Contract-1 Paper-5
Contract-1 Paper-5
Contract-1 Paper-5
CONTRACT-1
Q1. “All contracts are Agreements, but all agreements are not Contract”.
Explain.
Ans. Agreement:- An agreement is defined as “Every promise and set of
promises, forming the consideration for each other, is an agreement” in section
2(e) of the Indian Contract ac Act, 1872. When a proposal is made by one party
and the same is accepted by another party, it becomes a promise and when this
promise is with some consideration by any of the parties is an agreement.
Elements of Agreement
There are four elements necessary for forming an agreement:
1. Presence of Parties: There should always be two or more parties
for the formation of an agreement. An agreement cannot be made by
one party or person, two parties are required as a promise cannot be
made by one party only.
2. Promise: When a proposal made by one party is accepted by
another party it becomes a promise. Section 2(b) of the Indian
Contract Act, 1872, defines the term “promise”. It provides: “when
one 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”.
3. Consideration: “Consideration” is definable as the “inducement to a
contract,” or the “cause, motive, price, or impelling influence which
induces a contracting party to enter into a contract.” (2)
4. Consensus Parties: The free consent of parties is necessary for
forming a valid agreement.
Contract
A contract is defined as “an agreement enforceable by law” in Section 2 (h) of
The Indian Contract Act, 1872. An agreement between private parties creating
mutual obligations enforceable by law. The basic elements required for the
agreement to be a legally enforceable contract are mutual assent, expressed by
a valid offer and acceptance; adequate consideration; capacity; and legality.
Elements of Contract
The necessary elements for forming a legally enforceable contract are:
1. Offer: An offer is a proposal made by one party to the other party
which expresses the willingness of the party to be bound on terms.
2. Acceptance: Acceptance means the offer has been accepted with
the terms of the offer by the party to whom an offer was made.
3. Consideration: A Consideration is to be made by the parties after
acceptance of the offer.
4. Intention: There must be a clear intention of both parties that the
agreement is a legally binding contract.
5. Certainty: The terms or conditions of the contract must be clear and
may be discussed between the parties and may be understood in the
same manner by both parties. The terms or conditions should not be
unlawful or unenforceable.
All Contracts are Agreements But All Agreements are not Contracts:-
All Contracts are agreements as for the formation of a contract, an agreement is
always necessary. There cannot be a contract where there is no agreement.
Without an agreement, a contract cannot be formed. Therefore, All Contracts are
Agreements. Only those agreements become contracts which give rise to a legal
obligation. If no legal duty is enforceable by an agreement, it can never be a
contract. And hence agreement is a broader term than Contract. Without an
agreement, a contract cannot be formed. Therefore, All Contracts are
Agreements. Only those agreements become contracts which give rise to a legal
obligation. If no legal duty is enforceable by an agreement, it can never be a
contract. An agreement is regarded as a contract when it is enforceable by law.
The conditions of enforceability are stated in Section 10 of the Indian contract act
1872. According to this section, an agreement becomes a contract when the
agreement is made for some consideration between the parties which are
competent to contract and are entering into the Contract with their free consent
and has a lawful objective. A lease agreement between two corporate bodies
was held legal where it was signed by one only, representing both sides because
he was a director in both the legal entities.
● Voluntary Services
Time-barred Debt is a type of Debt which was created when one individual
borrowed money from another party and did not repay on time. As a certain
amount of time has passed, it is no longer legally collectable. Nevertheless, if the
borrower made a promise in writing to return the amount, in whole or part, and he
or his authorised agent signed the agreement; then it will be considered legally
enforceable, even though it is an agreement without consideration.
Although, as a general rule, a contract with minors is void, we must keep in mind
the following rules as well:
1) A contract with a minor is void and, hence, no obligations can ever arise on
him thereunder.
2) The minor party cannot ratify the contract upon attaining majority unless a law
specifically allows this.
4) The Partnership Act also prohibits minors from becoming partners in a firm.
They can, however, receive the benefits of partnership and ratify the same upon
attaining majority.
5) The rule of estoppel under evidence law does not apply to minors under
contractual obligations. In other words, even if a minor forms a contract claiming
majority age, legal obligations cannot arise against him.
In this case, the privy council held that a contract by a minor is void-ab-initio
(from the start) it was held in 1903.
Issues:-
● Whether the contract was void or not under The Indian Contract act
of 1872 Section 2 Section 10 and most important Section 11;
● Whether the respondent was liable to pay back the loan to the
Defendant;
● Whether the contract of mortgage was avoidable or not.
● Judgment:
1. First, the trial court held that the contract between the Plaintiff and
Defendant was void because at the time of the contract the Plaintiff was a
minor.
2. Later Defendant filed an appeal in the Calcutta High Court where the High
Court agreed with the verdict of the trial court and dismissed the appeal.
3. Again, Brahmo Dutta went to the Privy Council to appeal and the Privy
Council also dismissed the case and held that the contract between
appellant and respondent is void.
4. The final decision passed by The Privy Council was:
5. The contract with any minor is void-ab-initio (from the beginning).
6. The Dharmodas Ghose was not held liable for the repayment of the loan
because the contract was void-ab-initio.
● Facts of the case: The respondent and his father were living in a joint
Hindu family. The respondent’s father died on the 4th of October 1935.
The respondent was and still is a minor living with her widow mother.
The respondent’s father before the death he has incurred few debts,
including Rs. 16,000 owing to appellants securing with two promissory
notes and one debt of Rs. 1,200 owing to Ramayya and secured by the
mortgage. The respondent is a minor, mother of the respondent that is
guardian entered into an agreement in writing for the sale of the land to
the appellant at the cost of Rs. 17,200. The purchase price has to be
applied at Rs. 16000 for discharging the promissory note and the
remaining Rs.1,200 the mortgage debt owing to Ramayya. The contract
stated that the sale deed was to be executed, registered, and delivered
to the appellant at their request upon their expenses. The appellants
paid off the RS. 1,200 debt and they were let into possession of the sold
land but there was never a sale-deed executed or registered. 10th of
September 1938 the respondent and his mother led this suit for claiming
the property.
● Issues:
● Whether the contract made by his guardian is valid.
● Who should be in the possession of the land.
● Judgment:
● First, the subordinate judge held that the appellants are protected under
the Section 53A of the Transfer of Property Act and dismissed the suit.
● The District Court overruled the judgment of the subordinate and
ordered possession of the land in the favor of the respondent.
● The High Court of Madras dismissed the appeal made by the current
appellant.
● The Privy Council held that the contract was entered by the mother of
the respondent. It was made for the benefit of a minor and the order of
the Subordinate Judge was restored and the claim for the relief by the
respondent was dismissed. The respondent must pay the cost of appeal
and proceedings in India to the appellant.
Q4. “An Agreement in restraint of Trade is void”. Explain what are its
Exceptions?
Ans. “An Agreement in restraint of Trade is void”:- Section 27 provides that
every agreement by which anyone is restrained from exercising a lawful
profession or business of any kind, is to that extent void. Every person in India is
free to carry on any lawful business, trade or engage in any profession. This
freedom has been guaranteed to every citizen by the Constitution of India. The
right of trade and profession is as important as the right of life. Just as a person
does not have a right to deprive himself of his life, similarly, he cannot deprive
himself of the right of trade and profession. An agreement. which puts restraint
upon a party’s freedom of trade and profession shall not be enforceable.
Exceptions: The general rule is that all the agreements in restraint of trade are
void. However, following are the exceptions to the above general rule.
Sale of goodwill: According to Section 27, One who sells the goodwill of a
business may agree with the buyer to refrain from carrying on a similar business,
within specified local limits, so long as the buyer or any person deriving title to
the goodwill from him, carries on a like business therein. Provided that such limits
appear to the court reasonable, regard being had to the nature of the business.
Partners agreement: Partners may agree that A partner shall not carry on any
business, other than that of the firm, while being partner. [Section 11(2) Indian
Partnership Act, 1932]. A partner ceasing to be a partner will not carry on any
business. similar to that of the firm within a specified period or within local limits.
The agreement shall be valid if the restrictions are reasonable. [Section 32 (2)
Indian Partnership Act, 1932]. Partners may in anticipation of dissolution make
an agreement that some or all of them will not carry on a business similar to that
of the firm within a specified period or within specified local limits and such
agreement shall be valid if the restrictions imposed are reasonable. [Section 54
Indian Partnership Act, 1932]. A partner may, upon sale of goodwill of a firm,
make an agreement that such partner will not carry on any business similar to
that of the firm within a specified period or local limits provided the restriction is
reasonable. [Section 55, Indian partnership Act, 1932].
Ans. According to the Indian Contract Act 1872, proposal is defined in Section
2(a) as “when one person will signify to another person his willingness to do or
not do something (abstain) with a view to obtain the assent of such person to
such an act or abstinence, he is said to make a proposal or an offer.” The entire
process of entering into a contract begins with the proposal or an offer made by
one party to another. The proposal must be accepted to enter into an agreement.
An offer, by one person to another, of terms and conditions with reference to
some work or undertaking, or for the transfer of property, the acceptance whereof
will make a contract between them.
Lawful Consideration.
Consideration is something which is paid by the offering party to the offered
party. It may be time, money, knowledge, service etc. Without a Lawful
consideration one cannot fight a case in the court.
Capacity of parties.
The parties to an agreement must be competent to contract. If either of the
parties does not have the capacity to contract, the contract is not valid. According
the following persons are incompetent to contract.
(a) Miners,
(b) Persons of unsound mind, and
(c) persons disqualified by law to which they are subject.
Free Consent.
'Consent' means the parties must have agreed upon the same thing in the same
sense.
Consent is said to be free when it is not caused by-
● Coercion
● Undue influence
● Fraud
● Misrepresentation
● Mistake
An agreement should be made by the free consent of the parties.
.
Lawful Object.
Object has nothing to do with consideration. It means the purpose or
design of the contract. Thus, when one hires a house for use as an office
for an e-Commerce company, the object of the contract is to run an
e-Commerce Company. The Object is said to be unlawful if-
(a) it is forbidden by law;
(b) it is of such nature that if permitted it would defeat the provision of any
law;
(c) it is fraudulent;
(d) it involves an injury to the person or property of any other;
(e) the court regards it as immoral or opposed to public policy.
Certainty of Meaning.
Agreement the meaning of which is not Certain or capable of being made
certain are void. A poorly drafted agreement which is ambiguous in nature
is not legally valid.
Possibility of Performance.
If the act is impossible in itself, physically or legally, it cannot be enforced
at law. For example, Mr. A agrees with B to discover treasure by magic.
Such Agreements are not enforceable. Hence all agreements need to be
physically and legally enforceable.
Legal Formalities.
An oral Contract is a perfectly valid contract, except in those cases where
writing, registration etc. is required by some statute. In India writing is
required in cases of sale, mortgage, lease and gift of immovable property,
negotiable instruments; memorandum and articles of association of a
company, etc. Registration is required in cases of documents coming
within the scope of section 17 of the Registration Act.
Q7. What do you understand by discharge of a Contract? Discuss the
Circumstances under which a Contract is discharged.
Ans. Discharge of a Contract:- Discharge of contract means termination
of the contractual relationship between the parties. When the rights and
obligations arising out of a contract are extinguish, the contracts is said to
be discharged. A contract may be discharged either by the acts of the
parties of the operation of law. Act of parties may take different forms like
performance, agreement, breach, etc. While operation of law includes
death, insolvency, etc.
Case of Oil & Natural Gas Corporation Limited v. SAW Pipes Limited Civil
Appeal of 2001 in the course of the hearing on 15th December instant and which
is directly on the issue and is in favour of the appellant. In the said decision the
Hon'ble Supreme Court has referred to the observation in another case of
Raman Iron Foundry wherein the above said interpretation cited by the D.R. has
been produced. However, their Lordships have observed that in the case of
Kamaluddin Ansari & Co. v. Union of India and Ors. The three Judge Bench of
The Supreme Court has overruled the decision in Raman Iron Foundry's case
and have further observed that the Court while interpreting the similar term of the
contract have observed that it gives wider power to the Union of India to recover
the amount claimed by appropriating any sum then due... Hon'ble Supreme Court
has observed that 'If the terms (of contract with customer) are clear and
unambiguous stipulating the liquidated damages in case of breach of the contract
unless it is held that such estimate of damages/compensation is unreasonable or
is by way of penalty, party who has committed the breach is required to pay such
compensation and that is what is provided in Section 73 of the Contract Act.
Thereafter the Hon'ble Supreme Court has laid down the criteria adopted in
allowing the appeal for recovery of liquidated damages.
We have already referred to the fact that in respect of the years 1944-45 and
1945-46 Sri Rathnaswami, the Income-tax Officer who passed the assessment
order on 31st March, 1947, had issued a notice under section 28(1) (c) on 30th
March, 1947, calling upon the assessee to show cause why penalty should not
be levied. The assessee replied on 16th April, 1947, denying the charge
generally and requesting that he might be furnished with particulars of the
concealment etc. with which he was charged. This letter however was not
attended to immediately. Meanwhile the assessments for 1946-47 and 1947-48,
as has been said already, were completed by the Income-tax Officer by an order
dated 22nd December, 1949. Four days before this date, i.e., on 18th December,
1949, the Income-tax Officer, Sri K. Ram, who completed the assessments
issued notices to the assessee to show cause why penalty should not be levied
in respect of the returns regarding these two years. The assessee replied on
22nd December, 1949, denying the charges as usual and asking for details. On
24th December, 1949, the Income-tax Officer replied stating that the assessment
order itself was self-explanatory and calling for a reply from the assessee by 1st
January, 1950, and this was received on 2nd January, 1950. Meanwhile in
respect of the notice issued on 30th March, 1947, in respect of the years 1944-45
and 1945-46 a further communication was sent to the assessee on 6th
November, 1951, requiring him to send a detailed reply which was received by
the officer and 22nd November, 1951. The penalty proceedings in respect of the
four years were then dealt with together and Sri Sowrirajan, who was then the
Income-tax Officer, passed an order on 14th February, 1953, whereby he levied a
penalty of Rs. 200 for 1944-45, Rs. 60,000 for 1945-46, Rs. 13,000 for 1946-47
and Rs. 12,000 for 1947-48 the variations being due to the difference in the
amounts of the tax said to have been evaded by submitting false returns. It is the
validity of these levies of penalties in respect of these four years that is
challenged as illegal and ultra vires in these four writ petitions. We might premise
by saying that it is not alleged that the quantum of the penalty imposed is in
excess of that prescribed by section 28.
Royscot Trust Ltd v Rogerson:-The case a British Contract Law case, in this,
The C finance company was falsely made to enter into a hire-purchase
transaction with Mr. Rogerson as a result of a misrepresentation by the D car
dealers. Ds falsely stated that the car price was 8,000 when the cost of it was
7,600 but the customer paid 1,600 deposit instead of 1,200 which was the rightful
amount. Later it was discovered that D was not dishonest. So, the Cs had the
power to gain back their real deprivation as a result of misrepresentation,
whether or not that loss could be predicted by a reasonable individual.
The case Based on Misrepresentation. In the case, The C finance company was
induced to enter into a hire-purchase transaction with Mr. Rogerson as a result of
a misrepresentation by the D car dealers. Ds falsely stated that the car price was
8,000 when it was 7,600 and the customer paid a 1,600 deposit instead of 1,200
(20% of the car price).
Fraud litigation settled. One party subsequently alleged that there were certain
facts that were not disclosed as part of the settlement, i.e., negotiations by other
party to sell an interest in the business. Concealment of fact that is material to
transaction, knowing that other party is acting on assumption that no such fact
exists, is as much fraud as if existence of such facts were expressly denied.
Critical element of fraud is justifiable reliance. In this case, record clearly showed
that there was no justifiable reliance. When negotiating or attempting to negotiate
a compromise in an existing controversy over fraud, dishonesty and self dealing,
it is unreasonable to rely on the representations of the alleged dishonest party.
The Supreme Court of India in the case of Mahanagar Telephone Nigam Limited
v. Tata Communications differentiated between the claims in quantum meruit and
the damages in breach of contract. The question before the Hon'ble Court was
whether, when parties are governed by contract, a claim in quantum meruit under
Section 70 of the Indian Contract Act, 1872, would be permissible. While
deciding the aforesaid question, the Hon'ble Court referred to a number of
judgments:
First, it referred to the split verdict of two judges in the case of Moselle Solomon
v. Martin & Co. where Lord William. J held that the remedy provided by Section
70 is not dependent upon the law relating to the liabilities of principal and agent.
It is an independent remedy, which is based upon a different cause of action,
namely, upon whether a person has lawfully done anything for another or has
delivered anything to him not intending to do so gratuitously, and such other
person has enjoyed the benefit thereof. If so, he must either make compensation
in respect of, or restore the thing so done or delivered. On the contrary Jack. J
held that where there is an express contract, Section 70 has no application, as
shown by the heading of Chapter V of the Act, in which the section finds a place.
Further obligations are discharged- Both the parties are discharged from any
obligations after the contract is said to be frustrated.
Accrued obligations- The legal rights or obligations already accrued before the
frustrating event occurred are left undisturbed.
(b) Agreement by the way of Wager:-Literally the word ‘wager’ means ‘a bet’
something stated to be lost or won on the result of a doubtful issue, and,
therefore, wagering agreements are nothing but ordinary betting agreements.
Agreements by way of wager are void under the Section 20 of Indian Contract
Act, 1872. Agreements by way of wager are not enforceable by law, and hence
are considered illegal, However The Indian Contract Act,1872 does not define
wager or agreements by way of wager it simply states that agreements by the
way of wager are void, and no party can take an action to file a suit for recovery
of the waging amount in any form of court, Wagering agreements have
characteristics of contingent contract, but cannot be enforced by law under
Section 30. According to Supreme Court Agreements by the way of wager are
void and hence illegal, but not forbidden by the law. Agreements by way of wager
are void; and no suit shall be brought for recovering anything alleged to be won
on any wager, or entrusted to a person to abide by the result of any game or
other uncertain event on which any wager is made. Exception in favor of certain
prizes for horse-racing : This section shall not be deemed to render unlawful a
subscription or contribution, or agreement to subscribe or contribute, made or
entered into for or toward any plate, prize or sum of money, of the value or
amount of five hundred rupees or upwards, to be rewarded to the winner or
winners of any horse-race.
Q10. Discuss the Facts, Arguments, Decisions and Principles of Law laid
down in any of the following cases.
(a) Bhagwan Das v/s Girdharilal, AIR 1966 SC 543
(b) Lalman Shukla v/s Gauri Dutt (1913) 11
Ans. Bhagwan Das v/s Girdharilal, AIR 1966 SC 543
Facts:- The facts of the case are as follows:
1. In the immediate case, the plaintiffs made an oral offer on phone from
Ahmedabad for the purchase of cotton seed cake from the defendants.
2. The defendants accepted this offer on phone Khamgaon. The defendants
later having failed to supply the requisite cotton seed cake were sued by
the plaintiffs.
3. In order to get compensation for the monetary loss of the plaintiff, they
(plaintiff) demanded compensation amounting to Rs.31,150 for the breach
of contract. The suit was filed at Ahmedabad.
4. The defendants contended that the Ahmedabad Court had no jurisdiction
as the contract was completed by the acceptance of offer on a telephone,
at Khamgaon. On the other hand, the plaintiffs contended that the contract
was struck when the acceptance was communicated to him (when he
heard the acceptance through telephone) at Ahmedabad and, therefore,
the suit was within the jurisdiction of the Ahmedabad Court.
5. The Supreme Court, after considering the facts and evidence of the case
held that the contract was made at Ahmedabad where the acceptance was
communicated and the part of action for an action for the breach of
contract in this case had arisen within the jurisdiction of the Ahmedabad
Court.
Principle of Law:- Court ruled that when parties are not in each other's
presence and when they communicate in long distance by post or
telegram, both parties get bound by contract as and when the acceptor
puts the letter of acceptance in the course of transmission to offeror so as
to be out of his power to recall.
When Lalman Shukla had left the house to leave for Haridwar from
Kanpur he was handed some money for his railway fare and other
expenses. As soon as Lalman Shukla had left the house, the defendant
announced a reward of Rs. 501 for whosoever found Dutt’s nephew.
Shukla had no idea that such an announcement was made. The plaintiff
found the missing nephew and brought him back to his home in Kanpur.
Six months after the said incident occurred, Dutt sacked the plaintiff.
After being removed from the job, the plaintiff claimed the money from the
defendant and the latter denied to pay the said remuneration. As a result
the plaintiff Lalman Shukla filed a case against Gauri Dutt, his master, for
not rewarding him as he was entitled to.
● The plaintiff Lalman Shukla strongly affirmed that the very performance of
him finding the missing boy was sufficient enough for him to be entitled to
the reward. According to Gauri Dutt’s condition whoever found the lost boy
and brought him back would get the reward. Therefore, as per the
condition of the defendant, the plaintiff had traced the boy and brought him
back.
● He stated that it is not important to have prior knowledge about the reward,
especially under this circumstance. He also emphasized the fact that
section 8 of the ICA 1872, states that ‘the performance of the act or the
acceptance of any consideration of a proposal is an acceptance of the
proposal’.
● He stated that it is not important to have prior knowledge about the reward,
especially under this circumstance. He also emphasized the fact that
section 8 of the ICA 1872, states that ‘the performance of the act or the
acceptance of any consideration of a proposal is an acceptance of the
proposal’.
● And in this present case, the condition as stated by the defendant Gauri
Dutt was to find the missing child to be rewarded Rs 501.
● And in this present case, the condition as stated by the defendant Gauri
Dutt was to find the missing child to be rewarded Rs 501.
● He stated that it was immaterial that the person who has performed the act
must have the knowledge of the condition to claim the reward.
● The defendant asserted and strongly argued that the plaintiff Lalman
Shukla was not aware of the offer and had no knowledge about it before
finding the defendant’s nephew.
● So an offer without the knowledge of the offeree or the promise cannot be
accepted and also there was no such possibility for the plaintiff to accept
the offer without even knowing about it.
● Gauri Dutt argued that according to section 2(a) of the Indian Contract Act,
1872,
“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”
Principles of Law:-