B.Com 1st Year Low of Contract Short Question Answer Notes

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SHORT ANSWER QUESTIONS

B.Com 1st Year Low of Contract Short Question Answer Notes

Q.1. Define the term contract. What are its elements?

Ans. According to Sec. 2(h) of the Indian Contract Act, ‘An agreement that is enforceable by law is a contract. A contract therefore, is an agreement, the object of which is to create a legal obligation, i.e. a duty enforceable by law. It is an exchange of promises formed by two or more persons.

‘A contract is an agreement for creating and defining obligations between the parties!’ –Salmond

It is a legally binding agreement between two or more persons by which rights are acquired by one or more to act on the part of others. A contract consists of two elements:

1. Agreement: In it, the parties to the contract must agree to enter into the contract. The agreement consists of one party’s offer to enter into the contract and the other party’s acceptance of the terms of the offer. It is an accepted proposal. So, in order to form an agreement, there must be a proposal or offer by one party and its acceptance by the other. Thus, Agreement = Offer + Acceptance

2. Enforceability by Law: An agreement is said to be enforceable by law if it creates some legal obligations. The parties to an agreement must be bound to perform their promises and in case of default by either of them, must intend to sue. The subject matter of the contract should not be against the law or public policy.

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Q.2. Explain the following-Void’ and ‘Voidable contracts’.(2014)

Ans. Void Contract: It is a contract that has no legal effect and cannot be enforced in a court of law. According to Section 2(1), A void contract is a contract that ceases to be enforceable by law. It is valid when it is made but subsequently becomes enforceable on certain grounds contracts are agreements like supervening enforceability, subsequent illegality, repudiation of a voidable contract, a contingent contract on the basis of happening . of an uncertain event when occurrence of such event becomes impossible. In actual sense, a void contract does not provide any legal remedy for the parties to the contract. They even cannot get it performed when they desire.

Voidable Contract: According to Section 2 (i), ‘Voidable contract is an agreement that is enforceable by law at the opinion of one or more parties but not at the option of the other. This contract is voidable of the option of the aggrieved party and remains valid until withdrawn by him. It includes contracts like coercion, undue influence, fraud, misrepresentation, etc. But in case, the contract is caused by mistake, it becomes yoid. In this contract, the aggrieved party gets a right to withdraw the contract. When such party withdraws it, the contract becomes void. In case, the aggrieved party does not withdraw the contract within a reasonable time, the contract remains valid.

Q.3. ‘Wagering agreements are void and not Illegal’. Examine.

Ans. The word ‘wager’ means ‘betting’ or ‘gambling’. A wagering agreement is an is an agreement between two persons under which money or money’s worth is payable by one persona the happening or non-happening of a future uncertain event. ‘Wagering agreements are void and not Illegal means agreements by way of wager are void and no suit shall be brought to recover anything that is alleged to be on wager or entrusted to any person retained so as to bide by the resulcorany game or other uncertain event on which any wager is made.

This can be shown in the given example: X promises to pay 1,000 to Y if it retained on a part day and Y promises to pay 1,000 to X if it did not. Such an agreement is a wagering agreement, and thus void.

Q.4. Write short notes on:

1. Executed contract.

2. Executory contract.

Ans. 1. Executed Contract: A contract is said to be executed when both the parties to a contract have completely performed their share of obligation and nothing remains to be done by either party under the contract. For example, when a bookseller sells a book on cash payment, it is an executed contract because both the parties have done what they were to do under the contract.

Where only one of the parties to a contract has performed his share of obligation and the other party is still to perform his share of obligation, then also the contract is called as ‘executed’.

This can be shown in the following example; M advertises a reward of 1,000 to anyone, who finds his missing son. B knkow the offer finds the missding boy and brings him. As soon as B traces the boy, there comes into existence an executed contract, because B has performed his share of obligation and it remains for M to pay the amount of reward to B. These types of executed contracts are also called ‘unilateral contracts:

2. Executory Contract: It is one in which both the obligations are outstanding, one on either party to the contract, either wholly or in part, at the time of the formation of the contract. In other words, a contract is said to be executory when either both the parties to a contract have still to perform their share of obligation into or there remains something to be done under the contract on both sides.

This can be shown in the following example; Where T agrees to coach R, a premedical student, from first day of the next month and R in consideration promises to pay T*500 per month, the contract is executory because it is yet to be carried out.

Q.5. Write a note on proposal and acceptance.(2015)

Ans. Proposal: According to Section 2(a) of the Indian Contract Act, 1872, ‘When one person signifies to another his willingness to do or to abstain from doing anything with a view to obtain the assent of the other to such act or abstinence, he is said to make a proposal’. Also, when a person shows his willingness or eagerness to do or to deny from doing anything to any other person so as to obtain his consent to such act or abstinence, he is said to make a proposal. The person who makes the proposal is called an ‘offerer’ and the person to whom proposal is made is called the offeree’.

Acceptance: It means giving consent to the offer. It is an expression that is made by the offeree for his willingness to be bound by the terms of offer.

According to Section 2(b) of the Indian Contract Act, 1872, ‘A proposal is said to be accepted when the person to whom the proposal is made signifies his assent thereto. A proposal, when accepted, becomes a promise. An acceptance is the consent given to offer. Performance of the conditions of a proposal is an acceptance of the proposal which is not always expressed in words. So, there must be a building contract and there must be absolute and unconditional acceptance of the terms of a proposal.

Q.6. Explain the essential elements of a valid offer.

Ans. The essential elements of a valid offer are as follows:

1. Offer Must be capable of Creating Legal Relation: If the offer does not intend to give rise to legal consequences it is not a valid offer in the eye of law.

2. Offer Must be Certain, Definite and Not Vague: If the terms of an offer are vague or indefinite its acceptance cannot create any contractual relationship. But if the agreement contains machinery for ascertaining a vague term, the agreement is not void on the ground of its being vague.

3. Offer Must be Expressed or implied: An offer may be made either by words or by conduct. An offer which is expressed by words, spoken or written, is called an express offer and the one which is inferred from the conduct of a person or the circumstances of the case is called an implied offer.

4. Offer May be Conditional: An offerer may attach any terms and conditions to the offer he makes. He may even prescribe the mode of acceptance. The offeree will have to accept all the terms of the offer. There is no contract, unless all the terms of the offer are complied with and are accepted in the prescribed mode.

5. Offer May be Specific or General: An offer is said to be specific when it is made to a definite person or persons. Such an offer can be accepted only by the person or persons to whom it is made. A general offer, on the other hand, is one which is made to the world at large or public in general and may be accepted by any person who fulfils the requisite conditions,

6. No Term of Non-compliance that Amounts to Acceptance: The offer should not contain the term of non-compliance, which would amount to acceptance.

7. Offer Must be Made with a View to Obtain the consent of the Offeree: An offer is effective only when it is communicated to the offeree. Until the offer is made known to the offeree, there can be no acceptance and no contract. Doing anything in ignorance of the offer can never be treated as its acceptance for, there was never a consensus of wills. This applies to both specific and general offers.

8. Offer Must be Communicated: An offer to be complete, must be communicated to the person to whom it is made. Unless an offer is communicated, there can be no acceptance by it. An acceptance of an offer, in ignorance of the offer, is no acceptance and does not create any right on the acceptor.

9. Offer Must be Distinguished from an Invitation to Offer: An offer must be distinguished from an invitation to offer. In case of an invitation to offer, the person making an invitation to others can make an offer to him. It is prelude to an offer inviting negotiations or preliminary discussions.

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Q.7. What do you understand by lapse of an offer?

Ans. Lapse of an Offer: An offer must be accepted before it lapses (i.e. comes to an end). An offer may come to end in any of the ways which are as follows:

1. By Revocation: According to the Indian Contract Act Section (5), ‘A proposal may be revoked at any time before the communication of acceptance is complete as against the proposal but not afterwards!

2. By Lapse of Time: An offer lapses if it is not accepted within the fixed time or within the reasonable time.

3. By Failure to Accept Condition Precedent: An offer lapses if it is accepted without fulfilling the conditions of the offer.

4. By Death or Insanity of the Offerer or Offeree: An offer lapses by the death or insanity of the offerer if the fact of his death or insanity comes to the knowledge of the acceptor before he makes his acceptance.

5. By Subsequent Illegality or Destruction of Subject-matter of the Offer: An offer lapses if it becomes illegal or the subject matter is destroyed before its acceptance by offeree.

6. By Rejection of Offer by Offeree: An offer lapses if it is rejected by the offeree. An offer is said to be rejected if the offeree expressly rejects it or accepts it, subject to certain conditions.

7. By Not Accepting in the Prescribed Mode or Usual Mode: An offer is not accepted in the specific manner or in some usual and reasonable manner.

Q.8. Who can accept an offer?

Ans. In general, an offer can be accepted only by the person or persons to whom it is made.

1. In Case of Specific Offer: An offer made to a definite person or a particular group of persons can be accepted only by that definite person or that particular group of persons to whom it has been made and known also.

For example; A sold his business to B but this fact was not known an old customer ‘C’. C placed an order for certain goods to A by name. B supplied those goods to C. It was held that there was no contract between B and C because C never made any offer to B.

2. In Case of General Offer: An offer made to the world at large or public in general can be accepted by any person having knowledge of the offer by fulfinlling the terms of the offer.

For example; A company advertised that it would pay 500 to anyone who contracts influenza after using the smoke balls according to the printed directions. ‘X used the smoke balls o the printed direction but subsequently she contracted influenza. She filed a suit for the reward. It was held that she was entitled to recover the reward because she had accepted the offer by complying with the terms of the offer.

Q.9. What are the legal rules regarding a valid

Or What are the essential elements for a valid acceptance?

Ans. Legal Rules Regarding a Valid Acceptance: A valid acceptance must be in conformity with the following rules:

1. Acceptance Must be Given Only by the Person to Whom the Offer is Made: An offer can be accepted only by the person or persons to whom it

is made and with whom it imports an intention to contract. It cannot be accepted by another person without the conse is to an offer just as a

be accepted by another person without the consent of the offerer.

2. Acceptance Must be Absolute and Unqualified: In order to legally effective it must be an absolute and unqualified acceptance of all the terms of the offer. Even the slightest deviation from the terms of the offer makes the acceptance invalid.

3.Acceptance Must be Expressed in Some Usual and Reasonable Manner, Unless the Proposal Prescribes the Manner in which it is to be Accepted: If the offerer prescribes no mode of acceptance, the acceptance must be communicated according to some usual and reasonal mode. The usual modes of communication are by word of mouth, by post and by conduct. When acceptance is given by words spoken or written or by post or telegram, it is called an express acceptance. When acceptance is given by conduct, it is called an implied acceptance.

4. Acceptance Must be Communicated by the Acceptor: For an acceptance to be valid, it must not only be made by the offeree but must also be communicated by or with the authority of the offeree to the offerer.

5. Acceptance Must be Given within a Reasonable Time and before the Offer Lapses and/or is Revoked: To be legally effective acceptance must be given within the specified time limit, if any, and if no time is stipulated, acceptance must be given within a reasonable time because an offer cannot be kept open indefinitely.

6. Acceptance Must Succeed the Offer: Acceptance must be given after receiving the offer. It should not precede the offer. In a company, shares were allotted to a person who had not applied for them. Subsequently he applied for shares being unaware of the previous allotment. It was held that the allotment of shares previous to the application was invalid.

7. Rejected Offers can be Accepted only, if Renewed: Offer once rejected cannot be accepted again unless a fresh offer is made.

Q.10. What are the essentials of valid consideration?

Ans. Essentials of Valid Consideration: The four component parts of the definition of consideration may will be described as the essentials of valid consideration such as:

1. Consideration Must Move at the Desire of the Promisor: In order to constitute legal consideration, the act or abstinence forming the consideration for the promise must be done at the desire or request of the promisor. Thus acts done or services rendered voluntarily or at the desire of third party, will not amount to valid consideration so as to support a contract.

For example; A see B’s house on fire and helps in extinguishing it. He cannot demand payment for his services because B never asked him to come for help.

2. Consideration May Move from the Promisee or Any Other Person: The second essential of valid consideration, is that consideration need not move from the promisee alone but may proceed from a third person. Thus as long as there is a consideration for a promise, it is immaterial who has furnished it. It may move from the promisee or from any other person.

For example; A daughter along with her husband entered n. into a contract with her father whereby it was agreed that she will maintain her mother and property of the father. The daughter subsequently refused to maintain the mother. On a suit it was held that the mother was entitled to require her daughter to maintain her, though she was a stranger to the contract.

3. Consideration May be Past, Present or Future: The words ‘has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing used in the definition of consideration clearly indicate that the consideration may consist of either something done or not done in the past or done or not done in the present or promised to be done or not done in future.

For example; A teaches B, B requests in the month of January and in February В promises to pay A a sum of 500 for his services. The services of A will be past consideration.

4. Consideration Must be ‘Something of Value’: The consideration need not be adequate to the promise for the validity of an agreement. The law only insists on the presence of consideration and not on the adequacy of it. It leaves the people free to make their own bargains.

For example; A agrees to sell his motorcar worth 50,000 for 5,000 only and his consent is free the agreement is a valid contract not withstanding the inadequacy of the consideration.

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Q.11. No consideration, no contract. Explain.

Ans. Consideration being one of the essential elements of a valid contract, the general rule is that ‘an agreement made without consideration is void but there are a few exceptions to the rule, where an agreement without consideration will be perfectly valid and binding. These exceptions are as follows:

1. Agreement Made on Account of Natural Love and Affection: An agreement made without consideration is enforceable if it is:

(a) expressed in writing.

(b) registered under the law for the time being in force for the registration of documents.

(d) between parties standing in a near relation to each other.

2.Agreement to Compensate for Past Voluntary Service: A promise made without consideration is also valid, if it is a promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor, or done something which the promisor was legally compellable to do.

3. Agreement to Pay a Time-barred Debt: Where there is an agreement made in writing and signed by the debtor or by his authorised agent, to pay wholly or in part a debt barred by the law of limitation, the agreement is valid even though it is not supported by any consideration.

4. Complete Gift: A gift does not require consideration in order to be valid ‘as between donor and donee any gift actually made will be valid even without consideration.’

5. Contract of Agency: The contract act lays down that no consideration is necessary to create an agency.

6. Remission by the Promise of Performance of the Promise: For compromising a due debt, ie. agreeing to accept less what is due, no consideration is necessary.

For example; A creditor can agree to give up a part of his claim.

7. Contribution to Charity: A promise to contribute to chal enforceable, if on the faith of promised subscription, the promisee take a the obiect and undertakes a liability,

Q.12. What do you understand by ‘Capacity to contract?

Ans. An essential ingredient of a valid contract is that the contracting parties must be ‘competent to contract. A person is incompetent to contract under the following circumstances:

1. If he is a minor, according to the law to which he is subject.

2. If he is of unsound mind.

3. If he is disqualified from contracting by any law to which he is subject

So, capacity to contract means and includes the legal canacity of the parties to enter

Into a contract. It is the capacity of parties to enter into a legally binding contract. The parties to a contract must be legally able to enter into contract, Since. minors and mentally incompetent individuals contractual capacity so, depending on the situation, a contract entered into by someone who lacks we contractual capacity may or may not be enforceable.

Q.13. Write a note on ‘Free consent of parties’.(2015)

Ans. Consent is said to be caused when it would not have been given but for the existence of such coercion, undue influence, misrepresentation, fraud or mistake. According to Section 14, C is free consent if it is not obtained by coercion, undue influence, fraud, misrepresentation or mistake.

Two parties are said to consent when they agree upon the same thing in the same sense. Absence of consent means agreement is void. The characteristics of free consent are:

1. There must be at least two parties for contract.

2. Their consent must be about the same contract.

3. The consent of both the parties must be with same intention. In the same way, it is necessary for a consent that both the parties of a contract, i.e. a proposer and the acceptor agree on a same thing with the different intention, this consent will not be an acceptable consent as according to the Indian Contract Act or in such a type of situation there will be no contract.

Therefore, it is said that the main substance of any agreement is that there should be a free consent of both the parties.

Q.14. Illustrate distinction between void, voidable and illegal agreements. Discuss the validity of agreements collateral to such agreements.

Or Distinguish between void, voidable and illegal contract.

Ans. 1. Void Agreement (Section 2(g)]: An agreement not enforceable by law is said to be void. Such agreement does not confer any right to any of the parties to it. The agreement, in such a case, is void-ab initio (from the very beginning). Such an agreement does not result in a contract at all.

2. Voidable Agreement (Section 2 (i)]: An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of others or other, is a voidable contract. If the essential element of free consent is missing in a contract, the law confers right on the aggrieved party either to reject the contract or to accept it. However, the contract continues to be good and enforceable unless it is repudiated by the aggrieved party.

3. Illegal Agreement: An agreement is illegal if it is forbidden by law, or is of such nature that, if permitted would defeat the provisions of any law or is fraudulent, or involves, or implies injury to a person or property of another, or count regards it as immoral or opposed to public policy. These agreements are punishable by law. These are void-ab-initio. All illegal agreements are void agreements but all void agreements are not illegal.

Q.15. Distinguish between coercion and undue influence

Ans. Difference between Coercion and Undue Influence

S.No	Coercion	Undue influence
1.	Coercion involves the physical force or threat.	Undue influence involves the moral or mental pressure.
2.	There need not be any relationship between the parties.	Some sort of relationship is absolutely necessary between the parties.
3.	Coercion may proceed from any person and may be directed against any person.	Undue influence is always exercised between parties to the contract.

Q.16. Discuss on ‘Legality of object’.

Ans. Object means purpose or design. Object and consideration represent the same thing from the point of view of the parties to the contract. A contract is an agreement between two parties and what is an object for one party is the consideration for the other.

The object and the consideration of an agreement must be lawful otherwise, the agreement is void. The consideration or the object of an agreement is unlawful in the cases:

1. If it is Forbidden by Law: An act is forbidden by law when it is punishable either by the criminal law of the country or by special legislation.

2. If it defeats the provisions of any law. This is possible if the object or the consideration of an agreement is such as to defeat the provisions of any law.

3. If it is Fraudulent: If the object is to defraud others, the agreement is void.

4. If it involves or implies injury to a person or property of another, the agreement is void.

5. If the court regards it as immoral or opposed to public policy, the agreement is said to be void.

Q.17. What are the agreements which have been expressly deciared to be void as per the Indian Contract Act, 1872?

Ans. Avoid agreement is one that cannot be enforced by law and as such cannot be defended by law. Such agreement has no lawful entity because it has an elementary deficiency that makes it void. Such agreement is void in all respects and no party to it can enforce such a contract.

Agreements that are void under the provisions of law include:

1. An agreement made with a party who is not competent to make an agreement.

2. An agreement made by the mistake of parties.

3. An agreement which has no consideration.

4. An agreement where the consideration or object of the agreement is unlawful.

There are also some agreements that have been declared as void under the Indian Contract Act, 1872:

1. Agreements in Restraint of Marriage: Under Section 26 of the act, every agreement in restraint of the marriage of any person other than a minor is void.

2. Agreement in Restraint of Trade: According to Section 27 of the Indian Contract Act, 1872, every agreement by which any one is restrained from exercising a lawful profession, trade or business is void.

3. Agreement in Restraint of Legal Proceedings: According to Section 28, every agreement by which any party is restricted from enforcing his rights under or in respect of any contract by the usual legal proceedings in the ordinary tribunals or that limits the time within which he mav enforce his rights.

4. Agreements Involving Uncertainty: Any agreement that does not clearly define the responsibilities of the parties to it cannot be enforced.

5. Agreements by Way of Wager: Wagering agreements are those in which there is a promise to oney or money’s worth in the event of an uncertainty becoming a certainty

6. Agreements to do Impossible Acts: According to Section 56 of the Indian contract Act, an agreement to do an impossible act is void-ab-initio, ie the law does ng impossibility

Q.18. Write a short note on performance of a contract .

Ans. Performance of a contract takes place when the parties to the cont

contract takes place when the parties to the contract fulfil their obligations under it within the time and in the same manner as prescribed il Centract Act, performance of a contract covers the following:

Obligation of Parties to the Contract: According to Section 37, the parties to a contract must either perform or offer to perform teir obligations. A contract can be fulfilled as actual performance and attempted performance.

2. Effect of Refusal to Perform the Promise: When a promisor under a contract refuses to perform or disables himself from performing his promise in totality, the promise may put an end to the contract.

3. Rights of Joint Promises: According to Section 45. when a person has made a promise to two or more persons, all the joint promises have the right to claim the performance of the promise.

4. Time and Place for Performance: If the time and place of performance the parties to the contract, it must be on the agreed place at the agreed time.

5. Reciprocal Promises and Their Performance: According to Indian Contract Act, Section 20). promises that form the consideration or part of the consideration for each other are reciprocal promises. Such contracts can be unilateral or bilateral contracts.

6. Appropriation of Payments: When the debtor makes a payment, i.e. insufficient to clear his total indebtedness to the creditor, there is requirement of appropriation of payment.

Q.19. What is meant by discharge of contract?

Or What are the various modes of discharge?

Ans. Discharge of Contract: Discharge of contract means termination of the contractual relationship between two parties, i.e. a promisor and a promisee. In it, the rights and obligations created by a contract cease to be operative as the contract is terminated. There are also some cases, when other rights and obligations may arise as a result of discharge of contract but all of them are independent of the original contract.

There are various modes of discharge:

1. Discharge by Performance: It takes place when contracted parties fulfil their obligations within the specified time and manner. Such a discharge may be actual performance or attempted performance.

2. Discharge by Mutual Consent or Agreement: A contract can be discharged by mutual agreement and there is no need to perform the original contract. Such a contract can be terminated by novation (new contract replacing the existing.one), alteration (altering the terms of original contract), remission (remitting performance of a promise) or accord and satisfaction.

3. Discharge by Impossibility of Performance: The purpose is said to be frustrated when the performance of a contract becomes impossible. This impossibility of performance may be initial impossibility or supervening impossibility,

4. Discharge by Lapse of Time: Each party to the contract must perform his promise within the stipulated time if a contract is to be performed within a specified time.

5. Discharge by Operation of Law: A contract may be discharged independent of the wishes of the parties, ie, by operation of law. It can be by death, by insolvency, by unauthorised material alteration or by identity of promisor andpromisee.

6. Discharge of Contract hy Breach: It occurs where a party to a contract fails to perform precisely and exactly his obligations under the contract

Q.20. What is breach of contract? Discuss the remedies available to aggrieved party.

Ans. Breach of Contract. When one of the parties to the contract denies to perform the act or to fulfil the obligations laid upon him under the contract, a breach of contract arises. It is a legal cause of action in which a binding agreement is not honoured banem a of the parties through non-performance or interference with the performance of other party.

When a party to a contract commits a breach of contract the other art can take recourse of some remedies which the law provides. The remedies available areas under

1. Exoneration: When one party to a contract refuses or fails to perform the aggrieved party can assume the contract to terminate and is exempted from further performance.

2. Claim for Damages: Damages are the monetary compensation allowed to the injured party con the loss or injury suffered by him as a result of the breach of contract. The fundamental principle here is not punishment but compensation.

3. Claim for Quantum Meruit: Quantum meruit means as much as is earned’ or ‘according to the quantity of work done! Such a claim must be brought by a party who is not in default,

4. Claim for Specific Performance: The court may in its discretion on a suit for specific performance direct party in breach to carry out his promise according to the terms of the contract where the damages are not an adequate remedy.

5. Claim for Injunction: Suit for injunction means demanding court’s stay order Injunction means an order of the court that prohibits a person to do a particular act. It is a negative order by the court that restrains a party from doing something .

Q.21. Distinguish between fraud and undue Influence,(2016)

Ans.Distinction between Fraud and Undue influence

S.No.	Basis of difference	Fraud	Undue influence
1.	Meaning	It is and act committed by a party to a contract or by his agent with intent to deceive or induce a person to enter intof contract.	Here, consent is obtained by one party misusing his dominating position or by moral influence.
2.	Type	Its intention is to deceive the party and isinternational and deliberate.	It is of moral character and implies the use of moral force or mental pressure.
3.	Rights of parties	The aggrieved party can affirm the contract, claim damages and repudiate the contract.	There is need of definite fiduciary, legal or authoritarian relation between the parties.
4.	Legality and effect	The aggrieved party can file a suit to set aside the contract at any time.	The contract can be set aside completely or be void on the terms set by the court.

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