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Unit I: The Indian Contract Act, 1872 – General Principles of Law of Contract
2 Marks Questions (Definitions / Direct Answers)
1. Define a contract. [GU BCom 2021]
Answer: A contract is a legally enforceable agreement made between two or more parties, which creates rights and obligations recognized by law. According to Section 2(h) of the Indian Contract Act, 1872, “An agreement enforceable by law is a contract.” Thus, all contracts must include offer, acceptance, lawful consideration, and intention to create legal relations.
2. What do you mean by agreement?
Answer: An agreement is a mutual understanding between two or more parties about their rights and duties regarding certain actions. Section 2(e) of the Indian Contract Act, 1872 defines agreement as “every promise and every set of promises forming consideration for each other.” In simple terms, agreement = offer + acceptance.
3. Define offer under the Indian Contract Act, 1872.
Answer: An offer is an expression by one person of his willingness to do or abstain from doing something, with a view to obtaining the assent of the other party. Section 2(a) of the Indian Contract Act defines it as a proposal. Thus, an offer is the first step in the formation of a contract.
4. What is an acceptance? [GU BCom 2021]
Answer: Acceptance is the expression of assent by the offeree to the terms of the offer made by the offeror. According to Section 2(b) of the Indian Contract Act, when the person to whom the proposal is made signifies his assent, the proposal is said to be accepted. It results in the creation of an agreement.
5. Define consideration. [GU BCom 2024]
Answer: Consideration is the price paid for the promise of another party. Section 2(d) of the Indian Contract Act states that when, at the desire of the promisor, the promisee or any other person has done or abstained from doing something, such act or abstinence is called consideration. Without consideration, a contract is generally void.
6. What is meant by capacity to contract? [GU BCom 2024]
Answer: Capacity to contract refers to the legal ability of a person to enter into a binding contract. As per Section 11 of the Indian Contract Act, a person is competent to contract if he is of the age of majority, of sound mind, and not disqualified by any law. Contracts with minors or unsound persons are void.
7. Write the meaning of consent.
Answer: Consent means when two or more parties agree upon the same thing in the same sense. Section 13 of the Indian Contract Act defines consent as, “Two or more persons are said to consent when they agree upon the same thing in the same sense.” It is essential for forming a valid contract.
8. What is meant by free consent?
Answer: Free consent means consent given without being influenced by coercion, undue influence, fraud, misrepresentation, or mistake. Section 14 of the Indian Contract Act defines free consent as consent not caused by these factors. If consent is not free, the contract becomes voidable at the option of the aggrieved party.
9. Define legality of object.
Answer: Legality of object means that the purpose or objective of an agreement must be lawful. Section 23 of the Indian Contract Act states that an agreement is unlawful if its object is illegal, immoral, fraudulent, or opposed to public policy. For a contract to be valid, both consideration and object must be lawful.
10. What is a void agreement? [GU BCom 2020]
Answer: A void agreement is an agreement that is not enforceable by law. According to Section 2(g) of the Indian Contract Act, “An agreement not enforceable by law is said to be void.” Such agreements have no legal effect. Examples include agreements with minors, agreements made under mistake, or those opposed to public policy.
11. Define void contract.
Answer: A void contract is a contract which ceases to be enforceable by law. According to Section 2(j) of the Indian Contract Act, “A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable.” Thus, a void contract has no legal validity and cannot create obligations.
12. What is a voidable contract?
Answer: A voidable contract is a contract that is enforceable by law at the option of one party but not at the option of the other. Section 2(i) of the Indian Contract Act defines it as such. It usually arises when consent is not free, due to coercion, undue influence, or misrepresentation.
13. Define illegal agreement.
Answer: An illegal agreement is one whose object or consideration is unlawful and forbidden by law. Such agreements are void ab initio, meaning they have no legal effect from the beginning. They are opposed to public policy and cannot be enforced in a court of law. For example, an agreement to commit theft is illegal.
14. Define contingent contract.
Answer: A contingent contract is a contract to do or not to do something if some event, collateral to such contract, happens or does not happen. Section 31 of the Indian Contract Act defines it. Such contracts depend on the occurrence or non-occurrence of an uncertain future event, for example, insurance contracts.
15. Define quasi-contract.
Answer: A quasi-contract is not an actual contract but an obligation imposed by law to prevent unjust enrichment. It arises in situations where one party benefits at the expense of another, without a formal agreement. The Indian Contract Act, under Sections 68 to 72, recognizes such obligations, ensuring fairness and justice between parties.
16. What is meant by discharge of contract?
Answer: Discharge of contract means the termination of the contractual relationship between parties. Once a contract is discharged, the parties are freed from their obligations. A contract may be discharged by performance, mutual agreement, impossibility of performance, operation of law, or breach of contract. It marks the end of contractual duties.
17. What do you mean by breach of contract?
Answer: Breach of contract means failure by a party to perform his part of the agreement without lawful excuse. When one party refuses or neglects to fulfill obligations under a contract, it is said to be a breach. The aggrieved party has the right to claim damages and other legal remedies.
18. State two remedies for breach of contract.
Answer: Two common remedies for breach of contract are: i) Damages – monetary compensation for the loss suffered due to breach, and ii) Specific performance – court order directing the defaulting party to perform the contract as agreed. Both remedies aim to protect the interest of the aggrieved party.
19. Write the meaning of revocation of offer.
Answer: Revocation of offer means the withdrawal of an offer by the offeror before it is accepted by the offeree. According to the Indian Contract Act, an offer can be revoked at any time before acceptance is complete against the offeror. Once revoked, the offer cannot be accepted.
20. What is a counter-offer?
Answer: A counter-offer is an offer made in response to the original offer, with variations in its terms. It amounts to rejection of the original offer and puts forward new terms for acceptance. A counter-offer terminates the initial offer, and no contract arises until the counter-offer is accepted by the original offeror.
21. What is a proposal?
Answer: A proposal, also called an offer, is the first step in the formation of a contract. According to Section 2(a) of the Indian Contract Act, “When one person signifies to another his willingness to do or abstain from doing something with a view to obtaining the assent of the other, he makes a proposal.”
22. Mention any two legal obligations arising from quasi-contracts.
Answer: Two important obligations arising from quasi-contracts are: i) Obligation of a person enjoying the benefit of a non-gratuitous act to compensate the other (Section 70), and ii) Responsibility of a finder of goods to return them to the true owner (Section 71). These obligations are imposed by law, not by agreement.
23. What is a wagering agreement?
Answer: A wagering agreement is one in which two parties agree that one shall win and the other shall lose upon the happening or non-happening of an uncertain event. The essence of such an agreement is gambling. Under the Indian Contract Act, wagering agreements are void and unenforceable by law.
24. What is a special offer?
Answer: A special offer is an offer made to a specific person or group of persons, and only that person can accept it. It is not open to the general public. For example, if A offers to sell his car to B for ₹2,00,000, it is a special offer.
25. What is a general offer?
Answer: A general offer is an offer made to the public at large and can be accepted by anyone who performs the required conditions. The famous case Carlill v. Carbolic Smoke Ball Co. is an example of a general offer, where anyone who fulfilled the condition was entitled to the reward.
26. Define contractual capacity of minor.
Answer: According to Section 11 of the Indian Contract Act, a person must be of the age of majority to enter into a valid contract. A minor (below 18 years of age) has no contractual capacity, and any agreement made by a minor is void ab initio. Thus, minors cannot be bound by contracts.
27. Write one difference between agreement and contract.
Answer: The main difference is that an agreement is merely a promise or set of promises between parties, while a contract is an agreement enforceable by law. Every contract is an agreement, but every agreement is not a contract. For example, a social agreement is not a contract.
28. What do you mean by consideration? Without consideration is void.
Answer: Consideration is something of value given by the promisee in return for the promise of the promisor. Section 25 of the Indian Contract Act states, “An agreement made without consideration is void.” This means a promise without consideration cannot be enforced by law, except in certain cases like natural love and affection.
29. Define communication of offer.
Answer: Communication of offer refers to bringing the terms of the proposal to the knowledge of the person to whom it is made. According to Section 4 of the Indian Contract Act, communication of an offer is complete when it comes to the knowledge of the offeree. Without communication, there can be no valid offer.
30. Define communication of acceptance.
Answer: Communication of acceptance is the process of informing the offeror that the offer has been accepted. As per Section 4 of the Indian Contract Act, communication of acceptance is complete as against the proposer when it is put into the course of transmission, and as against the acceptor when it comes to the knowledge of the proposer.
31. What is revocation of acceptance?
Answer: Revocation of acceptance means the withdrawal of acceptance by the acceptor after giving it but before it reaches the proposer. According to the Indian Contract Act, acceptance can be revoked before it comes to the knowledge of the proposer. Once received, acceptance cannot be revoked.
32. Define executed contract and executory contract. [GU BCom 2019]
Answer: An executed contract is one where both parties have fulfilled their obligations under the contract. For example, sale of goods where payment and delivery are completed. An executory contract, on the other hand, is one where some or all obligations are yet to be performed by one or both parties.
33. Define bilateral contract and unilateral contract.
Answer: A bilateral contract is one where both parties exchange mutual promises and both are bound to perform their obligations. A unilateral contract, however, involves a promise made by one party, which becomes binding only when the other party performs the required act, such as a reward contract.
34. Define implied contract.
Answer: An implied contract is one where the terms are not expressed in words but inferred from the conduct of the parties or circumstances of the case. For example, when a person takes a bus ride, there is an implied contract to pay the fare even if nothing is said.
35. Define express contract.
Answer: An express contract is one in which the terms are clearly stated, either orally or in writing. Section 9 of the Indian Contract Act provides that contracts may be express or implied. For example, an agreement to sell goods for ₹10,000 written and signed by both parties is an express contract.
5 Marks Questions (Short Notes / Brief Explanations)
Write Short Notes on Following:
a) Legal Rules of a Valid Offer [GU BCom 2023]: An offer is defined in Section 2(a) of the Indian Contract Act, 1872. It states: “When one person signifies to another his willingness to do or abstain from doing anything, with a view to obtaining the assent of that other, he is said to make a proposal.”
For an offer to be valid, it must create a legal obligation and not be a mere invitation or social promise. The terms of the offer should be clear and definite, leaving no scope for ambiguity. It must be communicated to the person to whom it is made; an uncommunicated offer cannot be accepted. The offer may be express, i.e., made by words, or implied, i.e., by conduct. It must be made with an intention to obtain the consent of the offeree and to create legal relations. Offers can be conditional, provided the conditions are lawful and clear.
b) Legal Rules of a Valid Acceptance: Acceptance is defined in Section 2(b) as: “When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted.” A valid acceptance must be absolute and unconditional, without any variation of the terms of the offer. It must be communicated to the offeror, as mere mental assent does not constitute acceptance. Silence does not amount to acceptance. Acceptance should be given in the mode prescribed by the offeror; if no mode is prescribed, it must be in a reasonable manner. It should be made before the offer lapses or is revoked and within the prescribed or reasonable time. Only the person to whom the offer is made can accept it, not a stranger.
c) Doctrine of Privity of Contract: The doctrine of privity means that only the parties to a contract can sue or be sued upon it. A stranger to a contract cannot enforce the terms, even if made for his benefit. For example, in Dunlop Pneumatic Tyre Co. v. Selfridge, it was held that a third party cannot sue on a contract. However, there are exceptions: a trust beneficiary can enforce the contract; members of a family arrangement or marriage settlement can claim benefits; a person acknowledging liability to a third party creates enforceable rights; and in the case of agency, the principal may sue or be sued.
d) Essentials of Consideration [GU BCom 2024]: Section 2(d) defines consideration as: “When, at the desire of the promisor, the promisee or any other person has done or abstained from doing something, such act or abstinence is called a consideration for the promise.”
Consideration is essential to the validity of a contract. It must move at the desire of the promisor and may be supplied by the promisee or any third party. It may be past, present, or future. Though consideration need not be adequate, it must be real and lawful. Illegal, immoral, or impossible acts cannot constitute consideration. A stranger to consideration can enforce a contract, but a stranger to a contract cannot.
e) Stranger to a Contract: The rule of privity states that a stranger to a contract cannot sue upon it, even if it is made for his benefit. However, certain exceptions exist. A beneficiary under a trust can enforce the contract. Family settlements and marriage contracts can be enforced by non-parties. Acknowledgment of liability or assignment of rights allows a stranger to sue. Similarly, in agency relationships, the principal can sue a third party even if the agent entered into the contract.
f) Doctrine of Free Consent: Section 14 defines free consent as consent not caused by coercion, undue influence, fraud, misrepresentation, or mistake. For a contract to be valid, the parties must consent freely. If consent is obtained through coercion, undue influence, fraud, or misrepresentation, the contract is voidable at the option of the aggrieved party. In the case of bilateral mistake of fact, the contract becomes void. Thus, free consent is the cornerstone of a binding contract.
g) Short Notes
Coercion: As per Sec. 15, coercion is committing or threatening to commit an act forbidden by the IPC, or detaining property unlawfully to force consent. It makes the contract voidable.
Undue Influence: Sec. 16 describes it as a situation where one party dominates the will of another to gain an unfair advantage, e.g., parent and child, doctor and patient.
Misrepresentation: Sec. 18 defines it as an innocent false statement made without intent to deceive. It makes the contract voidable.
Fraud: Sec. 17 states that fraud involves intentional deception to induce another into a contract. The aggrieved party can rescind the contract.
Mistake: A mistake of fact, when bilateral, makes the contract void (Sec. 20). Mistake of law generally does not excuse parties.
h) Capacity of Minor under the Indian Contract Act: Sec. 11 provides that a minor (below 18 years) is incompetent to contract. In Mohori Bibee v. Dharmodas Ghose, it was held that a minor’s contract is void ab initio. A minor is not personally liable, though property can be made liable for necessaries supplied (Sec. 68). A minor can be a beneficiary but not a promisor. He can plead minority as a defence, and his agreement cannot be ratified even after attaining majority.
i) Legality of Object: According to Sec. 23, consideration or object of an agreement is unlawful if it is forbidden by law, defeats the provisions of law, is fraudulent, involves injury to person or property, or is immoral or opposed to public policy. Any agreement with unlawful object is void. For example, contracts for smuggling or human trafficking are void as their object is illegal.
j) Kinds of Contracts based on Validity [GU BCom 2019, 2020, 2021]
Contracts can be classified on the basis of validity as follows:
Valid Contract: Fulfils all requirements of a legally enforceable agreement.
Void Contract: Not enforceable in law, or ceases to be enforceable (Sec. 2(j)).
Voidable Contract: Enforceable at the option of one party but not the other (Sec. 2(i)).
Illegal Contract: Forbidden by law, and punishable (e.g., contract to commit crime).
Unenforceable Contract: Valid in substance but cannot be enforced due to technical defects, such as lack of stamp or registration.
k) Quasi Contracts [GU BCom 2020]: Quasi contracts are not true contracts but obligations imposed by law to prevent unjust enrichment. They arise even without an agreement between the parties. Under Secs. 68–72, such obligations include: supply of necessaries to persons incapable of contracting, reimbursement of person paying money on another’s behalf, right to compensation for non-gratuitous acts, rights of finder of goods, and refund of money paid under mistake or coercion.
l) Contingent Contracts [GU BCom 2019]: Sec. 31 defines a contingent contract as one dependent on the happening or non-happening of an uncertain future event collateral to the contract. Such contracts become enforceable only when the event occurs or does not occur. Examples include insurance contracts or contracts to sell goods if a ship arrives safely.
m) Remedies for Breach of Contract [GU BCom 2021]: When a contract is broken, the aggrieved party is entitled to remedies. The primary remedy is damages under Sec. 73, which compensates for losses suffered. Damages may be ordinary, special, or exemplary. The court may also grant specific performance, compelling actual performance of the promise, or injunction, preventing a party from doing something in violation of the contract. Rescission allows the aggrieved party to cancel the contract, while quantum meruit permits recovery for work done or services rendered when the contract becomes void or is terminated.
Long Question Answers
Q1. State the rules relating to communication of offer and acceptance.
Answer: Communication of offer and acceptance is governed by the provisions of the Indian Contract Act, 1872. An offer and its acceptance must be communicated properly to form a valid contract. The main rules are:
Communication of Offer: An offer is complete when it comes to the knowledge of the person to whom it is made. An offer may be communicated by words (oral or written) or by conduct. An offer made in ignorance cannot be accepted. For example, if A announces a reward for finding his lost dog, B cannot claim the reward without knowledge of the offer.
Communication of Acceptance: Acceptance is complete when it is communicated to the offeror. According to Sec. 4 of the Indian Contract Act:
As against the proposer, acceptance is complete when it is put in a course of transmission to him so as to be out of the power of the acceptor.
As against the acceptor, acceptance is complete when it comes to the knowledge of the proposer.
Mode of Communication: If a specific mode is prescribed, acceptance should be made in that mode; otherwise, it must be reasonable Mere mental acceptance or silence does not amount to valid acceptance.
Revocation of Offer and Acceptance: An offer may be revoked any time before acceptance is complete as against the proposer. Similarly, an acceptance may be revoked before it is complete as against the acceptor.
Thus, communication of offer and acceptance is necessary to create consensus ad idem (meeting of minds), which is essential for a valid contract.
Q2. Explain briefly the modes of revocation of offer.
Answer: Section 5 of the Indian Contract Act, 1872 deals with revocation of offers. Revocation means withdrawal of an offer by the offeror before it is accepted. The various modes are:
By Communication of Notice: An offer may be revoked by giving a notice of revocation to the offeree before acceptance is made. Example: A offers to sell his car to B, but withdraws the offer before B accepts.
By Lapse of Time: If the offer is not accepted within the prescribed time, or within a reasonable time, it lapses automatically.
By Failure of Condition Precedent: If an offer is conditional and the condition is not fulfilled, the offer becomes invalid.
By Death or Insanity of Offeror: If the offeree comes to know of the death or insanity of the offeror before acceptance, the offer stands revoked.
By Counter Offer:
A counter-offer by the offeree amounts to rejection of the original offer.
By Rejection of Offer: If the offeree rejects the offer, it stands revoked and cannot be later accepted.
By Change in Law or Destruction of Subject-Matter: If before acceptance, the subject matter is destroyed, or a law makes the offer unlawful, it stands revoked.
Thus, an offer remains valid only until it is accepted properly or until one of these revoking factors occurs.
Q3. What are the different modes of discharge of contract? [GU BCom 2024]
Answer: Discharge of a contract means termination of the contractual relationship between the parties. After discharge, parties are freed from further obligations. The different modes of discharge are:
By Performance: The most common mode. When both parties fulfill their obligations, the contract is discharged. Example: A agrees to sell goods to B for ₹10,000. Upon delivery and payment, the contract is discharged.
By Mutual Agreement: A contract may be discharged by mutual consent under Sec. 62 of the Act:
Novation: Substitution of a new contract in place of the old one.
Rescission: Cancellation of a contract by mutual agreement.
Alteration: Change in terms with mutual consent.
Remission: Acceptance of lesser performance than agreed.
By Lapse of Time: If a contract is not performed within the prescribed time limit under the Limitation Act, it becomes unenforceable.
By Operation of Law: Contracts may be discharged by operation of law, e.g., insolvency of a party, merger of rights, unauthorized alteration, etc.
By Impossibility of Performance: Known as Doctrine of Frustration. If performance becomes impossible due to events beyond the control of parties (death, destruction of subject matter, change of law), the contract is discharged.
By Breach of Contract: If one party fails to perform or refuses to perform his obligation, the other party may treat the contract as discharged.
By Waiver: When one party voluntarily gives up his rights under the contract, it is discharged.
Hence, contracts can be discharged either through fulfillment of obligations or through circumstances that end enforceability.
Q4. Write the differences between illegal agreement and void agreement in table.
Answer:
Q5. State the legal rules relating to wagering agreements.
Answer: A wagering agreement is one in which two parties agree that upon the happening or non-happening of an uncertain future event, one party shall win and the other shall lose money or money’s worth. The Indian Contract Act, 1872 under Section 30 declares that “Agreements by way of wager are void; and no suit shall be brought for recovering anything alleged to be won on any wager.”
In simple words, a wager is nothing but a bet, where the sole interest of both parties is to gain or lose upon the determination of an uncertain event. For example, if A and B agree that A will pay ₹1,000 to B if it rains tomorrow and B will pay ₹1,000 to A if it does not rain tomorrow, the agreement is a wagering agreement.
The legal rules relating to wagering agreements are as follows:
i) Uncertainty of the Event: The event on which the wager depends must be uncertain at the time of agreement. If the event is certain, it is not a wager.
ii) Mutual Chance of Gain and Loss: Each party must stand to win or lose depending upon the outcome of the event. If only one party has the chance of winning and not losing, it is not a wager.
iii) No Control Over the Event: The event must not be within the control of either party. Neither of them should be able to influence its outcome.
iv) No Other Interest: The parties should not have any interest in the event except the winning or losing of the stake. If a party has any genuine interest in the subject matter other than money, it ceases to be a wager.
v) Collateral Transactions: Though wagering agreements are void, they are not illegal in most parts of India. Therefore, collateral agreements (such as borrowing money to settle a wager) are valid. However, in the states of Maharashtra and Gujarat, wagering agreements are declared illegal by special legislations, and collateral transactions are also void.
Thus, a wagering agreement is void ab initio and unenforceable, but it is not necessarily unlawful unless prohibited by statute.
Q6. Write the conditions when contract is discharged by impossibility of performance.
Answer: The Indian Contract Act, 1872 under Section 56 states that “An agreement to do an act impossible in itself is void.” Further, it provides that a contract to do an act which becomes impossible, or by reason of some event which the promisor could not prevent, becomes unlawful after it is made, shall become void when the act becomes impossible or unlawful. This doctrine is popularly known as the Doctrine of Impossibility or Frustration of Contract.
A contract is discharged by impossibility of performance under the following conditions:
i) Initial Impossibility: If at the time of making the agreement, the performance of the contract is impossible, the contract is void from the beginning. For example, an agreement to discover treasure by magic is void ab initio.
ii) Supervening Impossibility: A contract which was possible and valid at the time of formation may later become impossible due to unforeseen events. In such cases, the contract becomes void when performance becomes impossible.
iii) Destruction of Subject Matter: If the subject matter essential for performance of the contract is destroyed without fault of either party, the contract is discharged. For example, in Taylor v. Caldwell, a music hall was destroyed by fire before the concert; the contract was held void.
iv) Change of Law: If after the formation of contract, a change in law takes place which makes the performance of the contract unlawful, the contract is discharged.
v) Death or Incapacity of Party: In contracts involving personal skill, ability or qualification, the death or incapacity of the party discharges the contract.
vi) Outbreak of War: A contract entered into with the subjects of an enemy country stands terminated upon the outbreak of war.
vii) Failure of Object: When the very object or purpose of the contract fails, even though performance is possible, the contract is discharged. Example: In Krell v. Henry, a room was hired to view the King’s coronation procession, but the procession was cancelled. The contract was held void.
Thus, impossibility of performance may be physical, legal or practical, and in all such cases the contract stands discharged.
Q7. Briefly explain damages as a remedy for breach of contract.
Answer:When a contract is broken by one party, the other party suffers a loss. The most common remedy available for breach of contract is the award of damages, i.e., monetary compensation. Section 73 of the Indian Contract Act, 1872 lays down the rule regarding 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 course 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.”
The law relating to damages is based on the leading English case of Hadley v. Baxendale. The object of awarding damages is to place the injured party, as far as money can do, in the same position as if the contract had been performed.
The following kinds of damages are recognized:
i) Ordinary Damages: These are damages which arise naturally in the usual course of things from the breach. They are also called general damages.
ii) Special Damages: These are damages which result from special circumstances which were communicated to and known by the parties at the time of making the contract.
iii) Nominal Damages: Where no actual loss is suffered but the court recognizes the right of the aggrieved party, a small sum is awarded as nominal damages.
iv) Exemplary or Vindictive Damages: In certain exceptional cases, damages may be awarded not to compensate but to punish the party at fault. For example, wrongful dishonor of a cheque by a banker.
v) Liquidated Damages and Penalty: If the parties themselves specify in the contract the amount to be paid in case of breach, the court may award reasonable compensation not exceeding the sum named.
Therefore, damages are compensatory in nature and the guiding principle is that compensation should be fair, just and reasonable.
Q8. What are the essentials of a valid contract? [GU BCom 2019, 2020, 2023]
Answer: According to Section 10 of the Indian Contract Act, 1872: “All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.”
From this definition, the essentials of a valid contract may be stated as follows:
i) Offer and Acceptance: There must be a lawful offer by one party and lawful acceptance of the same by the other. The offer and acceptance must result in consensus ad idem, i.e., both parties must agree upon the same thing in the same sense.
ii) Intention to Create Legal Relations: The parties must intend that the agreement should give rise to legal obligations. Social or domestic agreements do not amount to contracts because they lack such intention.
iii) Lawful Consideration: Consideration is the price paid for the promise of the other party. The contract must be supported by lawful consideration, which may consist of some act, forbearance, or promise.
iv) Capacity of Parties: The parties must be competent to contract. Section 11 declares that every person is competent to contract who is of the age of majority, of sound mind, and not disqualified by any law.
v) Free Consent: Consent of the parties must be free and genuine. Consent is not free if it is obtained by coercion, undue influence, fraud, misrepresentation, or mistake.
vi) Lawful Object: The object of the contract must be lawful. It must not be forbidden by law, or of such nature that it defeats the provisions of any law, or is fraudulent, or involves injury to person or property, or is immoral or opposed to public policy.
vii) Certainty of Terms: The terms of the contract must be certain and not vague. If the meaning is uncertain, the agreement is void.
viii) Possibility of Performance: The contract must be capable of performance. An agreement to do an impossible act is void.
ix) Not Expressly Declared Void: The agreement must not belong to categories expressly declared void by the Act, such as wagering agreements, agreements in restraint of trade, etc.
Hence, a contract can be said to be valid only when all these essentials are satisfied; otherwise, it is either void or voidable.
10 Marks Questions (Long / Essay Type)
Q1. Discuss with examples the essential elements of a valid contract. [GU BCom 2019, 2020, 2023]
Answer: The Indian Contract Act, 1872 governs the law of contracts in India. Section 2(h) of the Act defines a contract as “an agreement enforceable by law.” Section 10 further lays down the essentials of a valid contract in the following words:
“All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.”
From this definition, the essential elements of a valid contract are:
i) Offer and Acceptance: There must be a lawful offer by one party and lawful acceptance by the other. The acceptance must correspond to the offer and must be communicated.
Example: If A offers to sell his bike to B for ₹40,000 and B accepts, a valid offer and acceptance exist.
ii) Intention to Create Legal Relations: The parties must intend to create a legal relationship. Social and domestic agreements are not contracts as they lack legal enforceability.
Example: A promises to take B for dinner. If he fails, B cannot sue him.
iii) Lawful Consideration: Consideration means something in return. A contract without consideration is void unless it falls under exceptions (Sec. 25).
Example: A agrees to sell his car to B for ₹3,00,000. Here, price is the consideration.
iv) Capacity of Parties: Parties must be competent as per Sec. 11, i.e., they must be of the age of majority, of sound mind, and not disqualified by law.
Example: A minor’s agreement is void ab initio.
v) Free Consent: The consent of parties must be free and genuine. It should not be obtained by coercion, undue influence, fraud, misrepresentation, or mistake (Sec. 13–19).
vi) Lawful Object: The object of the agreement must not be unlawful, immoral, or opposed to public policy.
Example: An agreement to smuggle goods is void.
vii) Certainty of Terms: The agreement must be certain and definite. Vagueness renders it void.
Example: A agrees to sell “a hundred tons of oil” without specifying the type of oil — this is void.
viii) Possibility of Performance: The terms must be capable of performance. If impossible, the agreement is void.
Example: An agreement to bring a dead man back to life is void.
ix) Not Expressly Declared Void: The agreement must not fall under categories like wagering contracts, agreements in restraint of trade or marriage, etc.
Conclusion: Thus, only when all these essentials are present, an agreement becomes a valid contract. Otherwise, it is either void, voidable, or unenforceable.
Q2. “All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not expressly declared to be void.” Explain.
Answer: The above statement is derived from Section 10 of the Indian Contract Act, 1872. It explains the conditions under which an agreement becomes a contract. Every contract is an agreement, but every agreement is not a contract. An agreement becomes a contract only if it satisfies the following conditions:
i) Free Consent of Parties: Consent means agreeing upon the same thing in the same sense (Sec. 13). Consent must be free from coercion, undue influence, fraud, misrepresentation, or mistake (Sec. 14). If consent is not free, the contract is voidable.
ii) Competency of Parties: As per Sec. 11, parties must be of the age of majority, of sound mind, and not disqualified by law. An agreement with a minor is void ab initio.
iii) Lawful Consideration: Consideration is the price of the promise. Sec. 25 states that an agreement without consideration is void unless it falls under exceptions. Consideration must be real and lawful.
iv) Lawful Object: The object must not be illegal, immoral, or opposed to public policy. Agreements with unlawful objects are void.
v) Not Expressly Declared Void: Certain agreements are expressly void under the Act, such as wagering agreements, agreements in restraint of trade, agreements in restraint of marriage, and agreements opposed to public policy.
Example: If A, a major, promises to sell his house to B for ₹10,00,000 and B accepts, it is a contract because the agreement has free consent, competence, lawful consideration, lawful object, and is not void.
Conclusion: Thus, Section 10 forms the foundation of the law of contract by laying down when an agreement becomes enforceable. Only agreements fulfilling these essentials become valid contracts.
Q3. State the various kinds of contracts: a) Based on validity [GU BCom 2019, 2020] b) Based on formation and performance [GU BCom 2020, 2021].
Answer: Contracts can be classified into different types depending upon their validity, formation, and performance.
(a) Contracts Based on Validity:
i) Valid Contract: A contract which satisfies all essentials of a valid contract under Sec. 10 is enforceable by law.
ii) Void Contract: A contract which ceases to be enforceable by law becomes void (Sec. 2(j)). Example: A contract to export goods becomes void after war is declared.
iii) Voidable Contract: A contract which is enforceable at the option of one party only (Sec. 2(i)). Example: A contract induced by coercion is voidable at the option of the aggrieved party.
iv) Illegal Contract: An agreement forbidden by law is illegal. Such contracts are void ab initio and collateral agreements are also void.
v) Unenforceable Contract: A contract which is valid in substance but cannot be enforced due to technical defects like absence of writing, registration, or proper stamp.
(b) Contracts Based on Formation:
i) Express Contract: Made by words spoken or written. Example: A agrees in writing to sell his house to B.
ii) Implied Contract: Formed by conduct or circumstances. Example: A boards a bus; there is an implied contract to pay fare.
iii) Quasi Contract: Not actual contracts but obligations imposed by law to prevent unjust enrichment. Example: Person receiving goods by mistake must return them.
(c) Contracts Based on Performance:
i) Executed Contract: When both parties have performed their obligations. Example: Sale of goods for cash.
ii) Executory Contract: When performance is due in future by both parties. Example: A agrees to sell 100 bags of rice next month.
iii) Unilateral Contract: When one party has performed his obligation but the other’s obligation remains. Example: A rewards B for finding his lost dog; B’s act completes the contract.
iv) Bilateral Contract: Both parties’ obligations remain outstanding. Example: A agrees to deliver goods to B next week and B agrees to pay on delivery.
Conclusion: Thus, contracts may be valid, void, voidable, illegal or unenforceable based on validity, and may be express, implied, or quasi based on formation, and executed, executory, unilateral or bilateral based on performance.
Q4. Define and explain void agreements. Discuss different types of void agreements under the Indian Contract Act, 1872. [GU BCom 2019]
Answer: A void agreement is defined under Section 2(g) of the Indian Contract Act, 1872 as “an agreement not enforceable by law is said to be void.” A void agreement does not create any legal rights or obligations. It is void ab initio, i.e., from the beginning, and cannot be enforced in a court of law.
Different Types of Void Agreements:
i) Agreements with Minors: An agreement with a minor is void from the very beginning. This principle was established in Mohori Bibee v. Dharmodas Ghose.
ii) Agreements without Consideration: Sec. 25 declares agreements made without consideration as void unless they fall under specific exceptions such as natural love and affection, voluntary services, or promise to pay time-barred debt.
iii) Agreements in Restraint of Marriage: Sec. 26 declares agreements in restraint of marriage (except of a minor) as void.
iv) Agreements in Restraint of Trade: Sec. 27 declares agreements which restrict a person from carrying on a lawful profession, trade or business as void, except reasonable restrictions like partnership agreements.
v) Agreements in Restraint of Legal Proceedings: Sec. 28 declares agreements which restrict a party from enforcing his legal rights through legal proceedings as void.
vi) Agreements by Way of Wager: Sec. 30 declares wagering agreements void. Example: betting on uncertain events like horse racing or cricket matches.
vii) Agreements Opposed to Public Policy: Agreements which are immoral, or opposed to public policy, such as agreements for trafficking in women, are void.
Conclusion: A void agreement is not enforceable in law and cannot confer any rights or remedies. The Contract Act specifically declares certain categories of agreements void to protect public interest and fairness in contracts.
Q5. What do you mean by consideration? Discuss the legal rules relating to consideration. [GU BCom 2020, 2023]
Answer: Meaning of Consideration: Consideration is one of the most essential elements of a valid contract. Section 2(d) of the Indian Contract Act, 1872 defines consideration as:
“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 act or abstinence or promise is called a consideration for the promise.”
In simple words, consideration means “something in return.” It is the price for which the promise of the other party is bought. For example, A agrees to sell his book to B for ₹500. The book is consideration for B, and the money is consideration for A.
Legal Rules Relating to Consideration:
i) Consideration Must Move at the Desire of Promisor:
The act or abstinence must be done at the request of the promisor. If done voluntarily, it is not valid consideration.
ii) Consideration May Move from Promisee or Any Other Person:
Under Indian law, consideration may proceed from the promisee or a third party. This is different from English law.
iii) It May Be Past, Present, or Future:
Past consideration (already executed), present consideration (executed), or future consideration (executory) are all valid in India.
iv) It Must Be Real and Not Illusory:
Consideration must be real, possible, and not vague. A promise to perform an impossible act is not valid consideration.
v) It Need Not Be Adequate but Must Be Lawful:
The law does not require adequacy of consideration, only that it is lawful. However, gross inadequacy may indicate coercion or undue influence.
vi) Consideration Must Be Lawful:
It must not be illegal, immoral, or opposed to public policy.
vii) An Agreement Without Consideration is Void:
Sec. 25 declares such agreements void except in cases of:
Natural love and affection, expressed in writing and registered.
Voluntary compensation for past voluntary services.
Promise to pay a time-barred debt in writing.
Conclusion: Consideration is the backbone of a valid contract. Without lawful consideration, an agreement cannot be enforceable, except in cases specifically provided by law.
Q6. Explain the rules regarding free consent. Discuss the effect of coercion, undue influence, misrepresentation, fraud, and mistake.
Answer: According to Section 10 of the Indian Contract Act, 1872, free consent of parties is an essential element of a valid contract. Section 13 defines consent as, “Two or more persons are said to consent when they agree upon the same thing in the same sense.” Section 14 states that consent is free when it is not caused by coercion, undue influence, fraud, misrepresentation, or mistake.
Rules regarding free consent:
i) The parties must agree upon the same thing in the same sense.
ii) Consent must be voluntary, not obtained by force, pressure, or deception.
iii) Consent must not be vitiated by mistake of fact.
iv) When consent is not free, the contract becomes voidable at the option of the aggrieved party.
Effect of factors vitiating free consent:
i) Coercion (Sec. 15): Coercion means committing or threatening to commit any act forbidden by the Indian Penal Code to force someone into an agreement. A contract induced by coercion is voidable at the option of the party whose consent was so obtained.
ii) Undue Influence (Sec. 16): When one party dominates the will of another due to fiduciary relationship, authority, or position, and gains an unfair advantage, consent is not free. Such a contract is voidable. Example: doctor and patient.
iii) Misrepresentation (Sec. 18): When a party makes a false statement believing it to be true or conceals facts innocently, it is misrepresentation. The aggrieved party can rescind the contract or accept it with compensation.
iv) Fraud (Sec. 17): Fraud means intentional misstatement or concealment of facts to deceive another. It makes the contract voidable and also entitles the aggrieved party to damages.
v) Mistake (Secs. 20–22): Mistake of fact may make a contract void, while mistake of law generally does not excuse performance. Example: mutual mistake regarding the subject matter makes the contract void.
Conclusion: Free consent is the foundation of a valid contract. If consent is not free, the contract is either voidable or void depending on the nature of the defect.
Q7. What is meant by capacity to contract? State the legal rules relating to minor’s contract.
Answer: Meaning of capacity to contract:
Section 11 of the Indian Contract Act states that every person is competent to contract who is of the age of majority, of sound mind, and not disqualified from contracting by any law. Thus, the capacity of parties refers to their legal ability to enter into a contract.
Legal rules relating to minor’s contract:
i) A minor’s agreement is void ab initio: As laid down in Mohori Bibee v. Dharmodas Ghose, an agreement with a minor is void from the beginning.
ii) Minor can be a beneficiary: A minor may receive benefits under a contract. Example: a contract for scholarship or trust in favor of a minor is valid.
iii) Minor’s agreement cannot be ratified: Even after attaining majority, a minor cannot ratify an agreement made during minority.
iv) Minor’s property is liable for necessaries: According to Section 68, if necessaries are supplied to a minor, the supplier can claim reimbursement from the minor’s property, though not from the minor personally.
v) Minor cannot be declared insolvent: As he is incapable of contracting debts, he cannot be declared insolvent.
Conclusion: The law protects minors from exploitation by declaring their contracts void, but at the same time allows them to enjoy benefits and necessaries.
Q8. Define contingent contract. State the rules relating to contingent contract with suitable examples. [GU BCom 2019]
Answer: Definition: Section 31 of the Indian Contract Act defines a contingent contract as, “A contract to do or not to do something if some event, collateral to such contract, does or does not happen.” In simple words, performance of such contracts depends on the happening or non-happening of a future uncertain event.
Examples:
A contracts to pay B ₹10,000 if B’s house is destroyed by fire. This is a contingent contract.
A agrees to sell goods to B if a ship arrives from London.
Rules relating to contingent contracts:
i) Contracts contingent on happening of an event: Such contracts cannot be enforced unless the event happens. If the event becomes impossible, the contract is void.
ii) Contracts contingent on non-happening of an event: Such contracts can be enforced only when it becomes certain that the event will not happen.
iii) Contracts contingent on future conduct of a living person: Such contracts become void if the person acts in such a way that the event becomes impossible.
iv) Contracts contingent on happening of an event within fixed time: Such contracts can be enforced only if the event happens within that time.
v) Contracts contingent on non-happening of an event within fixed time: Such contracts can be enforced if the event does not happen within the specified time.
Conclusion: Contingent contracts are enforceable only when the conditions specified in Sections 32 to 36 of the Contract Act are fulfilled.
Q9. What is quasi-contract? Explain different kinds of quasi-contracts recognized under the Indian Contract Act. [GU BCom 2020]
Answer: Meaning of quasi-contract:
A quasi-contract is not a real contract but an obligation imposed by law to prevent unjust enrichment of one party at the expense of another. Section 68 to 72 of the Indian Contract Act deal with quasi-contracts.
Kinds of quasi-contracts:
i) Claim for necessaries supplied (Sec. 68): If necessaries are supplied to a person incapable of contracting, the supplier can claim reimbursement from his property.
ii) Payment by an interested person (Sec. 69): A person who pays money on behalf of another to protect his interest is entitled to reimbursement.
iii) Obligation to pay for non-gratuitous act (Sec. 70): If a person lawfully does something for another not intending it to be gratuitous, and the other enjoys the benefit, he must compensate.
iv) Responsibility of finder of goods (Sec. 71): A person who finds goods belonging to another has the responsibility of a bailee and must take care of them.
v) Money paid or thing delivered by mistake or under coercion (Sec. 72): Any money paid or goods delivered by mistake or coercion must be returned.
Conclusion: Quasi-contracts ensure justice and equity by preventing unjust enrichment, even in the absence of a formal contract.
Q10. What are the different modes of discharge of a contract? [GU BCom 2024]
Answer: Meaning: Discharge of a contract means termination of contractual obligations, so that the parties are no longer bound.
Modes of discharge of contract:
i) By performance: When both parties perform their obligations, the contract is discharged.
ii) By mutual agreement: A contract may be discharged by novation (substitution of contract), rescission (cancellation), alteration, remission, or waiver.
iii) By lapse of time: If a contract is not enforced within the prescribed limitation period, it is discharged.
iv) By operation of law: Discharge may occur due to insolvency, merger of rights, or unauthorized material alteration.
v) By impossibility of performance: When performance becomes impossible due to events like destruction of subject matter or change in law, the contract is discharged.
vi) By breach of contract: A contract is discharged when a party fails or refuses to perform obligations.
Conclusion: A contract may be discharged in various ways, but once discharged, the parties are free from further obligations.
Q11. Define breach of contract. Discuss the remedies available to an aggrieved party. [GU BCom 2021]
Answer: Meaning: Breach of contract occurs when a party fails to perform his obligations under the contract, either by actual breach (failure at the time of performance) or anticipatory breach (repudiation before due date).
Remedies available to an aggrieved party:
i) Rescission of contract: The aggrieved party may rescind the contract and refuse further performance.
ii) Suit for damages: The injured party can claim compensation for loss or injury suffered. Damages may be ordinary, special, exemplary, or nominal.
iii) Suit for specific performance: The court may order the defaulting party to perform the contract as agreed, especially in cases involving immovable property.
iv) Suit for injunction: The court may restrain the party from doing something which he promised not to do.
v) Suit for quantum meruit: When a contract is partly performed and the other party enjoys the benefit, reasonable compensation may be claimed.
Conclusion: Thus, remedies for breach of contract aim at compensating the aggrieved party and, in some cases, ensuring specific enforcement of rights.
Q12. Discuss the rules regarding offer and acceptance under the Indian Contract Act.
Answer: The law relating to offer and acceptance is contained in Sections 2 to 9 of the Indian Contract Act, 1872. Offer and acceptance form the foundation of every valid contract.
Rules regarding offer (proposal):
i) An offer must be made with the intention of creating legal relations.
ii) The terms of the offer must be certain and definite.
iii) An offer must be communicated to the offeree; acceptance without knowledge of offer is invalid (Lalman Shukla v. Gauri Dutt).
iv) An offer may be express or implied.
v) A general offer may be accepted by anyone who performs the condition (Carlill v. Carbolic Smoke Ball Co.).
vi) An offer may be revoked any time before acceptance.
Rules regarding acceptance:
i) Acceptance must be absolute and unqualified (Sec. 7). Conditional acceptance is no acceptance.
ii) It must be communicated to the offeror. Silence does not amount to acceptance.
iii) Acceptance must be given in the prescribed mode, or if no mode is prescribed, in a reasonable manner.
iv) It must be given within the time prescribed, or within reasonable time if none is fixed.
v) Acceptance must be made before the offer lapses or is revoked.
Conclusion: Thus, a valid contract arises only when a lawful offer made by one party is lawfully accepted by the other in accordance with the rules of the Act.
Q13. Distinguish between in table (5 points each):
a) Agreement and Contract
b) Void and Voidable Contract
c) Sale and Agreement to Sell
Q14. Write explanatory notes on:
a) Doctrine of Supervening Impossibility
According to Section 56 of the Indian Contract Act, an agreement to do an impossible act is void. Further, a contract to do an act which becomes impossible after it is made, due to events beyond the control of the parties, becomes void. This is called doctrine of supervening impossibility.
Examples include destruction of subject matter, change in law, death or incapacity of promisor, outbreak of war, etc.
Example: A contracts to marry B. A dies before marriage. The contract becomes void.
b) Doctrine of Restitution
Section 65 of the Indian Contract Act states that when an agreement is discovered to be void, or a contract becomes void, any person who has received advantage under such agreement or contract must restore it or make compensation. This is known as the doctrine of restitution.
Example: If A pays B ₹10,000 for delivery of goods, but delivery becomes impossible due to ban by government, B must refund the money.
Q15. “An agreement enforceable by law is a contract.” Explain the statement in detail.
Answer: Section 2(h) of the Indian Contract Act defines a contract as, “An agreement enforceable by law is a contract.” Thus, two elements are required:
i) Agreement, and
ii) Enforceability by law.
Agreement: According to Section 2(e), an agreement is every promise or set of promises forming consideration for each other. Agreement arises from offer and acceptance.
Enforceability by law: Not all agreements are contracts. Only those agreements which fulfill the essentials of a valid contract (free consent, lawful consideration, competent parties, lawful object, certainty, possibility, not void) become contracts.
Illustration:
A promises to sell his car to B for ₹2,00,000 and B accepts. This is a contract because it is enforceable.
A promises to meet B for dinner. This is only a social agreement, not enforceable, hence not a contract.
Conclusion: Every contract begins with an agreement, but only agreements that are enforceable under the Indian Contract Act qualify as contracts.
Q16. Discuss the classification of contracts with suitable examples. [GU BCom 2019, 2020, 2021]
Answer: Contracts may be classified into several types depending on different bases.
A. Classification based on validity:
i) Valid contracts – satisfy all essentials, enforceable. Example: sale of goods.
ii) Void contracts – cease to be enforceable. Example: contract to export after war declared.
iii) Voidable contracts – enforceable at the option of one party. Example: contract under undue influence.
iv) Illegal contracts – forbidden by law, e.g., smuggling.
v) Unenforceable contracts – cannot be enforced due to technical defects, e.g., unstamped agreement.
B. Classification based on formation:
i) Express contracts – made by words spoken/written.
ii) Implied contracts – inferred from conduct.
iii) Quasi-contracts – obligations imposed by law.
C. Classification based on performance:
i) Executed contracts – both parties have performed. Example: cash sale.
ii) Executory contracts – performance due in future. Example: promise to deliver goods next month.
iii) Unilateral contracts – one party performs, other still bound. Example: lost dog reward.
iv) Bilateral contracts – obligations on both sides remain. Example: future delivery of goods against future payment.
Conclusion: Thus, contracts can be classified on the basis of validity, formation, and performance, which helps in understanding their nature and legal consequences.
Q.17. Discuss the circumstances when consent is not free. [GU BCom 2023]
Answer: According to Section 13 of the Indian Contract Act, 1872, “two or more persons are said to consent when they agree upon the same thing in the same sense.” However, consent is not enough. For a valid contract, Section 14 requires that consent must also be free. Consent is said to be free when it is not caused by coercion, undue influence, fraud, misrepresentation, or mistake. If consent is obtained by any of these, the agreement becomes voidable at the option of the party whose consent was not free.
The main circumstances when consent is not free are:
i) Coercion: As per Section 15, coercion means committing or threatening to commit any act forbidden by the Indian Penal Code, or unlawful detaining of property, with the intention of causing any person to enter into an agreement.
Example: If A compels B to sell his land by threatening to harm B’s family, the consent of B is not free.
ii) Undue Influence: Section 16 defines undue influence as a situation where one party is in a position to dominate the will of another and uses that position to gain an unfair advantage. Relationships such as parent and child, teacher and student, lawyer and client, doctor and patient, are susceptible to undue influence.
Example: A sick patient agrees to pay an unreasonably high fee to a doctor due to the influence of dependency.
iii) Fraud: Fraud is defined under Section 17. Fraud arises when one party intentionally deceives another by making false statements, active concealment of facts, or making promises without any intention of performing them.
Example: A seller knowingly sells goods claiming them to be “pure silk” when they are artificial.
iv) Misrepresentation: As per Section 18, misrepresentation occurs when a person makes a false statement believing it to be true, or breaches his duty to disclose information innocently. Unlike fraud, misrepresentation lacks intention to deceive.
Example: A sells a machine to B stating that it produces 100 units per day, but it actually produces only 60 units. If A believed it to be true, it is misrepresentation.
v) Mistake: Mistake may be of fact or law. If both parties are under a mistake of fact essential to the agreement, the consent is not valid (Sec. 20). However, mistake of law does not generally affect validity, except mistake of foreign law which is treated as a matter of fact.
Example: If both parties believe that a certain horse is alive, but it is already dead at the time of agreement, the contract is void.
Conclusion: Thus, whenever consent is obtained by coercion, undue influence, fraud, misrepresentation, or mistake, it ceases to be free. In such cases, the contract becomes voidable at the option of the aggrieved party, ensuring fairness in contractual dealings.
18Q. What is the difference between wagering agreement and contingent contract? Explain with examples. [GU BCom 2024]
Answer: Both wagering agreements and contingent contracts deal with uncertain future events, but they differ fundamentally in purpose and enforceability.
1. Wagering Agreement: According to Section 30 of the Indian Contract Act, a wagering agreement is one in which two persons bet on the occurrence or non-occurrence of an uncertain event in the future, with reciprocal chances of gain or loss. The event must be beyond the control of both parties. These agreements are void in India, though not illegal in all cases.
Example: A and B bet ₹1,000 on the outcome of a cricket match. If India wins, A will pay B; if India loses, B will pay A. This is a wager and void.
2. Contingent Contract: Section 31 defines a contingent contract as a contract to do or not to do something if some collateral event happens or does not happen. The event here is collateral to the contract and not the sole basis of the agreement. Contingent contracts are valid and enforceable if they fulfill conditions of law.
Example: A contracts to sell goods to B if a ship carrying the goods arrives safely at the port. This is a contingent contract, and it is valid.
Differences:
Conclusion: While a wagering agreement is void because it is speculative in nature, a contingent contract is valid as it is based on lawful purpose and protects genuine business transactions like insurance.
19Q. Define and explain quasi-contracts. Why are they called “contracts implied by law”?
Answer: A quasi-contract is not a real contract because it is not formed by mutual agreement of the parties. Instead, it is an obligation imposed by law to prevent unjust enrichment of one party at the expense of another. The Indian Contract Act, 1872 recognizes such obligations under Sections 68 to 72.
They are called “contracts implied by law” because even though there is no actual agreement, the law treats them as contracts to ensure fairness and justice.
Types of Quasi-Contracts:
i) Claim for necessaries supplied (Sec. 68): If a person supplies necessaries to another who is incapable of contracting (e.g., a minor or lunatic), he is entitled to be reimbursed from the property of such incapable person.
Example: Supplying food and clothing to a minor.
ii) Payment by an interested person (Sec. 69): A person who is interested in the payment of money, which another is bound by law to pay, can recover it from that other person.
Example: A tenant pays land revenue to save the landlord’s property. He can recover it from the landlord.
iii) Obligation to pay for non-gratuitous act (Sec. 70): When a person does something for another, not intending to act gratuitously, and the other person enjoys the benefit, the latter is bound to compensate.
Example: A mistakenly leaves goods at B’s house. B uses them. B must pay A.
iv) Responsibility of finder of goods (Sec. 71): A person who finds goods belonging to another must take care of them and return them. He is treated as a bailee.
Example: If X finds Y’s wallet on the road, he is bound to return it.
v) Money paid or goods delivered by mistake or under coercion (Sec. 72): A person to whom money has been paid or goods delivered by mistake or coercion must repay or return them.
Example: A pays ₹5,000 to B by mistake which was not due. B must return it.
Conclusion: Quasi-contracts are essential to promote justice and equity. They are not based on the consent of parties but on the principle that no one should be unjustly enriched at the cost of another. That is why they are called “contracts implied by law.”
20Q. Explain the legal rules relating to wagering agreements.
Answer: According to Section 30 of the Indian Contract Act, wagering agreements are void. A wagering agreement is an agreement in which two persons promise that depending on the outcome of an uncertain future event, one will win and the other will lose, with mutual chances of gain or loss.
Legal rules relating to wagering agreements:
i) Uncertainty of event: The agreement must depend on an uncertain future event. If the event is certain, it is not a wager.
ii) Equal chance of gain or loss: Each party should stand to win or lose depending on the event. There must be mutual chances.
iii) No control over the event: Neither party should have control over the happening of the event.
iv) Sole determining factor:The event must be the sole determining factor of the agreement. If the event is only collateral, it becomes a contingent contract, not a wager.
v) Void but not necessarily illegal: In India, wagering agreements are void but not illegal, except in some states like Maharashtra and Gujarat where they are declared illegal.
Examples:
Betting on the outcome of a cricket match.
Betting on the result of elections.
Conclusion: Thus, wagering agreements are void and unenforceable in India because they promote speculation and gambling. However, they are different from contingent contracts and contracts of insurance, which are valid and enforceable.
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