CLAT PG Law of Contracts Syllabus

Who is competent to contract under Section 11 of the Indian Contract Act?

A person who is (1) of the age of majority, (2) of sound mind, and (3) not disqualified from contracting by any law to which he is subject.

What is the legal status of a minor's agreement, and which case established it?

A minor's agreement is void ab initio (absolutely void). Established in Mohori Bibee v. Dharmodas Ghose (1903).

Can a minor be ordered to restore benefits received under a void agreement (doctrine of restitution)?

Generally a minor cannot be compelled to restore benefits if money/goods cannot be traced. However, under equitable restitution, if the property/goods are traceable and still in the minor's possession, restoration may be ordered (Leslie v. Sheill; Section 33 Specific Relief Act).

Is a minor liable for 'necessaries' supplied to him? Under which provision?

A minor is not personally liable, but his property/estate is liable for necessaries supplied to him suited to his condition in life (Section 68 - quasi-contract).

What is the test of 'soundness of mind' for contracting under Section 12?

A person is of sound mind if, at the time of making the contract, he is capable of understanding it and forming a rational judgment as to its effect upon his interests. A usually unsound person may contract when occasionally sane, and vice versa.

How is 'consent' defined and what makes it 'free consent' (Sections 13 & 14)?

Consent (Section 13): two or more persons agreeing upon the same thing in the same sense (consensus ad idem). Free consent (Section 14): consent not caused by coercion, undue influence, fraud, misrepresentation, or mistake.

What is 'coercion' under Section 15 of the Indian Contract Act?

Committing or threatening to commit any act forbidden by the Indian Penal Code, or unlawful detaining or threatening to detain any property, to the prejudice of any person, with the intention of causing him to enter into an agreement.

What is 'undue influence' under Section 16?

A contract is induced by undue influence where the relations between parties are such that one is in a position to dominate the will of the other and uses that position to obtain an unfair advantage.

Distinguish coercion from undue influence.

Coercion involves physical force/threats (IPC offences or detention of property) and need not arise from a relationship; undue influence involves moral/mental pressure arising from a dominating relationship. Both make the contract voidable at the option of the aggrieved party.

What is 'fraud' under Section 17 of the Indian Contract Act?

Acts done by a party (or his agent) with intent to deceive or induce another to enter a contract: false suggestion of fact, active concealment, promise made without intention of performing, any other deceptive act, or any act declared fraudulent by law.

What is 'misrepresentation' under Section 18?

An innocent/unintentional false statement of fact: positive assertion of an untrue thing believed to be true, breach of duty gaining advantage by misleading another, or innocently causing a party to make a mistake about the subject of the agreement.

Distinguish fraud from misrepresentation.

Fraud involves intention to deceive (dishonest); misrepresentation is innocent (no intent to deceive). In fraud the aggrieved party can rescind and claim damages; in misrepresentation he can rescind but generally cannot claim damages.

What is the effect on a contract caused by coercion, undue influence, fraud, or misrepresentation (Section 19/19A)?

The contract is voidable at the option of the party whose consent was so caused. For undue influence the court may set it aside absolutely or upon such terms as seem just (Section 19A).

What is the effect of a bilateral mistake of fact under Section 20?

Where both parties are under a mistake as to a matter of fact essential to the agreement, the agreement is void.

What is the rule regarding mistake of law (Section 21) and mistake of fact by one party (Section 22)?

Section 21: A mistake as to a law in force in India does not make a contract voidable (ignorantia juris non excusat), but mistake of foreign law is treated as mistake of fact. Section 22: A contract is not voidable merely because one party (unilaterally) was under a mistake of fact.

How is a 'contract of indemnity' defined under Section 124?

A contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself or by the conduct of any other person.

In a contract of indemnity, who is the 'indemnifier' and who is the 'indemnity-holder'?

The indemnifier (indemnitor) is the person who promises to make good the loss; the indemnity-holder (indemnified) is the person whose loss is to be made good.

What rights does an indemnity-holder have when sued (Section 125)?

He may recover from the indemnifier: (1) all damages he is compelled to pay in any suit, (2) all costs he is compelled to pay in bringing/defending such suit (if he acted prudently), and (3) all sums paid under any compromise (if not contrary to orders and prudent).

How is a 'contract of guarantee' defined under Section 126, and who are its three parties?

A contract to perform the promise, or discharge the liability, of a third person in case of his default. Parties: the principal debtor (whose default is guaranteed), the creditor (to whom the guarantee is given), and the surety (who gives the guarantee).

What is the nature of a surety's liability under Section 128?

The liability of the surety is co-extensive with that of the principal debtor, unless otherwise provided by the contract. The creditor may proceed against the surety without first suing the principal debtor.

Distinguish a contract of indemnity from a contract of guarantee.

Indemnity has two parties and one contract; guarantee has three parties and (in effect) three contracts. In indemnity the liability is primary and arises on a contingency; in guarantee the surety's liability is secondary/collateral, arising on the principal debtor's default.

What is the difference between a specific guarantee and a continuing guarantee (Section 129)?

A specific guarantee covers a single transaction/debt. A continuing guarantee extends to a series of transactions and can be revoked as to future transactions by notice (Section 130) or by the surety's death (Section 131).

List the modes by which a surety is discharged from liability.

(1) Revocation of continuing guarantee (S.130); (2) Death of surety (S.131); (3) Variance in terms of contract without consent (S.133); (4) Release/discharge of principal debtor (S.134); (5) Composition, extension of time, or promise not to sue without surety's consent (S.135); (6) Creditor's act/omission impairing surety's eventual remedy (S.139); (7) Loss of security (S.141).

What is the surety's right of subrogation (Section 140)?

On payment/performance of all that he is liable for, the surety is invested with all the rights which the creditor had against the principal debtor (he steps into the creditor's shoes).

How is 'bailment' defined under Section 148, and who are the bailor and bailee?

Bailment is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the bailor's directions. The bailor delivers the goods; the bailee receives them.

What duty of care must a bailee exercise over bailed goods (Section 151)?

The bailee must take as much care of the goods as a man of ordinary prudence would, under similar circumstances, take of his own goods of the same bulk, quality and value.

What is a 'pledge' (pawn) under Section 172, and who are the pawnor and pawnee?

Pledge is the bailment of goods as security for payment of a debt or performance of a promise. The pawnor (pledgor) bails the goods; the pawnee (pledgee) receives them as security.

Distinguish a pledge from an ordinary bailment.

In a pledge, goods are delivered as security for a debt/promise; in a bailment, goods are delivered for any purpose (e.g., repair, safe custody). A pledgee has a right of sale on default (after notice), whereas an ordinary bailee generally has only a right of lien (retention), not sale.

What are the pawnee's rights on default by the pawnor (Section 176)?

The pawnee may (1) sue the pawnor on the debt and retain the goods as collateral security, or (2) sell the pledged goods after giving reasonable notice of sale to the pawnor; surplus goes to the pawnor and any deficit is recoverable from him.

What is a 'lien', and distinguish a particular lien from a general lien?

A lien is the right to retain goods until dues are paid. A particular lien (Section 170) entitles a bailee to retain only the specific goods on which he has bestowed labour/skill. A general lien (Section 171) entitles certain persons (bankers, factors, wharfingers, attorneys, policy-brokers) to retain any goods for a general balance of account.

How is an 'agent' and 'principal' defined under Section 182?

An agent is a person employed to do any act for another or to represent another in dealings with third persons; the person for whom such act is done, or who is so represented, is the principal.

What is the test of agency, and can a minor be an agent?

The test is whether the person has the power to create legal relations between the principal and a third party. A minor may be an agent (binding the principal to third parties), but the minor-agent is not personally liable to the principal (Section 184).

What are the modes of creating agency?

By express agreement, by implied agreement (including agency by estoppel and by holding out), by ratification (Section 196), by necessity (Section 189), and by operation of law.

What is 'ratification' of agency (Sections 196-200) and its essentials?

Ratification is the subsequent adoption/acceptance by the principal of an act done by a person on his behalf without authority. Essentials: the agent acted on behalf of an identifiable principal, the principal was in existence and competent, ratification is of the whole act, within reasonable time, and of a lawful act.

What is the difference between a sub-agent and a substituted agent (Sections 190-194)?

A sub-agent (S.191) works under the control of the original agent, who remains responsible to the principal; there is no privity between principal and sub-agent (except fraud/wilful wrong). A substituted agent (S.194) is named by the agent at the principal's request to act for the principal, creating direct privity between principal and substituted agent.

When is a principal bound by the acts of an agent exceeding authority (Section 227)?

Where an agent does more than he is authorised to do, and the part within authority can be separated from the part beyond, the principal is bound only by the part within authority; if inseparable, the principal is not bound by the transaction.

What is the doctrine of the 'undisclosed principal'?

Where an agent contracts without disclosing that he is acting as an agent, the third party may, on discovering the principal, hold either the agent or the principal liable; the principal may also require performance, subject to the rights the third party would have had against the agent.

State the modes of termination of agency under Section 201.

By revocation by the principal, by renunciation by the agent, by completion of the business, by death or insanity of either party, by insolvency of the principal, and by expiry of the agency period.

What is an 'agency coupled with interest' and its effect on revocation (Section 202)?

Where the agent has himself an interest in the subject-matter of the agency, the agency cannot, in the absence of an express contract, be terminated to the prejudice of that interest.