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Laws relating to contracts are contained in the Indian Contract Act, 1872. Contracts are fundamental to human behaviour in a society as everyday we enter into agreements of some sort or the other in our daytoday life. Law of contract is at the core of all commercial activities and, hence, it is one of the most tested areas in law entrance examination. Normally, 4 to 5 questions are asked in every law entrance exam, based on the principles of the law of contract. Students are advised to learn the basic principles of the law of contract before answering the questions that follow.
1. Principle: A contract is an agreement enforceable by law.
Facts: Smita invited Nikita to her house for dinner. Nikita accepted the invitation but later did not go. On Nikita's failure to attend, Smita filed a suit against Nikita for the price of nonconsumed food. Can this agreement be enforced by law?
(a) This agreement cannot be enforced as it is just a social agreement.
(b) This agreement can be enforced as Smita can recover the price of nonconsumed food.
(c) This agreement cannot be enforced as Nikita did not accept the invitation in writing. (NUJS, 2000)
2. Principle: A minor's agreement is absolutely void.
Facts: Rajesh, aged 16, is a stamp collector. He is particularly anxious to get a rare stamp belonging to Chirag, who agrees in writing to sell it to Rajesh for Rs.100, but subsequently refuses to deliver it to Rajesh though Rajesh pays Rs.100. Rajesh now wants to sue Chirag. Will he succeed?
(a) Rajesh cannot succeed as Chirag is not liable.
(b) Rajesh can succeed as he has paid Rs.100 for the stamp.
(c) Rajesh can succeed as Chirag agreed in writing to sell the stamp. (NUJS, 2000)
3. Principle: A contract without consideration is void. When, at the desire of one party, the other party does something, the consideration is said to flow from the latter to the former.
Facts: A house was on fire and a child was trapped inside the house. Everyone was shouting for help. A brave onlooker, hearing the shrieks of child, went inside the house and brought it out. The grateful father of the child promised to pay the rescuer Rs.10,000. Subsequently he reneged on the promise. The rescuer sued him for the breach.
(a) The father of the child must pay for the service rendered by the rescuer.
(b) The rescuer is not entitled to the payment, since he had acted on his own.
(c) Commercial consideration cannot be applied to humanitarian instincts. (NLSIU, 2002)
4. Principle: When the parties to an agreement agree on the same thing in the same sense, there arises a legally binding obligation between them.
Facts: Sameer Gallery was a well known antique shop in the city. Sheela, who had penchant for collecting articles of rare beauty, was taken up by an intricately designed flower vase in the shop. The shop keeper explained to her the vase belonged to the Vijaynagar Empire period and although very delicate, it was quite strong and not easily breakable. Sheela said that she was attracted to it only for the aesthetic pleasure it gave her and its other characteristics were immaterial to her and bought the piece. She later discovered that it was not a period piece and noticed it developing cracks as well. She proceeded against the proprietor of Sameer Gallery for monetary relief. (a) Sameer Gallery must compensate Sheela, since both the characteristics attributed to the article were proved wrong.
(b) Sameer Gallery need not compensate, since Sheela was unconcerned about what was attributed to the article.
(c) The proprietor must compensate her for irresponsible statements made by him. (NLS IU, 2001)
5. Principle: If both the parties agree upon the same thing in the same sense, the parties are bound by their agreement.
Facts: Sunny wrote to Kapil offering to sell his horse for Rs.20000. Kapil wrote back, ''I agree to purchase your black horse for Rs. 20000.''
(a) The parties are bound by their agreement as they agree on the price and also on the goods for sale.
(b) The parties are not found by the agreement as the object is uncertain.
(c) The parties are bound by their agreement as the colour of the horse is only a question of detail. (NLSIU, 2001)
6. Principle 1: No consideration, no contract.
Principle 2: Consideration is something done or not done at the desire of another party.
Principle 3: Consideration must have value in the eye of law.
Facts: Innovative Education Trust manages a school named Bharat Vidayaniketan. Raman, the parent of a student in the school suggested to the trust that it could build a new library building for which he would bear a part of the cost. The school authorities accepted the suggestion and started construction of the building. Raman, who suffered a loss in business, now refuses to pay the money he had offered earlier.
(a) Raman is not liable to pay as the building was for the benefit of the school and he had nothing to do with it by way of enjoyment and benefit.
(b) He is liable to pay as Raman's child is a student in the same school.
(c) Raman is liable to pay because, based upon his promise, the school authorities started construction of the building. (NLSIU, 2000)
7. Principle 1: Acceptance of an offer is complete when the acceptance is put into the course of transmission so as to be out of the power of the acceptor.
Principle 2: Acceptance, once completed, makes the agreement binding on both the parties.
Facts: P accepts Q's offer of his motor car for Rs.4 lakh. The acceptance was put into an email. Unfortunately, when the email was transmitted, there were distortions, as a result of which, Q is not in a position to really read what P had written.
(a) Both the parties are bound to perform their part of the agreement.
(b) Nobody is bound to perform the agreement.
(c) P is bound to perform the agreement but not Q.
(d) Q is bound to perform the agreement but not P. (NLSIU, 2000)
8. Principle: Agreements, the meaning of which is not certain or is not capable of being made certain, are void. Facts: Rohit agrees to sell Salim ''one thousand mounds of rice at a price to be fixed by Prem.'' Is the agreement between Rohit and Salim void?
(b) No, because the price can be made certain by Prem.
(c) Yes, because Rohit has not fixed the price.
9. Principle: A person who is usually of sound mind, but occasionally of unsound mind, may not make a contract when he is of unsound mind. A person who is usually of unsound mind, but occasionally of sound mind, may make a contract when he is of sound mind.
Facts: Mayur, a patient in a lunatic asylum, is, at intervals, of sound mind. Can Mayur contract at intervals?
(a) Yes, because he is a human being.
(c) Yes, because he is of sound mind during those intervals. Who decides if he is sound at a particular interval and How
10. Principle: Where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void.
Facts: Kartik agrees to buy from Arif a certain horse. It turns out that the horse was dead at the time of the bargain, though neither party was aware of it. Is the agreement between Kartik and Arif void?
(a) Yes, because Kartik and Arif were friends.
(b) Yes, because Kartik and Arif were under a mistake as to a matter of fact, which is essential to the agreement.
(c) No, because Kartik was informed of the horse being dead.
(d) No, because Arif was informed of the fact.
11. Principle: A person to whom money has been paid, or anything delivered, by mistake or under coercion must repay or return it.
Facts: Mohini and Hema jointly owe 100 rupees to Megha. Mohini alone pays the amount to Megha. Hema not knowing of this fact, pays 100 rupees again to Megha. Is Megha bound to repay Hema? (
(b) Yes, Mohini and Gita are friends.
(c) Facts are not clear.
(d) Yes, because Hema has paid Megha under mistake or unknowingly.
12. Principle: An agreement is a contract if it is made by the free consent of the parties competent to contract, for a lawful consideration and with a lawful object, and they are not hereby expressly declared to be void.
Facts: Sunil agrees to sell Sarthak a house worth Rs.100000 for Rs.1000. Is the agreement between Sunil and Sarthak, a contract?
(a) No, because the consideration is inadequate.
(b) No, because Sarthak has played foul on Sunil.
(c) Yes, because inadequacy of consideration does not make an agreement void.
(d) No, because there is no free and express consent. 1
13. Principle: Where a person lawfully does anything for another person, or delivers anything to him, not intending to do so gratuitously, and such another person enjoys the benefit thereof, the latter is bound to make compensation to the former in the respect, or to restore, the thing so done or delivered.
Facts: Pramod, a tradesman, leaves goods at Arvind's house by mistake. Arvind treats the goods as his own and uses it. Is Arvind bound to repay Pramod?
(a) No, because Pramod and Arvind are friends.
(b) Yes, because Pramod never intended to leave the goods at Arvind's house, but left them because of a mistake.
(c) No, because Pramod left the goods at Arvind's house due to his own fault.
14. Principle: In the case of alternative promises, one branch of which is legal and the other illegal, the legal branch alone can be enforced.
Facts: Mahendra and Surendra agree that Mahendra shall pay Surendra Rs.1,000 for which Surendra shall afterwards deliver to Mahendra rice or smuggled opium. Which is a valid contract?
(a) To deliver smuggled opium
(b) To deliver rice
(c) Both (a) and (b)
15. Principle: Contingent contracts to do or not to do anything, if an uncertain future event happens, cannot be enforced by law unless and until that event has happened. If the event becomes impossible, such contracts become void.
Facts: Prateek contracts to pay Diwakar a sum of money when Diwakar marries Anita. Anita dies without getting married to Diwakar. Has the contract between Prateek and Diwakar become void?
(b) Yes, Diwakar can marry some other person.
(c) Yes, because the event has become impossible.
16. Principle: A person who rightfully rescinds a contract is entitled to compensation for any damage which he has sustained through the nonfulfilment of the contract.
Facts: Meghna, a singer contracts with Harsh, the manager of the theatre, to sing at his theatre for two nights every week during the next two months. He engages to pay her 100 rupees for each night's performance. On the sixth night, Meghna wilfully absents herself from the theatre and Harsh, in consequence, rescinds the contract. Is Harsh entitled to claim compensation?
(a) Yes, because he has suffered loss.
(c) Yes, because he has rightfully rescinded the contract.
17. Principle: A person, who is interested in the payment of money which another is bound by law to pay and who therefore pays it, is entitled to be reimbursed by the other.
Facts: Harbans hold a land in Bengal, on a lease granted by Satish, the zamindar. The revenue payable by Satish to the government being in arrears, his land is advertised for sale by the government. Sale will also terminate the lease of Harbans. To prevent the sale and the consequent termination of his own lease, Harbans pays the government the sum due from Satish. Is Satish bound to make good to Harbans the amount so paid?
(c) Depends upon Satish's wish.