LLM Group 2 Business Law Fundamental Principles of Law of Contract and Allied Laws 2023 Question Paper with Solutions

The relation between agreement and contract is therefore one of genus and species. Every contract is an agreement; not every agreement is a contract, because an agreement may fail the enforceability test in section 10 or be one that section 2(g) declares void.

A court asked whether a contract exists performs two inquiries in order, and organising the answer that way is what turns a list into an examination. Stage one: was there an agreement at all, that is, a proposal accepted, supported by consideration and made with the intention of creating legal relations? Stage two: is that agreement enforceable, that is, made by competent parties with free consent, for a lawful object and consideration, and not expressly declared void?

Carlill v. Carbolic Smoke Ball Co., [1893] 1 Queen's Bench 256, shows the exception and is the most cited case in the subject. The company advertised a reward of a hundred pounds to anyone who used its smoke ball as directed and still contracted influenza, and stated that it had deposited a thousand pounds with its bankers to show its sincerity. Mrs Carlill used the ball as directed, caught influenza, and sued. The Court of Appeal held that the advertisement was a general offer to the world, capable of acceptance by performance of the condition; that the deposit answered the argument that the advertisement was mere puff; that notification of acceptance was dispensed with by the terms of the offer; and that the inconvenience the plaintiff had undergone was good consideration.

Was there an acceptance, and was it absolute? Section 7 requires the acceptance to be absolute and unqualified and to be expressed in some usual and reasonable manner. A counter-offer is not an acceptance and destroys the original offer: Hyde v. Wrench, (1840) 3 Beavan 334. Section 8 provides that performance of the conditions of a proposal, or acceptance of any consideration for a reciprocal promise, is an acceptance.

Lalman Shukla v. Gauri Datt, (1913) 11 Allahabad Law Journal 489, closes stage one. A servant sent in search of his master's missing nephew found the boy in ignorance of an announced reward, and could not claim it. There can be no acceptance in ignorance of the proposal, because acceptance is the signification of assent, and a person cannot assent to what he does not know.

Was there consideration? Section 2(d) requires an act, abstinence or promise, at the desire of the promisor, by the promisee or any other person. Durga Prasad v. Baldeo, (1880) Indian Law Reports 3 Allahabad 221, shows the force of the words "at the desire of the promisor". The plaintiff built shops in a market at the order of the Collector; the defendants, who occupied them, promised him a commission on their sales in consideration of his outlay. The Allahabad High Court held there was no consideration, because the expenditure had been made at the desire of the Collector and not of the defendants.

Was there an intention to create legal relations? The Act does not state the requirement and the courts have supplied it. Balfour v. Balfour, [1919] 2 King's Bench 571, holds that a domestic arrangement between spouses living together is not intended to have legal consequences. Merritt v. Merritt, [1970] 1 Weekly Law Reports 1211, holds that the presumption does not survive the breakdown of the relationship.

Ranganayakamma v. Alwar Setti, (1889) Indian Law Reports 13 Madras 214, is the classic coercion case: a widow was prevented from removing her husband's corpse for cremation until she consented to adopt a boy, and the consent was held to have been caused by coercion. Lakshmi Amma v. Talengala Narayana Bhatta, AIR 1970 SC 1367, applies section 16: a deed executed by a man in hospital in favour of one son to the exclusion of the others was set aside for undue influence, the relationship and the circumstances placing the burden on the beneficiary.

Derry v. Peek, (1889) 14 Appeal Cases 337, marks the line between fraud and misrepresentation. A company prospectus stated that the company had the right to use steam power, believing a Board of Trade consent to be a formality. The House of Lords held there was no fraud, because fraud requires a false representation made knowingly, or without belief in its truth, or recklessly careless whether it be true or false. Section 17 of the Indian Act adopts substantially the same test, and section 18 covers the innocent case.

Was there consideration at all, and does it matter? Section 25 makes an agreement without consideration void, with three exceptions: a registered promise made on account of natural love and affection between near relations, a promise to compensate past voluntary service, and a written promise to pay a time barred debt. Explanation 2 provides that inadequacy alone does not void the agreement, though it may be evidence on whether consent was free, and Illustration (f) gives the Act's own example of a horse worth a thousand rupees sold for ten.

Is the agreement expressly declared void? Sections 26 to 30 void agreements in restraint of marriage, of trade and of legal proceedings, uncertain agreements and wagers. Section 56, first paragraph, voids an agreement to do an act impossible in itself.

Is a statutory form required? The second paragraph of section 10 preserves any law requiring writing, attestation or registration. In Re: Interplay Between Arbitration Agreements under the Arbitration and Conciliation Act 1996 and the Indian Stamp Act 1899, decided 13 December 2023 by seven judges, is the newest authority on the consequence of failing such a requirement, holding that an unstamped instrument is inadmissible in evidence but is not void, and that the defect is curable. It overruled N.N. Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd.

At the second stage the question is enforceability under section 10: competence under section 11, on which Mohori Bibee holds a minor's agreement void ab initio; free consent under sections 13 to 22, where the vitiating factors produce voidability under sections 19 and 19A but bilateral mistake of fact produces nullity under section 20; lawful consideration and object under sections 23 to 25, on which Gherulal Parakh counsels caution about new heads of public policy while Brojo Nath Ganguly shows the section reaching unequal standard form bargains; and the absence of an express avoidance under sections 26 to 30. Each stage has its own consequence, and it is the difference between void, voidable and merely unenforceable that a script must get right.