Contract Law-I (KSLU) - Important

Questions with Answers

Q1. All contracts are agreements, but all agreements are not contracts.
Discuss.

Synopsis:
Every contract is an agreement, but not every agreement is a contract. A contract needs
legal enforceability.

Expanded Explanation:
An agreement becomes a contract when it is enforceable by law. Section 2(h) of the Indian
Contract Act defines a contract as 'an agreement enforceable by law.' Agreements like social
or domestic arrangements lack enforceability and do not become contracts.

Key Points:
 • Contract = Agreement + Legal enforceability
 • All contracts originate from agreements
 • Not all agreements fulfill legal requirements

Case Laws:
 • Balfour v. Balfour (1919): No legal intention in domestic agreement; not a contract.

Q2. Explain essential elements in invitation to an offer.

Synopsis:
An invitation to offer is a call to others to make offers. It is not a contract or a binding offer.

Expanded Explanation:
An invitation to offer is a pre-offer communication and does not bind the person making it.
It invites others to make offers, which can be accepted or rejected. Common examples are
advertisements, auctions, and display of goods.

Key Points:
 • Not an offer, but pre-offer communication
 • No intention to be legally bound
 • Buyer is the one who makes the offer

Case Laws:
 • Pharmaceutical Society v. Boots (1953): Display of goods is invitation to offer, not an
offer.

Q3. Define proposal (offer)? Explain the circumstance under which it

Synopsis:
A proposal is an expression of willingness to contract. It lapses due to rejection, revocation,
or time lapse.

Expanded Explanation:
According to Section 2(a) of the Indian Contract Act, a proposal is when one person shows
willingness to do or not do something to get consent from another. It lapses when revoked,
rejected, delayed, or if the offeror dies or becomes insane before acceptance.

Key Points:
 • Proposal = Willingness to contract
 • Lapse causes: Revocation, rejection, time lapse
 • Must be communicated effectively

Case Laws:
 • Ramsgate Victoria Hotel v. Montefiore (1866): Offer lapsed due to delay in acceptance.

Q4. Essential of valid acceptance and revocation of acceptance.

Synopsis:
Valid acceptance must be absolute and communicated properly. It can be revoked before it
is communicated.

Expanded Explanation:
As per Section 7 of the Indian Contract Act, acceptance must be absolute, unqualified, and
communicated. Revocation is permitted under Section 5, but it must occur before the
communication of acceptance is complete against the acceptor.

Key Points:
 • Acceptance must be absolute and unconditional
 • Must be communicated in prescribed mode
 • Revocation valid if done before communication reaches offeror
Case Laws:
 • Felthouse v. Bindley (1862): Silence is not acceptance.
 • Bhagwan Das v. Girdhari Lal (1966): Acceptance must be communicated.

Q5. Explain void and voidable contracts.

Synopsis:
Void contracts are not enforceable, while voidable contracts are enforceable at the option of
one party.

Expanded Explanation:
A void contract is one that lacks legal enforceability from the beginning or becomes void
later. A voidable contract is enforceable unless the aggrieved party cancels it due to factors
like coercion or misrepresentation.

Key Points:
 • Void: No legal validity
 • Voidable: Valid until rescinded by aggrieved party
 • Voidable arises from vitiating factors

Case Laws:
 • Ningawwa v. Byrappa (1968): Contract voidable due to fraud.
 • Kanhaiyalal v. D.R. Banaji (1958): Void agreement due to illegality.

Q6. Define consideration.

Synopsis:
Consideration is something of value exchanged between parties to support a contract.

Expanded Explanation:
Section 2(d) defines consideration as an act, abstinence, or promise by one party at the
desire of the promisor. It is the price for which the promise of the other is bought. Without
consideration, a contract is usually void.

Key Points:
 • Consideration = Something in return
 • Must be lawful and have some value
 • Essential for valid contract

Case Laws:
 • Currie v. Misa (1875): Defined consideration as some right, interest, or benefit.
 • Abdul Aziz v. Masum Ali (1914): No consideration, no contract.
Q7. Agreement without consideration is void. Explain with exception.

Synopsis:
Generally, contracts without consideration are void, but there are legal exceptions.

Expanded Explanation:
Under Section 25 of the Indian Contract Act, agreements without consideration are void.
However, exceptions include agreements out of love and affection, voluntary compensation
for past services, time-barred debts, and completed gifts.

Key Points:
 • General rule: No consideration = no contract
 • Exceptions: Natural love, past voluntary service, time-barred debt
 • Gift is valid without consideration

Case Laws:
 • Rajlukhy Dabee v. Bhootnath (1900): Love and affection must be close and valid.
 • Kedar Nath v. Gauri Mohamed (1886): Promise enforceable due to incurred liability.

Q8. Explain unlawful consideration and its effects.

Synopsis:
Unlawful consideration makes the contract void or illegal and unenforceable in law.

Expanded Explanation:
If the consideration or object of an agreement is forbidden by law, fraudulent, injurious to a
person or property, or immoral, it is unlawful. Such agreements are void under Section 23
of the Indian Contract Act.

Key Points:
 • Unlawful consideration = Void agreement
 • Must not go against public policy or be illegal
 • Includes fraud, harm, immorality

Case Laws:
 • Gherulal Parakh v. Mahadeodas (1959): Public policy affects legality of consideration.
 • Surasaibai v. Rajesab (1992): Immoral consideration voids agreement.

Q9. Past consideration is no consideration. Explain.

Synopsis:
In Indian law, past consideration is valid; in English law, it is not valid.
Expanded Explanation:
In India, Section 2(d) recognizes past consideration if it is given at the desire of the
promisor. It must not be voluntary. English law does not recognize past consideration
unless it was moved by a request.

Key Points:
 • Indian law: Past consideration valid
 • Must be at promisor’s desire
 • English law: Past consideration not valid

Case Laws:
 • Sindha v. Abraham (1880): Past services requested are valid consideration.
 • Re McArdle (1951): Past services without request are not valid in English law.

Q10. Explain offer and acceptance – can they be revoked?

Synopsis:
Yes, both offer and acceptance can be revoked before they are communicated effectively to
the other party.

Expanded Explanation:
Section 5 of the Indian Contract Act allows revocation of an offer anytime before acceptance
is complete against the offeror. Acceptance can be revoked before it reaches the offeror.
Timely and proper communication is key.

Key Points:
 • Offer can be revoked before acceptance
 • Acceptance can be revoked before it reaches offeror
 • Must be communicated properly

Case Laws:
 • Henthorn v. Fraser (1892): Postal rule and revocation timing.
 • Bhagwan Das v. Girdhari Lal (1966): Acceptance must be communicated.

Q11. Define consideration. Explain its exceptions.

Synopsis:
Consideration is a necessary element for a valid contract. Exceptions exist under Section 25.
Expanded Explanation:
While consideration is essential, exceptions include: agreements out of love and affection,
compensation for voluntary services, promises to pay time-barred debts, and gifts. These
are valid even without consideration, as per Section 25 of the Indian Contract Act.

Key Points:
 • Love and affection (between close relations)
 • Past voluntary service (with implied promise)
 • Promise to pay time-barred debt
 • Completed gifts

Case Laws:
 • Venkatsubbiah v. Gopalaswamy (1924): Natural love exception.
 • Kedar Nath v. Gauri Mohamed (1886): Voluntary service compensation.

Q12. Define offer? Explain the rule relating to valid offer with the help of
decided cases.

Synopsis:
An offer is an expression of willingness to contract. It must be clear, definite, and
communicated.

Expanded Explanation:
Section 2(a) defines an offer as a proposal to do or not do something. A valid offer must be
made with intention to create legal relations, be communicated clearly, and not contain
vague terms. Offers can be specific or general.

Key Points:
 • Clear and definite terms
 • Intention to be bound
 • Proper communication
 • Legal relationship intended

Case Laws:
 • Carlill v. Carbolic Smoke Ball Co. (1893): General offer accepted by performance.
 • Harvey v. Facey (1893): Quoting price is not an offer.
Q13. Discuss the legal effects of minor agreement.

Synopsis:
Agreements with minors are void ab initio and cannot be ratified even after attaining
majority.

Expanded Explanation:
According to Indian law, a minor (below 18) is incompetent to contract. Agreements with
minors are void from the beginning. They cannot be held liable, but they can be
beneficiaries. Law protects minors from contractual liabilities.

Key Points:
 • Minor = No contractual capacity
 • Contracts are void ab initio
 • Cannot be ratified later
 • Minor can be a beneficiary

Case Laws:
 • Mohori Bibee v. Dharmodas Ghose (1903): Minor’s agreement is absolutely void.

Q14. Person of unsound mind, persons disqualified by law – explain?

Synopsis:
Persons of unsound mind and legally disqualified individuals cannot enter into contracts.

Expanded Explanation:
A person is competent to contract if they are of sound mind (Section 11). A person is of
sound mind if they can understand and form a rational judgment. Drunkards, lunatics, and
legally disqualified persons (e.g., alien enemies, convicts) lack capacity during unsoundness.

Key Points:
 • Must understand and judge rationally
 • Unsound mind = Incompetent during that time
 • Other disqualified persons: Minors, alien enemies, convicts

Case Laws:
 • Inder Singh v. Parmeshwardhari Singh (1957): Contract void if entered in unsound
mind.
 • Chitty on Contracts: Law recognizes temporary unsoundness too.
Q15. Write a note on free consent.

Synopsis:
Free consent means both parties agree without coercion, fraud, undue influence,
misrepresentation, or mistake.

Expanded Explanation:
Section 14 defines free consent. Consent is free when it is not obtained by coercion (Section
15), undue influence (Section 16), fraud (Section 17), misrepresentation (Section 18), or
mistake (Section 20-22). Lack of free consent makes the contract voidable.

Key Points:
 • Consent must be voluntary
 • Five factors vitiate consent
 • Contract becomes voidable

Case Laws:
 • Ranganayakamma v. Alwar Setti (1889): Consent obtained under pressure, not free.
 • Derry v. Peek (1889): Defines fraud in contracts.

Q16. Write a note on void agreements.

Synopsis:
Void agreements are not legally enforceable and have no legal effect.

Expanded Explanation:
Void agreements are not contracts as they lack legal enforceability. As per Section 2(g) of
the Indian Contract Act, these are agreements not enforceable by law. Causes include
illegality, uncertainty, restraint of trade, or agreements with minors or without
consideration.

Key Points:
 • Not enforceable by law
 • Have no legal validity
 • Examples: Restraint of marriage/trade, uncertain terms

Case Laws:
 • Mohori Bibee v. Dharmodas Ghose (1903): Minor’s agreement is void.
 • Gherulal Parakh v. Mahadeodas (1959): Agreement in restraint of trade void.
Q17. Define wagering agreements and state its exceptions.

Synopsis:
Wagering agreements are void agreements involving bets on uncertain events.

Expanded Explanation:
A wagering agreement is one where parties agree to win or lose depending on the outcome
of an uncertain future event. It is void under Indian law. Exceptions include horse racing (if
prize > ₹500) and contracts of insurance (which are contingent, not wagers).

Key Points:
 • Wager = Bet on uncertain event
 • Void agreement under law
 • Exceptions: Insurance, prize competitions, horse racing

Case Laws:
 • Gherulal Parakh v. Mahadeodas (1959): Defined wagering agreement.
 • Carlill v. Carbolic Smoke Ball Co. (1893): Insurance not a wager.

Q18. Write a note on contingent contracts.

Synopsis:
Contingent contracts depend on the occurrence or non-occurrence of an uncertain future
event.

Expanded Explanation:
As per Section 31, a contingent contract is one where performance depends on a collateral
event. If the event does not happen, the contract becomes void. Such contracts are valid but
conditional.

Key Points:
 • Depends on future uncertain event
 • Valid under law
 • Becomes void if condition fails

Case Laws:
 • N.P. Ramiah v. C.A. Ramaswamy (1952): Defined contingent contracts.
 • Case examples from insurance and indemnity contracts.
Q19. What is difference between wagering contract and contingent
contract?

Synopsis:
Wagering contracts are void, but contingent contracts are valid under law.

Expanded Explanation:
Wagering contracts involve mutual chances of gain/loss without real interest in the event,
and are void. Contingent contracts are legal, based on genuine interest in the event and
performance depends on its outcome.

Key Points:
 • Wager = Bet; Contingent = Genuine dependency
 • Wager = Void; Contingent = Valid
 • Wager = No interest; Contingent = Real interest

Case Laws:
 • Carlill v. Carbolic Smoke Ball Co. (1893): Demonstrated difference.
 • Bharat Petroleum v. Great Eastern Shipping (2001): Contingent contract valid.

Q20. Explain in brief the various modes of discharge of contracts.

Synopsis:
Contracts are discharged when obligations are fulfilled or legally ended.

Expanded Explanation:
Discharge of contract can happen by performance, mutual agreement, impossibility, lapse of
time, operation of law, or breach. Once discharged, no party has further obligations under it.

Key Points:
 • By performance – completion
 • By agreement – novation, rescission
 • By impossibility – frustration
 • By lapse of time – limitation period
 • By breach – failure to perform

Case Laws:
 • Taylor v. Caldwell (1863): Discharge by impossibility.
 • Satyabrata Ghose v. Mugneeram (1954): Indian case on frustration.
Q21. Write a note on anticipatory breach of contract.

Synopsis:
Anticipatory breach occurs when one party declares intention not to perform before
performance is due.

Expanded Explanation:
Anticipatory breach is when a party refuses to perform their obligation before the due date.
The other party can either sue immediately or wait for the actual breach. This allows early
legal remedy.

Key Points:
 • Breach before performance date
 • Promisee can sue immediately or wait
 • Protects against foreseeable breach

Case Laws:
 • Frost v. Knight (1872): Defined anticipatory breach.
 • Hochster v. De La Tour (1853): Right to sue before due date.

Q22. Write a note on doctrine of frustration.

Synopsis:
Frustration discharges a contract when performance becomes impossible due to unforeseen
events.

Expanded Explanation:
Under Section 56 of the Indian Contract Act, if an event occurs that makes the contract
impossible or unlawful to perform, it is frustrated. The contract becomes void and parties
are excused from obligations.

Key Points:
 • Supervening impossibility
 • Discharges contract
 • Section 56 – Indian Contract Act

Case Laws:
 • Taylor v. Caldwell (1863): Impossibility due to destruction of subject matter.
 • Satyabrata Ghose v. Mugneeram (1954): Indian position on frustration.
Q23. What are the remedies available for a breach of contracts?

Synopsis:
Remedies include damages, specific performance, injunction, and rescission.

Expanded Explanation:
When a contract is breached, the aggrieved party may seek compensation (damages),
enforcement (specific performance), preventive relief (injunction), or cancellation
(rescission) depending on the case facts.

Key Points:
 • Ordinary and special damages
 • Specific performance
 • Injunction and rescission

Case Laws:
 • Hadley v. Baxendale (1854): Damages for breach.
 • Karsandas v. Karsandas (1954): Specific performance allowed.

Q24. Explain general and special damages with the help of decided cases.

Synopsis:
General damages arise naturally from breach; special damages are for foreseeable loss
communicated beforehand.

Expanded Explanation:
General damages are the usual loss caused by breach. Special damages occur due to special
circumstances and are only recoverable if communicated to the breaching party at the time
of contract.

Key Points:
 • General = Natural consequences
 • Special = Exceptional, foreseeable losses
 • Must be communicated

Case Laws:
 • Hadley v. Baxendale (1854): Landmark case distinguishing both.
 • Victoria Laundry v. Newman Industries (1949): Foreseeability required.
Q25. Explain Suit for damages or rule in Hadley vs. Baxendale.

Synopsis:
Hadley v. Baxendale lays down the principle of foreseeability in damage claims.

Expanded Explanation:
This case sets the rule that damages should be limited to losses that arise naturally or were
in contemplation of both parties at the time of contract. It distinguishes between general
and special damages.

Key Points:
 • Loss must be natural or foreseeable
 • Two-part test: natural + communicated
 • Limits liability

Case Laws:
 • Hadley v. Baxendale (1854): Mill owner's delayed delivery not foreseen – no special
damages.

Q26. Write a note on remoteness of damage.

Synopsis:
Damages must not be too remote; they should be foreseeable at the time of contract.

Expanded Explanation:
Under the rule in Hadley v. Baxendale, damages are recoverable only if they arise naturally
from the breach or were within the contemplation of both parties. Remote and indirect
losses are not awarded.

Key Points:
 • Only foreseeable damages allowed
 • Test: natural consequence or communicated
 • Avoid speculative losses

Case Laws:
 • Hadley v. Baxendale (1854): Established remoteness test.
 • Koufos v. Czarnikow Ltd. (1969): Sugar shipment delay foreseeable loss allowed.
Q27. Explain quasi contracts.

Synopsis:
Quasi contracts are not real contracts but obligations imposed by law to prevent unjust
enrichment.

Expanded Explanation:
A quasi contract is a legal obligation imposed by law when one party benefits unfairly at
another’s expense. Though there's no actual agreement, courts enforce compensation as if a
contract existed. Based on principles of equity and justice.

Key Points:
 • Imposed by law
 • No actual agreement
 • Prevents unjust enrichment

Case Laws:
 • State of West Bengal v. B.K. Mondal (1962): Compensation allowed for benefit
received.
 • Mahabir Kishore v. State of MP (1989): Recovery of unjust enrichment.

Q28. Explain penalty and liquidated damages.

Synopsis:
Liquidated damages are pre-agreed sums for breach; penalties are excessive sums to
punish.

Expanded Explanation:
If parties fix a sum payable upon breach, it is liquidated damages if it is a genuine pre-
estimate of loss, or a penalty if it's excessive and meant to deter breach. Indian law allows
reasonable compensation under Section 74.

Key Points:
 • Liquidated = Pre-estimated genuine loss
 • Penalty = Punitive, excessive
 • Court awards reasonable compensation

Case Laws:
 • Fateh Chand v. Balkishan Das (1963): Section 74 allows reasonable compensation.
 • ONGC v. Saw Pipes (2003): Compensation even if actual loss not proven.
Q29. What is quasi contract? Explain the different types of quasi contracts
under the Indian contract.

Synopsis:
Quasi contracts cover five types under Sections 68–72 of Indian Contract Act.

Expanded Explanation:
Types include: (1) Necessaries supplied to incapable persons (Sec. 68), (2) Payment by
interested party (Sec. 69), (3) Non-gratuitous acts (Sec. 70), (4) Finder of goods (Sec. 71),
and (5) Money paid by mistake/coercion (Sec. 72).

Key Points:
 • Sec 68 – Necessaries to incapable persons
 • Sec 69 – Payment on another’s behalf
 • Sec 70 – Lawful, non-gratuitous acts
 • Sec 71 – Finder of goods
 • Sec 72 – Mistake/coercion recovery

Case Laws:
 • State of WB v. B.K. Mondal (1962): Non-gratuitous act.
 • Mahabir Kishore v. State of MP (1989): Recovery of money paid by mistake.

Q30. Explain perpetual and temporary injunctions.

Synopsis:
Temporary injunctions are interim orders; perpetual injunctions are final reliefs.

Expanded Explanation:
Temporary injunctions are granted to maintain status quo till the case is decided. Perpetual
injunctions are final and restrain a person permanently. Governed by Sections 36–42 of the
Specific Relief Act, 1963.

Key Points:
 • Temporary – Interim protection
 • Perpetual – Final restraint
 • Relief under Specific Relief Act

Case Laws:
 • K.K. Verma v. Union of India (1954): Court clarified injunctions.
 • Dalpat Kumar v. Prahlad Singh (1992): Explained temporary injunction criteria.
Q31. Define fraud? And distinguish it from misrepresentation.

Synopsis:
Fraud involves intentional deceit; misrepresentation involves innocent false statements.

Expanded Explanation:
Fraud under Section 17 involves deliberate deception. Misrepresentation under Section 18
involves honest belief in false facts. Fraud makes the contract voidable and may lead to
damages; misrepresentation may only allow rescission.

Key Points:
 • Fraud = Deliberate deception
 • Misrepresentation = Innocent error
 • Fraud gives right to rescind + damages
 • Misrep gives right to rescind only

Case Laws:
 • Derry v. Peek (1889): Defined fraud and misrepresentation.
 • Ranganayakamma v. Alwar Setti (1889): Consent obtained by fraud.

Q32. Write a note on agreement in restraint of trade.

Synopsis:
Agreements restricting trade are generally void under Section 27 of the Indian Contract Act.

Expanded Explanation:
Section 27 states that any agreement restraining lawful profession, trade, or business is
void. Exceptions include partnership dissolution and trade combinations if reasonable and
in public interest.

Key Points:
 • General rule: Restraint = Void
 • Exceptions in partnership and employment
 • Test: Reasonableness + Public interest

Case Laws:
 • Niranjan Shankar Golikari v. Century Spg. & Mfg. Co. (1967): Reasonable restraint
valid.
 • Superintendence Co. v. Krishan Murgai (1981): Broad restraint void.
Q33. Explain the provisions relating to cancellation of instruments.

Synopsis:
Sections 31–33 of the Specific Relief Act deal with cancellation of void or voidable
instruments.

Expanded Explanation:
A person fearing serious injury from a void or voidable instrument can file for its
cancellation. Court may order delivery and destruction to prevent misuse. Ensures justice
and avoids future disputes.

Key Points:
 • Section 31 – When cancellation may be sought
 • Section 32 – Court's discretion
 • Section 33 – Consequences and duties

Case Laws:
 • Gulabchand v. Bhaiyalal (1966): Instrument causing injury can be cancelled.

Q34. Write a note on ratification of instruments.

Synopsis:
Ratification means approving or adopting an act done without authority.

Expanded Explanation:
A principal can ratify acts done by an agent without authority, provided the act was lawful
and the principal had full knowledge. Ratification dates back to the original act, making it
valid from that time.

Key Points:
 • Approval of unauthorized act
 • Retrospective effect
 • Must be lawful and fully known

Case Laws:
 • Keighley Maxsted v. Durant (1901): Valid only if done in principal’s name.
 • Bolton Partners v. Lambert (1889): Ratification relates back to original act.