List of top Legal Studies Questions on Contract Law asked in CLAT

The Contract Act 1872 deals with contract law in India, its rights, duties, and exceptions arising out of it. Section 2(h) of the Act gives us the definition of a contract, which is simply an agreement enforceable by law. To understand the difference between void agreements and voidable contracts it is important to talk about sections 2(h), 2(a). 20), 2(d), 14, 16 (3) and 15,24-28 of the Indian Contact Act. Void agreements are fundamentally invalid making them unenforceable by default. These agreements cannot be fulfilled as they consist of illegal elements, and they cannot be enforced even after subjecting it to both parties. However, in the case of voidable contract, the agreement is initially enforceable, but it is later on denied at the option of either of the parties due to various reasons.
Unless rejected by a party, this contract will remain valid and enforceable. The party who is at the disadvantage due to any circumstance applicable to the contract has the ability to render the agreement void. A void agreement is void ab initio making it impossible to rectify any defects in it while voidable contracts can be rectified. In case of a void agreement, neither of the parties is subject to any compensation for any losses but voidable contracts have some remedies. 
A valid agreement forms a contract that may again be either valid or voidable. The primary difference between a void agreement and voidable contract is that a void agreement cannot be converted into a contract. 
(Extracted with edits from A Comparative Study of Voidable Contracts and Void Agreements)

It is essential to the creation of a contract that both parties should agree to the same thing in the same sense. Mutual consent, which should also be a free consent, is the sine qua non of a valid agreement and one of its essential elements is that a thing is understood in the same sense by a party as is understood by the other. Not only consent, but free consent is provided in Section 10 of the Indian Contract Act, 1872 to be necessary to the complete validity of a contract. Consent is free when it works without obstacles to impede its exercise. Where there is no consent or no real and certain object of consent, there can be no contract at all. Where there is consent, but not free consent, there is generally a contract voidable at the option of the party whose consent was not free. A general averment that consent was not freely obtained is not enough, and it is necessary to set up one of the vitiating elements such as fraud which includes, false assertion, active concealment, promise without intention of performing it, any other deceptive act, or any act declared as fraudulent. In order to constitute fraud, the act should have been done by the party to the contract, or by any other person with his connivance, or by his agent and with intent to deceive the other party thereto or his agent, or to induce him to enter into the contract. There is no duty upon parties to speak about facts likely to affect the other party’s consent to the contract and mere silence does not amount to fraud, unless the circumstances of the case show that there is duty to speak, or silence is, in itself equivalent to speech. On the other hand, misrepresentation falls into three categories: (i) a statement of fact, which if false, would be misrepresentation if the maker believes it to be true, but which is not justified by the information he possesses; (ii) any breach of duty which gains an advantage to the person committing it by misleading another to his prejudice, there being no intention to deceive; and (iii) causing a party to an agreement to make a mistake as to the substance of the thing which is the subject of the agreement, even though done innocently.

Section 4 of the Indian Contract Act, 1872 reads as follows:
Communication when complete - The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made. The communication of an acceptance is complete, - as against the proposer, when it is put in a course of transmission to him so as to be out of the power of the acceptor; as against the acceptor, when it comes to the knowledge of the proposer. 
Thus, the provision makes no difference in the position of the offeror. The offeror becomes bound when a properly addressed and adequately stamped letter of acceptance is posted. The acceptor does not become bound by merely posting his acceptance. He becomes bound only when his acceptance comes to the knowledge of the proposer. The contract is concluded at the place from where the proposal is accepted and communication of acceptance is dispatched, i.e., the address at which the proposal was sent. The court at that place would have jurisdiction to entertain a cause of action under the contract. This rule, that the communication of an acceptance is complete as against the proposer when the letter is posted, is probably intended to apply only when the parties are at a distance and they communicate by post. “Where, however, the parties are in each other’s presence or, though separated in space”, they are in direct communication, as, for example, by telephone, no contract will arise until the offeror receives the notification of acceptance

It is a well settled principle of contract law that parties cannot by contract exclude the jurisdiction of all courts. Such a contract would constitute an agreement in restraint of legal proceedings and contravene Section 28 of the Indian Contract Act, 1872. However, where parties to a contract confer jurisdiction on one amongst multiple courts having proper jurisdiction, to the exclusion of all other courts, the parties cannot be said to have ousted the jurisdiction of all courts. Such a contract is valid and will bind the parties to a civil action. Section 28. Agreements in restraint of legal proceedings, void-Every agreement, -
(a) by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights; or 
(b) which extinguishes the rights of any party thereto, or discharges any party thereto, from any liability, under or in respect of any contract on the expiry of a specified period so as to restrict any party from enforcing his rights, is void to the extent. 
Parties cannot by agreement confer jurisdiction on a court which lacks the jurisdiction to adjudicate. But where several courts would have jurisdiction to try the subject matter of the dispute, they can stipulate that a suit be brought exclusively before one of the several courts, to the exclusion of the others.

The COVID-19 pandemic has taken the entire world hostage in less than four months, and the global economy has been hit the hardest with governments across the globe implementing stringent policies including lockdown to control the coronavirus outbreak. The pandemic today presents unprecedented challenges and impediments to businesses in conducting their normal operations. The lockdown across the world has caused delays in the performance of contracts and transactions. Now, the question that arises is whether the current situation can enable parties to a contract to alter their obligations with non-compliance of terms neither being regarded as a "default committed by any party" nor a "breach of contract"? There are certain well-accepted practices for dealing with such extraordinary situations in commercial transactions by the inclusion of force majeure & material adverse effect (MAE) clauses. Determination of the types of circumstances so covered by the force majeure clause contained in a contract is essential. Provisions of force majeure often cover natural disasters like hurricanes, floods, and earthquakes as "acts of God." Other covered events may include war, terrorism, civil disorder, fire, disease medical epidemics or by reasons of applicable laws or regulations. Broadly, the Courts have interpreted the term "Force Majeure" as an event that can neither be anticipated nor controlled by either of the contracting parties. A force majeure clause applies in the context of ongoing contractual arrangements, whereas, an MAE or material adverse change (MAC) clause applies to the allocation of risk in transactions before their closure or completion. Pandemic and related consequences such as government action is a type of event covered by a force majeure clause, however, its impact on the affected party's ability to perform its contractual obligations may vary depending upon contractual terms. It is common for force majeure clauses to specify the impact that the event or circumstances in question must have, in order for the clause to be triggered. References may be made, for example, to the event or circumstances having "prevented", "hindered" or "delayed" performance. These terms require different levels of impact on performance before a party can claim recourse to these clauses. In other words, the force majeure and MAC clauses act as an exception to what would otherwise be treated as a breach of contract. Certain contracts may state that, if a force majeure clause is applied, the contract may automatically be terminated. On the other hand, some contracts may even state that the duty to fulfil the contractual obligation may be suspended for a certain period of time and if the force majeure event is not curbed or treated even after such time, then eventually the contract may be terminated. Though there cannot be a one-size-fits-all solution to this question, and it depends upon how the force majeure clause is worded in a specific contract; and in the absence of the same, applicable laws related to the same will be required to be taken into consideration.

Principle: Terms of any written contract can be proved by producing the written contract only and oral evidence is excluded.
Facts: A gives B receipt for money paid by B. Oral evidence is offered to prove payment.

Principle: An interest created, dependent upon a condition fails, if the fulfillment of the condition is impossible.
Facts: A promises to pay Rs. Ten Lakh to B on condition that he shall marry A's daughter C. At the date on which A gave Rs. Ten Lakh to B, C was dead.

Principle: A condition must be complied with after the happening of the event to which such a condition is attached.
Facts: A promises to pay Rs. 5,000 to B on the condition that he shall marry with the consent of C, D and E. B marries without the consent of C, D and E, but obtains their consent after the marriage.

Principle: A condition must be complied in order to claim the benefit of an agreement.
Facts: A agrees to transfer a farm to B, if B shall not go to England within three years after the date of the agreement, his interest in the farm shall cease. B does not go to England within the term prescribed.

Principle: When a party to a contract has refused to perform, or disabled himself from performing, his promise in its entirety, the other party shall not put an end to the contract.
Facts: A engaged B on April 12 to enter his service on June 1, but on May 11, A wrote to B that his services would not be needed. On May 22, B joined C for employment.

Principle: Damages the money recompense, as far as money can do, for the loss suffered by a person.
Facts: A, an Indian citizen, having a right to vote, was not allowed to cast his vote on the polling booth, by the returning officer. Name of A was mentioned in the voter’s list. A has also reported at the polling booth in time. However, the candidate in whose favor A would have cast his vote won the election. A filed a suit claiming damages.

Principle: When a person who has made a promise to another person to do something does not fulfill his promise, another person becomes entitled to receive, from the person who did not fulfill his promise, compensation in the form of money.
Facts: X made a promise to Y to repair his car engine. Y made the payment for repair. After the repair, Y went for a drive in the same car. While driving the car, Y met with an accident due to bursting of the tyre.

Principle: Mere silence as to facts likely to affect the decision of a person to enter into a contract is not fraud.
Facts: A sells to B (A’s daughter who is a minor) a horse which A knows to be unsound. A says nothing to B about the unsoundness of the horse.

Principle: Where one of the parties to a contract was in a position to dominate the decision of the other party, the contract is enforceable only at the option of the party who was in a position to dominate decision of the other party.
Facts: A doctor asked his patient to make a payment of Rs. 10,00,000/- (Ten Lac Only) for treatment of his fever. The patient paid an amount of Rs. 5,00,000/- (Five Lac Only) and promised to pay the remaining amount after the treatment. After treatment the patient recovered from fever. The doctor demanded the remaining amount from the patient. The patient refused to pay.

Principle: When, at the desire one person, any other person has done or abstained from doing something, such act or abstinence or promise is called a consideration for the promise.
Facts: X, the uncle of Y, made a promise to pay him an amount of Rs. 1,00,000/- as reward if Y quits smoking and drinking within one year. Y quit smoking and drinking within six months.

Principle: An agreement without free consent can be enforced only at the option of the party whose consent was not free.
Facts: A obtains the consent of B to enter into an agreement by putting a gun on the head of B’s girl friend.

Principle: Law never enforces an impossible promise.
Facts: ‘A’ made a promise to ‘B’ to discover treasure by magic.

Principle: An agreement may be entered into orally, in writing, or by conduct.
Facts: ‘A’ went to the shop of ‘B’ and picked a tooth brush and gave a cheque of Rupees twenty to B and left the shop.

Principle: A person, who is usually mad, but occasionally not mad, may make a contract when he is not mad.
Facts: ‘A’ generally remains in the state of madness and rarely becomes capable of understanding anything.

Principle:Sale of liquor is illegal. All agreements relating to prohibited items do not exist in the eyes of law.
Facts: ‘A’ entered into an agreement with ‘B’ for the sale of liquor. ‘A’ failed to supply the agreed quantity of liquor to B.

Principle: The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made.
Facts: ‘A’ sent a letter making a proposal to ‘B’ to purchase the house of B.

An agreement with a boy below the age of eighteen years is not enforceable by law.
Facts: A man entered into an agreement with a girl of seventeen years of age.

Acceptance of proposal must be the exact mirror image of the proposal.
Facts: ‘A’ made a proposal to ‘B’ to sell a chair for Rs. 500. ‘B’ is desirous of buying the said chair for Rs. 400.

Principle : Law never enforces an impossible promise.
Facts : 'A‘ made a promise to 'B‘ to discover treasure by magic.
This question consists of legal principle(s) (hereinafter referred to as 'principle‘) and facts. Such proposition may or may not be true in the real and legal sense, yet you have to conclusively assume them to be true for the purposes of this section. Principles have to be applied to the given facts to arrive at the most reasonable conclusion. Only one of the alternatives, i.e., (A), (B), (C), or (D) is the most reasonable conclusion. In other words, in answering the following questions, you must not rely on any principle except the principles that are given herein below for every question. Further you must not assume any facts other than those stated in the question. The objective of this section is to test your ability in legal aptitude, study of law, research aptitude and problem solving ability even if the 'most reasonable conclusion‘ arrived at may be absurd or unacceptable for any other reason.

Principle : When a party to a contract has refused to perform, or disabled himself from performing, his promise in its entirety, the other party shall not put an end to the contract.
Facts : A engaged B on April 12 to enter his service on June 1, but on May 11, A wrote to B that his services would not be needed. On May 22, B joined C for employment.
This question consists of legal principle(s) (hereinafter referred to as ‘principle‘) and facts. Such proposition may or may not be true in the real and legal sense, yet you have to conclusively assume them to be true for the purposes of this section. Principles have to be applied to the given facts to arrive at the most reasonable conclusion. Only one of the alternatives, i.e., (A), (B), (C), or (D) is the most reasonable conclusion. In other words, in answering the following questions, you must not rely on any principle except the principles that are given herein below for every question. Further you must not assume any facts other than those stated in the question. The objective of this section is to test your ability in legal aptitude, study of law, research aptitude and problem solving ability even if the ’most reasonable conclusion‘ arrived at may be absurd or unacceptable for any other reason.