B.A. LL.B. (Five Years) Sem 4 Contract I 2014 Dec Question Paper with Solutions

Part A: the requisites of a valid contract

Section 2(h) of the Indian Contract Act 1872 says: "An agreement enforceable by law is a contract". Section 10 says which agreements are enforceable: "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". The requisites can be grouped by what each one tests.

1. The agreement itself.

• Offer and acceptance. There must be a proposal and its acceptance, producing a promise (section 2(b)).
• Intention to create legal relations. The parties must mean their agreement to have legal consequences.

Balfour v. Balfour, [1919] 2 KB 571. A husband working in Ceylon promised his wife, who stayed in England on medical advice, thirty pounds a month. When the marriage broke down, he stopped paying, and she sued. The Court of Appeal held that there was no contract. Arrangements between spouses in the ordinary course of married life are presumed not to be meant to create legal relations.

• Writing or registration where a law requires it. Most contracts may be oral. But some laws require writing, registration or stamping, as section 10 itself preserves. For example, section 54 of the Transfer of Property Act 1882 requires a registered instrument to sell tangible immovable property. This applies where it is worth one hundred rupees or more. A promise without consideration made out of natural love and affection must likewise be written and registered under section 25(1).
• Possibility. Section 56 makes void "an agreement to do an act impossible in itself".

Testing an agreement against the requisites. Suppose a seventeen-year-old agrees in writing to sell his motorcycle to a neighbour for a fair price. There is an offer and acceptance, a clear intention to be bound, certain terms, consideration and a lawful object. Yet the agreement is void, because the seller is a minor and lacks capacity under section 11. A single missing requisite is enough to deny enforcement. That is why each requisite must be checked separately in a problem question.

Part B: the classification of contracts

1. By validity.

Gherulal Parakh v. Mahadeodas Maiya, AIR 1959 SC 781. Two partners carried on forward contracts in wheat, which were wagers, and one sued the other for his share of the loss. The Supreme Court held that a wager is void under section 30 but not forbidden by law. So the partnership, which was collateral to the wagers, was not unlawful. The case marks the line between a void agreement and an illegal one.

2. By mode of formation.

1. Express contract. Under section 9, a promise made in words is express.
2. Implied contract. A promise made "otherwise than in words" is implied, as when a passenger boards a bus.
3. Quasi-contract. It is not a contract at all, but an obligation the law imposes to prevent unjust enrichment, under sections 68 to 72.
4. E-contract. Section 10A of the Information Technology Act 2000 says that where proposals, acceptances or revocations are "expressed in electronic form or by means of an electronic records", the contract "shall not be deemed to be unenforceable solely on the ground that such electronic form or means was used".

Carlill v. Carbolic Smoke Ball Co., [1893] 1 QB 256. A company promised 100 pounds to anyone who caught influenza after using its smoke ball as directed. Mrs Carlill did so and caught influenza. The Court of Appeal held the company bound. Only the company had promised anything. Mrs Carlill accepted by performing, which makes this the standard example of a unilateral contract.

4. Contingent contracts. Under section 31, a contract to do something if an uncertain collateral event happens or does not happen is contingent. A contract of insurance is the common example.

Why the classification matters

The label decides the remedy. A void agreement gives no rights at all, though section 65 may require a benefit to be restored. A voidable contract binds until the injured party chooses to avoid it, and he may instead affirm it. An illegal agreement taints even collateral transactions. An unenforceable contract may be enforced once its defect, such as a missing stamp, is cured. So in any problem, the first step after testing the requisites is to place the agreement in its class.