Legal Aspects of Business

Indian Contract Act 1872

Question Bank
Assignment 1 & 2

*Kindly Note It Covers cases also asked in previous exams

Q1.Define Contracts. Discuss the essential elements of a valid contract. Who are the
persons disqualified from entering into a contract.
Ans. According to Section 2(h) of the Act, the term contract is defined as "an agreement
enforceable by law".Thus, the contract is consist of two essential elements:1.-an agreement,
and -2.enforceability by law.
1.The term ‘agreement’ given in Section 2(e) of the Act is defined as "every promise and every
set of promises, forming the consideration for each other". (Offer +Acceptance)
2.Enforceability by law-An agreement to become a contract must give rise to a legal obligation
which means a duty enforceable by law. Thus from above definitions it can be concluded that
Contract=Offer +Acceptance+ Enforceability by law.

Following essential elements must co-exist in order to make a valid contract:

1.Intention to create legal relationship: The parties ought to have the intention to create an
legal obligation between them through the form of offer and acceptance.
2."Lawful consideration" and “Lawful object” is an essential element of a valid contract.
Consideration is a technical word meaning thereby quid pro quo i..e. something in return. It must
result in benefit to one party and detriment to the other party or a detriment to both.Also, the
object of the agreement must be lawful. It must not be illegal, immoral, or opposed to public
policy
3.Competent parties: The parties to a contract must have capacity (legal ability) to make valid
contract. Section 11 of the Indian Contract Act specifies that every person is competent to
contract provided,
a)is of the age of majority according to the law to which he is subject, and
b)who is of sound mind, and
c) is not disqualified from contracting by any law to which he is subject.
4.Free consent: The consent of the parties must be genuine. The term 'consent' means parties to
a contract must agree upon the same thing in the same sense. i.e. there should be consensus-ad-
idem.

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5.The agreement not expressly declared void: The agreement must not be one, which the law
declares to be either illegal or void.
6.Certainty of meaning: The agreement must be certain and not vague or indefinite.
7.Possibility of performance of an agreement: The terms of agreement should be capable of
performance. An agreement to do an act impossible in itself cannot be enforced.
8.Compliance of necessary legal formalities: Wherever a particular type of contract requires by
law to be in writing and registered, it must comply with the necessary formalities as to writing,
attestation and registration otherwise unenforceable.
People disqualified from entering into a contract Every person is competent to contract who is
of the age of majority according to the law to which he is subject, and who is of sound mind, and
is not disqualified from contracting by any law to which he is subject.” Thus, incapacity to
contract may arise from: (i) minority, (ii) mental incompetence, and (iii) status.

(iv)Alien Enemy (Political Status). An alien is a person who is the citizen of a foreign country.
Thus, in the Indian context, an alien is a person, who is not a subject of India. An alien may be
(i) an alien friend, or (ii) an alien enemy.

(v)Foreign Sovereigns and Ambassadors (Political status). Foreign sovereigns and accredited
representativesof a foreign State or Ambassadors enjoy some special privileges. They cannot be
sued in our courts unless they choose to submit themselves to the jurisdiction of our courts. They
can enter into contracts and enforce those contracts in our courts. However, they cannot be
proceeded against in Indian courts without the sanction of the Central Government.

Q2.What are the salient features of a quasi contract. Discuss the various froms of a quasi
contract.
OR
Quasi Contracts rests on the principle of Equity.
Ans. The principle underlying a quasi-contract is that no one shall be allowed unjustly to enrich
himself at the expense of another, and the claim based on a quasi-contract is generally for
money.
Kinds of Quasi Contracts along with examples-
(1) Claim for Necessaries Supplied to a person incapable of Contracting or on his account.
If a person, incapable of entering into a contract, is supplied by another person with necessaries
suited to his condition in life, the person who furnished such supplies is entitled to be reimbursed
from the property of such incapable person (Sec. 68).
Example: A supplies B, a lunatic, with necessaries suitable to his condition in life. A is entitled
to be reimbursed from B’s property.
(2) Reimbursement of person paying money due by another in payment of which he is
interested. 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. (Section 69).

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 Example: B holds land in Bengal, on a lease granted by A, the Zamindar. The revenue payable
by A to the Government being in arrear, his land is advertised for sale by the Government. Under
the Revenue Law, the consequence of such sale will be the annulment of B’s lease. B, to prevent
the sale and the consequent annulment of his own lease, pays the Government, the sum duefrom
A. A is bound to make good to B the amount so paid.
(3) Obligation of a person enjoying benefits of non-gratuitous act. Where a person lawfully
does anything for another person, or delivers anything to him, not intending to do so gratuitously,
and such other person enjoys the benefit thereof, the latter is bound to make compensation to the
former in respect of the thing so done or delivered [Section 70].
Example : A, a tradesman, leaves goods at B’s house by mistake. B treats the goods his own. He
is bound to pay for them.
(4) Responsibility of Finder of Goods. [Section 71].Ordinarily speaking, a person is not bound
to take care of goods belonging to another, left on a road or other public place by accident ,but if
he takes them into his custody, an agreement is implied by law. Although, there is in fact no
agreement between the owner and the finder of the. goods, the finder is for certain purposes,
deemed in law to be a bailee and must take as much care of the goods as a man of ordinary
prudence would take of similar goods of his own.
(5) Liability of person to whom money is paid, or thing delivered by mistake or under
coercion (Section 72). A person to whom money has been paid, or anything delivered by
mistake or under coercion, must repay or return it.
Example: A and B jointly owe Rs. 1,000 to C. A alone pays the amount to C and B not knowing
this fact, pays Rs. 1,000 over again to C. C is bound to repay the amount to B.

Q3.All contracts are agreements but all agreements are not contracts. Explain this
statement. State the difference between Contract and agreement.
Ans. According to Section 2(h) of the Act, the term contract is defined as "an agreement
enforceable by law". On analyzing the definition we find that, the contract is consist of two
essential elements: 1.-an agreement, and -2.enforceability by law. Thus, all contracts are
agreements.
While an agreement may be a social agreement or a legal agreement. If A invites B to a dinner
and B accepts the invitation ,it is a social agreement. A social agreement does not give rise to
contractual obligations and is not enforceable in a court of law . It is only those agreements
which are enforceable in a court of law which are contracts.A domestic arrangement with no
intention to create legally binding relations will not constitute a contract, such as a promise by a
father to pay pocket money to his son. Leading Case- Balfour v, Balfour (1919). Thus from the
above discussion it is clear that “All contracts are agreements, but all agreements are not
contracts.”

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Q4.All agreements without consideration are void. Explain the statement briefly listing the
exceptions to this rule.
OR
“No consideration No Contract.” Comment.

Ans. Section 2(d) defines consideration as follows: “When at the desire of the promisor, the
promisee or any other person has done or abstained from doing, or does or abstains from doing
or promises to do or abstain from doing something, such an act or abstinence or promise is called
consideration for the promise”.
The general rule of law is that an agreement without consideration is void. But there are a
few exceptional cases where a contract,even though without consideration, is enforceable.
Exceptions are as follows:
1. Love and Affection-An agreement made without consideration is valid if—
(a) it is expressed in writing and(b) it is registered (under the law for the time being in force for
registration of documents), and(c) it is made on account of natural love and affection, and(d)
made between parties standing in a near relation to each other.
2. Compensation for Voluntary Services- A promise made without consideration is valid if, “it
is a promise to compensate wholly or in part, a person who has already voluntarily done
something for the promisor, or something which the promisor was legally compellable to do”
[Section 25(2)].
3. Promise to pay a time barred debt-A promise to pay, wholly or in part a debt which is
barred by the law of limitation can be enforced if (a) it is in writing, and (b) is signed by the
debtor or his authorised agent [Section 25(3)].
4. Agency- No consideration is required to create an agency (Section 185). Notice, however, that
if no consideration has passed to the agent, he is only a gratuitous agent and is not bound to do

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the work entrusted to him, although if he begins the work, he must do it to the satisfaction of his
principal.
5. Completed Gifts- The rule ‘no consideration no contract’ does not apply to completed gifts
6. Charitable Subscription- Where the promisee on the strength of the promise makes
commitments i.e. changes his position to his detriment.(Refer case Kedar Nath vs. Gauri
Mohammed)

Q5.A stranger to the consideration can sue but a stranger to contract cannot sue”. Explain.
OR

According to Doctrine of Privity of contract “A man cannot acquire rights under a contract
to which he is not a party.” Discuss. Are there any exceptions to this rule?

Ans. It is a general rule of law that only parties to a contract may sue and be sued on the
contract. This rule is known as the doctrine of Privity of contract.
Exceptions/ Exceptions to the Doctrine of Privity of contract
To the above rule that a stranger to a contract cannot sue, there are the following exceptions:
1. In the case of trusts, the beneficiary may enforce the contract.
Thus, where a contract between X and Y is intended to secure benefit to Z as trust. Z may sue
in his own right to enforce the trust. In Khwaja Muhammad v. Hussaini Begum (1910) 32 All
410, H sued her father-in-law K to recover Rs. 15,000 being the arrears of allowance called
Kharchi-i- Pan-dan—Betel box expense, i.e. ‘Pinmoney’ payable to her by K under an
agreement made between K and H’s father in consideration of H’s marriage to K’s son D.
Both H and D were minors at the date of marriage. The Privy Council held the promise to be
enforceable by H. Their Lordship observed that in India where marriages are contracted for
minors by parents and guardians, it might occasion serious injustice if the Common Law doctrine
of privity of contract was applied.
2. Marriage Settlement, Partition or other family arrangements-On the same principle, the
provision of marriage expenses of female members of a joint Hindu family on a partition
between male members entitles the female member to sue for such expenses
In the case of a family settlement the terms of the settlement are reduced into writing, the
members of the family who originally had not been parties to the settlement, may enforce
the agreement

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3. Acknowledgement or estoppel- In the case of an acknowledgement of liability or by past
performance thereof; e.g. where X receives money from Y for paying it to Z and X admits to Z
the receipt of that amount then X becomes the agent of Z and will be liable to pay the
amount to him.
4. Assignment Of A Contract -In the case of assignment of a contract when the benefit under a
contract has been assigned, the assignee can enforce the contract .
Stranger to contract Vs. Stranger to consideration
A stranger to the consideration must, however, be distinguished from a stranger to a contract. A
stranger to a contract cannot sue in England as well as in India.but in India, stranger to the
consideration may maintain a suit.

Q6. For giving rise to valid contract, there must be consensus ad idem among the
contracting parties. Explain this statement and discuss the meaning of free consent.
OR
An agreement requires a meeting of the minds.”Discuss the statement in detail.

OR
When is consent said to ne influenced by coercion, undue influence, fraud and
misrepresentation.
Ans. For a contract to be valid it is not only necessary that parties consent but also that they
consent freely. Where there is a consent, but no free consent, there is generally a contract
voidable at the option of the party whose consent was not free.
When two or more persons agree upon the same thing in the same sense, it is considered as they
have given free consent. Example: A agrees to sell his Fiat Car 1983 model for Rs. 80,000. B
agrees to buy the same. There is a valid contract since A and B have consented to the same
subject matter.
Free Consent Defined (Section 14). Consent is said to be free when it is not caused by—
(a) Coercion.(b) Undue influence.(c) Fraud.(d) Misrepresentation.(e) Mistake.
(a)COERCION (SECTIONS 15, 19 AND 72)
Coercion is (i) the committing, or threatening to commit any act forbidden by the Indian Penal
Code or (ii) the unlawful detaining, or threatening to detain, any property ,to the prejudice of any
person whatever, with the intention of causing any person to enter into an agreement.
(b)Undue influence (Section 16): A contract is said to be induced by “undue influence” where
the relations subsisting between the parties are such that one of the parties is in a position

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to dominate the will of the other and uses that position to obtain an unfair advantage of the
other. A person is deemed to be in a position to dominate the will of the other, when he holds
authority real or apparent over the other, or when he stands in a fiduciary relation to the other.
(C)FRAUD Any fraud committed by a party which does not lead the other party to enter into a
contract is not covered by this section.
d)Misrepresentation (section 18): Where a person asserts something which is not true,
though he believes it to be true, his assertion amounts to misrepresentation. Mis -
representation may be either innocent or without reasonable ground.
(e)Mistake as per Section 20: Mistake may be defined as an erroneous belief concerning
something. Mistake is of two kinds:(1) Mistake of fact, and (2) Mistake of law.

Q7. A statement of price is not an offer. Comment.

Ans. A statement of price is not an offer
In Harvey v. Facie, the plaintiffs (Harvey) telegraphed to the defendants (Facie), writing: “Will
you sell us Bumper Hall Pen? and what is the Telegraph lowest cash price.”?
The defendants replied also by a telegram,“Lowest price for Bumper Hall Pen £900”.
The plaintiffs immediately sent their last telegram stating: “We agree to buy Bumper Hall Pen
for £900 asked by you”.
The defendants refused to sell the plot of land (Bumper Hall Pen) at that price. The plaintiffs
contention that by quoting their minimum price in response to the inquiry, the defendants had
made an offer to sell at that price, was turned down by the Judicial Committee.
Their Lordship pointed out that in their first telegram, the plaintiffs had asked two questions, first
as to the willingness to sell and second, as to the lowest price. They reserved their answer as to
the willingness to sell. Thus, they had made no offer. The last telegram of the plaintiffs was
an offer to buy, but that was never accepted by the defendants.

Q8. Differentiate between Contract of indemnity and contract of guarantee.

Ans. A contract of indemnity differs from a contract of guarantee in the following ways:
(a) Parties-In a contract of indemnity there are only two parties: the indemnifier and the
indemnified. In a contract of guarantee, there are three parties; the surety, the principal debtor
and the creditor.

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(b)Liability- In a contract of indemnity, the liability of the indemnifier is primary. In a contract
of guarantee, the liability of the surety is secondary. The surety is liable only if the principal
debtor makes a default, the primary liability being that of the principal debtor.
(c) Request-The indemnifier need not necessarily act at the request of the debtor; the surety
gives guarantee only at the request of the principal debtor.
(d) Possibility of Debt--In the case of a guarantee, there is an existing debt or duty, the
performance of which is guaranteed by the surety, whereas in the case of indemnity, the
possibility of any loss happening is the only contingency against which the indemnifier
undertakes to indemnify.
(e) Rights of Surety/Indemnifier-The surety, on payment of the debt when the principal debtor
has failed to pay is entitled to proceed against the principal debtor in his own right, but the
indemnifier cannot sue third-parties in his own name, unless there be assignment. He must sue in
the name of the indemnified.

Q9. Explain Rules related to offer and acceptance. What is Revocation of offer? When
does an offer come to an end?
Ans. Offer/Proposal
Section 2(a), of the Indian Contract Act, 1872 as ‘when one person signifies to another his willingness
to do or to abstain from doing anything with a view to obtaining the assent of that other to such act or
abstinence, he is said to make a proposal’.
Rules as to offer
(a) The offer must be capable of creating legal relation
(b)The offer must be certain, definite and not vague
(c )The offer may be expressed or implied
(d)The offer must be distinguished from an invitation to offer
(e)An offer may be specific or general
(f)The offer must be communicated:
(g)The offer must be made with a view to obtaining the consent/assent of the offeree.
(h)An offer may be conditional:
(i)The offer should not contain a term the non compliance of which would amount to acceptance.
(j). A tender is an offer as it is in response to an invitation to offer.
Acceptance

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A proposal or offer is said to have been accepted when the person to whom the proposal is made
signifies his assent to the proposal to do or not to do something [Section 2 (b)].
The rules regarding acceptance are:
1.Acceptance must be absolute and unqualified:
2.Communicated to Offeror:
3. Acceptance must be in the mode prescribed
4.Acceptance must be given within the specified time limit,
5. Mere silence is not acceptance:
6.Acceptance by conduct:
Revocation of proposal /offer
Section 5 provides that a proposal may be revoked at any time before the communication of
its acceptance is complete as against the proposer, but not afterwards.
Modes of revocation: A proposal may be revoked by any of the following methods:
 By notice of revocation.
 By lapse of specified time or reasonable time.
 By the death or insanity of the offeror or the offeree.
 In case of non fulfilment of conditions of offer.
 In case of counter offer.
In these cases, the offer will come to an end.
1.The offer lapses after stipulated or reasonable time.
(2) An offer lapses by the death or insanity of the offeror or the offeree before acceptance.
Similarly, in the case of the death of offeree before acceptance, the offer is terminated.
(3) An offer terminates when rejected by the offeree.
(4) An offer terminates when revoked by the offeror before acceptance.
(5) An offer terminates by not being accepted in the mode prescribed, or if no mode is
prescribed, in some usual and reasonable manner.
(6) A conditional offer terminates when the condition is not accepted by the offeree.

Q10. Explain the contract of bailment. Discuss the duties and rights of a bailor and bailee.
OR

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It is the duty of the bailee not only to take reasonable care of the goods bailed but also not
to make unauthorized use of the goods bailed.” Comment.

Ans. A bailment is a transaction whereby one person delivers goods to another person for some
purpose, upon a contract that they are, when the purpose is accomplished to be returned or
otherwise disposed of according to the directions of the person delivering them (Section 148).
The person who delivers the goods is called the bailor and the person to whom they are
delivered is called the bailee.
Duties of Bailee/Rights Of Bailor
The bailee owes the following duties in respect of the goods bailed to him:
(a) The bailee must take as much care of the goods bailed to him as a man of ordinary prudence
would take under similar circumstances of his own goods of the same bulk, quality and value as
the goods bailed (Section 151).
(b) The bailee is under a duty not to use the goods in an unauthorised manner or for unauthorised
purpose (Section 153).
(c) He must keep the goods bailed to him separate from his own goods(Sections 155-157).
(d)He must not set up an adverse title to the goods.
(e) It is the duty of the bailee to return the goods without demand on the expiry of the time fixed
or when the purpose is accomplished (Section 160).
(f) In the absence of any contract to the contrary, the baliee must return to the bailor any
increase, or profits which may have accrued from the goods bailed;

Duties of Bailor /Rights of Bailee

The bailor has the following duties:
(a) The bailor must disclose all the known faults in the goods; and if he fails to do that, he will be
liable for any damage resulting directly from the faults (Section 150).
(b) It is the duty of the bailor to pay any extraordinary expenses incurred by the bailee.
(c) The bailor is bound to indemnify the bailee for any cost or costs which the bailee may incur
because of the defective title of the bailor of the goods bailed (Section 164).

Q11. Differentiate between void, voidable and illegal agreements.

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Ans. Void Contract: It is a contract without any legal effect and cannot be enforced in a Court
of Law. Section 2(j) defines a void contract as “a contract which ceases to be enforceable by
law becomes void when it ceases to be enforceable”.
Example: A contracts with B (owner of the factory) for the supply of 10 tons of sugar, but
before the supply is effected, the fire caught in the factory and everything was destroyed. Here
the contract becomes void.

Voidable Contract: As per Section 2(i), “an agreement which is enforceable by law at the
option of one or more the parties but not at the option of the other or others is a voidable
contract.”
examples: A contract brought about as a result of Coercion, Undue influence, Fraud or
misrepresentation would be voidable at the option of the person whose consent was caused by
any one of these factors.

Illegal Contract: It is a contract which the law forbids to be made. The court will not enforce
such a contract but also the connected contracts. All illegal agreements are void but all void
agreements or contracts are not necessarily illegal.
Examples: Contract to commit crime. Contract that is immoral or opposed to public policy are
illegal in nature. Similarly, R agrees with S, to purchase brown sugar is an illegal agreement.

Q12. Explain the agreements that are expressly declared as void? Is there any difference
between void agreement and void contract?
Ans. Agreements which have been expressly declared void by the Indian Contact Act.
The following agreements have been ‘expressly declared’, to be void by the Indian Contract Act:
1. Agreements in restraint of marriage (Sec. 26).
2. Agreements in restraint of trade (Sec. 27).
3. Agreements in restraint of legal proceedings (Sec. 28).
4. Agreements the meaning of which is uncertain (Sec. 29).
5. Agreements by way of wager (Sec. 30).
6. Agreements contingent on impossible events (Sec. 36).
7. Agreements to do impossible acts (Sec. 56).

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 Is there any difference between void agreement and void contract?
A void agreement is void ab-initio, in essence, it is null since it is formed. But on the other
hand, a void contract is one that is valid at the time of creation but eventually becomes void, due
to certain circumstances, which are beyond the control of parties concerned.

Q13. Write short notes on-

a. Executed and executory contract.
Ans. Executed Contract If the consideration for the promise in a contract (i.e., any act or
forbearance) is given or executed, such type of contract is called contract with executed
consideration. Example: When a grocer sells a sugar on cash payment it is an executed contract
because both the parties have done what they were to do under the contract.

Executory contract Executory Contract: It is so called because the reciprocal promises or

obligation which serves as consideration is to be performed in future.

Example: Where G agrees to take the tuition of H, a pre-engineering student, from the next
month and H in consideration promises to pay G ` 1,000 per month, the contract is executory
because it is yet to be carried out.

b. Contracts which need not be performed or Novation, Rescission, Remission, Alteration.

Ans. “If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the
original contract need not be performed”( Section 62)
(i)Effect of novation: The parties to a contract may substitute a new contract for the old. If
they do so, it will be a case of novation. On novation, the old contract is discharged and
consequently it need not be performed. Novation can take place only by mutual agreement
between the parties.
(ii)Effect of rescission: A contract is also discharged by rescission. When the parties to a
contract agree to rescind it, the contract need not be performed. In the case of rescission,
only the old contract is cancelled and no new contract comes to exist in its place. It is needless to
point out that novation also involves rescission. Both in novation and in rescission, the contract
is discharged by mutual agreement.

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(iii)Effect of alteration of contract: As in the case of novation and rescission so also in a case
where the parties to a contract agree to alter it, the original contract is rescinded, with the
result that it need not be performed. In other words, a contract is also discharged by alteration.
(iv)Remission- Promisee may waive or remit performance of promise: “Every promisee may
dispense with or remit, wholly or in part, the performance of the promise made to him, or may
extend the time for such performance or may accept instead of its any satisfaction which he
thinks fit”(Section 63). In other words, a contract may be discharged by remission. Thus where
A, a party to a contract, has done all that he was required to do under the contract and the time
for the other party, X, to perform his promise has not yet arrived, a bare waiver of his claim by A
would be an effectual discharge to X. .
Accord and Satisfaction Similarly, a promisee can accept instead of the stipulated performance,
any satisfication which he thinks fit. For instance, A sells his horse to B who promises to pay `
500 for the horse. A may accept, instead of ` 500 a necklace as the price of the horse

c. Contingent contracts.
Ans. A contingent contract, is a contract to do or not to do something, if some event, collateral to such
contract does or does not happen. Example A contracts to pay B Rs. 10,000 if B’s house is burnt. This is
a contingent contract.
Essentials of a Contingent Contract
1.The performance of a contingent contract is made dependent upon the happening or non-happening of
some event.
2.The event on which the performance is made to depend, is an event collateral to the contract, i.e. it does
not form part of the reciprocal promises which constitute the contract.
(3) The contingent event should not be the mere will of the promisor.
Rules Regarding Enforcement of Contingent Contracts (Sections 32 to 36).
(1) Contracts contingent upon the happening of a future uncertain event, cannot be enforced by law
unless and until that event has happened. And if, the event becomes impossible such contract become
void (Section 32). Example :A makes a contract with B to buy B’s horse if A survives C. This contract
cannot be enforced by law unless and until C dies in A’s life-time.
(2) Contracts contingent upon the non-happening of an uncertain future event can be enforced when
the happening of that event becomes impossible, and not before. (Section 33). Example :A agrees to pay
B a sum of money if a certain ship does not return. The ship is sunk. The contract can be enforced when
the ship sinks.

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(3) If a contract is contingent upon as to how a person will act at an unspecified time, the event shall
be considered to become impossible when such person does anything. which renders it impossible that he
should so act within any definite time, or otherwise than under further contingencies. (Section 34).
Example: A agrees to pay B a sum of money if B marries C. C marries D. The marriage of B to C must
now be considered impossible, although it is possible that D may die and C may afterwards
marry B.
(4) Contracts contingent upon the happening of a specified uncertain event within a fixed time
become void if, at the expiration of the time fixed, such event has not happened or if, before the time
fixed, such event becomes impossible. Example: A promises to pay B a sum of money if a certain ship
returns within a year. The contract may be enforced if the ship returns within the year, and becomes void
if the ship is burnt within the year.
(5) Contracts contingent upon the non-happening of a specified event within a fixed time may be
enforced by law when the time fixed has expired and such event has not happened, or, before the time
fixed expired, if it becomes certain that such event will not happen. Example: A promises to pay B a
sum of money if a certain ship does not return within a year. The contract may be enforced if the ship
does not return within the year, or is burnt within the year.
(6) Contingent agreements to do or not to do anything, if an impossible event happens, are void,
whether the impossibility of the event is known or not to the parties to the agreement at the time when it
is made. Example : A agrees to pay B Rs. 1,000 if two parallel straight lines should enclose a space. The
agreement is void.

d.Creation of Agency and Rights and duties of an agent.

Ans. Definition of Agent (Section 182)
An agent is a person who is employed to bring his principal into contractual relations with third-
parties. As the definition indicates, an agent is a mere connecting link between the principal and
a third-party. But during the period that an agent is acting for his principal, he is clothed with the
capacity of his principal.
Creation of Agency
A contract of agency may be express or implied, (Section 186) but consideration is not an
essential element in this contract (Section 185). Agency may also arise by estoppel, necessity or
ratification.
(a) Express Agency: A contract of agency may be made orally or in writing. The usual form of
written contract of agency is the Power of Attorney, which gives him the authority to act on

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behalf of his principal in accordance with the terms and conditions therein. In an agency created
to transfer immovable property,the power of attorney must be registered.
(b) Implied Agency: Implied agency may arise by conduct, situation of parties or necessity of
the case.

Duties of the Agent

An agent’s duties towards his principal are as follows-
a. An agent must act within the scope of the authority conferred upon him and carry out strictly
the instructions of the principal (Section 211).
b. in the absence of express instructions, he must follow the custom prevailing in the same
kind of business at the place where the agent conducts the business (Section 211).
c. He must do the work with reasonable skill and diligence whereby the nature of his
profession, the agent purports to have special skill, he must exercise the skill which is expected
from the members of the profession (Section 212).
d. He must disclose promptly any material information coming to his knowledge which is
likely to influence the principal in the making of the contract.
e. He must not disclose confidential information entrusted to him by his principal (Section
213).
F .He must not allow his interest to conflict with his duty, e.g., he must not compete with his
principal (Section 215).
g. The agent must keep true accounts and must be prepared on reasonable notice to render an
account.
h. He must not make any secret profit;
i. An agent must not delegate his authority to sub-agent

Rights of Agents
1.Where the services rendered by the agent are not gratuitous or voluntary, the agent is entitled to
receive the agreed remuneration, or if none was agreed, a reasonable remuneration. The agent
becomes entitled to receive remuneration as soon as he has done what he had undertaken to do
(Section 219).

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2.Certain classes of agents, e.g., factors who have goods and property of their principal in their
possession, have a lien on the goods or property in respect of their remuneration and expense and
liabilities incurred.
3.He has a right to stop the goods in transit where he is an unpaid seller.
4.As the agent represents the principal, the agent has a right to be indemnified by the principal
against all charges, expenses and liabilities properly incurred by him in the course of the agency.

Q14. How can offer be accepted? State briefly the rules relating to the communication of
offer and acceptance. Is there any limit in time after which revocation of a proposal cannot
be made? How and on what grounds can offer be revoked?
Ans. Communication Of Offer, Acceptance And Revocation In order to be a valid offer and
acceptance.(i) the offer must be communicated to the offeree, and(ii) the acceptance must be
communicated to the offeror.Similarly, revocation of offer by the offeror to the offeree and
revocation of the acceptance by the offeree to the offeror must be communicated.
According to Section 4, the communication of a proposal is complete when it comes to the
knowledge of the person to whom it is made.
Example
A proposes by letter, to sell a house to B at a certain price. The communication of the
proposal is complete when B receives the letter.
The completion of communication of acceptance has two aspects, viz:
(i) as against the proposer, and(ii) as against the acceptor.
The communication of acceptance is complete:
(i) as against the proposer, when it is put into a course of transmission to him, so as to be out of
the power of the acceptor;
(ii) as against the acceptor, when it comes to the knowledge of the proposer.
Communication of acceptance by post: When a proposal is accepted by a letter sent by the post
the communication of acceptance will be complete as against the proposer when the letter of
acceptance is posted and as against the acceptor when the letter reaches the proposer.
Revocation of proposal and acceptance: Section 5 provides that a proposal may be revoked
at any time before the communication of its acceptance is complete as against the proposer, but
not afterwards.
Also an acceptance may be revoked at any time before the communication of the acceptance is
complete as against the acceptor, but not afterwards.
Example
A proposes, by a letter sent by post, to sell his house to B. B accepts the proposal by a letter
sent by post.A may revoke his proposal at any time before or at the moment when B posts
his letter of acceptance, but not afterwards.B may revoke his acceptance at any time before
or at the moment when the letter communicating it reaches A, but not afterwards.

Modes of revocation: A proposal may be revoked by any of the following methods:

1.By notice revocation.2. By lapse of specified time or reasonable time. 3.By the death or
insanity of the offeror or the offeree.4. In case of non fulfilment of conditions of offer. 5.In case
of counter offer.

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Q15.What are the various ways in which a contract may be discharged? What are the
remedies for a breach of a contract?
Ans. A contract may be discharged either by an Act of the parties or by an operation of law in
the different base set out below:
(i)Discharge by performance (ii) Discharge by mutual agreement (iii)Discharge by
impossibility of performance (iv)Discharge by lapse of time (v)Discharge by operation of law
(vi)Discharge by breach of contract (vii)A promise may dispense with or remit the performance
of the promise made to him or may accept any satisfaction he thinks fit. In the first case, the
contract will be discharged by remission and in the second by accord and satisfaction (Section
63). (viii)When a promisee neglects or refuses to afford the promisor reasonable facilities for the
performance of the promise, the promisor is excused by such neglect or refusal (Section 67).
Remedies for a breach of a contract
As soon as either party commits a breach of the contract, the other party becomes entitled to any
of the following reliefs:
a.. Rescission of the ContractWhen a breach of Contract is committed by one party, the other
party may sue to treat the contract as rescinded. In such a case, the aggrieved party is freed from
all his obligations under the contract.
b. Damages Damages, generally speaking, are of four kinds:A. Ordinary Damages,B. Special
Damages,C. Vindictive, or Punitive or Exemplary Damages, andD. Nominal Damages.
c. Specific Performance Where damages are not an adequate remedy, the court may direct the
party in breach to carry out his promise according to the terms of the contract. This is called
‘specific performance’ of the contract
d. Injunction Injunction means an order of the Court. Where a party is in breach of a negative
term of contract (i.e. where he does something which he promised not to do), the Court may, by
issuing an order, prohibit him from doing so.
e. Quantum Meruit The phrase ‘Quantum Meruit’ means as much as is merited’ (earned). The
normal rule of law is that unless a party has performed his promise in its entirely, it cannot claim
performance from the other.

Q16. Define Consideration. How far it is necessary for validation of a contract? Critically
discuss the essential elements of consideration.

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Ans. Consideration’ is used in the sense of ‘quid-pro-quo’ which means ‘something in return.’
Section 2(d) defines consideration as follows: “When at the desire of the promisor, the
promisee or any other person has done or abstained from doing, or does or abstains from doing
or promises to do or abstain from doing something, such an act or abstinence or promise is called
consideration for the promise”.
How far it is necessary for validation of a contract?
The general rule of law is that an agreement without consideration is void. “A bargain without
consideration is a contradiction in terms and cannot exist.”But there are a few exceptional cases
where a contract,even though without consideration, is enforceable.
Legal Requirements Regarding Consideration
(1)Consideration must move at the desire of the promisor:
(2)Consideration may proceed from promisee or any other person:
(3) Consideration need not be adequate.
(4) Consideration must be real and competent.
(5) Consideration must be Legal. Illegal consideration renders a contract void.

Q17.Law of contract creates jus in personam as distinguished from jus in rem.

Ans. Jus in rem means a right against or in respect of a thing. Jus in personam means a right
against or in respect of a specific person.A jus in rem is available against the world at large ,a jus
in personam is available only against particular person.

Q18.The Indian Contract Act, 1872 is not a complete code dealing with all the branches of
the law of the contract.” Comment
OR
The parties to a contract ,in a sense,make the law for themselves.” Comment
Ans. The Indian Contract Act does not profess to be a complete and exhaustive code. It deals
with the general principles of law of contract. And with some special contracts only. Some of the
contracts not dealt with by the act are those relating to partnership, sale of goods, negotiable
Instruments, insuarance, bill of lading etc. There are separate acts which deals with these
contracts. Thus it is rightly said that The Indian Contract Act, 1872 is not a complete code
dealing with all the branches of the law of the contract.”

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Nature of the law of Contract.
The law of contract differs from other branches of law in an important respect. It does not lay
down a number of rights and duties which the law will enforce. It consist rather of a number of
limiting principles.,subject to which, the parties may create rights and duties for themselves
which the law will uphold. The parties to a contract, in asense,make the law for themselves. So
long as they do not infringe some legal prohibition, they can make what rules they like in respect
of the subject matter of their agreement and the law will give effect to their decision.

Q19. What is the object and nature of law of contract?

Ans. The law of contract is that branch of law which determines the circumstances in
which promise made by the parties to a contract shall be legally binding on them. All of
us enter into a number of contracts everyday knowingly or unknowingly. Each contract
creates some right and duties upon the contracting parties. Indian contract deals with the
enforcement of these rights and duties upon the parties. Indian Contract Act, 1872 came
into effect from 1stSeptember, 1872. It extends to the whole of India except the state of
Jammu and Kashmir.

Nature of the law of Contract.

The law of contract differs from other branches of law in an important respect. It does not lay
down a number of rights and duties which the law will enforce. It consist rather of a number of
limiting principles.,subject to which, the parties may create rights and duties for themselves
which the law will uphold. The parties to a contract, in asense,make the law for themselves. So
long as they do not infringe some legal prohibition, they can make what rules they like in respect
of the subject matter of their agreement and the law will give effect to their decision.

Q20. Impossibility of performance is one of the modes to discharge the contract. In

light of this statement discuss the effects of impossibility of performance on the
performance of a contract.

Ans. Impossibility of performance.

Section 56 contemplates various circumstances under which agreement may be void, since it is
impossible to carry it out.

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1.Impossibility existing at the time of contract: When the parties agree upon doing of
something which is obviously impossible in itself the agreement would be void. Impossible in
itself means impossible in the nature of things. The fact of impossibility may be and may not be
known to the parties.
(i)If known to the parties: It would be observed that an agreement constituted, quite unknown
to the parties, may be impossible of being performed and hence void. For example, B promises to
pay a sum of ` 5,000 if he is able to swim across the Indian Ocean from Bombay to Aden within
a week. In this case, there is no real agreement, since both the parties are quite certain in their
mind that the act is impossible of achievement. Therefore, the agreement, being impossible in
itself, is void.
(ii)If unknown to the parties: Where both the promisor and the promisee are ignorant of the
impossibility of performance, the contract is void.
(iii)If known to the promisor only: Where at the time of entering into a contract, the promisor
alone knows about the impossibility of performance, or even if he does not know though he
should have known it with reasonable diligence, the promisee is entitled to claim compensation
for any loss he suffered on account of non-performance.
2.Supervening impossibility: When performance of promise become impossible or illegal by
occurrence of an unexpected event or a change of circumstances beyond the contemplation of
parties, the contract becomes void e.g. change in law etc.
Subsequent Impossibility in England is referred to as ‘Doctrine of Frustration’.
A contract is deemedto have become impossible of performance and thus void under the
following circumstances:
a.. Destruction of Subject-Matter of the Contract.
b.. By the Death or Disablement of the Parties. Where the performance of the contract
must be executed personally by the promisor, his death or physical disability to perform shall
render the contract void and thus exonerate him from the obligation.
3. Subsequent Illegality. Where by subsequent legislation the performance of a contract is
forbidden by law, the parties are absolved from liability to perform it.
Example
A contracts to supply B 100 bottles of wine. Before the contract is executed, i.e., bottles
supplied, dealings in all sorts of liquor are declared forbidden, the contract becomes void.

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4. Declaration of War. If war is declared between two countries subsequent to the making
of the contract, the parties would be exonerated from its performance.
Example
A contracts to take indigo for B to a foreign port. A’s Government afterwards declares war
against the country in which the port is situated. The contract becomes void when war is
declared.
5. Non-existence or non-occurrence of a particular state of things. When certain things
necessary for performance cease to exist the contract becomes void on the ground of
impossibility.
Examples
(1) A and B contract to marry each other. Before the time fixed for the marriage, A goes
mad. The contract becomes void.

Cases Asked in Previous Exams from Indian Contract Act

Case 1.
A minor fraudulently represented to a money lender that he was of full age and executed a
mortgage deed for Rs. 10000. Has the money-lender any right of action against the minor for the
money lent or for damages for fraudulent misrepresentation?
Ans.No, the money-lender has no right of action against the minor for the money lent or for
damages for fraudulent misrepresentation because an agreement with or by a minor is void and
inoperative ab initio.
Leading case- Mohiri Bibi v. Dharmodas Ghose
In 1903 the Privy Council in the leading case of Mohiri Bibi v. Dharmodas Ghose (190, 30 Ca.
539) held that in India minor’s contracts are absolutely void and not merely voidable. The facts
of the case were:
Dharmodas Ghose, a minor, entered into a contract for borrowing a sum of Rs. 20,000 out of
which the lender paid the minor a sum of Rs. 8,000. The minor executed mortgage of property in
favour of the lender. Subsequently, the minor sued for setting aside the mortgage. The Privy
Council had to ascertain the validity of the mortgage. Under Section 7 of the Transfer of
Property Act, every person competent to contract is competent to mortgage. The Privy Council

21
decided that Sections 10 and 11 of the Indian Contract Act make the minor’s contract void. The
mortgagee prayed for refund of Rs. 8,000 by the minor. The Privy Council further held that as a
minor’s contract is void, any money advanced to a minor cannot be recovered

Case2
Problem I 2010-11 case , 2015-16

A sends a telegram to B whether he will sell his land to him and asks for the lowest price. B
quotes the lowest price to which A agrees. However B refuses to sell that land.
1. Whether there is a valid contract between A and B.
2. If Yes,Whether B is bound by the contract to sell that land.
3. If not, why the contract is not enforceable? Give Reasons.

Ans.A statement of price is not an offer.

(a) No there is no valid contract between A & B as in the given case A sends a telegram to B
and had asked two questions, first as to the willingness to sell and second, as to the lowest price.
While B reserved his answer as to the willingness to sell. Thus, he had made no offer.and thus
there is no valid contract.(Harvey Vs. Facey)

(b) No B is not bound to sell the land as he has not responded to the question asked by a
regarding willingness to sell.

(c ) To enforce a valid contract there are certain essential elements covered by Section 10 of the
Indian Contract Act .In the given case due to non presence of elements like consent,
acceptance,the contract is not enforceable.

In Harvey v. Facie, the plaintiffs (Harvey) telegraphed to the defendants (Facie), writing: “Will
you
sell us Bumper Hall Pen?4 Telegraph lowest cash price.”

The defendants replied also by a telegram,“Lowest price for Bumper Hall Pen £900”.

The plaintiffs immediately sent their last telegram stating: “We agree to buy Bumper Hall Pen
for £900 asked by you”.

The defendants refused to sell the plot of land (Bumper Hall Pen) at that price. The plaintiffs
contention that by quoting their minimum price in response to the inquiry, the defendants had
made an offer to sell at that price, was turned down by the Judicial Committee.

Their Lordship pointed out that in their first telegram, the plaintiffs had asked two questions, first
as to the willingness to sell and second, as to the lowest price. They reserved their answer as to
the willingness to sell. Thus, they had made no offer. The last telegram of the plaintiffs was
an offer to buy, but that was never accepted by the defendants.

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Case 3
A offers by post to sell a machine to B on 1-1-11. B receives the letter on 3-1-11 ans posts a
letter of acceptance on the same day. Meanwhile B revokes his acceptance by telegranm.
The offer finds on his table a letter of acceptance and atelegram of revocation.
Whether the contract would be formed or not? Explain.
No contract would not be formed.as In India, acceptance by a letter can be revoked by a
telegram, if it reaches earlier than, or at the same time as the letter, but in England acceptance
once posted cannot be revoked subsequently even by a telegram, even if it reaches earlier than
the letter.

Case 4 2008-09

Ans.
1. When we go into a shop we offer to buy and seller accepts our offer
2. Newspaper advertisements are not offer but there is a recognized exception to this that
general offer of reward to the public is an general offer refer case lalman shukla vs.
gauridutt
Carbolic smoke co. vs carlill.
3. It can be the case of counter offer
4. Every bid is an offer in an auction.

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Case 5 2015-16(TWO TIMES REPAETED)

Q.Amitabh offers, by letter, to sell his car to sandeep . Sandeep receives this letter the next
day and sends his acceptance immediately. Amitabh by this time posts another letter for
revoking his offer. Amitabh’s letter of revocation and Sandeep’s letter of acceptance cross
each other. How do you sense this situation? Give reasons for your answer.(4 Marks)
Ans. Facts of the case: Amitabh offers, by letter ,to sell his car to Sandeep. Sandeep receives
this letter the next day and sends his acceptance immediately. Amitabh by this time posts another
letter for revoking his offer. Amitabh’s letter of revocation and Sandeep’s letter of acceptance
cross each other.
Solution to the case: In the present case Amitabh cannot revoke his offer as the offer was
accepted by Sandeep and communication of acceptance against the proposer i.e. Amitabh was
also completed.
Supporting Reasons: According to Indian Contract Act,1872 , there are certain rules that
governs Communication of Acceptance and Revocation of offer.
Rules Governing Communication of Acceptance and Revocation of Offer:
The completion of communication of acceptance has two aspects, viz:
(i) as against the proposer, and
(ii) as against the acceptor.
The communication of acceptance is complete:
(i) as against the proposer, when it is put into a course of transmission to him, so as to be out of
the power of the acceptor;
(ii) as against the acceptor, when it comes to the knowledge of the proposer.
Communication of acceptance by post: When a proposal is accepted by a letter sent by the post
the communication of acceptance will be complete as against the proposer when the letter of
acceptance is posted and as against the acceptor when the letter reaches the proposer.
Section 5 provides that a proposal may be revoked at any time before the communication of its
acceptance is complete as against the proposer, but not afterwards.

Case 6
A taxi service had several cars . All the cars had air conditioners fitted inside them. However,taxis were
hired out with or without the use of the air conditioners. The rate of hiring a taxi with the air
conditioner was Rs.10 per km. while the rate for hiring it without the air conditioner was only Rs. 5 km.
A person hired a taxi without the air conditioner. After getting into the car , he realized that it was hot
and uncomfortable. He then decided to run the air conditioner. a dispute arose between the two parties
as to the charges for the hire of the taxi. The customer was willing to pay a higher amount than what he
had agreed to pay , but he did not want to pay at the rate of rs. 10 per km. he argued that the latter was
an exhorbitant rate.
Questions to be discussed-
1. Should the passenger be made to pay the charges as per the rates fixed by the taxi
service?

Ans. Yes the customer is under an obligation to pay the charges as per the rates fixed by the
taxi service.

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 2. If yes, there must have been an agreement . in this case who has made the offer? And
who had accepted that offer?

Ans. In this case customer has put an offer and taxi driver accepted it by offering the services
of the taxi with the air conditioner.

3. What was the modality of the communication that had taken place?
Ans.The usual modality in most of the taxi service in iNdia is that the passenger gets into
the taxi . A taxi driver is seated and then he starts the metre and then provide the services
at the rate already fixed by the company.

Case 7 2013-14
Kanchan delivered her gold jewellery to Joharimal who is a goldsmith for the purpose of making new
one out of it. Every evening she used to receive the unfinished jewellery and to put it into a box kept at
Joharimal’s shop. She kept the key of that box with herself. Is there a contract of bailment ? Give your
decision along with reasons.
Ans. Yes this is a contract of a Bailment.
Parties in the Contract-In this case
 Kanchan is a bailor and
 Joharimal is a bailee .
Contract of Bailement
A bailment is a transaction whereby one person delivers goods to another person for some
purpose, upon a contract that they are, when the purpose is accomplished to be returned or
otherwise disposed of according to the directions of the person delivering them (Section 148).
The person who delivers the goods is called the bailor and the person to whom they are
delivered is called the bailee.
Duties of Bailee/Rights Of Bailor
The bailee owes the following duties in respect of the goods bailed to him:
(a) The bailee must take as much care of the goods bailed to him as a man of ordinary prudence
would take under similar circumstances of his own goods of the same bulk, quality and value as
the goods bailed (Section 151).
(b) The bailee is under a duty not to use the goods in an unauthorised manner or for unauthorised
purpose (Section 153).
(c) He must keep the goods bailed to him separate from his own goods(Sections 155-157).
(d)He must not set up an adverse title to the goods.

25
(e) It is the duty of the bailee to return the goods without demand on the expiry of the time fixed
or when the purpose is accomplished (Section 160).
(f) In the absence of any contract to the contrary, the baliee must return to the bailor any
increase, or profits which may have accrued from the goods bailed;
Case 8 2013-14
Pal decided to purchase a piece of land from Mr. Singh for 20 lakhs. Advance of Rs. 5 lakhs was paid to
Mr. Singh on 26 Feb. 2004 and the deal was to be completed by 26th March 2004. On 26th March Mr.
Singh did not come to court for registry and returned the advance money received by him. What are the
remedies available to Pal ? Can Mr. Singh call off the deal ?
Ans. Yes this is a breach of contract . This is the actual breach of contract.
Parties in The contract
Mr. Pal-Buyer.
Mr. Singh- Seller
Following are the remedies available top Mr. Pal for breach of contract.
As soon as either party commits a breach of the contract, the other party becomes entitled to any
of the following reliefs:
a.. Rescission of the ContractWhen a breach of Contract is committed by one party, the other
party may sue to treat the contract as rescinded. In such a case, the aggrieved party is freed from
all his obligations under the contract.
b. Damages Damages, generally speaking, are of four kinds:A. Ordinary Damages,B. Special
Damages,C. Vindictive, or Punitive or Exemplary Damages, andD. Nominal Damages.
c. Specific Performance Where damages are not an adequate remedy, the court may direct the
party in breach to carry out his promise according to the terms of the contract. This is called
‘specific performance’ of the contract
d. Injunction Injunction means an order of the Court. Where a party is in breach of a negative
term of contract (i.e. where he does something which he promised not to do), the Court may, by
issuing an order, prohibit him from doing so.
e. Quantum Meruit The phrase ‘Quantum Meruit’ means as much as is merited’ (earned). The
normal rule of law is that unless a party has performed his promise in its entirely, it cannot claim
performance from the other.

26
Case asked in 2010-11

Baiju, a singer, enters into a contract with Alok, the manager of a theatre, to sing at his theatre three
nights in every week during the next three months, and Alok promises to pay him Rs.5,000 for each
night’s performance. On the seventh night, Baiju wilfully absents himself from the theatre. Can Alok put
an end to the contract ?
Sol. Yes, Alok is at liberty to put an end to the contract. Section 39 of the Indian Contract Act, 1872
provides that when a party to a contract has refused to perform or disabled himself from performing his
promise in its entirety, the promisee may put an end to the contract unless the party had signified by
words or conduct his acquiescence in its continuance.

Case 9 2015-16 30 Marks

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Ans3(i) Before stating whether hiding of the fact by Manoharilal & Sons was a fraud or
misrepresentation, clarity on the concept of fraud and misrepresentation is crucial.

What is Misrepresentation?

Where a person asserts something which is not true, though he believes it to be true, his assertion amounts
to misrepresentation. Misrepresentation may be either innocent or without reasonable ground.
Misrepresentation is misstatement of facts by one, which misleads the other who, consequently, can avoid
the contract.

According to Section 18, there is misrepresentation:

(1)When a person positively states that a fact is true when his information does not warrant it to be so;

(2)When there is a breach of duty by a person without intention to deceive which brings an advantage to
him, and loss to the other;

(3)When a party causes the other party to the agreement to make a mistake as to the subject matter.

What is Fraud?
As per the Indian Contract Act “Fraud” means and includes any of the following acts committed by a
party to a contract, or with his connivance or by his agent with intent to deceive another party thereto or
his agent, or to induce him to enter into the contract:
(i)the suggestion, as to a fact, of that which is not true by one who does not believe it be true;
(ii)the active concealment of a fact by one having knowledge or belief of the fact;
(iii)a promise made without any intention of performing it;
(iv)any other act fitted to deceive;
(v)any such act or omission as to law specially declared to be fraudulent.

28
Following points can be considered before declaring the hiding of the fact by Manoharilal and sons
a fraud or misrepresentation-
1.Deliberate hiding or falsification of a material fact which, if known to the other party, could have
aborted, or significantly altered the basis of, a contract, deal, or transaction is called as a material
misrepresentation.
2.In the given case although Manoharilal & sons hide the material fact but there was no intention to
deceive. The only intention was to get the contract.
Thus after reading and analyzing the facts of the case given and legal concepts related to Fraud and
Misrepresentation it seems that hiding of the fact by Manohari Lal and Sons was a material
misrepresentation.

Ans 3(ii) Legal facts related with the Problem Given-

Section 56 of the Indian Contract Act contemplates various circumstances under which agreement may
be void, since it is impossible to carry it out.
Impossibility existing at the time of contract: When the parties agree upon doing of something which is
obviously impossible in itself the agreement would be void. Impossible in itself means impossible in the
nature of things. The fact of impossibility may be and may not be known to the parties.
If unknown to the parties: Where both the promisor and the promisee are ignorant of the impossibility
of performance, the contract is void.
Destruction of Subject-Matter of the Contract. Where the subject-matter of a contract is
destroyed, for no fault of the promisor, the contract becomes void by impossibility .
Leading Case A music hall was agreed to be let out on certain dates, but before those dates it was
destroyed by fire. Held, that the owner was absolved from liability to let the building as promised.
[Taylor v. Caldwell (1863) 122 E.R. 299.]
Solution to the Problem: Yes, Manoharilal and sons was valid in not agreeing to pay the damages for
non-supply of the order.
Supporting facts to the above Solution-
Both Manohari lal and Cakez were unaware that the chocolates lying in the godown has been destroyed
due to fire. Hence when Cakez could not receive the consignment on time they lost a business deal. Cakez
started demanding the order fulfillment (and for damages) but Manoharilal and sons said that this cannot
be done. Also Manoharilal and sons did not agree to pay damages for the breach.

Ans 3(iii) Legal facts related with the Problem Given-

In view of Section 11 of the Indian Contract Act, 1872, and the decision of the Privy Council in Mohri
Bibi v. Dharmo Das Ghose, (1903) 30 I.A 114, a minor’s agreement is altogether void and
unenforceable. An agreement is an essential ingredient in a partnership, it follows that a minor cannot
enter into an agreement of partnership. On the same principle, a minor cannot be clothed with all the
rights and obligations of a full-fledged partner through a guardian. The minor is incompetent to contract
and, therefore, partnership cannot come into existence if the parties to a contract of partnership
consist of one major and one minor. The only provision that Section 30 makes is that with the
“consent of all the partners for the time being, a minor can be admitted into the benefits of
partnership to which a minor is going to be admitted”. A partnership firm cannot be formed with
only minors as partners. There must be at least two major partners before a minor is admitted into the
benefits of partnership.
Factual analysis in the Present Case- In February 2013,the minor son of Priya, Kishore, was admitted to
benefits. This shows that there were two major partners in the form Priya and Rani and with both of their
consent Kishore was admitted to the benefits of Partnership. But unfortunately in June 2013, business of
CAKEZ dropped due to Priya’s death and to cover the losses,Rani indulged into speculations.But destiny
had it otherwise when Rani suffered a huge loss in her speculative activities.Manoharilal & Sons,who had

29
earlier provided many supplies on credit ,now started demanding their claims both from Rani and
Kishore.
It is stated under Partnership Act, 1932 that a minor partner’s liability is confined only to the
extent of his share in the firm. But a minor is not personally liable in any such act. Thus, he is
neither personally liable nor is his private estate liable for the acts of the firm.
Solution: Thus in the present situation Kishore is not personally liable to meet the demands of
Manoharilal & Sons.

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