[unit Law of Contract and | Sale of Goods Act ire of Law of Contract : j Contract and Essential Elements | of Valid Contract, Offer and | Acceptance, Consideration Jaa: Q.4 Give definitions of contract. Ans. : Definitions of contract 1. A contract is a promise or a set of promises for the breach of which the law gives a remedy, oF the performance of which the law in some way recognizes as a duty. A contract is a binding agreement between two or more parties which is enforceable by law. A legally enforceable contract is an exchange of promises with specific legal remedies for breach. According to Salmond “A contract is an agreement creating and defining obligation between two or more persons by which rights are acquired by one or more to acts or forbearance on the part of others". 4. According to Sir William Anson - “A legally binding agreement between two or more persons by which rights are acquired by one or more to acts or forbearance on the part of others". Q2 State different types of contracts. Ans. : Types of contracts «There are four types of contracts. 1. Contracts based on formation z 3. 4. Contracts based on nature of consideration Contracts based on execution Contracts based on validity. Q.3 Explain requirements of contract. Ans. : Requirements of contract © There are four major requirements of contract. Agreement : The parties must have reached a mutual agreement. The offeror must have made an offer, and the offeree must have replied with | an acceptance. | 2% Consideration : Each promise must be made in | retum for the performance of a legally sulficient | act or promise. If one party isn't required to | exchange something of legal value (eg, money, property, a service), an agreement lacks sufficient consideration. 3. Contractual capacity : Both parties must possess | the full Tegal capacity to assume contractual | dlties. Limitations to full capacity include mental | illness and such diminished states as intoxication. Lawful object : The purpose of the contract must be legal. A contract to commit an unlawful act or to violate public policy is void (without legal ter), aes | ean esemnte ofa vad contact Tina: Eset ofa valid conte * To form a valid contract, essentials of contract are- o 2. Intention to create legal relationship > \_Je Offer and acceptance Lawful consideration Capacity to contract Genuine and free consent Legality of object Certainty and possibility of performance Legal formalities. 8 Q.5 Explain offer and acceptance Indian Contract Act. Ans. : Offer in Indian Contract Act * To enter into’ an agreement there must be at least two parties and out of these two parties, one has t0 8 a part of @-nofstonal Pract, Law and Ethier ‘express his willingness to another to do or not to Go something which is known as an offer and the other the party has to give his consent or acceptance to the terms of the offer. + Offer means an offer made by one person to another person with the intent of obtaining his or her acceptance to do or abstain from doing any act. « Offer or the proposal is a fundamental aspect of the contract. When an individual signifies his or her willingness to do or not to do something with an expectation of obtaining the assent of that other person then it is called an offer. © Offer is an expression of any person to do or abstain from doing something or anything made to ‘obtain the assent of the other person to whom he or she has made such a proposal. ‘© So offer is the proposal of any particular individual to another or a particular group or to the group of general people with an expectation of getting the acceptance on the matter that he or she has proposed. Acceptance in Indian Contract Act ‘© Acceptance means the acceptance given by the person to whom the offer has been made in the same meaning in which the offer is made. * Acceptance is defined as the consent or assent signified to the offer. Therefore it is an act of expressing assent to the offer by the party to whom it is made is called acceptance. It is the outcome of the expression of assent. ‘s Acceptance of the person to whom the offer is made creates the contractual relationship between the parties and will bound by contractual rights and obligations. ‘+ Acceptance of an offer may be made verbally or in writing, or it may be inferred from the conduct of the parties. However, certain ‘rules must be complied with before acceptance of an offer is valid. First, acceptance must be communicated by the offeree to the offeror in the manner requested by or implied in the offer. Second, the acceptance must be lear, unequivocal, and unconditional __Law of Contract and Sale of Goods Act © When the letter of acceptance is received by the offeror, the communication of acceptance is considered as completed. Q.6 State the features of offer. Ans. : « The major features of offer are are - 1. It is an’ expression of offerer’s intention regarding anything, Its related to doing or not doing something It is made with the hope of getting acceptance from the person, to whom it is made, 4, It can be made by expressed words of mount or ‘written words or by the conduct impliedly 5, It may be of general or specific, 6. It tums into promise when it is accepted by the offeree, 7. It should be communicated to the offeree. Q7 Under which circumstances an offer under contract is ceases ? ‘Ans. ¢ An offer ceases to be capable of acceptance or offer lapses or comes to an end in the following circumstances + 1) By communication of notice of termination of offer to the offer 2) By lapse of the specified or reasonable time 3) By death or insanity of the offer 4) By counter offer 5) By not being accepted aceérding to the prescribed or usual mode. 6) By non-fulfillmerit of a condition precedent. | 2.2: Capacity to Contract and | Free Consent, Legality of Object Q.8 Explain essential conditions of contractual ‘capacity. ‘Ans. : Essential conditions for contractual capacity - ‘© Contractual capacity is an essential ingredient of a valid contract '* According to Section 10 of this act, parties making fan agreement must have contractual capacity. «Contractual capacity means they must be legally competent for making a contract, TECHNICAL PUBLICATIONS® - an up-hrust for knowiedgeProfessional Practice, Law and. + To have a contractual capacity, one must fulfil the following conditions : Age - According to Indian Contract Act, only a ‘major person is competent to contract. Thus, contract with or by a minor is altogether void. The person continues to be a minor until he completes his age of 21 years. ‘© The word "Void when used in relation to a minor, it should be understood as "void against the minor’. 2)~Soundness of mind - According to Section 12 of this act, a person is said to be of sound mind for the purpose of making a contract, if, at the time when he makes it, he is capable of understanding it and of forming a rational judgment as to its effect upon his interests. +A person who is usually of unsound mind, but occasionally of sound mind, may make a contract when he is of sound mind. A person who is usually of sound mind, but occasionally of unsound mind, may not make a contract when he is of unsound mind. Iustrations : (@) Lunatics : A lunatic is a person who is mentally affected due to some mental strain or other personal experience. He suffers from intermittent intervals of sanity and insanity. He can enter into a contract only during the period when he is of sound mind, (b) Idiot : An idiot is a person who is permanently of unsound mind. He does not exhibit minor understanding of even minor objects or things. ‘An idiot cannot enter into a valid contract. (©) Drunken person : A person who takes any intoxicants like alcohol or drugs etc. he is temporarily incompetent of entering into a contract. Thus, so long as one remains under the influence of intoxicants or drugs, he has no contractual capacity. Thus agreement made by such person are void. 3) Legal disqualification - India Contract Act has defined who shall be able to contract and who are either temporarily barred or permanently barred. It has been described in Section 11 of the act. >, La of Contract Seo Gong The essential aspect of capacity 10 contrac; disqualification of person to contract can be bro) Oke, down into three considerations i) Disqualification because of infancy ii) Disqualification because of insanity ii) Other methods of disqualification as prescriyy by law 9 What is mean by free consent according 4, Ingisn Contract Act. = ~~ ‘Ans. : According to Section 13 of Indian Contract “two or more persons are set to consent when the, agree upon the same thing in the same sense,” * Section 14 of this act states that, consent is said tp be free when it is not caused by : - 1. Coercion : Application of physical force Undue influence : Use of mental pressure |. Misrepresentation representation Fraud : Cheating or deceiving Innocent false 1. Coercion It implies use of some kind of physical force by doing some act forbidden by law to seek consent of other party. 2 Undue influence :. It implies unfair use of dominating position to cause the concent of other party for a contract. In undue influence some Kind of mental and moral pressure is brought upon a party to cause his consent. 3. Misrepresentation : While making a contract, one of the party may make any statement regarding the subject matter of a contract. Such statement, if | tums to be untrue amounts to misrepresentation. It is a misstatement of material facts. 4. Fraud : An intentional misrepresentation of the facts amounts to fraud. Fraud is always committed with a view to deceive. to cheat another person. Thus, when one person does anything or makes false statement knowing to induce other for causing this consent, its known as fraud. 5. Mistake : It may be defined as a wrong impression or erroneous opinion in the mind of @ TECHNICAL PuaLICATIONS® ‘an up-thust for knowledgeprofessional Practice, Law and Ethics n about any subject matter, event or it may consent something. 0.10 Explain legality of object as per Indian Contract Act. ‘Ans. Logallty of object ~ « Every contract is made for object or purpose. The object of a contract is formed on the basis of promises made by the parties. ‘The contract to be legally valid, must contain lawful object. When the contract is made for doing something illegal defeating provisions of the law such contract is not valid in the eyes of law. + © According to Section 23 of this act the unlawful acts 1. Forbidden by law 2. Prohibited by special legislation 3. It would defeat the provisions of any law 4, It is fraudulent 5. Involves enquiry to person/property if another 6. Courts tp public policy 7. Opposed to public policy 8, Trade with alien enemies 9, Interference with course of justice 10. For suppressing prosecution 11. For sale of public titles/offices and honours 12. Marriage brokerage. [2.3 : Unlawful and Megal Agreements | Q.11 Explain unlawful and ‘illegal agreement. ‘Ans. : Unlawful agreements «To define Hlegal Agreements in their most basic form, they are considered to be those agreements that violate existing laws in the particular domain and are of criminal nature. ‘© An agreement will not be enforced by the court if its object or the consideration is unlawful. _ # According to Section 23 of the act, the consideration me and object of an agreement are unlawful in the following cases : a) If it is forbidden by law; Law of Contract and Sale of Goods Act b) If it is of such nature that, if permitted, it would defeat the provision of law; ©) If it is froudulent; 4) If it involves oF implies injury to the person or property of another; ©) If the court regards it as immoral; f) If the court regards it as opposed to public policy. 2.4: Contingent Contracts Q.12 Explain contingent contract. ‘Ans. : Contingent contract- ‘© Under Section 31 of the Indian Contract Act, 1872, contingent contracts are defined as follows : "If two ‘or more parties enter into a contract to do or not do something, if an event which is collateral to the contract does or does not happen, then it is a contingent contract.” ©The ‘contingent contract’ implies that the ‘enforceability of that contract is directly dependent fon an oceasion occurring or not occurring. In the Indian Contract Act, 1872, the term was used to ‘mean conditional. [-* @Q.13 Comment on discharge or termination of contract. ‘Ans. : Discharge of contract - «Discharge of a contract implies termination of the contractual relationship between the parties. Performance and Discharge of Contracts ‘On the termination of the such relationship the parties are released from their obligations in the contract. And in this way contract comes to an end. Modes of discharge In contract : By performance By mutual agreement By supervising impossibility By operation of law By lapse of time By material alteration By breach of contract «an uprthnust for knowledgeProfessional Practice, Law and Ethics Q.14 What Is breach of contract and its types. Explain remedies of breach of contract. | ‘Ans. : Breach of contract - +A formation of contract results in creating contractual obligations between the parties. + These contractual agreements are to be fulfilled by the parties on the due date as per terms and conditions of a contract. + When the party does not fulfil his obligation or refuses to fulfil it or disables himself from fulfilling him it is known of breach of contract. * Chapter VI (Section 73 to 75) of the Indian Contract Act1872 deals with the consequences of breach of the contract. ‘= Breach of contract is defined is a legal cause of action in which a binding agreement for exchange is not honoured by one or more parties to the contract by non-performance or interference with the other party's performance. ‘*If the party does not fulfil his contractual promise, for has given information to the other party that he will not perform his duty as mentioned in the contract or if by his action and conduct he seems to be unable to perform the contract, he is said to be breach of contract. Types of Breach * Breach of contract is of two types ‘D Actual breach : This contract takes place when the promiser fails to perform his obligation or refuses to do s0 on the due date of performance. 2) Anticipatory breach: This contracts the Promiser either refuses to perform or makes himself unable to perform a promise before the due date of performance. Anticipatory breach of contract takes place before the date of actual performance. Remedies for breach of contract ‘+ When a contract is broken, the aggrieved party (the | party who is not in breach) has one or more of the | following remedies - 1) Recession of the contract Law of Contract and Sale of Goods 4, 2) Suit for damages 3) Suit upon quantum merit 4) Suit for specific performance 5) Suit for injunction. | 2.7: Indemnity and Guarantee, Contract of Agency Q.45 Explain indemnity and contract of guarantee, Ans. : Indemnity - © The term indemnity means “security or protection against a loss” or compensation. © According to Section 124 of the Indian Contract Act, 1872 "A contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person, is called a contract of indemnity. © There are two parties in this form of contract. The party who promises to indemnify/ save the other party from loss is known as ‘indemnifier’, whereas the party who is promised to be saved against the loss is known as ‘indemnified’ or indemnity holder. Contract of guarant. ‘+ Contract of guarantee means a contract to perform the promises made or discharge the liabilities of the third person in case of his failure to discharge such abilities. ‘As per section 126 of Indian Contract Act, 1872, a contract of guarantee has three parties : 1. Surety : A surety is a person giving a guarantee in a contract of guarantee. A person who takes responsibility to pay a sum of money, perform any duty for another person in case that person fails to perform such work. 2 Principal Debtor : A principal debtor is a person for whom the guarantee is given in a contract of guarantec. 3. Creditor : The person to whom the guarantee is given is known as the creditor. TECHNICAL PUBLICATIONS® ‘an up-thst for knowtodgeProfessional Practice, Law and Ethics _Law of Contract and Sale of Goods Act _ Kinds of guarantoo 1, Retrospective or prospective 2. Specific or continuing 3. Entire or partial debt 2.8: Sale of Goods Act -1930 : General Principles, Conditions and Warranties, Performance of Contract of Sale Q.46 State essentials of sale of goods act. ‘Ans. : Sale of goods act «« According to section 4 of the sale of goods act, 1930 ‘Contract of sale of goods is a contract whereby the seller transfer or agrees to transfer the property in goods to the buyer for a price’. Essential elomonts of sale of goods act «Essential elements of sale of goods act are as follows : 1. There must be at least two parties. (Bilateral contracts) 2 3. 4 5 6 ‘The subject matter of the contract must be goods. / ‘A price in money should be paid or promised. {A transfer of property in goods from seller to the buyer must take place, It must be absolute or conditional. All other essentials of a valid contract must be present. | . ‘Contract of sale Sale. Tareoment to sale ‘Ownership in the goods is ‘Where the transfor of ownership transferred by the seller to in goods isto take place, at a the buyer immediately at future time or subject to the time of contract. futfilmant of some condition, Fig. 0.46.4 of goods act. 2.17 Explain condition and warranties under ‘Ans. : Condition ‘If the stipulation forms the very basis of the contract or is essential to the main purpose of the contract, it is a condition. ° The breach of the condition gives the suffering party a right to treat the contract as repudiated (cancelled), Thus, ifthe seller fails to fulfil a condition, the buyer may treat the contract as repudiated, refuse the goods and, if he has already paid for them, recover the price, He can also claim damages for the breach of contract. Warranties «If the stipulation is collateral to the main purpose of the contract, ie, is a subsidiary promise, itis @ warranty. TECHNICAL PUBLICATIONS® - on up-trus fr knowledgeThe effect of a breach of a warranty is that the suffering party cannot repudiate (cancel) the contract but can only claim damages. Thus, if the seller does not fulfil a warranty, the buyer must accept the goods and claim damages. * Stipulation (condition) as to time of payment are not to be deemed conditions (and hence not to be of the essence of a contract of sale) unless such an intention appears from the contract. + Whether any other stipulation as to time (eg, time of delivery) is of the essence of the contract oF not depends on the terms of the contract. Q.48 Explain performance of contract of sale. Ans. : Performance of contract of sale ‘The performance of contract of sale deals expressed from Section 31 to Section 44 of the sales of Goods Act 1930. * The process of displacing the goods and how the Possession of goods are being transferred from one Person to another voluntarily is described in these sections. ‘* For a legal agreement, the parties are the main essential element. In the contract of the sale of ‘goods, there are two parties, one is the seller and the other is the buyer. * The parties are free to provide any terms in their contract regarding time, place, delivery, payment of ‘goods and so on. But if the parties are silent and Ro terms are mientioned in the contract then rules contained in the sale of goods act will be applicable. Meaning of delivery ‘+ Voluntary transfer of possession from one person to another. Types of delivery 1. Actual delivery It means actual physical delivery of the goods to the buyer or his authorized agent by the seller or his authorized agent. 2. Symbolle delivery * When goods are not physically delivered but the means of obtaining possession of goods is delivered to buyer. A symbol is used for delivery. TECHNICAL PUBLICATIONS® Law of Contract and Sale of Goods pcp + Example : Handing over of keys of godown where ‘goods are safely kept etc. 3. Constructive delivery “Third party is involved in delivery. Seller dont deliver the goods directly. ; Example : Seller —> Warehouseman/Warehouse keeper ~ Buyer i in the Blanks for Mid Term Exam In a standardizéd contract, the individuial has no choice but to ____ and ___on the-dotted line. One party's failure to fulfil any of its contractual obligations is known as @___ of. the contract. Q3 The term "goods" is defined in | section of the sale of goods act, 1930. Q.4 In an agreement to sell, the property in goods is transferred in__. “Contract of sale" under section 4 of the sale of goods act, 1930 comprises of | | | | Multiple Choice Questions | for Mid Term Exam | Q1 The correct sequence in the formation of a contract is : [a] Offer, acceptance, agreement, consideration. q ') Agreement, consideration, offer, acceptance. {c] Offer, consideration, acceptance, agreement. [a] Offer, acceptance, consideration, agreement, id cep agree Terms of contract relate. to statements, assertions, or representations contained in a written contract which relate to the subject ‘matter of the contract and : as az [a] To something to be done [Bb] To something not be done under the contract [g] Has no application to a provision in the nature of a condition precedent to the very existence or formation of a contract (dj AN of them ‘an up-thrust for knowledge | |