029 - 1967-1968 - Law of Contract

LAW OF CONTRACT*
I. C. SAXENA**
I. Introduction
This is an integrated survey relating to the general principle of law

for the years 1967 and 1968. The codified nature of the law of contract
in this country makes the law certain, and thereby the decisions, predict-
able. It, however, tends to arrest the development of law for the task of
the judiciary is restricted to the applications of principles of law to the
situations, though varying in nature, which come before it from time to
time.
During the survey period, the cases have covered almost all the
important topics of the subject : offer and acceptance, government contra-
cts, consideration, formality of writing and formation of a contract, powers
of a guardian to bind a minor, undue influence, fraud, unlawful agree-
ments including agreements against public policy, agreements restricting
jurisdiction of courts, and agreements in restraint of trade, ambiguous
agreements, time as the essence of contract, law of refund, quasi-contracts
and principles of damages. Herein an attempt is made to deal with these
topics and to show whether or not any new development concerning these
has taken place.
II. Contracts
In one case,' an enactment defined the term contract in a technical
sense for the purposes of that Act. It was contended that this definition!
was controlled by the definition of this term in the Indian Contract Act. It
was held that the definition contained in the former Act was applicable and
that the Indian Contract Act could not detract from the elements of contract
as defined in the former Act.
The Indian Contract Act has no special provrsions relating to the
formulation of government contracts. However, Articles 299(1) of the
• This survey is confined to first is sections of the Indian Contract Act .

•• M.A., LL.M., J.S.D. (Cornell), Reader in Law, University Law School, Jaiput
(Rajasthan).
1. Perfect Pottery Co. v, S.T. Commr., A.I.R., 1967 M.P. 234.
2. See section 4 (1) of the Central Provinces and Berar Sales Tax Act, 1947.
www.ili.ac.in The Indian Law Institute

166 Annual Survey of Indian Law 1967 and 1968
Constitution prescribes the formality which is required to make a govern-
ment contract valid and enforceable. There have been, during the survey
period, two Supreme Court cases," and a few High Court cases.' In view
of these decisions," an unwritten government contract cannot be implied,
since it is required to be in writing. There can, however, be implications
drawn from the written terms of the contract. The Andhra Pradesh, Mysore
and Orissa High Courts were also concerned with the problem whether in
the cases before them the requirements of article 299(1) were complied
with," While the Andhra Court did not consider it necessary to cite, in
support, any case,? the Mysore and Orissa courts cited cases."
On the question of compliance with article 299(1) of the Consti-

tution, there were developments which show that although there may not
be a formal execution of a deed, a contract in writing or by correspondence
would be a sufficient compliance with the constitutional requirements.
III. Offer and Acceptance
The cases which have arisen regarding offer and acceptance deal with
.the following matters : (a) whether the mechanism of an offer and accep-
tance is necessary for the formation of a contract; (b) what constitutes an
offer; (c) formation of a contract and the question of jurisdiction;
(d) formation of an auction-sale contract; and lastly, (e) the scope of
sections 7 and 8.
The Supreme Court case of Andhra Sugar Ltd. v. State of A. P.,'

indicates a trend away from the traditional way of formation of contract
3. K.P. Chowdhry v. State of M.P., A.J.R. 1967 S.C. 203., Mulam Chand v. State
0/ M.P.• A.I.R. 1968 S.C. 1218.
4. Abdul Rahiman v, Sadasiv A.I.R. 1968 OrL 85; Ahmed Mohiuddin v, G. Malia,
A.I.R. 1967 A.P. 26; Firm Lakshminarayana v. State, A.l.R. 1967 Mys, 156.
5. Supra, note 3.
6. Supra, note 4.
7. The case was decided with reference to the Representation of the People Act,
1951.
8. In Firm Lakshminarayana v. State, supra, note 4, the Court followed the decis-
ion of the Supreme Court in Union 0/ India v, Ralhi Ram, A.I.R. 1963 S.C. 1685. There
the written acceptance was signed as : "For Director of Industries and Commerce on
behalf of the Governor of Madras." Id, at 158 (Madras) In the Orissa case of Abdul
Rahiman v, Sadasiv, supra, note 4~ the court followed the Supreme Court case of K.P.
Chowdhury v. State of M.P., A.J.R. 1967 S.C. 203.
9. A.I.R. J968 S.C. 599 ; see also Indian Steel and Wire Products Ltd. v, State of
Madras. A.I.R. 1968 S.C. 478 ; see also the Calcutta High Court decision in Ghollrom
v. State A.I.R. 1967 Cal. 568.

Law of Contract 167
through offer and acceptance. The Andhra Pradesh Sugarcane (Regulation
of Supply and Purchase) Act, 1961, regulates almost the monopoly of
factory owners to purchase the sugarcane from the cane growers at the
terms dictated by them. The Act disallows the cane growers to make a
direct sale to factory owners. It obliges a factory owner to purchase the
cane offered to him for sale as per the prescribed terms and conditions.
The five-judge bench held that "the (these) agreements are enforceable by
law and are contracts of sale of sugarcane as defined in section 4 of the
Indian Sale of Goods Act."lO
Here the problem arose that if there was a sale of goods, the state
was entitled to tax the sale. Since the pharse sale of goods was passed in
the sense of the Sale of Goods Act, 1930, a contract of sale which included
the formalities of an offer and its acceptance, must exist so that a transaction
may be termed as sale.
In its earlier decision in Madras State v, Gannon Dunkerley P the
Court held that compulsion could not create a valid contract in law. This
earlier decision was explained away in the instant case,1~ by the Court on
the ground that that case did not lay down that where there was a voluntary
offer with an obligation to accept, there was no contract of sale.
The Court admitted that there had been erosion of the philosophy of
laissez-faire in the twentieth century, the Court held that an agreement
made under the compulson of law is not coercion and is, therefore, valid.
It noted that in such a case there is mutual assent and the vitiating causes
such as coercion, undue influence, fraud and misrepresentation or mistake
are absent. But the Court did not refer to the definitions of offer and
acceptance which contemplate willingness on the part of a contracting
party.
The Madras High Court was confronted with the question whether
the words "subject to Madras jurisdiction" printed at the top of the
letter, constituted an offer,"! It was held that it did not, and unless the
offeree made a clear acceptance of it, no contract as to such term was
concluded. The Court also expressed the view that no party could impose
its terms upon the other. This decision cautions that the Court will ascer-'
tain in each case, through examination of the relevant material before it
whether or not there has been an offer or an acceptance.
10. rd. at 604.

11. A.I.R. 1968 S.C. 560.
12. Supra. note 9
13. C. Satyanarayana v. Naraslmham, A.tR.. 1968 AtoP. 330.

In a Mysore case,14 the plaintiff, in response to a call from the
government for tenders, quoted separately rates for two different kinds of
cocoons and deposited Rs, 50/- through challan as required. The
government accepted rates for the one and not for the other. The Court
held that the government's call for tender was an invitation to offer, the
plaintiff's tender was an offer, the government's reply subsequently was an
acceptance. This completed the contract. This analysis is in accordance
with the well-established principles of offer and acceptance as to the tenders
and their application here is sound. Although the judgment does not
mention it, it IS clear that the plaintiff's letter (tender) was not a composite
and integrated offer but a divisible one. Hence the government could
accept the one part and reject the other.
An offer to be capable of acceptance must be definite. It was

thus held 15 that where a person states to the other that he is willing to
purchase the property "at a reasonable price,"l8 it does not constitute an
offer. There is, thus, no question of rejection of it.
In one case," the Delhi High Court had to decide the question of
jurisdiction to try the criminal offence of selling goods obtained under
the actual user's licence. In this case the goods were despatched, under a
.contract, by a firm at Bombay to a firm at Delhi. The proposal was sent
from Bombay and the acceptance, from Delhi. The question before the Court
was where the sale had taken place. The Court held that under section 4
of the Sale of Goods Act, sale is a composite expression and includes
within itself an element of contract, payment of price, passing ofthe title and
delivery of the goods. It further held that since acceptance was despatched
from Delhi, "a part of the agreement of sale, therefore, took place in
Delbi."18 This conclusion is in accordance with the precedents although
the cases were not referred to. 11
In one case," the Patna High Court was concerned with the principles
relating to the formation of an auction-sale contract. The plaintiff made
14. Firm Lakshminarayana v, State, supra note 8. This case also concerned the
question of the compliance with article 299 (1), for which see above.
15. K.S. Thangal v. State, A.I.R. 1968 Ker. 197.
16. Id. at 197.
17. State v. Sinha Govtndji, A.I.R, 1967 Del. 88.
18. u. at 91.
19. Bhagwandas v. Girdharlal & Co., A.I.R. 1966 S.C. 543., Purshottam v, Baroda
Oil Cake Traders, A.1.R. 1954 Born. 491, approved by the Supreme Court in the case
noted herein.
20. Abdul Rahim v, Union of India, A.I.R. 1968 Pat. 433 ; see also the Kerala High
Court case : K.S. Thangal v. State, supra, note IS.

Law of Contract 169
he highest bid to purchase the evacuee property put to auction by the
government. It was accepted, as per rules, subject to approval by the
Settlement Commissioner. The necessary bid amount of 10 per cent was also
deposited, The plaintiff did not hear of the confirmation for six months,
whereupon he withdrew his bid (offer). Analyzing the situations in
auction sales, the court said that the acceptance may be provisional,
conditional or absolute (in which last-mentioned case, the auctioneer must
have absolute authority to accept). Neither provisional nor conditional
acceptance concludes a contract. The court felt that the matter was
clinched by the Supreme Court case of MIs. Bombay Salt and Chemical
Industries v, L.J. Johnsoni" wherein the sale was subject to approval.
There the Court held that unless the sale was approved, there was no
contract,
In the instant case, the court also referred to an American case,22where-

in an offer of reward was acted upon several years after its advertisment
in a newspaper. It was held that this offer had lapsed and could not be
acted upon, although there was no notice of revocation by the offeror.
The Indian Court cited this case merely to show that the highest
bidder was justified in revoking,23 since his bid was not accepted for six
months. It is submitted that the court could, as well, have decided the
case under section 6 (2) of the Indian Contract Act, according to which an
offer expires after the lapse of a reasonable time. It, however, did not
feel it necessary to do so. This case is an application of the above
dictum of the Supreme Court. It also clearly enunciates the well-known
propositions of law concerning auction-sales, which are the same as in
ordinary offers.
A few cases2' concerned with acceptance by conduct involved references

to sections 7 and 8 of the Indian Contract Act, particularly the latter which
is quoted below:
'Performance of the conditions of a proposal, or the acceptance of

any consideration for a reciprocal promise which may be offered with a
proposal, is an acceptance of the proposal.'
21. A.I.R. 1958 S.C. 289.

22. Loring v. City of Boston, (1844) 7 Metcalf 409
23. Supra, note 20 at 438.
24. Gaddermal v. C. Agarwal & Co., A.I.R. 1968 All. 292; Union of India v, MIS
Babula', A.I.R. 1968 Bam. 294; State v. Inderchand Jain, A.I.R. 1968 Pat. 171.

In the Patna case,25 a government notification stated the minimum
charges for the use of electrical energy in terms of the quantity consumed by
industrial undertakings. The respondents continued to consume the energy,
without demur, at least until they filed the suit. It was rightly held that this
amounted to acceptance by conduct. Here this inference was not difficult.
In the Allahabad case,26 the plaintiff sent to the defendant several standard
forms. They were required to be duly signed and then returned. The
defendant returned some of them duly signed, but others were not returned.
The plaintiff had read over to the defendant the prescribed terms, including
the one referring to compulsory arbitration. There "was prior agreement.. i
that the contract forms if not returned unsigned with a letter shall amount
to acceptance of the transactions noted therein."?'
The question before the court was whether the omission of the defen-
dant to return the unsigned contract forms amounted to acceptance under
section 7 of the Indian Contract Act. The court quoted and examined
sections 7 to 9 of this Act. It held that an acceptance may be either express
or implied; an implied acceptance can be made under section 8, which is
merely illustrative and not exhaustive as shown in an earlier decision
of this court in Gaddarmal v, Tata Industrial Bank, Ltd. 28 The
court opined that acceptance can be made in forms other than those in
sections 7 and 8 and gave an example that if the parties agree they could
validly stipulate that all books sent by a bookseller to a person if not retur-
ned by him within three days shall be deemed to have been purchased. A
contract so formed was, in its opinion, neither against public policy
nor vague or unreasonable. It is submitted that the contract in the above
case is implied under section 9, because, as the section declares, in so fat
as such proposal or acceptance is made otherwise than in words, the promise
is said to be implied.
In the other Bombay case,19 the court examined the scope of

section 8 of the Indian Contract Act. Here, through the negligence of the
railway authorities, certain goods were lost. The plaintiff served notice
on the railways. He also stated that the railways were in the habit of
sending cheques for smaller amounts in satisfaction of the full claim and
indicated that he would accept the cheque only as part-payment.
The railways sent the cheque with the usual printed conditions, as expected.
It was held that the plaintiff by his acceptance under these circumstances
25. State v. lnderchand Jain, A.I.R. 1968 Pat . 171.

26. Gaddarmal, v, C. Agarwal 4 Co., supra note 24.
27. Id. at 295.
28. A.I.R. 1927 All. 407.
29. Union of India V. MIS Babulal, supra, note 24.

Law of Contract 111
was not barred by section 63, Indian Contract Act, which deals with
remission of performance of promise. The court stated that here sections
7 and 8 were to be read together. A conditional acceptance under section
7 did not operate as an unconditional acceptance under section 8. The
court examined numerous cases before stating this conclusion.
These cases mark the development of the law of acceptance by conduct

and redefine the scope of sections 7 and 8.
In Subbaya v. V. Krishnas" the court held that there was no accord

and satisfaction unless payment was actually made and accepted; mere
agreement is insufficient.
IV. Consideration
Both the Supreme Court and the High Courts dealt with different
situations under this head.
Q. Equitable Estoppel
In Union ofIndia v, Indo-Afghan Agencies," the question before the
court was whether if a person had acted on the representation or assurances
of the government, the government was bound to honour its assurances.
Without discussing the requirements of a valid contract under article
299 (1) of the Constitution and rejecting the doctrine of executive
necessity, Justice Shah, as he then was, delivering the judgment of the
Court, said :
We are unable to accede to the contention that the executive

necessity releases the Government from honouring its solemn
promises relying on which citizens have acted to their
detriment.P
In this case, the Indo-Afghan Agencies at Amritsar exported woollen

goods to Afghanistan under the Export Promotion Scheme of the govern-
ment which entitled it to an Import Entitlement Certificate of a certain
value. The government, however, granted them a certificate of less value.
The Supreme Court allowed the claim of the Agencies on the basis
of the equitable doctrine, which is different from the doctrine of estoppel
in section 115 of the Indian Evidence Act 1872, which is a rule of
evidence.
30. A.I.R. 1967 A.P. 44.

31. A.I.R. 1968 S.C. 718 (change made from UAnglo" to "Indoh ) .
32. Id. at 723.

Annual Survey of Indian Law 1967 and 1968
The court thus innovated the doctrine of equitable estoppel against

the government if a person had injuriously relied on its assurances or
representations
(b) Past Cohabitation
In D. Nagaratnamma v, Kunuku Ramayya,33 the question of

consideration for past cohabitation arose in connection with the validity
of certain property transactions which had been made by the deceased. Here
a Karta (Manager) transferred the joint family properties by way of sale to
his concubine. On severance of the joint family and after the death of the
Karla the widow and the four sons sought to recover the properties from
the concubine on the ground that the transfer being without consideration
and for immoral purposes was without consideration. It was found that the
transfers were without exchange of any consideration, cash or delivery of
jewels. The High Court 'held that the two deeds, though purported to be
sale-deeds were in reality gifts and were made in view of the past illicit
cohabitation with her, which constituted the motive and not the considera-
tion. The appellant (concubine) contended that her past cohabitation was a
past service and, therefore, a valuable consideration: The Supreme Court
found:
The two agreed to cohabit. Pursuant to the agreement each

rendered services to the other. Her services were given in
exchange for his promise under which she obtained similar
services. In lieu of her services, he promised to give her
services only and not his properties. Having once operated
as the consideration for his earlier promise, her past services
could not be treated under section 2 (d) of the Indian Contract
Act as a subsisting consideration .... 84
Thus while an agreement to transfer property in future would be

void under section 23, there could not be past consideration on the mutual
service theory as in the above case.
(e) Reconveyance Provision

In a Madras case," the question arose whether an agreement to
reconvey property was without consideration and whether the reconveyance
provision amounted to an agreement or merely to a standing offer.
33. A.I.R. 1968 S.C. 253.

34" u. at 254.
35. Board of Revenue v. Annamalai &: Co., A.I.R. 1968 Mad. SO.
36. Safiya Bi v, Shukoor Sahite, A.I.R. 1967 Mad. 375.

Law of Contract 173
Here the plaintiff'sold property to the first defendant for Rs. 8000. On
the same date, the parties entered into a written agreement whereunder the
latter agreed to reconvey the property to the plaintiff, if the right or
option was exercised beyond a fixed date before the expiry of a specified
date, within a specified date, within a space of five years. The vendee,
within the reconveyance period, sold the property to other defendants
with the reconveyance provisions. The plaintiff exercised his option within
time and claimed back the property. Following the decision of the Judicial
Committee in Sakalaguna Naidu v, Chinna Munusami NayakkarP the
court held that the option provision was not a mere standing offer; that
the offeror could not withdraw his offer; it had all the elements of a
completed contract. As to the consideration, it said:
Under such circumstances the sale deed and counter part must
be read as constituting a total system of rights and obligations,
mutually supported by consideration and that, further, the
undertaking to reconvey was specifically enforceable as such."
The Court also referred to its earlier decisions." Regarding the

validity of reconveyance agreements, the court remarked that a situation
of this kind "is well recognised and, indeed, of almost daily occurrence
in courts".S9 This, no doubt, is true. A reconveyance provision being a
contract and not a mere offer can be legally assigned and does not expire
on the death of the offeror or offeree.
d. Promise to Pay Time-Barred Debts

Section 25 of the Indian Contract Act lays down the rule as to the
requirement of consideration and it also provides tbree exceptions to it.
Under sub-section (3), an agreement, though without consideration, will not
be void if:
it is a promise made in writing and signed by the person to be
charged therewith, or by his agent generally or specially
authorized in that behalf, to pay wholly or in part a debt of
which the creditor might have enforced payment but for the
law for the limitation of suits.
In a Patna case," a money-lender filed a suit for the recovery of the
37. A.lR. 1928P.C. 174.

38. Supra, note 36 at 378.
39. ld. at 380 ; see the cases mentioned by the court.
40. Brij Bihar; v, Bir Bahadur, A.I.R. 1968 Pat. 203 ; see also Darga Prasad v, Fateh
Chand, A.I.R. 1968 Cal. 292.

amount due on the basis of an entry in the chitha (account book) which
had been signed by the debtor.
The question was whether this was a mere acknowledgment, without

being a promise to pay under the above section. The court held that it was
a promise to pay, so that the chitha furnished a cause of action, the suit
having been filed more than three years after the date of the original
loan.
In the Madras case,41 the husband of the defendant had executed

a promissory note in favour of the plaintiff. This bond had become
time-barred, and hence, unenforceable. The defendant then executed a
promissory note in favour of the plaintiff in purported renewal of the said
note. It was held that the defendant's note was without consideration and
further the wife was not the agent of the husband under sub-section (3)
above. The Court followed a Bombay case's which was found to be on
all fours with the instant case.
In the Orissa case,43 the plantiff gave a loan of Rs. 5000 to the
deceased on JUly 9, 1951. The latter executed a handnote one or
two days before 9-7-1954. 4' The handnote was renewed by the deceased
on August 9, 1957, after it was barred by time. It was held that the
promisor was entitled to claim aginst the legal representatives out of the
property received by them from the deceased under section 25 (3), since
all its ingredients were satisfied. The court did not discuss the point at
length, nor did it refer to any authority.
Thus both the Supreme Court cases lay down new doctrines which
make a definite development over the existing state of law. At the High
Court level, the situations in some cases were novel but the courts did
not feel any difficulty in the application of the existing law to these.
v, Formality of Writing
Sometimes the agreement between the parties provides for a writing or

further writing. The question arises whether or not a valid and enforceable
contract has come into existence, if the agreement is not reduced to
writing.
41. Perumayammal v. Chinnammal, A.I.R. 1967 Mad. 189.

42. Pestonji v. Bai Meharbai, A.l.R. 1967 Mad. 189.
43. Mawa]i Ramji v, Premji Kumbhabhai, A.I.R. 1967 os. 158.
44. ld. at 159.

Law 01Contract 175
In the Supreme Court case of K. Sriramulu v. Aswatha Narayana,"
except the mode of payment of the purchase price, all the terms had been
agreed upon. The Court held that since all the vital terms as to price, the
total area of land and the time for the completion ofthe sale had been fixed
by the parties, the mere omission to state the mode of payment does not
make the contract incomplete. The following principles emerge from the
decision:
1. The mere fact that the parties provided for a formal written
document is not conclusive proof that they had not yet entered
into a binding contract.
2. The court will look into evidence to ascertain the intention of the
parties as to the binding nature of a provision for writing.
3. If the omission to agree upon certain terms is negligible and

the agreement is otherwise complete in all its vital aspects, the
provision for a formal document may be regarded as recommenda-
tory and not commendatory.
In a Madras case,46 the mechanism of offer and acceptance had been

complied with, but one of the conditions in the invitation to tender by the
government had provided for execution of the agreement on a stamped
paper and had also asked for earnest money. It was held that the Jack of
these two things did not detract from the completion of the contract. Here
the court followed the decisions of the Privy Council." The law on the
subject may be regarded as already settled.
VI. Contract of a Hindu Guardian
The powers of a Hindu guardian, natural or de facto, are now

circumscribed by the Hindu Minority and Guardianship Act, 1956. In a
Madhya Pradesh case," the mother, a natural guardian, entered into a
contract in 1961, on behalf of the minors for the purchase of a house for
Rs, 11,000; Rs. 1000 was paid as earnest money and the balance was to
be paid at the time of the execution of the the sale-deed. Since the vendor
refused to execute the deed, the minors, through the mother (natural
guardian), sought the enforcement of the agreement. The court pointed
45. A.I.R. 1968 S.C. 1028.

46. Firm Lakshminarayana v. State, supra, note 4.
47. Currimbhoy & Co. Ltd. v. L.A. Creet, A.l.R. 1933 P.C. 29 ; Harichand v, Govind
Luxman, A.I.R. 1923 P.C. 47.
48. Ramchandra Y.. Manikchand, A,lR. 1968 M.P. 150.

out that after the passing of the Hindu Minority and Guardianship Act,
1956, under section 8 (2), the powers of a natural guardian to transfer the
minor's property for legal necessity can be exercised only with the permission
of the court. It expressed, therefore, that the dictum of their Lordships of
the Privy Council in Subrahmanyam v, Subba Rao,49 yields to that of the
same court (by Lord Mcnaghten) in Mir Sarwarjan v. Fakhruddin": The
Court, thus held that the agreement could not be enforced at the instance
of the minors.
It is submitted that section 8 (2) of the Hindu Minority and
Guardianship Act refers to sales and not to purchase of properties. And
furthermore even in case of a disposal of property in contravenion of the
above requirement, under sub-section 8 (3), such disposal "is voidable at
the instance of the minor or any person claiming under him." In view of
this, the decision and dictum of the court must be accepted with caution.
In one case," the Delhi High Court left the question open whether
under certain circumstances, the guardian can "bind the minor by a
contract for purchase of shares and whether or not such minor can be
placed on the register of members. "51
VII. Undue Influence

A couple of cases63 were concerned with the law of undue influence.
Section 16 (2) of the Indian Contract Act states:
In particular and without prejudice to the generality of the
foregoing principle, a person is deemed to be in a position to
dominate the will of another:
(a) where he holds a real or apparent authority over the other, or
where he stands in a fiduciary relation to the other; or
(b) where he makes a contract with a person whose mental capacity

is temporarily or permanently affected by reason of age, illness,
or mental or bodily distress.
In one Supreme Court case 54, P, who owned land in two villages, bad
two sons and a daughter. One son, the plaintiff, was childless, and the
49. A.T.R. 1948 P.C. 95.

50. (1912) 39 I A. 1.
51. Golconda Industries v. Companies Registrar, A.l.R. 1968 Del. 170.
52. rd. at 172.
53. Subhas Chandra v. Ganga Prasad, A.I.R. 1967 S.C. 878; Ningawwa v, Byrappa.
A.I.R. 1968 S.C. 956.
54. Subhas Chandra v. Ganga Prasad, Ibid,

Law of Contract 177
other son had a son, Subhas Chandra. The latter son along with his
family bad always been living with his parents and had never been
employed outside the tOWD. The plaintiff was livinig away from his
parents, and was also looking after the property of his father for some time.
P made a deed of gift in favour of his only grandson (Subhas Chandra)
for the love and affection which he had towards the donee and the respect
which the latter had towards the former. Four years after the death of the
donor and eight years subsequent to the transaction, the plaintiff challenged
the validity of the gift. The High Court held that under the circumstances
of the case and the relationship of the parties, the court should have
made a presumption that "the donee had influence over the donor."55
The Supreme Court held that the law of undue influence was the
same in cases of gifts inter vivos and contracts. It did not agree with the
presumption theory of the High Court. It held that all the ingredients of
undue influence as per section 16 must be proved. Looking to the facts
of the case, the Court held that the donee was not in a position to
dominate the will of the donor: the gift by the grandfather to his grandson
of a portion of his property was not, on the face of it, unconscionable.
The Court also took note of the fact that if the second son wanted to use
influence over their father, he would have liked the gift to operate in hill
own name for the son, on attainment of majority, "may have nothing
to do with his father. "58 The view of the Supreme Court that the essentials
of undue influence should be proved and that presumption could not
be raised is, of course, a sound one. There may, however, be a
circumstance, as in the case of husband and wife, where one is in a
dominant position in relation to the other."
VIII. Fraud
In one case," the Supreme Court pointed out that where there is a
fraudulent misrepresentation as to the nature and character of a document,
the transaction is void. If, however, the misrepresentation relates to the
contents only, it is voidable. In this case, a lady had made a deed of gift
in favour of her husband, but the latter fraudulently included a plot in
-the deed which was not intended to be gifted by the donor. The Court
held that the character of the document being the same, the transaction
was merely voidable. The distinction between "void" and "voidable"
55. Id. at 879.

56. [d. at 884.
57. See Ningowwa v, Byrappa, supra, note 53,
~8. Ibid,

here is important in view of different legal consequences which follow in

these two cases.
In one Patna case,s, it was pointed out that the father is in a

fiduciary relation to the daughter, so that he is under a duty, as per
illustration (a) of section 17, to disclose all true facts to her. This is,
doubtless, an established principle of law.
IX. Unlawful Agreements: Public Policy
Section 10 of the Indian Contract Act declares that an agreement is

enforceable if it is made "for a lawful consideration and with a lawful
object" and is not "expressly declared to be void." Under section 23 of
the Act, the consideration or object is unlawful if:
it is forbidden by law; or
is of such a nature that, jf permitted, it would defeat the
provisions of any law; or
is fraudulent; or
involves or implies injury to the person or property of another;

or
the Court regards it as immoral, or opposed to public policy.
The section declares such agreements to be void.
During the survey period, numerous cases arose under section 23,
some were entwined with section 28 and some others with section 65
discussed below at appropriate places. Even with regard to agreements
falling solely within the ambit of section 23 there have been several situa..
tions, many traditional, but some novel.
(a) Transfer Cases

The Supreme Court has held that a contract of pre-emption is not
against public policy." There is, obviously, a long usage sanctioning
pre-emption. In another Supreme Court case," there was an agreement
59. Babui Panmato v, Ram Agya Singh, A.I.R. 1968 Pat. In this case, there was a
fraudulent misrepresentation to the petitioner (the daughter) with a view to "procure her
Consent to the marriage". [d. at 192.
60. Ram Baran v, Ram Mohit, A.I.R. 1967 S.C. 744.
~1. Satappa v. Appayya, A.I.R. t9(j8 S,C, 1358.

Law 0/ Contract 179
between two agriculturists to transfer agricultural land. But if the

agreed land was transferred, the transferee would possess land beyond
the ceiling prescribed in the Bombay Tenancy and Agricultural Lands
Act. The trial court held that if the agreement was enforced, it would
defeat the provision of the Bombay Act. The Supreme Court, however,
held that the object of the agreement was not in itself unlawful, only the
land in excess of the ceiling would vest in the government. In two cases,'1
decided by the High Courts, there were specific enactments which
expressly prohibited transfers. In one of these,63 the defendant who had
a licence to sell liquor in his own name, could not enter into a partnership
to sell liquor because it was a prohibited transfer within the meaning of the
Hyderabad Abkari Act. In the other." a licence under the Indian
Electricity Act, 1910, was held not negotiable. Here the transfer was
prohibited, but no punishment for transfer was provided. The court held
that the provisions of section 23 were, nevertheless, attracted. It also laid
down two more principles: (1) what the law prohibits to be done directly,
cannot be legalised by being done indirectly; (2) the object of the
legislature would be taken in view before knocking the agreement down on
the ground of unlawfulness. An agreement contrary to the policy of the
Act is contrary to public policy. These principles are sound.
Furthermore, a company cannot disclaim its statutory liability to pay

bonus on the basis of a contract with its employees." An agreement between
the co-sharers which leads to peace between them is not against public policy.
Thus where the agreement provided that one of the two co-sharers would
not open a door on the jointly owned plot of land which lies between two
parcels of land belonging to the co-sharers individually, it does not amount
to a surrender of the land to the other, nor does it amount to its usurpation
by the other person."
b. Unlawful Consideration
A promissory note which is based on a wager will not be enforced

for the consideration of the note is unlawful. 67 Again in a Madras case,"
62. Dinshamii v. Abdul Rasool, A.tR. 1967 A.P. 119 ; Murli Prasad v, Parasnath
Prasad, A.I.R. 1967 Pat. 191.
63. Dinshamji v. Abdul Rasool, A.I.R. 1967 A.P. 119.
64. Murli Prasad v. Parasnath Prasad, supra, note 62.
65. U.P. Electric Supply Co. v. n.v. Bowen, A.I.R. 1968 All. 95, see also Administra-
tor H. C. Ltd. v. J.K. Das, A.I.R. 1968 Cal. 146.
66, Chajjulal v. Ram Pal, A.I.R. 1968 AU. 79.
67. Badridas Kothari v. Meghraj Kothari, A.I.R. 1967 Cal. 25.
68. Maniflfa v, MU1!ial1?'nal~ ;\.I.R. 1968 M~~. J92. see also supra, note 33,
,

the defendant executed a promissory note in favour of the plaintiff, a

married woman, ostensibly for past cohabitation, for Rs. 810. It was
held that there was no valid consideration under section 23 of the Indian
Contract Act. The court stated that whether or not the sexual relationship
between the parties constitutes a criminal offence, both these cases fall
within the above section. The court will promote sexual relationship
within the sphere of matrimony.
c. Agreement Stifling Prosecution
I n a Kerala case,69 the secretary of a co-operative society had

disappeared with the money. The executants of a bond, relatives of the
secretary, sought to protect the secretary. The Court found that the
purpose of the bond was that the police authorities to whom the
information had been conveyed should be told by the president, the
holder of the note, that there was no necessity to proceed with the
case. In fact, the president next day, did accordingly. It was held that
the object and consideration of the bond is to muzzle the prosecution.
Hence money could not be recovered on the note. This principle of law is
well-established; here the court referred to numerous decisions, including a
Privy Council case. 70
d. Government Contract and Public Policy
In one Madras case", it has been held that if a government contract

prohibits assignment and sub-letting, the contract of sub-letting does not
become opposed to public policy, nor does such a contract become ilIlegaI.
This is based on the ground that the Indian Contract Act does not treat
the government contracts, either in their formation or in their
enforceability, on any footing different from ordinary contracts. This is,
no doubt, a novel fact situation.ts and the court rightly demarcated the
scope of section 23.
e. Miscellaneous Cases
A lender is not bound to see to the actual application of the money,

whether for causes promoted by law or for causes prohibited by it.
Similary, where a lender has advanced a loan for a purpose which
ostensibly is not prohibited by law, and yet on examination of the
69. Narayana Ptllai v K.R S. Co-op Society, A.I.R. 1967. Kef. 51..
70. Kamuni Kumar v. Briendra Nath, A.T.R. 1930 P.C. 100.
71. Meikole v. Periasami, A.l.R. 1967 Mad. 449.
72. The court did not refer to any case on the subject.

Law of Contract 181
situation he would have known the truth, he will not be debarred
from suing on the note. Thus in an Andhra Pradesh case," the lender
advanced a loan to the borrower for the marriage of the latter's daughter.
This marriage was opposed to the provisions of the Child Marriage
Restraint Act, but the recovery was allowed on the above principle. The
court followed its earlier decision on the subject.
An agreement between the married couple to live separately was held

as no answer to the wife's suit for restitution of conjugal rights. Such an
agreement, whether pre-nuptial or post..nuptial, is opposed to the conditions
of Hindu society and, therefore, it would be void under section 23. 74
x. Agreements Concerning Jurisdiction
One of the agreements of common occurrence relates to the choice of

jurisdiction. Such a situation falls for consideration within the scope of
section 23 and 28, read together. Section 28 reads, in part:
Every agreement, 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, is void to that extent.
This section saves arbitration agreements. In one Patna case," the

issue was whether the suit could be filed at Patna or Bombay. The
parties, no doubt, preferred Bombay. The trial court held that though the
agreement was not barred by section 28, it was against public policy
under section 23. The Patna High Court referred to the decisions of the
Allahabad, Bombay, Calcutta and Madras High Courts and remarked that
the law on the subject was well settled which upheld the above kind of
agreement between the parties. It, however, noted a single decision of the
Madhya Bharat High Court in Dwarka Rubber works v, Chhotelal," which
held to the contrary. But the court dissented from it. In the instant
case therefore, the Patna Court had no jurisdiction. In a case" during the
survey period, the Rajasthan High Court expressed the view that "it has been
73. Punnakotiah v. Kolikmba, A.I.R. 1967 A.P. 83. Here Lakkimsetti Ranganayaku/u
v. B. Narayanaswami, (1958) Andh. L.T. 14 was followed.
74. Thirumal Naidu v. Rajamunal, A.I.R. 1968 Mad. 201.
75. Ajamera Bros. v. Suraj Mal, A.I.R. 1968 Pat. 44.
76. A.I.R. 1956 Madh. B. 120.
77. Singhal Transport v. Jesaram, A.I.R. 1968 Raj. 89.

held in a number of decisions'?" that such an agreement is not contrary

to public policy. This court also dissented from the Madhya Bharat
case referred to above.
A clause in an agreement providing that legal proceedings may be

instituted within three months of the rejection of the claim by the company
is not hit by section 23 and section" of the Act. It was held that a proper
appreciation of section 28 lay in the recognition of the distinction between
extinction of a right and the loss of a remedy. 7P Section 28 barred only
those agreements which took away the right to sue at any time or for a
limited time.
XI. Restraint of Trade
A solitary case decided by the Supreme Court during the survey

period, dealt with the validity of a service clause vis-a-vis the law
relating to restraint of trade." Here the appellant was appointed as shift
supervisor in the type cord division of Century Rayon. He executed
a contract in a standard form, clause 17 of which read as follows:
In the event of the employee leaving, abandoning or resigning

the service of the company in breach of the terms of
the agreement before the expiry or...
five years he shall not
directly or indirectly engage in or carryon ... the business at
present being carried on by the company and he shall not
serve in any capacity, whatsoever or be associated with a person,
firm or company carrying on such business for the remainder
of the said period... 81
There was a further provision as to payment of liquidated damages,

and also the refund of the expenses incurred on the employee's training.
Under an agreement with a West German firm, the company was
committed to secrecy as to technical know-how. The employee received
the training, including technical knowledge, After serving the company for
less than a year, the employee took up a job in a rival concern. The
employer sought the enforcement of the contractual terms. The appellant
(employee) challenged the agreement, inter alia on the ground that it was in
restraint of trade and, therefore, against public policy.
78. Id. at 92.

79. Kasim Ali v. New India Assurance c«, A.I.R. 1968t J. & K. 39 seealso Sodal'"
Singh v. Sham Kaur A.I.R. 1968 Punj. 341, 343.
80. N.S. Golikari v. Century S. and M. c«, A.I.R. 1967 S.C. 1098.
81. u. at 1099.

Law of Contract 183
After an examination of several English and Indian decisions, the

Supreme Court upheld the validity of clause 17. It noted the
distinction between restraints applicable during the period of employment
and restraint applicable beyond the service period. It held that a negative
covenant of the first type is not a restraint of trade within section 27,
unless the contract is unconscionable or one-sided. Clause 17 was thus
held valid and not opposed to public policy. The decision of the Supreme
Court is in accordance with the pre-existing law. Its seal of approval,
however, makes the law certain and authoritative.
XII. Ambiguous Agreements
According to section 29 of the Indian Contract Act, an agreement,

the meaning of which is not certain, or capable of being made certain,
is void.
This is reinforced by appropriate illustrations. A couple of cases

arose during the survey period pertaining to this subject. 82 In a Calcutta
case,83 the parties provided the following arbitration clause:
In case of any dispute arising between the parties, the matter
should be referred to the arbitrators, elected by the parties and
their decision on the subject will be final.
It was held that this provision was vague, since the parties had not
provided for the actual number of the arbitrators, nor was this provision
capable of being made certain otherwise. Hence the clause was
unenforceable. In the Gujarat case,84 a compromise decree, inter alia,
provided:
Each party has to sell to the other respective portions of the

properties which have come to their share as above at a price
fixed by two members of the Panchas when either party wants
to seIl its share."
The court held that the word Panchas meant arbitrators." If the
clause meant that the price had to be fixed by the two arbitrators, one to be
appointed by each party, there would be no ambiguity if one party refuses
to appoint its arbitrator. For, in such a case, under section 9 of the
82. Teamco (P) Ltd. v. T.M.S. Mani, A.I.R. 1967 Cal. 168; Bai Mangu v, Bai rou;
A.I.R. 1967 Guj. 81.
83. Teamco (P) Ltd. v, T.M.S. Mani, A.I.R. 1967 Cal. 168.
84. Bai Mangu v. Bai Vij/i, supra, note 82.
85. [d. at 82.

Arbitration Act, a willing party may appoint a sole arbitrator. Even if

the provision meant that the two arbitrators should be appointed with the
mutual consent of the parties, and if they fail to agree, under section 8 of
the Arbitration Act, the Court may appoint an arbitrator. Hence here
the clause was capable of being made certain.
These two cases illustrate section 29 fully. While a court will

do its best to see that agreements are not struck down if they are capable
of being made certain, it will not make a contract for the parties. These
cases apply the statutory provisions to the facts, but do not constitute any
new development of law.
XIII. Time as of the Essence of a Contract
The Supreme Court case of Gomathinayagam Pillai v, Palaniswami

Nadar,86 was concerned with the question whether in the situation at
hand time was of the essence under section 55 of the Indian Contract Act.
Here in March 1959, the parties made an oral agreement for the sale of land.
They had, however, not fixed the time for completion of the sale. The
sellers received some advance and passed over a receipt therefor to the
vendee. On further receipt of the amount, the vendors executed an
agreement in writing stipulating that the sale would be completed by
April 15, 1959. A default clause was provided for either party. The
vendee defaulted. The Supreme Court by majority held:
1. That the agreement did not either expressly or by necessary

implication make the time as of the essence.
2. That the mere fact that the parties had fixed the time for
completion of the contract did not by itself make time as of the
essence.
3. That the default provision did not unambiguously do so.
4. That in transaction of sale of land there is a strong presumption

as to the time not being vital for performance. There must be
strong circumstances to dispel such a presumption.
5. That if the time was originally not of the essence, the vendors
could send a notice to the vendee that he must perform the
contract within the stipulated time and that failure to do so will
cancel the contract.
86. A.I.R. 1967 S.C. 868.

Law of Contract 18S
In the instant case, the vendors had served no such notice; their
treating the contract as being at an end through a letter was not equivalent
to the above notice.
The defaulting vendee in a suit for specific performance must prove

that he had been ready and willing to perform his part of the contract at
all material times. If he so proves, his delay notwithstanding, a decree of
the specific performance will be gran ted. On the facts, here the vendee's
suit for the specific performance could not be decreed since he was found
not to be ready and willing to perform his part of the contract."
The principles laid down by the Supreme Court will serve as

guidelines to lower courts in India. The fundamental rule of presumption
in case of sale of land was, doubtless, an already established principle.
In a Madras case" reported during the survey period, the same rule
was applied on the basis of a Privy Council decision."
XIV. Frustration of Contracts
Frustration as a mode of discharge of a contract is a well established

principle. In India sections 32 and 56 deal with it. There have been
three Supreme Court cases during the period under review."
In one of these cases." a government notification prohibited future

contracts as to the delivery of sugarcane and gUT from an appointed date,
except with a permit; the outstanding contracts were not affected at all.
The Supreme Court held that mere restraint subject to obtaining of a
permit, was not frustration within the contemplation of section 56 of the
Act. The difficulty in securing a permit was not equivalent to a prohibition
so as to attract this section. This is, no doubt, a correct interpretation.
In the other case,92 the parties agreed to the sale of Pakistan jute,
which was subject to import regulation. On the date of the contract,
87. In his dissenting opinion in this case, Justice Bachawat differed as to the
appreciation of the evidence by the trial court, which had been accepted by the majority
as to the readings and willingness of the vendee to perform his part of the contract.
88. Narayanaswami v. Dhankoti Ammal, A.l.R. 1967 Mad. 220.
89. Jamshed Khodaram v. Burporji Dhunjbhai, A.I.R. 1915 P.C. 83, 84.
90. Mohan Lal v. Grain Chambers, A.I.R. 1968 S.C. 772; Naihati Jute Mills v,
Khyaliram, A.I.R. 1968 S.C. 522; Dhruv Dev v. Harmohinder Singh A.I.R. 1968 S.C.
1024.
91. Mohan Lal v. Grain Chambers, Ibid. See also Umar Noor v. Dayal Saran, A.LR.
1967 All. 253 concerning the obtaining of the sanction of the collector to selJ the
land.
92. Naihati Jut» Mills v. Khyaliram, supra. note 90.

186 Annual Survey 0/ Indian Law 1967 and 1968
there existed a government notification whereunder the import of jute
from Pakistan was restricted to the absolute minimum. The parties had
clearly foreseen the situation and had envisaged that it was the duty of
the buyers to provide the sellers with a licence. Subsequent to this
agreement, another government notification announced that the licence
would be restricted to import one Maund of Pakistani jute as against five
maunds of purchase of Indian jute by the applicant (i.e. in the ratio of 1:5)
and that the latter should not have stock of goods to last for more than
two months. The application of the buyers for licence was rejected on this
last mentioned ground. ]0 other words, due to default of the buyers, the
lincence could not be granted. It was held that both the parties had foreseen
the difficulties involved in obtaining the licence and since there was no
total prohibition to import the goods in question, there was no
frustration.
The court reiterated its earlier view in Satyabrata v. Mugneeram,a

that section 56 lays down "a rule of positive law and did not leave the
matter to be determined according to the intention of the parties. "94
Section 56 does not apply to those cases where the frustrating event arises
under the implication of the contract. In such a case, frustration occurs
because of the contract. Section 32 would be applicable here, but not
section 56. In cases falling under section 56:
The Court can grant relief on the ground of subsequent

impossibility when it finds that the whole purpose or basis
of the contract was frustrated hy the intrusion or occurrence
of an unexpected event or change of circumstances which was
not contemplated by the parties, at the date of the contract."
Thus if the change of circumstances is so fundamental that it goes to

the root of the contract, the contract would be frustrated under section 56.
Both the language of the section and the illustrations appended thereto
support this construction.
In the third case, the Supreme Court settled one of the vexed
problems in the field of frustration of contract. The Court was called
upon to decide whether the doctrine of frustration applied to (agricultural)
leases. In the very peculiar facts of the case, it answered the question in
the negative. Hitherto, the Indian decisions on the subject were not
93. A.I.R. 1954 S.C. 44.

94. Naihati Jute Mills v. Khyaliram, supra, note 90
95. Id. at 527.
96. Dhruv Dev, v. Harmohinder Singh, supra, note 90.

Law 01 Contract 181
uniform. Nor did they comprehensively deal with the problem. The
interrelationship between the relevant provision of the Indian Contract Act
and those of the Transfer of Property Act on frustration of leases of
immovable property was not examined in those decisions.
One, Kanwar Rajendra Singh, being minor, was under the court of
wards, and, owned, inter alia, five squares of land in Okara in the district
of Montgomery. The Deputy Commissioner, Kangra, who managed this
esta te, invited tenders for demising the land on lease for "a period of one
year, namely, for Khariff 1947 and Rabi 1948."97 The plaintiff's tender
was accepted, and he paid the whole of the amount of Rs.l1,125 to the
Deputy Commissioner as per the terms of the tender, before February 1947.
The plaintiff held the leased land in the preceding year also. He continued
with the possession of this land under the present demise. After the
partition of India, the above land went to Pakistan. Due to riots, the
plaintiff and some of his Hindu tenants were forced to migrate to East
Punjab in the month of August, 1947. The plaintiff, thus, could not stay
on in Okara to harvest the Khariff crop which would have been ripe
sometime in September. He, therefore, claimed the refund of the lease
money.
Although the Transfer of Property Act does not as such apply in

the Punjab, its principles are generally applied on the basis of equity.
In this case, the Punjab High Court and also the Supreme Court
did consider the application of the following sub-section of this Act to the
situation at hand, although agricultural leases are outside the purview of
the Act unless the state government extends the Act to such leases.
The trial court decreed the plaintiff's claim under the doctrine of
frustration; the High Court, however, reversed the decree, holding that this
doctrine did not apply to leases, and the Supreme Court, by Mr. Justice
Shah, upheld the High Court decision and dismissed the appeal.
The Supreme Court considered the appeal on the following findings
of the High Court:
After obtaining possession of lands from the Court of Wards
the appellant carried on agricultural operations for Khariff
cultivation and 'partly enjoyed benefit therefrom by taking
fodder etc' ; that the right to the demised land continued to
remain vested in the appellant even after he migrated to India,
97. Courtof Wards v, Dharam Dev Chand, A.I.R. 1961 Puni. 143, before the case
reached the Supreme Court as DhruvDev v, Harmohinder Singh, supra, note 90.

that the lands demised were neither destroyed not had they
become permanently unfit for the purpose of agriculture, and
that there was no agreement-express or implied-that the
rent was payable only if the appellant was able personally to
attend to or supervise the agricultural operations."
In order to appreciate the controversy the following statutory

provisions may be quoted. The Transfer of Property Act, 1882, section
108 (e) provides:
If by fire, tempest or flood, or violence of an army of a mob or

other irresistible force, any material part of the property be
wholly destroyed or rendered substantially or permanently unfit
for the purposes for which it was let, the lease shall, at the
option of the lessee, be void:
Provided that, if the injury be occasioned by the wrongful act

or default of the lessee, he shall not be entitled to avail himself
of the benefit of this provision.
Section 56 (2) of the Indian Contract Act, 1872 reads:
A contract to do an act which, after the contract is made

becomes impossible, or by reason of some event which
the promisor could not prevent, unlawful, becomes void when
the Act becomes impossible or unlawful.
The Supreme Court judgment deals with two points: the relevance
of foreign law in the Indian contractual jurisprudence, and the
applicability of frustration to leases.
The Supreme Court reiterated the view stated in its earlier decision
in Satyabrata Ghose v, Mugneeramr" that section 56 exhaustively deals
with frustration of contract. It expressly overruled the contrary holding
of the East Punjab High Court in Parshotam Das v, Batala Municipality P"
The COUlt, therefore, rightly said that the citation only of American and
Scottish decisions served "no useful purpose'U'" Reference, thus, to
foreign jurisprudence and case law are redundant, if an Indian statute
exhaustively deals with a situation. This theme and warning of the
98. Dhruv Dev v. Harmohinder Singh, supra note 90 at 1025.

99. A.I.R. 1954 S.C. 44. see also Ganga Ram v. Firm [Ram Charan, A.I.R. 1952
s.c, 9.
100. A.I.R. 1949 B.P. 301.
101. Dhruv Dev v, Harmohinder Singh, supra, note 90 at 1026..

Law of Contract 189
Supreme Court on more than one occasion properly delineates the value
of comparative law, which can be made use of only when a case is not
covered by the existing law or when the law is to be reformed.
The Court refused to apply the contractual doctrine of frustration

to a transfer of property under a lease.
XV. Law of Refund

During the survey poriod numerous cases were reported where
the courts held that since the agreements were against public policy or in
contravention of statutory provisions, the refund of money could not be
allowed under section 65 of the Indian Contract Act, which reads:
When an agreement is discovered to be void, or when a

contract become void, any person who has received any
advantage under such agreement or contract, is bound to restore
it, or to make compensation for it, to the person from whom he
received it.
In the Supreme Court case of Sita Ram v, Radha Bai,102 the court
held that if a person is a party to an illegal or fraudulent agreement,
the court will not enforce the agreement at his instance. Nor shall the
court allow him recovery of money except in exceptional circumstances.
In this regard, the Court imported the various exceptions from Anson's
Principles of English Law of Contract and adopted them in the judgment.V"
One such exception, which permits recovery even in case of an illegal
agreement, applies to those cases where the illegal object or purpose has
not yet been carried out and there is a chance of withdrawal, i.e., locus
penitentiae. During the period under review the High Courts of
Allhabad, Andhra Pradesh, Calcutta and Patna applied this last mentioned
principle and denied the remedy of refund to the plaintiff where the
illegal purpose had been executed and the matter had passed beyond the
stage of mere contracts.w-
The law on the subject, though already well established, gets deeper
roots now. And the authoritative pronouncements of the Supreme
102. A.J.R. 1968 S.C. 534.

103. Id. at 537..38.
104. Seetharama Sastry v. N. Ka/war &. Sons, A.I.R. 1968 A.P. 315; R. Pallamsethi
v. D. Sriramulu AJ.R. 1968 A.P. 375 ; Gauri Shanker v. Chandari Girja Prasad. A.I.R.
1967 All. 262 ; Calcutta National Bank v, Rangaroon Tea Co., A.J.R. 1967 Cal. 294,
following lmmani Apparao v. Ramalingamurthi, A.I.R. 1962 S.C. 370; Kuju Collieries v.
Jhar Khan Mines, A.I.R. 1967 Pat. 72.

Court approving the exceptions stated in Anson's book on law of contract

makes the task of the lower courts easier to apply the set principles to the
situations which come before them from time to time.
XVI. Quasi-Contracts
During the survey period a few cases, not of great significance, were
reported in the erea of quasi-contracts. Sections 68 to 72 of the Indian
Cotract Act deal with the principle of unjust enrichment, The cases
discussed below deal with the application of this principle.
In a Madras case,105 a workman at Port Trust, Madras, presumably

lost the use of both of his legs due to the negligence of the cartman, the
cart being "heavily loaded with iron-mesh."106 The cart belonged to the
defendant company. There was a statutory liability on the Port Trust,
under the Workmen's Compensation Act to pay compensation to the
worker, which it did. It then filed a suit against the defendant for recovery
of the amount paid, inter alia, under section 69 of the Indian Contract
Act which reads:
A person who is interested in the payment of money which

another is bound by law to pay, and who therefore pays it, is
entitled to be reimbursed by the other.
Applying this section, the Madras High Court held that it could
not be said that the Port Trust which was under a statutory liability to
pay compensation was "'merely interested"107 in the payment. Furthermore,
although liablity of the defendant to answer for the negligence of his
cartman might exist in law, at the time of payment by the plaintiff (Port
Trust), he was not bound by the law to pay any ascertained amount.
Three other cases dealt with the application of section 72 of the

India Contract Act, where refund is allowed if money is paid by mistake
or under coercion.l'" In a Patna case 109 refund was refused because
it was paid on a void contract, conrary to the policy of the Act. In
a Supreme Court case,110 a bank credited money to the account of a
105. Port Trust, Madras v. Bombay Company, A.I.R. 1967 Mad. 318.
t 06. ld. at 321.
107. ld. at 326.
108. See infra, note 109, 110, 111.
109. Kuju Collieries v. Jhar Khan Mines, supra, note, 104, Here the payment of
premium was prohibited by statutory Jaw.
110. Jammu & Kashmir v. Attar-ul-Nisa AJ,R. 1967 S,C. 540.

Law 01Contract 191
person at the instruction of the government. This resulted in double

payment by mistake. The amount deposited in the account of a third
preson, even if by mistake, cannot be withdrawn without the consent of
such third person. Section 72 was held not applicable, because it applies
"when we are dealing with a case of two persons one paying the money
and the other receiving the money on behalf of the person paying it. "111 In
the Calcutta case,112 the government discovered that it had paid the sales-tax:
by mistake. The basis of its claim for recovery was that the money had
been wrongly paid under the contract. The Calcutta High Court held that
neither section 70 nor section 72, which apply in the absence of contract,
governed the present situation. The Court further opined that if the
contract for payment of sales-tax was made on account of mistake of
law, it did not become voidable therefore.
In an Orissa case,113 where refund was sought against a minor, it was

held on the authority of a Patna case,114 that section 70 did not apply to
minors. The Court omitted to cite a Supreme Court case,115 where the
same view had been earlier expressed.
The above cases do not indicate any marked development on the
subject.
XVfi. Damages and Deposit Money

Sections 73 and 74 of Indian Contract Act deal with the principles
of damages. Dicta of the cases may be stated thus:
1. In case of breach of contract of service by the employer, the

proper remedy is a suit for compensation and not a writ.P"
2. The assessment of damages cannot be based on the economic

policy of the country from where the goods are to be imported.P?
3. An arbitrator should not ignore the principles of assessment

of damages laid down in section 73.118
111. Id. at 542.

112. Union of India v, Lal Chand & Sons, A.I.R. 1967 Cal. 310.
113. D. Gurumurty v. Raghu Podhan, A.I.R. 1967 Ori, 68. See Specific Relief Act Ss.
33 (2) (1963).
114. Bankey Behari Pd. v. Mahendra Pd., A.I.R. 1940 Pat. 324.
115. State of West Bengal v. M!S B.X. Mondal & Sons, A.I.R. 1962 S.C. 779, 789.
116. Boo/ Chand v, Kurukshetra University, A.I.R. 1968 S.C. 292.
117. Naihati Jute Mills v, Khyaliram, supra, note 90.
118. Bungo Steel Furniture v, Union of India, A.I.R. 1967 S.C. 378, see also the
minority judgment.

192 Annual Survey 01 Indian Law 1967 and 1968
4. It has been held in a contract for the sale of land, that where
neither party to the contract is wholly at fault and neither
faultless, no damages can be awarded against the vendor.P"
5. Unless there is a contract to the contrary, damages for breach of

contract are not limited to the cash security deposit.v"
6. Where the consignee received the railway parcel after delay,

expenses incurred by it in sending its representative to Bombay and
on the return journey and on keeping the factory closed cannot be
recovered since these are too remote.P!
All these principles pronounce important points of law of damages;

principle in item 4 seems to have been applied to a relatively novel
situation.
A few cases relate to forfeiture of earnest money. In one case,122 it

was held that unless there is a forfeiture provision, either directly or
indirectly, the deposit cannot be forfeited. In some other cases, the
principle of forfeiture of earnest upon breach by the depositor was stated
to be well established.P" To the date of this writing, however, the law as to
earnest and security deposit has been revolutionized.P'
XVIII. Conclusion
The cases indicate a definite development in the formation of contract

without a voluntary offer and a voluntary acceptance, the compulsion of
law has not been regarded as coercion. The recognition by the Supreme
Court of the doctrines of equitable estoppel, as distinct from the
principle of estoppel in the Indian Evidence Act) and explosion of the
theory of past cohabitation in relation to consideration deserves special
mention. Quantitatively, numerous cases dealt with the question of
public policy and the law of refund.
119. Umor Noor v, Dayal Saran, A.T.R. 1967 All. 253.

120. Bishal Chand v. Chattur Sen, A.I.R. 1967 All. 506.
121. Union of India v. P. W. & G. Mills, A.I.R. 1967 Punj, & Har. 497.
122. R.B. Thakur and Co. v, Shreeram Durgaprasad, A.T.R. 1968 Born. 35.
123. Conservator of Forests v. Sridhara Reddy, A.I.R. 1968 A.P. 198; Halib Ali v.
Ra fikuddin, A.I.R. 1968 A & N. 26. Ram Lal v. Gokalnagar Sugar Mills, A.LR. 1967
Del. 91, 96.
124. r.c. Saxena, Deposite Forfeiture: A Comparative Legal Perspective 12 I.l.L I.
411 (1970).

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LAW OF CONTRACT*

This is an integrated survey relating to the general principle of law

• This survey is confined to first is sections of the Indian Contract Act .

www.ili.ac.in The Indian Law Institute

On the question of compliance with article 299(1) of the Consti-

III. Offer and Acceptance

The Supreme Court case of Andhra Sugar Ltd. v. State of A. P.,'

www.ili.ac.in The Indian Law Institute

10. rd. at 604.

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An offer to be capable of acceptance must be definite. It was

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In the instant case, the court also referred to an American case,22where-

A few cases2' concerned with acceptance by conduct involved references

'Performance of the conditions of a proposal, or the acceptance of

21. A.I.R. 1958 S.C. 289.

www.ili.ac.in The Indian Law Institute

In the other Bombay case,19 the court examined the scope of

25. State v. lnderchand Jain, A.I.R. 1968 Pat . 171.

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These cases mark the development of the law of acceptance by conduct

In Subbaya v. V. Krishnas" the court held that there was no accord

We are unable to accede to the contention that the executive

In this case, the Indo-Afghan Agencies at Amritsar exported woollen

30. A.I.R. 1967 A.P. 44.

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The court thus innovated the doctrine of equitable estoppel against

(b) Past Cohabitation

In D. Nagaratnamma v, Kunuku Ramayya,33 the question of

The two agreed to cohabit. Pursuant to the agreement each

Thus while an agreement to transfer property in future would be

(e) Reconveyance Provision

33. A.I.R. 1968 S.C. 253.

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The Court also referred to its earlier decisions." Regarding the

d. Promise to Pay Time-Barred Debts

In a Patna case," a money-lender filed a suit for the recovery of the

37. A.lR. 1928P.C. 174.

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The question was whether this was a mere acknowledgment, without

In the Madras case,41 the husband of the defendant had executed

Sometimes the agreement between the parties provides for a writing or

41. Perumayammal v. Chinnammal, A.I.R. 1967 Mad. 189.

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3. If the omission to agree upon certain terms is negligible and

In a Madras case,46 the mechanism of offer and acceptance had been

VI. Contract of a Hindu Guardian

The powers of a Hindu guardian, natural or de facto, are now

45. A.I.R. 1968 S.C. 1028.

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VII. Undue Influence

(b) where he makes a contract with a person whose mental capacity

49. A.T.R. 1948 P.C. 95.

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55. Id. at 879.

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here is important in view of different legal consequences which follow in

In one Patna case,s, it was pointed out that the father is in a

IX. Unlawful Agreements: Public Policy

Section 10 of the Indian Contract Act declares that an agreement is

involves or implies injury to the person or property of another;

the Court regards it as immoral, or opposed to public policy.