any such compensation (Section 168).
2. He can sue for any specific reward, that the owner has offered for the return of goods [Section 168].
3. He can however sell the goods under the following circumstances
   • If the owner cannot with reasonable diligence be found;
   • If found, he refuses to pay the lawful charges of the finder;
   • If the goods are in danger of perishing or of losing the greater part of their value;
   • If the lawful charges of the finder, in respect of the goods found, amount to more than two-thirds of their value [Section 169].

Question 2. What is the liability of a bailee making unauthorized use of goods bailed?

Answer:

The liability of a bailee making unauthorized use of goods bailed

As per Section 1 54 of the Indian Contract Act, 1 881, if the bailee makes any use of the goods bailed, which is not according to the conditions of the bailment, he is liable to make compensation to the bailor for any damage arising to the goods from or during such use of, them.

Question 3. Whether a Pawnee has a right to retain the goods pledged.

Answer:

As per Sec. 173 of the Indian Contract Act, 1872, the Pawnee may retain the good pledged, not only for the payment of the debt or performances of the promise, but for the interest, of the debt, and all necessary expenses incurred by him in respect of the possession or for the preservation of the goods pledged.

As per Section 174, Pawnee has a right to retain goods pledged towards subsequent advances as well, however subject to such right being specifically contemplated in the contract.

Question 4. Examine the validity of the following statements under the provisions of the Indian Contract Act, of 1872. If the bailee does not use the goods according to the terms and conditions of bailment, the contract of bailment becomes void.

Answer:

This statement Is not valid

A contract of bailment is voidable at the option of the bailor if the bailee does not use the goods according to the terms and conditions of bailment. (Sec. 153).

Question 5. Ram, tho bailor, pledges a cinema projector and other accessories with Movie Association Co-operative Bank Limited, tho Halloo, for a loan. Ram requests the bank to allow the pledged goods to remain In his possession and promises to hold the same In trust for tho halloo and also further promises to hand over the possession of the same to the bank whenever demanded. Examining Iho provisions of tho Indian Contract Act, 1872 decide, whether a valid contract of pledge has been made between Ram, Iho bailor, and Bank, Iho bailee?

Answer:

Provision:

Contract of Pledge between Bailor and Bailee.

The problem is based on the provisions contained in Sec. 149 of the Indian Contract Act, of 1872. As per this section, the modes of delivery of goods are as follows:

1. Actual
2. Symbolic
3. Constructive

Constructive delivery means doing any act which has the effect of putting the goods in the possession of a person who agrees to hold them as a bailee for some other person although transfer of possession of goods does not take place.

Present Case:

In the given problem, delivery is made by attornment to the bailee (bank) while goods remain in the custody of A shows that the delivery is constructive. The transaction was therefore a valid pledge.

Question 6. Amar balled 50 kg of high-quality sugar to Srljlth, who owned a Kirana shop, promising to give ₹ 200 at the time of taking back the bailed goods. Srijith’s employee, unaware of this, mixed the 50 kg of sugar belonging to Amar with the sugar In the shop and packed it for Salo when Srijlth was away. This came to light only when Amar came asking for the sugar he had bailed with Srljlth, as the price of the specific quality of sugar had trebled. What Is the remedy available to Amar?

Answer:

Provision:

As per Sec. 167 of the Indian Contract Act, 1872, If the bullae, without the consent of the bailor, also tho goods ol tho bailor with his goods, In such a manner that It Is Impossible to separate the goods balled from tho other goods and deliver thorn back, tho bailor Is entitled to be compensated by halloo for the loss of goods.

Present Case:

In this case, high-quality Sugar has been mixed by Srijith’s employees, and it is not possible to oopnrnto from own goods. So as per the above provisions Amur Is entitled to recover the loss of goods by way of compensation in money from Srijith.

Question 7. Srushti acquired a valuable diamond at a very low price by a voidable contract under the provisions of the Indian Contract Act, of 1872. The voidable contract was not rescinded. Srushti pledged the diamond to Mr. VK. Is this a valid pledge under the Indian Contract Act, of 1872?

Answer:

As per Section 178 A of the Indian Contract Act, 1 872, when the Pawnor has obtained possession of the goods pledged by him under a contract voidable under Section 19 or Section 19A, but the contract has not been rescinding at the time of the pledge, the Pawnee acquires a good title to the goods, provided he acts in good faith and without notice of the Pawnor’s defect of title.

Present Case:

In this case, Srushti was acquired. valuable diamond at a very low price by a voidable contract under the provisions of the Indian Contract Act, of 1872. The ‘ voidable contract was not rescinded. Srushti pledged the diamond to Mr. VK. As per the above provision, this is a valid pledge if Mr. VK acted in good faith and without notice of Srushti’s defect of title.

Question 8. Radheshyam borrowed a sum of from a Bank on the security of gold on 1.07.2019 under an agreement which contains a clause that the bank shall have a right of particular lien on the gold pledged with it. Radheshyam thereafter took an unsecured loan of ₹ 20,000 from the same bank on 1.08.2019 for three months. On 30.09.201 9 he repaid the entire secured loan of ₹ 50,000 and requested the bank to release the gold pledged with it. The Bank decided to continue the lien on the gold until the unsecured loan was fully repaid by Radheshyam. Decide whether the decision of the Bank is valid within the provisions of the Indian Contract Act, of 1872.

Answer:

General lien of bankers: According to section 171 of the Indian Contract Act, 1872, bankers, factors, wharfingers, attorneys of a High Court and policy brokers may.

• In the absence of a contract to the contrary, retain, as a security for a general balance of account any goods bailed to them; but no other persons have a right to retain, as a security for such balance, goods bailed to them, unless there is an express contract to the effect.
• Section 171 empowers the banker with a general right of lien in the absence of a contract whereby it is entitled to retain the goods belonging to another party until all the dues are discharged.
• Here, in the first instance, the banker under an agreement has a right of particular lien on the gold pledged with it against the first secured loan of ₹ 50,000/-, which has already been fully repaid by Radheshyam.

Accordingly, the Bank’s decision to continue the lien on the gold until the unsecured loan of ₹ 20,000/- (which is the second loan) is not valid.

Question 9. Mr. Stefen owns a chicken firm near Gurgaon, where he breeds and sells eggs and live chickens to retail shops in Gurgaon. Mr. Flemming also owns a similar firm near Gurgaon, doing the same business. Mr. Flemming had to go back to his native place in Australia for one year. He needed money for travel so he pledged his firm to Mr. Stefen for one year received a deposit of ₹ 25 lakhs and went away. Then, the stock of live birds was 100,000 and eggs was 10,000. The condition was that when Flemming returned, he would repay the deposit and take possession of his firm with live birds and eggs. After one year Flemming came back and returned the deposit. At that time there were 109,000 live birds (the increase is due to the hatching of eggs out of 10,000 eggs he had left), and 15,000 eggs. Mr. Stefen agreed to return 100,000 live birds and 10,000 eggs only. State the duties of Mr. Stefen as Pawnee and advise Mr. Flemming about his rights in the given case.

Answer:

Duties of Pawnee:

• Duty to take reasonable care of the pledged goods.
• Duty not to make unauthorized use of pledged goods.
• Duty to return the goods when the debt has been repaid or the promise has been performed.
• Duty not to mix his goods with goods pledged.
• Duty not to do any act which is inconsistent with the terms of the pledge.
• Duty to return accretion to the goods, if any.

Duties of Mr. Stefen: Mr. Stefen (pawnee) is bound to deliver to Mr. Flemming (pawnor), any increase or profit (9,000 live birds and 5,000 eggs) that has occurred from the goods bailed (i.e. the live birds and eggs).

Rights of Mr. Flemming as a Pawnor:

As the bailor of goods, the Pawnor has all the rights of the bailor. Mr. Flemming is entitled to recover from Pawnee any increase in goods so pledged. Along with that he also has the right of redemption to the pledged goods which is enumerated under section 177 of the Act.

Question 10. Mr. Truth deposited 100 bags of groundnut in the factory of Mr. False for safekeeping. Mr. False mixed the ground-nut bags with the other ground-nut bags in the factory with the consent of Mr. Truth and consumed it to produce edible oil

1. Whether Mr. Truth entitled to claim his share in the edible oil produced under the provisions of the Indian Contact Act, of 1872?
2. What will be the consequences in case the ground-nut bag were mixed without the consent of Mr. Truth under the above-said Act?

Answer:

As per Section 155 of the Act if the Bailee, mixes the goods bailed with his goods, with the consent of the bailor, both the parties shall have an interest in proportion to their respective shares in the mixture thus produced.

• As per Section 156 of the Act, if the bailee, without the consent of the bailor, mixes the goods bailed with his goods, the goods can be separated or divided.
• The property in the goods remains in the parties respectively, but the bailee is bound to bear the expense of separation or division and any damage arising from the mixture.
• As per Section 157 of the Act, if the bailee, without the consent of the bailor mixes the goods of the bailor with his goods in such a manner that it is impossible to separate the goods bailed from the other goods and to deliver them back, the bailor is entitled to be compensated by the bailee for loss of the goods.
• In the preset case, Mr. False mixed the goods of ground nuts of Mr. True with other ground nut bags in the factory with the consent of Mr. Truth so as per the provisions of Section 155, Mr. Truth is entitled to claim his share in the edible oil produced.
• In this case, Mr. False mixed ground nut bags without the consent of Mr. True, and also the edible oil which is produced from ground nuts is not separable, so as per the above provisions of Section 157.

Mr. True is entitled to receive compensation from Mr. False for the loss of ground nut bags.

Question 11. Kartik took his AC to Pratik, an electrician, for repair. Even after numerous follow-ups by Kartik, Pratik didn’t return the AC in a reasonable time even after repair. In the meantime, Pratik’s electric shop caught fire because of a short circuit, and the AC was destroyed. Decide, whether Pratik will be held liable under the provisions of the Indian Contract Act, 1872.

Answer:

As per Sec. 160 of the Indian Contract Act, 1872, the bailee must return the goods or deliver them according to the bailor’s direction as soon as the time for which the goods were bailed has expired or the purpose for which the goods were bailed has been accomplished.

As Per Sec. 161 of the Indian Contract Act, 1872, where a bailee fails to return the goods within the agreed time, he shall, be responsible to the bailor for any loss, destruction, or deterioration of the goods from that time, notwithstanding the exercise of reasonable care on his part.

Present Case:

Kartik took his AC to Pratik, an electrician, for repair. Even after numerous follow-ups by Kartik, Pratik didn’t return the AC in a reasonable time, even after repair. In the meantime, Pratik’s electric shop caught fire because of a short circuit, and the AC was destroyed.

Conclusion:

In the present case, Pratik is a fault for not returning the AC to Kartik, within a reasonable time. So, Pratik shall be liable to compensate Kartik for the loss incurred by Kartik due to Pratik’s default.

Consideration Self-Study Questions And Answers

Question 1. What is consideration?

Answer:

Consideration

• Consideration should be lawful.
• A mere promise is not enforceable by law.
• It means “Quid Pro Quo” i.e. “something in return”.
• As per Section 2(d), when at the desire of the promisor, the promisee or any other person
  • Has done or abstained from doing, or
  • Does or abstains from doing, or
  • Promises to do or abstain from doing such act or abstinence or promise is called as consideration of promise.”
• As per Section 2(e) “Every promise and every set of promises, forming the consideration for each other is an agreement”
  • The general rule is – “NO CONSIDERATION, NO CONTRACT’
  • Consideration may move at the desire of the promisor and not at the desire of the
    third party.
  • There may be a stranger to consideration but not a stranger to a contract.
  • Under English Law, it must move from the promisee or any other person. Thus, a stranger cannot sue on the contract.
  • Under Indian Law, however, a stranger to consideration can file a suit.

Question 2. Describe the Legal Rules Regarding Consideration.

Answer:

The Legal Rules Regarding Consideration

• It must move at the desire of the promisor [Case law: Durga Prasad V/s Baldeo].
• It may be done by the promisee himself or by any other person.

Relevant Case Law:

Chinnayya V/s Ramayya.

Facts

• A by a gift deed transferred certain property to her daughter, giving her the direction to pay an annuity to A’s brother.
• On the same day, the daughter executed writing in favor of A’s brother, agreeing to pay an annuity.
• She declined afterwards stating that no consideration had moved from her uncle Decision – Court held that consideration may move from any person. Thus, A’s brother was entitled to file a suit.
  • It may be past, present, or future.
  • It must be real and not vague.
  • It must be legal.
  • It need not be adequate (But if not adequate then consent must be free).
  • It must be something more than the promisee is already bound to do for the promisor.
  • It may not be illusory.

Question 3. What do you understand as a Suit by a third party to a contract?

Answer:

• The doctrine of Privity of Contract:
  • It means that only those persons who are the parties to a contract, can sue and be sued upon the contract.
  • it is different from- a stranger to consideration.
  • It refers to the relationship between parties who have entered into the contracts.
  • The third party cannot sue upon it, even though, the contract may be for his benefit.
  • Thus, a stranger to the contract’ cannot bring a valid suit under the contract’.

Relevant Case Law

• • Dunlop Pneumatic Tyre Co. V/s Selfridge Ltd.
  • Tweddle V/s Atkinson
• Stranger to contract how right to sue in the following cases:
  • The beneficiary of the Trust or charge can enforce it even if he is not a party in the trust deed.
  • Marriage settlement, partition, and other family arrangements and other such agreements are reduced to writing.
  • Acknowledgment of liability or by past performance thereof.
  • Assignment of contract, however, it must be noted nominee is not an assignee.
  • Contracts are entered through an agent.
  • Covenant running with the land. The purchaser of immovable property is bound by several conditions created by an agreement affecting the land, even though he is not a party to the original agreement.
  • Where the promisor by his conduct is estoppel from denying his liability to perform the promise, the person who is not a party to the contract can sue upon to make the promisor liable.

Question 4. Describe the Validity of an agreement without consideration.

Answer:

The Validity of an agreement without consideration

• An agreement made is valid if
  • expressed in writing and registered under law.
  • made an account of natural love and affection.
  • between parties standing in near relation to each other.
• A promise is valid if
  • it is a promise to compensate a person wholly or in part, a person who has already done something voluntarily for the promisor.
  • Something which the promisor was legally compellable to do.
• A promise to pay, wholly or in part, a debt, which is barred by law of limitation can be enforced if
  • it is in writing.
  • it is signed by the debtor or his authorized agent.

Note – A debt barred by limitation cannot be recovered, a promise to pay such debt is without any consideration.

It does not apply to completed gifts i.e. gifts given and accepted.

• Consideration is not required to effect a valid bailment of goods i.e. gratuitous bailment.
• Not required to create an agency.
• If a person promises to contribute anything to a charity and on his faith, the promisee undertakes a liability to that extent, the contract shall be valid. [Relevant case law: Kedarnath V/s Gorie Mohammed].

Consideration Objective Questions And Answers

Question 1. State with reason whether the following statement is Correct or Incorrect. Consideration in a contract of sale of goods can also be paid partly in money and partly in goods.

Answer:

Correct: Consideration paid partly in money and partly in goods will be taken as valid sales because the price is there. It is so because price is considered a must for sale.

Question 2. State with reason whether the following statement is Correct or Incorrect. Consideration may move even from a person who is not a party to the contract.

Answer:

Correct: According to Section 2(d) of the Indian Contract Act, 1872 consideration may move from the promisee or any other person who may not be a party to the contract. In other words, there can be a stranger to the consideration.

Question 3. State with reason whether the following statement is Correct or Incorrect. A promise to take either rice or smuggled opium for a consideration of ₹ 1,000 is wholly void.

Answer:

Incorrect: As per Section 58 of the Indian Contract; Act, 1872, in the case of an alternative promise, one branch of which is legal and the other branch is illegal; the branch with legal promise can only be enforced.

Therefore, to take the rice is a legal promise hence it is enforceable, whereas to take smuggled opium is illegal and is enforceable by law.

Question 4. State with reason whether the following statement is Correct or Incorrect. Consideration may be present or future but not past.

Answer:

Incorrect: Section 2(d) of the Act states that the consideration may be past, present, or future.

Question 5. State with reason whether the following statement is Correct or Incorrect. Consideration for the sale of goods must be in terms of Money.

Answer:

Correct: It is one of the most important features of the contract of sale that the price should be paid in terms of money.

Question 6. State with reason whether the following statement is Correct or Incorrect. Consideration may be present or future, but not past.

Answer:

Incorrect: As per the definition of consideration contained in, Section 2(d) of the Indian Contract Act, 1872 consideration may be present, past, and future.

Consideration Descriptive Questions And Answers

Question 1. Comment on the following: “For every valid agreement there should be the consideration”.

Answer:

“For every valid agreement there should be the consideration”

A contract without consideration is valid under the following cases:

For an agreement to be enforceable law must be supported by a valid consideration. An agreement without consideration is void and enforceable (General Rule). But Section 25. Specifies the cases where an agreement made without consideration is valid. The exceptional cases are as follows:

1. Natural Love and Affection [Section 25(1)]: An agreement made without consideration will be valid if it is in writing and registered and is made on account of natural love and affection between the parties standing in near relation to each other.

2. Compensation for services rendered [Section 25 (2)]: An agreement will be valid without consideration it if is a promise to compensate wholly or in part a person who has already voluntarily done something for the promisor or something which the promisor was legally compellable to do for, that a promise to make payment for the past voluntary services is binding, there should be following factors:

1. The services should have been rendered voluntarily.
2. These should have been rendered for the promisor. „
3. The promisor must exist at the time of rendering services.
4. The promisor must have intended to compensate the promisee.

3. Time-barred debt [Sec. 25 (3)]: A promise to pay a time-barred debt is also enforceable if it is in writing and signed by the promisor. The promise must be to pay whole or part-time debt.

4. Completed gift: An agreement in respect of a gift that has been made and accepted.

5. Agency: An agreement containing agency may be without consideration.

Question 2. Comment on the following: To form a valid contract consideration must be adequate.

Answer:

To form a valid contract consideration must be adequate

The law provides that a contract should be supported by consideration. So long as consideration exists, the Courts are not concerned as to its adequacy, provided it is of some value.

• The adequacy of the consideration is for the parties to consider at the time of agreeing, not for the Court when it is sought to be enforced. (Bolton v. Madden).
• Consideration must, however, be something to which the law attaches value though it need not.be equivalent in value to the promise made.
• According to Explanation 2 to Section 25 of the Indian Contract Act ’1872, an agreement to which the consent of the promisor is freely given is not void merely because the consideration is inadequate.
• However, the inadequacy of the consideration may be taken into account by the Court in determining the question of whether the consent of the promisor was freely given.

Question 3. Briefly the following: “No consideration, no contract’

Answer:

No consideration, no contract:

1. All contracts contain two parts:
2. the promise, and

the consideration for such a promise. A promise without consideration is purely gratuitous. Such a promise can not create a legal obligation, no matter that it is highly sacred and morally binding (Abdul Aziz v. Mazum Ali -AIR 1914, 36 All 268).

Thus, the rule of law is that no consideration, no contract. Section 25 of the Indian Contract Act, of 1872 embodies the rule that an agreement without consideration is void. However, there are certain exceptions to the general rule.

1. If an agreement is expressed in writing and registered and is made on account of natural love and affection, it is a valid contract without consideration.
2. A promise to compensate a person for something that has already been done voluntarily for the promisor is valid without consideration and creates a contract.
3. A promise by a debtor to pay a time-barred debt is valid provided that it is made in writing and is signed by the debtor or by his authorized agent on this behalf.
4. The rule ‘no consideration, no contract’ does not apply in the case of a completed gift.
5. No consideration is necessary to create an agency

Question 4. Explain the following: Unlawful consideration

Answer:

Unlawful Consideration: One of the essential elements of consideration is that it must be lawful. An agreement becomes void, if it is based on unlawful consideration. The consideration of an agreement becomes unlawful when:

1. It is forbidden by law or
2. If it is fraudulent or
3. If it defeats the provision of any law or
4. If it involves or implies injury to the person or property of another or
5. The court regards it as immoral or opposed to public policy.

Question 5. Briefly the following: What is Consideration? Give its characteristics

Answer:

Consideration:

It is the price of the promise i.e. something in return Section 2(d) of the Indian Contract Act, 1872 defines it as when the desire of the promisor, the promises, or any other person abstained has done or from doing, or does or abstains for doing, or promises to do or abstain from doing something such an act or abstinence or promise is called consideration for the promise”.

Characteristics

1. Consideration is the doing or not doing of something which the promisor desires to be done or not done.
2. Consideration must be at the desire of the promisor.
3. Consideration may move from one person to any other person.
4. Consideration may be past, present, or future.
5. Consideration need not be adequate but should be real.

Question 6. State the exceptions to the rule “An agreement without consideration is void”.

Answer:

The exceptions to the rule “An agreement without consideration is void”

The general rule is that an agreement without consideration is void. However, there are certain exceptions to this rule. In the following cases, the agreement though made without consideration, will be valid and enforceable.

1. Natural love and affection: A written and registered agreement based on natural love and affection between the parties standing in near relation (For Example. husband and wife) to each other is enforceable without consideration.
2. Compensation for past voluntary services: A promise to compensate wholly or in part, a person who has already voluntarily done something for the promisor, is enforceable, although it is without any consideration today.
3. Promise to pay time-barred debt: Where a promise in writing signed by the person making it or by his authorized agent is made to pay a debt barred by limitation it is valid and binding even though without consideration.
4. Agency: No consideration is necessary to create an agency.
5. Completed Gift: In the case of gifts the rule of no consideration, no contract is not applicable.
6. Bailment: No consideration is required for this.
7. Charity: If one promises to undertake liability to contribute to charity, the contract shall be valid even though without consideration.

Question 7. Define consideration. What are the legal rules regarding consideration under the Indian Contract Act, of 1872?

Answer:

Consideration

Section 2(d) of the Indian Contract Act, of 1872 defines consideration as follows:

• “When at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing or promises to do or abstain from doing something, such an act or abstinence or promise is called a consideration for the promise”.
• It is defined as “quid-pro-quo”, i.e. “something in return”. This something need not be in terms of money, as stated, it is some right, interest, profit or benefit accruing to one party or some forbearance, detriment, loss or responsibility, given suffered or undertaken by the other”.
• However, it must have some value in the eyes of the law and must not be vague or illusory.

Legal Rules Regarding Considerations:

1. Consideration must done at the desire of the promisor: An act done at the desire of a third party is not a consideration.
2. Consideration may move from a promisee or any other person: There can be a stranger to consideration but not a stranger to a contract.
3. Executed and Executory Consideration: When consideration consists of an act it is executed but when it consists of a promise it is executory.
4. Consideration may be past present or future: The words “has done or abstained from doing” are a recognition of the doctrine of past consideration.
5. Consideration need not be adequate: It need not be of any particular value, but it must be something.
6. Performance of what one is legally bound to perform, cannot be treated as consideration.
7. Consideration must be real and not illusory.
8. Consideration must not be unlawful, immoral, or opposed to public policy.

Question 8. The general rule is that an agreement without consideration is void. Discuss the cases where the agreement though made without consideration will be valid and enforceable as per the Indian Contract Act, of 1872.

Answer:

No consideration no contract:

The general rule is that an agreement made without consideration is void (Section 25 of the Indian Contract Act, 1872). In every valid contract, consideration is very important.

A contract may only be enforceable when consideration is there. However, the Indian Contract Act contains certain exceptions to this rule. In the following cases, the agreement though made without consideration, will be valid and enforceable.

1. In case of an agreement on account of natural love and affection: An agreement on account of natural love and affection will be valid if it:

• Written
• Registered
• Based on Natural Love affection
• Parties stand in near relation with each other (For Example. husband and wife)

Example: A husband, by a registered agreement, promised to pay his earnings to his wife. Held the agreement though without consideration, was valid.

2. Agency: In the case of a contract of agency consideration is not required.

3. Bailment: In the case of a contract of bailment consideration is not required.

4. Completed gift: Completed gift moans and a gilt handed over. Thus, gifts made by a donor and accepted by the done are valid ovens without consideration.

Example: On A”‘s birthday, B gives him a gold chain as a birthday gift in this case B cannot demand back the chain on the ground that there was no consideration.

5. Charity: A mere promise for charity is void because it is without consideration. But if a person promises to contribute to a charity and the promisee undertakes liability-i.e. incur liability then the contract will be valid up to the extent of the subscription promised.

Note: In the case of charity, the promisee is liable to pay the amount of incurred liability but up to the promised amount.

6. Compensation for Past Voluntary Service: When a person, has already voluntarily done something for the promisor then a promise to compensate either wholly or partly will be binding when:

• The services should have been – done voluntarily (but not involuntarily)
• The services should have been rendered for the promisor
• The promisor must be in existence at the time when services were rendered
• The promisor must have intended to compensate.

Example: P finds R’s purse and gives it to Him. R promises to give P ₹ 1,000. This is a valid contract.

7. In the case of Promise to Pay time-barred debt: Time-barred debt or a debt-based by limitation refers to an amount that has remained unclaimed beyond a period of 3 years.

A promise to pay time-barred debt is valid if:

• It is in writing and
• Signed by the person making a promise or by his agent.

Example: A is indebted to C ₹ 6,000 but the debt is barred by the Limitation Act. Signs a written promise now to pay ₹ 5,000 in final settlement of the debt. This is a contract without consideration, but enforceable.

Question 9. “The general rule is that an agreement made without consideration is void”. State the exceptions of this general rule as per the Indian Contract Act, of 1872.

Answer:

“The general rule is that an agreement made without consideration is void”

The general rule is that an agreement made without consideration is void. However, the Indian Contract Act contains certain exceptions to this rule. In the following cases, the agreement is valid even though it is made without consideration, yet it will be valid

1. Natural Love and Affection – A promise that is made out of natural love and affection is enforceable even though it is without consideration if all the below-stated conditions are satisfied

• It must be made out of natural love and affection between the parties.
• Parties must stand in near relationship to each other.
• It must be in writing.
• It must be registered under the Law. In other words, a written and registered agreement based on natural love and affection between the parties standing in near relation (eg: husband and wife) to each other, is enforceable even without consideration.

2. Compensation for past voluntary services:

A promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor is enforceable even without consideration, if all the below-stated conditions are satisfied

• The services should have been rendered voluntarily.
• The services must have been rendered for the promisor.
• The promisor must be in existence at the time when such services were rendered.
• The promisor must have intended to compensate the promisee.

3. Promise to pay Time-Barred Debt

A promise to pay a debt that is barred by limitation is valid even without consideration if all the below-stated conditions are satisfied:

• It must be made in writing.
• It must be signed by the person making it or by his authorized agent.

4. Contract of Agency:

Consideration is not necessary to create an agency.

5. Completed Gift:

• Nothing in this section shall affect the validity of gifts made between the donor and donee.
• Completed gifts do not require any consideration.
• If a person transfers some property by a duly written and registered deed as a gift, he cannot claim back the property subsequently on the ground of lack of consideration.

6. Contract of Bailment:

Consideration is not required to affect a contract of bailment.

7. Promise to contribute to charity:

If a promisee undertakes the liability on the promise of the person to contribute to charity, the contract shall be valid.

Question 10. Explain the following statements in the light of provisions of the Indian Contract Act, of 1872:

1. “Agreements made out of love and affection are valid agreements”.
2. “Promise to pay a time-barred debt cannot be enforced”.

Answer:

The general rule is that an agreement made without consideration is void (Sec. 25). In every valid contract consideration is very important. A contract may only be enforceable when there is adequate consideration is there.

However, the Indian Contract Act contains certain exceptions to this rule. In the following cases, the agreement though made without consideration, will be valid and enforceable.

1. “Agreements made out of love and affection are valid agreements” A written and registered agreement based on natural love and affection between the parties standing in near relation (For Example., husband and wife) to each other is enforceable even without consideration.

A contract in writing, registered on account of natural love, and affection between parties standing near relation to each other is the essential requirement for a valid contract though it is without consideration (Rajlakhee Devi vs. Bhootnath). Hence, the given statement is correct.

2. “Promise to pay a time-barred debt cannot be enforced.” Where a promise in writing signed by the person making it or by his authorized agent, is made to pay a debt barred by limitation it is valid without consideration (Sec. 25 (3)). Hence, the given statement is incorrect.

Question 11. As per the general rule, “Stranger to a contract cannot file as a suit in case of breach of contract”. Comment and explain the exceptions to this rule as per the provisions of the Indian Contract Act, of 1872.

Answer:

As per the provisions of the Indian Contract Act, 1 872, the consideration for an agreement may proceed from a third party but the third party cannot sue oh contract. This doctrine of privity of contract is however subject to certain exceptions stated below:

1. In the case of trust, a beneficiary can enforce his right under the trust, though he was not a party to the contract between the setter and the trustee.
2. In the case of family settlement, if the terms of the settlement are reduced into writing the members of the family who originally had not been parties to the settlement may enforce the agreement.
3. In the case of certain marriage contracts or agreements, a provision may be made for the benefit of a person, he may file the suit though he is not a party to the agreement.
4. In the case of assignment of a contract, when the benefit under a contract has been assigned, the assignee can enforce the contract but such assignment should not include any personal skill.
5. Acknowledgment or Estoppel – where the promisor by his conduct acknowledges himself as an agent of the third party, it would result in a binding obligation towards the third party.
6. In the case of a covenant running with the land, the person who purchases land with notice that the owner of the land is bound by certain duties affecting the land, and the covenant affecting the land may be enforced by the successor of the seller.
7. Contracts entered into through an agent: The principal can enforce the contracts entered by his agent where the agent has acted within the scope of his authority and in the name of the principal.

Question 12. Mr. Sohanlal sold 10 acres of his agricultural land to Mr. Mohanlal on 25th September 2018 for t 25 Lakhs. The Property papers mentioned a condition, amongst other details, that whosoever purchases the land is free to use 9 acres as per his choice but the remaining 1 acre has to be allowed to be used by Mr. Chotelal, son of the seller for carrying out farming or other activity of his choice. On 12th Oct 2018, Mr. Sohanlal died leaving behind his son and wife. On 15th Oct 2018, the purchaser started construction of an auditorium on the whole 10 acres of land and denied any land to the son.

Now Mr. Chotelal wants to file a case against the purchaser and get a suitable redressed. Discuss the above in light of provisions of the Indian Contract Act, 1 872 Arid decide upon Mr. Chotelal’s plan of action?

Answer:

In India,’ consideration may proceed from the promisee or any other person who is not a party to the contract. According to the definition of consideration as given in Section 2(d), when at the desire of the promisor, the promisee, or

• Any other person does something, such an act is consideration. In other words, there can be a stranger to a consideration but not a stranger to a contract.
• In the given case between the defendant (Mr. Mohanlal) and the plaintiff (Mr. Chotelal), the consideration has been furnished on behalf of the plaintiff (Mr, Chotelal) by his father (Mr. Sohanlal).
• Although the plaintiff was a stranger to the consideration since he was a party to the contract he could enforce the promise of the promisor, since under Indian law, consideration may be given by the promisee or anyone on his behalf vide Section 2(d) of Indian Contract Act.
• Thus, consideration furnished by Mr. Sohanlal to Mr. Mohanlal constitutes sufficient consideration for the plaintiff (Mr. Chotelal) to sue the defendant on the promise. Held, Mr. Chotelal was entitled to a decree for the right to use that 1 acre of land.

Agency Multiple Choice Question

Question 1. Principal is a

1. A person employed to do any act for another or to represent in dealings with a third person
2. The person for whom the act is done or who is so represented in dealings with third “persons
3. A person from whom, the person employed to do any act, has to get the work done
4. All the above.

Answer: 2. Person employed to do any act for another or to represent in dealings with a third person.

Question 2. _______ is the relationship between two persons where one person is employed by another to act on behalf of another with the third person.

1. Agency
2. Bailment
3. Indemnity
4. Guarantee

Answer: 1. Agency

Question 3. Amongst the following who is an agent

1. A domestic servant
2. A person aiding another in the performance of his legal or contractual obligations of third persons
3. A person who kills another’s field
4. None of the above

Answer: 2. A person aiding another in the performance of his legal or contractual obligations of third persons

Question 4. Who can appoint an agent

1. A minor of sound mind
2. A major of sound mind
3. A person of unsound mind
4. Both (1) and (2).

Answer: 2. A major of sound mind

Question 5. Agent is a

1. Berson employed to do any act for another or to represent in dealings with third person
2. The person for whom the act is done or who is represented in dealings with a third person
3. A person from whom the person employed to do any act, has to get the work done
4. All the above.

Answer: 1. Berson employed to do any act for another or to represent in dealings with a third person

Question 6. Who can become an agent

1. A major of sound mind
2. A major of unsound mind
3. A minor of sound mind
4. A minor of unsound mind.

Answer: 1. A major of sound mind

Question 7. _______ is a person employed to do any act for another, or to represent another in dealing with third persons,

1. Bailee
2. An agent
3. Bailor
4. Indemnity holder

Answer: 2. An agent

Question 8. Authority of an agent

1. Has to be expressed
2. Has to be implied
3. Can be expressed or implied
4. Either (1) (2) or (3).

Answer: 3. Can be expressed or implied

Question 9. A contract of agency may be

1. Express
2. Implied
3. (1) or (2)
4. None of above

Answer: 3. (1) or (2)

Question 10. Agency may also arise by ________.

1. Estoppel
2. Necessity
3. Ratification
4. All of above

Answer: 4. All of the above

Question 11. No consideration is necessary to create an agency.

1. True
2. False
3. Partly true
4. None of above

Answer: 1. True

Question 12. A contract of agency may be made _________.

1. Orally
2. In writing
3. (1) or (2)
4. None of above

Answer: 3. (1) or (2)

Question 13. An authority is said to be ________ when it is to be inferred from the circumstances of the case, and things spoken or written, or the ordinary course of dealings.

1. Express
2. Implied
3. (1) or (2)
4. None of above

Answer: 2. Implied

Question 14. Where a principal, by his word or conduct, induces some third person to believe that acts or obligations of his agent were within his authority, he shall be estopped from denying it later. This is known as ________.

1. Agency of necessity
2. Agency of estoppel
3. Agency by operation of law
4. Agency by ratification

Answer: 2. Agency of estoppel

Question 15. A principal cannot deny the agent’s authority when he does some prior positive or affirmative act establishing the agency of the other person. This known as

1. Agency of necessity
2. Agency by operation of law
3. Agency by holding out
4. Agency by ratification

Answer: 3. Agency by holding out

Question 16. When the husband and wife are living together and the husband does not provide for her necessities, the wife has an implied authority as an agent to pledge her husband’s credit for bare necessities.

1. False
2. True
3. Partly true
4. None of above

Answer: 2. True

Question 17. The husband will not be liable as an agent if he shows that: _________.

1. He had told a tradesman to supply goods on credit to his wife.
2. He had expressly allowed the wife to pledge his credit
3. His wife was already sufficiently supplied with the articles in question.
4. All of above

Answer: 3. His wife was already sufficiently supplied with the articles in question.

Question 18. In certain circumstances, a person who has been entrusted with another’s property may have to incur unauthorised expenses to protect or preserve it. This is known as _______.

1. Agency of necessity
2. Agency by operation of law
3. Agency by holding out
4. Agency by ratification

Answer: 1. Agency of necessity

Question 19. A horse sent by rail was not delivered to the destination, The Station Master had to feed the horse. The Station Master becomes an ________ and hence the owner shall compensate him.

1. Agent by necessity
2. Agent by operation of law
3. Agent by holding out
4. Agent by ratification

Answer: 1. Agent by necessity

Question 20. When the relationship arises between, the persons as per provisions of the present applicable laws, it is said to be an _________.

1. Agency of necessity
2. Agency by operation of law
3. Agency by holding out
4. Agency by ratification

Answer: 2. Agency by operation of law

Question 21. An agent can lawfully employ a sub-agent

1. Originally
2. If the ordinary custom of trade permits
3. If the nature of the agency permits
4. Both (2) and (3)

Answer: 4. Both (2) and (3)

Question 22. In case of a sub-agent lawfully appointed, which of the following is correct

1. As regards third parties the sub-agent binds the principal as an original agent can
2. As regards third parties, the sub-agent cannot bind the principal as an original agent
3. As regards third parties the sub-agent can bind only the original agent, who has appointed the use-agent
4. As regards third parties, the sub-agent can neither bind the principal nor the original agent.

Answer: 1. As regards third parties the sub-agent binds the principal as an original agent can

Question 23. For the acts of sub-agent, lawfully appointed

1. The agent is not responsible to the principal
2. The agent is responsible to the principal
3. The sub-agent is responsible to the principal directly
4. The sub-agent is not responsible to the principal.

Answer: 2. The agent is responsible to the principal

Question 24. In case of fraud and wilful wrong by the sub-agent

1. The sub-agent is directly liable to the agent
2. The sub-agent and the agent both are liable to the principal
3. The agent alone is liable to the principal
4. Both (1) and (2).

Answer: 4. Both (1) and (2).

Question 25. In case the sub-agent is not lawfully appointed, for the acts of such sub-agent, the agent appointing the sub-agent is liable

1. Towards the principal only
2. Towards the third parties only
3. Towards the principal and third parties both
4. Towards none

Answer: 3. Towards the principal and third parties both

Question 26. _____is a person employed by, and acting under the control of, the original agent in the business of the agency.

1. Substituted agent
2. Sub-agent
3. Pretended agent
4. Universal agent

Answer: 2. Sub-agent

Question 27. A person whom the agent names to act for the principal in the business of the agency, under the express or implied authority to name, is called

1. Sub-agent
2. Substituted agent
3. Agent
4. Procured agent.

Answer: 2. Substituted agent

Question 28. For the acts of the substituted agent

1. The agent is responsible to the principal
2. The agent is not responsible to the principal
3. The substituted agent is not responsible to the principal
4. None of the above.

Answer: 2. The agent is not responsible to the principal

Question 29. The substituted agent is liable to the principal

1. Only in case of fraud and wilful default
2. Irrespective of fraud and wilful default, in all cases
3. Along with the agent
4. Both (1) and (3).

Answer: 2. Irrespective of fraud and wilful default, in all cases

Question 30. Where an agent, holding authority to name another person, has named another person accordingly, such person is known as _________ Such agent works under the control and directions of the principal.

1. Substituted agent
2. Sub-agent
3. Pretended agent
4. Universal agent

Answer: 1. Substituted agent

Question 31. A _______ represents to be an agent of another when in reality he has not such authority from him at all.

1. Substituted agent
2. Sub-agent
3. Pretended agent
4. Universal agent

Answer: 3. Pretended agent

Question 32. A mercantile agent includes __________

1. Factors
2. Brokers
3. Auctioneers
4. All of the above

Answer: 4. All of the above

Question 33. A _______ is a mercantile agent employed to sell goods which have been placed in his possession or contract to buy goods for his principal. He is the apparent owner of the goods in his custody and can sell them in his name and receive payment for the goods

1. Broker
2. Factor
3. Del credere agent
4. Auctioneer

Answer: 2. Factor

Question 34. Any actions done, without the authority or knowledge of a person on behalf of that person,

1. Can disown the act
2. Can ratify the act
3. Either ratify or disown the act
4. Can disown the act but cannot ratify the same.

Answer: 3. Either ratify or disown the act

Question 35. Ratification of an act

1. Has to be expressed only
2. Has to be implied
3. Can be either expressed or implied
4. Has to be both expressed and implied.

Answer: 3. Can be either express or implied

Question 36. Which of the following acts cannot be ratified

1. Lawful or unlawful acts capable of being done by the agent
2. Where knowledge of facts to the ratifying person is defective
3. Act which ane unauthorised at the time of its being done
4. All the above.

Answer: 4. All the above.

Question 37. Where a person having no authority purports to act as an agent or a duly appointed agent exceeds his authority, the principal is not bound by the contract supposedly based on his behalf. But the principal may ratify the agent’s transaction and so accept liability. This is known as ________.

1. Agency of necessity
2. Agency by operation of law
3. Agency by holding out
4. Agency by ratification

Answer: 4. Agency by ratification

Question 38. Requisites of valid agency by ratification:

1. The agent must purport to act as an agent for a principal who is in contemplation and is identifiable at the time of the contract.
2. Principal need not be in existence at the time of contract.
3. Principals should have contractual capacity at the time of contract but not at the time of ratification.
4. All of the above.

Answer: 1. The agent must purport to act as an agent for a principal who is in contemplation and is identifiable at the time of the contract.

Question 39. Requisites of valid agency by ratification:

1. Ratification must be made within 2 years from the date of the act.
2. Ratification should be done within a reasonable time.
3. The act to be ratified need not be a lawful one.
4. All of the above.

Answer: 2. Ratification must be made within 2 years from the date of the act.

Question 40. Requisites of valid agency by ratification:

1. Ratification can be made for part contract
2. Ratification need not be communicated to the party who is sought to be bound by an act done by the principal.
3. Ratification should not put third parties to damages.
4. None of the above.

Answer: 3. Ratification should not put third parties to damages.

Question 41. Ratification relates to the date of the act of the agent.

1. False
2. True
3. Partly true
4. None of the above.

Answer: 2. True

Question 42. The agency can be terminated

1. By revocation by the principal
2. By notice of renunciation by the agent
3. By efflux of time
4. Either (1) or (2).

Answer: 4. Either (1) or (2).

Question 43. Agency stands terminated

1. By the death, insolvency or insanity of the principal
2. By the death, insolvency or insanity of the agent
3. By the death, insolvency or insanity of either the principal or the agent
4. By the death, insolvency or insanity of the principal and the agent both.

Answer: 3. By the death, insolvency or insanity of either the principal or the agent

Question 44. The principal can revoke the authority given to the agent

1. At any time before the authority has been exercised
2. At any time after the authority has been partly exercised without liability towards the acts done
3. At any time after the authority has been fully exercised
4. All the above.

Answer: 1. At any time before the authority has been exercised

Question 45. With the termination of the authority of an agent

1. The authority of the sub-agent or substituted agent does not come to an end
2. The authority of the sub-agent comes to an end but not of the substituted agent
3. The authority of the sub-agent does not come to an end but that of a substituted agent
4. The authority of the sub-agent and substituted agent both comes to an end.

Answer: 2. The authority of the sub-agent comes to an end but not of the substituted agent

Question 46. Duties of an agent: _________

1. To exercise skill and diligence
2. To render proper accounts
3. Communicate with the principal in case of difficulty
4. All of above

Answer: 4. All of the above

Question 47. Duties of an agent: _________

1. To deal with his account
2. To retain with himself all sums received
3. Not to make secret profits
4. All of above

Answer: 3. Not to make secret profits

Question 48. Duties of an agent: __________

1. Not to disclose information
2. To protect the interest of the principal in case of death
3. To act as per the principal’s directions
4. All of the above

Answer: 4. All of the above

Question 49. Duties of an agent: __________

1. To delegate authority
2. To protect the interest of the principal in case of death
3. Not to act as per the principal’s directions
4. All to above

Answer: 2. To protect the interest of the principal in case of death

Question 50. If the amount due to the agent for commission or remuneration is not paid or accounted for, the agent

1. Has a right of lien only over the movable property of the principal
2. Has a right of lien only over the immovable property of the principal
3. Has a right of lien over the goods, papers and property movable or immovable of the principal
4. Does not have a right of lien over the papers.

Answer: 3. Has a right of lien over the goods, papers and property movable or immovable of the principal

Question 51. Right of lien, of an agent

1. Is extinguished by his parting with the possession of the goods
2. Is extinguished by the destruction of goods accidentally
3. Both (1) and (2) are correct
4. Neither (1) nor (2) is correct

Answer: 1. Is extinguished by his parting with the possession of the goods

Question 52. The agent has a right to be indemnified

1. For all the consequences of all lawful acts done by the agent
2. For all the consequences of all unlawful acts done in good faith by the agent.
3. For all the consequences of unlawful acts, known to be unlawful, but not criminal acts
4. Both (1) and (2)

Answer: 4. Both (1) and (2)

Question 53. Which Of the following rights are not available to the agent

1. Right to retain
2. Right to compensation
3. Right to sell
4. All the above.

Answer: 3. Right to sell

Question 54. Which of the following rights is available to the agent

1. Right to remuneration and compensation
2. Right to retain
3. Right to indemnity
4. All the above.

Answer: 4. All the above.

Question 55. When the principal and his name are disclosed to third parties, acts of the agent are acts of the principal:

1. True
2. False
3. Partly true
4. None of above

Answer: 1. True

Question 56. Where the agent discloses that he is merely an agent but conceals the identity of his principal, he is not personally liable, the principal, on being discovered, will be responsible for the contract made by the agent.

1. True
2. False
3. Partly true
4. None of above

Answer: 1. True

Question 57. If an agent contracts in the capacity of an agent but the principal’s name is not given then, the principal is not liable for all acts of the agent and the agent will be held personally liable.

1. True
2. False
3. Partly true
4. None of above

Answer: 2. False

Question 58. In the case of an unnamed principal, if the agent refuses to name the principal, the agent shall be personally liable.

1. True
2. False
3. Partly true
4. None of above

Answer: 1. True

Question 59. If an agent commits a tort or other wrong (For Example.) misrepresentation or fraud) during his agency, while acting within the scope of his actual or apparent authority, the principal is not liable.

1. True
2. False
3. Partly true
4. None of above

Answer: 2. False

Question 60. An agent is personally liable: __________

1. Where the agent has agreed to be personally liable to the third party.
2. Where an agent acts for a principal residing abroad.
3. When the agent signs a negotiable instrument in his name without making it clear that he is signing it only as an agent.
4. All of above

Answer: 4. All of the above

Agency Descriptive Questions And Answers

Question 1. Who is a Sub-agent? When can he be appointed and by whom? State his liabilities towards the principal.

Answer:

Sub-agent

When an agent delegates a part of his authority to another person, this other person is called a sub-agent. He can be appointed by an agent only.

Appointment: As per the general rule, an agent cannot appoint a sub-agent because the root of agency lies in the relationship of confidence and trust, which the principal does not like to share with another person appointed by the agent whom another person appointed by the agent who is unknown to him.

Following are the cases in which an agent may appoint a sub-agent (Section 190 of ICA 1872):

1. When the principal knows the intention of an agent to appoint a sub-agent.
2. If there is a custom of trade to that effect.
3. Where it becomes essential to appoint a sub-agent under unforeseen emergencies.
4. If the nature of the work makes an appointment necessary.
5. Where the principal has authorised the agent to appoint a sub-agent.

The sub-agent is responsible for the acts of the agent and not for the principal. In case of fraud or willful wrong, the principal may hold him liable.

Legal Consequences :

1. If the appointment is proper[See. 192]:
   • The principal is liable to the third party.
   • The agent will be responsible to the principal for the act of the agent.
2. If the appointment is improper[See. 193]:
   • The principal is not liable to a third party.

Question 2. What tests can be applied in determining whether a person is an agent of another? State any five circumstances whereunder an agent is personally liable to a third party for the acts during the agency.

Answer:

Determining Agency and Agent: The test for determining whethera person is or is not an agent, is to find out whether the person can bind the principal and make him responsible or liable to a third person by bringing him into legal relation with the third person.

An agent can establish a privity of contract between the party and the principal. If all these points are proven then he is an agent otherwise not. The relationship of agency may be created by express or implied agreement.

Circumstances when an agent is personally liable :

1. Named Principal: When the agent contracts as an agent for a named principal, the principal is:
   • Bound by all the acts of the agent.
   • Liable when the agent exceeds his authority
   • Bound by the notice.
2. Unnamed Principal: In this case, the principal will be liable for the contract made by the agent unless there is a trade custom making the agent personally liable.
3. Undisclosed Principal: The agent becomes personally liable and can be sue and be sued in his name.

Personal Liability of Agent:

The general rule is that an agent cannot be made personally liable for the contracts entered into by him on behalf of his principal, neither he is personally bound by them.

The circumstances under which an agent is personally liable for his principal acts are as follows:

1. When he agrees with the concerned parties (Sec. 230).
2. An agent who does not have any authority to act as an agent or who has exceeded the authority and the same has not been ratified by the principal, is personally liable for any loss born by a third party (Sec. 235).
3. A person with whom a contract has been entered into in the character of the agent is not entitled to require the performance of it if, in reality, he was acting not as an agent, but as a principal (Sec. 236).
4. When he is acting for a foreign principal.
5. Where the agency is coupled with interest that is the agent has interest in the subject matter of the agency.
6. When the agent signs a negotiable instrument in his name without making it clear that he is signing as an agent.
7. Where trade, usage or customs holds him liable in certain kinds of business.
8. Where the agent acts for a principal who cannot be sued on account of his being a foreign sovereign Ambassador etc.
9. Where the agents act for an undisclosed principal.

Where a Government Servant enters into a contract on behalf of the Union of India in disregard of Article 299 (1) of the Constitution of India.

Question 3. “An agent is neither personally liable nor can he enforce the contract on behalf of the principal.” Comment.

Answer:

“An agent is neither personally liable nor can he enforce the contract on behalf of the principal.”

As per Section 230 of the Indian Contract Act, of 1872, in the absence of any contract to that effect an agent cannot personally enforce contracts entered Into by him on behalf of his principal, nor is he personally bound by them.

Such a contract shall be presumed to exist in the following cases:

1. Where the contract is made by an agent for the sale or purchase of goods for a merchant resident abroad or foreign principal.
2. Where the agent does not disclose the name of his principal or undisclosed principal; and
3. Where the principal, though disclosed, cannot be sued.

Question 4. Sunil borrowed a sum of 13 lakh from Rajendra. Sunil. appointed Rajendra as his agent to sell his land and authorized him to appropriate the amount of loan out of the sale proceeds. Afterwards, Sunil revoked the agency. Decide under the provisions of the Indian Contract Act, 1872 whether the revocation of the said agency by Sunil is lawful.

Answer:

An agency is terminated if the Principal revokes the authority of his agent. The Principal may revoke the authority of his agent at any time before the authority has been exercised to bind the Principal.

• However, as per Sec. 202 of the Indian Contract Act, 1872, the Principal cannot revoke his authority where the Agency Is coupled with interest.
• An agency is said to be coupled with interest when the object of creating an agency is to secure some benefit for the agent in addition to his remuneration as the agent.
• Thus, where the agent has an interest in the property which forms the subject matter of the agency, the agency cannot, in the absence of an express contract, be terminated to the prejudice of such interest.

Present Case: The revocation of agency by Sunil is not lawful. This is because here Rajendra (Agent) has himself an interest in the property (land) which forms the subject matter of the agency. Thus, this being a case of agency coupled with interest cannot be terminated by revocation of authority.

Question 5. Mr A. of Alwar engaged Mr S as his agent to buy a house. Mr. S bought a house for ₹ 40 lakhs in the name of a nominee and then purchased it himself for ₹ 44 lakhs. He then sold the same house to Mr. A for ₹ 46 lakhs. Mr. A later comes to know about the mischief of Mr. S and tries to recover the excess amount paid to Mr. S. Is he entitled to recover any amount from Mr, S? If so, how much? Explain.

Answer:

Provision:

The relationship of a Principal and his agent is of mutual trust and confidence. As per Sec. 215 of the Indian Contract Act, of 1872, the agent must not deal with his account.

Where an agent without the knowledge of the principal, deals in the business of the agency on his account, the principal may:

1. Repudiate the transaction, if the case shows, either that the agent has dishonestly concealed any material fact from him, or that the dealings of the agent have been disadvantageous to him.
2. Claim from the agent any benefit, which may have resulted to him from the transaction.

Present Case:

Mr. S, an agent of Mr. Alwar was appointed to buy a house for Mr. Alwar. However, he bought a house for ₹ 40 lakhs in the name of a nominee and then purchased it himself for ₹ 44 lakhs.

He then sold the same house to Mr Alwar for ₹ 46 lakhs. Later Mr. Alwar came to know about the mischief of Mr. S.

Hence, based on the provision of Sec. 215 (read with Sec. 216), Mr Alwar is entitled to recover ₹ 6 lakhs from Mr S, being the amount of profit earned by Mr S out of the said transaction

Question 6. ABC Ltd. sells its products through some agents and it is not the custom in their business to sell the products on credit. Mr. Pintu, one of the agents sold goods of ABC Ltd. to M/s. Parul Pvt. Ltd. (on credit) which was insolvent at the time of such sale. ABC Ltd. sued Mr Pintu for compensation towards the loss paused due to the sale of products to M/s. Parul Pvt. Ltd. Will ABC Ltd. succeed in its claim?

Answer:

Duty and obligation of an Agent

As per Sec. 211 of the Indian Contract Act 1872, an agent is bound to conduct the business of his principal according to the direction given by the principal, or, in the absence of any such directions.

According to the custom which prevails in doing business of the same kind at the place where the agent conducts such business. When the agent acts otherwise if any loss is sustained, he must make it good to his, principal, and, if any profit accrues, he must account for it.

Present Case:

• ABC Ltd. sells its products through some agents and it is not the custom in their business to sell the products on credit.
• Mr. Pintu, one of the agents sold goods of ABC Ltd. to M/s. Parul Pvt. Ltd. (on credit) which was insolvent at the time of such sale.
• ABC Ltd. sued Mr Pintu for compensation towards the loss caused by to the sale of products to M/s. Parul Pvt. Ltd.

Thus, ABC Ltd. will succeed in its claim as Mr. Pintu, the agent acted otherwise by not conducting the business according to the direction given by his principal.

Question 8. Rahul a transporter was entrusted with the duty of transporting tomatoes from a rural farm to a city by Aswin. Due to heavy rains, Rahul was stranded for more than two days. Rahul sold the tomatoes below the market rate in the nearby market where he was stranded fearing that the tomatoes may perish. Can Aswin recover the loss from Rahul on the ground that Rahul had acted beyond his authority?

Answer:

Agent’s authority in an emergency

As per Sec. 189 of the Indian Contract Act, 1872, an agent has authority, in an emergency, to do all such acts to protect his principal from loss as would be done by a person of ordinary prudence, in his case, under similar circumstances.

Present Case:

Rahul, the transporter, entrusted with the duty of transporting tomatoes, was stranded for more than two days due to heavy rains. Rahul sold the tomatoes below the market rate fearing that the tomatoes may perish.

Here Rahul acts in an emergency and acts as a man of ordinary prudence. Since Rahul acts in an emergency Aswin cannot recover the loss from Rahul on the ground that he has acted beyond his authority.

Question 9. Azar consigned electronic goods for sale to Aziz. Aziz employed Rahim a reputed auctioneer to sell the goods consigned to him through auction. Aziz authorized Rahim to receive the proceeds and transfer those proceeds once in 45 days. Rahim sold goods on auction for ₹ 2,00,000 but before transferring the proceeds of the auction, became insolvent. Assess the liability of Aziz according to the provisions of the Indian Contract Act, of 1872.

Answer:

Provision:

According to Section 195 of the Contract Act, of 1872, in selecting an agent (substituted) for his principal, an agent is bound to exercise the same amount of discretion as a man of ordinary prudence would exercise in his case.

• And, if he does this, he is not responsible to the principal for the acts or negligence of the agent so selected.
• Thus, while selecting a “substituted agent” the agent is bound to exercise the same amount of diligence as a man of ordinary prudence and if he does so he will not be responsible for acts or negligence of the substituted agent.
• Hence, according to the provisions of the Indian Contract Act, of 1872 where the consignee has discharged his duties as a man of ordinary prudence and diligence, he shall not be liable for any sum to the consignor.

Present Case:

In this case, Azar consigns goods to Aziz in due course employs an auctioneer in goods to sell goods of Azar and also allows him to receive the proceeds of the sale.

The auctioneer becomes insolvent afterwards without handing over the proceeds. So, Aziz will not be responsible to Azar as he has discharged his duties as a man of ordinary prudence and diligence.

Question 10. Bhupendra borrowed a sum of ₹ 3 lacs from Atul. Bhupendra appointed Atul as his agent to sell his land and authorized him to appropriate the amount of loan out of the sale proceeds. Afterwards, Bhupendra revoked the agency. Decide under the provisions of the Indian Contract Act, 1872 whether the revocation of the said agency by Bhupendra is lawful.

Answer:

As per Section 202 of the Indian Contract Act, of 1872, where the agent has himself an interest in the property which forms the subject matter of the agency, the agency cannot in the absence of an express contract, be terminated to the prejudice of such interest.

Present Case:

Bhupendra borrowed a sum of ₹ 3 lacs from Atul. Bhupendra appointed Atul as his agent to sell his land and authorized him to appropriate the amount of loan out of sale proceeds. Later. Bhupendra revoked the agency. So as per Section 202 revocation of the said agency by Bhupendra is unlawful.

Question 11. X has made an agency agreement with Y to authorize him to purchase goods on behalf of X for the year 2020 only. The agency agreement was signed by both and it contains all the terms and conditions for the agent. It has a condition that Y is allowed to purchase goods a maximum up to the value of ₹ 10 lakhs only. In April 2020. Y has purchased a single item of ₹ 12 lakhs from Z as an agent of X.
The market value of the item purchased was ₹ 14 lakhs but a discount of ₹ 2 lakhs was given by Z. Agent Y has purchased this item due to the heavy discount offered and the financial benefit to X.
After delivery of the item Z demanded the payment from X as Y is the agent of X.
But X denied making the payment stating that Y has exceeded his authority as an agent therefore he is not liable for this purchase. Z has filed a suit against X for payment.
Decide whether Z will succeed in his suit against X for recovery of payment as per provisions of The Indian Contract Act, of 1872.

Answer:

An agent does all acts on behalf of the principal but incurs no personal liability. The liability remains that of the principal unless there is a contract to the contrary.

• An agent also cannot personally enforce contracts entered into by him on behalf of the principal. In the light of section 226 of the Indian Contract Act, of 1872, the Principal is considered to be liable for the acts of agents which are within the scope of his authority.
• Further section 228 of the Indian Contract Act, of 1872 states that where an agent does more than he is authorised to do, and what he does beyond the scope of his authority cannot be separated from what is within it, the principal is not bound to recognise the transaction.
• In the given case, the agency agreement was signed between X and Y, authorizing Y to purchase goods maximum up to the value of ₹ 10 lakh. But Y purchased a single item of ₹ 12 lacks from Z as an agent of X at a discounted rate to financially benefit X.

On demand of payment by Z, X denied saying that Y has exceeded his authority therefore he is not liable for such purchase. Z filed a suit against X for payment.

• As said above, liability remains that of the principal unless there is a contract to the contrary. The agency agreement specifies the scope of authority of Y for the purchase of goods, however, he exceeded his authority as an agent.
• Therefore, in the light of section 228 as stated above, since the transaction is not separable, X is not bound to recognize the transaction entered between Z and Y, and therefore may repudiate the whole transaction.

Hence, Z will not succeed in his suit against X for recovery of payment.

Question 12. Explain whether the agency shall be terminated in the following cases under the provisions of the Indian Contract Act, of 1872:

1. A gives authority to B to sell A’s land, and to pay himself, out of the proceeds, the debts due to him from A’. Afterwards, A becomes insane.
2. A appoints B as A’s agent to sell A’s land. B, under the authority of A, appoints C as the agent of B. Afterwards, A revokes the authority of B but not of C. What is the status of the agency of C?

Answer:

1. Provision:

• According to Sec. 202 of the Indian Contract Act, 1872, where the agent has himself an interest in the property which forms the subject matter of the agency, the agency cannot, in the absence of an express contract, be terminated to the prejudice of such interest.
• In other words, when the agent is personally interested in the subject matter of the agency, the agency becomes irrevocable.

Present Case:

In the given question, A gives authority to B to sell A’s land; and to pay himself, out of the proceeds, the debts due to him ‘from A. As per the facts of the question and provision of law, A cannot revoke this authority, nor it can be terminated by his insanity.

2. According to Sec. 191 of the Indian Contract Act, 1872, a “Sub-agent” is a person employed by, and acting under the control of, the original agent in the business of the agency.

Sec. 210 further provides that, the termination of the authority of an agent causes the termination (subject to the rules regarding the termination of an agent’s authority) of the authority of all sub-agents appointed by him.

Present Case:

In the given question, B is the agent of A, and C is the agent of B. Hence, C becomes a sub-agent. Thus, when A revokes the authority of B (agent), it results in the termination of the authority of the sub-agent appointed by B i.e. C (sub-agent).

Question 13. A rented his house to B on lease for 3 years. The lease agreement is terminable on a 3-month notice by either party. C, the son of A, needing a separate house to live in, served a notice on B, without any authority, to vacate the house within a month and requested his father A to ratify his action. Examine whether it shall be valid for A to ratify the action of C taking into account the provisions of the Indian Contract Act, 1872.

Answer:

Provision:

As per Sec. 200 of the Indian Contract Act, 1872, an Act done by one person on behalf of another, without such other person’s authority, which if done with authority, would have the effect of subjecting a third person to damages, or of terminating any right or interest of a third person, cannot, by ratification by made to have such effect.

In other words, when the interest of third parties is affected, the principle of ratification does not apply. Ratification cannot relate to the date of the contract if a third party has in the intervening time acquired rights.

Present Case:

In this case, A rented his house to B on lease for three years. The lease agreement is terminable on three months’ notice by either party.

• C, the son of A, needing a separate house to live in, served a notice on B, without any authority, to vacate the house within a month and requested his father A to ratify his action.
• So, it shall not be valid for A to ratify the action of C. So C, son of A cannot make notice and ratify it from his father A, as he is not a party to the contract.

Question 14. Ramu has given authority to Prem to buy certain goods at the market rate. Prem buys the goods at a higher rate than the market rate, However, Ramu accepted the purchase despite the higher rate. Afterwards, Ramu comes to know that the goods purchased belonged to Prem himself. Decide, whether, Ramu is bound by ratification.

Answer:

As per Section 198 of the Indian Contract Act, 1 872, no valid ratification can be made by a person whose knowledge of the facts of the case is materially defective.

In this case, Ramu is not bound by ratification. If, however, Ramu is prepared to take the risk of what Prem has done, he can choose to ratify without full knowledge of the facts.

Question 15. Hari, authorises Bharat, a merchant in Mumbai, to recover dues from Bankey and Co., Bharat instructs Deepak, a solicitor, to take legal proceedings against Bankey and Co. for recovery of the money. Explain the legal position of Deepak, referring to provisions of the Indian Contract Act, of 1872, related to agency.

Answer:

As per Section 194 of the Indian Contract Act, 1 872, where an agent, holding an express, or implied authority to name another person to act for the principal in the business of the agency, has named another person accordingly.

Such a person is not a sub-agent but an agent of the principal for such part of the business of the agency as is entrusted to him. In this case, Deepak is not a sub-agent to Hari, but he is a solicitor for Hari.

Question 16. Mr. X owes Mr. Y ₹ 50,000. He (Mr X) afterwards appoints Mr Y as his agent to sell his Flat in Bangalore and after paying himself (i.e., Mr Y) what is due to him, hands over the balance to Mr X. Examine, as per the provisions of the Indian Contract Act, 1872rcan Mr X revoke his authority delegated to Mr Y?

Answer:

As per Sec. 202 of the Indian Contract Act 1872, an agency becomes irrevocable where the agent has himself an interest in the property which forms the subject matter of the agency, and such an agency cannot, in the absence of an express provision in the contract be terminated to prejudice of such interest.

The rule of agency coupled with interest applies and does not come to an end even on death, insanity or the insolvency of the principal.

Present Case: Mr. X owes Mr. Y ₹ 50,000. He (Mr X) afterwards appoints Mr Y as his agent to sell his flat in Bangalore and, after paying himself (Mr Y) what is due to him, hand over the balance to Mr X.

Conclusion: In the present case, the interest was created in favour of Mr, Y. So, Mr. X cannot revoke the authority delegated to Mr. Y.

Contract Of Indemnity And Guarantee Multiple Choice Question

Question 1. A contract of indemnity as a contract by which one party promises to save the other party from the loss caused to him by the conduct of the promisor himself or of any other person has been defined

1. Under Section 124
2. Under Section 123
3. Under Section 125
4. Under Section 126

Answer: 1. Under Section 124

Question 2. As perSection124 of the Indian Contract Act,1 872, a contract is a contract by which one party promises to save the other party from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person

1. Indemnity
2. Guarantee
3. Specific performance
4. Injunction

Answer: 1. Indemnity

Question 3. The person who promises to make a good loss is called as

1. Indemnified
2. Indemnity holder
3. Indemnifier
4. Surety

Answer: 3. Indemnifier

Question 4. The person whose loss is to be made good is called as

1. Indemnified
2. Indemnify holder
3. Indemnifier
4. (1) or (2)

Answer: 4. (1) or (2)

Question 5. As per Section 125 of the Indian Contract Act, 1872, the Indemnity-holder acting within the scope of.his authority is entitled to recover:

1. All damages which he may be compelled to pay in any suit in respect of any matter to which the promise to indemnify applies.
2. All costs for defending or bringing any suit if worked as a prudent person.
3. All sums which he may have paid under the terms of any compromise of any such suit.
4. All of the above.

Answer: 4. All of the above.

Question 6. A and B go into a shop. A says to the shopkeeper, “Let B have the goods, I will see you paid. This is:

1. Contract of guarantee
2. Contract of Indemnity
3. Contract of Specific performance
4. Contract of wagering

Answer: 2. Contract of Indemnity

Question 7. A contract of guarantee has been defined

1. Under Section 123
2. Under Section 124
3. Under Section 125
4. Under Section 126.

Answer: 4. Under Section 126.

Question 8. Surety is a person

1. In respect of whose default the guarantee is given
2. Who gives the guarantee
3. To whom the guarantee is given.
4. None of the above.

Answer: 2. Who gives the guarantee

Question 9. A creditor is a person

1. To whom the guarantee is given
2. Who gives the guarantee
3. In respect of whose default the guarantee is given
4. None of the above.

Answer: 1. To whom the guarantee is given

Question 10. A guarantee

1. Has to be in writing
2. Can be oral
3. Can be oral or in writing
4. Neither (1) nor (2)

Answer: 3. Can be oral or in writing

Question 11. A valid guarantee can be given

1. Only if there is no principal debt
2. Only if there is a principal debt
3. Irrespective of any debt
4. Both (1) and (2)

Answer: 2. Only if there is a principal debt

Question 12. A guarantee to be valid

1. Can only be of a present debt
2. Can be of past debt if some further debt is incurred after the guarantee
3. Can be future debt if some debt is incurred after the guarantee
4. All the above.

Answer: 4. All the above.

Question 13. Which of the following is a valid guarantee

1. Guarantee of a minor’s debt
2. Guarantee of a debt of a company acting ultra vires in obtaining the loan
3. Both (1) and (2)
4. Neither (1) nor (2)

Answer: 1. Guarantee of a minor’s debt

Question 14. Under a contract of guarantee

1. If the principal debtor is not liable, the guarantor is not liable
2. If principal debtors are not liable, the guarantor is liable
3. If the principal debtor is liable, the guarantor is liable
4. All the above.

Answer: 3. If the principal debtor is liable, the guarantor is liable

Question 15. In a contract of guarantee

1. There are two parties and one contract
2. There are two parties and two contract
3. There are three parties and three contracts
4. None of the above

Answer: 3. There are three parties and three contracts

Question 16. A contract_______ is a contract to perform the promise made or discharge liability incurred by a third person in case of his default.

1. Indemnity
2. Guarantee
3. Specific performance
4. Injunction

Answer: 2. Guarantee

Question 17. The person on whose behalf the guarantee is given is called________.

1. Surety
2. Principal debtor
3. Creditor
4. Indemnity holder

Answer: 2. Principal debtor

Question 18. The person who gives the guarantee is called _________

1. Surety
2. Principal debtor
3. Creditor
4. Indemnity holder.

Answer: 1. Surety

Question 19. The person to whom the guarantee is given is called as

1. Surety
2. Principal debtor
3. Creditor
4. Indemnity holder.

Answer: 3. Creditor

Question 20. A and B go into a shop. A ways to the shopkeeper, “Let B have the goods and if he does not pay, I will. This is _________.

1. Contract of guarantee
2. Contract of Indemnity
3. Contract of Specific performance
4. Contract of wagering.

Answer: 1. Contract of guarantee

Question 21. There are ________ to the contract of indemnity while there are ________ to the contract of guarantee.

1. Three parties, two parties
2. Two parties, three parties
3. Two parties, four parties
4. Four parties, two parties

Answer: 2. Two parties, three parties

Question 22. The liability of the indemnifier is

1. Primary
2. Collateral
3. Secondary
4. 2 or 3

Answer: 1. Primary

Question 23. Liability of the surety is

1. Conditional on default
2. Independent of default
3. Can be conditional and can be independent
4. Either (1) or (2)

Answer: 1. Conditional on default

Question 24. The liability of the surety

1. Is co-extensive with that of the principal debtor
2. Extends to the whole of the amount for which the principal debtor is liable
3. Both (1) and (2)
4. Neither (1) nor (2).

Answer: 1. Is co-extensive with that of the principal debtor

Question 25. Under the contract of guarantee, the liability of the surety

1. Can be limited
2. Cannot be limited and has to extend to the whole of the amount due from the principal debtor
3. Can be extended to penalties also
4. Both (2) and (3).

Answer: 2. Cannot be limited and has to extend to the whole of the amount due from the principal debtor

Question 26. The liability of the surety is

1. Primary
2. Collateral
3. Secondary
4. (2) or (3)

Answer: 4. (2) or (3)

Question 27. The liability of the surety is co-extensive with that of the principal debtor unless the contract otherwise provides.

1. True
2. False
3. Partly true
4. None of the above

Contract Of Indemnity And Guarantee 1. True

Question 28. A surety is a favored debtor.

1. True
2. False
3. Partly true
4. None of the above.

Answer: 1. True

Question 29. On payment of a guaranteed debt surety is subrogated all the rights of _________.

1. Creditor
2. Principal debtor
3. Other co-surety
4. None of the above

Answer: 1. Creditor

Question 30. On being sued by the creditor, the surety can rely on any ________ which the debtor has against the creditor.

1. Set-off
2. Counterclaim
3. Set-off or counterclaim
4. None of the above

Answer: 3. Set-off or counterclaim

Question 31. A guarantee which extends to a series of transactions under section 129 is called

1. A guarantee
2. A continuing guarantee
3. An invalid guarantee
4. A conditional guarantee.

Answer: 2. A continuing guarantee

Question 32. A continuing guarantee applies to

1. A specific transaction
2. A specific number of transactions
3. Any number of transactions
4. Reasonable number of transactions.

Answer: 3. Any number of transactions

Question 33. A continuing guarantee under section 130 is

1. Revocable absolutely
2. Irrevocable absolutely
3. Revocable as regards future transaction
4. Either (1) or (2).

Answer: 3. Revocable as regards future transaction

Question 34. The liability of the surety on his death under section 131 in case of continuing guarantee

1. Is terminated absolutely
2. Does not stand terminated as regards past transaction
3. Stands terminated as regards the future transaction
4. Both (2) and (3).

Answer: 4. Both (2) and (3).

Question 35. When guaranteeing extends to a single transaction it is known as

1. Continuing guarantee
2. Specific guarantee
3. Unlimited guarantee
4. Fidelity guarantee.

Answer: 2. Specific guarantee

Question 36. When a guarantee extends to a series of transactions it is called a

1. Continuing guarantee
2. Specific guarantee
3. Unlimited guarantee
4. Fidelity guarantee.

Answer: 1. Continuing guarantee

Question 37. A specific guarantee is

1. Irrevocable
2. Revocable
3. (1) or (2)
4. None of the above

Answer: 1. Irrevocable

Question 38. A continuing guarantee _______ for the transaction which has already taken place.

1. Cannot be revoked
2. Can be revoked
3. Cannot be performed
4. None of the above

Answer: 2. Can be revoked

Question 39. A continuing guarantee may be revoked by the surety at any time, as to ______ by notice to the creditor.

1. Future transactions
2. Past transactions
3. Existing transactions
4. None of the above

Answer: 1. Future transactions

Question 40. In which of the following circumstances continuing guarantee can be revoked?

1. By notice of revocation by the surety
2. By the death of the surety
3. Both (1) and (2)
4. None of the above

Answer: 3. Both (1) and (2)

Question 41. The surety stands discharged

1. By revocation
2. By death
3. By variance in terms of the contract without his consent
4. In (1), (2) and (3) above.

Answer: 4. In (1), (2) and (3) above.

Question 42. Under the contract of guarantee a creditor

1. Has to avail his remedies first against the principal debtor
2. Can avail his remedies against the principal debtor as well as the surety
3. Can avail his remedy against the surety alone
4. Both (2) and (3).

Answer: 4. Both (2) and (3).

Question 43. Surety stands discharged

1. By an agreement between the creditor and the principal debtor
2. By an agreement between the creditor and a third party for not to sue the principal debtor
3. Both (1) and (2) above
4. Neither (1) nor (2).

Answer: 3. Both (1) and (2) above

Question 44. A surety may be discharged from liability

1. By notice of revocation in case of a continuing guarantee as regards, future transaction
2. By the death of the surety as regards future transactions, in a continuing guarantee
3. Any variation in the terms of the contract between the creditor and the principal debtors without the consent of the surety.
4. All of the above.

Answer: 4. All of the above.

Question 45. A surety may be discharged from liability.

1. If the creditor releases the principal debtor, acts, or makes an omission that results in the discharge of the principal debtor
2. Where the creditor, without the consent of the surety, makes an arrangement with the principal debtor for composition, or promises to give time or not to sue him, the surety will be discharged.
3. If the creditor does any act that is against the rights of the surety or omits to do an act that his duty to the surety requires him to do, the eventual remedy of the surety himself against the principal debtor is thereby impaired
4. All of the above

Answer: 4. All of the above

Question 46. On payment or performance of the liability the surety

1. Is invested with all the rights the creditor had against the principal debtor.
2. Is entitled to the very security that the creditor has against the principal debtor.
3. Is entitled to be indemnified by the principal debtor
4. All of the above

Answer: 4. All of the above

Question 47. A surety is entitled to be indemnified by the principal debtor

1. In respect of a sum rightfully paid
2. In respect of a sum wrongfully paid
3. In respect of a sum paid rightfully or wrongfully
4. All of the above.

Answer: 1. In respect of a sum rightfully paid

Question 48. Under Section 146, the co-sureties are liable to contribute

1. Equally
2. Unequally
3. According to their capacity
4. Either (1) or (2) or (3)

Answer: 1. Equally

Question 49. If the co-sureties are bound in different sums, they are liable to pay

1. Equally subject to the limit of their respective obligation
2. Equally without any limit
3. Equally irrespective of their obligation but subject to the limit
4. Either (2) or (3).

Answer: 1. Equally subject to the limit of their respective obligation

Question 50. Surety on payment or performance of his liability, against the principal debtor

1. Has the right of subrogation
2. Has rights like creditors have against the principal debtor.
3. Both (1) and (2)
4. Either (1) or (2).

Answer: 3. Both (1) and (2)

Question 51. Under Section 141 a surety is entitled to the benefit of every security which the creditor has against the principal debtor at the time when the contract of suretyship is entered into whether the surety knows of the existence of such security or not.

1. False
2. True
3. Partly true
4. None of the above.

Answer: 2. True

Question 52. After discharging the debt, the surety

1. Steps into the shoes of the creditor
2. Is subrogated to all the rights of the creditor against the principal debtor
3. Both (1) and (2)
4. None of the above.

Answer: 2. Is subrogated to all the rights of the creditor against the principal debtor

Question 53. When a surety has paid more than his share of debt to the creditor, he has a right to contribute from the co-securities who are equally bound to pay with him.

1. False
2. True
3. Party true
4. None of the above

Answer: 2. True

Question 54. A, B, and C jointly promise to pay D the sum of ₹ 3,000. C is compelled to pay the whole. A is insolvent but his assets are sufficient to pay one-half of his debts. How much is C entitled to receive from A’s estate and how much B?

1. C is entitled to receive ₹ 500 from A’s estate and ₹ 1,250 from B.
2. C is entitled to receive ₹ 1,250 from A’s estate and ₹ 500 from B.
3. C is entitled to receive ₹ 1,000 from A’s estate and ₹ 1,000 from B.
4. C is entitled to receive ₹ 500 from A’s estate and ₹ 1,000 from B.

Answer: 1. C is entitled to receive ₹ 500 from A’s estate and ₹ 1,250 from B.

Contract Of Indemnity And Guarantee Distinguish Between

Question 1. Distinguish between ‘Contract of Indemnity’ and ‘Contract of Guarantee’.

Answer:

Difference between ‘Contract of Indemnity’ and ‘Contract of Guarantee’.

Contract Of Indemnity And Guarantee Descriptive Questions

Question 1. What are the Rights of surety against the Principal debtor and co-sureties?

Answer:

Rights of a surety against the principal debtors :

1. Right of Subrogation [Section 140]: After making a payment and discharging the liability of the principal debtor, the surety takes over all the rights of the creditors, which he can himself exercise against the principal debtors.

This right of surety is called the right of subrogation. In this way, surety steps in the shoes of the creditors. The surety becomes liable to receive all the remedies that the creditors would have enforced not only against the principal debtor but also against all the persons claiming against him.

2. Right of indemnity [Section 141]: There is an implied promise to indemnify the surety between the surety and the principal debtor. This to Section 145, the surety is entitled to recover from the principal debtor whatever sum he has correctly paid under the guarantee.

The surety can recover the actual amount and interest from the creditor. It is so because the surety is entitled to full indemnification.

Right against co-sureties: When two or more sureties are guaranteed for debtors, they are called co-sureties. The rights are.

1. Right to share security gained from the creditor
2. Act to Sec. 146, the liability of co-sureties to contribute equally if there is no contract to the contrary.
3. Liability for equal limit (Sec. 1 47) where different sums are guaranteed by the co-sureties, they have to contribute to the maximum at guarantees by anyone.

Question 2. Examine the validity of the following statements under the provisions of the Indian Contract Act, of 1872. The creditor should proceed with legal action first against the Principal Debtor and later against the surety.

Answer:

This statement is not valid

The creditor has a right to sue the surety directly without first proceeding against the principal debtor.

Question 3. Examine the validity of the following statements under the provisions of the Indian Contract Act, 1 872. A guarantee which extends to a single debt 7 specific transaction is called a continuing Guarantee.

Answer:

This statement is not valid. A guarantee which extends to a single debt or specific transaction is called a specific guarantee.

Question 4. ‘Amit’ stands surety for ‘Bikram’ for any amount which ‘Chander’ may lend to ‘Bikram’ from time to time during the next three months subject to a maximum amount of ₹ 1,00,000 (one lakh only). One month later ‘Amit’ revokes the surety, when ‘Chander’ had already lent to ‘Bikram’ ₹ 10,000 (ten thousand). Referring to the provisions of the Indian. Contract Act, 1872. Decide:

1. Whether ‘Amit’ discharged from all the liabilities to ‘Chander’ for any subsequent loan given to ‘Bikram’?
2. What would be your answer in case ‘Bikram’ makes a default paying back to ‘Chander’ the already borrowed amount of ₹ 10,000?

Answer:

The problem as asked in the question depends on Qn the provisions of the Indian Contract Act, 1872 as contained in Section 130. The section relates to the revocation of continuing guarantees as to future transactions which can be done in any of the two ways :

1. By notice: By notice to the creditor, the continuing guarantee can be revoked at any time by the surety as to future transactions.
2. By the death of surety: Regarding the future transaction the death of the surety operates, in the absence of any contract to the contrary, as a revocation.

The liability of the surety remains the same for the previous transactions. Thus by using the above rule in the question, A is discharged from all the liabilities to C for any subsequent loan.

In the second case, the answer will change that is A will be liable to C for ₹ 10,000/35,000 on default of B because the loan was taken before the notice of revocation was given to C.

Question 5. ‘A’ gives to ‘M’ a continuing guarantee to the extent of Contract Of Indemnity And Guarantee 8,000 for the fruits to be supplied by ‘M’ to ‘S’ from time to time on credit. Afterward, ‘S’ became embarrassed and without the knowledge of ‘A’, ‘M’, and ‘S’ contract that ‘M’ shall continue to supply ‘S’ with fruits for ready. money and that payments shall be applied to. the then existing debts between ‘S’ and ‘M’. Examining the provision of the Indian Contract Act, of 1872, decide whether ‘A’ is liable for his guarantee given to ‘M’.

Answer:

Provision:

Variance in terms and composition with Principal Debtor. (Sec. – 133 and Sec. – 135 of the Indian Contract Act, 1872):

Provision:

According to Sec. 133, where there is any variance in the terms of the contract between the principal debtor and creditor without surety’s consent it would discharge the surety in respect of all transactions taking place after such variance. On the other hand.

Sec. 135 provides that, if the creditor makes a settlement with the principal debtor, the surety is discharged if the consent of surety is not obtained.

Present Case:

Hence, in the first instance, since S and M have varied the terms of the ‘ contract, without A’s consent, it has discharged A from all the transactions taking place after such variation under Sec. 133.

• In the second instance, S and M have made a settlement that the further. supply of vegetables will be for cash and the payment shall be applied to the existing debts without the consent of A.
• Hence, A is discharged in respect of all the transactions taking place after the variation in the terms of the contract. However, A will remain liable on his guarantee given to M for the existing debts i.e. if S is unable to settle off the debts existing before the variation, the liability of A will arise.

Question 6. Mr. D was in urgent need of money amounting ₹ 5,00,000. He asked Mr. K for the money. Mr. K lent the money on the sureties of A, B, and N without any contract between them in case of default in repayment of money by D to K. D defaulted in payment. B refused to contribute, examine whether B can escape liability.

Answer:

Co-sureties are liable to contribute equally:

As per Sec. 146 of the Indian Contract Act, 1872, when two or more persons are co-sureties for the same debt or duty either jointly, or severally and whether under the same or different contracts and whether with or without the knowledge of each other.

The co-sureties in the absence of any contract to the contrary, are liable, as between themselves to pay each an equal share of the whole debt, or of that part of it which remains unpaid by the principal debtor.

Present Case:

A, B, and N are co-sureties without any contract between them. D makes a default in payment. B refused to contribute. As per the provision, B can not escape liability and has to pay equally -With A and N.

Question 7. Mr. Chetan was appointed as Site Manager of ABC Constructions Company on a two-year contract at a monthly salary of ₹ 50,000. Mr. Pawan gave a surety in respect of Mr. Chetan’s conduct. After six months the company was not in a position to pay ₹ 50,000 to Mr. Chetan because of financial constraints. Chetan agreed to a lower salary of ₹ 30,000 from the company. This was not communicated to Mr. Pawan. Three months afterwards it was discovered that Chetan had been doing fraud since the time of his appointment. What is the liability of Mr. Pawan during the whole duration of Chetan’s Appointment?

Answer:

Provision:

As per Sec. 133 of the Indian Contract Act, 1872, if the creditor makes any variance (i.e. change in terms) without the consent of the surety, then surety is discharged with as to the transactions after the change.

Present Case:

In the instant case, Mr. Pawan is liable as a surety for the loss suffered by the company due to fraud by Mr. Chetan during the first six months but not for fraud committed after the salary reduction.

• Mr. Pawan will thus be liable as a surety for the act of Mr. Chetan before the change in the terms of the contract i.e., during the first six months.
• Variation in the terms of the contract (as to the reduction of salary) without consent of Mr. Pawan, will discharge Mr. Pawan from all the liabilities towards the act of Mr. Chetan after such variation.

Question 8. Manoj guarantees Ranjan, a retail textile merchant, an amount of ₹ 1,00,000, for which Sharma, the supplier may from time to time supply goods on a credit basis to Ranjan during the next 3 months.

After 1 month, Manoj revoked the guarantee, when Sharma supplied goods on credit for ₹ 40,000. Referring to the provisions of the Indian Contract Act, of 1872, decide whether Manoj is discharged from all the liabilities to Sharma for any subsequent credit supply. What would be your answer in case Ranjan makes a default in paying back Sharma for the goods already supplied on credit i.e. ₹ 40,000?

Answer:

Provision:

As per Sec. 130 of the Indian Contract Act, 1872, the continuing guarantee may at any time be revoked by the surety as to future transactions by notice to the creditors.

Sec. 129 of the Indian Contract Act, 1872, a continuing guarantee means a guarantee which extends to a series of transactions is called a continuing guarantee. The essence of a continuing guarantee is that it applies not to a specific number of transactions but any number of transactions and makes the surety liable for the unpaid balance at the end of the guarantee.

Present Case:

In this case, Manoj guarantees Ranjan, an amount of ₹ 1,00,000 for which Sharma, the supplier may from time to time supply goods on a credit basis to Ranjan during the next 3 months, so as per provision of Section 130, it is a continuing guarantee.

• Further, after 1 month, Manoj revoked the guarantee, when Sharma supplied goods on credit for ₹ 40,000. So as per the above provisions of Section 130 of the Indian Contract Act, 1872, Manoj is discharged from all the liabilities to Sharma for any subsequent credit supply.
• However, if Ranjan makes any defaults in paying back to Sharma for the goods already supplied on credit i.e. ₹ 40,000, Manoj is liable to Sharma for ₹ 40,000.

Question 9. Aarthi is the wife of Naresh. She purchased some sarees on credit from M/s Rainbow Silks, Jaipur. M/s Rainbow Silks, Jaipur demanded the amount from Naresh. Naresh refused. M/s Rainbow Silks, Jaipur filed a suit against Naresh for the said amount. Decide in the light of provisions of the Indian Contract Act, 1872, whether M/s Rainbow Silks, Jaipur would succeed.

Answer:

Provision:

As per the provisions of the Indian Contract Act, 1 872, if a person permits or represents another to act on his behalf so that a reasonable person would infer that the relationship of principal and agent had been created then he will be stopped from denying his agent’s authority and getting himself relieved from his obligation to a third party by proving that no such relationship exist.

However, where, a married woman lives with her husband, there is a presumption that she has the authority to pledge his credit for necessaries.

But the legal presumption can be rebutted in the following cases:

1. Where the goods purchased on credit are not necessary.
2. Where the wife is given sufficient money for purchasing necessaries.
3. Where the wife is forbidden from purchasing anything on credit or contracting debts.
4. Where the trader has been expressly warned not to give credit to his wife.

If the wife lives apart for no fault on her part, the wife has the authority to pledge her husband’s credit for necessities. This legal presumption can be rebutted only in cases (3) and (4) above.

In this case, Aarthi, wife of Naresh purchased some Sarees on credit from M/s. Rainbow silks of Jaipur. Upon non-payment of the amount, Naresh will be held personally liable for these dues as per the above provisions. So, the suit was filed by M/s. Rainbow silks against Naresh on the refusal by Naresh for payment would succeed.

Question 10. ‘C’ advances to ‘B’ ₹ 2,00,000 on the guarantee of ‘A’. ‘C’ has also taken further security for the same borrowing by mortgage of B’s furniture worth ₹ 2,00,000 without knowledge of ‘A’. ‘C’ cancels the mortgage. After 6 months ‘B’ becomes insolvent and ‘C’ sues ‘A’ on his guarantee. Decide the liability of ‘A’ if the market value of furniture is worth ₹ 80,000, under the Indian Contract Act, of 1872.

Answer:

As per Section 141 of the Indian Contract Act, 1872, a surety is entitled to the benefit of every security which the creditor has against the principal debtors at the time when the contract of surety-ship is entered into, whether the surety knows of the existence of such security or not; and if the creditor loses, or without the consent of the surety, parts with such security, the surety is discharged to the extent of the value of the security.

Present Case:

In this case, C advances to B ₹ 2,00,000 on the guarantee that A – C has also taken further security for the same borrowing by mortgage of B’s furniture worth ₹ 2,00,000 without knowledge of A – C cancels the mortgage. After 6 months B becomes insolvent and C sues A on his guarantee. So as per the above provisions, A is discharged from his liability to the amount of furniture worth ₹ 80,000 and will remain liable for the balance ₹ 1,20,000.

Question 11.

1. Mr. CB was invited to guarantee an employee Mr. BD who was previously dismissed for dishonesty by the same employer. This fact was not told to Mr. CB. Later on, the employee embezzled funds. Whether CB is liable for the financial loss as surety under the provisions of the Indian Contract Act, of 1872?
2. Mr. X agreed to give a loan to Mr. Y on the security of four properties. Mr. A gave a guarantee against the loan. Mr. X gave a loan of a smaller amount on the security of three properties. Whether Mr. A liable as surety in case Mr. Y fails to repay the loan?

Answer:

1. Provision:

As per section 143 of the Indian Contract Act, of 1872, any guarantee which the creditor has obtained through keeping silent as to material circumstances, is invalid.

Present Case:

In the given case, Mr. CB was invited to Guarantee an employee Mr. BD who had previously been dismissed for dishonesty by the same employer. This fact was not told to Mr. CB later on the employee embezzled funds. So as per the above-mentioned provision, CB is not liable for the financial loss as a surety.

2. Provision:

As per the provisions of Section 133 of the Indian Contract Act, 1872, any variance, made without the surety’s consent, in the terms of the contract between the principal [the debtor] and the creditor, discharges the surety as to transactions after the variance.

In the given instance, the actual transaction was not in terms of the guarantee given by Mr. A. The loan amount as well as the securities were reduced without the knowledge of the surety. So, accordingly, Mr. A is not liable as a surety in case Y fails to repay the loan.

Question 12. Satya has given his residential property on rent amounting to ₹ 25,000 per month to Tushar. Amit became the surety for payment of rent by Tushar. Subsequently, without Arnif’s consent, Tushar agreed to pay higher rent to Satya. After a few months of this, Tushar defaulted on paying the rent.

1. Explain the meaning of contract of guarantee according to the provisions of the Indian Contract Act, 1872.
2. State the position of Amit in this regard.

Answer:

1. Contract of guarantee: As per the provisions of section 126 of the Indian Contract Act, 1872, a contract of guarantee is a contract to perform the promise made or discharge the liability, of a third person in case of his default.

These parties are involved in a contract of guarantee:

Surety– a person who gives the guarantee,

Principal debtor– person In respect of whose default the guarantee is given,

Creditor– person to whom the guarantee is given

2. Provision:

According to the provisions of section 133 of the Indian Contract Act, of 1872, where there is any variance in the terms of the contract between the principal debtor and creditor without surety’s consent, it would discharge the surety in respect of all transactions taking place after such variance.

Present Case:

In the instant case, Satya (Creditor) cannot sue Amit (Surety), because Amil is discharged from liability when, without his consent, Tushar (Principal debtor) has changed the terms of his contract with Satya (creditor). It is immaterial whether the variation is beneficial to the surety or does not materially affect the position of the surety.

Question 13. Paul (a minor) purchased a smartphone on credit from a mobile dealer on the surety given by Mr. Jack, (a major). Paul did not pay for the mobile. The mobile dealer demanded payment from Mr. Jack because the contract entered with Paul (minor) was void. Mr. Jack argued that he is not liable to pay the amount since Paul (Principal Debtor) is not liable. Whether the argument is correct under the Indian Contracts Act, of 1872? What will be your answer if Jack and Paul both are minor?

Answer:

1. As per the provision of the contract of guarantee, any surety who is not a minor can be a competent party to the contract where the contract for the sale of goods is made with the minor party.
2. In this case, Mr. Jack who is a major has given surety for payment of a mobile to the seller, if the buyer who is a minor has failed to make payment.
3. In line with the provisions, Mr. Jack’s argument is not correct, he is liable to pay the amount of sale to the mobile dealer.
4. If all the parties to the contract are minor, then the agreement of guarantee is void because Mr, Jack who is the surety to the contract is minor.

Question 14. Due to the urgent need for money amounting to ₹ 3,00,000, Pawan approached Raman and asked him for the money. Raman lent the money on the guarantee of Suraj, Tarun, and Usha. However, there is no contract between Suraj, Tarun and Usha. Pawan defaults in payment and Suraj pays the full amount to Raman. Suraj, afterward, claimed contributions from Tarun and Usha. Tarun refused to contribute on the basis that there was no contract between Suraj and him. Examine referring to the provisions of the Indian Contract Act, of 1872, whether Tarun can escape from his liability.

Answer:

Equality of burden is the basis of Co-suretyship. This is contained in section 146 of the Indian Contract Act, 1872, which states that “when two or more persons are co-sureties for the same debt, or duty, either jointly, or severally and whether “under the same or different contracts and whether with or without the knowledge of each other.

• The co-sureties in the absence of any contract to the contrary, are liable, as between themselves, to pay each an equal share of the whole debt, or of that part of it which remains unpaid by the principal debtor”.
• Accordingly, on the default of Pawan in payment, Tarun cannot escape from his liability. All three sureties Suraj, Tarun, and Usha are liable to pay equally, in the absence of any contract between them.

Question 15. Shyam, at the request of Govind, sells goods that were, in the possession of Govind. However, Govind had no right to dispose of such goods. Shyam did not know this and handed over the proceeds of the sale to Govind. Afterward, Manohar, who was the true owner of the goods, sued Shyam and recovered the value of the goods. In light of the provisions of the Indian Contract Act, of 1872, answer the following questions:

1. Is Govind liable to indemnify Shyam for his payment to Manohar?
2. What will be the liability of Govind if the goods is a prohibited drug?

Answer:

According to Sec. 178 of the Indian Contract Act, of 1872, where a mercantile agent is. with the consent of the owner, in possession of goods or the documents of title to goods, any pledge made by him.

When acting in the ordinary course of business of a mercantile agent, shall be as valid as if he were expressly authorized by the owner of the goods to make the same:

Provided that the pawnee acts in good faith and has not at the time of the pledge notice that the Pawnor has no authority to pledge. it is also to be noted that:

1. The possession of goods must be with the consent of the owner. If possession has been obtained dishonestly or by a trick, a valid pledge cannot be effected.
2. The pledgee should have no notice of the pledger’s defect of title. If the c edge knows that the pledger has a defective title, the pledge will not be valid.

Present Case:

1. Shyam had no notice of the Govind’s defect of title. He acted in the ordinary course of business of a mercantile agent considering Govind as owner of the good and genuinely handed over the proceeds of the sale to him. Therefore, the transaction is invalid. Thus. Govind shall be liable to indemnify Shyam for his payment to Manohar.
2. Govind shall not be liable to indemnify Shyam as selling prohibited drugs is a prohibited act and against public policy.

Question 16. Alpha Motor Ltd. agreed to sell a bike to Ashok under a purchase agreement on the guarantee of Abhishek. The Terms were: purchase price ₹ 96,000 payable in 24 monthly Installments of ₹ 8,000 each. Ownership is to be transferred on the payment of the last Installment. State whether Abhishek is discharged in each of the following alternative cases under the provisions of the Indian Contract Act, of 1872:

1. Ashok paid 12 installments but failed to pay the next two installments. Alpha Motor Ltd. sued Abhishek for the payment of arrears and Abhishek paid these two installments i.e. 13^th and 14^th. Abhishek then gave a notice to Alpha Motor Ltd. to revoke his guarantee for the remaining month.
2. If after 15^th Month, Abhishek died due to COVID-19.

Answer:

According to Sec. 130 of the Indian Contract Act, 1872, the continuing guarantee may at any time be revoked by the surety as to future transactions by notice to the creditors.

Once the guarantee is revoked, the surety is not liable for any future transaction however he is liable for all the transactions that happened before the notice was given. A specific guarantee can be revoked only if liability to the principal debtor has not accrued.

Present Case:

1. Ashok paid 12 installments (out of a total of 24 monthly installments) but failed to pay the next two installments. Abhishek (guarantor) paid the 13th and 14th installments but then he revoked the guarantee for the remaining months. Thus, Abhishek is not liable for installments that were made after the notice, but he is liable for installments made before the notice (which he had paid i.e. 13th and 14th installments).
2. According to Sec. 131 of the Indian Contract Act, 1872, in the absence of any contract to the contrary, the death of surety operates as a revocation of a continuing guarantee as to the future transactions taking place after the death of surety. However, the surety’s, estate remains liable for the past transactions that have already taken place before the death of the surety.

In the given question, Abhishek (guarantor) died after the 15^th month. This will operate as a revocation of a continuing guarantee as to the future transactions taking place after the death of surety (i.e. Abhishek). However, Abhishek’s estate remains liable for the past transactions (i.e. 15^th month and before) which have already taken place before the death of the surety.

Question 17. Examine the validity of the following statements under the provisions of the Indian Contract Act, of 1872. Variation which is not material and beneficial to the surety will not discharge him of his liability.

Answer:

This statement is valid

Based on the principle held in the M S Anirudhan v Thomco’s Bank Ltd. AIR 1963 SC 746 that the surety’s liability will not be discharged where the alteration is beneficial to him and is not substantial.

Question 18. Manish, a minor, lost his parents in the COVID-19 pandemic Due to poor financial background Manish was facing difficulties in maintaining his livelihood. He approached Mr Sohel (a grocery shopkeeper) to supply him with grocery items and to wait for some period to receive his dues. Mr. Sohel did not agree with the proposal; but when Mr. Ganesh, a local person, who is a major, agreed to provide a guarantee that he would pay the dues in case Manish failed to pay the amount, Mr. Sohel supplied the required groceries to Manish. After a few months when Manish failed to clear his dues, Mr. Sohel approached Mr. Ganesh and asked him to clear the dues of Manish. Mr. Ganesh refused to pay the amount on two grounds; firstly, that there was no consideration in the contract of guarantee and secondly that Manish is a minor and therefore on both grounds the contract of guarantee is not valid. Referring to the relevant provisions of the Indian Contract Act, 1 872, decide, whether the contention of Mr. Ganesh, (the surety) is tenable. Will your answer differ in case both Manish (the principal debtor) and Mr. Ganesh (the surety) are minors?

Answer:

As per Section 127 of the Indian Contract Act, 1872, consideration received by the principal debtor is sufficient consideration to the surety for giving the guarantee.

• Even if the Principal debtor is incompetent to contract, the guarantee is invalid.
• But, if the surety is incompetent to the contract, the guarantee is void.

Present Case: Manish, a minor lost his parents in the COVID-19 Pandemic. He was facing financial difficulties Manish approached Sohel (a grocery shopkeeper) to supply him with grocery items and to wait for some period to receive his dues.

• Mr. Sohel did not agree. when Mr Ganesh, a major, agreed to provide a guarantee that he would pay the dues in case Manish failed to pay the amount. Mr Sohel supplied the required groceries to Manish.
• After a few months, when Manish failed to clear his dues, Mr Sohel approached Mr Ganesh and asked him to clear the dues Mr Ganesh refused to pay the amount on two grounds.
• Firstly, there was no consideration in the contract of guarantee, and secondly that Manish is a minor therefore, on both grounds, the contract of guarantee is invalid.

Conclusion: In the present case, the contention of Mr Ganesh is not tenable. Mr. Ganesh cannot refuse Mr. Sohel to clear to dues of Manish. Even if Manish (Principal debtor) is a Minor, the contract of guarantee will be valid.

If Manish and Ganesh were both minors, then the contract of Guarantee would be invalid as Mr. Ganesh is a surety, and if a surety is a minor, the contract of guarantee is invalid.

Breach Of Contract And Its Remedies Self-Study Questions

Question 1. What is a Breach of Contract?

Answer:

Breach of Contract

Breach of contract means failure of a party to perform his obligations.

Consequences of Breach:

• It discharges the aggrieved party from performing his obligations.
• The aggrieved party is entitled to proceed against the party at fault.

Question 2. How Many Types of Breach of Contracts are there?

Answer:

Types of Breach of Contracts

Question 3. How Many Types of Actual Breach of Contracts are there?

Answer:

Actual Breach of Contract:

Question 4. Describe the Suit for Damages.

Answer:

Suit for damages:

• As per Section 73, when a contract is broken, the party at loss or damage from the breach is entitled to receive from the party at fault, compensation for the loss suffered by him.
• The loss or damage should have
  • Arose naturally in the usual course of things from such breach or
  • Which the parties know to be the likely result of such a breach.
• No compensation, for any remote or indirect loss.

Question 5. What Kind of Damages may be Awarded in Case of Breach of Contract?

Answer:

Kinds of  Damages may be Awarded in Case of Breach of Contract

1. General or Ordinary Damages:
   • It helps put the injured party in the position that he would have been in if the contract had been performed.
   • It refers to the estimated amount of loss incurred.
   • It applies only, to proximate consequences of the breach of contract.
2. Special Damages:
   • It includes those damages other than that arising directly from the breach.
   • It must be known to parties at the time of entering into a contract.
3. Exemplary or Punitive Damages:
   • These are awarded not to compensate the aggrieved party but as a means of punishment to the defaulting party.
   • It is awarded in 2 cases.
     1. Breach of contract to marry or promise to marry.
     2. Wrong dishonor of a customer’s cheque by a banker.
4. Nominal Damages:
   • These are awarded where the plaintiff has proved that there has been a breach of contract but he has not suffered any loss or damage.
5. Damages for deterioration caused by delay
6. Pre-fixed damages:
   • These damages are fixed at the time of formation of the contract.

Relevant Case Law:

Hadley V/s Barendale.

Facts:

• X’s mill was stopped and dug to break down of shaft.
• He delivered the shaft to Y, a common carrier, to be taken to a manufacturer to copy it and make a new one.
• X did not inform Y that the delay would result in a loss of profits.
• Due to Y’s neglect, delivery was delayed beyond a reasonable time.

Decision: Y was not liable for loss of profits during the delayed period.

Question 6. What do you understand by Penalty and Liquidated Damages?

Answer:

Penalty and Liquidated Damages

When parties to a contract, specify a certain sum in the contract which will become payable as a result of breach, such specified sum is known as liquidated damages or penalty.

Under the English Law,

• If the amount fixed is a genuine pre-estimate of the loss in case of breach it is liquidated damages and is allowed.
• If the amount is fixed without any regard to probable loss, but is only to frighten the party and prevent it from committing any breach, it is a penalty and not allowed.
• In Indian law, there is no difference between the two.

Relevant Case Law: Union of India-V/s Raman Iron Foundry.

Question 7. When a Claim for Rescission of the contract arises?

Answer:

Claim for Rescission of the contract

It means the right available to the aggrieved party to terminate the contract. In this case, the aggrieved party is not required to perform his part of the obligation and is entitled to claim compensation for any loss caused to him.

Question 8. When a Claim for specific performance of the contract arises?

Answer:

Claim for specific performance of the contract

In certain cases, when the damages are not adequate remedy, the court may direct the party in breach for specific performance of the contract and the promise is carried out as per the terms of the contract.

• Usually granted in contracts connected with land.
• It cannot be granted where
  • Monetary compensation is an adequate relief.
  • The contract is personal.
  • The count can’t supervise the performance of a contract.
  • The contract is ultra virus.
  • One of the parties is a minor.

Question 9. When a Claim for Injunction arises?

Answer:

Claim for Injunction

1. Injunction refers to an order passed by a competent court restraining a person from doing a particular act. A negative term of the contract means doing something, which the party has promised not to do or reasonable remuneration.
2. Thus, where a party to a contract is negotiating the terms of a contract, the court may in its discretion issue an order to the defendant to restrain him from doing what he promised not to do.

Question 10. State with reasons whether the following statement is True or False: Breach of condition gives rise to a right to repudiate the contract of sale.

Answer:

Correct: Breach of a condition gives the right to the aggrieved party to repudiate the contract. A condition is a stipulation essential to the main purpose of the contract.

Breach Of Contract And Its Remedies Short Notes

Question 1. Write a short note on the following: Quantum Meruit:

Answer:

Quantum Meruit: The phrase ‘quantum meruit’ literally means “as much as is earned” or according to the quantity of work done.” When a person has begun the work and before he can complete it.

• If the other party terminates the contract or does something that makes it impossible for the other party to complete the contract, he can claim for the work done under the contract.
• He may also recover the value of the work done where the further performance of the contract becomes impossible.
• The claim on quantum meruit must be brought by a party who is not in default. However, in certain cases, the party in default may also sue for the work done if the contract is divisible.

Following are the cases in which a claim on quantum meruit may arise:

1. Where the work has been done and accepted under a contract that is subsequently discovered to be void, in such a case, the person who has performed the part of the contract is entitled to recover the amount for the work done, and the party, who receives and accepts the benefit under such contract, must make compensation to the other party (Section 65).
2. Where, a person does some act or delivers something to another person to receive payments for the same (i.e. non-gratuitous act), in such a case, the other person is bound to make payment if he accepts such services or goods, or enjoys their benefit (Section 70).
3. The compensation for the work done may be recovered based on quantum merit. Where the contract is divisible and ‘a party performs part of the contract and refuses to perform the remaining part, in such a case, the party in default may sue the other party who has enjoyed the benefits of the part performance.

Question 2. Write a short note on the following: Anticipatory breach of contract

Answer:

Anticipatory breach of contract: Section 39 of the Indian Contract Act, 1972 deals with what is known in English Law as anticipatory breach of contract. A breach of contract may take place before the time fixed after the performance of the contract has arrived.

• Thus, if a promisor by his act disables himself from performing his promise or refuses to perform his part of the contract.
• The other party is entitled to treat the contract as at an end and to sue him for damages for breach of contract without waiting until the time fixed for performance and without further performing his part of the contract.

Where a party to the contract refuses to perform his part of the contract before the actual time arrives, the law gives the promisee an option whereby he may either

1. Elect to rescind, and may then although the time for the performance has not yet been received, treat the contract as at an end and at once sue for the damages, or
2. He may elect not to rescind but to treat the contracts still operative and wait for the time of performance and then hold the other party responsible for all the consequences of non-performance.

Question 3. Write a short note, on the following: Vindictive and Nominal damages

Answer:

Vindictive and Nominal damages

Damages for the breach of a contract are given by way of compensation for loss suffered, and not by way of punishment for wrong inflicted. Vindictive damages have no place in the law of contract because they are punitive by nature. But in the case of

• Breach of a promise to marry, and
• Dishonour of a cheque by a banker wrongfully when he possesses sufficient funds to the credit of the customer, the court may award vindictive damages.

Whereas nominal damages where the injured party has not suffered any loss by reasons of the breach of a contract, the damages recoverable by him are nominal. These damages merely acknowledge that the plaintiff has proved his case and won.

Question 4. Write a short note on the following: Remedies available to an aggrieved party on the breach of contract.

Answer:

Remedies available to an aggrieved party on the breach of contract

Following are the remedies available to an aggrieved party on breach of contract.

1. Suit for damages.
2. Recession of contract by the other party: When a contract is broken by one party, the other party may treat the contract as rescinded. In such a case he is absolved of all his obligations under the contract and is entitled to compensation for any damages that he might have suffered.
3. Suit upon Quantum Meruit: The phrase ‘quantum meruit’ literally means “as much as is, earned” or “according to the quantity of work done”.
   • When a person has begun the work and before he can complete it, the other party terminates the contract or does something, which makes it impossible for the other party to complete the contract, he can claim for the work done under the contract.
   • He may also recover the value of the work done where further performance of the contract becomes impossible. The claim of quantum meruit must be brought by a party who is not in default.
4. Suit for specific performance: Where damages are not an adequate remedy in the case of breach of contract, the court may be at its discretion on a suit for specific performance to direct a party in breach, to carry out his promise according to the terms of the contract.
5. Suit for injunction: Where a party to a contract is negotiating the terms of a contract, the court may be issuing an ‘injunction order’ to restrain him from doing what he promised not to do.

Breach Of Contract And Its Remedies Distinguish Between

Question 1. Distinguish between: ‘Liquidated damages’ and ‘Penalty’.

Answer:

Liquidated damages and penalty: Liquidated damages and penalty are applicable to determine the extent of damages in case of breach of the contract both in England and India. Still, there exist some differences between these two which are as follows:

1. Liquidated damages are the amount assessed based on actual or probable loss by both parties payable in the event of a breach. In the case of a penalty, it is not based on the actuator’s probable loss. Penalty is provided to prevent a party from committing a breach.
2. Liquidated damage is imposed by way of compensation but penalty is imposed by way of punishment.
3. Courts in England usually allow ‘liquidated damages’ without any regard to the actual loss sustained and treat the penalty clause as invalid.

But Section 74 of the Contract Act, of 1872 in India does not recognize any difference between these two terms. Here the courts are required to allow reasonable compensation to cover the actual loss sustained, not exceeding the amount so mentioned in the contract.

Breach Of Contract And Its Remedies Descriptive Questions

Question 1. Comment the following: What kinds of damages may be awarded in case of breach of the contract under the law of contract?

Answer:

Damages: Remedy by way of damages is the most common remedy available to the injured party. This entitles the injured party to recover compensation for the loss suffered by it due to the breach of contract, from the party who causes the breach.

Sections 73 to 75 of the Contract Act incorporate the provisions in this regard. The damages which may be awarded to the injured party may be of the following kinds:

1. Ordinary damages: When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual cause of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it.
   • Such compensation is not to be given for any remote and indirect loss or damage sustained because of the breach. [Section 73 of the Contract Act and the rule in Hadley vs. Baxendale (1854) IEx. 341].
2. Special damages: Where a party to a contract receives a notice of special circumstances affecting the contract, he will be liable not only for damages arising naturally and directly from the breach but also for special damages.
3. Vindictive or exemplary damages: These damages may be awarded only in two cases:
   • For breach of promise to marry because it causes injury to his or her feelings; and
   • For wrongful dishonor by a banker of his customer’s cheque because in this case, the injury due to wrongful dishonor to the drawer of the cheque is so heavy that it causes loss of credit and reputation to him.
   • A businessman whose credit has suffered will get exemplary damages even if he has sustained no pecuniary loss.
   • But a non-trader can not get heavy damages in the like circumstances unless the damages are alleged and proved as special damages. [Gibbons vs. West Minister Bank (1939) 2 K.B. 882].
4. Nominal damages: Nominal damages are awarded where the plaintiff has proved that there has been a breach of contract but he has not suffered any real damage and the injury is nominal.

Question 2. Comment the following: Remote and indirect losses are not recoverable.

Answer:

Remote and indirect losses are not recoverable

Section 73 of the Indian Contract Act, of 1872 deals with the compensation for loss or damages caused by breach of contract: In this relation, the basic rule is that damages must not be too remote.

• The remote damages and indirect losses are those that are either far away in time or widely separated from the usual course of things in the contract. They are like distant indirect losses.
• They are not reasonably foreseeable by a normally reasonable man. The Supreme Court has ruled that remote or indirect loss or damages sustained because of the breach will not entitle the party to any compensation (Karsands (v) Saran Engineering Co. AIR 1965 SC 1981).
• Thus, the person who has committed the breach is liable for reasonably foreseeable losses, those that a normally prudent person would have had reason to foresee as probable consequences of future breach.

A defaulting person is not liable for those damages which are not reasonably foreseeable. Thus remote damages are not recoverable.

Nonfulfilment of emotional expectations due to non-performance of a contract is a kind of remote damage being widely separated from the usual things of the contract.

Question 3. Explain briefly the following: What remedies are available to an aggrieved party on the breach of contract?

Answer:

Remedies for breach of contracts: When a contract is broken, the injured party becomes entitled to any one or more of the following relicts:

1. Rescission of the contract: with the result that the injured party is freed from all his obligations under the contract.
2. Suit for damages: Damages are monetary compensation awarded to the injured party by the Court for loss or injury suffered by him. Section 73 of the Indian Contract Act, 1872 has laid down the rules as to how the amount of compensation is to be determined. Damages may be nominal ordinary special or exemplary damages or damages for deterioration caused by delay.
3. Suit upon Quantum Meruit: A right to sue on a quantum meruit (as much as earned) arises when a contract performed by one party, has become discharged by the breach of contract by the other party. It is based on an implied promise arising from acceptance of benefit by the party.
4. Suit for specific performance contract: Where damages are not an adequate remedy in the case of breach of contract, the court may in its discretion on a suit for specific performance direct the party in breach, to carry out his promise according to the terms of the contract.
5. Suit for an injunction: Where a party to a contract is negotiating the terms of a contract, the court may by issuing an ‘injunction order’ restrain him from doing what he promised not to do.

Question 4. Comment the following: Damages are “Compensatory” and “Not Penal”.

Answer:

Damages are “Compensatory” and “Not Penal”

Damages (ordinary or special) are given by way of compensation for loss suffered and not by way of punishment for wrong inflicted.

• The fundamental basis of awarding damages is compensation for pecuniary loss which naturally flows from the breach of contract.
• The object is to put the injured party in the same position, so far as money can do it as if he had not been injured.
• Hence, vindictive or exemplary or exemplary damages have no place in the law of contract because they are punitive by nature.

But in case of breach of a promise to marry and dishonor of a cheque by a banker wrongfully even when sufficient funds are there to the credit of the customer’s account, the court may award exemplary damages.

Question 5. Comment the following: What is meant by Anticipatory Breach of a contract?

Answer:

Anticipatory breach of contract: An anticipatory breach of contract is a breach of contract occurring before the time fixed for performance has arrived.

• When the promisor refuses altogether to perform his promise and signifies his unwillingness even before the time for performance has arrived, it is called Anticipatory Breach.
• The law in this regard has been very well summed up in Frost vs. Knight and Hochster vs. De La Tour.

Anticipatory breach of a contract may take either of the following two ways:

• Expressly by words spoken or written, and,
• Impliedly by the conduct of one of the parties.

Where A contracts with B on 15^th July 1999 to supply 10 bales of cotton for a specified sum on 14^th August 1999 and on 30th July informs B, that he will not be able to supply the said cotton on 14^th August 1999, there is an express rejection of the contract.

• Where A agrees to sell his white horse to B for ₹ 5,000/- on 10^th August, 1 995, but he sold this horse to C on 1^st August 1995, the anticipatory breach has occurred by the conduct of the promisor.
• Section 39 of the Indian Contract Act deals with anticipatory breach of contract and provides as follows: “When a party to a contract has refused to perform or disabled himself from performing, his promise in its entirety.

The promisee may put an end to the contract unless he has signified, but in words or conduct, his acquiescence in its continuance.”

Effect of anticipatory breach: The promisee is excused from performance or further performance. Further, he gets an option:

1. To either treat the contract as rescinded and sue the other party for damages from breach of contract immediately without waiting until the due date of performance, or
2. He may elect not to rescind but to treat the contract as still operative, wait for the time of performance, and then hold, the other party responsible for the consequences of non-performance.

But in this case, he will keep the contract alive for the benefit of the other party as well as his own, and the guilty party, if he so decides on re-consideration.

May still perform his part of the contract and can also take advantage of any supervening impossibility which may have the effect of discharging the contract.

Question 6. Comment the following: When does a claim for Quantum Meruit arise?

Answer:

A claim for quantum meruit shall arise under the following circumstances:

1. When the contract is discovered to be unenforceable (Section 65, Indian Contract Act, 1 872) i.e. when the agreement is discovered to be void or becomes void, any person receiving benefit under such an agreement or contract is bound to restore it.
2. When one party abandons or refuses to perform the contract. Where there is a breach of contract, the aggrieved party is entitled to claim reasonable compensation for what he has done under the contract.
3. When a contract is divisible, and the party in default, has enjoyed the part performance, the party in default may sue on quantum meruit.
4. When an indivisible contract for a lump sum is performed but badly, the person who has performed can claim the lump sum less deduction for bad workmanship.

Question 7. Explain what is meant by ‘Supervising Impossibility’ as per The Indian Contract Act, 1872 with the help of an example. What is the effect of such impossibility?

Answer:

Subsequent or Supervening or Post:

Contractual Impossibility:

1. Subsequent or post: (contractual impossibility arises after the formation of a contract has taken place.
2. Due to supervening impossibility, the contract becomes void and stands discharged.
3. If any benefit has accrued to any of the parties, then it must be restored.

Illustration:

A sold to B a cargo of oil to be shipped by a particular ship. B paid ₹ 5 lakhs as purchase consideration. Before the time for shipping arrived the ship was damaged by wreck and loading of cargo was impossible now.

Here the contract between A and B becomes impossible to perform and thus the event can be called Supervising Impossibility. Due to this, the contract becomes void and both parties are discharged from their liability. A has to refund ₹ 5 lakhs which was taken from B under the contract.

Question 8. “Liquidated damage is a genuine pre-estimate of compensation of damages for certain anticipated breach contract whereas Penalty on the other hand is an extravagant amount stipulated and is unconscionable and has no comparison to the loss suffered by the parties”. Explain the statement by differentiating between liquidated damages and penalties with references to provisions of the Indian Contract Act, of 1872.

Answer:

Liquidated damage is a genuine pre-estimate of compensation of damages for a certain anticipated breach of contract.

Parties make this estimation with the intent to:

1. Have a detailed calculation of the quantum of damages and
2. To convince outside parties.

Penalty on the 9ther hand is an extravagant amount stipulated and is unconscionable and has no comparison to the loss suffered by the parties.

In case of breach of contract, whether the sum named as liquidated damage or penalty, the Court will award only reasonable compensation not exceeding the sum mentioned in the contract.

In other words, courts are empowered to reduce the sum payable on breach whether it is penalty or liquidated damages provided the sum appears to be unreasonably high and the aggrieved party shall not be allowed to claim a sum greater than what is specified in the written agreement.

Question 9. M Ltd., contract with Shanti Traders to make and deliver certain machinery to them by 30.6.2017 for ₹ 11.50 lakhs. Due to a labor strike, M Ltd. could not manufacture and deliver the machinery to Shanti Traders. Later, Shanti Traders procured the machinery from another manufacturer for ₹ 12.75 lakhs. Due to this Shanti Traders was also prevented from performing a contract which it had made with Zenith Traders at the time of their contract with MLtd. and were compelled to pay compensation for breach of contract. Advise Shanti Traders on the amount of compensation that it can claim from M Ltd., referring to the legal provisions of the Indian Contract Act, 1872.

Answer:

When a contract has been broken, the party who suffers from such breach is entitled to receive, from the party who has broken the contract.

• Compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which parties know, when they made the contract to be likely to result from the breach of it.
• Such compensation is not to be given for any remote or indirect loss or damage sustained by reasons of the breach.
• In the given case, Shanti Traders suffered a loss ₹ 1.25 lakhs (12.75- 11.50) due to breach of contract by M Ltd. This naturally arose in the usual course of things.
• Shanti Traders also had to pay a penalty to Zenith Trader for breach of contract, which should be considered as an indirect loss or remote loss for which M Ltd. cannot be held responsible.

Therefore, Shanti Traders can claim an amount of ₹ 1.25 lakh from M Ltd. and nothing beyond that.

Nature of Contract

Law Indian Contract Act 1872

Section 1: Short Title

Section 2: Interpretation Clause

Section 3: Communication, acceptance, and revocation of proposals

Section 4: A proposal is accepted from the date its acceptance is sent by the post

Section 5: A proposal can be revoked at any time before the communication of its acceptance

Section 6: Revocation How made

Section 7: Acceptance must be absolute

Section 8: Acceptance by performing conditions, or receiving consideration

Section 9: Promises, express or implied

Section 10: Defines the essential elements of a contract, Defines “Consideration”

Section 11: Defines requirements for competency for competency of parties to the contract

Section 12: What is a sound mind for contracting?

Section 13: “Consent” defined

Section 14: “Free Consent” defined

Section 15: “Coercion” defined

Section 16: Undue influence” defined

Section 17: “Fraud” defined

Section 18: Misrepresentation” defined

Section 19: “Void ability of agreements without free consent”

Section 19 A: Power to set aside contract induced by undue influence

Section 20: Agreement void where both parties are under mistake of fact

Section 21: Effect of mistakes as to law

Section 22: Contract caused by mistake of one party as to matter of fact

Section 23: What considerations and objects are lawful, and what not

Section 24: Agreements void, if consideration and objects unlawful in part

Section 25: Agreements without consideration, void, unless it is in writing and registered, or is a promise to compensate for something done

Section 26: Agreement in restraint of marriage void

Section 27: Agreement in restraint of trade void

Section 28: Agreements in restraint of legal proceedings void

Section 29: Agreement void for uncertainty

Section 30: Agreement by way of wager, void

Section 31: “Contingent contract” defined

Section 32: Enforcement of contracts contingent on an event happening.

Section 33: Enforcement of contacts contingent on an event not happening

Section 34: When an event of which contract is contingent to be deemed impossible if it is the future conduct of a living person

Section 35: When contracts become void, which are contingent on the happening of specified event within the fixed time

Section 36: Agreements contingent on impossible events, void

Section 37: Obligation of parties to contracts

Section 38: Effect of refusal to accept the offer of performance

Section 39: Effect of refusal of a party to perform promise wholly

Section 40: Person by whom promise is to be performed

Section 41: Effect of accepting performance from third person

Section 42: Devolution of joint liability

Section 43: Any one of the joint promisors may be compelled to perform

Section 44: Effect of release of one joint promisor

Section 45: Devolution of joint right

Section 46: Time for performance of promise, where no application is to be made and no time is specified

Section 47: Time and place for the performance of the promise, where time is specified and no application is to be made

Section 48: Application for performance on a certain day to be at the proper time and place

Section 49: Place for the performance of the promise, where no application is to be made and no place fixed for performance

Section 50: Performance in the manner or at the time prescribed or sanctioned by the promisee

Section 51: Promisor not bound to perform unless reciprocal promisee ready and willing to perform

Section 52: Order of performance of reciprocal promises

Section 53: Liability of party preventing event on which contract is to take effect

Section 54: Effect of default as to that promise which should be first performed, in a contract consisting of reciprocal promises

Section 55: Effect of failure to perform at a fixed time, in a contract in which time is essential

Section 56: Agreement to do an impossible act

Section 57: Reciprocal promise to do things legal and also other things illegal

Section 58: Alternative promise, one breach being illegal

Section 59: Application of payment where debt to be discharged is indicated

Section 60: Application of payment where debt to be discharged is not indicated

Section 61: Application of payment neither party appropriates

Section 62: Effect of novation, rescission, and alteration of contract

Section 63: Promisee may dispense with or remit performance of promise

Section 64: Consequence of rescission of voidable contract

Section 65: Obligation of person who has received advantage under void agreement, or a contract that becomes void

Section 66: Mode of communicating or revoking rescission of voidable contract

Section 67: Effect of neglect of promisee to afford promisor reasonable facilities for performance

Section 68: Claim for necessaries supplied to a person incapable of contracting, or on his account

Section 69: Reimbursement of person paying money due by another, in payment of which he is interested

Section 70: Obligation of person enjoying the benefit of non – gratuitous act

Section 71: Responsibility of finder of goods

Section 72: Liability of person to whom money is paid, or thing delivered, by mistake or under coercion

Section 73: Compensation for loss or damage caused by breach of contract

Section 74: Compensation for breach of contract where penalty stipulated for

Section 75: Party rightfully rescinding contract entitled to compensation.

Nature Of Contract Questions And Answers

Question 1. What is a Contract?
Answer:

Contract

• Section 2(h) of the Indian Contract Act defines a contract as: “An agreement enforceable by law.”
  Contract = Agreement + Enforceability by law
• Contract is made by acceptance of one party of an offer made to him by the other party, to do or abstain from doing some act.
  Contract = Agreement + Obligation
• Agreement: Section 2(e) of the Indian Contract Act defines it as, “Every promise or every set of promises forming the consideration for each other”.

It has two characteristics:

1. Two or more persons are required to agree.
2. Both parties must agree to the same thing in the same sense at the same time.

Section 2(b) of the Indian Contract Act defines a promise as “A proposal (offer) when accepted becomes a promise”.

Agreement = Promise

= Accepted Proposal

= Offer + Acceptance

Question 2. Distinguish between Agreement and Contract.
Answer:

Difference between Agreement and Contract

Question 3. What are the Elements of a Valid Contract?
Answer:

The Elements of a Valid Contract

Section 10 of the Indian Contract Act states, “All agreements are contracts if they are made

1. By free consent of parties, competent to contract.
2. For a lawful consideration.
3. With a lawful object, and
4. Not hereby expressly declared to be “void”.

Elements include:

1. Two Parties: There, should be at least two parties to make a contract. One cannot contract with himself or herself.

Case law: Gujarat v/s Ramanlal S and Co. Property distributed at the time of dissolution of partnership firm to its partners is not sale as one cannot be both buyer, as well as seller and partner and partnership, are same persons.

2. Intention to Create Legal Relationships:

• Agreements about social matters and
• Domestic arrangements between husband and wife, and agreements between family members are not contracts due to the absence of legal obligation.

Case Law: Balfour v/s Balfour

Facts: Mr. A promised to pay his wife $30 per month as a household allowance, later, the husband failed to pay the amount.

Decision: Held, the wife could not claim as there was no intention to create a legal obligation and thus, it is not enforceable by law.

3. Other’Formalities to be Complied with in Certain Cases:

• It must be in writing.
• It must be registered under the law in force.

4. Certainty of Meaning:

• Agreement must not be vague or indefinite.
• It must be certain.

5. Possibility of Performance of an Agreement:

• Agreements which are to do any impossible act cannot be enforced.
• Essential elements of a valid contract include
  • Offer and Acceptance: An agreement is the result of offer and acceptance.
  • Free Consent: Consent must be free, i.e. it must not be obtained through coercion, undue, influence, fraud, misrepresentation, or mistake.
  • Capacity of the Parties: Persons competent to contract is who :
    • is of the age of majority i.e. 18 years or above
    • is of sound mind i.e. not a lunatic, drunken
    • is not disqualified from contracting i.e. should riot be foreign sovereign, alien enemy, convicted, etc.
  • Consideration:
    • It means something in return i.e. quid pro quo.
    • It can be either any right or interest or profit, etc.
  • Lawful Consideration and Object:
    • It should not be prohibited by law i.e. it should not defeat the provisions of law in force.
  • Not Expressly Declared to be Void:
    • Void agreements are not enforceable as they are without any legal effects.
    • The agreement must not be illegal.

Question 4. What are the various Types of Contracts?
Answer:

The various Types of Contracts

Question 5. What is the Definition of Void Contract?
Answer:

The Definition of Void Contract

• It is not a contract at all as it is without legal effect.
• Section 2(j) of Indian Contract Act, 1 872 defines it as:
• “A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable”.

Voidable Contracts:

• It is an agreement that is binding and enforceable but due to lack of one or more essentials of a valid contract, it may be repudiated.
• Section 2(i) of the Indian Contract Act, 1 872 defines it as “All agreements which are enforceable by law at the option of any one of the parties, and other party has no such option, are known as voidable contracts”.

Question 6. Distinguish between Void and Voidable Contracts.
Answer:

Difference between Void and Voidable Contracts

Question 7. What are Quasi Contracts and E-Contracts?
Answer:

Quasi Contract:

• An obligation imposed by law upon a person for the benefit of another even in the absence of a contract.
• It is based on principles of equity, justice, and good conscience.

E-Contracts:

• Contracts are entered into through electronic mode including e-mails.
• These contracts are also called Cyber Contracts, mouse click contracts, and electronic data interchange (EDI) contracts.

Question 8. What is the Definition of an Offer or Proposal Under the Indian Contract Act, of 1872?
Answer:

Proposal or Offer [Section 2(a) of the Indian Contract Act, 1872]:

• It refers to a “proposal” by one party to another to enter into a legally binding agreement with him.
• Section 2(a) defines it as
• “When one party signifies to another his willingness to do or abstain from doing something, to obtain the assent of that other to such act or abstinence, he is said to propose”.

Question 9. Describe the Essentials of the Proposal or Offer.
Answer:

The Essentials of the Proposal or Offer

• The person making a promise is called a ‘promisor’ and to whom it is made i.e. who accepts the promise is called the ‘acceptor’ or ‘promisee’.
• For entering a valid contract expression of willingness must be made to obtain the acceptance of the other.
• An offer can be for ‘doing’ something i.e. (positive) or ‘not doing’ something i.e. (negative).

Question 10. Describe the Essentials of a Valid Offer.
Answer:

The Essentials of a Valid Offer

• It must be capable of creating legal relations.
• It must be certain definite and not vague.
• It must be expressed or implied.
• It must be distinguished from an invitation to offer.
• It may be specific or general.
• It must be communicated to the offeree [Case Law: Lalman Shukla v/s Gauri Dutt].
• It must be made to obtain the consent of the offeree.
• It may be conditional.
• It should not contain such terms, the noncompliance of which would amount to acceptance.
• A statement of price is not an offer.

Question 11. Distinguish between an offer and an invitation to make an offer.
Answer:

Difference between an offer and an invitation to make an offer

• Offer is made to get the consent of the other party.
• An invitation to offer is made to initiate the offer according to the invitation.
• Offer is made with an object to make a contract.
• Invitation to offer does not result in any contract formation.
• Example of invitation to offer:
  • Display of goods in a shop window with prices marked upon them.
  • Price catalogs, etc.
• Offer is different from a mere statement of intention.’ Example Announcement of a coming auction sale.

Relevant Case Law:

• Harris v/s Nickerson
• When particular goods are advertised, for sale by auction, the auctioneer does not contract with anyone who attends the sale and intends to purchase those goods when they are put up for sale.
• Offer is different from mere communication of information in the course of negotiation.

Example – Price statement considering negotiation.

Relevant Case Law:

• Harvey V/s Facey
• Only a statement of the lowest price at which the vendor would sell contains no implied contract to sell at that price to the person inquiring.

Question 12. Define the term of Acceptance and Discuss the Legal Provisions relating to communication of Acceptance.
Answer:

Acceptance

• It means consent to the offer.
• Section 2(b) of the Contract Act defines it as “A proposal is said to be accepted when the person to whom the proposal (offer) is made signifies his assent thereto”.

Relationship between Offer and Acceptance:

• “Acceptance is to offer what a lighted match is to a train of gun powder”.
• It means once acceptance is done, the same cannot be undone, i.e. it cannot be revoked.
• Offer remains an offer until accepted, after acceptance, it becomes a contract.

Question 13. When is the Communication of an offer and Acceptance through post-completion?
Answer:

Communication of Offer and Acceptance:

1. Communication of offer:
   • It is complete when it comes to the knowledge of the person to whom it is made.
   • It may be communicated either by words spoken or written or may be inferred from the conduct of parties.
   • If made by post, it will be completed, when the letter containing the offer reaches the intended person.
2. Communication of Acceptance:

• It is complete:
  • As against the proposer: When it is put in the course of transmission to him to be out of the power of the acceptor to withdraw the same.
  • As against the acceptor: When it comes to the knowledge of the proposer.
• If sent by post, it is complete:
  • As against the proposer: When the letter of acceptance is posted.
  • As against the acceptor: When the letter reaches the proposer.

Question 14. Write a short note of Modes of Acceptance.
Answer:

Modes of Acceptance

• By act i.e., by any expression of words whether written or oral.
• By omission to do something which is conveyed by conduct or by forbearance on the part of one party to convey his/her willingness.
• By conduct i.e. conveying acceptance by his or her conduct.
• Example – The act of boarding a bus, etc., it must be noted that merely mental unilateral assent in one’s thoughts does not amount to communication.

Question 15. Describe the Special Condition of Communication.
Answer:

The Special Condition of Communication

• A situation where an agreement entered has special conditions that are conveyed and accepted tacitly or without even realizing it.
• If a passenger receives a railway ticket with the words printed, “this ticket is issued subject to the notices, regulations, and conditions in the current timetables of the railway”. He is bound to accept the terms and conditions whether he has read them or not.
• lf no reasonable notice’ on the face of the document contains special conditions, then the acceptor will not incur any contractual obligation.

Question 16. Write Short Notes on Communication of Performance.
Answer:

Communication of Performance

Acceptance of the proposal from the viewpoint of

• Proposer: When acceptance is put in the course of transmission, out of the power of the acceptor.
• Acceptor: When it comes to the knowledge of the proposer. If sent by post, it is complete
  • As against the proposer: When the letter of acceptance is posted.
  • As against the Acceptor: When the letter reaches the proposer.

Question 17. What do you understand by Revocation of Offer and Acceptance? Describe the Condition of Communication of Revocation.
Answer:

Revocation of Offer:

• It means withdrawal or taking back of an offer.
• It can be revoked anytime before its acceptance.

Revocation of Acceptance:

• It means withdrawal or taking back of acceptance by the acceptor.
• It may be revoked at any time before its communication is completed as against the acceptor, but not afterward.

Communication of Revocation:

• It is completely against the person who makes it: When it is put into a course of transmission to the person to whom it is made to be out of the power of the person who makes it.
• By Post: Communication of offer when complete: When the offer comes into the knowledge of the offeree.
• Communication of acceptance when complete: When the offeree or acceptor posts the letter of acceptance it becomes out of the power of the acceptor to withdraw it.
• As against the person to whom it is made: When it comes to his knowledge.

Question 18. What do you mean by Lapse of Offer and in which ways there can be a Lapse of Offer?
Answer:

Lapse of Offer

• It means the end of an offer.
• The offer should be accepted before it lapses.
• Offer may lapse in the following ways:
  • By communication of notice of revocation
  • By lapse of time [Case Law: Ramsgate Victoria Hotel v/s Montifiore]
  • Failure to accept condition precedent
  • By death or insanity of the offeror
  • By counteroffer by the offeree
  • By not accepting the offer in the prescribed mode
  • By rejection of the offer by the offeree
  • By change in law or circumstances.

Nature Of Contract Objective Questions And Answers

Question 1. State with reasons whether the following statement is True or False: If the offeree does not accept the offer according to the mode prescribed by the offeror, the offer does not lapse automatically.

Answer:

Correct:

An offer must be accepted in the manner prescribed by the offeror. Where it is not so made,’ the offeror can treat it as lapsed, but he should inform the offeree about his decision. If he does not inform the offeree about his rejection, the offer does not stand lapsed.

Question 2. State with reasons whether the following statement is correct or incorrect:

1. All kinds of obligations created between the parties form part of the contracts.
2. A contract to purchase a black horse, which was dead at the time of the bargain, is voidable.

Answer:

1. Incorrect: An agreement should give rise to a legal obligation i.e. obligation which is enforceable at law [Section 2(h)]. Agreements that give rise only to social, moral, or domestic cannot be termed as contracts.
2. Incorrect: According the Section 20 of the Indian Contract Act, 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. Since neither party was aware of the fact that the horse was dead at the time of the bargain, the contract is void, and not voidable.

Question 3. State with reasons whether the following statement is Correct or incorrect: Communication of an offer is complete when the letter is posted though it has not reached the person to whom the offer is made.

Answer:

Incorrect: Communication of an offer is complete when it comes to the knowledge of the person to whom it is made (section 4 of the Indian Contract Act, 1872). When the letter containing the offer is posted, the offer will be complete only when the letter reaches the person to whom it is made.

Question 4. State with reasons whether the following statement is Correct or Incorrect: Where the mode of acceptance is prescribed in the proposal, it need not be accepted in that manner.

Answer:

Incorrect: Where the mode of acceptance is prescribed in the proposal; it must be accepted in that manner. Section 7(2) of the Indian Contract Act, of 1872 lays down that if the proposal prescribes the manner of acceptance and the acceptance is not made accordingly, the proposer may within a reasonable time, insist on following the mode of acceptance prescribed and not otherwise.

Question 5. State with reasons whether the following statements are correct or incorrect:

1. A proposal when accepted becomes a contract.
2. An illegal contract is fatal to the main contract, but not to collateral transactions.

Answer:

1. Incorrect: Section 2(b) of the Indian Contract Act, 1 872, which defines the term ‘acceptance’ states that a proposal when accepted becomes a promise. Thus, acceptance creates the promise and not a contract because to create a contract, the element of enforceability is necessary.
2. Incorrect: An illegal agreement is one, which has been expressly declared as unlawful. Such an agreement is a nullity and hence cannot be enforced. When an agreement is illegal, collateral agreements to such illegal agreements are also illegal. Hence the question of their enforcement does not arise.

Question 6. State with reasons in brief whether the following statement is correct or Incorrect:

Every agreement is necessarily regarded as a contract.

Answer:

The statement is incorrect:

As per Section 10 of the Indian Contract Act, of 1872, an agreement is regarded as a contract when it is enforceable by law. In other words, an agreement that the law will enforce is a contract. Hence, every agreement cannot essentially be regarded as a contract, but every contract is an agreement.

Question 7. State with reasons in brief whether the following statements are correct or incorrect:

1. The proposal should always be communicated to the person to whom it is made.
2. A Tender does not amount to an offer.

Answer:

1. Correct: The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made (Section ‘4 of the Indian Contract Act, 1872).
2. Correct: A tender is in the same category as a quotation of price. It is not an offer. It is merely an invitation to an offer. When a tender is approved, it is converted into a standing offer. A contract arises only when an order is placed based on a tender.

Question 8. State with reasons in brief whether the following statement is correct or incorrect: An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is void.

Answer:

Incorrect: According to Section 2(i) of the Indian Contract Act, 1872, an agreement that is enforceable by law at the option of one or more of 1he parties thereto, but not at the option of the other or others, is a voidable contract and not void.

Question 9. State with reasons in brief whether the following statement is correct or incorrect: Communication of acceptance of an offer is complete as against the acceptor the moment it comes to the knowledge of the offeror.

Answer:

Correct: The communication of acceptance is complete as against the acceptor when it comes to the knowledge of the proposer since it will then be out of the power of the acceptor to revoke. (Section 4 para 2 of the Indian Contract Act 1872).

Question 10. State with, reasons in brief whether the following statement is correct or incorrect: Offer may be revoked after the letter of acceptance is posted by the acceptor.

Answer:

Incorrect: A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterward (Section 5 of the Indian Contract Act). The Communication of acceptance is complete as against the proposer when the letter of acceptance is posted (Section 4 of the Indian Contract Act). As the letter of acceptance is posted, the offer cannot be revoked in this case.

Nature Of Contract Short Notes

Question 1. Write a short note on the following: Kinds of offer.

Answer:

The kinds of offers may be discussed as follows:

1. General Offer: It is an offer made to the public at large and hence anyone can accept and do the desired act (Carlill v. Carbolic Smoke Ball Co. 1893). For instance, an offer to give a reward to anybody who finds a lost dog is a general offer. Although a general offer is made to ‘ the public at large, the contract is concluded only with that person who acts upon the terms of the offer.
2. specific Offer: When the offer is made to a specific or an ascertained person it is known as a specific offer. A specific offer can be accepted only by that specified person to whom the offer has been made (Bottom v. Johns).
3. Cross Offer: When two parties exchange identical offers in ignorance at the time of each other’s offer, the offers are called Cross Offers. There is no binding contract in such a case because an offer made by a person can not be treated as an acceptance of the other’s offer.
4. Counter Offer: When the offeree offers qualified acceptance of the offer subject to modifications and variations in the terms of the original offer, he is said to have made a counter offer. A counteroffer amounts to a rejection of the original offer (Hyde B. v. Wrench 1840).
5. Standing Open or Continuing Offer: An offer that is allowed to remain “open for acceptance over some time is known as a standing, open, or continuing offer. A tender for the supply of goods is a kind of standing offer.

Question 2. Write a short note on the following: Executed and executory contracts.

Answer:

Executed and Executory Contracts: Based on execution or performance, contracts may be classified into two groups i.e. executed and executory.

An executed contract is a contract where both parties have fulfilled their respective terms and obligations, and where nothing remains to be done by either party.

Thus, executed is a contract that has reached its maturity of performance and completion of contractual obligations. On the other hand executory contract is a contract where both the parties have still to perform their respective contracted obligations. In such contracts, some acts remain to be performed at a future date.

Question 3. Write a short note on the following: Offer and invitation to offer.

Answer:

Offer and Invitation to Offer: When one person signifies to another his willingness to do or to obtain from doing anything to obtain the asset of that other to such act or abstinence.

He is said to make an offer or proposal(Section 2(a) Indian Contract Ad, 1 872]. A valid offer must meet the tods of (1) contractual intention of definiteness and (2) communication to the offeree.

• Offer is different from an invitation to offer. In an offeror expresses his willingness to contract in terms of his offer with such finality that the only thing to be awaited is the assent of the other party.
• Where a party without expressing Is final willingness, proposes certain terms on which is willing to negotiate, he does not make an offer. Ho only invites the other party to make an offer on those loans.
• An invitation to traders to make lenders, an invitation by n company to the public to subscribe to its chares, a display of goods for sale In chop windows, auction solos, quotation of prices in reply to a query, are nil oxamploh of invitation to offer – buy or sell as the case may be.

Question 4. Write short notes on Iho following: Void Contracts

Answer:

Void Contracts (road ns void agreements): An agreement which is not onforconblo by law i3 void. Such grooming has some legal defects and therefore cannot be enforced in a Court of Law. Section 2(i) defines a void contract as “a contract which coasts to bo onforconblo by law becomes void when It COOBOO to be enforceable.”

I hus, void grooming does not have any legal effect i.e., the party not performing his part of the promise renders a void contract cannot be used in a law court, rather does not have any legal obligations.

Examples of Void Contracts:

1. A contract vitiated by mistake as to fact and both the parties are mistaken ns to tho Idontlly, oilstone of Iho subject matter of the contract otc. (Section 20)
2. Where Iho consideration or object of the contract 13 unlawful (Section 23).
3. Whore Ilia’s contract Is not supported try consideration.
4. Agreements declared expressly void by the Contract Act, such as;
   • Agreement in restraint of marriage (Section 26)
   • Agreement in restraint of trade (Section 27)
   • Agreement in restraint of legal proceedings (Section 28)
   • Agreement by v/ay of the wager (Section 30).

There may be cases of such contracts where in the beginning they are valid but later on become void due to impossibility of performance due to operation of law.

Question 5. Write a short note on the following: When is the communication of an offer and acceptance through post-complete

Answer:

The communication of an offer and acceptance through post-complete

Communication of an offer is complete through post when it comes to the knowledge of the person to whom it is made i.e., when the letter containing the offer reaches the offeree. (Section 4 Indian Contract Act, 1872). Communication of acceptance has two aspects:

• As against the proposer.
• As against the acceptor.

Against the proposer, the communication of acceptance is complete when it Is put in the course of transmission to him, to be out of the prior of the acceptor, but it shall be complete as against the acceptor when it comes to the knowledge of the proposer, For Example. A proposer by letter to sell a house to B at a certain price. B accepts A’s proposal by a letter sent by post.

The communication of acceptance is complete;

• As against A, when the letter is posted by B.
• As against B, when the letter is received by A.

Thus, an offer can be revoked till a duly addressed letter of acceptance is put In the course of transmission and not thereafter. It is immaterial whether the loiter of acceptance reaches the other party or is lost in transit.

The acceptance can, however, be revoked till the letter of acceptance reaches the offeror and he learns of its contents.

Question 6. Write a short note on the following: Executed and Executory contracts.
Answer:

Executed and Executory contracts.

An executed contract is one in which both parties have performed their respective obligations. In other words, if the consideration for the performance of the obligation is paid, it is a contract for executed consideration For example, A agrees to write an article to B for? 5,000.

• When A writes the article and B pays the price, i.e. when both parties have performed their obligations, the contract is called an ‘Executed’ Contract. An executory contract is one in which both parties have not yet performed their obligations.
• In other words, if the consideration to the performance of obligations is still to be payable, the contract is known as a contract for executory consideration. Thus, in the above example, the contract is executory if A has not yet written the article and B has not paid the price.

Question 7. Write a short note on the following: Rules regarding acceptance.

Answer:

Rules relating to Acceptance of Offer:

The following are the Rules relating to the Acceptance of the Offer:

1. Absolute and Unqualified: As per Section 7 of the Indian Contract Act, 1872, an acceptance is valid when it is absolute and unqualified and is expressed in some unusual and reasonable manner unless the proposal prescribes how it is to be accepted.
2. Communicated to Offeror: An acceptance with a variation is no acceptance. It is simply a counter-proposal, which shall have to be accepted by the original proposer before a contract can be deemed to have come into existence.
   • A counter-proposal is an offer by the offeree and can result in a contract only if the other party accepts it. It must further be remembered that an acceptance must specifically relate to the offer made. An offer made by the intended offeree without the knowledge that an offer has been made to him cannot be deemed as an acceptance thereto.
3. Mode Prescribed: Where the mode of acceptance is prescribed in the proposal, it must be accepted in that manner. But if the proposer does not insist on the proposal being accepted in the manner prescribed after it has been accepted otherwise, i.e. not in the prescribed manner, the proposer is presumed to have consented to the acceptance.
4. Reasonable Time: Acceptance must be given within a reasonable time and before the offer lapses.
5. Mere Silence is not Acceptance: Acceptance may be expressed or implied. Acceptance must be given after knowing the offer. Acceptance must be given by the person to whom the proposal is made.
6. By Conduct Also: The assent means that acceptance has been signified either in writing by word of mouth or by performance of some act. Therefore, when, a person performs the act intended by the proposer as the consideration for the promise offered by him, the performance of the act constitutes acceptance.

Distinguish Between Nature Of Contract

Question 1. Distinguish between a void agreement and an Illegal agreement.

Answer:

Distinction Between Void and Andillegal Agreements: According to Section 2(g) of the Indian Contract Act, 1872, an agreement not enforceable by law is “void. Both agreements are not enforceable by the law courts. The points of distinction, however, of both these agreements can be made on the following basis:

1. Scope: An illegal agreement is always void while a void agreement is not always illegal being void due to some other factor For Example., an agreement in which the terms of the agreement are uncertain.
2. Effect of collateral transactions: If an agreement is merely void and not illegal, the collateral transaction to the agreement may be enforced for execution, but collateral transactions of an illegal agreement cannot be enforced since they are also declared to be illegal.
3. Punishment: Illegal agreements are punishable under Indian law, while void agreements are not.
4. Void-ab-initio: Illegal agreements are void from the very beginning, but sometimes void agreements are not. Sometimes a valid contract may be subsequently void For Example. the doctrine of supervening impossibility may apply.

Question 2. Distinguish between: Wagering agreements and contingent contracts.

Answer:

Wagering Agreements and Contingent Contracts: The two can be distinguished below:

1. A wagering agreement is a promise to give money or money worth upon the determination or ascertainment of an uncertain event. A contingent contract, on the other hand, is a contract to do or not to do something if. some event, collateral to contract does or does not happen.
2. A wagering agreement consists of reciprocal promises, while a contingent contract may not contain reciprocal promises.
3. In a wagering agreement, the uncertain event is the sole determining factor, while in a contingent contract, the event is only collateral.
4. A wagering agreement is essentially contingent whereas a contingent contract may not be contingent.
5. A wagering agreement is void, while a contingent contract is valid.
6. 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. In other words, a wager is a game of chance, but this is not so in the case of a contingent contract.

Question 3. Distinguish between: Offer and an Invitation to Offer.

Answer:

Offer and an Invitation to Offer: When a person communicates to another his willingness to do or abstain from doing something to obtain the assent of that other person towards the act or abstinence, the person making the communication is said to be making an offer.

An invitation to offer is a mere statement of intention inviting a person to come and negotiate. Therefore, it is a prelude to an offer. It is devoid of any legal effects., For Example.,

• Goods are displayed in the show window with price tags thereon.
• A prospectus issued by a company inviting the public to apply for shares.
• Price lists or catalogs.
• Circulars sent to potential customers.
• Tender notice.
• Auction notice.

Question 4. Distinguish between Void Contract and Voidable Contract according to the Indian Contract Act, of 1872.

Answer:

Difference between Void Contract and Voidable Contract according to the Indian Contract Act, of 1872.

Nature of Contract Descriptive Questions And Answers

Question 1. Answer in brief on the following: What is an illegal agreement? State the effects of illegality.

Answer:

Illegal agreement

Illegal agreements are those that involve committing a crime or act of moral turpitude or acts opposed to public morals. An illegal agreement is not only void as between the immediate parties, but its collateral transactions are also illegal.

Effects of illegality: Generally in law, no action is allowed on an illegal agreement so people will be discouraged from entering into an illegal agreement. Thus, no action can be taken for recovery of money paid or property transferred under an illegal agreement and for breach of an illegal agreement.

In the case of equal guilt in an illegal agreement, the position of the defendant is better than that of the plaintiff. However, the plaintiff may sue on an illegal agreement where he was induced to agree by fraud or undue influence and where an essential part of the agreement has not been carried out and he is truly repentant.

Question 2. Comment on the following: Counteroffer to an offer lapses the offer.

Answer:

Counteroffer to an offer lapses the offer

When the offeree offers to qualify for acceptance of the offer subject to modifications and variations in the terms of the original offer, he is said to have made a counteroffer. A counteroffer amounts to a rejection of the original offer.

• The rule is based on the principle that unless the parties have consensus-ad-idem i.e. are of one mind there cannot be agreement between them. The rule is in itself necessary for words of acceptance that do not correspond to the proposal.
• Made are not an acceptance of anything and therefore, can amount to nothing more than a new proposal, or, as it is frequently, called a counter offer. Making a counteroffer amounts to a rejection of the original offer, which offer can not be thereafter accepted.

Question 3. Define the term ‘Acceptance’. Discuss the legal provisions relating to communication of acceptance.

Answer:

According to Section 2(b), the term ‘acceptance’ is defined as follows: “When the person to whom the proposal is made signifies his assent thereto,’ the proposal is said to be accepted. A proposal, when accepted, becomes a promise.”

• An acceptance to be valid must be absolute, unqualified, accepted according to the mode if any prescribed within a reasonable time, and communicated to the offeror.
• Acceptance can also be made by way of conduct. The legal provisions relating to communication of acceptance are contained in Section 4.
• The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made.

The communication of an acceptance is complete:

1. As against the proposer, when it is put in a course of transmission to him, to be out of the power of the acceptor;
2. As against the acceptor, when it comes to the knowledge of the proposer.

Illustrations: A proposes, by letter, to sell a house to B at a certain price:

1. The communication is complete when B receives the letter.
2. B accepts the proposal by a letter sent by post. The communication is complete:

as against A, when the letter is posted.

As against B when the letter is received by A.

Section 3 of the Act prescribes, in general terms, two modes of communication, namely: (1 ) by any act or (2) by omission, intending thereby to communicate to the other or which has the effect of communicating it to, the other. This first method would include any conduct and words whether written or oral.

• Written words would include letters, telegrams, telex messages, ‘ advertisements, etc. Oral words would include telephone messages. Any conduct would include positive acts or signs so that the other person understands what the person acting or making signs means to say or convey.
• The omission would exclude silence but include such conduct or forbearance on one’s part that the other person takes it as his willingness or assent. These are not the only modes of communication of the intention of the parties.
• There are other means as well, For Example., if. you as the owner, deliver the goods to me as the buyer thereof at a certain price, this transaction will be understood by everyone, as acceptance by act or conduct, unless there is an indication to the contrary.

The phrase appearing in Section 3 “which has the effect of communicating if, clearly refers to an act or omission or conduct which may be indirect but which results in communicating an acceptance or nonacceptance.

However, a mere mental but unilateral act of assent in one’s mind does not tantamount to communication, since it cannot have the effect of communicating it to the other.

Question 4. Who is competent to accept an offer? Explain the rules relating to an offer, as provided in the Indian Contract Act, .1872.

Answer:

Who can accept an offer?

When an offer is made to a particular person it can be accepted by him alone. If it is accepted by any other person, there is no valid acceptance.

However, in the case of a general offer, it can be accepted by anyone, who knows the offer. The persons who want to accept the offer must be competent to enter into a contract, as per requirements of the Indian Contract Act.

Legal Rules relating to an offer:

Offer must be such as in law is capable of being accepted and giving rise to a legal relationship. A social invitation, even if it is accepted, does not create any relation because it is not so intended.

Terms of the offer must be definite, unambiguous, and certain and not loose and vague.

1. Offer must be distinguished from:
2. a declaration of intention and an announcement and
3. an invitation to make an offer or do business.
4. Offer must be communicated, otherwise there can be no acceptance of it. An acceptance of the offer, in ignorance of the offer, is no acceptance and does not confer any right on the acceptor.
5. Offer must be made to obtain the assent of the other. party addressed and not merely to disclose the intention of making an offer.
6. The offer should not contain a term the non-compliance of which may be assumed to amount to acceptance. Thus, a man cannot say that if acceptance is not communicated by a certain time, the offer would be considered accepted.
7. A statement of price is not an offer.

Question 5. Comment on the following: Offer is a lighted match while acceptance is a train of gunpowder.

Answer:

Offer is a lighted match while acceptance is a train of gunpowde

It is a cardinal rule as regards acceptance that once the acceptance has been made to an offer the contract is complete. According to “Sir William Anson” Acceptance is to offer what a lighted match is to a train of gunpowder”.

• The effect is that the acceptance produces something which cannot be recalled or undone. But the man who led the train may remove it before the match is applied. So an offer may lapse for want of acceptance, or be revoked before acceptance. Acceptance converts the offer into a promise.
• and then it is too late to revoke it. This means that as soon as a lighted match is brought in contact with a train of gunpowder, the gunpowder explodes. Offer is compared to gunpowder and acceptance to a lighted match.
• Gunpowder (i.e. the offer) by itself is inert, it is the lighted match i.e. the acceptance Which causes the gunpowder to explode. The meaning is that an offer by itself cannot create legal relations between the parties.
• But as soon as it is accepted by the offeree, a legal relationship is established between the parties, Once an offer is accepted it becomes a promise and cannot be revoked or withdrawn.

Question 6. When the revocation of a proposal may be made otherwise than by communication?

Answer:

Revocation of proposal otherwise than by communication: A proposal may be revoked not only by the communication of the notice of revocation by the proposer or by his authorized agent to the other party but also;

• By lapse of time [Section 6(2)]: Proposer is not bound to keep his proposal open indefinitely the reason being that it would amount to a promise without consideration, and such a promise is unenforceable.
• By non-fulfillment by the offeree of a condition precedent to acceptance [Section 6(3)]: A proposal is also revoked by the failure of the acceptor to fulfill a condition precedent to the acceptance.
  • A condition precedent is a condition that prevents an obligation from coming into existence until the condition is satisfied. An offeror may impose conditions such as executing a certain document or depositing a certain amount as earnest money. Failure to satisfy any such condition shall make a proposal lapse.
• By the death or insanity of the proposer: Death or insanity of the proposer, under Indian law, operates as the revocation of the proposal, only if the fact of the death or insanity has come to the knowledge of the acceptor.
  • If the acceptor accepts an offer in ignorance of the death or insanity of the offeror, the acceptance is valid.
• If a counteroffer is made to it: The counteroffer lapses the offer made by the offeror.
• If an offer is not accepted according to the prescribed or usual mode, provided the offeror gives notice to the offeree within a reasonable time that the acceptance is not according to the prescribed or usual mode. If the offeror keeps quiet, he is deemed to have accepted the acceptance [Section 7(2)].

An offer can, however, be revoked subject to the following rules:

• It can be revoked at any time before its acceptance is complete as against the offeror.
• The revocation takes effect only when it is communicated to the offeree.
• If the offeror has agreed to keep his offer open for a certain period, he can revoke it before the expiration of the period only.
  • if the offer has in the meantime not been accepted or
  • if there is no consideration for keeping the offer open.

Question 7. Comment on the following: An acceptance must be made before the proposal lapses.

Answer:

An acceptance must be made before the proposal lapse

Under Section 5 of the Indian Contract Act, 1872, a proposal may be revoked at any time, before the communication of its acceptance is complete as against the proposer but not afterwards.

An acceptance may be revoked at any time before the communication of acceptance is complete as against the acceptor but not afterwards. Therefore an acceptance must be made before the offer lapses or is revoked.

Question 8. What are implied contracts? State the various implied contracts:

Answer:

Implied contracts

Under certain circumstances, a person may receive a benefit to which the law regards another person as better entitled, or for which the law considers he should pay to the other person, even though there is no contract between the parties.

Such relationships are termed as “Quasi-Contracts” or Implied Contracts. A quasi-contract rests on the ground of equity that a person shall not be allowed to enrich himself unjustly at the expense of another.

Sections 68 to 72 of the Indian Contract Act, of 1872 have prescribed the following relationships creating quasi-contractual relationships:

1. Supply of necessaries: Under Section 68, if a person, incapable of entering into a contract, or anyone whom he is legally bound to support, is supplied by another person with necessaries suited to his conditions ‘in life, the person who has furnished such supplies is entitled to be reimbursed from the property of such incapable person.
2. Payment by an interested person: It has been laid down in Section 69 of the Indian Contract Act that a person who is interested in the payment of money which another is bound by law to pay, and who therefore pays it, is entitled to be reimbursed by the other.
3. Obligation to pay for non-gratuitous Act: Section 70 of the Indian Contract Act states that where a person lawfully does anything for another person or delivers anything to him not intending to do so gratuitously, and such other person enjoys the benefit thereof, the latter is bound to make compensation in respect of or to restore, the things so done or delivered.
4. Responsibility of finder of goods: Under Section 71 of the Act, a person who finds goods belonging to another, and takes them into his custody, is subject to the same responsibility as a bailee.
5. The case where money is paid by mistake or under coercion: Finally, Section 72 of the Indian Contract Act provides that a person to whom money has been paid, or anything delivered, by mistake or under coercion, must repay or return it.

Thus, a quasi-contractual right is always a right to the money and generally, though not always to a liquidated sum of money. It does not arise from any agreement between the parties concerned but is imposed by the law.

It is a right that is not available against the whole world but against a particular person or persons only. There is no contract between the parties in cases of quasi-contracts, yet they are put in the same position as if, there were a contract between them.

Question 9. State the rules relating to acceptance of a Contract

Answer:

The rules relating to acceptance of a Contract

1. Rules Relating to Acceptance of a Contract: The Indian Contract Act, of 1872 specifies the following rules relating to the acceptance of a contract. It means that a valid contract can be made only by adhering to the following rules relating to the acceptance of an offer. These are:
2. Acceptance must be absolute and unqualified: Acceptance shall be valid only when it is absolute and unqualified and is expressed in some usual and reasonable manner unless the proposal prescribes how it is to be accepted.
3. Acceptance must be communicated to the offeror: Acceptance must be brought to the knowledge of the offeror. Unless the offeror knows about the acceptance, he can not be bound by the acceptance given by the offeree. Mere silence is no acceptance.
4. Acceptance must be in the mode prescribed: Where the mode of acceptance has been prescribed in the proposal, it must be accepted in the manner prescribed, otherwise, it shall not bind the offeror. However, the offeror may later on waive this condition and bind himself from the acceptance not given in the prescribed mode.
5. Time: Acceptance must be given within the prescribed time and where no time is prescribed, within the time that is reasonable and does not allow the offer to lapse.
6. Acceptance may be expressed i.e. words of mouth or in writing, or even implied i.e. by the conduct of the party concerned.
7. Acceptance must be made by the person to whom the offer is made: Acceptance given by some other person or even on behalf of the person to whom the offer is made, is not valid acceptance.
8. It cannot precede an offer. If it does, it is not a valid acceptance and does not result in a contract.
9. It must show an intention on the part of the acceptor to fulfill the terms of the offer.
10. It must be given before the offer lapses or before the offer is withdrawn.

Question 10. When does an offer come to an end?

Answer:

An offer may come to an end by revocation lapse or rejection. According to Sections 6 and 7 of the Indian Contract Act, 1 872, an offer comes to an end in the following cases:

1. If the offerer revokes his offer before it has been accepted by the offeree, the offer comes to an end.
2. The offer comes to an end if it is not accepted within the time fixed in the offer, or within a reasonable time as the case may be. What is a reasonable time is a question of fact.
3. If there is a condition mentioned in the proposal, before the fulfillment of which the acceptor can not accept the proposal, the offer will automatically be revoked if the acceptor fails to fulfill that condition precedent.
4. If the fact of the death or insanity of the proposer comes to the knowledge of the acceptor before acceptance, the offer of the proposal is revoked. (Section 6)
5. Sometimes, the mode of acceptance is specifically prescribed in the offer. In such a case, if the proposal is not accepted in the prescribed form or method, it stands revoked. [Section 7(2)f.
6. An offer comes to an end as soon as it is rejected by the offeree.
7. An offer lapses if it becomes illegal before it is accepted.

Question 11. Comment on the following: All contracts are agreements, but all agreements are not contracts.

Answer:

“All contracts are agreements, but all agreements are not contracts”: An agreement comes into existence when one party makes a proposal or offer to the other party and that other party gives his acceptance to it.

• A contract is an agreement enforceable by law. It means that to become a contract an agreement must give rise to a legal obligation i.e. duty enforceable by law. If an agreement is incapable of creating a duty enforceable by law, it is not a contract.
• There can be agreements that are not enforceable by law, such as social, moral, or religious agreements. The agreement is a wider term than the contract. All agreements need not necessarily become but all contracts shall always be agreements.

All agreements are not contracts: When there is an agreement between the parties and they do not intend to create a legal relationship, it is not a contract. For example, A invites B to see a football match and B agrees.

But A could not manage to get the tickets for the match, now B cannot enforce this promise against A i.e. no compensation can be claimed because this was a social agreement where there was no intention to create a legal relationship.

All contracts are agreements: For a contract, there must be two things

• an agreement and
• enforceability by law.

Thus the existence of an agreement is a pre-requisite for the existence of a contract. Therefore, it is true to say that all contracts are agreements.

Thus, we can say that there can be an agreement without it becoming a contract, but we can’t have a contract without an agreement.

Question 12. Explain the modes of revocation of an offer as per the Indian Contract Act, 1 872.

Answer:

The modes of revocation of an offer as per the Indian Contract Act, of 1872 are:

1. By notice of revocation
2. By lapse of time :
   • The time for acceptance can lapse if the acceptance is not given within the specified time and where no time is specified, then within a reasonable time. This is for the reason that the proposer should not be made to wait indefinitely.
3. By non-fulfilment of condition precedent where the acceptor fails to fulfill a condition precedent to acceptance, the proposal gets revoked. This principle is laid down in Section 6 of the Act. The offer for instance may impose certain conditions such as executing a certain document or depositing a certain amount as earnest money.
4. By death or insanity
5. By counter offer
6. By the noh-acceptance of the offer according to the prescribed or usual mode
7. By subsequent illegality.

Question 14. Define the term acceptance under the Indian Contract Act, of 1872. Explain the legal rules regarding a valid acceptance.

Answer:

Definition of Acceptance:

• In terms of Section 2(b) of the Indian Contract Act, “the term acceptance” is defined as follows:
• “When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. The proposal when accepted, becomes a promise”.

Analysis of the above definition

1. When the person to whom the proposal is made – for example, if A offers to sell his car to B for ₹ 2,00,000. Here, the proposal is made to B.
2. The person to whom the proposal is made i.e. B in the above example and if B signifies his consent on that proposal., then we can say that B has signified his consent on the proposal made by A.
3. When B has signed his consent on that proposal, we can say that the proposal has been accepted.
4. The accepted proposal becomes a promise.

Legal Rules regarding a valid acceptance

1. Acceptance can be given only by the person to whom the offer is made: In case. of a specific offer, it can be accepted only by the person to whom it is made. Case Law: Boulton vs. Jones (1857).

Facts: Boulton bought a business from Brocklehurst. Jones, who was Brokiehurst’s creditor, placed an order with Brocklehurst for the supply of certain goods. Boulton supplied the goods even though the order was not in his name.

• Jones refused to pay Boultan for the goods because by entering into the contract with Blocklehurst, he intended to set off his debt against Brocklehurst.
• Held, as the offer was not made to Boulton, therefore, there was no contract between Boulton and Jones. In the case of a general offer, it can be accepted by any person who knows the offer.

2. Acceptance must be absolute and unqualified: As per section 7 of the Act, acceptance is valid only when it is absolute and unqualified and is also expressed in some usual and reasonable manner unless the proposal prescribes how it must be accepted.

• If the proposal prescribes how it must be accepted, then it must be accepted accordingly.
• M offered to sell his land to N for £ 280. N replied purporting to accept the offer but enclosed a cheque for £ 80 only.
• He promised to pay the balance of £ 200 in monthly installments of £ 50 each. It was held that N could not enforce his acceptance because it was not an unqualified one.
• A offers to sell his house to B for ₹ 1,00,000/-. B replied “I can pay ₹ 80,000 for it. The offer of “A” is rejected by “B” as the acceptance is not unqualified, B however changes his mind and is prepared to pay ₹ 1,00,000/-. This is also treated as a counter offer and it is up to A whether to accept it or not.

Example: “A” enquires from “B”, “Will you purchase my car for ₹ 2 lakhs?” If “B” replies “I” shall purchase your car for ₹ 2 lakhs, if you buy my motorcycle for ₹ 50,000/-, here “B” cannot be considered to have accepted the proposal.

• If on the other hand “B” agrees to purchase the car from “A” as per his proposal subject to the availability of a valid Registration Certificate book for the car, then the acceptance is in place though the offer contained no mention of R.C. book.
• This Is because expecting a valid title for the car is not a condition. Therefore, the acceptance in this case is unconditional.

3. The acceptance must be communicated: To conclude a contract between the parties, the acceptance must be communicated in some perceptible form. Any conditional acceptance or acceptance with varying or too deviant conditions is no acceptance.

• Such conditional acceptance is a counter-proposal and has to be accepted by the proposer if the original proposal has to materialize into a contract. Further, when a proposal is accepted, the offeree must know about the offer made to him.
• If he does not know, there can be no acceptance. The acceptance must relate specifically to the offer made. Then only it can materialize into a contract. The above points will be clearer from the following examples: Brogden vs. Metropolitan Railway Co. (1877)

Facts: B a supplier, sent a draft agreement relating to the Supply of Coal to the Manager of Railway Co. viz, Metropolitan Railway for his acceptance.

• The manager wrote the word “Approved” on the same and put the draft agreement in the drawer of the table intending to send it to the company’s solicitors for a formal contract to be drawn up.
• By an oversight, the draft agreement remained in the drawer. Held, that there was no contract as the manager had not communicated his acceptance to the supplier, B.
• Where an offer made by the intended offeree without the knowledge that an offer has been made to him cannot be deemed as an acceptance thereto. (Bhagwandas v. Girdharilal)
• A mere variation in the language not involving any difference in substance would not make the acceptance ineffective.

Example: A proposed B to marry him. B informed A’s sister that she is ready to marry him. But Jiis’s sister didn’t inform A about the acceptance of the proposal.

There is no contract as acceptance was not communicated to A.

4. Acceptance must be in the prescribed mode: Where the mode of acceptance is prescribed in the proposal, it must be accepted in that manner.

But if the proposer does not insist on the proposal being accepted in the manner prescribed after it has been accepted otherwise, i.e., not in the prescribed manner, the proposer is presumed to have consented to the acceptance.

Example: If the offeror prescribes acceptance through messenger and the offeree sends acceptance by email, there is no acceptance of the offer if the offer informs the offeree that the acceptance is not according to the mode prescribed.

But if the offer or fails to do So, it will be presumed that he has accepted the acceptance and a valid contract will arise.

5. Time: Acceptance must be given within the specified time limit, if any, and if no time is stipulated, acceptance must be given within a reasonable time and before the offer lapses. What is a reasonable time is nowhere defined in the law and thus, would depend on the facts and circumstances of the particular case.

Example: A offered to sell B 50 kgs of bananas at ₹ 500. B communicated the acceptance after four days. Such is not a valid contract as bananas being perishable items could not stay for a week.

Four days is not a reasonable time in this case. Example: A offers B to sell his house at ₹ 10,00,000. B accepted the offer and communicated to A after 4 days. Held the contract is valid as four days can be considered as reasonable time.in case of sell of house.

6. Mere silence is not acceptance: The acceptance of an offer cannot be implied from the silence of the offeree or his failure to answer, unless the offeree has in any previous conduct indicated that his silence is the evidence of acceptance.

Case Law: Felthouse vs. Bindley (1862)

Facts: (Uncle) offered to buy his nephew”s horse for £30 saying “If I hear no more about it I shall consider the horse mine at £30.” The nephew did not reply to F at all.

He told his auctioneer, B to keep the particular horse out of sale of his farm stock as he intended to reserve it for his uncle. By mistake, the auctioneer sold the horse. F sued him for conversion of his property. Held, F could not succeed as his nephew had not communicated the acceptance to him.

Example: “A” subscribed to the weekly magazine for one year. Even after the expiry of his subscription, the magazine company continued to send him magazines for five years.

Also “A” continued to use the magazine but refused to pay the bills sent to him. “A” would be liable to pay as his continued use of the magazine was his acceptance of the offer.

7. Acceptance by conduct or implied Acceptance: Section 8 of the Act lays down that “the performance of the conditions of a proposal, or the acceptance of any consideration for a reciprocal promise which may be offered with a proposal, constitutes an acceptance of the proposal.

This section provides the acceptance of the proposal by conduct as against other modes of acceptance i.e. verbal or written communication. Therefore, when a person performs the act intended by the proposer as the consideration for the promise offered by him, the performance of the act constitutes acceptance.

Example: when a tradesman receives an order from a customer and executes the order by sending the goods, the customer’s order for goods constitutes the offer, which has been accepted by the tradesman subsequently by sending the goods. It is a case of acceptance by conduct.

Example: When a cobbler sits with a brush and polish, a person giving his shoes for polishing constitutes acceptance by conduct.

Nature of Contract Practical Questions And Answers

Question 1.

1. Mr. Ramesh promised to pay ₹ 50,000 to his wife Mrs. Lali so that she could spend the sum on her 30th birthday. Mrs. Lali insisted her husband make a written agreement if he loved her. Mr/Ramesh made a written agreement and the agreement was registered under the law. Mr. Ramesh failed to pay the specified amount to his wife Mrs. Lali. Mrs. Lali wants to file a suit against Mr. Ramesh and recover the promised amount., Referring to the applicable provisions of the Contract Act, of 1872, advise
2. A shopkeeper displayed a pair of dresses in the showroom and a price tag of ₹ 2,000 was attached to the dress. Ms. Lovely looked at the tag. and rushed to the cash counter. Then she asked the shopkeeper to receive the payment and pack up the dress. The shopkeeper refused to hand over the dress to Ms. Lovely in consideration of the price stated in the price tag attached to the dress..Ms. Lovely seeks your advice on whether she can sue the shopkeeper for the above cause under the Indian Contract Act, of 1872. whether Mrs. Lali will succeed.

Answer:

1. Parties must intend to create legal obligations: There must be an intention on the part of the parties to create a legal relationship between them. Social or domestic type of agreements are not enforceable in a court of law and hence they do not result in contracts.

• In the given question, Mr. Ramesh promised to pay ₹ 50,000 to his wife so that she could spend the same on her birthday. However, subsequently, Mr. Ramesh failed to fulfill the promise, for which Mrs. Lali wants to file a suit against Mr. Ramesh.
• Here, in the given circumstance wife will not be able to recover the amount as it was a social agreement and the parties did not intend to create any legal relations.

2. The offer should be distinguished from an invitation to offer. An offer is definite and capable of converting an intention into a contract. Whereas an invitation to an offer is only a circulation of an offer, it is an attempt to induce offers and precedes a definite offer.

• Where a party, without expressing his final willingness, proposes certain terms on which he is willing to negotiate, he does not make an offer but invites only the other party to make an offer on those terms. This is the basic distinction between offer and invitation to offer.
• The display of articles with a price in it in a self-service shop is merely an invitation to offer. It is in no sense an offer for sale, the acceptance of which constitutes a contract.
• In this case, Ms. Lovely by selecting the dress and approaching the shopkeeper for payment simply made an offer to buy the dress selected by her. If the shopkeeper does not accept the price, the interested buyer cannot compel him to sell.

Question 2. Mr. B proposed to Mr. S by post to sell his house for ₹ 10 lakhs and posted the letter on 10th April 2020 and the letter reached Mr. S on 12th April 2020. He reads the letter on 13th April 2020. Mr. S sends his letter of acceptance on 16th April 2020 and the letter reaches Mr. B on 20th April 2020. On 17th April Mr. S changed his mind and sent a telegram withdrawing his acceptance. Telegram reaches to Mr. B on 19th April 2020.

Examine the Indian Contract Act, of 1872:

1. On which date, the offer made by Mr. B will complete?
2. Discuss the validity of acceptance
3. What would be the validity of acceptance if the letter of revocation and letter of acceptance reached together?

Answer:

1. The offer made by Mr. B will be completed on 13 April 2020. (when it comes to the knowledge of Mr. S)
2. Here, acceptance is not valid as he revoked his acceptance by telegram before the letter of acceptance reached Mr. B.
3. If the letter of acceptance and letter of recavation reaches together then two situations may arise.
   • It will be decided based on the letter that he reads first like if he reads acceptance then acceptance is valid and if revocation is first then acceptance is revoked.
   • In the absence of any such information, revocation is absolute.

Question 3. X agrees to pay Y ₹ 1,00,000/-if Y kills Z. To pay Y, X borrows ₹ 1,00,000/- from W, who is also aware of the purpose of the loan. Y kills Z but X refuses to pay. X also refuses to repay the loan to W. Explain the validity of the contract.

1. Between X and Y.
2. Between X and W

Answer:

Illegal Agreement: It is an agreement that the law forbids to be made. As an essential condition, the lawful consideration and object are a must to make the agreement valid. (Section 10).

As per Section 23 of the Indian Contract Act, 872 an agreement is legal and void if the consideration and object is unlawful or contrary to law i.e. if forbidden by law. Such an agreement is void and is not enforceable by law.

Even the connected agreements or collateral transactions to illegal agreements are also void. In the present case,

1. X agrees to give ₹ 1,00,000 to Y if Y kills Z. Thus, the agreement between X and Y is void agreement being illegal.
2. X borrows ₹ 1,00,000 from W, and W is also aware of the purpose of the loan. Thus, the agreement between X and W is void as the connected agreements of illegal agreements are also void.

Question 4. Radha invited her ten close friends to celebrate her 25^th birthday party on 1^st January 2023 at 7:30 P.M. at a well-known “Hi-Fi Restaurant” at Tonk Road Jaipur. All invited friends accepted the invitation and promised to attend the said party.

At the request of the hotel manager, Radha deposited ₹ 5,000/- as non-refundable security for the said party. On the scheduled date and time, three of the ten invited friends did not turn up for the birthday party and did not convey any prior communication to her.

Radha, enraged with the behavior of the three friends, wanted to sue them for the loss incurred in the said party. Advise as per the provisions of the Indian Contract Act, of 1872.

Would your answer differ if the said party had been a “Contributory 2023 New Year celebration Party” organized by Radha?

Answer:

As per the provisions of the Indian Contract Act, of 1872, there must be an intention on the part of the parties to create a legal relationship between them. Social or domestic type of agreements are not enforceable in a court of law and hence they do not result in contracts.

• As per the case law of Balfour v. Balfour, the husband agreed to pay his wife a certain amount as maintenance every month. Husband failed to pay the promised amount wife sued him for the recovery of the amount but could not recover it as it was a social agreement and the parties did not intend to create legal relations.
• In the above case, Radha invited her ten close friends to celebrate her birthday party. She deposited ₹ 5,000/- as non-refundable security with the restaurant, he among ten invited friends did not turn up for the party and Radha wanted to sue therefore loss incurred at the party.
• Here, is unlawful or contrary to law i.e. if forbidden by law. Such an agreement is as per the above-mentioned provisions of the Indian Contract Act, of 1872, Radha can not sue or recover loss from her friends as it was a social agreement and the parties did not intend to create legal relations.
• If the party organized by Radha had been a ‘Contributory 2023 New Year celebration Party’, Radha can sue her friends for the loss incurred in the party as the agreement could have been contributory thus, creating legal relations between the parties.