1. What are the essentials of Contracts?

Ans:  The Indian Contract Act,1872 deals with law relating contract between parties. S.2(h) ICA defines Contract is an agreement that is enforceable by law. Thus in this definition we find two elements :(a)An Agreement (b) Enforceability by law. The essential of contract are as follows:.

1. Offer and Acceptance: – For every contract there must be at least two parties, one making an offer or proposal and another accepting it. The offer must be definite and the acceptance must be unconditional. The acceptance must be communicated to the offer and according to the mode prescribed.
2. Intention to create legal relationship: – When the parties enter into an agreement, there must be an intention on part of the parties, to create a legal relationship. In the absence of such intention, the agreement does not become a contract. Such agreements are social agreements. (Balfour Vs. Balfour).
3. Lawful consideration:- Consideration means something in return. It is an advantage or benefit moving from one party to another. An agreement must be supported by lawful consideration to become a contract. Consideration need not be in cash. It can be an act, abstinence or a return promise. Ex.– X promises to sell his house to Y for Rs.2,00,000/-.  House is the consideration to y for parting with 2 lakhs is X’s consideration.
4. Capacity and competence of the parties to contract:- The parties to the agreement must  be competent to contract. A person is competent to contract if. (i) He has attained the age of majority.(ii) He is of sound mind and (iii) he is not disqualified to enter into contracts by law. Ex: He becomes insolvent. If any of the above requirements are not satisfied the agreement does not become a contract.
5. Free and Genuine consent: When a proposal is made by one party, the consent or acceptance of the other party must be free. Consent is said to be not free it has been obtained through coercion, undue influence, misrepresentation or fraud. If the consent to the proposal has been through any of the above means, the contract become voidable at the option of the party whose consent has been so obtained.
6. Lawful object: The object or the purpose of the agreement must be lawful the object must not be illegal, immoral or against public policy.
7. Agreements not declared void: The agreement must not have been expressly by declared as void by any law in force. If it is so, the agreement cannot become a contract.
8. Certainty and possibility of performance: The agreement must be certain, definite and possible to be performed. If the agreement is to perform an act that is impossible to be performed, then it does not give rise to contractual obligations. Ex: A agrees to sell 100 tones of oil to B. This is not a valid contract as agreement does not specify the type of oil to be sold. Similarly, if X agrees to put life into the dead body of Y’s wife for a price’, Contract is not valid as same is an impossible act.
9. Legal Formalities: A contract may be in writing oral. Law does not differentiate between these two contracts. However it is in the interest of the parties that the contract is in writing. There are some other legal formalities which have to be fulfilled in order to make an agreement legally enforceable. Thus formalities like registration stamp, witness etc, must be complied with where ever necessary.

2. Write a note on different kinds of Contracts:

Classification of contracts:  Contracts may be classified on the basis of (a) Validity (b) Formation (c) Performance.

Classification on the basis of validity:-A contract is based on an agreement.  An agreement becomes a contract, if all the essential elements are satisfied.  In such a case, it becomes a valid contract.  If one or more of the elements are not present the contract is voidable, void, illegal or unenforceable. Therefore on the basis of validity contracts can be classified as: (i) Voidable contract. (ii) Void contract. (iii) Unenforceable contract. In addition to the above there are void agreements and illegal agreements:

(i) Voidable contract: Section.2 (i) says an agreement that is enforceable by law at the option of one or more of the parties thereto, and not at the option of other, or others as Voidable Contract. In case of voidable contract, the consent of the parties to the contract is not free. This may happen due to Coercion, Undue Influence, Fraud, Misrepresentation, and Mistake. The party whose consent is not free may rescind the contract (avoid the contract) or decide to be bound by it. This option is not available to other party.  A Voidable contract is valid until it is avoided by the party entitled to do so.  Ex: L agrees to sell his car to M for Rs.5,000/- only.  His consent is obtained by use of force.  The contract is Voidable, which means that if L chooses he may stand by the contract or avoid the contract.

(ii) Void Contract: A contract which is entered into may be valid initially.  It may subsequently become void due to the occurrence of some event.  A contract which was valid initially, but has become void due to the occurrence of some event is called a void contract. Sec.2(j) defines a void contract as “A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable”. Ex: A contract to import goods from another country is a valid contract but if war breaks out between the two countries, the contract becomes a void contract.

(iii) Unenforceable contracts:  An unenforceable contract is one which cannot be enforced in the court of law due to some technical defect, such as stamping and registration has not been done where it is necessary such contracts may be executed or carried by the concerned parties. But in case of a breach, the aggrieved or affected party cannot approach the court of law for remedy.  In addition to the above there are two more categories called the void agreements and illegal agreements.

(iv) Void agreement: An agreement that is not enforceable by law in a void agreement.  Such agreements do not create any legal rights, and are void ab-initio (i.e., From the beginning). Ex: An agreement with a minor is a void agreement.

(v) Illegal Agreement:  An illegal agreement is one which goes against some rule of basic public policy or which is criminal or immoral in nature.  An illegal agreement is not only void between immediate parties but has a further effect on the collateral transactions. Ex: A rents B’s house to store some smuggled goods.  B is aware of A’s purpose.  The agreement between A and B is collateral to the agreement of buying smuggled goods.  Both agreements are illegal.

(v) Unlawful agreement: An unlawful agreement is one which like a void agreement is not enforceable by law. It is void abiinto and is destitute of legal effects altogether. It affects only the immediate parties and has no further consequences. All collateral transactions to it also become tainted will illegality.

3. An offer can’t be accepted after it has been terminated. Explain when an offer ceases to be capable of acceptance.

Ans: Yes, an offer can’t be accepted after it has been terminated. An offer ceases to be capable of acceptance or offer lapses or comes to an end in the following circumstances:

1)  By communication of notice of termination of offer to the offree

2) By lapse of the specified or reasonable time  3) By death or insanity of the offer  4) By counter offer 5) By not being accepted according to the prescribed or usual mode. 6) By non-fulfillment of a condition precedent.

4. Whether a promise to pay time barred bet is valid and if so under what conditions?

Ans: An agreement without consideration is void. But to this rule, certain exceptions are recognized and amongst them promise to pay a time barred debt is one. It is set out u/s.25(3) of the Indian Contract Act,1872.  The conditions to be fulfilled for its maintainability in the court of law are: – It shall be in writing and signed by the person or by his agent to pay debt either in part or full, which the creditor might have enforced but for the law for the limitation of suits.

5. Write a note on Privity of contract or Stranger to Contract?

Ans: Only parties to the contract can enforce contractual obligations, but no other, even if it solely for the benefit of third party. It is known as privity of contract. But it has no applicability in India. It was held by the S.C in M.C.Chacko Vs. State Bank of Travancore. Thus a person who is not a party to the contract can enforce contractual obligations. The following are the situations: (a) The beneficiary may enforce a contract though he is a stranger to the contract creating trust.  (b)Where a an agreement is made in connection with marriage and a provision is made for the benefit of a person, he may take advantage of the agreement although he is not a party to it.  (c) If a provision is made in a partition or family arrangement for maintenance or marriage expenses of female members, such members though not parties to agreement can sue on the footing of the agreement.  (d) If a charge is created in favour of a stranger in respect of a specific immovable property. (e)Acknowledgment or estoppel  (f) Covenants running with the land

6. Write a note on Misrepresentation?

Ans: S.16 ICA deals with it. Misrepresentation is a statement of fact which one party makes in the course of negotiations to another with an intention to induce the other party to enter into a contract.  Representations may be expressed by words spoken or written or implied from the behaviour of the parties.

7. Write a note on Fraud?

Ans: An intentional material representation of a fact with an intention to induce a party to enter into a contract and act upon it. Due to which, party acted upon it and suffered an injury. S.17ICA deals with it. The following acts committed by a party to a contract with intent to deceive another party or to induce him to enter into the contract are also called as frauds:

(i) A false suggestion known to be false or not believed to be true

(ii) The active concealment of a fact, with knowledge or belief of the fact

(iii)A promise not intended to be performed,

(iv) Doing any other act fitted to be deceive

(v) Doing any such act or omission as the law specially declares to be fraudulent.

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 reveal:

(a) That it is duty of the person keeping silence to speak; or (b) his silence is, in itself equivalent to speech.  In either case of misrepresentation or fraud the aggrieved party can: (a) Avoid or rescind the contract (Voidable). (b)Accept the contact but insist that he shall be placed in the position in which he would have been if the representation made had been true (rescission).

8. Doctrine of Quantum Meruit:

Ans: Quantum meruit literally means “as much as merited or earned”. When a person has done some work under a contract and the other party repudiates the contract or some event happens which makes the further performance of the contract impossible then the party who has performed the work can claim remuneration for the work he has already done.  The claim for quantum meruit arises in the following cases:- 1) When an agreement is discovered to be void u/S.65. 2) When something is done without any intention to do so gratuitously u/s.70 3) when there is an express or implied contract to render service but there is no agreement as to remuneration 4) When the completion of the contract has been prevented by the act of the other party to the contract 5) When a contract is divisible.  6) When an indivisible contract is completely but badly.

9. Write a note on Quasi Contracts?

Ans: Quasi Contracts: A Quasi contract is not a contract between two parties but a legal obligation imposed by court of law, which puts both parties in the same position as if there is a contract between them.

The concept of quasi contracts is dealt under S.68 to 72.

S.68: If a person under obligation or to a person who can’t enter into contract is supplied with Necessaries suited to his condition in life, the person who has furnished such supplied must be reimbursed from the property of that person.

S.69: Person who is interested in payment of money which another is bound to pay.

S.70: Obligation of person enjoying benefit of non-gratuitous act:  New Model car.

S.71: Responsibility of finder of goods.

10. Write a note on Liquidated damages?

Ans: ‘Liquidated damages’ represent a sum fixed or ascertained by the parties in the contract, which is fair and genuine pre-estimate of he probable loss that might ensue as a result of the breach. A penalty is a sum named in the contract at the time its formation, which is disproportionate to the damage likely to accrue as a result of breach. The courts in India allow only reasonable compensation.

11. Define “Contract of Guarantee”, Surety”,”Principal debtor”, and “Creditor”.What are the nature of liablities under Contracts of Indeminty and Guarantee?

Indeminty Contract: S.124 of the Contract Act, says “A contract by which one party promises to save the other from the loss caused to him by the conduct of the promisor himself or by the conduct of any other person”.

The person who gives the indeminty is called the indemnifier, the person for whose protection indemnity is called Indeminty holder.

Example: A contracts to indemnify B against consequences of any proceedings which C may take against B in respect of a certain sum of Rs 2000. This is called Contract of indeminty.

Contract of Guarantee: A contract of Guarantee is also known as Contract of surety ship. S.126 of the contract Act defines a contract of guarantee as “ a contract to perform the promise or discharge the liability of a third person in case of his default”.

Example:A advances a loan of Rs100 to B and c promises to A that if B doesnot repay loan, he will do so. This is a Contract of Guarantee.

12. Write a note on Nature of liabilities under Contract of Guarantee and indemnity:

Scton 128 says the liability of surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract.

Section 125 speaks about the liabilities of the indemnifier:

1. All the damages which indemnity holder may be compelled to pay in any suit in respect of any matter to which the promise to indemnify applies;
2. All costs which indemnity holder may be compelled to pay in any such suit if, in bringing or defending it, he did not contravene the orers of the indemnifier, and acted as it would have been prudent for him to act in the absence of any contract of indemnity, or if the promisor authorised him to bring or defend the suit;
3. All sums which he may have paid under the terms of any compromise of any such suit, if the compromise was not contrary to the orders of the promisor, and was one which it would have been prudent for the promisee to make in the absence of any contract of indemnity, or if the promisor authorised him to compromise the suit.

13. Agency doesn’t require consideration – Comment

Ans: S.185 says no consideration is necessary to create an agency.  The reason is as the affairs of the principal are placed in the hands of the agent, consideration in the sense of determent is enough to support the contract and as such no further consideration is necessary.   Therefore, an agent under a gratuitous contract of agency will be as much bound by his contract as a paid agent.