ADL – 12

ASSIGNMENT – A

Q1) : Define Contract. Give essential elements of a valid contract.

Ans: Section 2(h) of the Indian Contract Act, 1872 defines a contract as an agreement enforceable
by law. Section 2(e) defines agreement as “every promise and every set of promises forming
consideration for each other.” Section 2(b) defines promise in the word: “When the person to
whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A
proposal when accepted becomes a promise.”

From the above definition of promise, it is obvious that an agreement is an accepted

proposal. The two elements of an agreement are:

1: - Offer of a proposal.
2: - An acceptance of that offer or proposal.

What agreement are contracts? All agreements are not studied under the Indian Contract
Act, as some of them are not contracts. The Contract Act is the law of those agreements, which
create obligations, and in case of a breech of a promise by one party to the agreement, the other has
a legal remedy. Thus, a contract consists of two elements,

1. An agreement
2. Legal Obligations i.e. It should be enforceable at law

However, there are some agreements, which are not enforceable in a law court. Such
agreements do not rise to contractual obligations and are not contracts.

Essential Elements of Valid Contracts

All agreements are contracts if they are made by free
consent of parties, Competent to contract, for a lawful consideration and with a lawful object and
are not here by expressly declared to be void.
Thus the essential elements of a valid contract can be summed up as follows:

1. Agreement
2. Intensions to create legal relationships
3. Free and genuine consents
4. Parties competent to contract
5. Lawful considerations
6. Lawful Objects
7. Agreements not declared void or illegal
8. Certainty of meaning
9. Possibility of performance
10. Necessary illegal formalities

1. Agreement: As already mentioned, to constitute a contract there must be an agreement. An

agreement is composed of two elements, Offer and Acceptance. The party making the offer is
known as a offeror, the party to whom the offer is made is know as the offree. Thus, there are
essentially to be two parties to an agreement. They both must be thinking of the same thing in
the same sense. In other words, there must be consensus-ad-idem.

2. Intensions to Create Legal Relationships: As already mentioned there should be an

intension on the part of the parties to the agreement to create a legal relationship. An agreement
is purely social or domestic nature is not a contract.
 3. Free and Genuine Consent: The consent of the parties to the agreement must be free and
genuine. The consent of the parties should not be obtained by misrepresentation, fraud, undue
influence, coercion or mistake. If the consent is obtained by any of these flaws, then the
contract is not valid.

4. Parties Competent to Contract: These parties to a contract should be competent to enter

to a contract. According to section 11, every person is competent to contract if he, (1) Is of the
age of majority, (2) Is sound mind, and (3) Is not disqualified from contracting by any law to
which he is subject. Thus, there may be a flaw in capacity of parties to the contract. The flaw in
capacity may be due to minority, lunacy, idiocy, drunkenness or status. If a party to a contract
suffers from any of these flaws, the contract is an unenforceable except in certain exceptional
circumstances.

5. Lawful Considerations: The agreement must be supported by consideration on both sides.

Each party to the agreement must give or promise something and receive something or promise
in return. Consideration is the price for which the promise of the order is sought. However, this
price need not be in terms of money. In case promise is not supported by consideration, the
promise will be Nudum Pactum (a bare promise) and is not enforceable at law. Moreover the
consideration must be real and lawful.

6. Lawful Objects: The object of the agreement must be lawful and not one which the law
disapproves.

7. Agreements not Declared Illegal or Void: There are certain agreements, which have been
expressly declared illegal or void by the law. In such cases, even if the agreement possesses all
the element of a valid agreement, the agreement will not be enforceable at law.

8. Certainty of Meaning: The meaning of agreement must be certain or capable of being

certain otherwise the agreement will not be enforceable at law. For instance, A agrees to sell 10
meters of cloth. There is nothing whatever to show what type of cloth was intended. The
agreement is not enforceable for want of certainty of meaning. If, on other hand, the special
description of the cloth is expressly stated, say tarry cot (80:20), the agreement would be
enforceable as there is no uncertainty as to its meaning.

9. Possibility of Performance: The terms of the agreements should be capable of

performance. An agreement to do an act impossible in itself it cannot be enforced. For instance,
A agrees with B to discover the treasure by magic. The agreement cannot be enforced.

10. Necessary Legal Formalities: A contract may be oral or in writing if, however, a particular
type of contract is required by law to be in writing, it must comply with the necessary
formalities as to writing, registration and attestation, if necessary. If these legal formalities are
not carried out, then the contract is not enforceable at law.

Q 2) What are the remedies for breach of Contract.

Ans As soon as either a party commits a bridge of the contract the other party becomes entitled to
any of the following relief’s: -

1: - Rescission of the contract

2: - Damages for the loss sustain or suffered.
3: - A decree for specific performance.
4: - An injunction
5: - Suit on quantum meruit.
 1. Rescission of the contract:

When 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 aggrieve party is freed from all his obligations under the
contract.

2. Damages for the loss sustain or suffered:

Damages generally speaking are of 4 kinds

A: - Ordinary damages
B: - Special Damages
C: - Vindictive, punitive or exemplary damages.
D: - Nominal Damages

A: - Ordinary damages
Ordinary damages are those, which naturally arouse in the usual course of things
from such breach. The major of ordinary damages is the difference between the contract
price and the market price. At the date of the breach. If the seller retains the goods after the
breach, he can’t recover from the buyer any further laws if the market falls, nor be liable to
have damages reduced if the market rises.

B: - Special Damages
Special damages are claimed in case of loss of profit. When there are certain special
or extra ordinary circumstances present and their existence is communicated to the
promisor, non performance of the promise entitles the promisee to not only claim the
ordinary damages but also damages that may result their from.

C: - Vindictive, punitive or exemplary damages.

Vindictive damages are awarded with a view to punish the defendant and not solely
with the idea of awarding the compensation to the plaintiff. These have been awarded (A)
For a breach of promise to marry; (B) For wrong full dishonor of a check by a bank
possessing adequate funds of the customer. The measure of damages incase of (A) is
dependent upon the severity of the shock of the sentiments of the promissee. In case of (B)
The rule is smaller the amount of the check dishonored, larger will be the amount of
damages awarded.

D: - Nominal Damages
Nominal damages are awarded in case of breach of contract where there is only a
technical violation of the legal right, but no substantial laws is caused thereby. The damages
granted in such cases are called nominal because they are very small, for example, A rupee
or a shilling.

3. A decree for specific performance:

Where damages are not an adequate remedy, the court may direct the party in bridge to
carry out his promise according to the terms of the contract. This is called ‘Specific performance’
of the contract. Some of the instances where court may direct specific performance are: A contract
for the sale of a particular house or some rate article or any other thing for which monetary
compensation is not enough because the injured party will not be able to get an exact substitute in
the market.
Specific performance will not be granted where:
 (A) Monetary Compensation is an adequate relief.
(B) The contract is of a personal nature. Example: A contract to marry.
(C) Where it is not possible for the court to supervise the performance of the contract.
Example: A building contract.
(D) The contract is made by a company beyond its object as laid down in its
memorandum of association.

4. An injunction:

Injunction means a order of court. Where a party in breach of a negative term of contract.
(Where it does something which he promise not to do), The court may, by issuing an order, prohibit
him from doing so.

5. Suit on quantum meruit:

The phrase ‘Quantum Meruit’ Means as much as is merited (earned). The normal rule of
law is that unless a party has perform his promise in its entirely, it cant claimed performance of the
other. To this rule, however, there are certain exceptions on the basis of ‘Quantum Meruits’. A right
to sue on a ‘Quantum meruit’ arises when a contract, partly perform by one party, has become
discharged by the breach of the other party.

Q3) : Explain and illustrate the doctrines of: -

Lifting/ Piercing the corporate veil.
Ultra vires.

Ans Lifting/ Piercing the corporate veil

The advantages of the incorporation or allow to be enjoyed only by those who want to make
an honest use of the company. In case of the dishonest and fraudulent use of the facility of
incorporation, law lifts the corporate veil and indentifies the persons who are behind the scenes and
are responsible for the perpetration of fraud. In cotton corporation of India Ltd.
V.G.C.ODUSUMATHD (1999) 22SCL 228 (KAR), The Karnataka high court held that the lifting
of the corporate veil of a company as rule is not permissible in law unless otherwise provided by
clear words of the statue or by very compelling reasons such as where fraud is intended. To be
prevented or trading with the enemy company is sought of defeated. As to when may the corporate
veil be lifted, the Supreme Court in state of UP V. Renu Sagar Power Co. (1991) 70 Comp. Cas.
127(SC) observed as follows:
The concept of the lifting the corporate veil is a changing concept. The veil of corporate
personality, even though not lifted some times, is becoming more and more transparent in modern
jurisprudence. It’s high time to reiterate that, in the expending horizon of modern jurisprudence,
lifting of corporate veil is permissible: Its frontiers are unlimited. But it must depend primarily on
the reality of the situation.

Doctrines of Ultra Vires

We have mentioned earlier that a company can’t go beyond its object mention in its
memorandum. The company activities are confined strictly to the object mentioned in its
memorandum, and if they go beyond these objects, that such acts will be ultra vires. The object of
declaring such acts, as ultra vires is to protect the interest of shareholders and all others who deal
with the company. Some points worth noting as regards ultra vires are:
 1. A company exists only for the objects, which are expressly stated in its objects clause. Or
which are incidental to or consequential upon these specified objects.
2. Any act done outside the express or implied objects is ultra vires.
3. The ultra vires acts are null and void ab initio. The company is not bound by these acts:
neither the company nor the other contracting party can sue upon it.

Q4) Describe the kinds of resolutions passed by the Board Directors under the Companies Act
(1956).

Ans Once the motion has been put to the members and they have voted in favor of it, it becomes a
resolution.
In the case of a company there are three kinds of a resolution:
1: - Ordinary resolution
2: - Special Resolution
3: - A resolution Requires Special Notice

1. Ordinary resolution Section 189

When a motion is passed by simple majority of the members voting in general
meeting it’s said to be passed by an ordinary resolution. In other words, votes in favor in
resolution are more than 50%. Still in other words a resolution shall is an ordinary
resolution where the votes cast in favor of the resolution are more than the votes cast against
the resolution. According to section 189, “A resolution shall be a ordinary resolution when a
general meeting of which notice required under the act has been duly given, the votes cast
(Whether on show of hands, or on poll, as the case may be), in favor of resolution
(including the casting vote, if any, of the chairman) by members who, being entitled so to
do, vote in person or where proxies are allowed, by proxy, exceed the votes if any, cast
against the resolution by members so entitled and voting.”
All matters which are not required by the company’s act or the company article to be
done by a special resolution can be done by means of an ordinary resolution. Some of the
cases in which only ordinary resolution is required are: Alteration of authorized capital,
Declaration of dividend, Appointment of auditors, and Election of directors.

2. Special Resolution
A resolution is a special resolution in regards to which:

A: - The intention to purpose the resolution as a special resolution has been

specifically mentioned in the notice calling the general meeting.
B: - 21 Days notice has been duly given for calling the meeting.
C: - The number of votes cast in favor of the resolution is 3 times the number cast
against it.

Some of the cases in which a special resolution is necessary are: Alteration of

objects clause; change of registered office from 1 state to another; alteration of article of
association; changes in the name of the company; reduction of share capital.

3. A resolution Requires Special Notice

It should be noted here that some resolution required the special notice. The object
of the special notice is to give the member sufficient time to consider the propose
resolution, and also to give the board of directors and opportunity to indicate views, on the
resolution if it not proposed by them but by some shareholders. Under this a notice to
intention to move the resolution should be given to the company not less then 14 days
before the date of the meeting at which it is proposed to be move. The company in turn
must immediately notice by advertisement in the newspaper or in any other mode allowed
by the articles but not less than the 7 days before the meeting. Some of the cases in which
 special is necessary are: appointing an auditor a person other than the retiring auditor;
Moving a resolution that a retiring auditor will not be reappointed; removing a director
before his term expires.
Section 192 requires the printed or type written copy of each special resolution
should be sent to the registrar with in 30 days there of.

Q5) : Define ‘goods’. Explain the conditions and warranties implied by law in a contract for
sales of goods.

Ans: Goods: -
‘Goods’ means every kind of moveable property other than action able claims and money;
and include stocks and shares, growing crops, grass, and thing attach to or forming part of the land
which are agreed to be severed before sale or under the contract of sale.
Thus, ‘Goods’ means every kind of moveable property other than actionable claim or
money. Things like goodwill, copyright, trademark, patient, water, gas, electricity are all goods and
may be the subject matter of a contract of sale. Although, in general its only movables i.e. things
which can carry from one place to another that form goods. All such things which are part of the
land itself but are agreed to be severed from the land under the contract, are considered as goods.
Thus, where trees were sold, to be cut and then taken away by the buyer; it was held that there was
contract for sale of movable property.

Implied Conditions and warranties

Implied conditions and warranties are deemed to be incorporated in every contract of sale of
goods unless the terms of contract show contrary intentions. The following are the: -

Implied conditions

1. Conditions as to title provides that in a contract of sale unless the circumstances of the
contract or such as to show a different intention there is an implied condition on the part of
the seller that in the case of a sale, he has the right to sell the goods at the time when the
property is to pass. As the consequence of this if the title turns out to be defective, the buyer
is entitled to reject the goods and claim refund of the price if paid plus damages. This will
be allowed even where the buyer has used the goods.

2. Sale by description Section 15. Where there is a contract for the sale of goods by
description there is an implied condition that the good correspond with the description. If
the sale is by sample as well as description, the goods must not only correspond with the
sample but also with the description.

3. Condition as to quality or fitness. As a general rule a buyer is supposed to satisfy himself

about the quality of goods he purchases and also he is charged with the responsibility of
seeing for himself that the goods suit the purpose for which he buys them. Thus, later on, if
the goods purchase turn out to be unsuitable for the purpose for which he bought them,
seller can’t be asked to compensate. There are, however, certain exceptions are to this
general rule. It’s only in these exceptional circumstances that there is an implied condition
as to quality or fitness. These circumstances are:

A: Where the buyer, expressly or by implication, makes known to the seller the
particular purpose for which the goods are required so as to show, That the buyer
relies on the seller’s skill or judgment and the goods or of a description which it is in
the course of sellers business to supply (He is manufacturer or producer or not).
 There is an implied condition that the goods shall be responsible fit for such
purpose.
For the exception to operate all the three conditions must be fulfilled:

(I) The purpose must have been disclosed.

(II) The buyer must have relied on the seller’s skill or judgment.
(III) The seller business must be sell such goods.

B: Where goods are bought by description from a seller who deals in goods of that
description (whether he is manufacturer or producer or not) There is an implied
condition that the goods shall be of merchantable quality, i.e. The goods shall be
free from latent defects (Which are not a apparent or possible of detection by mere
inspection.) Thus, this exception shall be available where:

(I) Goods are bought by description

(II) From seller who deals in such goods

Where, However, the buyer has examine the goods, there shall be no implied
condition as regards defects which such examinations ought to have revealed.

C: A condition as to fitness for a particular purpose or as to quality may also arise on

account of a custom of trade.

4. Merchantable quality. “What is merchantable quality?” The term has never been defined.
The best definition which is probably the nearest the description of the term was given in
Gardner V. Grey. It said that the article “Must be saleable in the market under the
denomination mentioned”. In other words, the quality of the article should be such that
reasonable men would accept the article as performance of a promise.

Implied Warranties

There are two implied warranties. These are:

A: Warranty of quite possession (Section 14B). In a contract of sale, unless Intention appears, there
is an implied warranty that the buyer shall has and shall enjoyed quite possession of the goods.
Thus, if the right of enjoyment or possession of the buyer is distributed by the seller or any
other person, the buyer is entitled to sue the seller for damages.
B: Warranty of freedom from encumbrances (Section 14C). The Buyer is entitled to another
warranty that the goods are free from any charge or encumbrance in favor of the third person,
not declared to or known to buyer. Thus, this clause will not be applicable where the buyer has
been informed of the encumbrances or had notice of the same. Further, it was held in Collinge
V. Heywod (1839). 9A. and E.633, That the claim under this warranty shall be available only
when the buyer discharges the amount of encumbrance.