What is Contract? for CLAT - Practice Questions & MCQ

Introduction:

• In the realm of Contract Law, a contract is a fundamental concept. Contracts are the building blocks of business and personal interactions. They govern countless aspects of our daily lives, from buying groceries at a store to entering into complex business agreements. 
• Understanding what a contract is, its elements, and how it works is crucial not only for law students but also for anyone engaging in transactions or agreements.

Definition of a Contract:

• A contract is a legally binding agreement between two or more parties, where each party agrees to perform specific obligations or duties in exchange for something of value. 
• These obligations can be promises to do something (called "positive obligations") or promises not to do something (called "negative obligations"). 
• For a contract to be valid and enforceable, certain essential elements must be present.

Elements of a Contract:

Offer and Acceptance:

• An offer is a clear and unequivocal statement of a person's willingness to enter into a contract. It must contain all essential terms, such as the price, subject matter, and time for performance.
• Acceptance is the unqualified agreement to the terms of the offer. It must mirror the offer exactly, without introducing new conditions.
• Example 1: A offers to sell his car to B for ₹10,000. B agrees to buy it for ₹10,000. This forms a valid offer and acceptance.
• Example 2: A offers to sell his car to B for ₹10,000, but B replies, "I'll buy it for ₹9,000." In this case, B's response is not an acceptance; it's a counter-offer, which may or may not be accepted by A.

Intention to Create Legal Relations:

• In some cases, agreements made between family members or friends are presumed not to have the intention to create a legal relationship. These are often referred to as 'social agreements' and are generally not enforceable in court.
• However, commercial agreements, such as those made between business partners or companies, are presumed to have the necessary intention to create legal relations.
• Example 1: A and B are brothers. A promises to pay B ₹500 as a birthday gift. This is likely not a legally binding contract as it's a social agreement with no intention to create a legal relationship.
• Example 2: A and B are business partners. They agree to share profits and losses in their joint venture. This is a commercial agreement with the intention to create a legal relationship.

Consideration:

• Consideration is the 'price' each party pays or promises to pay in exchange for what they receive under the contract. It's often referred to as the 'bargained-for exchange.'
• Consideration can be monetary (payment), a promise to perform an action, or a promise not to perform an action.
• Example 1: A agrees to mow B's lawn every week for six months, and in return, B agrees to pay A ₹50 per week. The consideration here is A's lawn-mowing service and B's payment.
• Example 2: A promises to donate ₹1,000 to a charity, and B promises to run a marathon to raise funds for the same charity. The consideration is the promise to perform charitable acts.

Legal Capacity:

• Not everyone has the legal capacity to enter into a contract. Minors (usually under 18), individuals with severe mental impairments, and those under the influence of drugs or alcohol may lack capacity.
• Contracts with such individuals may be voidable, meaning they can be enforced or canceled at the discretion of the incapacitated party.
• Example 1: A 15-year-old enters into a contract to buy a computer. The contract may be voidable by the minor if they choose to cancel it because of their age.
• Example 2: A person who is severely intoxicated agrees to sell their car to B. If they later regret the agreement, they might have the option to void the contract due to their impaired capacity at the time.

Legality of Purpose:

• Contracts with illegal or immoral objectives are not enforceable. The purpose of the contract must be lawful.
• Example: A and B enter into a contract to engage in illegal gambling activities. Such a contract is not legally enforceable because the purpose (gambling) is illegal.

Indian Case Law: Mohori Bibee vs. Dharmodas Ghose (1903)

• Case Background
  • Dharmodas Ghose, a minor, mortgaged his property to Mohori Bibee, an adult, to secure a loan.
• Legal Issue
  • The central issue was whether a contract entered into with a minor, who lacked the capacity to contract, could be enforced against the minor when they attained majority.
• Court's Decision
  • The Privy Council held that a contract with a minor is void ab initio, meaning it is null and void from the beginning.
  • Consequently, the mortgage agreement Dharmodas Ghose entered into as a minor was declared void.
• Key Legal Principle
  • The case established the fundamental legal principle in Indian contract law that contracts with minors are void.
  • Minors lack the legal capacity to enter into contracts, and any such contract is not legally binding.
• Significance
  • The case highlights the protective stance of Indian contract law towards minors, shielding them from potential exploitation.
  • It provides clarity on the legal status of contracts with minors, ensuring that such contracts cannot be enforced when the minor becomes an adult.
  • The case reaffirms the right of a minor to recover their property if it was mortgaged or transferred during their minority when they attain majority.