Answer to the short answer questions /Law of Contract

The answers are prepared for very short answer questions under the subject of business law. We upload all the matters covering the entire syllabus of the university. It is in a series to cover the entire syllabus of BBS/BBA. 

1. What is a contract?

Answer:

An agreement accepted and recognized by law is called a contract. The agreement between at least two parties to do or not to do anything enforced by law is called a contract. It is created by an exchange of promises between parties and it defines rights and the corresponding duties of the contracting parties.

The Civil Code in Section 504(1) defines the term contract as “If an agreement enforceable by law is made between two or more persons to do or not to do or abstain from doing any act, a contract shall be deemed to be made.”

According to the words of S.W. Anson's contract is, “A legally binding agreement between two or more persons by which rights are acquired by one or more to acts or forbearance on the part of the other or others.”

Thus the agreement which is legally binding and acceptable to implement is called a contract and it leads the contracting parties to move ahead towards performance and violation or breach of it gives a right for claiming damages to the aggrieved party. 

2. What is an agreement?

Answer:

The agreement is defined as the gathering of consent and thinking of people to do or not to do anything.  It is a mutual understanding of certain matters between at least two parties. The agreement may or may not create legal relations or obligations to perform by its parties. It is a vague term and includes a lot of matters based on the understanding and terms of the individuals or parties related to it. However, it is the foundation of the contract and an agreement accepted by law can create a contract.

3. What are the differences between agreement and contract?

Answer:

There are fundamental differences between agreement and contract and which are presented as below;

Agreement	Contract
It is the mutual understanding between two parties and the fusion of offer and acceptance is required to create an agreement.	If the created agreement is recognized by law then such creates a contract.
The mere agreement is not able to create legal rights and obligations.	The contract can do so.
It is not binding in its parties.	Rights and duties created by the contract are binding in its parties.
The agreement has a wider scope than the contract.	It has limited scope as a comparison to the agreement.
All the contracts are considered as agreement.	All the agreements are not considered a contract.
The legal remedy is not available in its violation.	The remedy is available according to law.

4. Mention the importance of a contract.

Answer:

The contract binds its parties towards their obligations and in case of violation or breach by either party then the party who is not in the default position can have the right to claim remedies. So it makes the parties responsible for their promises and obligations. The contract itself is the law and plays a significant role in the completion or fulfillment of the relationship created between the parties. The major importance of contract are mentioned below;

• The contract ensures the fulfillment of promises and obligations created from the formation of the contract,

• It facilitates self-assured planning and also makes provisions for future transactions or contingencies,

• It establishes the standards of performance of duties and obligations,

• It helps to minimize the risk of people or contracting parties,

• It provides or ensures remedies for innocent parties of the contract in any cases of breach and termination of the contractual relationship

• The contract is helpful for the reconciliation of different individuals in one place and binds them and so on.

5. What are the types of contracts?

Answer:

There are various types of contract; major classification is presented below;

Based on the validity contract can be classified into a valid, voidable and void contract, illegal and unenforceable, based on formation it is expressed and implied, based on performance it is executed and executory and based on liability it is a unilateral and bilateral contracts. 

6. Enlist the essentials of a valid contract.

Answer:

The agreement turns into a valid contract only when the agreement is enforceable by law or an agreement contains all the essential elements of valid contract then only it becomes a contract. Following are the major essentials of a valid contract;

1.  Two or more parties
2. Offer and acceptance
3. Intention to create a legal relationship
4. Meeting of the minds
5. Consideration
6. Free consent
7. The capacity of the parties
8. Legality of object
9. Not declared to be void
10. Possibility of performing
11. Certainty and clarity
12. Fulfillment  of Legal formalities

7. What is the void agreement?

Answer:

The agreement is the mutual understanding between at least two parties. Any agreement which is not enforceable by law is called void agreement. It is void from its formation and will never get validity in the eye of law. It does not exist in the legal ground. It is not able to define and create any types of rights and duties for the parties. For example, an agreement made with an alien enemy is a void agreement.

8. When an agreement is enforceable by law?

Answer:

Any agreement to be enforced by law or to get legality should contain all the essentials of a valid contract.  Thus whenever an agreement includes all the essential elements of a valid contract then instantly it gets enforceability by law and converted into a contract.

9. Distinguish between expressed and implied contracts.

Answer:

An agreement enforceable by law is called a contract. Based on the formation of the contract it can be divided into expressed and implied contracts. The major demarcations between these two types of contract are mentioned as below:

Expressed contract	Implied contract
A contract expressed by words written or spoken is called expressed contract.	A contract which is made by the conduct of parties is called an implied contract.
In this contract, either written or spoken words are necessary to form the contract.	No the need of having written and spoken words but a kind of behavior or conduct is essential to form a contract.
If Robert writes a text to Muller to offer to sell his car for Rs. 500,000. Muller replied stating yes to buy the car. This is called an expressed contract.	If Philip delivers goods to Ronald assuming he is Davis. Here acceptance of goods by Davis creates his liability by implied contract.

10. Distinguish between void and voidable contract.

Answer:

On the validity of the contract, it can be void and voidable, illegal, and unenforceable. The major differences between void and voidable contracts are shown as;

Void contract/agreement	Voidable contract
It is void from the beginning and it was never a contract. But sometimes valid contract is also turned into void due to impossibility to performance in such case it is not void from the beginning and was a valid contract initially.	It is valid in beginning but at the option of the victimized party, the court may declare it void.
It cannot be converted into a valid one.	It can be converted either valid or void at the option of the aggrieved party.
The contract becomes void by violating any law or illegality of objective and consideration or by the impossibility of performance.	The contract becomes voidable in the absence of free consent of the party.
Here is no compensation is provided.	Compensation is to be provided to the innocent party.
Parties have no option to make it valid.	An aggrieved party always has an option to turn it into a valid contract.

References/Suggested Readings

Kalika S.N. (2013), The Law of Contract, Kathmandu: Prithivi Prakashan

Kuchhal M.C. (1978), Mercantile Law, New Delhi: Vikas Publishing House Pvt Ltd

Mishra B.P. (2006), Mercantile Law, Kathmandu: Asia Books Distributers

Panday Yugraj. (2019), Business Law, Kathmandu: Asmita Books Publisher & Distributors Pvt Ltd

Upreti Shreepraksh. (2018), Business Law, Kathmandu: Samjhana Publication Pvt Ltd