Contracts

05-06-13

We are aware of Rousseau’s hypothetical theory of the social contract. You are a part of that contract by
just being born as a human being. This social contract helps the society to develop. This is the edifice on
which some of the rights are built. Social contract tells how to enjoy without even entering in a contract. For
example, your human right. That is a right you enjoy inherently as you are born. A complete person is
somebody who can enjoy his rights and fulfil his duties...

Social contract is one of the many theories. But it makes it possible to understand the interdependence of
persons. And this interdependence means that he enjoys his rights and does his obligations. THIS is what
brings ORDERLINESS in the society.

It is this guarantee (which ensures that aggrieves party doesn’t suffer a loss), which gives orderliness,
stability, continuity to the system.

‘Enabling’ in enabling statute means that it does not impose an obligation on you. It gives you the freedom
of choice. In agreements, the rights and liabilities are chosen by the parties themselves. Then, law doesn’t
have any say there. But if you want your agreement to be enforceable, then you must enter into an
agreement which is enforceable under law. So, in other words, contract law enables you to enter into
agreements which are enforceable. There are certain criteria your agreement has to fulfil so that it becomes
enforceable under law.

The consent that you gave while getting into the agreement was free and informed (informed as in ‘every
man should know the pros and cons of his actions and what he is getting himself into’). An uninformed
consent is not consent.

Contract Act allows you to enter into agreements and if they satisfy the criteria given by the law, then they
are enforceable. By virtue of codification, principles and illustrations and sections of contract act are based
on English law.

When you start with strict liability, you start with Rylands v. Fletcher which highlights that you are obligated
towards your neighbour. It doesn’t come from any statute.

Who is your Neighbour? Anybody who may be affected by your actions or omissions is your neighbour.

10-06-13

Contract

The word Contract comes from a Latin word ‘contractus’ meaning to collect, combine or make an
agreement. We have two parties, coming together, wanting to enter into a relationship where they want to
create rights and liabilities.

Agreement – understanding, accord, concurrence. Agreement, bargain, compact, contract all suggest a
binding arrangement between two or more parties. Agreement ranges in meaning from mutual
understanding to binding obligation. Bargain applies particularly to agreements about buying and selling but
also to haggling over terms in an agreement. Compact applies to treaties or alliances between nations or to
solemn personal pledges. Contract is used especially in law and business for such agreements as are
legally enforceable settlement, treaty, and pact.

Definition

S.10 – What agreements are contracts?

All agreements are contracts if they are made by the [free consent of parties][competent to contract],
for a [lawful consideration] and with a [lawful object], and are [not hereby expressly declared to be
void].

->Agreements that are acceptable, alone will be treated as contracts.

Nothing herein contained shall affect any law in force in India, and not hereby expressly repealed, by which
any contract is required to be made in writing or in the presence of witnesses or any law relating to the
registration documents.

->you can enter into oral contracts concerning any matter. Conduct of parties can determine whether a
contract is in existence or not.

11-06-13

Equal Bargaining position – every party had an equal opportunity to bargain.

Consensus and idem – two minds that are identical not similar.

First step towards an agreement is an ‘offer’. In definitions, the term we use is ‘proposals’. Section 2 (a)
deals with proposal.

When a person signifies his willingness or abstains from doing something, with a view to get the assent of
the other

1. Signifying to another his willingness, readiness, desire, capacity,

2. To do or abstain from something.

3.

Section 2(b) refers to Promise – comes into existence when a proposal gets accepted.

When a person to whom the proposal is made, signifies his assent thereto, the proposal is said to be
accepted.

Section 2(c) – Person making the proposal is “promise” or “offerer”. Person accepting the proposal is
“Promisee” or “offeree”.
S 2(a) Proposal

When one person signifies to another his willingness to do or abstain from doing anything, with a view to
obtaining the assent of that other to such act or abstinence, he is said to make a proposal.

->there has to be communication.

->there has to be a show of willingness i.e. it should be definite.

->concurrence of that other

If these elements are not there, it is not a proposal. If it is not a proposal then it cannot be converted into a
promise in the later stages.

S 2 (b) Promise

When a person to whom the proposal is made, signifies his assent thereto, the proposal is said to be
accepted. A proposal, when a accepted, becomes a promise.

S 2 (c)

The person making the proposal is called the “promisor”, and the person accepting the proposal is called
“promisee”,

Promise coupled with consideration makes a legally enforceable contract. The element of consideration
makes the promise an enforceable agreement.

S, 3 – Communication, acceptance and revocation of proposals

The communication of proposals, the acceptance of proposals, and the revocation of proposals and
acceptance, respectively, are deemed to be made by any act or omission of the party proposing, accepting
or revoking, by which he intends to communicate such proposal, acceptance or revocation, or which has
the effect of communicating it. Comment [I1]: Revocation can be
implied by party’s conduct. The only
question is whether the other party
S. 9 – Promise understands it.

Express and implied

- In so far as the proposal or acceptance of any promise is made in words, the promise is said to be
express.
- In so far as such proposal or acceptance is made otherwise than in words, the promise is said to be
implied. Comment [I2]: It’s a conduct here. You
may enter into a contract by conduct.

Upton-on-Severn RDC v. Powell

[1942] 1 All ER 220

 Df entitled to free service from Pershore fire brigade, called the police and asked for ‘the fire
brigade’. The police thought he lived in the Upton district and sent the Upton brigade, who came
thinking ‘that they were rendering gratuitous service in their own area’. The df also thought he
was getting a free service.

12-06-2013

S. 4 – Communication when complete

A proposal is not a valid one unless it is not communicated properly to the offeree.

The communication of a proposal is complete when it comes to the knowledge of the person to whom it
is made.

 III: (a) A proposes, by letter, to sell a house to Bat a certain price. The communication of the
proposal is complete when B receives the letter.

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 (acceptance) comes to the knowledge of the proposer.

III; (b) B accepts A’s proposal sent by a letter sent by post.

The communication of the acceptance is complete,

As against A when the letter is posted;

As against B, when the letter is received by A

*Check illustration on back page of notebook dated 12-06-13.

17-06-13

When an offer is made, the offerer is the one who is to choose the means of communication. Agent of
the offerer. Practically, it doesn’t make any sense, handing over the acceptance to the agent of the
offerer.

Adams v. Lindsell

The postal rule was laid down in this case of Adams v. Lindsell.

Entores v. Miles Far East Corporation

 18-06-13

Lalman Shukala v Gauri Datt

 Allahabad High Court (1913) 11 ALJ489

Df’s nephew absconded – he sent servants to different places in search – later issued handbills to
pay Rs. 501 to anyone finding the boy – boy traced by the Pl, Df’s munim – Pl came to know of the
offer after tracing the boy – claimed reward.
In this case offer never came to the knowledge of the offeree. As he was unaware of the offer while
searching the boy, he wasn’t entitled to the reward.
For you to accept something, you should be aware of it.
R v. Clarke
 (1927) 40 CLE 227
Just because you know the offer, doesn’t mean you’ve accepted it.
Aurstralian Govt. Announced reward off 1000 pounds – anyone giving info about murderes – if
accomplice – to get pardon
Pl – to get pardon – gave info –later – sued for getting reward
Held – cannot recover
Consensus ad iden
At the time of giving info, only thing in his mind was pardon and not reward.

INTENTION TO CONTRACT
 Balfour v. Balfour
 [1919] 2 KB 571
Mr. Balfour was a civil engineer, and worked for the Government as the Director of Irrigation in Ceylon.
Mrs. Balfour was living with him. In 1915, they both came back to England during Mr. Balfour’s leave. But
Mrs. Balfour got rheumatic arthritis. Her doctor advised her to stay, because a jungle climate was not
conducive to her health. As Mr. Balfour’s boat was about to sail, he promised her 30 pounds a month until
she came back to Ceylon. They drifted apart, and Mr. Balfour wrote saying it was better that they remain
apart. In March 1918, Mrs. Balfour sued him to keep up with the monthly 30 pounds.
 The court of appeal unanimously held that there was no enforceable agreement, although
their reasoning differed.
 Jones v. Padavatton
 [1969] 1 WLR 328 Court of Appeal
A mother promised to pay her divorced daughter $200 per month if she gave up her job in the
US and went to study for the bar. The daughter was reluctant to do so at first as she had a well
paid job with the Indian embassy in Washington and was quite happy and settled, however, the
mother persuaded her that it would be in her interest to do so. The mother’s idea was that the
daughter could then join her in Trinidad as a lawyer; she was fond of the grandson. This initial
agreement wasn’t working out as the daughter believed the $200 was US dollars whereas the
 mother meant Trinidad dollars which was about less than half what she was expecting. This
meant the daughter could only afford to rent one room for her and her son to live in. The mother
then agreed to purchase a house for the daughter to live in. The mother then agreed to
purchase a house for the daughter to live in. She purchased a large house so that the daughter
could rent out other rooms and use the income as her maintenance.
5 years – the daughter then remarried and didn’t complete her studies. Mother sought
possession of house. Question for the court was whether there existed a legally binding
agreement between the mother and daughter or whether agreement was merely a family
agreement not intended to be binding.
 Decision – the agreement was purely a domestic agreement which raises a presumption that the
parties do not intend to be legally bound by the agreement. There was no evidence to rebut this
presumption.

Objectivity Test
 Simpkins v. Pays
 [1955] 1 WLR 975 Queen’s Bench Division
 A grandmother, granddaughter, and a lodger entered into a weekly competition run by the
Sunday Empire News. The coupon was sent in the Grandmothers name each week and all
three made forecasts and they took it in turns to pay. They had agreed that if any of them won
they would share the winnings between them. The grandmother received 250 pounds in the
prize money and refused to share it with the other two. The lodger bought the action to claim
one third of the prize money.
 There was a binding contract despite the family connection as the lodger was also a party to
the contract. This rebutted the presumption of no intention to create legal relations.

Family matters – intention to create legal obligation – depends on parties. Comment [I3]: This is a presumption. A
REBUTTABLE presumption.

 Merritt v. Merritt
 [1970] 1 WLR 1211 Court of Appeal
 A husband left his wife and went to live with another woman. There was 180 pounds left owing on
the house which was jointly owned by the couple. The husband signed an agreement whereby he
would pay the wife 40 pounds per month to enable her to meet the mortgage payments and if she
paid all the charges in connection with the mortgage until it paid off he would transfer his share of
the house to her. When the mortgage was fully paid as she brought an action for a declaration that
the house belonged to her.
 The agreement was binding. The Court of Appeal distinguished the case of Balfour v. Balfour on the
grounds that the parties were separated. Where spouses have separated it is generally considered
 that they do intend to be bound by their agreements. The written agreement signed was further
evidence of an intention to be bound.

19-06-13
Commercial Relation – intention is to create legally binding obligation – presumption
 Edwards V Skyways
 [1964 1 WLR 349 Court of Appeal
 The claimant was an airline pilot working for the defendant. He was to be made redundant. The
defendants said that if he withdrew his contributions to the company pension fund, they would
pay him the equivalent of company contributions in an ex gratia payment. The claimant agreed
to this and withdrew his contributions. The company then ran into further financial difficulty and
went back on their promise relating to the ex gratia payment.
 The agreement had been made in a business context which raised a strong presumption that the
agreement is legally binding. The claimant could therefore could enforce the agreement and was
entitled to the money.

Parties intention important – in commercial transactions too

Rose and Frank Co v Crompton Bros

[1925] AC 445 House of Lords
 The claimants and defendants entered an agreement for the supply of some carbonised tissue
paper. Under the agreement the claimants were to be the defendant’s sole agents in the US until
March 1920. The contract contained an honourable pledge clause which stated the agreement was
not a formal or legal agreement and shall not be subject to the jurisdiction of the courts in either
England or US. The defendants terminated the agreement early and claimants brought an action of
breach,
The honourable pledge clause rebutted presumption which normally exists in commercial agreements.

Position in India? - Not very clear

 Banwarilal v. Sukhdarshan Dayal

 [1973] 1 SCC 294
 Auction of plots of land – through loudspeakers- one of the plots to be reserved for Dharamshala
– later sold to private party – other purchasers seeking restraint
Chandrachud J :
“Microphones.....have not yet acquired notoriety as carriers of binding representations. Promises held out
on loudspeakers are often claptraps of politics. In the instant case, the announcement was, it at all, a
puffing up for sale.”

Comment [I4]: ITS A GENERAL

Offers must be made to specific persons – generally PRINCIPLE
  Weeks v. Tybald
 [1605] Noy 11 ; 74 E.R. 982
 Df told the public that – whoever marries his daughter with his consent – would give 100 pounds
 The defendant “affirmed and published that he would give 100 pounds to him that should marry
his daughter with his daughter with his consent”
 Pl did so and sued.
 Held – not bound – the court held that “It is not reasonable that the defendant should be bound by
such general words spoken to excite suitors.”

 Carlill v. Carbolic Smoke Ball Co. Comment [I5]:

-Almost 300 year old judgment in Weeks v.
[1892] 2 QB 484 Tybald was overruled.
-Strong arguments given by the Court.
Carbolic Smoke Ball Co (def) promises in an ad to pay 100 pounds to any person who contracts flu after
using smoke ball.
Calrlill (plaintiff) uses the ball but contracts flu + relies on ad.
Issue: Was there a binding contract between the parties?
A contract requires notification of acceptance – Did Mrs. Carliull notify Carbolic of the acceptance of the
offer? Did Mrs. Carlill consideration in exchange for the 100 pound reward?

The defendant – following arguments to demonstrate the ad was not an offer:

1. The advert was a sales puff and lacked intent to be an offer.
2. It is not possible to make an offer to the world.
3. There was no notification of acceptance.
4. The wording was too vague to constitute an offer since there was no stated time limit as to catching
the flu.
5. There was no consideration provided since the ‘offer; did not specify that the user of the balls must
have purchased them.

Held- The court of appeal – entitled to the reward ad the advert constituted an offer of a unilateral contract
– accepted by performing the conditions stated in the offer:
Court rejected all arguments put forward by the defendants for the following reasons:
1. The statement referring to the deposit of 1000 pounds demonstrated intent and therefore it was not
a mere sales puff.
2. It is quite possible to make an offer to the world.
3. In unilateral contracts there is no requirement that the offeree communicates an intention to accept,
since acceptance id through full performance – conduct.
4. Whilst there may be some ambiguity in the wording this was capable of being resolved by applying
it to only those who caught flu whilst still using the balls.
5. The defendants would have value in people using the balls even if they had not been purchased by
them directly. Comment [I6]: Act of consideration.

Accepting by conduct : The offer is by conduct and the acceptance is by conduct.

20-06-13

S, 8 – Acceptance by performance conditions, or receiving consideration

Performance of the conditions of proposals, for the acceptance of any consideration for a reciprocal
promise which may be offered with a proposal, is an acceptance of the proposal. Comment [I7]: Consideration is
generally the benefit that you derive. It is a
much broader concept.

 Harbhajan Lal v. Harcharan Lal

 AIR 1925 AIL. 539
 A young boy ran away from his father’s home. The father issued a pamphlet offering a reward of
Rs. 500 to anybody who would bring the boy home. The plaintiff saw the boy at a railway
stations and sent a telegram to the boy’s father.
 The handbill was an offer open to the world at large and was capable to acceptance by any
person who fulfilled the conditions contained in the offer. The plaintiff substantially performed
the conditions and was entitled the reward offered.

Offer – invitation to treat – Dt

 Harvey v Facey – [1893] AC 552 Privy Council

 Harvey sent a Telegram to Facey which stated: -
“Will you sell us Bumper Hall Pen? Telegraph lowest cash price – answer paid”
Facey replied by telegram: -
“Lowest price for Bumper Hall Pen 900 pounds.”
Harvey then replied:-
“We agree to buy Bumper Hall Pen for the sum of nine hundred pounds asked by you. Please send
us your title deed in order that we may get early possession.”
 The Privy Council held that there was no contract concluded between the parties. Facey had not
directly answered the first question as to whether they would sell and the lowest price stated was
merely responding to a request for information not an offer. There was thus no evidence of an
invitation that the telegram sent by Facey was to be an offer.

Pharmaceutical Society of Great Britain v. Boots [1953] 1 QB

401 Court of Appeal
 Boots introduced the then new self service system into their shops whereby customers would pick
up goods from the shelf put them in their baskets and then take them to the cash till to pay. The
Pharmaceutical Society of Great Britain brought an action to determine the legality of the system
with regard to the sale of pharmaceutical products which were required to be sold in the presence of
a pharmacist. The court thus needed to determine where the contract came into existence.
  Goods on the shelf constitute an invitation to treat not an offer. A customer takes the goods to the till
and makes an offer to purchase. The shop assistant then chooses whether to accept the offer. The
contract is therefore concluded at the till in the presence of the pharmacist.

24-06-13
McPherson v. Appana
AIR 1951 SC 184
 The plaintiff offered to purchase a lodge owned by the defendants for Rs. 6000. He wrote to the
defendant’s agent asking whether his offer has been accepted and saying that he was prepared to
accept any higher price if found reasonable.
The agent replied: “Won’t accept less than rupees ten thousand”.
The plaintiff accepted this and brought a suit for specific performance.
 It was held that the defendants did not make any offer or counter-offer but he was merely inviting
offers. There was no assent to the plaintiff’s offer to buy at Rs. 10,000 and therefore, no concluded
contract. Comment [I8]: The purpose here is to
give a stage before the offer so that you
communicate about the offer so that you
get time to think. It should be treated as
 Catalogues and display of goods info – info which may be contributing in
future for the offer.

 Offers have to be certain.

Acceptance – 2(b): When a person to whom the proposal is made, signifies his assent thereto, the proposal
is said to be accepted.
 Some overt act showing acceptance is a must – may be express or implied
 Brogden v. Metropolitain Railway (1877) 2 App. Cas. 666
 The claimants were the suppliers of coal to the defendant railway company. They had been dealing
for some years on an informal basis with no written contract. The parties agreed that it would be
wise to have a formal contract written. The defendant drew up a draft contract and sent it to the
claimant. The claimant made some minor amendments and filled in some blanks and sent it back to
the defendant. The defendant then simply filed the document and never communicated their
acceptance to the contract. Throughout this period the claimants continued to supply the coal on
new terms and received payments on new terms.
 Dispute arose – question whether the written agreement was valid
 Held – acceptance not express – but by CONDUCT. Comment [I9]: 2(b): ... can be express
or implied

Hindustan Co-operative Insurance Society v. Shyam Sunder

AIR 1952 Cal 691

 Oral understanding to insure – Co. informed – if he submitted proposal form and deposited half
yearly premium – would be accepted
 Submitted cheque and proposal – Co. Cashed the cheque – not replied the acceptance – proposer
had lied
 Held – accepted by conduct.

Insurance contracts are contracts ubberimae fidei. Insurance contracts are a different class.

Communication of acceptance – must be to the offeror

Felthouse v. Bindley

[1862] EWHC CP J35 Court of Common Pleas

 Paul the uncle and John the nephew were negotiating about a sale of farming stock. Following a
misunderstanding about the price of a horse, the uncle wrote to the nephew saying, “If I hear no
more about him, I consider the horse mine at 30 pounds 15 shillings.” The nephew did not reply but
told the auctioneer that the horse had been sold. The uncle then sued the auctioneer in conversion
– an action in which P claims that D had improperly dealt with his property.
 Although the nephew intended the uncle to have the horse, he had done nothing to communicate
this intention to the uncle, or to bind himself. Therefore there was no contract to pass the property to
pass the property in the horse to the uncle.
 Silence cannot be regarded as assent by the offeror.

Communication must be from the acceptor himself

Powell v. Lee (1908) 99 LT 284

 Powell had applied for the position of headmaster – told by one of the board members that he had
been successful – The board changed its mind and appointed another person
The question – whether there is a contract between Powell and the school board – could Powell sue
for breach of contract.
 Held – by one of the board members passing information to – did not amount to the acceptance of
an offer either by the offeree or its authorised agent – no acceptance by the board – no contract
was ever formed – no grounds to sue for breach of contract

Acceptance must be in prescribed mode

Eliason v. Henshaw

(1819) 4 Wheaton 225, Supreme Court (US)

  D offered to buy a quantity of flour from P, and wrote asking for a reply “by return of wagon”. P
replied by post to D’s other address, which took considerably longer, by the time the letter arrived D
had already bought from other sources all the flour he needed.
 Three things were amiss:
-The contract was not accepted within the proper time –not sent back by the wagon;
-The contract was not accepted in the right place – the acceptance should have been sent back to
Harper’s Ferry, not to Georgetown; and
-The contract was not accepted by the contract manner – should have been sent by wagon, but it
was sent by mail
-Finding it is perfectly reasonable for Eliason to have dictated the terms of acceptance, he finds no
contract was created and hence no breach.

Offeree must follow the terms of the offeror (time/place/ manner of acceptance) for an
acceptance to be valid and binding.
Or an equally effective mode. Comment [I10]: This the facts and
circumstances may decide.

25-06-13
Indian Law
S.7. Acceptance must be absolute
 In order to convert a proposal into a promise the acceptance must-
 (1) be absolute and unqualified
 (2) Be expressed in some usual and reasonable manner, unless the proposal prescribes the
manner in which it is to be accepted. If the proposal prescribes a manner in which it is to be
accepted; and the acceptance is not made in such a manner, the proposer may, within a reasonable
time after the acceptance is communicated to him, insist that his proposal shall be accepted in the
prescribed manner, and not otherwise; but; if he fails to do so, he accepts the acceptance.

SurendraNath v. Kedarnath
1935, 161 IndCas 224
 Offeror - prescribing that acceptance to be sent to a particular person
 Offeree – instead of writing, met him in person and communicated acceptance
 Held – Sufficient

When is contract concluded?

Adams v Lindsell
(1818) 106 ER 250
 The defendant wrote to the claimant (Sep 2) offering to sell them some wool and asking for a reply
‘in course of post’. The letter was delayed in the post – reached on Sep 5 – On receiving the letter
the claimant posted a letter of acceptance the same day. However, due to the delay – reached the
 df on Sep 9 – the defendant’s had assumed the claimant was not interested in the wool and sold it
on to a third party on Sep 8. The claimant sued for breach of contract.
 Df claimed – acceptance not received before Sep 8 – so not binding
 Valid contract came in existence the moment the letter of acceptance was placed in the post
box.
 This case established the postal rule.
 - this applies where post is the agreed form of communication between the parties and
 -the letter of acceptance is correctly addressed and carries the right postage stamp. The
acceptance then becomes effective when the letter is posted.

Household Fire and Carriage Accident Insurance Company (Ltd) v. Grant

(1879) 48 LJQB 577

 Df – applied for allotment of shares – letter of allotment at his residential address – posted in due
time – never reached the df – df never paid for the shares – however the dividends that accrued to
him were put in his account.
 Later Co. Went to liquidation – claimed the share money
 Held – contract was valid when the letter was posted – bound to pay

This is a reiteration of the judgment given in Adams v. Lindsell.

Indian Law S. 4 – different from English law

Ramdas Chakrabarti v. Cotton Ginning Co. Ltd

(1887) 9 ALL 36

 Letter of allotment of shares – claimed to be posted – not received

 “it follows from this (section 4 and 5) that a notice of allotment, which is the acceptance of the offer
to purchase shares, is communicated to the allotee when it is dispatched, and from that moment
there is a complete contract for him – Whether he receives the letter or not is absolutely immaterial. Comment [I11]: Reiteration of English
position.
 But here – no evidence of posting – no contract.

Entores v. Miles Far East Corp.

[1955] 2 QB 327 Court of Appeal

 The claimant sent a telex message from England offering to purchase 100 tons of Cathodes from
the defendants in Holland. The defendant sent back a telex from Holland to the London office
accepting that offer. Comment [I12]: In Adams v. Lindsell,
the means of communication was post. But
 The question for the court was at what point the contract came into existence. as technology advanced, there was a
change. We can see that in this case. Here,
 If the acceptance was effective from the time the telex message was sent the contract was made in we are dealing with instant messages.

Holland and Dutch law would apply.

 If the acceptance took place when the telex message was received in London then the contract
would be governed by English law.
  To amount to an effective acceptance, the acceptance to be communicated to the offeree.
Therefore, the contract was made in England. Comment [I13]: It seems like they
were more interested in retaining their
jurisdiction over that matter.

Acceptance – absolute and unqualified

Hyde v. Wrench

(1840) 49 ER 132 Chancery Division

 The defendant offered to sell a farm to the claimant for 1000 pounds. The claimant in reply offered
950 pounds which the defendant refused. The claimant then sought to accept the original offer of
1000 pounds. The defendant refused to sell to the claimant and the claimant brought an action for
specific performance.
 There was no contract. Where a counter offer is made, this destroys the original offer so that
it is no longer open to the offeree to accept.

Perala Krishnayyan Chetti v. Padmanathan Chettiar

(1917) Madras

 Df wrote to the pl on the 17th of October 1909 – to send 15 or 20 bags of areca nuts “at once”. Pl
wrote on the 28th October that he would send the goods within 15-20 days – No reply from the df –
25 bags of nuts sent by the pl on the 1st of December. The defendant refused to take delivery of
them.
 No absolute or unqualified acceptance – offeree- by asking for time – made a counter
proposal.

Acceptance – must be of the whole of the offer – not any part Comment [I14]: Either you take it as a
whole or you leave it all. Offeree cant pick
and chose.
Ramanbhai v. Ghasi Ram

[1918] Bom. LR 595

 The applicant applied for shares in a company on the condition that he should be appointed a
branch manager of the company. Shares were allotted to him but he was not appointed the branch
manager.
 Did not appoint him – claimed share money
 Held – he was not bound by the allotment – part acceptance – no acceptance

Inquiry of terms of proposal – not rejection Comment [I15]: Just because the
offeree asks for some information that
doesn’t mean...
Stevenson Jaques & Co. V. McLean

(1880) 5 QBD 346

  Offer to sell steel for a particular price offer open till the following Monday – offeree enquired on
Monday – whether delivery can be made over a period of two months – offeror treated this as
rejection and to others.
 It was only an enquiry – not a counter proposal – offer still open for acceptance

Counter proposal may be accepted

 If acceptance of an offer – is qualified – proposer may be bound – if he indicates by his conduct that
he has accepted the qualification.

Hargopal v. People’s Bank of Northern India Ltd.

A.I.R. 1934 Lahore 515

 Application for shares on condition that applicant would be made permanent Director of a Local
Branch – shares allotted without fulfilling condition
 Applicant accepted dividend and even pledged his shares. Comment [I16]: Which shows that he
was making a counter proposal.
 Held – applicant accepted his position as a shareholder – by his conduct waived the
condition

26-06-13

Provisional acceptance

- Standing offer Comment [I17]: There may be

situations where multiple transactions may
 Tenders – same as quotation of price – when tender approved – becomes a standing offer – have to be entered into by a party. If so, he
may consider some conditions to be pre
contract arises only when an offer is placed. decided.

Bengal Coal Co. V. Homee Wadia & Co.,

(1899) ILR 24 Bom 97

 A agreed in writing to supply coal to B at certain prices and upto a stated quantity, or in any
quantity which may be required for a period of 12 months.
 Orders placed – complied by df – before 12 months – withdrew offer – refused to comply
with further orders – sued for breach
 Held – mere continuing offer – accepted by B from time to time by ordering goods upon the
terms of the offer – each order is an acceptance of the offer – A can withdraw the
offer/revoke the proposal, at any time before its acceptance by an order from B – only has to
fulfil orders already placed.

- Not even necessary to place orders

Madho Ram v. The Secretary of State for India

(1934) 36 BOMLR 246

  Plaintiff agreed to supply so much oil of sorts as the officers specified “may require, subject to the
conditions set forth in this tender and in the schedule annexed thereto military – never placed any
order”
 Sued for breach as military places orders to others – difference in price – sought as damages
 Held – no remedy

Cambata Aviation Ltd. And Anr. v .Cochin International Airport

AIR 1999 Ker 368

 Evaluation Committee found applnt to be more competent tender – BoD (Board of Directors)
selected another tenderer without any reason – and then asked him to match the applnt
 Followed Tata Cellular v. UOI, (1994) 6 SCC 651 – The right to refuse the lowest or any other
tender is always available to the Government. But, the principles laid down in Article 14 of the
Constitution have to be kept in view while accepting or refusing a tender. There can be no question
of infringement of Art 14 if the Government tries to get the best person or the best quotation. The
rights to choose cannot be considered to be an arbitrary power. Of course, if the said power is
exercised for any collateral purpose the exercise of that power will be struck down.
 Held – procedure violative of natural justice.

Article 299- Government contracts

____________________________________________________________________________

01-07-13

Lapse off an Offer – Acceptance must be made before the offer lapses

S. 6 Revocation how made

A proposal revoked-

(1) By the communication of notice of revocation by the proposer to the other party;
(2) By the lapse of time prescribed in such proposal for its acceptance, or, if no time is so prescribed,
by the lapse of a reasonable time, without communication of the acceptance;
(3) By the failure of the acceptor to fulfil a condition precedent to acceptance; or
(4) By the death or insanity of the proposer, if the fact of the death or insanity comes to the knowledge
of the acceptor before acceptance.

S. 5 Revocation of Proposals and Acceptance

 A proposal may be revoked at any time before the communication of its acceptance is complete as
against the proposer, but not afterwards.
 An acceptance may be revoked at any time before the communication of the acceptance is
complete as against the acceptor, but not afterwards.
 Illustrations: Comment [I18]: Illustrations to the
sections are important. They have
 A proposes, by a letter sent by post, to sell his house to B. statutory importance.

 B accepts the proposal by a letter sent by post.

 A may revoke his proposal at any time before or at the moment when B posts his letter of
acceptance, but not afterwards.
 B may revoke his acceptance at any time before or at the moment when the letter communicating it
reaches A, but not afterwards.

Henthorn v. Fraser

[1892] 2 Ch. 27

 offer to sell property to pl. For 750 pounds – option to accept within 14 days –
 Next day – pl at 3.50 p.m. – sent his acceptance by post – reached the df at 8.30 p.m.
 but – at 1.30 p.m. – df had posted letter revoking offer – pl received it at 5.30 p.m.
 revocation – held ineffective

Nutakki Sesharatanam v. Sub-Collector, LA, Vijayawada and Others

1992 (1) SC 114

 landowner offering land for acquisition for a lump sum price – withdrew the offer before the govt.
Offr prepared award of acceptance
 Held – withdrawal was good

 Even where offeree has option to accept within a fixed no. of days – the offer can be revoked before
that. But – if it is for some consideration – offeror cannot cancel it before the expiry of that
period – irrevocable

Mountford v. Scott

[1975] 1 A.I.R. 198 (C.A.)

 Pl given an option to buy property for 10,000 pounds within six months – 1 pound given as
consideration – df wanted to revoke
 Held – sufficient consideration – offer cannot be revoked for that period

02-07-13

Communication of revocation of an offer – must be from the offeror himself

S. 6 Revocation how made – A proposal is revoked –

(1) By the communication of notice of revocation by the proposer to the other party;
  But, in England – enough that offeree is aware that the offer is revoked
 Dickinson v. Dodds (1876) 2 Ch D 463
 Df made an offer to sell a property – offer open till a particular date and time – before its expiry the
pl was informed by a Third party that the property was sold to anr
 Pl – before expiry of time – accepted the time
 Held – offer withdrawn – when sale to anr came to the knowledge of pl. Comment [I19]: In English law, the
offeree should know the revocation of the
offer from anywhere unlike Indian law.

Revocation of a bid – can be revoked before it is accepted or is subjected to confirmation

Union of India v. Bhimsen Walaiti Ram

[1970] 2 S.C.R. 594

 Df won for a liquor shop – paid 1/6 of the cost upfront – bid to be finalized by the financial
commissioner – not done – df failed to pay the remaining amount – commissioner ordered a re-
auction – less money was realized – pl sued to recover the shortfall.
 Held – commissioner not given his final approval for the bid – communication of acceptance – not
complete against the df – free to withdraw or revoke his proposal (i.e. the bid) Comment [I20]: 1)Provisional
Acceptance which on later stages is
subject to
2)Confirmation

Lapse of Time

Ramsgate Victoria Hotel v. Montefiore

(1866) LR Ex 109

 Df offered to purchase shares at a certain price in June – no time prescribed – November – claimant
accepted his offer – the value of the shares had fallen – action for specific performance of the
contract.
 Held – offer was no longer open – nature of the subject matter – offer had lapsed after a reasonable
period of time.

Standard forms of contract – contrats d’ adhesion Comment [I21]: No question of pick

and choose or bargain. Take it or leave it
type situation.
L’Estrange v. Graucob

[1934] 2 KB 294 Court of Appeal

 A lady purchased a cigarette vending machine – signed an order form – in small print ‘Any express
or implied, condition, statement of warranty, statutory or otherwise is expressly excluded’ – machine
totally defective – claimant sought to reject it – for not being of merchantable quality.
 Held – in signing the order form she was bound by all the terms contained in the form irrespective of
whether she had read the form or not.
Unfair – so courts have evolved some rules to cover such case

 Reasonable notice
Henderson & others v. Stevenson
 1875 2 R (HL) 71
 A condition on the back of a steamer ticket excluded liability for loss of luggage – nothing on the
front of the ticket and – attention was not drawn to the conditions on the back of the ticket – steamer
sank – action for lost luggage.
 Held that the exclusion clause was not incorporated into the contract. The notice of the clause was
not adequate therefore it was not included in the contract.

Parker v. South Eastern Railway Co.

(1877) 2 CPD 416

 Plaintiff – deposited a bad in a cloak room at the df’s railway station – received a paper ticket which
read “SEE BACK” – other side were printed several clauses including “The company will not be
reasonable for any package exceeding the value of 10 pounds” – bag could not be found – claimed
24 pounds 10 shillings as the value of his bag – and the company pleaded the limitation clause in
defence.
 In the court of appeal, Mellish LJ gave the following opinion:
 If the person receiving the ticket did not see or know that there was any writing on the ticket, he is
not bound by the condition;
 If he knew there was writing, and knew or believed that the writing contained conditions,
then!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

Document must be of a “contractual kind” – not binding otherwise

Chapelton v. Barry UDC -> Urban District Council

(1940) 1 KB 532

 Council provide deck chairs on beach – beside stacked chairs, notice – “Barry Urban District
Council. Cold Knap. Hire of chairs. 2d. Per session of 3 hours”
 Appellant – two chairs from the attendant – payment of the fee – two tickets – on the back of tickets:
“....the Council will not be liable for any accident or damage arising from hire of chair.” – glanced –
kept in pocket
 Chair broke – appellant injured – appellant said he was not aware of the condition
  Held – ticket issued too late – no more than a receipt for payment – appellant entitled to assume all
conditions of hire were on notice near the stack of chairs – not bound by the condition printed on the
back of the ticket – entitled to recover.

Thornton v. Shoe Lane Parking Ltd

[1971] 1 All ER 686

 Pl injured in a car park partly due to the df’s negligence – given a ticket on entering the car park
after putting money into a machine – ticket stated – contract of parking was subject to terms and
conditions – displayed on the inside of the car park – one of the terms – excluded liability for
personal injuries arising through negligence.
 The question for the court was whether the term was incorporated into the contract i.e. had the df
brought it to the attention of the pl before or at the time the offer and acceptance took place in
relation to the machine
 Held – the machine itself constituted the offer – acceptance was by putting the money into the
machine – ticket dispensed after the acceptance – therefore the clause was not incorporated into
the contract.
 The contract not binding.

But if signed – may be bound as in L’Estrange v. Graucob

 Unfair to bind – gives a person freedom – to exclude himself from liability

 Most of these exclusion clauses – very wide and all pervasive – leaving no remedy to the other
party
 Courts have carved out exceptions
- Doctrine of fundamental breach
- Terms are unreasonable
- Terms are misrepresented

Misrepresentation

Curtis v. Chemical Cleaning and Dyeing Co.

[1951] 1 KB 805 Court of Appeal

 Pl took her wedding dress to the cleaners – asked to sign a form – asked the assistant told her that
it excluded liability for “any damage to the beads” – form in fact contained a clause “excluding all
liability for any damage howsoever caused” – dress returned badly stained.
 Held – assistant had misrepresented the effect of the clause – therefore could not rely on the cause
in the form even though the claimant had signed it. Comment [I22]: What is written down
can be misrepresentated orally.

Oral assurances prevailing over

Mendelssohn v. Normand Ltd.

[19770] 1 QB 177

 Person parked his car – attendant told him not to lock – valuables in the car – attendant gave
assurance that he would lock it – stolen – owner had excluded liability for loss of contents
 Still held liable.

Unusual terms – should be brought to notice clearly Comment [I23]: Terms that are not
found in general transactions.

Interfoto Picture Library v. Stilletto

[1989] QB 433

 Claimants had a photo library – df in advertising – advanced some transparencies to df for perusal –
get back to them as to which photos he would like to use – package of the photos contained a
document stating that if any transparencies – kept longer than 14 days – 5 pounds + VAT holding
fee would be charged per photo per day – df had not read this document – forgot about the
transparencies – failed to return them for 6 weeks – claimants brought an action claiming a holding
fee of 23, 783 pounds
 Held – where condition is onerous or unusual – clear, fair and reasonable methods should be made
to bring it to the other party’s attention – here condition unreasonable and extortionate Comment [I24]: Onerous and unusual
terms.

Notice should be contemporaneous

Olley v. Marlborough Court

[1949] 1 KB 532

 Couple rented a room paying a week’s rent in advance – inside the room – notice that the hotel will Comment [I25]: Notice INSIDE the
room.
not be responsible for articles lost or stolen unless handed to managers for safe custody – fur coat
stolen.
 Held – df liable – notice not part of agreement

03-07-13

Fundamental Breach

 A rule of construction – by ascertaining parties’ intention

Davies v. Collins

[1945] 1 All ER 247

 Plm gave his uniform for cleaning – condition – all orders accepted at owner’s risk – not liable for
damage, shrinkage, colour or defects developed in necessary handling – liability for loss – limited to
an amount not exceeding ten times the cost of cleaning
Comment [I26]: -The fact that it was
 Df sent uniform for cleaning to sub contractor – not returned – pl claimed full value given to sub contractor was taken as a
fundamental breach.
 Held - liable -Once it comes under fundamental
breach, any exemption clause becomes
ineffective.
Alexander v. Railway Executive

[1951] 2 All ER 442

 Luggage deposited at parcel office – received ticket – condition – exempt4ed from liability for
misdelivery or loss of article exceeding 5 pounds unless special charges were paid.
 Df allowed pl’s friend to take away luggage
 Held – liable – allowing unauthorised person to take it away – essential part of the executive’s duty
– to take care of deposited goods.

Gibaud v. Great Eastern Railway Co

(1921) 2 KB 426, CA

 A cycle deposited at a station of the defendant railway company (dfrly co) – not in fact taken to the
cloakroom – left in the booking hall itself – stolen
 Company – held – protected by the clause in the ticket which exempted the company from liability.
 The Court of Appeal could find no fundamental breach as it was no part of the contract that the
cycle should be necessarily stored in the cloakroom.

Hollins v. Davy (J) Ltd.

(1963) 1 QB 844

 Pl’s car was garaged at the df’s garage – one condition – exempted the df from loss or misdelivery –
one of the pl’s former servants successfully persuaded the attendant to deliver the car to him telling
him that he had been authorized by the pl.
 Held not liable – attendant made the innocent mistake in believing in the holding out by the servant
– but if the attendant had delivered to a complete stranger, there would have been fundamental
breach.

Suisee Atlantique Societe D’Armement Maritime, S A v. N V Rotterdamsche Kolen Centrale

(1966) 2 All ER 61

 Df’s chartered pl’s ship for carriage of coal from US to Europe for two years – contract set out the
rates of loading – also provided that in case of any delay in loading – also provided that in case of
any delay in loadoing the df’s would have to pay demurrage at the rate of 1000 pounds a day – df’s
caused delays – pl claimed that the contract was repudiated but nevertheless, without prejudice to
their rights – allowed the df’s to use the ship – at the end of the term they claimed damages for the
delays in excess of the demurrage clause
 Held – no fundamental breach – could have repudiated – but did not – so contract in force –
including the demurrage clause

What is Fundamental Breach?

  Lord WILBERFORCE: These expressions are used in the cases to denotes two quite different
things, namely:
 (1) A performance totally different from that which the contract contemplates
 (2) A breach of contract more serious than one which would entitle the other party merely damages
and which (at least) would entitle him to refuse performance of further performance of the contract.
 - If fundamental or total breach means a departure from the contract, the question will arise how
great a departure and if it means supply of a different thing, the question will be how different?
 And added: “No formula will solve this type of question, and one must look individually at the nature
of the contract, the character of the breach and its effect on future performance and the expectation
and make judicial estimation of the final result”

Harbutt’s Plasticine Ltd v. Wayne Tank and Pump Co. Ltd.,

[1970] 1 QB 447 CA

 Df’s – agreed to design and install equipment for storing and dispensing stearine in a molten state
at a factory – df’s specified durapipe, a form of plastic pipe – in fact this was wholly unsuitable for
the purpose – it burst at the very first testing leading to a fire – destroyed the factory – df’s had
limited their liability under the contract for accident, etc. To 2, 330 pounds – pl’s loss – much greater
 Held – df’s guilty of fundamental breach – could not avail of the limitation clause – liable for the cost
of reinstating the factory
 Must look not merely at the quality of a breach but also results – if the result of brach is the total
destruction of the subject matter of the contract - (factory in this case) – then the contract is
automatically at an end with all its exceptional clauses

Unreasonable terms

Lily White v. Mannuswami

AIR 1966 Mad 13

 Laundry receipt contained a condition that the customer would be entitled to claim only 50 per cent
of the market price or value of the article in case of loss. The plaintiffs new sari was lost.
 Held – the term would place a premium upon dishonesty in as much it would enable the cleaner to
purchase new garments at 50 per cent of their price, and that would not be in public interest.

Central Inland Water Transport Co. v. BN Ganguly

AIR 1986 SC 1571

 Contract of employment – terms providing for removal of permanent employees without enquiry –
unreasonable – the applicability of the expression ‘public policy’ on the touchstone of Section 23 of
the Indian Contract Act and Article 14 of the Constitution.

04-07-13
Unfair Contract Terms Act, 1977

 A party who commits breach of his contract cannot take the advantage of any clause in the contract
which either excludes or limits his liability – if there is any provision in the contract to the effect that
“no performance” or “substantially different performance” will be taken as equivalent to performance
– void. Comment [I27]: There is

 The effect – it is no longer necessary for the courts to resort to “fundamental breach” – same result
can be attained by resorting to the test of the reasonableness under section 11 of the Unfair
Contract Terms Act.

Geroge Mitchell (Chesterhall) Ltd. v. Finney Lock Seeds ltd.

[1983] 2 All ER 737

 Pl farmers – ordered a quantity of seeds from seed merchants – sellers knew that the seeds should
be for winter white cabbages fit for human consumption – supply – on standard terms – limited
liability in case of defective goods to replacement or refund of price – seeds grew into unusable
weeds – not anything fit for human consumption
 Dfs were not allowed to claim the protection of the exemption clause – held liable for the pl’s loss
 The plaintiffs had based their claim on fundamental breach and requirement of reasonableness –
HL rejected the common law ground of fundamental breach, and founded themselves exclusively

 UK – Unfair Terms in Consumer Contracts Regulations 1999 implements the EC Directive 93/13/EC
on unfair Terms in Consumer Contracts

 Regulation 8 makes an unfair term non-binding on the consumer. Schedule 2 provides a non
exhaustive blacklist of contractual terms which are regarded as unfair. This list includes clauses
which unilaterally alter the terms of a contract and which limit the ability of the consumer to exercise
his rights for legal remedies.

 In addition to the 1993 EC directive, the unfair contract act terms 1977 renders exclusion clauses
invalid or subject to a reasonableness test.

 Other legislation such as the Consumer Credit Act 1974, Road Traffic Act 1988 in respect of
compulsory insurance, Public Passenger Vehicle Act 1981, Landlord and Tenant Act 1985,
Consumer Protection Act 1987 on Product Liability, and other Acts of Parliament restrict or avoids
exclusion clauses which are bad for consumers.

Strict Construction

 Especially where the exemption clause is so widely expressed to make it unreasonable.

John Lee & Son (Grantham) Ltd. v. Railway Executive [1949] 2 All ER 581

 Goods were stored in a railway warehouse let to a tenant – damaged by fire – accident – due to
negligence because a spark ejected from railway engine – clause in the tenancy agreement –
exempted them for loss of or damage to property however caused (whether by act or neglect of the
company or their servants or their agents or no) which ‘but for the tenancy hereby created would not
have arisen’. The company was nevertheless held liable. The court was of opinion that the words
“but for the tenancy hereby created” were confined to liabilities which arose by reason of the
relationship of landlord and tenant.

Contra proferentem rule

 Where the words are capable of bearing a wider as well as a narrower construction, the narrower
construction would be preferred and against the party who has inserted the exemption clause.

Houghton v. Trafalgar Insurance Co. Ltd.

[1953] 2 All ER 1409

 Car insurance policy – excluding liability for loss or damage arising while car was carrying ‘excess
load’ – accident – total loss of car – five seater – carrying six persons
 Held – any doubt about the word ‘excess load’ – to be construed in favour of the assured

UNIFORM COMMERCIAL CODE (U.C.C)

ARTICLE 2 – SALES

2-302. UNCONSCIONABLE contract or term:

(1) If the court as a matter of law finds the contract or any term of the contract to have been
unconscionable at the time it was made the court may refuse to enforce the remainder of the
contract without the unconscionable term, or it may so limit the application of any unconscionable
term as to avoid any unconscionable result.
(2) If it is claimed or appears to the court that the contract or any term thereof may be unconscionable
the parties shall be afforded a reasonable opportunity to present evidence as to its commercial
setting, purpose, and effect to aid the court in making the determination.

Exemption clause vis a vis third parties

 Where goods are supplied or services rende3red with exemption clauses – cannot bind third
parties.

Haseldine v. CA Daw & Son Ltd

[1941] 2 KB 343
  Contract to maintain and repair a lift – exemption clause – third party injured due to bad repairs
 Held – liable for tort of negligence

Norwich City Council v. Harvey

[1989] 1 WLR 828 Court of Appeal

 Pl employed main contractor to construct an extension to its building – a standard form contract to
its building – a standard form contract – provided that – building and extension would be at the sole
risk off the pl as regarded loss or damage by fire – roofing works were subcontracted to the second
df – on the same terms and conditions – dfs employee – carelessly set fire to the building and
extension – pl claimed damages in tort for loss caused by the df’s negligence.
 Held – sub contractor would also be entitled for protection - even on negligence
 As far as tortuous liability – no close relationship between owner and sub contractor – to owe a duty
of care

103rd report of the LCI – Unfair Terms in Contract

CONSIDERATION

S. 2 (d) - When, at the desire of the promisor, the promisee or any other person has done or
abstained from doing, or does or abstains from doing, or promises to do or abstain from doing,
something, such act or abstinence or promise is called a consideration for the promise;

Ex nudo pacto non oritor atio – out of a nude agreement no cause of action arises. Comment [I28]: An agreement without
consideration is a nude agreement.

The other party can go to the court if he has given the consideration.

At the desire of the promisor

 Promissory Estoppel Comment [I29]: Stopped from

denying.

Durga Prasad v. Baldeo (1880) 3 All 221

 Order from Collector – Pl built some shops – occupied by df – who agreed to pay a commission on
articles sold – as the pl had spent money on construction – pl’s action to recover commission.
 Rejected – as built on Collector’s order and not at the desire of the df

-Acts done at request

Kedarnath v. Gorie Mahomed

14 Cal. 64

 Subscription for building a Town Hall at Howrah – public subscription – df. Subscribed for Rs. 100 –
on its faith, pl entered into contract for building – df failed – contented no consideration
  Held – act of pl – at the desire of df – so as to constitute consideration within s. 2 (d) –
 “the subscriber by subscribing his name says, in effect: ‘In consideration of your agreeing to enter
into a contract to erect or yourselves erecting this building, I undertake to supply the money to pay
for it up to the amount for which I subscribe my name.’”

08-07-13

-promises of charitable nature

District Board of Ramnad v. DK Mahomed IbrahimSahib

AIR 1933 Mad 524

 A sum of rs. 5000 was promised by the defendant as personal contribution for the purpose of
construction of a bridge.
 Held liable to pay following KedarNath-

“a promise to pay a subscription becomes enforceable as soon as anyh definite steps have been taken
in furtherance of the object and on the faith of teh promised subscription”

DoraswamyIyer v. ArunachalaAyyar

AIR1936 Mad 135

 Trustees of a temple sought to recover a contribution promised by a subscriber to a subscription list

for the repairs of a temple – subscription list was raised as more money was required for the work
already started – df subscribed rs. 125.
 No request by the subscriber when he put his in the list for rs. 125 to the pl. To do the temple
repairs or any undertaking by them to s anything – a bare promised unsupported by consideration. Comment [I30]: A promise by itself is
not enforceable. It is enforceable IFF it is
supported by consideration.

Errington v. Errington and Woods

[1952] 1 KB 290 Court of Appeal
 Father in law purchased a house and paid 250 pounds as a wedding gift – remaining 500
pounds in mortgage instalments – promised the couple – if they paid the mortgage instalments –
would transfer the house to them – died – mother inherited – son went to live with his mother –
wife refused and continued to pay the mortgage instalments – mother brought an action to
remove the wife from the house.
 Held – father could not have revoked the promise once the couple had begun performing the act
– father made a unilateral contract – could not be revoked once they began performance, but
would cease to bind him if they did not perform their side – payment of the mortgage formed the
consideration in the agreement.
 Page no 104 correct facts

Promissory Estoppel Comment [I31]: You’re stopped from

going back on your promise.
  A representation made to another about a fact (not law), based on which the other person alters his
position to his detriment. In such case the person who made the representation cannot alter his
position. Comment [I32]: There can be no
misrepresentation of law. Because
 Also called ‘equitable Estoppel’, ‘quasi Estoppel’ and ‘new Estoppel’. everyone is supposed to know the laws.

 Basis of this doctrine – equity – stepped in to mitigate the rigours of strict law
 Relying on the representation – acted on it – changed or altered his position – generally to his
detriment (may not be required in all circumstances)
 The principle of Estoppel in India – also a rule of evidence
 Section 115 of the Indian Evidence Act, 1872
 115, Estoppel –
‘When one person has, by his declaration, act or omission, intentionally caused or permitted
another person to believe a thing to be true and to act upon such belief, neither he nor his
representative shall be allowed, in any suit or proceeding between himself and such person
or his representative, to deny the truth of that thing.’

-Justice must not just be done; it must be seen to be done.

People around should be convinced that justice had really be done.

09-07-13

Privity of Contract / Privity of Consideration

Only the person who knows the contract should be the person who, if at all a dispute arises, is allowed to
come to seek help??
Locus standi
English law: Only the promisee gives consideration
Indian law: the promisee and any other person may give consideration
S. (d) : When.... the promisee or any other person....

Dutton v. Poole (1677) 83 Eng. Rep. 523 (KB)

 Father planned to sell wood to raise a dowry for his daughter – eldest son – to inherit the wood,
interceded and promised the father that he would provide for the daughter, if he would not sell the
wood – father agreed – the son failed to pay – daughter sued him – argued that the consideration
did not proceed from the daughter and that she was not in Privity.
 Held liable – though not privy to contract or consideration

Tweddle v. Atkinson Comment [I33]: Foundation of the

Privity rule.

[1861] EWHC QB J57 QBD

 A couple - getting married – father of the bride – agreement with the father of the groom – they
would each pay the couple a sum of money – father of the bride died without having paid – father of
 the son also died – so unable to sue on the agreement – groom made a claim against the executor
of the bride’s father’s will
 Held – groom was not party to the agreement and the consideration did not move from him – not
entitled to enforce the contract
 No stranger to the consideration can take advantage of the contract – even if the sole object was to
secure him a benefit.

And that’s how consideration and Privity of contract are intertwined.

Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge& Co. Ltd. Comment [I34]: Concept of Privity was
developed.
Begin English courts begin with the Privity
(1915) AC 847 HL rule but make exceptions.

 Dunlop tyres – wanted to maintain a standard resale price – agreed with its dealers (Dew and CO)
not to sell the tyres below its recommended retail price – dealers to get the same undertaking from
their retailers (Selfridge) – if sold below the list price – have to pay 5 pounds a tyre in liquidated
damages to Dunlop – Selfridge sold the tyres at below the agreed price, Dunlop sued for injunction
and damages.
 Held – could not sue
 Doctrine of Privity requires that only a party to a contract can sue
 Doctrine of consideration requires a person with whom a contract is only able to enforce it if
there is consideration from the promisee to the promisor.
 Doctrine of agency requires that the principal not named in the contract can only be sued if
the promisee was contracted as an agent.

Privity of Consideration – not relevant in India

Chinnaya v. Ramayya (1882) 4 Mad. 137

 An old lady, by a deed of gift, made over certain property to her daughter D, under the direction that
she should pay her Aunt, P (sister of the old lady), a certain sum of money annually. The same day
D entered into an agreement with P to pay her the agreed amount. Later, D refused to pay the
amount on plea that no consideration had moved from P to D.
 Held – P was entitled to maintain suit as consideration had moved from the old lady, sister of P, to
the daughter D.

Privity of contract – has been subjected to criticism

Beswick v. Beswick [1968] AC 58 House of Lords

 Peter Beswick – coal merchant – agreed to sell his business to his nephew – respondent –
condition – employ him and pay a certain a sum of money for as long as lived, and then to pay his
 wife (the appellant) 5 pounds per week for the rest of her life after he died – died – nephew only
paid his aunt once – she was also the administratrix of her husband’s will.
 Held – aunt has no right to sue her nephew in her own capacity – not a party to the contract –
overturning Denning’s findings in CA (court of appeal) allowing third parties to sue for benefits that
were guaranteed to them under a contract – However, in her capacity as the administratrix – able to Comment [I35]: Executors or
administrators of a will.
sue him for the specific performance of his promise that was made in the contract.
 In the Court of Appeal Lord Denning MR held that Mrs. Beswick was entitled to claim in her capacity
as a third party intended to benefit from the contract:
-“Where a contract is made for the benefit of a third person who has a legitimate interest to
enforce it, it can be enforced by the third person in the name of the contracting party or
jointly with him or if he refuses to join, by adding him as a defendant. In that sense and it is a
very real sense, the third person has a right arising by the way of contract.”

 House of Lords disagreed with Lord Denning MR – held that Mrs. Beswick in her capacity as Mrs.
Beswick’s administratrix (i.e. the person representing someone’s estate who dies without a will)
could enforce the nephew’s promise to pay Mrs. Beswick an annuity – Furthermore, Mrs. Beswick
was entitled to specific performance of the contract.
 Contracts (Rights of Third Parties) Act 1999 – gives a general right to enforce the benefit of a
contract when one was either expressly identified as being able to enforce it, or one was intended to
benefit.

Same result was arrived at, but by a different way.

Jamna Das v. Ram Autar Pandey (1912) 14 BOMLR 1

 A borrowed Rs. 40,000 – mortgaging her right over property from B – later sold to C for Rs. 44000 –
allowed C to retain Rs. 40000 – to redeem the mortgage, if necessary
 B sued C for recovery of mortgage amount – did not succeed – as not party to agreement between
A and B.

Khwaja Muhammad v. Hussaini Begum

(1910) 32 All 410

 H sued her father-in-law K to recover Rs. 15, 000 being the arrears of allowance called Kharchi-i-
Pan dan – Betel box expense – payable to her by K under an agreement made between K and H’s
father in consideration of H’s marriage to K’s son D – Both H and D were minors at the date of
marriage.
 The Privy Council held the promise to be enforceable by H. Their lordship observed that in India
where marriages are contracted for minors by parents and guardians, it might occasion serious
injustice if Common Law doctrine of Privity of contract was applied.

SubbuChetti v. ArunachalamChettiar
AIR 1930 Mad 382

 Sale deed of Rs. 3500 – stipulation that Rs. 1200 be paid to pl – pl tried to enforce – held – not a
party
 “Where all that appears is that a person transfers property to another and stipulates for payment of
money to a third person, a suit to enforce that stipulation by the third party will not lie.”

MC Chacko v. SBT

AIR 1970 SC 504

 Highland Bank indebted to SBT on an overdraft – MC Chacko was Manager of HB – his father
guaranteed payment of overdraft – father gifted properties to members of family – gift deed
provision – liability, if any, on guarantee – must be met from MC Chacko’s share of the gift – SBT
tried to rely on this provision of gift deed to fix responsibility on MC Chacko.
 Held – SBT – not being a party to deed – cannot enforce its provisions

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Exceptions to the rule of Privity:

1. Beneficiaries under a trust

RanaUmaNath v. Jang Bahadur AIR 1938 PC 245 Comment [I36]: Privy Council

 Father – appointed son as successor – put in possession of entire property – son agreed with
father to pay a certain sum of money and give a village to J, an illegitimate son of the father on
his becoming major – son later refused – J filed a suit.
 Held – a trust was created in his (J) favour – entitled to maintain the suit

Gregory and Parker v. Williams

(1817) 3 Mer. 582

 Parker owed money to both G and to W – agreed with W to assign him whole of his property if W
would pay the debt due to G – property duly assigned – W failed to implement his promise
 Held – P must be regarded as a trustee for G – latter ‘derived an equitable right through the
mediation of P’s agreement’

Green v. Chelsea Borough Council

(1954) 2 Q.B. 127

 Husband took premises on licence – wife injured as the ceiling gave away. Question – whether wife
could sue
 Was allowed to sue the owner in her own right as a beneficiary
 2. Marriage settlement, partition or other family arrangements
Rose Fernandez v. Joseph Gonsalves
(1924) 25 BOMLR 1035
 Girl’s father into an agreement with the df for her marriage with the df – girl became major
and sued when df refused to marry – on the ground of breach of promise
 held – entitled to sue though not a party to the agreement

Veeramma v. Appayya

AIR 1957 A.P. 965

 Daughter and her husband – agreement with father – to look after the mother and maintain her – if
father’s property is conveyed to them – later refused to look after – mother sued for specific
performance
 Held – entitled to sue – though not a party

3. Estoppel / Acknowledgement

You hold it out (giving an impression to a third party) to a third party, you’re not going back.

DevarajaUrs v. Ram Krishniah

AIR 1952 Mys 109

 A sold his house to B – asked B to retain a portion of sale consideration – to pay off C to whom he
was indebted – B made a part payment to C – telling him that it was from the amount left by A and
that remaining would be remitted – later failed.
 Held – acknowledgment by B to C the liability – suit by C was maintainable.

4. Covenants running with the land

Smith and SnipesHall Farm Ltd. v. River DouglasCatchment Board

[1949] 2 KB 500

 River Douglas catchment board – agreed with a number of landowners on the banks – to carry out
some work if some contribution to the cost was given – Mrs. S, one of the covenantees, sold her
land to Smith – in 1946 – burst of banks, and flooding farmland – claim against the Board for
damages in tort and breach of contract – question was whether – not having been privy to the
original agreement – bar to any recovery
 Court of appeal – held that the board was in breach of the contract, and that the breach caused
damage to the farm.
Tulk v. Moxhay

(1848) 41 ER 1143

 In 1808 – Tulk, the owner of several parcels of land in Leicester Square – sold a plot to another
party – a covenant to keep the Garden Square “uncovered with buildings” such that it could remain
a pleasure ground – Over the following years the land was sold several times over to new parties,
eventually to the df – df was aware of the covenant at the time of purchased – refused to abide by
the covenant as he claimed he was not in Privity of contract and so was not bound by it.
 Held subsequent purchaser – with notice – bound by the covenant

Past C onsideration:

English law – says that past consideration is not a good consideration. A future promise cannot be made
on something that is in the past.

In ReMcArdle

(1951) Ch 669 Court of Appeal

 A wife and her three grown up children lived together in a house – wife of one of the children did
some decorating – later the children promised to pay her 488 pounds and they signed a document
to this effect – no payment made Comment [I37]: -At the time the
promise was made, decoration had
 Held – the promise was unenforceable as all the work had been done before the promise was made already been done.
-Every promise must be supported by a
and was therefore past consideration. fresh consideration

Lampleigh v. Braithwait

[1615] EWHC KB J17

 Df had killed a man and was due to be hung for murder. – asked the claimant to do everything in his
power to obtain a pardon from the King - claimant went to great efforts and managed to get the
pardon requested – defendant then promised to pay him 100 pounds for his efforts – never paid up
 Held – while the promise to make payment came after the performance and was thus past
consideration – the consideration was proceeded by a request from the defendant which meant that
the consideration was valid – df was obliged to pay the claimant 100 pounds Comment [I38]: This was done at the
request of the promisor. So, it should be
treated as an executed consideration.
In these two cases, we can see the difference between past consideration and executed consideration.

India – Section 25

S. 2 (d) - When, at the desire of the promisor, the promisee or any other person has done or
abstained from doing, or does or abstains from doing, or promises to do or abstain from doing,
something, such act or abstinence or promise is called a consideration for the promise;

In Indian law, past consideration is a good consideration.

S. 25 – Agreement without consideration, void, unless it is in writing and registered or is a promise
to compensate for something done or is a promise to pay a debt barred by limitation law.–An
agreement made without consideration is void, unless-

(1) It is expressed in writing and registered under the law for the time being in force for the Comment [I39]: First exception is a
‘gift’ but it should be in writing and should
registration of documents and is made on account of natural love and affection between parties be registered.
Also, for a gift to be valid, it should be
standing in a near relation to each other; or unless. accepted.

(2) it is a promise to compensate, wholly or in part, a person who has already voluntarily done
something for the promisor, or something which the promisor was legally compellable to do; or
unless
(3) it is a promise, made in writing and signed by the person to be charged therewith, or by his Comment [I40]: A time barred debt.
A debt – enforceability of which has been
agent generally or specially authorized in that behalf, to pay wholly or in part a debt of which the barred by law of limitation.

creditor might have enforced payment but for the law for the limitation of suits. In any of these
cases, such an agreement is a contract.

In this section, we can see that there is a deviation from the general principle that contracts need not be in
writing. See words: ‘writing and registered’ and ‘writing and signed’.
So, these three are the circumstances where consideration may not be required.

If upon request – may be treated as consideration

 Every request implies a promise to pay
Stewart v. Casey
[1892] 1 Ch 104
 Joint owners of patent – agreed to give 1/3 patent rights to their Manager – for services already
rendered – promoting their invention in the commercial world – claimed that past services cannot
support a future promise
 Held – promise valid

 Distinction between ‘Past’ Consideration and ‘Executed’ Consideration

“Such act, abstinence or promise is called consideration”

Consideration to be of value:
 Usually we think of economic or monetary value. From the legal point of view, we are talking
about value in the eyes of law.

 In the eye of law – implies seriousness

 Must be real and not illusory
White v. Bluett (1853) 23 LJ Ex 36
  Son owed money to his father under a pronote – pestering his father that he was not treated equally
with other children – father promised to discharge him – provided he stopped complaining – he
stopped – question whether sufficient consideration for promise
 Held – insufficient – consideration must hold some economic value not just emotional or
sentimental

Consideration – need not be adequate

Law is NOT bothered about how the consideration is – if it is excess, if it less. It is for the parties to decide
how much value they want to attach.
 Explanation 2 to section 25
 An agreement to which the consent of the promisor is freely given is not void merely because the
consideration is inadequate; but the inadequacy of the consideration may be taken into account by Comment [I41]: Its ‘may be’ and not
‘shall be’.
the Court in determining the question whether the consent of the promisor was freely given.
 Illustration (f) A agrees to sell a horse worth Rs. 1000 for Rs. 10. A’s consent to the agreement was
freely given, the agreement is a contract notwithstanding the inadequacy of the consideration.
De La Bere v. Pearson Ltd.
[1908] 1 KB 280
 Df – newspaper proprietor – offering to answer financial queries – pl asked about save investment
with a good stock broker – df suggested a person – unknown to them – he was an undischarged
bankrupt – pl sent money – misappropriated – action against df – question whether sufficient
consideration
 Held – offering advice – increases sales of df’s newspaper – sufficient consideration

Thomas v. Thomas
114 Eng. Rep. 330 (1842)
 Plaintiff’s husband dying wish was that his wife have either the house in which he lived or 100
pounds – declaration relayed to the Pl’s brothers (one being the Defendant) – agreed to carry out
the intentions – Pl would have a house for her life, or until she remarried – She agreed to pay one
pound yearly for ground rent and to keep the house in repair – Df brought an ejectment action after
death of the second brother
 Held – sufficient consideration

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Chappell & Co. v. Nestle Co.
(1959) 2 All ER 701
 Nestle manufacturers of chocolates – advertisement scheme – offered to supply gramophone
records in exchange for three wrappers of their chocolate and an amount of money
 Question – whether the wrappers formed a part of the consideration
 Held- “they are, in my view, in law part of the consideration. It is said that, when wrappers are of no
value to...Nestle...A contracting party can stipulate for what consideration he chooses. A peppercorn
 does not cease to be good consideration if it is established that the promisee does not like pepper
and throw away the corn.” Comment [I42]: Peppercorn
Rule/Theory!

Inadequacy – must be of free will

Illustration (g) to Section 25 – (g) A agrees to sell a horse worth Rs. 1,000 for Rs. 10. A denies that his
consent to the agreement was freely given.
The inadequacy of the consideration is a fact which the Court should take into account in considering Comment [I43]: It is an indicator and
not a final one. If the person denies, then
whether or not A’s consent was freely given. the fact that the consideration was given
will become inadequate among other facts.

Pridmore v. Calvert
(1975) 54 D. L. R (3d) 133
 Lady injured by df’s negligent driving – an insurance adjuster came and she settled her claim to
$331 – later sued df for tort – damages of $21, 000 – question – whether bound by earlier
settlement.
 Held – the plaintiff was of limited intelligence, had no business acumen, was in poor physical
condition at the time the release was signed, and sought no advice concerning the document. The
judge concluded that the plaintiff “was on such unequal footing with respect to the defendants and
their representatives, that in all the circumstances, it would be inequitable to hold her to the bargain
that was made”

Forbearance to sue – valuable consideration

Kastoori Devi v. ChiranjiLal
AIR 1960 All 446
 Wife – suit against husband for maintenance – on the promise to pay maintenance – withdrew the
suit – later refused
 Held – sufficient and good consideration
Forbearance to sue is alone consideration.

Ramiah v. Sankaranarayana
AIR 1958 Ker 246
 Deposits in Bank – matured – did not demand repayment as the Bank Director gave a personal
undertaking to return it with interest within one year
 Held – forbearance to withdraw or seek repayment – sufficient consideration

Performance of existing duties – whether good consideration?

 Legal obligation – performance of a legal duty – not a good consideration for a separate/fresh/new
promise
Sashannah Chetti v. Ramaswamy Chetti (1868)
 a person receives summons to appear in court and give evidence – df (party to the case) gave a
pronote to pay a sum to cover his expense Comment [I44]: Whether or not there
is pronote or not, still he is legally bound to
go to court.
  held – note was void – for want of consideration

Glasbrook Bros v. Glamoragan County Council

[1925] AC 270 House of Lords
 strike in a colliery – manager sought police protection - superintendent ready to provide mobile force
which he thought was adequate – manager insisted on billeting police force – superintendent
agreed if manager agreed to pay at the specified rate
 held – special form of protection - was outside the scope of public duty – not illegal – not void for
want of consideration

Pre – existing contracts – between parties

Obligations flowing from pre-existing obligations
RamchandraChintaman v. KaluRaju
(1877) 2 Bom. 362
 Pl accepting vakalath from df on fee to conduct a suit – later df agreed to pay a certain reward if he
won the case if the pl won it for the df – df refused to pay the reward – suit
 Held – pl already bound to render best service – no fresh consideration

Stilk v. Myrick
[1809] EWHC KB 158
 Ship on voyage – two seamen deserted – captain could not replace – agreement with rest of the
crew to divide the wages of two equally among them – later refused
 Held – crewmen already bound to serve in emergency – no new consideration Comment [I45]: Desertion by two
seamen was an emergency

Liston v. Owners of the S.S. Carpathian

[1915] 2 KB 42
 Sailors refused to complete voyage due to war risk – not originally contemplated – remained on duty
on promise of extra pay
 Held – entitled to recover it.

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Promise to pay less than what is due – whether good consideration?

English law – cannot be considered so

Pinnel’s Case [Referred to as ‘Rule in Pinnel’s Case’]

(1602) 5 Rep, 117 Court of Common Pleas

  The claimant was owed 8 pounds-10 shillings. The defendant paid 5pounds-2p. The claimant sued
for the amount outstanding.
 Held – the claimant was entitled to the full amount even if they agreed to accept less. Part payment
of a debt is not valid consideration for a promise to forebear the balance unless at the promisor’s
request. part payment is made either:
(a) Before the due date or;
(b) with a chattel or;
(c) to a different destination
 “payment of a lesser sum on the day in satisfaction of a greater, cannot be any satisfaction of a
greater, cannot be any satisfaction for the whole – but the gift of a horse, hawk, or robe, etc in
satisfaction is good... [as] more beneficial to the plaintiff than the money”

Foakes v. Beer

(1884) 9 App Cas 605 House of Lord

 Dr. Foakes – ordered to pay by a judgment decree 2000 pounds to Mrs. Beer – not able to pay at
once – paid 500 pounds and agreed to pay the rest in instalments – she agreed not to enforce the
judgment – when balance fully paid – sued the doctor to recover interest (interest of delayed
payment)
 Held – entitled to payment of the debt and the interest till the date of the final payment.

Exceptions to the Rule in Pinnel’s case:

 Payment before time or by different mode

 Composition compromise between creditors
 Part payment by third party

Hirachand v. Temple
[1911] 2 KB 330 Court of Appeal
 Loan – Debtor’s father wrote the creditors to accept a lesser sum in satisfaction of the whole
debt amount and also enclosed a draft – creditors encashed – later sued the debtor for balance
 Held- creditor accepted the money on the terms it was offered.

 Promissory Estoppel
Hughes v. Metropolitan Railway
 (1876-77) LR 2 App Cas 439 House of Lords
 Notice given to tenant – to repair the premises in six months- otherwise lease to come to an end
– later negotiations to sell the premises to the tenant – did not make repairs – negotiations failed
– shortly six months passed – landlord claimed no repairs so lease stood terminated.

16-07-13

 Held – six months to run from the date of failure of negotiations

 Lord Cairns CJ :- “it is the first principle upon which all Courts of Equity proceed, that if parties
who have entered into definite and distinct terms involving certain legal results – certain
penalties or legal forfeiture – afterwards by their own act or with their own consent enter upon a
course of negotiation which has the effect of leading one of the parties to suppose that the strict
rights arising from the contract will not be enforced, or will be kept in suspense, or held in
abeyance, the person who otherwise might have enforced those rights will not be allowed to
enforce them where it would be inequitable having regard to the dealings which have thus taken
place between the parties.”

A change is brought about what looks like a promissory estoppel.

Central London Property Trust v. High Trees House

[1947] KB 130 high Court

 Pl gave a block of flats to df on tenancy for 10 years – rent was 2500 pounds per year – II World
War – not occupied – pl agreed to reduce the rent by half – after war by 1945 fully occupied – df
continued to pay reduced rent – pl action for full rent for entire period
 Held – the rent to be returned to the originally agreed price for the future only – could not claim back
the arrears accrued during the war years.
 Denning – established – Doctrine of Promissory Estoppel:

“In my opinion, the time has now come for the validity of such a promise to be recognised. The
logical consequence, no doubt is that a promise to accept a smaller sum in discharge of a larger
sum, if acted upon, is binding notwithstanding the absence of consideration”

India

 Section 63: Promise may dispense with or remit performance of promise

 Every promisee may dispense with or remit, wholly or in part, the performance of the promise made
to him (remission), or may extend the time for such performance (variation of the original contract),
or may accept instead of it any satisfaction which he thinks fit.
 Illustrations:
(a) A promises to paint a picture for B. B afterwards forbids him to do so. A is no longer bound to
perform the promise.
 (b) A owes B 5, 000 rupees. A pays to B, and B accepts, in satisfaction of the whole debt, 2, 000
rupees paid at the time and place at which the 5, 000 rupees were payable. The whole debt is
discharged.
(c) A owes B 5, 000 rupees. C pays to B 1, 000 rupees, and B accepts them, in satisfaction of his
claim on A. This payment is a discharge of the whole claim.
(d) A owes B, under a contract, a sum of money, the amount of which has not been ascertained. A'
without ascertaining the amount, gives to B, and B, in satisfaction thereof, accepts, the sum of 2,
000 rupees. This is a discharge of the whole debt, whatever may be its amount.
(e) A owes B 2, 000 rupees, and is also indebted to other creditors. A makes an arrangement with
his creditors, including B, to pay them a composition of eight annas in the rupee upon their
respective demands. Payment to B of 1, 000 rupees is a discharge of B’s demand.

Pre-existing contract (with another party) – whether good consideration?

Shadwell v. Shadwell
(1860) 142 ER 62
 P agreement to marry a girl – his uncle congratulating him said, “I will pay you 150 pounds per year
during my life until your income as a barrister shall reach 600 pounds per annum” – uncle died – P
sought to recover outstanding amounts (amount that was payable during uncle’s lifetime) –
representatives argues that P was already under a contractual obligation to marry when the uncle
made the offer, and therefore P had supplied no consideration.
 Held – the marriage was an object of interest to the uncle and he benefitted by tis taking place, thus
there was consideration.
 There was good consideration in performing a pre-existing contract, if it was with a third party.

Gopal Co. Ltd. v. Hazarilal Co.

AIR 1963 MP 37

 Pl contracted to buy cotton form a mill – df were the sole selling agent of the mill and guarantors of
the contract – price of cotton fell – pl refused to buy – df asked pl to buy the quantity for first month
– a portion of which the df would buy or give Rs. 25000 at the option of the pl – pl opted Rs. 25000
– df claimed that their promise was devoid of consideration.
 Held – second agreement – contract – previous obligation – a good consideration
 “on the wording of this definition, all that is necessary is that the desire of one party and the action
of another must have a causal connection i.e. the action of the promisee must have been induced
by the desire of the promisor. It is not necessary that the promisor should derive any direct benefit
from the act. The benefit may go to a third party or not to anyone at all. It is the action of the
promisee which is the essential element of consideration.”

Exceptions to consideration:
Agreements without consideration

 S. 25 ICA – India
 Gift – written – registered – on account of natural love and affection – standing in near relation to
each other.

Bhiwa v. Shivaraman

(1899) 1 Bom LR 495

 Brother sued brother for share in certain land – df affirmed that it was not ancestral – suit dismissed
– later by df – by registered document – in writing – agreed to give half of same property – still later
refused – pl sued again
 Held – even if the brothers were fighting – on natural love and affection – wanted to reconcile – valid

RajlukhyDabee v. BhootnathMookerjee

(1900) 4 Cal. WN 488

 Agreement – showing quarrel and disagreement between husband and wife – still husband to pay a
fixed sum every month – for separate residence and maintenance
 Held – no natural love and affection under S. 25

Law comes to aid of the person who is vigilant not the ones who sleep over their rights.

It is interest of law that every dispute should be settled in earliest point in time because dispute in society
means unrest.

As the days pass by, the quality of evidence is going to deteriorate.

 Time barred debt – different from acknowledgement of liability which has to be within the period of
limitation.

Capacity

S. 10. What agreements are contracts

All agreements are contracts if they are made by the free consent of parties competent to contract, for a
lawful consideration and with a lawful object, and are not hereby expressly declared to be void. Nothing
herein contained shall affect any law in force in India and not hereby expressly repealed by which any
contract is required to be made in writing or in the presence of witnesses, or any law relating to the
registration of documents.

S. 11. Who is competent to contract?

Every person is competent to contract who is of the age of majority according to the law to which he is
subject, and who is of sound mind, and is not disqualified from contracting by any law to which he is
subject.

17-07-13

Question – whether void or voidable?

Mohori Bibee v. Dhurniodas Ghose Comment [I46]: Agreements entered

into by minors are void ab initio

(1903) 30 IA 114

 DharmodasGhose created a mortgage – in favour of BrahmoDutt, a money-lender – to secure the

repayment of Rs. 20, 000 at 12 per cent interest on some houses – part loan of Rs. 10, 500 – minor
later seeking cancellation of mortgage.
 Held – general current of decision in India certainly is that ever since the passing of the Indian
Contract Act the contracts of infants are voidable only – But it is beyond question that an infant falls
within the class of persons referred to as incapable of entering into a contract.
 The question whether a contract is void or voidable presupposes the existence of a contract within
the meaning of the Act – cannot arise in the case of an infant.

Everything that is done before the avoiding is valid.

England

 Certain agreements are absolutely void

 Contract for repayment of money lent or to be lent.
 Contract for goods supplied or to be supplied (other than necessaries)
 Contract for Accounts stated
 Others – valid or voidable at the option of the minor

Mir Sarwajan v. Fakhruddin

(1912) 30 Cal. 232 PC

 Guardian of a minor – contract to buy immovable property for minor – minor sued for specific
performance
 Held – minor not bound – mutuality – cannot obtain specific performance Comment [I47]: In the sense, if the
minor would not have been bound by that
then why should he be able to sue him. If
Overruled in the minor had done a breach, the other
party wouldn’t be capable to sue the minor

Subramanyam v. SubbaRao

AIR 1948 PC 25

 Mother of minor – selling property – for discharging father’s debts by pronotes and mortgages –
later minor brought an action to recover the land
  Held – valid contract earlier – since it was for his (minor’s) benefit.

If the contract is made for the benefit of the minor, then it will be valid.

Effects of a Minor’s Agreement

 No liability in Contract or in Tot arising out of a Contract

England – liability of minor in tort arising out of a contract

 Cannot be made liable as it would be indirect way of fixing liability

Johnson v. Pye

(1676) 1 Sid 258

 Infant – false representation of age – gets a loan of money – other party sued him for deceit under
tort
 Held – cannot be made liable under tort – cannot be made to repay the amount of loan in the form
of damages for deceit. A minor cannot be held responsible for anything which would be an indirect
way of enforcing his agreement.

But – where tort is independent of contract – can be made liable

Where the tort is independent of the contract, the mere fact that a contract is also involved, will not absolve
the infant/minor from liability.

Burnard v. Haggis

(1863) 143 ER 360

 Minor borrowed a horse for ridding – lending it to a friend – used it for jumping – killed the horse
 Held – liable under tort – because here, we are talking about an act that is totally unrelated to the
contract. The defendant was liable on the ground that the act resulting in injury to the horse was one
which was quite outside the contract, and could not be said to be an abuse of the contract.
 Byles, J., - “one cannot make an infant liable for the breach of a contract by changing the form of
action to one ex delicto”

Jennings v. Rundall

(1799) 101 ER 1419

 Minor hired a horse for a short journey – went for a longer journey – horse injured
 Held – df not liable on the ground that the action was founded in contract and that the plaintiff could
not turn what was in substance a claim to one in tort.
 Lord – the protection given by law to the infant “was to be used as a shield and not a sword”

Since it is independent of contract, you can have liability in tort.

 No Estoppel against Minor
 Inducement by representing false age – still not Estoppel – not liable ---- there is no such estoppel
against the minor. The infant is not estopped from setting up the defence of infancy – the reason is very
simple – There can be no estoppel against a statute. The policy of the law of contract is to contract is
to persons below age from contractual liability and naturally the doctrine of estoppel cannot be used to
defeat that policy.
 Doctrine of Restitution
 If a minor obtains property or goods by misrepresenting his age, he can be compelled to restore it,
he can be compelled for restitution (pushing the parties back to their original position as if nothing
happened) – this is called the - under equity – where minor obtains goods or property only
(because it can be identified and given back to the original owner)– not cash (difficult to identify the
cash and retrieve it) – and only so long as it is traceable to his possession

Section 65. Obligation of person who has received advantage under void agreement or contract that
becomes void –

 When an agreement is discovered to be void, or when a contract becomes 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 form who he received it. Comment [I48]: This is a general
provision, which deals with agreements
that are void a initio, or agreements that
become void in a later point in time.
Then if anybody has received an
advantage in such agreement is bound to
18-07-13 restore it

The Specific Relief Act, 1963

Section 33. Power to require benefit to be restored or compensation to be made when instrument is Comment [I49]: Any document.

cancelled or is successfully resisted as being void or voidable.

 (1) On adjudging the cancellation of an instrument, the Court may require the party to whom such
relief is granted, to restore, so far as may be any benefit which he may have received from the other
party and to make any compensation to him which justice may require.
 (2) where a defendant successfully resists any suits on the ground.-
 (a) that the instrument sought to be enforced against him in the suit is voidable, the court may if the
defendant has received any benefit under the instrument from the other party, require him to
restore, so far as may be, such benefit to that party or to make compensation for it;
 (b) that the agreement sought to be enforced against him in the suit is void by reason of his not
having been competent to contract under section 11 of the Indian Contract Act, 1872 (9 of 1872),
the court may, if the defendant has received any benefit under the agreement from the other party,
require him to restore, so far as may be, such benefit to that party, to the extent to which he or his
estate has benefited thereby.

-Only covers restitution; compensation is not covered.

-Difference between personal and liability of estate. Liability is restricted to what can be restricted to the
property. If personal liability – person can be jailed if he fails to pay up; property liability – liability can be
extracted only to the extent of the value of the property he possesses.

Leslie v. Sheill

(1914) 3 KB 607

 Minor – lied about age – deceived money lenders to give him 400 pounds
 Attempted to recover as damages for fraud – failed
 Later claimed return of money – under quasi contract – held not possible Comment [I50]: A contract like
situation
 Later – claiming protection under equity – restitution – not possible – as money cannot be traced
 Cause of action was held in substance ex contractu

-Minors are not given undue advantage to manipulate others.

Minor can be compelled to restore all benefits – or make compensation – where he is seeking relief
from the court for cancellation of the contract

Khan Gul v. Lakha Singh Comment [I51]: Principle of Leslie v.

Sheill was extended to money also.

AIR 1929 Lah. 609

 Minor – fraudulently concealing age – contracted to sell a piece of land – received the sale price of
Rs. 17,500 – then refused to perform his obligation – pl sued for recovery of possession or refund of
consideration
 Question – whether minor can retain benefits?
 Held – minor should be asked to refund
 The Indian courts extended the principle in Leslie v. Sheill to money also

Ajudhia Prasad v. ChandanLal

AIR 1937 All 610

 Money borrowed under a mortgage deed – more than 18 but less than 21 – fraudulently concealed Comment [I52]: You become a major
at 18 when you are with your parents. If
the fact that a guardian appointed for them you are with your guardians, you become a
major at the age of 21. And the ‘guardians’
 Pl – sued for getting the principal back or sale of mortgaged property here we talk about are not the random
guardians we have. They should be
 Held – could not accept the extended interpretation in Khan Gul – money decree cannot be granted appointed by the law.

against a minor

13th report of the Law Commission of India, 1958

 S. 33 Specific Relief Act, 1963 – can be compelled to restore the benefits he has received
  Contracts that are beneficial to the minor – may be enforced – if no obligation rests upon him – i.e.
executed from his side (seeks to protect the minor)

 English Position – distinction is drawn between whether it is the minor who brings the suit or the
other party.

Raghava Chariar v. Srinivasa

(1916) I.L.R. 40 Mad. 308

 Mortgage in favour of a minor – who gave the whole mortgage money Comment [I53]: Minor has performed
his part of the contract.
 Whether contract enforceable by him or on his behalf?
 Held – enforceable (this opinion is reflected in the law commission’s report a well)

From another angle -But where the minor has paid for something – and later consumed it or used it –
minor cannot recover back the money Comment [I54]: Because he has
already enjoyed the benefit

Valentini v. Canali

(1889) 24 QBD 166

 Minor agreed to df and pay 102 pounds for furniture – paid 68 pounds – pronote for the rest –
occupied for some months and used furniture – later sued for the entire consideration paid by him
 Held – not entitled to get back the money already paid – as he had enjoyed the benefit – BUT THE
PRONOTE CANCELLED (ellse it would be like enforcing a void agreement) Comment [I55]: No fresh obligation
was passed on to him but the money
wasn’t returned because he had already
Protection of minors + ensuring that there is no undue advantage to the detriment of the other party. An enjoyed the furniture.

exclusive position either way is neither possible nor legal. The minor should not be burdened by
obligations.

Contracts of apprenticeships – for the benefit of minor – same category as contracts for necessaries – not
ordinary trade contracts (where the minor is protected by treating the contract as unenforceable)

Roberts v. Gray

 Agreement entered into by a minor to accompany a billiards player on his global tour – later on
decided to withdraw – player suffered loss due to expenses that were incurred on behalf of minor –
sued minor – decided that minor will have to pay – minor was held liable for his not joining the
player.
 Enforced- because this is an apprenticeship, which is for the benefit of the minor. If they were not
enforceable, it would be to the detriment of the minors generally.
Minor’s agreement – void ab initio – cannot ratify

 Fresh contract?

Ratification is a post facto (after the fact – approving something that has already been done which was
done by someone who did not have the authority at the time – by ratifying one is accepting the obligations
flowing from it) approval

Whether a minor can approve of an act done by him when he was a minor after he becomes a major? –
Ratification would mean that he would be accepting the consequences that flow from it.

Minor agreements are generally void from its inception (ab initio). Something that is void from the beginning
cannot be ratified. Hence courts are of the opinion that there is no possibility of minor ratifying an
agreement entered into while a minor after he becomes a major.

Can such person enter into a fresh contract?

Would a subsequent agreement be valid?
Until such agreement is supported by a fresh consideration, fresh contract cannot come into existence.
Fresh contract to be supported by a fresh consideration. The earlier consideration cannot be the basis for a
fresh contract entered into after he becomes a major. Only the enforceability of the fresh consideration
need be looked into.

Hence –
1. It is not possible for a minor to ratify an agreement entered into when he was a minor after he
becomes a major
2. It is not possible to enter into an agreement supported by a consideration that flowed from an
agreement that arose when the person was a minor.

SurajNarain v. SukhuAhir

AIR 1928 All 440

 Enforceability of the bond? Not because the second bond executed by him when he was a major
was not supported by consideration.

Persons of unsound mind

Similar to minor since they too are incapable of analysing, reasoning and understanding obligations flowing
from a contract – may find themselves in a detrimental position unable to protect themselves.
Unsound of mind – can be understood on different levels – may not be permanent (could have lucid
intervals or bouts of insanity) – whether they were on a level where they could have possibly understood
the terms and conditions and detriment flowing from a contract.

Position in eng and Indian law

In some cases, validity to the agreements determined to the extent possible; in others, such validity is
avoided to the extent possible
English Law –

India –

Inder Singh v. Parmeshwardhari Singh (1957) Patna High Court

 A person who was idiot and incapable of understanding the transactions, agreed to sell property
worth about Rs 25,000/- for Rs 7000/- only
 Held that the agreement was void as the person was incapable of exercising his own judgment.

Persons of unsound mind are given protection. But to what extent? We will have to decide whether the
unsoundness of mind made that person to make such a decision.

HW
Check out the position of law in case of unsound minds? Both in English and Indian law.
English Law:
A person of unsound mind is competent to contract, although he may avoid his contract if he
satisfies the court that he was incapable of understanding the contract and the other party knew it.
The contract is voidable at his option – becomes binding only if he affirms it.
Position of drunken person – same – if he makes a contract while drunk – when sober – may elect
to avoid the contract or affirm it.
A fair contract with a person who looked like he was of sound mind – but actually wasn’t and was
suffering from a mental disorder that rendered him incapable of entering into the contract –
voidable not void. If it is not to be enforced – then he should prove it.
Indian Law:
The agreement of a person of unsound mind – like a minor – absolutely void.

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In English law, gives an option wherein the person of can decide whether it is valid or invalid.

It binds him only if he affirms it or if he does not avoid it.

There may be some situations when an unsound person is in a sound position – the contract then made will
be valid. [CHECK HW TABLE]

Necessaries - persons incompetent liable

  Section 68. Claim for necessaries supplied to person incapable of contracting, or on his
account.

If a person, incapable of entering into a contract, or any one whom he is legally bound to support, is
supplied by another person, with necessaries suited to his condition in life, the person who has
furnished such supplies is entitled to be reimbursed from the property of such incapable person.

Illustrations:

(a) A supplies B, a lunatic, with necessaries suitable to his condition in life. A is entitled to be reimbursed
from B’s property.

(b) A supplies the wife and children of B, a lunatic, with necessaries suitable to their condition in life. A is Comment [I56]: Those who are
dependent on him and those who the
entitled to be reimbursed from B’s property. lunatic is bound to support

 Nash v. Inman

[1908] 2 KB 1

 Nash, a tailor on Savile Row, entered into a contract to supply Inman (a Cambridge undergraduate
student) with, amongst other things, 11 fancy waistcoats. Inman was a minor who was already
adequately supplied with clothes by his father. When Nash claimed the cost of these clothes Inman
sought to rely on lack of capacity and succeeded at first instance
 whether the student was responsible
 held- unable to recover and so plaintiff could not recover the cost of clothes

 Ryder v. Wombwell [1868]

Df – son of a baronet – evidence shows – he bought a couple of jewelled cufflinks –

It suited his conditions of life

 Drunkenness which can lead to temporary incapacity

Mathews v. Baxter
(1873) LR 8 Exch 132

 The defendant went to an auction while he was drunk and successfully bid certain land and
houses. After he sobered up the defendant ratified the contract. He then refused to proceed with the
transaction.
  The court held that the defendant was liable because he ratified the contract after his period of
drunkenness had passed. He was therefore liable. Note that this case is authority for the view that a
person is not liable for a contract entered into while he or she did not have capacity. However, if he
or she ratifies the contract when capacity is regained then he or she becomes bound by the contract
which would have been void.

 Alien enemies

We do not recognize agreements

 Corporation

It’s a legal person, an artificial person. Resort to artificial personality is done for a reason. In Common Law
system, personality was a concept relating to laws and liabilities. In legal sense, person was an entity who
could enjoy rights and take upon himself obligations. That is why in the olden days slaves did not have any
personality as they do not have any rights and they don’t have any obligation.

Personality is conferred by law. Incorporation helps you to make a legal person, a legal entity which has the
ability to sue (assert your right) and be sued (be sued). This is one of the characteristics of having these
conferred on a person. An artificial does not have a mind or body of its own – its activities and decisions are
taken by somebody else (board of directors). Then how are the decisions taken? How is the freedom of an
artificial entity given freedom? What kind of powers can these persons enjoy? All this is given in the
fundamental documents. These are referred to as constitution of the company. Two basic ones –
Memorandum and Articles of Association.

Objects Clause of the Memorandum – it basically tells you the purpose of the existence of the company.
Object, aim, and purpose. Whatever a person shall do, it should be done in line of these objects.
Somebody acting should act within the scope off their powers. Anybody acting beyond the powers is acting
at his own risk and it is called ultra vires.

If people want to check, these documents are kept as public documents in the registrar’s office. If the
documents are there win the registrar’s office, everyone dealing with that company is presumed to know
about the company. This is called as Constructive Notice.

Its called constructive, because it is symbolic. When these ddocuments are registered, it is a presumption
that the

“The company can only do what is given in the fundamental documents.”

Bodies that have been incorporated. (Sole proprietorship, partnership firm)

LLP – Limited Liability Partnership –

Memorandum of Association and Articles of Association

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Ashbury Railway Carriage & Iron Co. v. Riche

[1875] Law Rep. 7 H 653 House of Lords

 Incorporated under the Companies Act,1869, the Ashbury Railway Carriage and Iron Company
Ltd’s memorandum, clause 3 of the objects clause, said its objects were ‘to make and sell, or lend
on hire, railway-carriages…’ and clause 4 said activities beyond needed a special resolution. (This
company was supposed to deal with railway carriages) But the company agreed to give Riche and
his brother a loan to build railway lines in Belgium. Later, the company refused the agreement.
 Riche sued, and the company pleaded the action was ultra vires.
 Held - if a company pursues objects beyond the scope of the memorandum of association, the
company's actions are ultra vires.

Incorporated bodies – NUALS is incorporated, by virtue of a statute. A university, on which personality has
been conferred.

TYPES OF CONTRACTS

 Express / Implied / Quasi / Unilateral / Bilateral Comment [I57]: By conduct of the

parties.
 Void – S. 2 (g) – an agreement not enforceable by law is said to be void – may be ab initio or
Comment [I58]: As if. Something LIKE.
may become so later. Not a full contract but something that
looks like a contract. It doesn’t fulfil all the
terms we need to make it a contract. But
*Contracts that become void later are called frustrated. some of them.
Comment [I59]: It is not a contract as
such. Because contract requires two
Voidable – An agreement which is enforceable by law at the option of one or more of the parties thereto, parties. You cannot agree with yourself,
you need to agree with somebody else.
but not at the option of the other or others, is a voidable contract.
Comment [I60]: Two parties come
together.
 Legal consequence - rights acquired by third parties?

A voidable contract is a VALID contract unless the innocent party avoids it within a reasonable time.

 Illegal agreements Comment [I61]: Illegal and not

Unlawful.
o Ex dolomalo non orituractio
o Ex turpicausa non arituractio

Quasi Contracts

They originally came in as a concept of Equity where law was unable to give remedy.

Ubi remedium ibi jus – if yoiu show a remedy you have a right. If you don’t, then you don’t have a right. <-
this was the situation earlier
Ubi jus ibi remedium – if you don’t have a remedy, then create one!

 Ex aequo et bono – aequum et bonum (equity and good conscience)

When law fails to provide justice, equity and good conscience. Quais contract is one such
development.

Moses v. Macferlan (1760) (2 Burr. 1005)

 Jacob to Moses – 4 pronotes (negotiable instrument – an instrument that can be transferred)– who
indorsed to Macferlan excluding his personal liability by an agreement – later, Macferlan sued
Moses in a lower court – on endorsement – held entitled to recover – Moses sued in King’s bench –
to recover the money from Macferlan

24-07-13

 Held – could recover – against justice and good conscience if he was allowed to retain it – Lord
Mansfield – “the gist of this kind of action is, that the defendant, upon circumstances of the case, is
obliged by the ties of natural justice and equity to refund the money.”

There is no contract but courts go on to presume it to be a contract. This form is very different from implied
contracts (parties are in a contract by their behaviour). Here, in quasi-contracts, law implies/presumes a
promise.

Rights and liabilities come from basically three places:

1. Where statute provides 2. Contract 3. Rights coming under common law

Presume to be an Implied Promise

Sinclair v. Brougham

[1914] AC 398

 Building society – ventured into banking business – taking large money deposits – ultra vires and so
void – society wound up – outside creditors paid – remaining insufficient to pay fully thee depositors
and shareholders – depositors claimed on quasi contract.
 Held – fiction of law – notional and imputed promise to pay – cannot be allowed as it would be Comment [I62]: An implied promise is
imputed.
validating the void contract – allowed recovery in paripasu among the claimants
Comment [I63]: with an equal step"
or "on equal footing
Unjust Enrichment

A benefit that is accrued to a person to which he is not entitled to is unjust. It wouldn’t be a problem if the
benefit is not a cause of detriment to the other party.

Fibrosa v. Fairbairn

[1943] AC 32
  Advance paid for a supply of machinery – war broke out – performance obstructed – question of
recovery of advance
 Held – unjust enrichment – should not be allowed

Section 68. Claim for necessaries supplied to a person incapable of contracting, or ion his account

If a person, incapable of entering into a contract, or any one whom he is legally bound to support, is
supplied by another person, with necessaries suited to his condition in life, the person who has
furnished such supplies is entitled to be reimbursed from the property of such incapable person.

- Here we talk only about property and NOT personal liability.

- Imprisonment that we talk about here is not penal imprisonment but a civil imprisonment. The funny
thing is that person’s expenses in jail would have to be covered by the person who is sending him to
jail.
- Execution of decree – For that you require a judgment, and then you have a decree.

Illustrations to S. 68:

Illustrations:

(a) A supplies B, a lunatic, with necessaries suitable to his condition in life. A is entitled to be reimbursed
from B’s property.

(b) A supplies the wife and children of B, a lunatic, with necessaries suitable to their condition in life. A is
entitled to be reimbursed from B’s property.

S. 69 – Payment of money due from another

Section 69. Reimbursement of person paying money due by another, in payment of which he is
interested-

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.

Illustration

B holds land in Bengal, on a lease granted by A, the zamindar. The revenue payable by A to the
Government being in arrear, his land is advertised for sale by the Government. Under the revenue law, the
consequence of such sale will be the annulment of B's lease. B, to prevent the sale and the consequent
annulment of his own lease, pays to the Government the sum due from A. A is bound to make good to B
the amount so paid.

This situation is different from the one when you have a situation like presence of guarantor. In a contract of
guarantee, there are three parties – principal creditor, the guy who takes the money, guarantor.

25-07-13
Payee must be interested – not bound to pay – df must be under legal compulsion to pay – payment
to another (not to himself)

Seksaria v. State of Gondal

AIR 1950 PC 99

 Maharaja – sold mills – did not pay overdue municipal taxes – buyer – to save the property paid the
municipal taxes and sued for reimbursement.
 Held – entitled to it

Section 70. Obligation of person enjoying benefit of non-gratuitous act.

Where a person lawfully does anything for another person, or delivers anything to him, not
intending to do so gratuitously, and such other person enjoys the benefit thereof, the latter is
bound to make compensation to the former in respect of, or to restore, the thing so done or
delivered.

Illustrations:

(a) A, a tradesman, leaves goods at B's house by mistake. B treats the goods as his own. He is bound to
pay A for them.
(b) A saves B's property from fire. A is not entitled to compensation from B, if the circumstances show that
he intended to act gratuitously.
Amount of gratuity, depends on number of years of service of the employee. Payment of gratuity is an act
of gratitude, not expecting anything back. Not based on the concept of quid pro quo. When somebody gets
a benefit of a non-gratuitous act, then even though there may not be a contract then you may have to pay
for it.

State of West Bengal v. B.K. Mondal

AIR 1962 SC 779
 Pl – on request of the govt of WB – constructed a road, guard room, kitchen, etc. – State accepted
and used them – but arguing not liable as the contract was not concluded as per the requirements
of Government of India Act, 1935
 Contractor sued under S.70
 Held – entitled to recover the cost of these constructions.

New Marine Coal Co. v. Union of India

AIR 1964 SC 152
 Supply of coal – on a contract – not according to requirement – contract held void and
unenforceable – but pl entitled to compensation

Section 71. Responsibility of finder of goods-

A person who finds goods belonging to another, and takes them into his custody, is subject to the
same responsibility as a bailee.

A bailment is a transaction between parties where goods are delivered for a purpose. The person who
delivers the goods is called bailear and the person who receives them is called bailee. Bailee has certain
obligations towards those goods and should keep the goods in safe custody.

Fundamental point – finder should take care of his property as he would take care of his own property, he
should find the owner, and should ensure safe custody of the goods.
Rights of the owner are corresponding to the obligations of this bailee guy. If finder has certain obligations,
they are the rights of the owner and vice versa. And since there is no contract between them, it becomes a
quasi contract

Section 72. Liability of person to whom money is paid or thing delivered by mistake or under
coercion- (this section is confined to money)
A person to whom money has been paid, or anything delivered, by mistake or under coercion, must
repay or return it.
Illustrations:
(a) A and B jointly owe 100 rupees to C. A alone pays the amount to C, and B, not knowing this fact,
pays 100 rupees over again to C. C is bound to repay the amount to B.
(b) A railway company refuses to deliver up certain goods to the consignee, except upon the payment
of an illegal charge for carriage. The consignee pays the sum charged in order to obtain the goods.
He is entitled to recover so much of the charge as was illegally excessive.

Kellri v. Solay (1841)

 Insurance co. – paid certain sums on the life insurance policy taken by df’s wife – in fact – policy
had already lapsed due to non-payment of premium – overlooked at the time of payment
 Held – pl could recover it as it was paid by mistake

 English law – mistake must be mistake as to ‘Fact’ and not ‘law’

 India – no such distinction is made – S.21 is not applicable to such cases.

STO, Banaras v. KanhaiyaLaw

AIR 1959 SC 135

 ST (sales tax) paid on certain transactions – in another case subsequently the Allahabad HC held
that taxing such transactions was ultra vires – firm wanted to recover back the tax money
Generally, legislation are prospective (except for crimes), but if they want, they can make them
retrospective. Judgments are always retrospective. Prospective overruling should not be resorted to.

 Held – recoverable – liable even if the State had already spent the money (had it been English law,
recovery would not have been possible. Under, Indian law, we can term this under ‘mistake of law’)

 If payee has changed his position – would Estoppel apply?

Union Bank of India v. Ali Hussain

AIR 11978 Cal 169

 Pl bank cleared certain crossed cheques to the defendant bank – who informed its customers that
payments were received – goods delivered – later – found that cheques were forged – pl bank sued
df bank and customer for recovery
 Held – no enrichment by mistake – too late to recover it from either the defendant bank or from its
customer

Quantum meruit (as much as one has earned)

S. 70 Obligation of person enjoying benefit of non-gratuitous act.

Where a person lawfully does anything for another person, or delivers anything to him, not
intending to do so gratuitously, and such other person enjoys the benefit thereof, the latter is
bound to make compensation to the former in respect of, or to restore, the thing so done or
delivered.

 When one party does some work – or render services – by contract or otherwise – entitled to
recover reasonable compensation (price or remuneration)

Quantum valebant (as much as the goods are worth)

Plinche v. Colburn

Binghams Common Pleas, Volume 8, 1831-1832

 Df – publishers of a periodical – ‘The Juvenile Library’ – pl an author – df engaged the pl to write a

piece on ancient armour and costumes – to be paid 100 guineas – completed part of the work – df
discontinued the periodical – pl claimed 50 guineas for the work he had already done.
  Held – entitled to it. Thought there is no contract anymore existing, this is for the expenses that he
might have probably incurred.

Craven-Ellis v. Canons Ltd.

[1936] 2 KB 402

 Pl appointed MD by Directors who were themselves disqualified (no qualification shares) – Pl also
had not taken qualification shares – appointment was void
 Later pl sued for agreed remuneration or reasonable remuneration under quantum meruit
 Held – not entitled to agreed remuneration but entitled to reasonable rremuneration

Pannalal v. Deputy Commissioner, Bhandara 1973 SC 1174

There are no courts of equity in India. But the HCs and SC can be considered as courts who deal with
equity. A 142 – complete justice – sounds as if it can go beyond the law – beyond the law as in beyond the
areas specified by law (not illegal things) – to pursue justice. Same goes for HC in A 141 in the constitution
and S482 CrPC. Equity has certain principles that are different from the law.

Some Equity Principles-

-Equity knows no laws

-equity beliefs are discretionary

–one who seeks equity must do equity

Now we have borrowed the principles of equity

Free Consent

A consent that is not free, is not a consent at all. For consent to be vaslid, it must be a valid.

Section 14. “Free consent" defined-

Consent is said to be free when it is not caused by-

(1) Coercion, as defined in section 15, or

(2) undue influence, as defined in section 16, or (3) fraud, as defined in section 17, or (4)
misrepresentation, as defined in section 18, or

(3) Fraud, as defined in section 17, or

(4) Misrepresentation, as defined in section 18, or

(5) Mistake, subject to the provisions of sections 20, 21 and 22.

Consent is said to be so caused when it would not have been given but for the existence of such
coercion, undue influence, fraud, misrepresentation or mistake.
If any of these elements are present, then the consent is not free.

Section 13. " Consent" defined-

Two or more persons are said to consent when they agree upon the same thing in the same sense.

This consent is brought by any of the elements mentioned in section 14, and then it won’t be a free
consent.

Another phrase that is used is ‘informed consent’. Do not confuse between free consent and free consent.

Section 15. “Coercion” defined

“Coercion” is the committing, or threatening to commit, any act forbidden by the Indian Penal Code Comment [I64]: We don’t require an
offence to be committed per se, and if at
(45 of 1860) or the unlawful detaining, or threatening to detain, any property, to the prejudice of any all there is an offence committed you’ll
have to wait till the time he is convicted.
person whatever, with the intention of causing any person to enter into an agreement. Here we just require an act which is
forbidden by the IPC.

26-07-13

Illustrations:

(a) A, on board an English ship on the high seas, causes B to enter into an agreement by an act
amounting to criminal intimidation under the Indian Penal Code (45 of 1860). A afterwards
sues B for breach of contract at Calcutta. A has employed coercion, although his act is not
an offence by the law of England, and although section 506 of the Indian Penal Code was not
in force at the time when or place where the act was done.

ChikamAmiraju v. ChaikamSeshamma

(1912) 16 IC 344

 Man – threat of suicide – induced wife and son – to release property to his brother
 Held – amounted to coercion – voidable

Astley v. Reynolds

(1731) 2 Str 915

 A person – pledged for 20 pounds – when went to take back – pledgee refused – unless he paid 10
pounds extra – paid – later sued to recover
 Held – could be recovered

Indian Law – much wider – available also against property, may even be committed against strangers,
immediate violence is not necessary.

*other case laws are also there.

Section 16. “Undue influence" defined.-

(1) A contract is said to be induced by" undue influence where the relations subsisting between the
parties are such that one of the parties is in a position to dominate the will of the other and uses Comment [I65]: Making a person do
what you want him to do. Making him feel
that position to obtain an unfair advantage over the other. that he is doing that not because you want
him to do it but because he wants to do it.

(2) 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.

(3) Where a person who is in a position to dominate the will of another, enters into a contract with
him, and the transaction appears, on the face of it or on the evidence adduced, to be
unconscionable, the burden of proving that such contract was not induced by undue influence shall
lie upon the person in a position to dominate the will of the other. Nothing in this sub- section shall
affect the provisions of section 111 of the Indian Evidence Act, 1872 (1 of 1872) Comment [I66]: There must be a
relationship, the relationship must be
subsisting (i.e. one party should be able to
Illustrations dominate the will of the other party), and
because he is in such a position he takes
advantage and he actually dominates the
(a) A having advanced money to his son, B, during his minority, upon B' s coming of age obtains, will of the other and makes him an unfair
advantage. Ability to dominate is one thing
by misuse of parental influence, a bond from B for a greater amount than the sum due in respect of and actually dominating is another thing.
Both must be satisfied for you to say that
the advance. A employs undue influence. there is undue influence and it should have
brought unfair advantage to the person
who is dominating.
(b) A, a man enfeebled by disease or age, is induced, by B' s influence over him as his medical
attendant, to agree to pay B an unreasonable sum for his professional services. B employs undue
influence.

(c) A, being in debt to B, the money- lender of his village, contracts a fresh loan on terms which
appear to be unconscionable. It lies on B to prove that the contract was not induced by undue
influence.

(d) A applies to a banker for a loan at a time when there is stringency in the money market. The
banker declines to make the loan except at an unusually high rate of interest. A accepts the loan on
these terms. This is a transaction in the ordinary course of business, and the contract is not
induced by undue influence.

29-07-13

Mannu Singh v. Umadat Pandey

ILR 12 All 523 (1890)

 Guru – induced an illiterate villager to gift the whole property – for benefit in the next world
  Later – sued to recover – held could do so

Williams v. Bayley

(1866) LR 1 HL 200

 Son forged father’s signature on pronotes – paid to his account – manager threatened the father to Comment [I67]: Because the manager
was in a position to sue his son for forgery
prosecute the son – father agreed to mortgage his property in return for pronotes – and he misused his position as a
bargaining chip to strike a bargain with the
 Later – sought to cancel the mortgage father.

 Held – agreement voidable – ui- because the manager was in a position where he could dominate
the will of the father; they don’t have a relationship, just because of this peculiar situation where his
position is so, he used it.

Proof

 Burden on the plaintiff

 A person –
 Should be in a position to dominate
 Should have dominated
 Certain cases – presumption – once shown that a person was in a position to dominate – burden on
the df

Contracts apparently unconscionable

RaneeAnnapurni v. Swaminatha

(1910) 20 MLJ 785

 Poor widow wanting to establish her right to maintenance – borrowed at 100% interest
 Held – voidable – reduced to 24%

Raghunath Prasad v. Sarju Prasad

AIR 1924 PC 60

 In order to defend criminal proceedings instituted by father – borrowed Rs. 10,000 at 24%
compound interest – in 11 years reached Rs. 1, 12, 885 – contended lender had taken advantage
 Held – no such presumption – relation must be such as to dominate the will of the other – here
failed to prove that – not entitled to avoid.

Gifts that are unconscionable – generally among near relatives

LakshmiAmma v. T. Narayana

1970 (3) SCC 159

 Person suffering from various diseases – stayed in the hospital – from the hospital – gifted all his
properties to one of his sons – others excluded.
  Held – presumption of undue influence

 But – not necessary that if they are near relations – undue influence is always exerted

Subhas Chandra v. Ganga Prasad

AIR 1967 SC 878

 An active old man – with landed property – gifted to only grandson – excluding his two sons – after
his death sons questioned the validity of gifts on undue influence
 Held – not necessary that such a presumption arises in all cases

30-07-13

Economic Duress

‘Duress of circumstances’ – where a person is able to take advantage of adverse circumstances the other
person finds himself to be in. Due to this circumstance, the weaker party is not in a position to bargain.

Lloyds Bank v. Bundy

[1975] QB 326 Court of Appeal

 Son – a contractor – borrowed money from a Bank – could not repay – suggested that father might
mortgage his only residential house as security – bank officials visited the house and obtained
signatures on papers from the father – when not repaid – sought to enforce the mortgage – father
claimed undue influence – to set aside the mortgage.
 Held – entitled to

Universe Tankships v. International Transport Workers’ Federation

[1982] 2 All ER 67

 Workers did not permit ship to leave the port without agreeing to their terms of an agreement – to
pay US $ 80000 – ship owners wanted to repudiate the agreement
 Held – amount to coercion – vitiated consent

Exploitation

Schroeder Music Publishing Co. v. Macaulay

[1974] 3 All ER 616

 Boy songwriter – agreement with Co. – for 5 years- to be automatically extended to another 5 years
if sales picked up and his royalty reached 5000 pounds – Co. could terminate with a month’s notice
– but the boy could not
  Held – boy entitled to be released

Central Inland Water Transport Corporation v. Brojo Nath Ganguly

(1986) 3 SCC 156

 Terms – shock the conscience of the court – opposed to public policy – void

Pardanashin woman (observe complete seclusion) – presumption of undue influence – other party has to
disprove

Section 19-A. Power to set aside contract induced by undue influence- Comment [I68]: Specifically deals with
the aspect of undue influence.

When consent to an agreement is caused by undue influence, the agreement is a contract voidable
at the option of the party whose consent was so caused. Any such contract may be set aside either
absolutely or, if the party who was entitled to avoid it has received any benefit thereunder, upon
such terms and conditions as to the Court may seem just.

Illustrations

(A) A's son has forged B's name to a promissory note. B, under threat of prosecuting A's son, obtains a
bond from A for the amount of the forged note. If B sues on this bond, the Court may set the bond aside.

(b) A, a money- lender, advances Rs. 100 to B, an agriculturist, and, by undue influence, induces B to
execute a bond for Rs. 200 with interest at 6 per cent per month. The Court may set the bond aside,
ordering B to repay the Rs. 100 with such interest as may seem just.

Section 17. "Fraud" defined-

"Fraud" means and includes any of the following acts committed by a party to a contract, or with Comment [I69]: BK Sir said this is an
exhaustive definition.
his connivance, or by his agent, with intent to deceive another party thereto of his agent, or to
Comment [I70]: Fraud is one thing
induce him to enter into the contract:- where mental element is looked at. There
should be an intention to deceive.

(1) The suggestion, as a fact, of that which is not true, by one who does not believe it to be true; Comment [I71]: Makers could have
said ‘who knows that it is false’ but here it
is written ‘not believe to be true’. Whether
(2) The active concealment of a fact by one having knowledge or belief of the fact; you knew it was not true or not is
immaterial. Truth and falsehood is
different and belief on something is
(3) A promise made without any intention of performing it different. We are concerned with the belief
of the person – belief is based on
circumstances.
(4) Any other act fitted to deceive;
Comment [I72]: The word
concealment is qualified by the word
(5) Any such act or omission as the law specially declares to be fraudulent. active. The positive act that is done has to
suggest that the act was done to deceive.
Comment [I73]: Not because law
Explanation. prescribes them to be fraudulent but
because it considers it treats them as
unfair and stuff like that.
Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not
fraud, unless the circumstances of the case are such that, regard being had to them, it is the duty of
the person keeping silence to speak, or unless his silence is, in itself, equivalent to speech.

Illustrations

(a) A sells, by auction, to B, a horse which A knows to be unsound. A says nothing to B about the horse's
unsoundness. This is not fraud in A. Comment [I74]: Apply the caveat
emptor. Owner keeping silence will not
make it a fraud. ‘Mere silence as to
(b) B is A's daughter and has just come of age. Here, the relation between the parties would make it A's facts likely to affect the willingness
of a person to enter into a contract is
duty to tell B if the horse, is unsound. not fraud...’
Comment [I75]: ‘...unless the
circumstances of the case are such
(c) B says to A “If you do not deny it, I shall assume that the horse is sound." A says nothing. Here, A's that, regard being had to them, it is
the duty of the person keeping
silence is equivalent to speech. silence to speak....
Comment [I76]: By making this
(d) A and B, being traders, enter upon a contract. A has private information of a change in prices which statement B has put an obligation on A to
speak the truth. Now if A doesn’t speak
would affect B's willingness to proceed with the contract. A is not bound to inform B. then it is fraud.

01-08-13

In fraud -> intention (knowledge and desire) – ultimate purpose – deceive or to induce the other party to
enter into a contract.

Inducement- the other party wouldn’t have entered into the contract had not it been for the fraud that was
played on him.

Fraud vitiates consent. Frauds are not necessarily to be based on falsehood – belief of truth is required.
That’s it.

Fraudulent transfers – law says that

Derry v. Peek

(1889) 5 T.L.R. 625

 company prospectus – representation that Co was authorised by special Act to run trams by steam
or mechanical power – to use steam – had to get permission of the Board of Trade – no mention in
the prospectus – BoT (Board of Trade) refused permission – Co got wound up – Pl who had bought
shares – sued the Directors for fraud.
 Held – Directors honestly believed that since Parliament had authorised – BoT would automatically
do so – not fraud
 Lord Herschell defined fraudulent misrepresentation as a statement which is made either:
1. knowing it to be false,
2. without belief in its truth, or
3. Recklessly, careless as to whether it be true or false.
  Active concealment – different from passive concealment – concealment must be of material
facts
What is material and what is not – depends on facts and circumstances of each case.

 Could be some other facts also

Ningawwa v. Byrappa

[1968] 2 SCR 797

 Husband wanting a wife to mortgage property as security for a debt – illiterate widfe – told her about
2 lands – mortgaged 4 lands

 Mere silence is not fraud

 Not bound to give the whole truth affecting subject matter – caveat emptor

Krishan v. The Kurukshtra University

(1976) 1 SCC 311

 Candidate for an exam – did not mention in the form that he was short of attendance – later
University sought to cancel his exam
 Held – no fraud – University ought to have a verified before allowing him to go through

 Silence may amount to fraud

 Where there is a duty to tell – cases of uberimmaefidei – built on trust or confidence

 E.g. – insurance contracts – duty to disclose state of health – as only within the knowledge of the
proposer

 Where no such relation exists – no such duty

Ahmad Yarkhan v. Abdul Gani Khan

AIR 1937 Nag 270

 Pl son engaged to a girl – pl spent a lot of money on engagement – later found that the girl suffered
from fits – broke off the engagement – and sued the other party for compensation – claimed fraud
due to deliberate suppression.
  Held – mere passive non disclosure of truth – not a fraud – no fiduciary relation

12-08-13

Change of circumstances – after a true representation is made – must be informed to the other
party

RajgopalaIyer v. South Indian Rubber Works

(1942) 2 MLJ 228

 Prospectus of shares mentioned that some persons would be directors – before allotment – change
as some directors retired
 Question – whether it should be brought to notice of those who applied for their shares
 Before allotment there was a change in the directors – practically it is not important who the
directors are but technically it is important for them to know because they are entrusting the
directors with their money. So they should be given an opportunity to revoke their offer.
 Held – allottee could avoid the contract

Promise without an intention to perform – taken as fraud

DDA v. Skipper Construction

2000 (5) SCALE 586

*this case dealt with many aspects of company law as well as contract law
 Apartments being built by a builder – took booking almost 3 times the available accommodation and
collected money – no provision to pay interest – generally when such things are done, a little bit of
over booking is allowed, thinking that there may be certain cancellations. This is allowed till a certain
extent. Here, it was THREE TIMES!
 Held – should have known that all agreements could not be performed – fraud causing inducement
– liable to pay + interest

Declared by Law

- Fraudulent preference and transfer

Section 18. "Misrepresentation" defined

"Misrepresentation" means and includes-

(1) the positive assertion, in a manner not warranted by the information of the person making it, of
that which is not true, though he believes it to be true

(2) any breach of duty which, without an intent to deceive, gains an advantage to the person Comment [I77]: There is an absence
of intention to deceive which makes
committing it, or any one claiming under him, by misleading another to his prejudice or to the misrepresentation from fraud – we need
to make this distinction because the
prejudice of any one claiming under him; consequences which flow from these
are different from each other.

(3) Causing, however innocently, a party to an agreement to make a mistake as to the substance of
the thing which is the subject of the agreement.

*Inclusive definition

In all these subsections, it should be noted that the person committing misrepresentation, there is an
element of innocence.

Consequences of misrepresentaition ends in ending the contract – the only aspect is voidability of such
contracts. Whereas in committing fraud,

Unwarranted assertion

Oceaninc Steam Navigation Co. v. Soonderdas

(1890) 14 Bom. 241

 Df chartered ship from pl – df stated that the tonnage of ship not be more that 2800 – pl did not
know about the ship as it was not at Bombay before – ship, when arrived had a tonnage more than
3000 tonnes
 Held – df entitled to avoid

Breach of Duty (subsection 2)

Oriental Bank Corporation v. Fleming

(1879) L.R. 3 Bora. 242

 Pl signed certain deeds after df told him that it contained formal matters settled between them – it
contained terms releasing property in favour of df
 Held – df had no obligation to disclose – but as pl had placed confidence – df is duty bound not to Comment [I78]: This confidence came
from the fact that they had similar
conceal contracts earlier.

Eyre v. Measday
[1986] 1 All ER 488, CA

 Lady underwent t sterilisation – told process was irreversible – but not that less than 1% chance of
failure and pregnancy – later became pregnant – sued for breach of contract
 Held – no express guarantee of success – not liable

 But in Thake v. Maurice

 [1986] QB 644

 Man undergoing sterilisation – not informed about the failure of this process of sterilisation – held –
responsible for pain and unwanted pregnancy

Elements of suppression of facts vital or material – comes under subsections (2) and (3) of Section 18

R v. Kylsant

[1932] 1 KB 442

 Prospectus stating that Co had regularly paid dividends – as if it was making profits – in fact –
dividend paid from wartime accumulated profits – had been running at a loss for several years – and
this was not mentioned that the company was actually at loss Comment [I79]: We can’t say that the
statement is false but it is not even true.
 Held suppression – misrepresentation

Must be material facts

Bindu Sharma v. Ram Prakash Comment [I80]: Does not necessarily

come into contract

AIR 1997 All 429

 Girl was of higher qualification – told that boy was in a good job – but only an apprentice in a factory
 Held – girl entitled to annulment of marriage Comment [I81]: Fact that is material. It
can be taken as a ground for avoiding
marriage.

14-08-2013

Material facts depend upon the subject matter of each case, the intention of the parties, how did the parties
understand the fact?

But the question is -> was the misrepresentation relating to a fact that was material.
There are also puffing up statements (refer Carlil Carbon Ball Case). Misrepresentation should be of a
material fact.

Opinion is what view a person entertains about his situation. An opinion is not given same amount of
sanctity. If its a matter of opinion then it is not taken as representation of a fact but it is taken as a view
expressed. That’s why opinions are not given the status of representation of any fact if they are
misrepresented.

Now, mere opinion – may not be misrepresentation – but may amount to one

It depends upon from whom it is coming and how much sanctity that person attaches to it.

Change of circumstances – must be informed.

Esso Petroleum v. Mardon

[1976] QB 801

 Co acquired site on main road – for a pump – estimated huge sale of petrol – planning authority
allowed pump to be set up only at the backside – accessible only from side streets – not visible from
the main road – leased to pl without re-estimate – invested money on original estimate
 Held – no action for misrepresentation as the statement was an estimate of future sales rather than
a statement of fact – but df held entitled to damages based on either negligent misstatement at Comment [I82]: See the Court trying to
point out the line of difference between
common law or breach of warranty of a collateral contract. misrepresentation and the estimate made
here!
Its only an estimate not misrepresentation.

 There must have been an inducement.

 There must be no means of discovering truth. Comment [I83]: When you consider
the wrongdoing of another party. You
will put yourself in the place of that
party. If the innocent party has not been
acting as a reasonable man, anything
committed out of the actions cannot be
 Dt – fraud and misrepresentation used as a burden on the other party.

If you are entering into a contract, you

must have your eyes and ears open.
 Fraud – intentional wrong – action in tort for damages Caveat emptor AND Caveat vendor.
Both the parties to contract should
come up to a standard.

 Misrepresentation – means of discovering truth by ordinary diligence – a good defence for the Comment [I84]: Diligence is qualified
by ordinary. It means that a reasonable
wrongdoer – also a good defence in fraud by silence man should have known what is what.

Section 19. Voidability of agreements without free consent.

When consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is
a contract voidable at the option of the party whose consent was so caused. A party to a contract Comment [I85]: The innocent party.

whose consent was caused by fraud or mis-representation, may, if he thinks fit, insist that the
contract shall be performed, and that he shall be put in the position in which he would have been if
the representations made had been true. Comment [I86]: The innocent party
can avoid the contract but can also choose
to avoid it.
Exception - If such consent was caused by misrepresentation or by silence, fraudulent within the
meaning of section 17, the contract, nevertheless, is not voidable, if the party whose consent was
so caused had the means of discovering the truth with ordinary diligence.

Explanation - A fraud or misrepresentation which did not cause the consent to a contract of the
party on whom such fraud was practised, or to whom such misrepresentation was made, does not
render a contract voidable. Comment [I87]: There should be
inducement by the party that enters into
the contract because of the
Illustrations misrepresentation of a material fact by the
other party.

(a) A, intending to deceive B, falsely represents that five hundred maunds of indigo are made This misrepresentation should have been
the reason for you to enter into this
annually at A's factory, and thereby induces B to buy the factory. The contract is voidable at the contract. If otherwise you were going to
enter into that contract, misrepresentation
option of B. cannot be a ground for you to avoid the
contract.

(b) A, by a misrepresentation, leads B erroneously to believe that, five hundred maunds of indigo All these aspects must be kept in mind.
And so a mere misrepresentation is not
are made annually at A's factory. B examines the accounts of the factory, which show that only four sufficient.

hundred maunds of indigo have been made. After this B buys the factory. The contract is not
voidable on account of A's misrepresentation.

(C) A fraudulently informs B that A's estate is free from incumbrance. B thereupon buys the estate.
The estate is subject to a mortgage. B may either avoid the contract, or may insist on its being
carried out and the mortgage debt redeemed.

(d) B, having discovered a vein of ore on the estate of A, adopts means to conceal, and does
conceal, the existence of the ore from A. Through A's ignorance B is enabled to buy the estate at an
under- value. The contract is voidable at the option of A.

(e) A is entitled to succeed to an estate at the death of B; B dies: C, having received intelligence of
B' s death, prevents the intelligence reaching Al and thus induces A to sell him his interest in the
estate. The sale is voidable at the option of A.

 When does this right to avoid the contract (because of misrepresentation) come into existence?
 Right to rescind or affirm comes into existence – after becoming aware of his right to rescind
(when you realise that there was misrepresentation) – affirmation may be express or implied Comment [I88]: Very, very thin line
you have to draw because once affirmed,
 Once affirmed – cannot be rescinded. you cannot go back
  If its implied – it’s very difficult – if the innocent party impliedly affirms it then he will have to continue
with the contract, he may be able to get damages (if misrepresentation is proved) but he will still
have to continue with the contract.

Long v. Lloyd

[1958] 1 WLR 753

 Pl induced by the df to buy a lorry – describing it to be in a good condition – first trip itself broke
down – pl realised misrepresentation – df offered to bear half the cost of the repairs – pl accepted –
next trip – completely broke down – wanted to rescind
 Held – affirmed – he chose to affirm at the first time.

 Rescission (right to rescind) lost – if any third party acquires right – but then the third party must Comment [I89]: Innocent party,
doesn’t know about the fraud, doesn’t
have been acting in good faith know of any vitiating element. As long as
he has been acting in good faith, as long as
he feels he feels he has paid the actual
value, till then only they are said to have
 Rescission - should be done within reasonable time (reasonable depends on case to case) acted in good faith. You’ll have to assess
the actions of third party from their acts.
As long as he acts in good faith, he will be
held to have paid in full value. Then he can
sue for damages.
Section 66. Mode of communicating or revoking rescission of voidable contract-

The rescission of a voidable contract may be communicated or revoked in the same manner, and
subject to the same rules, as apply to the communication or revocation of a proposal. Comment [I90]: This is like an
opportunity given to a party who has
actually entered into a valid contract which
is voidable (till the time the party chooses
it to be void). That option must be
exercised in a proper manner. You can
Rescission – to be followed by restitution revoke a contract in the same way as you
can revoke an offer.

Section 64. Consequences of rescission of voidable contract.

When a person at whose option a contract is voidable rescinds it, the other party thereto need not
perform any promise therein contained in which he is promisor. The party rescinding a voidable Comment [I91]: The moment the
innocent party revokes the contract, the
contract shall, if he have received any benefit thereunder from another party to such contract, other party is freed of all the obligations.

restore such benefit, so far as may be, to the person from whom it was received. Comment [I92]: Otherwise there will
be unjust enrichment.

Rescission – may be by direct notice – or do something to show an intention to rescind Comment [I93]: Expressly or intently

Car & Universal Credit v. Caldwell

[1964] 2 WLR 600

  Sold car to a buyer for a cheque on 12 Jan – cheque bounced – pl wanted to avoid – police
informed – buyer could not be traced – pl informed the automobile assn to trace his car – buyer –
sold it to the df on 15 Jan – pl wanted to recover the car from the df.
 Question – whether there was an effective rescission before the 15 Jan – if there was, then the first
party will get the car, if it was not there then the third party would get the car.
 Held – had rescinded by informing the police and the assn and therefore the third party does not get
the car.

Damages – generally for fraud – may not be given for innocent or negligent misrepresentation

Section 75. Party rightfully rescinding contract entitled to compensation.

A person who rightfully rescinds a contract is entitled to compensation for any damage which he
has sustained through the non- fulfilment of the contract.

Illustration A, a singer, contracts with B, the manager of a theatre, to sing at his theatre for two
nights In every week during the next two months, and B engages to pay her 100 rupees for each
night' s performance. On the sixth night, A wilfully absents herself from the theatre, and B, in
consequence, rescinds the contract. B is entitled to claim compensation for the damage which he
has sustained through the non-fulfilment of the contract.

MISTAKE

Section 20. Agreement void where both parties are under mistake as to matter of fact.

Where both the parties to an agreement are under a mistake as to a matter of fact essential to the
agreement, the agreement is void. Comment [I94]: Both the parties are
mistaken in the same way or both the
parties are mistaken in different
Explanation - An erroneous opinion as to the value of the thing which forms the subject-matter of
the agreement is not to be deemed a mistake as to a matter of fact.

Illustrations

(a) A agrees to sell to B a specific cargo of goods supposed to be on its way from England to
Bombay. It turns out that, before the day of the bargain, the ship conveying the cargo had been cast
away and the goods lost. Neither party was aware of the facts. The agreement is void.
(b) A agrees to buy from B a certain horse. It turns out that the horse was dead at the time of the
bargain, though neither party was aware of the fact. The agreement is void.

(c) A, being entitled to an estate for the life of B, agrees to sell it to C. B was dead at the time of the
agreement, but both parties were ignorant of the fact. The agreement is void.

Section 21. Effect of mistakes as to law.

A contract is not voidable because it was caused by a mistake as to any law in force in India; but a
mistake as to a law not in force in India has the same effect as a mistake of fact.

Illustration

A and B make a contract grounded on the erroneous belief that a particular debt is barred by the
Indian Law of Limitation: the contract is not voidable. Comment [I95]: Mistake of foreign law
is a mistake of fact and not law.

Section 22. Contract caused by mistake of one party as to matter of fact Comment [I96]: Unilateral mistake.

This section makes a distinction with

A contract is not voidable merely because it was caused by one of the parties to it being under a section 20.

mistake as to a matter of fact.

 When a mistake is mutual – no consent u/s 13

False identity – generally in misrepresentation

JagganNath v. Secretary of State (1886)

 Govt wanted to enter into contract with a person – his brother – pretending and representing himself
to be do – induced the govt agent to enter into the contract.
 Held – govt decided – no valid agreement

Boulton v. Jones

(1857) 2 H & N 564

 Pl took over business of B – df had prior dealings with B – without knowing change in ownership –
ordered for certain goods – delivered by pl – later sent invoice – when df discovered the fact he had
already consumed the goods – had a claim of set off against B – refused to pay for the goods – pl
sued.
 Held – not liable – pl could not have substituted himself for B without df’s consent.

Cundy v. Lindsay
(1878) 3 App Cas 459

 Pl received orders from a fraudulent man by name Blenkarn with a street address for Blenkarn & Co
– a well known and reputed firm by name Blenkiron & Co in the same street – pl thought it to be
them and so sent a large quantity of goods (handkerchiefs) – Blenkarn took and sold them to the df
– a bona fide purchaser – pl sued df
 Held – no contract – no consensus as pl did not intend to contract with him Comment [I97]: Mane the plaintiff gets
the handkerchiefs.

19-08-13 Comment [I98]: His intention was

always to have a contract with BBlenkiron
and not this fraud guy.
The situation where the third party is bona fide is complicated. There has to be a choice between two
innocent parties. (see previous case)

Contract void – only when a party intends to contract with a particular opposite party – but due to
mistake – with another party – identity becomes essential

Kings Norton Metal Co. v. Edridge, Merrett & Co.

(1887) 14 TLR 98

 Orders places with pl by one “Hallam & Co” – fictitious firm of one Wallis – supplied the goods on
credit – Wallis sold to df – bonafide purchaser – pl sued the df for value
 Held – only voidable misrepresentation/fraud

The question in the above two cases is ‘who should be given the claim over goods?’

Phillips v. Brooks

[1919] 2 KB 243

 Man named North came to a shop – selected some rings and pearl;s worth 3000 pounds – wrote a
cheque claiming himself to be sir George Bullough – pl (shopkeeper) wanted to make reference in
directory – so pl let him have a ring – before the fraud discovered – North pledged the ring with the
df – advanced 350 pounds in good faith – pl sued for the ring or its value
 Held – pl intended to contract with the person standing in front of him – only voidable Comment [I99]: He didn’t have any
mistake of identity.

Which means the df would have a better

claim of possession of the ring.

BUT in, Ingram v. Little

[1961] 1 QB 31 Court of Appeal

 Sisters – joint owners of a car – advt for sale – person appeared, agreed on price, wanted to give
cheque – man said he was a leading businessman by name ‘Hutchinson; - gave address and
 telephone no – ladies verified from post office as correct – gave him the car cheque worthless –
man resold the car to df and absconded – pl sued the df for the car
 Held – contract was void for mistake – the sisters only intended to deal with Mr. Hutchinson at the
address because they were not willing to offer a sale for payment by cheque from anyone else

This case has received criticism

A new approach by Lord Denning – whether a contract is void or voidable – we should not burden the
innocent buyer

Lewis v. Avery

[1971] 3 WLR 603 Court of Appeal

 Pl wanted to sell his car – man came describing himself a famous film actor – offered cheque –
asked to wait till the cheque was cleared – on persuasion asked for identity – produced a special
pass for admission to film studios with photo and stamp – pl allowed him to take the car – disposed
to innocent buyer the df – pl sued the df
 Going by lord Denning’s opinion – Held – contract was voidable\

2 elements for the third party to be innocent:

1. It should be without notice

2. He should have bought it for value

Mistake as to subject matter of contract – its ownership, identity, quality etc.

Subject matter not existing – III (b) - void

III (a) based on –

Couturier v. Hastie

(1856) 5 HLC 673

 Cargo from Salonica to UK – corn – got fermented – already sold at an intermediate port – buyer
repudiated and sued – df a del creder agent Comment [I100]: When the agent
acts, its like the principal acts. Agent has
 Held – contract void – not liable to pay price to principal taken personal liability.

Corn – at the time of entering into the contract – was already sold

Mistake as to Title

Cooper v. Phibbs

(1867) LR 2 HL 149

 Uncle – claiming that he was entitled to fishery – after his death nephew agreed to rent it from the
Uncle’s daughters – fishery actually belonged the nephew himself
  Held – not only voidable but also can be set aside

20-08-2013

Different subject matter in mind – no true consent

Happens when two parties enter into a contract without thinking on the same lines.

Raffles v Wichelhaus

(1864) 2 H & C 906

 Contract for the sale of cotton to be shipped by ‘The Peerless’ (ship) from Bombay – Peerless has a
sailing from Bombay in October and in December – df thought October – claimant believed it to be
December
 Held – an objective test – a reasonable person would not have been able to state with certainty
which sailing had been agreed – contract was void – no consensus ad idem

Mistake as to existing fact – would become void

Mistake as to future occurrence – only voidable

Mistake must be as to substance – not as to quality alone – unless quality is an essential aspect –
must be as to a fundamental aspect

Smith v. Hughes

(1871) LR 6 QB 597

 Df wanted to buy oats that were old – pl showed sample – did not say anything about age – df kept
it for some time and then ordered – after some portion was delivered – found out that they were new
– rejected on the ground of mistake as to quality
 Held – df not entitled to reject Comment [I101]: True, he asked for
old oats. But after keeping it for a couple of
days he ordered. He had the opportunity to
Bell v. Lever Bros not order it. Held bound by order.

[1932] AC 161 House of Lords

 Pl Lever Bros – appointed df as MD on an annual salary of 8000 pounds for one of their Companies
for 5 yrs – much before co merged with another – df agreed to retire on compensation of 30, 000
pounds – later discovered that df had made secret profit and would have been liable to be
dismissed from the company – pl claimed return of money as paid under mutual mistake with other
grounds
 Held – mistake only as regards quality of service and not to subject matter

But in

Magee v. Pennine Insurance Co Ltd

[1969] 2 All ER 891

 Car bought for 18 year old son of pl – son had a provisional driving license – Manager of showroom
filled insurance mistake that pl had learner’s license – pl did not have – son met with an accident –
pl claimed 600 pounds – Insurance company compromised for 385 pounds – before payment
identified the misstatement – refused to pay
 Held – mistake as to fundamental assumption – agreement liable to be set aside

Mistake as to nature of transaction

Sarat Chandra v. Kanailal

[1929] AIR cal 786

 Gift deed signed under the impression that it was a power of attorney Comment [I102]: Transferring of all
rights of donor to donee
 Held – void
Comment [I103]: Original power
remains with the main guy, and he just
gives a temporary power of execution to
the other person who acts as an agent

 Even if fraudulent transaction – voidable

 If it is as regards character of document – fundamental – void 0 no consent u/s 13

Raja Singh v. Chaichoo Singh

AIR 1940 Pat 201

 Df appointed to look after the pl and his property – as pl too old – df asked for lease of land – pl
agreed – put his thumb impression – on a gift deed of land
 Held – void ab initio

If the written agreement does not reflect the actual intention of the parties

Hartog v. Collin & Shields

[1939] 3 All ER 566

 Agreement – df to sell 3000 hare skins – price quoted in terms of per pound instead of per piece –
much lesser (only one third) – all price negotiations were on per piece – usual practice in trade – df
refused to give the hare skin - pl sued for the goods
 Held – agreement does not reflect df’s real intention – can be rectified

New India Rubber Works v. Oriental Insurance

(1969) 1 Comp LJ 153 (Cal)

  Pl has taken a policy to cover fire, riot and strike – renewal form sent by Co showing premium for all
three – pl sent lesser amount to cover fire alone – policy issued covering fire, riot and strike by
mistake – factory destroyed by fire due to riot – Company defended – riot and strike not covered –
void for mistake
 Held – insurance company was entitled to make the defence

Where the document doesn’t bring the intent of the person, you bring the doctrine:

Non est factum – it is not his deed – mind did not accompany the signature – never intended to sign – no
signature Comment [I104]: The mind did not
accompany the signature. True I signed but
I did not intend to sign that document. And
Foster v. Mackinnon hence, that signature won’t be treated as
my sign, hence the document is not mine.

(1869) LR 4 CP 704

 Person induced to sign on the back side of a paper – not shown the face – told it was a guarantee –
he had earlier signed guarantees – no liability had come upon him – actually a bill of exchange – Comment [I105]: An instrument that is
negotiable.
sued by holder in due course as an endorser.
A negotiable instrument – “pay __ or by
 Held – will not bind him – never intended his order a sum of __ by order” the person
who signs that is called “drawer” he draws
the cheque and hands it over to somebody
else. That somebody else is drawee.
Drawee can take it to the bank and get the
value.
Saunders v. Anglia Building Society (OR Gallie v. Lee)
This person who has drawn the cheque has
the ability to negotiate the cheque. Every
[1970] AC 1004 HL person who hold it is ‘holder in due course’

 78 year widow wanting to help her trusted nephew – intended to transfer her house – condition that
let her stay for the rest of her life without rent – gave title deeds – later nephew came with another
person Lee – who gave a document to sign – saying it was a gift – could not see as glasses were
broken – actually an assignment – Lee mortgaged the house with the society – society claimed
possession – lady pleaded non est factum – said nephew and Lee may raise money on the house
– would do anything to help the nephew
 Held – not mistaken about the character of the document (because she was willing to do anything
for her nephew) – but not put to use as she expected – but she made a statement saying that she
would have signed even if it was a n assignment – it was only voidable by reason of misstatement
by Lee – but too late as the Society had advanced money

Unilateral mistake – s 22 – cannot even be treated as voidable – but if it goes to the root – is
fundamental – void u/s 13

Haji Abdul Rahman v. Bombay and Persia Steam Navigation Company Comment [I106]: Case of Unilateral
Mistake – but it as to a matter which is
fundamental to the contract
(1892) ILR 16 Bom 561
  Charter of a ship – to sail on 10 August 1892 (fifteen days after Haj) – from Jeddah – pl gave
importance to fifteen days after Haj – df did not do so and went by the English date – pl later
discovered that 15 days falls on another date – wanted rectification of date
 Held – not entitled to relief

 If shown as fundamental – has to have certain condition satisfied

 Erroneous belief – other party aware of the mistake – did not bring it to the notice of the party under
mistake – mistake should be one giving benefit to one party

Getting back to section 10:

S. 10. What agreements are contracts

All agreements are contracts if they are made by the free consent of parties competent to contract,
for a lawful consideration and with a lawful object, and are not hereby expressly declared to be
void.

Nothing herein contained shall affect any law in force in India and not hereby expressly repealed by
which any contract is required to be made in writing or in the presence of witnesses, or any law
relating to the registration of documents.

We haven’t done the ‘legality of agreement’ wala part in this definition so we do it now.

LEGALITY OF AGREEMENT

Section 2(g) an agreement not enforceable by law is said to be void

Section 23. What consideration and objects are lawful, and what not

The consideration or object of an agreement is lawful, unless – it is forbidden by law; or is of such

nature that, if permitted it would defeat the provisions of any law or is of 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.

In each of these cases, the consideration or object of an agreement is said to be unlawful. Every
agreement of which the object or consideration is unlawful is void.

Illustrations

(A) A agrees to sell his house to B for 10, 000 rupees. Here B' s promise to pay the sum of 10, 000
rupees is the consideration for A' s promise to sell the house, and A' s promise to sell the house is
the consideration for B' s promise to pay the 10, 000 rupees. These are lawful considerations.
(b) A promises to pay B 1, 000 rupees at the end of six months, if C, who owes that sum to B, fails to
pay it. B promises to grant time to C accordingly. Here the promise- of each party is the
consideration for the promise of the other party and they are lawful considerations.

(c) A promises, for a certain sum paid to him by B, to make good to B the value of his ship if it is
wrecked on a certain voyage. Here A's promise is the consideration for B's payment and B' s
payment is the consideration for A's promise and these are lawful considerations.

(d) A promises to maintain B' s child and B promises to pay A 1, 000 rupees yearly for the purpose.
Here the promise of each party is the consideration for the promise of the' other party. They are
lawful considerations.

(e) A, B and C enter into an agreement for the division among them of gains acquired, or to be
acquired, by them by fraud. The agreement is void, as its object is unlawful. Comment [I107]:

Fraud involves intention to deceive. Ins s.

(f) A promises to obtain for B an employment in the public service, and B promises to pay 1, 000 17, fraud is regard to, consent but here, it
is in regard to object of the contract
rupees to A. The agreement is void, as the consideration for it is unlawful. because of which it is void.

(g) A, being agent for a landed proprietor, agrees for money, without the knowledge of his principal, Comment [I108]:

to obtain for B a lease of land belonging to his principal. The agreement between A and B is void as Getting employment in public service-not
unlawful.
it implies a fraud by concealment, by A, on his principal. But procuring it for someone-object
becomes unlawful-void

(h) A promises B to drop a prosecution which he has instituted against B for robbery, and B
promises to restore the value of the things taken. The agreement is void, as its object is unlawful. Comment [I109]:

If such contract is permitted it would

(I) A's estate is sold for arrears of revenue under the provisions of an Act of the Legislature, by defeat the provision of law.

which the defaulter is prohibited from purchasing, the estate. B, upon an understanding with A,
becomes the purchaser, and agrees to convey the estate to A upon receiving from him the price
which B has paid. The agreement is void, as it renders the transaction, in effect a purchase by the
defaulter, and would so defeat the object of the law.

(j) A, who is B' s mukhtar, promises to exercise his influence, as such, with B in favour of C, and C
promises to pay 1, 000 rupees to A. The agreement is void, because it is immoral.

(k) A agrees to let her daughter to hire to B for concubinage. The agreement is void, because it is Comment [I110]:

immoral, though the letting may not be punishable under the Indian Penal Code (45 of 1860). Cohabitation without legally getting
married.

In each of these cases, the consideration or object of an agreement is said to be unlawful. Every
Comment [I111]:
agreement of which the object or consideration is unlawful is void.
Nothing illegal about it, but it is IMMORAL.
Any agreement, which has an object or
If you bring fraud under s. 17, in relation to consent, then the contract is only voidable. consideration which is immoral, will be
struck down

If you bring fraud under s.23, in relation to object or in relation to consideration, then the contract is void.

FORBIDDEN BY LAW

Ramanarayadu v Seetharamayya (1935)

  Pl licensed to run a liquor shop – law forbade transfer or sale – pl took df as partner
 Held – partnership void – amounted to transfer

 Must depend on the provisions – and its prohibition – purpose of

Jaswinder Singh v Sanjogta Nanda

(1996) 113 PLR 60 (P&H)

 Sale of property in India by an NRI – FERA – required prior permission from RBI – otherwise liable
for penalty
 Held – purchaser was entitled to the title as that would not affect the transaction

Mohamed v Alaga & Co.

[1998] 2 All E.R. 720

 Solicitor agreeing to share fee with person introducing clients – violation of Solicitor’s Practice Rules
 Held – cannot get enforced – may ask for reasonable remuneration for services

DEFEAT THE LAW

Seetharamaiah v Kommineni Punnaiah

1996 (3) ALT 27

 Agricultural land – borrowed money – became discharged by waiver in statutory provision – sold the
land – discharged debt also shown as consideration
 Held – transaction was unlawful – defeating the policy to relieve burden – would be defeated

Fraudulent

Ram Lal Misra v Rajendra Nath Sanyal

AIR 1933 Oudh 124

 Pl – a decree holder from debtor – debtor has another decree holder against him – pl had the
debtor’s property attached and put to sale – agreed with prospective buyer not to bid – df agreed to
pay him off – property auctioned for a very small amount – later df refused
 Held – whole object was fraudulent – to defeat the interest of the other decree holder – could not
recover

INJURIOUS TO PERSON OR PROPERTY

Ram Sarup v Bansi Mandar

(1915) ILR 42 Cal 742

 Borrowed Rs. 100 – bond – promising to work for the pl for 2 years without pay – default –
exorbitant interest and principal sum
 Held – amounted to slavery – injurious to person

Beresford v Royal Insurance

[1937] 2 KB 197

 Insured – committed suicide to enable representatives to get insurance money

 Held – benefit though own crime – not entitled to recover

Giles v Giles

[1971] 3 All ER 1141

 On husband’s death property to go to wife – wife murdered the husband

 Held – not entitled to enjoy succession Comment [I112]:

This result can also be arrived through the

IMMORAL common law principle that one cannot
benefit from his own crime.

Baivijli v Nansa Nagar

(1885) 10 Bom. 152

 Married woman given money – to facilitate her obtaining divorce – so that lender could marry
subsequently
 Held – lender could not recover the money

27-08-13

Uphill v Wright

(1911) 1 KB 506

 Df took a flat on rent – to stay as a mistress to another person. This was known to the pl – used it
for that purpose – failed to pay rent – sued
 Held – not entitled to recover – since he (pl) knew the object of the agreement and the object was
immoral
 Now what is moral and what is not is a matter of opinion

Public Policy

Something that MAY go against the interest of the public. Depends on how you describe it. Many a times, it
is left to the whims and fancies of a judge, which is why a judge should always be cautious as to what
should be a public policy. The concept of public policy is an unruly horse. It will take its rider wherever it
wants. Similarly, the judges are cautioned, that as and when they use this policy.

 Unruly horse – once you get astride – you never know where it will carry you
 Advancement of public good – prevention of mischief to public

Pandian v Roy

AIR 1979 Mad 42

 Money was paid to get a seat in a medical college – did not get – sued to recover
 Held – perversion of selection by merit is injurious to public interest

 Corruption cases – cannot be recovered

 Some recognised heads of public policy

 English courts – tried hard to stick to them – weren’t interested in rediscovering concepts of these
matters
 India – new heads may be created under the head of public policy

One of the heads in public policy -> Trading with Enemy

Any agreement, performance of which gets advantage to the enemy can be classified as void.

Now, the question is who is an enemy? Your war enemy?

For somebody to be your enemy, you have to first declare a war. All states try hard not to declare a war
because the humanitarian laws come into play and binds the hands of the member countries.

Sale of Public Office or Title – appt in consideration of money

Who is a public servant?

Parkinson v College of Ambulance

Comment [I113]:
[1925] 2 KKB 1 Multiple jurisdiction is possible. If a person
abducted from Delhi, is brought to Kochi in
a train. Which court will have jurisdiction?
 Amount as donation – on agreement that the df would procure a knighthood for the pl
Cause of action is a continuing one. Then
 Held – void all the courts on the way to Kochi will have
jurisdiction.

Interfering with the course of justice If there are multiple courts having
jurisdiction and the parties agree to limit
jurisdiction to one court. Is THAT opposing
Hakam Singh v Gammon (India) Ltd. to the public policy? This was the question.

Jurisdiction is a question of law. Parties

AIR 1971 SC 740 cannot agree to confer jurisdiction on a
court which has no jurisdiction. But parties
can agree to limit jurisdiction to a
 Parties agreeing to confer jurisdiction on a particular court when other courts also had jurisdiction particular court, when MULTIPLE COURTS
HAVE JURISDICTION.
  Held – not opposed to public policy

Stifling prosecution – Agreements not to prosecute and offender or withdraw prosecution - void

Prosecution is a matter where there is public interest – if you have an agreement where you are in any
manner relieving a person who committed a crime, then that agreement is void.

Can compromise – if the act is compoundable under CrPC

Narasimha Raju v Gurumurthy Raju

AIR 1963 SC 107

 Partnership firm – dissolved – one of the partners filed criminal case against others alleging forgery,
manipulation of accounts etc – some non compoundable – later entered into an agreement to refer
to an arbitrator – as a part of agreement complainant did not offer evidence – complaint rejected –
dispute referred to arbitrator – passed award – question odd its enforcement – argues that it was Comment [I114]:

based on a agreement to stifle prosecution Arbitrator’s judgment is called award.

 Held – agreement opposed to public policy

Maintenance & Champerty

Every dispute brings an imbalance in the society. So, it is in the interest of public interest that disputes are
kept to minimum. You keep people from running to the courts for every damn thing. Even if they do, the
dispute should be sorted out at the earliest.

Encouraging litigation is treated to be against the public policy.

 Maintenance – agreement to render assistance by money or otherwise to litigate – with no interest

of his own – promoting speculative litigation

Speculation – give it a try type attitude – this is not encouraged. Litigation should not be done with lets-just-
so-it-whats-there-to-lose type attitude.

 Champerty – agreement to assist a person to recover property for it to be shared later. There may
be an element of maintenance here too.

The aggrieved person should come to the court himself.

 Not automatically void – you have to look for elements of moral turpitude, bad faith and
unconscionable elements
 Legal practitioners – prohibited

Harilal v Bhailal

AIR 1940 Bom. 143

  Agreement – to give half of the share of Rs. 30, 000 property to financier – as he might get from
litigation or settlement from father’s estate.
 Held – extortionate and unconscionable

Marriage Brokerage Contracts – procure marriage for reward – void

They remain agreements, but not treated as contracts

Trade Ethics – being against Public Policy

Lilly White v Mannuswami AIR 1966 Mad 13 -> already done

Continuing with void agreements........

Specific agreement

s.2 (g) an agreement not enforceable by law is said to be void

Section 24. Agreement void, if considerations and objects unlawful in part.-

If any part of a single consideration for one or more objects, or any one or any part of any one of
several considerations for a single object, is unlawful, the agreement is void.

Illustration

A promises to superintend, on behalf of B, a legal manufacture of indigo, and an illegal traffic in

other articles. B promises to pay to A, a salary of 10, 000 rupees a year. The agreement is void, the
object of A's promise, and the consideration for B's promise, being in part unlawful.

Alice v William

(1905) ILR 27 All 266

 Promise to pay a certain sum to a married woman to live in adultery and to keep his house –
unlawful (adultery) and lawful (keeping his house)
 Held – since it was impossible to separate the two – the entire agreement will have to be treated as
void

Blue Pencil Theory - If it is possible that the legal and illegal part can be separated and depending upon
the illegality, if it is not very wrong; just because a small part is wrong doesn’t mean that the whole contract
will be void. But then again that depends on facts and circumstances of each case – it’s like picking up a
blue pencil and trying to separate the legal and illegal parts of the contract. You can enforce the legal part
alone without enforcing the illegal part of the contract. This is an exception and not a rule. It depends upon
nature of contract, the nature of the illegal part and other facts and circumstances of the contract.

29-08-13 Comment [I115]:

It should be noted that the year of this Act

Section 26. Agreement in restraint of marriage void.- was 1872. Hence, they are talking about
child marriage.
Every agreement in restraint of the marriage of any person, other than a minor, is void. Comment [I116]:

Even if a person agrees so as to put upon

Penalty upon remarriage – may not be considered as restraint himself a restrain, such an agreement is
void. That person would not be bound to
the restrictions that he has imposed upon
Rao Rani v Gulab Rani himself.

AIR 1942 All 351

 Agreement between co-windows – remarriage would forfeit her share in deceased husband’s
property
 Question – is this agreement in restrain of marriage.
 Does it say that one shall NOT marry? It says what would happen IF you remarry.
 Held – no restraint on marriage – void

Section 27. Agreement in restraint of trade void.-

Every agreement by which any one is restrained from exercising a lawful profession, trade or
business of any kind, is to that extent void. Comment [I117]:

The entire agreement will not go down, but

Exception 1 - Saving of agreement not to carry on business of which goodwill is sold - One who that clause which related to restrain of
trade an that part alone will be treated as
sells the good - will of a business may agree with the buyer to refrain from carrying on a similar void.

business, within specified local limits, so long as the buyer, or any person deriving title to the This is because nobody should be restricted
from earning a livelihood just because it
goodwill from him, carries on a like business therein, provided that such limits appear to the Court would prove to be a detriment on
somebody else’s earnings. A person’s
reasonable, regard being had to the nature of the business. freedom cannot be taken away.

But we are not protecting one side alone

May be general or partial – qualified or unqualified especially in the era of frog jumping from
one job to another. Where an employee
has no commitment towards an employer
Madhub Chander v Raj Coomar and is willing to switch loyalties. This,
makes it necessary to put such clauses in a
contract.
(1874) Bom. LR 76
Comment [I118]:
 Rival show owners – agreement – df would pay the other if he closed his business in the locality – pl
Reputation of a particular business is one
did so – df did not pay – pl sued claiming that restraint was only partial which would have been held of its assets. There is a certain value
(monetary value) attached to reputation
by English courts as valid and if that value is sold as a part of the
contract.
 Held – void
If you have sold your goodwill, and you
have agreed to restrain yourself (a
Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd reasonable one, according to the facts and
circumstances of each case) then it can be
treated as valid. These restrictions may me
[1894] AC 535 general or qualified.

 Inventor and manufacturer of guns – sold his business - sale of goodwill – agreement with buyer –
condition not to practice the trade for the next 25 years and not to engage in any competing Comment [I119]: Valid

business in present or in future – later agreement with another manufacturer of guns and Comment [I120]: Invalid

ammunition - buyer brought action to restrain

 Held – first part valid – not the second

EXCEPTIONS
 1. Goodwill when sold – terms must be reasonable
2. Partnership Act – partners may be restrained from carrying on business – within local limits and for
a reasonable period – reasonable restrictions while in the firm – an outgoing partner in anticipation
of dissolution – retiring partner

Trade Combinations

Kores Manufacturing Co. Ltd. v. Kulok Manufacturing Co.

(1959) Ch.

 Two companies – engages in manufacturing process of similar products – technical knowledge

involved – agreement – not to employ persons who were in the employment of the other within
previous 5 years without the other’s consent Comment [I121]: This restrained trade
and that is why they claimed it to be void.
 Held – void
 Prices fixing agreements are treated as anti-competitive.
 Regulation of prices, output – if it does not restrain – would be treated as valid

02-09-13

Sole selling agents – sell it only to him – agreements held valid – if surplus – could be sold to others.

Esso Petroleum Co. Ltd. v. Harper’s Garage

[1968] AC 269

 Agreement Esso Co – with two garages – by which the garages were bound to buy their whole
requirement from Esso and run them according to the co-operation plan – one garage bound for 4
and a half years and the other for 21 years (mortgage and loan to be repaid in 21 yrs and not less)
 Held – 4 years was okay but 21 years was unreasonable period – void
Contracts may become unreasonable later on though at the time of the inception of the contract, it
might be reasonable

Shell v Lostock Garages

[1976] 1 WLR 1187

 Petrol pump tried to shell for a reasonable period – sharp rise in petrol price – some other
companies encouraged cutting in price – Shell did not require cut but sought to support pumps
suffering losses upto a certain level – Lostock sales did not suffer much – did no0t come within
Shell’s support plan – he sought to get supplies from others – injunction sought by Shell against
Lostock
 Held – cannot be granted – though it might have been reasonable in the beginning, but after the
changed circumstances it is not.
Restrain upon employees

Employees can be restrained from taking part in any business in direct competition.

Charlesworth v Mac Donald (1898)

I.L.R. 23 Bom. 103

 A person agreed to an assistant to a physician and surgeon for 3 yrs – restricted from practicing
after 1 year – left service – began practice independently
 Held – should not practice for 3 years as he had agreed to

Reasonable protection against exploitation of trade secrets

Mason v Provident Clothing

[1913] AC 724

 Person canvassing business – employer restricted him from doing the same for 3 years after
termination of service
 Held – capacity to canvass is a natural gift – no special training provided by the employer – cannot
restrain

Fitch v Dewes

[1920] 2 Ch 159

 Clerk of a solicitor – restrained from practicing within y7 miles of the city

 Held – reasonable – for the benefit of both

Section 28. Agreements in restrain of legal proceedings, void. -

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 the extent.

Exception 1: Saving of contract to refer to arbitration dispute that may arise. This section shall not Comment [I122]: You can agree to go
for arbitration. Limiting yourself to this
render illegal contract, by which two or more persons agree that any dispute which may arise won’t be held illegal by this section of the
contract Act.
between them in respect of any subject or class of subject shall be referred to arbitration, and that
Comment [I123]: This exception talks
only and amount awarded in such arbitration shall be recoverable in respect of the dispute so about the arguments that are already
existing and then the parties agree to
referred. arbitration; THAT is permissible.

If parties have agreed to arbitration then

first they WILL have to go for arbitration
Exception 2: Saving of contract to refer question that have already arisen - Nor shall this section and before that a civil court is not allowed
to have jurisdiction on that matter. This is
render illegal any contract in writing, by which two or more persons agree to refer to arbitration any an indirect way of encouraging arbitration.
It’s not like they are SHUTTING out the
question between them which has already arisen, or affect any provision of any law in force for the court of law for rectifying the grievance.
What is being said here that parties must
time being as to reference to arbitration. FIRST pursue course of arbitration.
03-09-13

This section gives right to people for legal rights. In some agreements, there is a waiver of rights but if
these waivers affects the right of a person to go to a court of law for justice, then that part of the agreement
shall be void.

In some cases, the parties agree to the fact that their agreement should not be enforceable. That is the
intention of the parties. But here we are talking about agreements which have the effect of restricting,
regulating or totally taking away the right of a person to approach the court for a legal proceeding. To THAT
extent the contract would be void. Otherwise, the other parts of the agreement would not be void.

What is bad is ABSOLUTE RESTRICTION. Partial restriction is fine. Because you cannot deny a person of
that right and you cannot contract to the contrary OR you cannot have a contractual agreement having the
contrary position.

Award and Judgment – Sanctity attached to Award

The sanctity that is given to arbitration is so high these days so much so that the award given by arbitration
is considered as good as the judgment as the court of law.

Judgment won’t make any sense if remains a judgment. It should become a decree and then there should
be execution of the decree wherein the state and law comes to your help to get your rights enforced.

There is a sanctity attached to Arbitral Awards. This is done so that alternative dispute resolution
mechanisms are used instead of people approaching a court of law.

Restraint off legal proceeding – void – where the party restricted absolutely

Till1997 – distinction between cutting short a period of limitation and a clause providing for extinction of
rights after a specified period – by courts as in

Food Corporation of India v New India Assurance Co. Ltd.

AIR 1994 SC 1896

 The clause in the agreement that the appellant would not have any right under the bond after the
expiry of six months from the date of termination of contract has been held not to be contrary to
section 28 of the Act not it imposed any restriction to file a suit within six months.

Why should there be a period specified by law to seek redress? Why can’t a person come any time?

Firstly, law come to the aid of those who are vigilant.

Secondly, law wants all disputes to go away as early as possible. It should be settled. Which way it is
settled, it doesn’t care.

Thirdly, if a person chooses not to choose legal proceeding for redress, then he should come promptly.
If he comes, as time passes, the quality of evidence deteriorates.

Now can the parties further shorten this period in which they can approach the courts?

But still – a clause of forfeiture of surrender or right may still be held valid – for loss or damage can be
measured accurately only when the matter is afresh

Prithvi Nath v Union of India

AIR (1962) J&K 15

 Govt contract - clause that president of India – shall be discharged from liability – unless arbitration
or suit commenced within 6 months from the expiration of period
 Held – valid

But – when it is against a statutory provision

MG Brothers Lorry Service v Prasad Textiles

Air 1984 sc 15

 Carriers Act – s. 10 – notice of loss or damage to given within 6 months – contract – notice to be
given within 30 days of arrival of goods
 Held – void – as contrary to statutory provision

Hakam Singh v Gammon (India) ltd

AIR 1971 SC 740

Section 29. Agreements void for uncertainty.-

Agreements, the meaning of which is not certain, or capable of being made certain, are void.

Illustrations

(a) A agrees to sell to B" a hundred tons of oil". There is nothing whatever to show what kind of oil
was intended. The agreement is void for uncertainty.

(b) A agrees to sell to B one hundred tons of oil of a specified' description, known as an article of
commerce. There is no uncertainty here to make the agreement void.

(c) A, who is a dealer in cocoanut- oil only, agrees to sell to B" one hundred tons of oil". The nature
of A’s trade affords an indication of the meaning of the words, and A has entered into a contract for
the sale of one hundred tons of cocoanut- oil.
(d) A agrees to sell to B"all the grain in my granary at Ramnagar". There is no uncertainty here to
make the agreement void.

(e) A agrees to sell B"one thousand maunds of rice at a price to be fixed by C". As the price is
capable of being made certain, there is no uncertainty here to make the agreement void.

(f) A agrees to sell to B" my white horse for rupees five hundred or rupees one thousand".' There is
nothing to show which of the two prices was to be given. The agreement is void.

Agreements must be sufficiently definite – parties must know – mutual rights and obligations

Guthing v Lynn

(1831) 109 ER 1130 KB

 Horse bought for a price – promise to give 5 pounds more if it proved lucky
 Held – void for uncertainty

Agree to agree or negotiate in future - void Comment [I124]:

There can’t be a contract to enter into a

May and Butcher Ltd. v R contract

[1934] 2 KB 17n (HL)

 Agreement – sale of certain goods – with stipulation that – price, dates of payment and manner to
delivery “shall be agreed upon from time to time” Comment [I125]:

 Held – void DO NOT CONFUSE THIS WITH STANDING

OFFER.

No contract to contract

Courtney v Tolaini

[1975] 1 All ER 716

 Property owner and developer cum contractor met to look for collaboration – contractor mention
certain financiers and said – if arrangements were made with the financiers introduced by him –
they can enter into a reasonable and fair building contract – differences in price fixation –
negotiations failed – owner enter into a building contract with others using the same source – sued
for breach of contract which was either made or contracted to be made.
 Held – there can be no contact to contract or negotiate

But if negotiations have already taken shape – can be compelled

Mallozzi v Carapelli

[1976] 1 Lloyd’s Rep. 407

 Contract to ship oats and maize from Argentina to the West Coast of Italy – port of unloading to be
decided when the ship crossed the straits of Gibraltar – seller, without consulting buyer – ordered it
to be unloaded at Naples – buyer had trouble in unloading due to congestion and also transporting
– buyer sued – seller claimed contract left to future – so void
 Held - definite agreement that port of unloading would be settled by mutual agreement – breach of
the same Comment [I126]:

Aspect of uncertainty in an agreement. Just

because of small elements of uncertainty,
the entire contract shall not be void,
thought the section doesn’t say that “it is
Partial Uncertainty – but capable of being made certain – contracts will be considered valid void to that extent”

Chandra Shekhar v Gopinath

AIR 1963 All 248

 Agreement – tenant to construct sitting place and a new gate – cost to be reduced from rent – cost
of construction not known and not mentioned
 Held – capable of being made certain Comment [I127]:

Uncertainty may not always pull down the

Section 30. Agreements by way of wager void.- agreement.

Ideally, we would prefer everything to be

Agreements by way of wager are void; and no suit shall be brought for recovering anything alleged written down in the contract.

to be won on any wager, or entrusted to any person to abide the result of any game or other Comment [I128]:
uncertain event on which any wager is made.
Even if both the parties entrust the money
to someone, and he doesn’t do anything in
Exception in favour of certain prizes for horse-racing. - This section shall not be deemed to render the end, the contract is still unenforceable.
Law won’t care about unjust enrichment.
unlawful a subscription or contribution, or agreement to subscribe or contribute, made or entered
Comment [I129]:
into for or toward any plate, prize or sum of money, of the value or amount of five hundred rupees
Here is a situation where a promise is
or upwards, to be awarded to the winner or winners of any horse-race. made, to pay money or money’s worth and
it is determined upon the outcome of an
uncertain event. This uncertain event is
Section 294A of the Indian Penal Code not affected. - Section 294A of the Indian Penal Code not uncertain as far as the parties are
concerned because the parties have no
affected. - Nothing in this section shall be deemed to legalize any transaction connected with horse- control over the event. Even though they
don’t have any control, there is a promise
racing, to which the provisions of section 294A of the Indian Penal Code (45 of 1860) apply. to pay money or money’s worth on the
happening of such an event. Secondly, the
parties must not have any interest in the
Wager – promise to give money or money’s worth – on determination or ascertainment of an uncertain event other than this aspect of wager. It is
event then when it is recognized as a wager.

Comment [I130]:
Uncertain event – generally a future event – may even be past – where both the partied do not know
Horse racing the only exception found
the result here.

And for it to be a wager, there must be a mutuality of winning or losing Comment [I131]:

This section discourages betting.

Babasaheb v Rajaram
It speaks about unenforceability.
(1931) 33 Bom. LR 260

 Wrestlers agreeing to play a match – condition that party failing to appear will have to give Rs. 500
to the other – df failed to appear – pl sued
 Held – not wagering – as not dependent upon the result of the match

Neither of the party should have control over the event.

No other interest in the event other than this wager

Effect – no amount involved can be recovered from anyone – not forbidden by law – agreement is void – so
transactions that are collateral may be enforced because wagering agreements are not illegal, they are
unenforceable.

Gheru Lal Parekh v Mahadeo Das

AIR 1979 SC 781

 Partnership to enter into wagering transactions – losses – one partner pays off – sue to recover the
other’s share
 Held – can recover proportionately – because here we are talking about something collateral to the
wagering agreement. Though we can equally say that the parties should suffer what they have
suffered.

EXCEPTIONS

Horse Races

Difference between crosswords and lottery Comment [I132]:

It allowed by the government because it

Crosswords involves skill – not a wager brings taxes to the government.

Subhash Kumar Manwani v State of MP

AIIR 2000 MP 109

 Lottery organized by the Raffles Committee of Indore for raising funds for a TT Trust – with the
permission of the State Government.
 Held – suit for recovery of prize money cannot be allowed even though they took permission from
the State Government

Aspect of voidness, makes the contract unenforceable.

04-09-13

Void and Illegal Transactions

  Every illegal transaction is void – but every void transaction need not be illegal – in both, main
transaction is void
 Ex dolomalo non orituractio – no aid to the man founding action on illegal or immoral act – leave Comment [I133]:

the parties where they are Both iillegal and immoral in this.
Anything that has malice in it, something
 Ex turpi causa non oritur actio – from a dishonourable cause an action does not arise with a bad element, a person wpont be
able to base his action/suit/case from a
particular transaction which is mala or bad
Exceptions or dirty.

Courts will take a hands off policy. It would

 Where severance is possible – agreements partly illegal not interfere whether there is undue
advantage, undue enrichment, loss or
profit.
Nordenfelt v Maxim Nordenfelt
Law doesn’t want to give that kind of
impression where it gives a damn about
Esso Petroleum v Harper’s Garage mala acts.

Can be treated as partly void.

Goodinson v Goodinson

[1954] 2 All ER 255

 Agreement between husband and wife – husband to pay maintenance – wife not to sue him as long
as he paid and not to sue for divorce even if he lived in adultery – husband defaulted – wife’s action
– contended that the whole agreement was unlawful.
 Held – only the particular clause on consequence of adultery unlawful – the rest can be enforced.

Parties not in paridelicto

 The less guilty may be able to recover money paid or property transferred
 Generally in cases of weaker party whose interest is protected, inducement by fraud or coercion
and fiduciary relationship

Mistry Amar Singh v Kulubya

(1963) All ER 499

 Law prohibiting transfer of lands from Africans in Uganda – by a lease given to a non-African – Comment [I134]:

African sued for possession and recovery of rent – contended illegality by other party These restrictions are there to protect the
local tribes or the local people.
 Held – entitled to recover rent
Comment [I135]:

Technically lease itself was illegal and

hence rent was illegal too.
Contract still executor
But these policies are there to protect the
weaker party.
Illegality – degree off closeness to illegality and its nature – locus poenitentiae – must be reverted fromm
well before attempting to commit the illegality – in such cases, recovery may be possible, because illegal
act has not been done but where the agreement was to do an illegal act

Where recovery is possible independent of the illegal contract

Singh v Ali

[1960] AC 167 (PC)

 Pl purchased a lorry from the df and running – but df continued to be the registered owner – as he
had the license of haulage – later df took forcefully possession off the lorry – pl sued to recover. Comment [I136]: In cases like these,
you may have to differentiate between the
 Held – though illegal – transfer was already complete entitled to recovery de jure owner and the de facto owner.

De jure – df
De facto – pl (in this case)

Collateral transactions – where main transaction only void and not illegal – may be enforced

Discharge of Contracts

-Performance

-Impossibility of performance

-Agreement

-Breach

When you say discharge, you think of getting away from something. But it has different meanings as well.
99.999% contracts are honoured. Some rights and liabilities if have been created, when they are
performed, they are discharged.

The most common way by which discharge takes place is performance. Another is impossibility of
performance.

Next, is the ending of rights and liabilities created by agreement? End the whole thing by another
agreement.

Then there is breach. Breach not to enter performance, but breach to recognize the losses.

Section 31. " Contingent contract" defined.-

A "contingent contract" is a contract to do or not to do something, if some event, collateral to such

contract, does or does not happen.
Comment [I137]: Insurance contracts,
crop insurances are like that.
Illustration Nobody wants the result – but the event is
uncertain – neither of the parties want it to
happen – but it’s an event that may
A contracts to pay B Rs. 10, 000 if B's house is burnt. This is a contingent contract. happen
Rights and liabilities flow on the basis of
happening or not happening of an event.
Conditional Contract – contingency (again, uncertainty – may or may not happen OR happening of Comment [I138]:
something unforeseen) – uncertain even collateral – performance dependent upon the contingency – must The uncertain event should come first and
then comes the question of performance.
be condition precedent
There cannot happen a ‘condition
subsequent’ cannot happen. Contingency
09-09-13 must occur before the performance. After
all the performance, you cannot say that if
something happens or doesn’t, you will go
back on the performance.
First we must understand when such contracts are performable. Most of them are to be performable
immediately, but there are no chances of it being left as uncertain agreements because if the terms and
conditions of a contract are left open subject to the interpretation of parties at a later date, then
performance depends upon it.

Here, uncertainty is with regard to a collateral event (does or does not happen). Contract ITSELF cannot be
uncertain. Terms are not uncertain. Parties are clear. It’s just that such obligations come into force with
regard to a collateral event which is uncertain. (COLLATERAL EVENT IS UNCERTAIN)

The obligations are dependent upon the ‘uncertain’ EVENT (the event’s happening or not happening). It
should be NOTED that the terms and obligations and everything is clear.

Section 32. Enforcement of contracts contingent on an event happening.-

Contingent contracts to do or not to do anything if an uncertain future event happens cannot be

enforced by law unless and until that event has happened. If the event becomes impossible, such
contracts become void.

Illustrations Comment [I139]:

Death is not uncertain, its timing is

(a) A makes a contract with B to buy B' s horse if A survives C. This contract cannot be enforced by uncertain.

law unless and until C dies in A's lifetime. That is the difference between other
contracts and life insurance contracts.
(b) A makes a contract with B to sell a horse to B at a specified price, if C, to whom the horse has
In this illustration, if A dies before C, then
been offered, refuses to buy him. The contract cannot be enforced by law unless and until C refuses contract becomes frustrated.

to buy the horse. Comment [I140]:

(c) A contracts to pay B a sum of money when B marries C. C dies without being married to B. The Contingency is C refuses to buy the horse.
These are all valid contracts just that
contract becomes void. obligations of the contracts come into
existence depending upon the happening
or non happening of a collateral event.
Once event happens – contingent contract ripens to absolute – if it becomes void, then it becomes void
It is as if the contract is waiting to ripen. Look above line. Comment [I141]:

Here, impossibility is what makes the

contract enforceable. It is the reverse of
Section 33. Enforcement of contracts contingent on an event not happening.- what we see in section 32.
Contingent contracts to do or not to do anything if an uncertain future event does not happen can
be enforced when the happening of that event becomes impossible, and not before. Comment [I142]:

Illustration For all practical purposes the event is

impossible.
A agrees to pay B a sum of money if a certain ship does not return. The ship is sunk. The contract
In situations where there is a ‘may be’, the
can be enforced when the ship sinks. contract is deemed void. Because it is
based on further contingencies.

Here, D ‘may’ die and B becomes single

Section 34. When event on which contract is contingent to be deemed impossible, if it is the future again and then marries D. But then the
contract
conduct of a living person.-
If the future event on which a contract is contingent is the way in which a person will act at an
unspecified time, the event shall be considered to become impossible when such person does
anything which renders it impossible that he should so act within any definite time, or otherwise
than under further contingencies.
Illustration
A agrees to pay B a sum of money if B marries C. C marries D. The marriage of B to C must now be
considered impossible, although it is possible that D may die and that C may afterwards marry B.

This section was based on the following case.

Frost v Knight
L.R. 7 Exch. 111 (1872)
 Df promised to marry pl after his father’s death – while alive married another woman
 Held – entitled to sue for breach – it will be deemed to be impossible

Section 35. When contracts become void which are contingent on happening of specified event
within fixed time.-

Contingent contracts to do or not to do anything if a specified uncertain event happens within a

fixed time become void if, at the expiration of the time fixed, such event has not happened, or if,
before the time fixed, such event becomes impossible. Comment [I143]: In s. 32 there was no
time window, here there is a time window.
It is about the event happening in specified
When contracts may be enforced, which are contingent on specified event not happening within time.

fixed time:

Contingent contracts to do or not to do anything if a specified uncertain event does not happen
within a fixed time may be enforced by law when the time fixed has expired and such event has not
happened or, before the time fixed has expired, if it becomes certain that such event will not
happen.

Illustrations

(a) A promises to pay B a sum of money if a certain ship returns within a year. The contract may be
enforced if the ship returns within the year,' and becomes void if the ship is burnt within the year.
(b) A promises to pay B a sum of money if a certain ship does not return within a year. The contract
may be enforced if the ship does not return within the year, or is burnt within the year.

Section 36. Agreement contingent on impossible events void.-

Contingent agreements to do or not to do anything, if an impossible event happens, are void, Comment [I144]:

whether the impossibility of the event is known or not to the parties to the agreement at the time Those are contracts of personal nature.
Normally, the obligations under the
when it is made. Illustrations contract, if the party undertaking the
contract goes out of the picture and not
just because of death but in any other case.
(A) A agrees to pay B 1, 000 rupees if two straight lines should enclose a space. The agreement is When that happens, obligations passed on
to legal representatives.
void.
Remember, we are not talking about a
(b) A agrees to pay B 1, 000 rupees if B will marry A's daughter C. C was dead at the time of the legal heir. Representative is someone who
has to take the place of the original party in
agreement. The agreement is void. case he is out of the picture.

This can happen unless a contrary

indication comes from the contract.
Because we give most importance to the
intention of the parties. If the parties don’t
Performance intend to fulfil the contract, then the law
cannot poke its nose here.
Section 37. Obligation of parties to contracts.- Like painting a picture. If the painter dies,
then the thing here is that the skill won’t
be the same. It would be of no use if the
The parties to a contract must either perform, or offer to perform, their respective promises, unless painter’s representatives paint the other
guy’s picture.
such performance' is dispensed with or excused under the provisions of this Act, or of any other
law.
Comment [I145]:

Promises bind the representatives of the promisors in case of the death of such promisors before This contract can’t be completed either by
A’s representative or B’s representatives.
performance, unless a contrary intention appears from the contract.

Illustrations Comment [I146]:

Not equal to performance BUT equivalent

(a) A promises to deliver goods to B on a certain day on payment of Rs. 1, 000. A dies before that to performance.

day. A's representatives are bound to deliver the goods to B, and B is bound to pay the Rs. 1, 000 to Not necessary that every non performance
means breach.
A's representatives.
(b) A promises to paint a picture for B by a certain day, at a certain price. A dies before the day. The Comment [I147]:

contract cannot be enforced either by A's representatives or by B. Here we are talking about OFFER OF
PERFORMANCE. It doesn’t say that
promisor is excused for performance but
says that that he is not responsible for non
performance. But tomorrow if he is given
10-09-13 the opportunity to perform, he MUST
performance.
...
Tender of performance – equivalent to performance Comment [I148]:

If it is a valid offer of performance.

Section 38. Effect of refusal to accept offer of performance.-
Comment [I149]:
Where a promisor has made an offer of performance to the promisee, and the offer has not been
There cannot be any further condition to
accepted, the promisor is not responsible for non-performance, nor does he thereby lose his rights performance. Because that is conditional.

under the contract. Unconditional – as agreed to – NO

FURTHER CONDITIONS

Every such offer must fulfil the following conditions:-

Comment [I150]:
(1) It must be unconditional;
It must be clear that he did his part
properly.
(2) it must be made at a proper time and place, and under such circumstances that the person to
Proper time and proper place – under such
whom it is made may have a reasonable opportunity of ascertaining that the person by whom it is circumstances – the person by whom the
offer is being made is able and willing.
made is able and willing there and then to do the whole of what he is bound by his promise to do ...
(3) If the offer is an offer to deliver anything to the promisee, the promisee must have a reasonable Comment [I151]:

opportunity of seeing that the thing offered is the thing which the promisor is bound by his promise When you’ve agreed to perform, there are
different ways in which you can perform.
to deliver. An offer to one of several joint promisees has the same legal consequences as an offer
to all of them.

Illustration

A contracts to deliver to B at his warehouse, on the 1st March, 1873, 100 bales of cotton of a
particular quality. In order to make an offer of a performance with the effect stated in this section, A
must bring the cotton to B' s warehouse, on the appointed day, under such circumstances that B
may have a reasonable opportunity of satisfying himself that the thing offered is cotton of the
quality contracted for, and that there are 100 bales.

Startup v Mac Donald

(1843) 6 Mann & G 593

 Linseed oil – 10 tons to be delivered before 14th day of March – last delivered on 14th May at 9 PM –
df refused to accept
 Held – unreasonable time – still df could weigh it before midnight.

Obligation to pay debt – tender – refusal – does not discharge the debtor from liability

Vidyavati v Devi Dar

AIR 1977 SC 397

 On repayment of loan – entitled to recover vacant possession of land – tender – refused

 Held – not discharged from obligation – has to pay before recovery of possession.

Section 39. Effect of refusal of party to perform promise wholly.-

When a party to a contract has refused to perform, or disabled himself from performing, his
promise in its entirety, the promisee may put an end to the contract, unless he has signified, by
words or conduct, his acquiescence in its continuance. Comment [I152]:

Also known as part performance.

Illustrations
How do we treat part performance?

(a) A, a singer, enters into a contract with B, the manager of a theatre, to sing at his theatre two Part performance is not total performance.
Gives the other party an opportunity to
nights in every week during the next two months, and B engages to pay her 100 rupees for each walk out of the contract and put an end to
it. The promisee can choose to let it be.
night' s performance. On the sixth night A wilfully absents herself from the theatre. B is at liberty to The choice is that of the promisee. He is
also at liberty to continue the contract.
put an end to the contract.
He has an option to choose but that option
is ONCE.
(b) A, a singer, enters into a contract with B, the manager of a theatre, to sing at his theatre two
nights in every week during the next two months, and B engages to pay her at the rate of 100
rupees for each night. On the sixth night A wilfully absents herself. With the assent of B, A sings on
the seventh night. B has signified his acquiescence in the continuance of the contract, and cannot
now put an end to it, but is entitled to compensation for the damage sustained by him through A’s
failure to sing on the sixth night. Comment [I153]:

This means that injury is an injury for which

Section 40. Person by whom promise is to be performed.- he can be compensated.

If it appears from the nature of the case that it was the intention of the parties to any contract that
any promise contained in it should be performed by the promisor himself, such promise must be
performed by the promisor. In other cases, the promisor or his representatives may employ a
competent person to perform it.

Illustrations

(a) A promises to pay B a sum of money. A may perform this promise, either by personally paying
the money to B or by causing it to be paid to B by another; and, if A dies before the time appointed
for payment, his representatives must perform the promise, or employ some proper person to do
so.

(b) A promises to paint a picture for B. A must perform this promise personally.

Section 41. Effect of accepting performance from third person.-

When a promisee accepts performance of the promise from a third person, he cannot afterwards
enforce it against the promisor.

Section 42. Devolution of joint liabilities.-

When two or more persons have made a joint promise, then, unless a contrary intention appears by
the contract, all such persons, during their joint lives, and, after the death of any of them, his Comment [I154]:

representative jointly with the survivor or survivors, and, after the death of the last survivor, the If the parties want the devolution to take
place in another manner, they can mention
representatives of all jointly, must fulfil the promise. it in the contract.

The illustration by BK Sir is a general

Position of English Law in Section 42 is different than the Indian Law. principle.

See illustration made by BK Sir.

11-09-13

The following is again a deviation from the general principle

Section 43. Any one of joint promisors may be compelled to perform.-

When two or more persons make a joint promise, the promisee may, in the absence of express
agreement to the contrary, compel any or more of such joint promisors, to perform the whole of the
promise. Comment [I155]:

Left to the choice of the promisee. He can

Each promisor may compel contribution: Each of two or more joint promisors may compel every avoid the rest and pick one. Does that
mean the others don’t have an obligation
other joint promisor to contribute equally with himself to the performance of the promise, unless a to perform?

contrary intention appears from the contract.

Sharing of loss by default in contribution: If any one of two or more joint promisors makes default
in such contribution, the remaining joint promisors must bear the loss arising from such default in
equal shares.

Explanation.- Nothing in this section shall prevent a surety from recovering from his principal,
payments made by the surety on behalf of the principal, or entitle the principal to recover anything
from the surety on account of payments made by the principal. Comment [I156]:

Right of subrogation - this happens when

Illustrations surety gets into the shoes of the creditor.
Surety is a guarantor of the principal
debtor.
(a) A, B and C jointly promise to pay D 3, 000 rupees. D may compel either A or B or C to pay him 3,
000 rupees.
(b) A, B and C jointly promise to pay D the sum of 3, 000 rupees. C is compelled to pay the whole. A
is insolvent, but his assets are sufficient to pay one-half of his debts. C is entitled to receive 500
rupees from A’s estate, and 1, 250 rupees from B.

(c) A, B and C are under a joint promise to pay D 3, 000 rupees. C is unable to pay anything, and A
is compelled to pay the whole. A is entitled to receive 1, 500 rupees from B.

(d) A, B and C are under a joint promise to pay D 3, 000 rupees, A and B being only sureties for C. C
fails to pay. A and B are compelled to pay the whole sum. They are entitled to recover it from C. Comment [I157]:

Here, A and B are joint promisors as well as

sureties. But as between themselves, the
liability to pay is on C. But to any third
party, they are joint promisors.

Suing only one of the joint promisors

 English Law – cannot sue others later Comment [I158]:

 Indian Law – may sue others later If a party sues, he should sue all of them
together.

Comment [I159]:

Section 44. Effect of release of one joint promisor.- In Indian Law, it’s the party’s choice who
he wants to sue or whether he wants to
sue them separately.
Where two or more persons have made a joint promise, a release of one of such joint promisors by Whoever has the ability to satisfy your
claim, you sue him. Because you’re sure
the promisee does not discharge the other joint promisor or joint promisors; neither does it free the you can get your claim that way.
English law prevents that. It doesn’t want
joint promisors so released from responsibility to the other joint promisor or joint promisors. litigations to continue.

Ideally, in English Law, it will be better to

English law – discharge others – unless rights preserved expressly sue everyone, once and for all.

Comment [I160]:

A, B and C jointly promise to pay D 3,

000 rupees. D may compel either A or
12-09-13 B or C to pay him 3, 000 rupees. If D
releases A and A is supposed to
contribute 1000 rupees. But later on he
A joint promisor will not be relieved from the joint liability to adhere to as far as other joint promisors are shall have to pay that amount.
concerned.

Section 45. Devolution of joint rights.-

When a person has made a promise to two or more persons jointly, then, unless a contrary
intention appears from the contract, the right to claim performance rests, as between him and them,
with them during their joint lives, and, after the death of any of them, with the representative of such
deceased person. Jointly with the survivor or survivors, and, after the death of the last survivor,
with the representatives of all jointly.

Illustration
A, in consideration of 5, 000 rupees, lent to him by B and C, promises B and C jointly to repay them
that sum with interest on a day specified. B dies. The right to claim performance rests with B's
representative jointly with C during C's life, and after the death of C with the representatives of B
and C jointly.

Section 46. Time for performance of promise, when no application is to be made and no time is
specified.-

Where, by the contract, a promisor is to perform his promise without application by the promisee, Comment [I161]:

and no time for performance is specified, the engagement must be performed within a reasonable The promisor has to perform when the
promisee asks him too – this is application
time. by promisee.

Where no application is required, i.e. the

Explanation. - The question" what is a reasonable time" is, in each particular case, a question of promisor is to perform, then when should
he perform when there is no question of
fact. application by the promisee?

Where no application is necessary, then

Section 47. Time and place for performance of promise, where time is specified and no application the engagement must be performed within
reasonable time.
to be made.-
This again depends on facts and
circumstances of each case that you will
When promise is to be performed on a certain day, and the promisor has undertaken to perform it have to assess to determine whether
performance was done at the right time or
without application by the promisee, the promisor may perform it at any time during the usual hours not.
of business on such day and at the place at which the promise ought to be performed.
Comment [I162]:

Illustration Time is specified, but WHERE?

Time – usual hours of business; this again

A promises to deliver goods at B's warehouse on the first January. On that day A brings the goods depends on facts and circumstances of a
case. So, what is usual hour of business
to B's warehouse, but after the usual hour for closing it, and they are not received. A has not depends on the facts.
Place – at the place where it ought to be
performed his promise. performed depending upon the facts and
circumstances of the case.

Section 48. Application for performance on certain day to be at proper time and place.-

When a promise is to be performed on a certain day, and the promisor has not undertaken to
perform it without application by the promisee, it is the duty of the, promisee to apply for
performance at a proper place and within the usual hours of business.

Explanation. - The question" what is a proper time and place." is, in each particular case, a question
of fact.

Section 49. Place for performance of promise, where no application to be made and no place fixed
for performance.-

When a promise is to be performed without application by the promisee, and no place is fixed for
the performance of it, it is the duty of the promisor to apply to the promisee to appoint a reasonable
place for the performance of the promise, and to perform it at such place. Comment [I163]:

The promisor MUST ask the promisee

Illustration where should he perform. And the
promisee will tell him where to perform
and he should perform accordingly.
A undertakes to deliver a thousand maunds of jute to B on a fixed day. A must apply to B to appoint
a reasonable place for the purpose of receiving it, and must deliver it to him at such place.

Section 50. Performance in manner or at time prescribed or sanctioned by promisee.-

The performance of any promise may be made in any manner, or at any time which the promisee
prescribes or sanctions.

Illustrations

(a) B owes A 2, 000 rupees. A desires B to pay the amount to A's account with C, a banker. B, who
also banks with C, orders the amount to be transferred from his account to A's credit, and this is
done by C. Afterwards, and before A knows of the transfer, C fails. There has been a good payment Comment [I164]:

by B. Goes bankrupt

(b) A and B are mutually indebted. A and B settle an account by setting off one item against
another, and B pays A the balance found to be due from him upon such settlement. This amounts to
a payment by A and B, respectively, of the sums which they owed to each other.

(c) A owes B 2, 000 rupees. B accepts some of A's goods in reduction of the debt. The delivery of
goods operates as a part payment.

(d) A desires B, who owes him Rs. 100, to send him a note for Rs. 100 by post. The debt is
discharged as soon as B puts into the post a letter containing the note duly addressed to A.

Section 51. Promisor not bound to perform, unless reciprocal promisee ready and willing to perform.-

When a contract consists of reciprocal promises to be simultaneously performed, no promisor need perform
his promise unless the promisee is ready and willing to perform his reciprocal promise. Comment [I165]:

Capacity to perform and willingness to

Illustrations perform are two different things and here
both should be there.

(a) A and B contract that A shall deliver goods to B to be paid for by B on delivery. A need not deliver the All contracts contain reciprocal promises.
Here, we are talking about reciprocal
goods, unless B is ready and willing to pay for the goods on delivery. promises that need to be simultaneously
perform.

 B need not pay for the goods, unless A is ready and willing to deliver them on payment.

(b) A and B contract that A shall deliver goods to B at a price to be paid by instalments, the first instalment
to be paid on delivery.

 A need not deliver, unless B is ready and willing to pay the first instalment on delivery.
  B need not pay the first instalment, unless A is ready and willing to deliver the goods on payment of
the first instalment.

Section 52. Order of performance of reciprocal promises.-

Where the order in which reciprocal promises are to be performed is expressly fixed by the
contract, they shall be performed in that order; and, where the order is not expressly fixed by the
contract, they shall be performed in that order which the nature of the transaction requires.

Illustrations

(a) A and B contract that A shall build a house for B at a fixed price. A's promise to build the house
Must be performed before B's promise to pay for it.

(b) A and B contract that A shall make over his stock- in- trade to B at a fixed price, and B promises
to give security for the payment of the money. A' s promise need not be performed until the security
is given, for the nature of the transaction requires that A should have security before he delivers up
his stock.

The contracting parties are always free to have their own terms and conditions. It is where the contract is
silent on these terms, these general principles come into play.

Section 53. Liability of party preventing event on which the contract is to take effect.-

When a contract contains reciprocal promises, and one party to the contract prevents the other
from performing his promise, the contract becomes voidable at the option of the party so
prevented; and he is entitled to compensation from the other party for any loss which he may
sustain in consequence of the non- performance of the contract. Comment [I166]:

You have a party at fault and innocent

Illustration party.

These contracts are voidable.

A and B contract that B shall execute certain work for A for a thousand rupees. B is ready and
willing to execute the work accordingly, but A prevents him from doing so. The contract is voidable
at the option of B; and, if he elects to rescind it, he is entitled to recover from A compensation for
any loss which he has incurred by its non- performance.

Section 54. Effect of default as to that promise which should be first performed, in contract
consisting of reciprocal promises.- Comment [I167]:

The previous section talks about

When a contract consists of reciprocal promises, such that one of them cannot be performed, or preventing the other party. Here, it talks
about one party not doing his part on
that its performance cannot be claimed till the other has been performed, and the promisor of the which the part of other party depends. If
the other parties’ performance is
promise last mentioned fails to perform it, such promisor cannot claim the performance of the dependent on your performance.

reciprocal promise, and must make compensation to the other party to the contract for any loss This section says that he will be able to
claim wages because the other party did
which such other party may sustain by the non- performance of the contract. not do what it had to do. He could have
gone somewhere else and worked.
Illustrations

(a) A hires B' s ship to take in and convey, from Calcutta to the Mauritius, a cargo to be provided by
A, B receiving a certain freight for its conveyance. A does not provide any cargo for the ship. A
cannot claim the performance of B's promise, and must make compensation to B for the loss which
B sustains by the non- performance of the contract.

(b) A contracts with B to execute certain builder's work for a fixed price, B supplying the scaffolding
and timber necessary for the work. B refuses to furnish any scaffolding or timber and the work
cannot be executed. A need not execute the work, and B is bound to make compensation to A for
any loss caused to him by the non- performance of the contract.

(c) A contracts with B to deliver to him, at a specified price, certain merchandise on board a ship
which cannot arrive for a month, and B engages to pay for the merchandise within a week from the
date of the contract. B does not pay within the week. A's promise to deliver need not be performed,
and B must make compensation.

(d) A promises B to sell him one hundred bales of merchandise, to be delivered next day, and B
promises A to pay for them within a month. A does not deliver according to his promise. B's
promise to pay need not be performed, and A must make compensation.

Section 55. Effect of failure to perform at fixed time, in contract in which time is essential.- Comment [I168]:

There are some contracts where time is

 When a party to a contract promises to do a certain thing at or before a specified time, or certain important. Before or after the times,
performance may not be a valid
things at or before specified times, and fails to do any such thing at or before the specified time, performance.

the contract, or so much of it as has not been performed, becomes voidable at the option of the If there is a specified time mentioned, at or
before that as it has been mentioned. If it
promisee, if the intention of the parties was that time should be of the essence of the contract. is not done so, then the entire contract can
be avoided or just that particular part of it
 Effect of such failure when time is not essential.- can be avoided by the innocent party.

If it was not the intention of the parties that time should be of the essence of the contract, the
contract does not become voidable by the failure to do such thing at or before the specified
time; but the promisee is entitled to compensation from the promisor for any loss occasioned to
him by such failure.
 Effect of acceptance of performance at time other than that agreed upon:
If, in case of a contract voidable on account of the promisor's failure to perform his promise at
the time agreed, the promisee accepts performance of such promise at any time other than that
agreed, the promisee cannot claim compensation for any loss occasioned by the non-
performance of the promise at the time agreed, unless, at the time of such acceptance he gives
notice to the promisor of his intention to do so.

Where parties have expressly agreed as to time – where delay operates as injury – nature of contract

Bhudra Chand v Betts

(1915) 22 Cal LJ 566
 Pl contracted with df to take his elephant to capture wild elephants – elephant to be delivered by 01
Oct 1910 – sought extension till Oct 06 – still did not deliver till 11th Oct – pl refused to accept and
sued for damages for breach
 Held – entitled to get it.

Business/ construction contracts – time generally of essence

In the matter of sale – “time makes a difference?” depends upon facts

Bowes v Shand

[1877] 2 A.C. 455

 Contract – sale of rice – to be shipped from Madras during March/April 1874 – shipped in February
– a month earlier
 Held – time of shipment – condition of contract – not satisfied

There must be precise compliance with conditions as to time

Contract on land and property dealings – generally time not of essence

Where time is not essential – the affected party has to continue with the contract – but the innocent party
can sue for losses caused due to delay

Section 56. Agreement to do impossible act.-

An agreement to do an act impossible in itself is void.

Contract to do act afterwards becoming impossible or unlawful: 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. Comment [I169]:

This is what we generally treat as

Compensation for loss through non- performance of act known to be impossible or unlawful: Where frustration.

one person has promised to do something which he knew, or, with reasonable diligence, might
have known, and which the promisee did not know, to be impossible or unlawful, such promisor
must make compensation to such promisee for any loss which such promisee sustains through the
non-performance of the promise. Comment [I170]:

Here we are talking about the impossibility

Illustrations of performance known to the promisor but
not known to the promisee. He knows that
he cannot perform or even he has a slight
(A) A agrees with B to discover treasure by magic. The agreement is void, hint in his head that he can’t perform and
still he promises, then he is liable to make
(b) A and B contract to marry each other. Before the time fixed for the marriage, A goes mad. The compensation.

contract becomes void.

(c) A contracts to marry B, being already married to C, and being forbidden by the law to Which he
is subject to Practise polygamy, A must make compensation to B for the loss caused to her by the
non- performance of his promise.
(d) A contracts to take in cargo for B at a foreign port. A's Government afterwards declares war
against the country in which the port is situated. The contract becomes void when war is declared.
(e) A contracts to act at a theatre for six months in consideration of a sum paid in advance by B. On
several occasions A is too ill to act. The contract to act on those occasions becomes void.

The impossibility may be initial or subsequent.

Paradine v Jane
[1647] EWHC KB J5
 Df lease of estate from pl – afterwards dispossessed by alien enemies for some time – refused to
pay rent for the period
 Held – bound to pay – should have provided for in the contract itself.

200 years later...

Taylor v Caldwell

(1863) 3 B & S 826

 Pl took a hall on rent for a few days to hold a concert – before the first day – fire – hall destroyed –
no fault of either party – pl sued for their loss
 Held – performance depended upon the continued existence of the hall – implied condition that if it
becomes impossible parties will be excused.

Frustration – also where the subject matter may still be there – but the purpose of the contract cannot be
served

Krell v Henry

[1903] 2 KB 740

 Df agreed to hire a flat from the pl for two days – coronation procession to proceed that way – part
of the rent paid in advance – procession cancelled due to King’s illness – df refused to pay balance
– pl sued
 Held – object frustrated – pl not entitled to recover the balance

Mere commercial hardships – may not be sufficient for frustration

Sachindra Nath v Gopal Chandra

AIR 1949 Cal 240

 Df rented some premises to pl – to run a hotel – as long as British troops remained in town – so he
agreed to a higher rent as he was expecting some good business – later British troops removed
from the town – df claimed contract frustrated
 Held – not sufficient to make out a case based on frustration

Grounds for Frustration

1. Subject matter getting destroyed

Taylor v Caldwell
2. Change of circumstances
Krell v Henry
3. Death or incapacity of the party – in personal performance
Robinson v Davinson
(1871) LR 6 Ex 269
 Contract between pl and df’s wife, an eminent pianist – to play at a concert – on the
specified day in the morning she informed that she was ill – concert had to be postponed – pl
lost some money – sued for breach
 Held – contract stood frustrated
4. Non occurrence or contemplated event
Krell v Henry
5. Legislative intervention
Shiam Sunder v Durga
AIR 1966 All 185
Agreement to sell land – seller ceased to be owner due to operation of law – could not execute sale
deed
Held – frustrated
6. War
But if there are more than one ways to perform the contract and war cuts off only one way – cannot
claim frustration

Tsakirglou v Noblee
[1962] AC 93
 Sale of groundnuts cif (cost insurance frail) Hamburg – normal route Suez Canal – closed to
traffic due to war – appellant could have transported via Cape of Good Hope – appellant
argued that implied term that it would be through Suez – hence frustrated
  Held – such a term cannot be implied – should have taken the other practical and
reasonable route – no frustration

23-09-13

THEORIES OF FRUSTRATION

Not applicable in India – as statutory provision in section 56

1. Implied term Comment [I171]:

An understood proposition – you don’t
2. Just and reasonable have to specifically mention that if it is
impossible it is void

Comment [I172]:
Not able to perform for reasons beyond his
Effect control

Operate automatically – discharges – ends the liability to perform the contract

Should not be self induced

Maritime National Fish v Ocean Trawlers

[1935] AC 524

 Df hired pl’s trawler for fishing – parties knew license was required from Canadian govt – df were
using 5 trawlers – applied for 5 licenses – were granted 3 – could name the trawlers – df named 3
excluding the one hired from the pl – repudiated the contract pleading frustration
 Held frustration – result of df’s own choice – not discharged – cant be used for relaxation from
performance

Rights on frustration – to be adjusted according to s 65

S 65. Obligation of person who has received advantage under void agreement, or contract that
becomes void.-

When an agreement is discovered to be void, or when a contract becomes 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. Illustrations

(a) A pays B 1, 000 rupees in consideration of B' s promising to marry C, A' s daughter. C is dead at
the time of the promise. The agreement is void, but B must repay A the 1, 000 rupees.
(b) A contracts with B to deliver to him 250 maunds of rice before the first of May. A delivers 130
maunds only before that day, and none after. B retains the 130 maunds after the first of May. He is
bound to pay A for them.

(c) A, a singer, contracts with B, the manager of a theatre, to sing at his theatre for two nights in
every week during the next two months, and B engages to pay her a hundred rupees for each night'
s performance. On the sixth night, A wilfully absents herself from the theatre, and B, in
consequence, rescinds the contract. B must pay A for the five nights on which she had sung.

(d) A contracts to sing for B at a concert for 1, 000 rupees, which are paid in advance. A is too ill to
sing. A is not bound to make compensation, to B for the loss of the profits which B would have
made if A had been able to sing, but must refund to B the 1, 000 rupees paid in advance.

Venkatesh v Kishore

1999 Karn.

 Agreement to sell property – df received advance – later found that he had no title
 Held – obligation to refund

In pari delicto – parties would be left as they are

But, where, not equally at fault – less guilty may recover

Quantum meruit – not available to a party who breaks the contract

Discharge – by Assignment

 Here we deal with the situation of rights or liabilities getting transferred to some third party (T)
 How does it affect the rights and liabilities of the transferor
 Liability – cannot be assigned – promisee can insist that it must be discharged by the promisor only
 Rights – are generally assignable – unless we are talking about contracts of personal nature or Comment [I173]: Rights cannot be
transferred in personal nature contracts.
contracts which are incapable of assignment in law or by agreement

Kemp v Baerselman

[1906] 2 KB 604
  Df agreement with cake manufacturer – to supply all the eggs for a year – manufacturer not to buy
from any other – payment by BoE (Bill of Exchange) – manufacturer business taken over by a
Company – df refused to supply eggs
 Held – contract of personal nature involving personal creditworthiness because payment was done
by BoE – cannot be assigned

Requirements of a valid assignment

 Consideration – between assignor and assignee – otherwise revocable by assignor – not if gift
 Notice – to be given to the debtor
 Subject to equities – if the other party has any equitable rights against assignor – will also have
against assignee

Discharge by Agreement

S 62. Effect of novation, rescission, and alteration of contract.-

If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the
original contract need not be performed.

Illustrations

(a) A owes money to B under a contract. It is agreed between A, B and C that B shall thenceforth
accept C as his debtor, instead of A. The old debt of A to B is at an end, and a new debt from C to B
has been contracted.

(b) A owes B 10, 000 rupees. A enters into an arrangement with B, and gives B a mortgage of his
(A's) estate for 5, 000 rupees in place of the debt of 10, 000 rupees. This is a new contract and
extinguishes the old.

(c) A owes B 1, 000 rupees under a contract. B owes C 1, 000 rupees. B orders A to credit C with 1,
000 rupees in his books, but C does not assent to the arrangement. B still owes C 1, 000 rupees,
and no new contract has been entered into.  Consent!! If any contract is being replaced, it can only
happen if the original parties agree to it.

Novation  substitution of a new contract for the old – must be made before the breach of the original
agreement – if the old one is breached, then it is discharged.

Two kinds of substitution-

1. Change of parties
2. Substitution of contracts

Substitution – original contract stands discharged

Nagendra Kumar v Hindustan Salts Ltd.

2001 (1) GCD 532 (Guj)

Advt for a post – scale of pay mentioned – petititoner appointed – but in a lower pay scale – accepted his
placement – then claimed the scale promised in the advt

Held – novation applied – appointment and acceptance on lower scale substituted original proposition

The new agreement should be valid and enforceable

S 63. Promisee may dispense with or remit performance of promise.- Comment [I174]: Reduction

Every promisee may dispense with or remit, wholly or in part, the performance of the promise made
to him, or may extend the time for such performance, or may accept instead of it any satisfaction
which he thinks fit. Illustrations

(a) A promises to paint a picture for B. B afterwards forbids him to do so. A is no longer bound to
perform the promise.

(b) A owes B 5, 000 rupees. A pays to B, and B accepts, in satisfaction of the whole debt, 2, 000
rupees paid at the time and place at which the 5, 000 rupees were payable. The whole debt is
discharged.

(c) A owes B 5, 000 rupees. C pays to B 1, 000 rupees, and B accepts them, in satisfaction of his
claim on A. This payment is a discharge of the whole claim.

(d) A owes B, under. a contract, a sum of money, the amount of which has not been ascertained. A'
without ascertaining the amount, gives to B, and B, in satisfaction thereof, accepts, the sum of 2,
000 rupees. This is a discharge of the whole debt, whatever may be its amount.

(e) A owes B 2, 000 rupees, and is also indebted to other creditors. A makes an arrangement with
his creditors, including B, to pay them a composition of eight annas in the rupee upon their
respective demands. Payment to B of 1, 000 rupees is a discharge of B's demand.

 Remission or dispense with – whole or part

 Extend time of performance
 Accept any other satisfaction other than performance ( what we saw in pinnel’s rule shall not be
confused with this!! That was acceptance of less CONSIDERATION)

Hari Chand v State of Punjab

1973 SCR (2) 582

  Debt due from persons – govt decided to recover only 40%
 Held – cannot ask to recover more than 40%

 Waiver – abandonment of right – release

 Extension of time – not a waiver

Shyam Singh v State of Mysore

AIR 1972 SC 24400

 Person granted scholarship by the state for higher studies in US – bond to serve on return – State
to offer him a job within 6 months – failing which bond to be treated as waived – if he failed – refund
the scholarshoip money – state agreed on completion – joined service in US – state claimed refund
– he pleaded waiver
 Held – extension of time was not supposed to be treated as waiver – liable to refund

Waiver of a particular requirement – may be withdrawn – by giving reasonable notice

Extension of time – promisee cannot unilaterally decide – other party’s consent necessary

English law – release is required to be supported by further (fresh) consideration – or else nudum pactum

Indian law – s. 63 is wide enough to release even when there is no consideration

Accord and Satisfaction

 Accord – agreement made after the breach – some consideration other than his legal remedy –
accepted by the party not at fault
 The substituted consideration to be performed
 Prior rights extinguished
 Full and final satisfaction
 Illegal contracts – no accord and satisfaction

24-09-13

Accord and Satisfaction is used in tandem

Discharge by Breach
Societies cannot function on uncertainties like whether a contract formed will be fulfilled or not.

Identification of a breach is the first and foremost thing. Should non performance be treated as breach?

Breach is

 to renounce one’s liability flowing from a contract, common law, statutes (renouncing)
 make its performance impossible (it is made impossible not that it becomes impossible)
 or does not perform totally or partially (non performance)

Two types of breach

1. Anticipatory breach
2. Present breach

Anticipatory breach – announcement that a party will not be fulfilling the contract Comment [I175]:
In a sense, use of word ‘anticipatory’ is a
misnomer. It is used:
Consequences- -Because the time for performance is
elongated.
The question is that when can an
a. innocent party excused from contract anticipatory breach, a breach that you
know is going to take place after some
b. innocent party may immediately sue or wait for the time the act was to be done – option left open to time, be sued for?

the innocent party Should we wait for the time till the breach
is going to be committed?
But then this choice runs a risk – he has an immediate right of action
One party has made it clear that he is not
If he chooses to wait for performance, he keeps the contract alive which is against himself because all going to perform, so when should the
innocent party sue? Immediately or should
the rights and liabilities remain alive. And it might happen that the party, who earlier said that he won’t the innocent party wait till the time of
performance?
perform, might decide to perform. And if he decides to perform, you will have to accept his performance.
Read further to know the consequences of
Hochester v De La Tour anticipatory breach.
(1853) 2 E&B 678
 Pl engaged by df to act as courier while on a tour – accompanying him – one month before the
tour df changed his mind – wrote to pl declining his service – pl sued for damages for breach –
df contented that there could be no0 breach before the day for performance
 Held – liable

Even if dependent on contingency – if performance made impossible – can be sued in anticipation

Eg for this – Frost v Knight (1872) – it is anticipated that the other party is not going to perform

Damages for non-performance to be assessed at the earliest moment – to reduce injury

Can choose to wait for performance – keeps the contract alive as against the other party as well as
himself – subject to all rights and ligablitries under it
Consequence – party repudiating may choose to perfrom – promisee will be bounjd to accept

Negative injunction – would be granted

 Lumley v Wagner
42 Eng. Rep. 687 (

Discharge by any other event – benefits both if contract remains open – any event happens – which
discharges contracts otherwise than by repudiation – promisor also entitled to take advantage.

Avery v Bowden
(1855) 5 E&B 714
 Df chartered pl’s ship – to load cargo within 45 days – on ship’s arrival – df told Captain that
there was no cargo – requested to go away – captain stayed back hoping to get cargo – before
expiry of 45 days war broke out – rendered performance illegal – pl brought action for breach
 Held – contract ended by frustration and not by breach Comment [I176]: That is the risk that
an innocent party runs if he decides to
keep the contract alive.
Damages in anticipatory breach – to be asserted at the time when repudiation takes place

Ramgopal v Dhanji

(1928) 30 BOMLR 1389

 Pl contract to use half of df’s ginning mill’s capacity for ginning his cotton – df repudiated before any
cotton was even supplied
 Held – pl entitled to recover estimated loss at the time of repudiation

 If promisee does not accept anticipatory repudiation – damages to be accessed at the time fixed for
performance

White & Carter v Mc Gregor

[1962] 2 AC 413

 Contract to display advt for 3 years of a motor garage business – garage repudiated by letter of
cancellation – contractors ignored – displayed advt – claimed full payment
 Held – contractors entitled to it

Repudiation

 Whole conduct of the party to be assesses objectively – only in clear cases – as it leads to serious
consequences
 Every minor irregularity or deviation – cannot be treated as a ground for repudiation – breach to be
treated as repudiation must go to the root of a contract

Freeth v Burr (1874) 9 CP 208

Iron to be supplied in two instalments – payment within 14 days of delivery – delay in the first delivery –
buyer claimed reduction in price – seller considered this as an repudiation – refused to make next delivery
Held – conduct of buyer in asking for reduction by

Not refusal to perform in entirety by buyer – sender not entitled to rescind

S. 39 – Doctrine of anticipatory breach

Refusal to perform or disable himself from performing – promise in its entirety – promisee may put to an
end to the contract

Breach must be in its entirety

Shaha v Nundy (1906) 33 Cal 477

 Two contracts to purchase 300 tons of sugar – delivery on different dates – buyer failed to ttake
delivery on the first contract – seller claimed to rescind both
 Held – no resusal to perform in entirety by seller – seller not entitled to rescind

Partial failure – may go to the root of the contract

Andard Mount (London) Ltd v Curwell (India) Ltd (1985) Del

 Contract to supply human albumin – delivery in monthly installmetns – no quantity fixed – but time
of delivery as important – sellers refused to supply – nothing from correspondence – buyers later
repudiated
 Held – could recover damages for breach of whole contract

 Work undertaken – bound to be complete – failure – liable to pay cost and expense of completion
 Whether entitled to quantum meruit – depends on the facts of each case
 Where completion of work is not a condition precedent – payment will have to be for actual work
done
 Aggrieved party – after putting an end to the contract – will be liable for restitution

Damages for Breach

Compensation – for loss suffered – injured party to prove his loss

Two aspects

- Remoteness of damage
- Measure of damage

 Remoteness of damage – consequence of a breach – may be endless – there should be an end to

liability
Damages are given for further consequences. But where should you draw a line?

Rule in Hadley v Baxendale [1854] EWHC J70

 Pl had a mill – roaring business – crankshaft broke – handed over to df – firm of carriers – shaft to
be taken to the manufacturer as pattern for a new shaft to be made – df were told that mill was
stopped for that period – delay due to df neglect – several days than normal – action for loss of
profits
 Held – damages must be fairly and reasonable calculated on the basis of those rising naturally – or
in the contemplation of both the parties as a probable result – df not liable – it does not follow
ordinarily that mill will be closed where shaft is to be repaired – the fact that it had to be shut down –
special circumstance – should have been pointed to the df in clear terms Comment [I177]:

Damages should be arising ordinarily,

naturally.

Secondly, the party committing breach

Distinction between – general damages and special damages should know of the consequences and the
loss that would be suffered by the other
party.
SPECIFIC RELIEF ACT, 1963
Df did know that mill was to be stopped
but they didn’t know that mill was to be
Traditional reliefs under equity – we brought those remedies into Indian context closed till the new crankshaft was brought.

If special circumstances exist, let the other

There are a certain principles to be kept in mind as to how the remedies given in this act go beyond routine party know.

remedy and how these remedies are discretionary i.e. it is left to the good judgment of the court because Thirdly, if it is reasonably foreseeable

nothing in equity can be given as a right. Discretion does not mean arbitrariness, it means in a proper and Comment [I178]:
Special damages for special circumstances
reasonable power. Howmuchever you show that you are suffering a loss, at the end of the day it is the whose existence must be brought to the
notice of the other party.
discretion of the court what you get. Courts look into everything and how much loss you have incurred and
This obligation to tell the other party is on
accordingly give you relief. the party who knows about the special
circumstances.

‘Equity knows no losses – trappings of law need not be adhered to

Types

- Recovery of possession
- Performance of contracts
- In economic relations – compensation alone may not be sufficient
- Rectification and cancellation of instruments
- Recession
- Preventive relief
- Declaratory relief

But these are not routine remedies – routine remedy is ‘compensation’

25-09-13

How do you quantify damages?

There is a distinction b/w tort law and contract law. Tort covers unliquidated damages.
Breach of contract – presumption – loss suffered always quantifiable – in torts, it is up to the court to
quanitify damages. In contracts, you can refer to the contract.

In torts, we talk about injuries that are not referable in terms of money. That is why we call them
unliquidated (Not always. A slaps B. B goes to the hospital. Money for medical attention). But in contracts, it
is predetermined.

Knowledge of spl circumstance – if not on the part of the df

Horne v Midland Rly Co (1873) LR 6 CP 131

 Consigned shoes for French Army

If spl circumstance within the knowledge of the df.

Simpson v London & NW Rly Co [1876] 1 QBD 274

Samples of implements in cattle’s show

Held – liable because they knew that the pl regularly sent cattle for cattle show

If reasonably forrseeable

Heron II v Czarnikow [1967] UHKL 4

Ship with sugar deviating path – delay of 9 days – loss of one pound per ton

Indian Position – S. 73 – natural loss – knew likely to result – not for remote or indirect loss

S 73. Compensation for loss or damage caused by breach of contract.-

When a contract has been broken, the party who suffers by such breach is entitled to receive, from
the party who has broken the contract, compensation for any loss or damage caused to him
thereby, which naturally arose in the usual course of things from such breach, or which the parties
knew, when they made the contract, to be likely to result from the breach of it.
Such compensation is not to be given for any remote and indirect loss or damage sustained by
reason of the breach. Compensation for failure to discharge obligation resembling those created by
contract: When an obligation resembling those created by contract has been incurred and has not
been discharged, any person injured by the failure to discharge it is entitled to receive the same
compensation from the party in default, as if such person had contracted to discharge it and had
broken his contract.
Explanation.- In estimating the loss or damage arising from a breach of contract, the means which
existed of remedying the inconvenience caused by the non-performance of the contract must be
taken into account.
Illustrations
(a) A contracts to sell and deliver 50 maunds of saltpetre to B, at a certain price to be paid on
delivery. A breaks his promise. B is entitled to receive from A, by way of compensation, the sum, if
any, by which the contract price falls short of the price for which B might have obtained 50 maunds
of saltpetre of like quality at the time when the saltpetre ought to have been delivered.
(b) A hires B' s ship to go to Bombay, and there take on board, on the first of January, a cargo
which A is to provide and to bring it to Calcutta, the freight to be paid when earned. B' s ship does
not go to Bombay, but A has opportunities of procuring suitable conveyance for the cargo upon
terms as advantageous as those on which he had chartered the ship. A avails himself of those
opportunities, but is put to trouble and expense in doing so. A is entitled to receive compensation
from B in respect of such trouble and expense. Comment [I179]: When there is a
breach, the other option that you take
(c) A contracts to buy of B, at a stated price, 50 maunds of rice, no time being fixed for delivery. A should be comparable to the original thing
on which there is a breach.
afterwards informs B that he will not accept the rice if tendered to him. B is entitled to receive from
You call for auto. Doesn’t come. Call a cool
A, by way of compensation, the amount, if any, by which the contract price exceeds that which B cab. You get compendsation for the loss
you would have suffered HAD you called
can obtain for the rice at the time when A informs B that he will not accept it. another AUTO. Extra loss in cool cab wont
be covered.

(g) A contracts to let his ship to B for a year, from the first of January, for a certain price. Freights
rise, and, on the first of January, the hire obtainable for the ship is higher than the contract price. A
breaks his promise. He must pay to B, by way of compensation, a sum equal to the difference
between the contract price and the price for which B could hire a similar ship for a year on and from
the first of January.
(h) A contracts to supply B with a certain quantity of iron at a fixed price, being a higher price than
that for which A could procure and deliver the iron. B wrongfully refuses to receive the iron. B must
pay to A, by way of compensation, the difference between the contract price of the iron and the sum
for which A could have obtained and delivered it.
(k) A contracts with B to make and deliver to B, by a fixed day, for a specified price, a certain piece
of machinery. A does not deliver the piece of machinery at the time specified, and in consequence
of this, B is obliged to procure another at a higher price than that which he was to have paid to A,
and is prevented from performing a contract which B had made with a third person at the time of his
contract with A (but which had not been then communicated to A), and is compelled to make
compensation for breach of that contract. A must pay to B, by way of compensation, the difference
between the contract price of the piece of machinery and the sum paid by B for another, but not the
sum paid by B to the third person by way of compensation. Comment [I180]:
Case law turned into illustration. Case of
(o) A contracts to deliver 50 maunds of saltpetre to B on the first of January, at a certain price. B Horne v Midland Rly Co (1873) LR 6
CP 131
afterwards, before the first of January, contracts to sell the saltpetre to C at a price higher than the
market price of the first of January. A breaks his promise. In estimating the compensation payable Comment [I181]:
Important to identify loss as a result of
by A to B, the market price of the first of January, and not the profit which would have arisen to B breach and then include this in the
compensation.
from the sale to C, is to be taken into account. This loss should be natural and ordinary.
Madras Railway Co v Govinda Rao
(1898) ILR 21 Mad 172
 Pl a tailor – consigned sewing machine and cloth – to a place – go do business during a festival –
delay – delivered after festival – pl had not given notice of spl purpose – sued for travelling
expenses, stay and loss of profit.
 Held – too remote
Muralidhar v Harishchandra 1962 SCR (1) 653
 Contract to supply canvas – to be sent from Kanpur to Calcutta – transport and labour charges to be
met by the buyer – failure to supply – question whether damages to be assessed on Kanpur or
Calcutta price.
 Held – goods deliverable at Kanpur – and so Kanpur price (contract and market price)..............!!!!!!!!