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Law of Contract

1
LC
Topic 1: Formation of an Agreement (Offer and Acceptance)
Topic 2: Consideration
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Topic 3: Capacity to Contract
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Topic 4: Free Consent
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Topic 5: Limitations on Freedom of Contract

Topic 6: Discharge of Contract (Doctrine of Frustration)
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Topic 7: Remedies for Breach of Contract

Topic 8: Quasi - Contract
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 Formation Of an agreement (Offer and Acceptance)

(Q). Discuss the law governing communication of acceptance and explain

when communication of acceptance is complete when it is sent by
post, telephone, e-mail & Whatsapp. [2015(1)]

(Q). When and how can a proposal be revoked? [2015(7(a))]

(Q). Write comments on

(a) Carlill v. Carbolic Smoke Ball Co. [2015(2(a))]

(b). Harvey v. Facey [2015(2(b))]

(c). Haridwar Singh v. Begum Sumbrui [2015(2(c))]

(Q). M/s Pharma and Cosmetics Pvt Ltd (hereinafter referred to as company)
advertised in several newspaper that their mosquito repellant cream, viz.,
MAXREPELLER is a good mosquito repellant thereby making it an effective
preventive against Dengue, Chikungunya or any other disease spread through
mosquito bite. The company promised to pay Rs.5000/-to any person who buys
the cream, applies it thrice a day as per printed directions, and still suffers from
any of such diseases. Ms. Neha purchased the cream, applied it as per the
printed directions but still suffer from the Dengue, while the cream was in use.
She has come to you to seek your legal opinion as to whether she can claim the
promised reward or not.
Support your opinion with relevant case laws. [2016(1)]

(Q). Discuss the legal issues involved in Bhagwandas Govardhan Kedia v.

M/s Girdharilal Parshottamdas & Co. (AIR 1966 SC 543), bringing out clearly
the difference of opinion between the majority and minority judges. Also state
which view you support and why. [2016(2)]

(Q) Standing Offer [2016(8(a))]

(Q). (a). ―All contracts are agreements but all agreements are not contracts‖.
Discuss in the lights of essentials of a contract. [20017(1)(a)]
(b). what is the difference between a „general‟ and a „specific‟ offer? Discuss
with reference to Carbill vs Carbolic Smole Ball Co. [2017(1)(b)]
 (Q). Ram who lives in Delhi sends a letter offering to purchase 100 kgs of
wheat on 1/1/2017 to Shyam who lives in Amritsar. The letter reaches Shyam
on 3/1/2017. Shyam writes a letter of acceptance, but before he posts it he
receives a letter of revocation of offer from Ram on 4/1/2017. But in spite of
the letter of revocation he posts his letter of acceptance in the evening of
4/1/2017. Which is received by Ram on 6/1/2017?
What is the status of this contract, if any? Discuss the rules of communication
of offer, acceptance and revocation. [2017(2)]

(Q). (a). Difference between offer and invitation to treat. [2017(8(a))]

(b). Standing offer. [2017(8(b))]

(Q). Distinguish between offer and invitation to treat.

Novex Computer(P) ltd, Kamla Nagar, New Delhi exhibited in their
showroom a computer with latest configuration & multimedia hardware and
attached it a price tag of Rs. 49,999 (inclusive of all taxes), X visits the
showroom of the company and tender a cash of Rs. 49,999 for the purchase
of the said computer. The company, however, refuse to sell the computer
that it has only one piece and that too had already been sold to someone else.
Discuss whether X can compel the company to sell the computer. [2018(1)]

(Q). ―The Indian contract Act, 1872 does not expressly deal with place where a
contract is made in case where the parties separated by distance and have
entered into contract through instantaneous mode of communication. ―
Critically examine the statement mentioning statutory provisions and the
rule of law laid down by the Apex court. [2018(2)]

(Q). (b) Standing offer [2018(8(b))]

(c) Write short note on Carlill v. Carbolic Smoke Ball co. (1892) AU.E.R 127
[2018(8(c))]

(Q). M, a manufacturer of statues, made an offer to sell 100 statues of Ganesha

at the rate of Rs. 300 per statue to X , a retailer of decorative items. M made
the said offer through a post on 11.11.2019 and X sent the acceptance on
15.112019 through post but the letter of acceptance never reached M. In the
meantime, the employee in X‟s company who posted the letter of
acceptance, accidently met M on 16.11.2019 and told him about the
acceptance of M‟s offer by X. M waited for the letter of acceptance to arrive
but instead received on 24.11.2019, a letter revoking the acceptance.
Critically examine whether an enforceable agreement is concluded or not.
Will your answer be different if the communications between the offeror and
acceptor had been done through email? if so, give reasons. [2019(1)]

(Q). (a) Standing offer in the context of tender. [2019(8(a))]

(c) Difference between offer and invitation to offer. [2019(8(c))]

Answer to Question No: 2017(1)(a)

The first thing we have to know what is a contract. The definition of a contract is
given under section 2(h) of the Indian Contract Act, 1872, as follows:

―An agreement enforceable by law is a contract‖.

Similarly, Sir Fredrick Pollock has defined the word ―Contract‖ as follows:-

―Every agreement and promise enforceable by law is a contract‖.

According to Salmond, ―Contract is an agreement creating and defining obligation

between parties‖.

Form the above definitions, we find that a contract essentially consists of two
elements:-

1. An agreement;
2. Enforceability of that agreement.
Agreements

As per section 2(e) of the Act:

―Every promise and every set of promises, forming the consideration for each
other, is an agreement‖. After observing the definition of the agreement it is clear
that a ‗promise‘ is an agreement.

Promise

Section 2(b) of the Indian Contract Act, 1872, defines the term ―promise‖. It
provides: ―when one person to whom the proposal is made, signifies his assent
thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a
promise‖.

Thus, an ‗agreement‘ is a bilateral transaction between two or more than two

persons which involves proposal or offer by one and acceptance of such proposal
by the other. In other words, it requires ‗plurality of persons‘ because a single
cannot enter into an agreement with himself.

As stated above, an agreement to become a contract must give rise to a legal

obligation. If an agreement is not enforceable by law. It is not a contract.

All Agreement is contract, if they are made of:

 By free consent of the parties,

 Competent to contract,

 For lawful consideration,

 With a lawful object,

  Not hereby expressly declared to be void – Section 10

Offer + Acceptance = Promise

Consideration = Agreement

Enforceability by law

= Contract

 Agreement is a wider term than contract where all contract are agreements
but all agreements are not contract

Thus we see that an agreement may be or may not be enforceable by law, and so
all agreement are not contract. Only those agreements are contracts, which are
enforceable by law.

Balfour v Balfour (1918-19):

Facts: Mr. Balfour is the appellant in the present case. He used to live with his wife
in Ceylon, Sri Lanka. During his vacations in the year 1915, they came to England.
His wife became ill and needed medical attention. She was advised by her doctor
to stay in England. They made an agreement that Mrs. Balfour was to remain
behind in England when the husband returned to Ceylon (Sri Lanka) and that Mr.
Balfour would pay her £30 a month until he returned. This understanding was
made while their relationship was fine; however the relationship later soured.
After his return to Ceylon he wrote her to say that it would be better that their
separation become permanent. The parties subsequently divorced and an issue
arose as to whether agreement was enforceable and soon after that Mrs. Balfour
sued him for restitution of her conjugal rights and for alimony equal to the amount
her husband had agreed to send. In March 1918, Mrs. Balfour sued him to keep up
with the monthly £30 payments.
In 1919, Balfour v Balfour gave birth to the intention to create legal relations
doctrine in contract law.
Issue:
1. Does intention of both parties to make an agreement be legally binding in
order to be an enforceable contract?
2. Under what circumstances will a court decline to enforce an agreement
between spouses?

Held: The agreement between the Balfour was not a legally enforceable
contract but merely an ordinary domestic arrangement. There was no intention
to create legal relations and Mrs. Balfour could not sue for the alleged breach of
it. The decision of lower court was reversed by Court of appeal.

Distinction between Contract & Agreement:

Basis Contract Agreement

1. Section : Sec. 2(h) Sec. 2(e)

2. Definition : A contract is an Every promise or every

agreement enforceable by set of promises forming
law. consideration for each
other is an agreement.

3. Enforceability : Every contract is Every promise is not

enforceable. enforceable.

4. Interrelationship : A contract includes an An agreement does not

 agreement. include a contract.

5. Scope : The scope of contract is Its scope is relatively

limited, as includes only wider, as it includes both
commercial agreements. social and commercial
agreements.

6. Validity : only legal agreements are An agreement may be

called contracts. both legal and illegal

7.Legal Obligation: Every contract contains a It is not necessary for

legal obligation. every agreement to have
legal obligation.

Answer to Question [2017(2)]:

Proposal or Offer:

According to the Indian Contract Act 1872, proposal is defined in Section

2(a) as ―when one person will signify to another person his willingness to
do or not do something (abstain) with a view to obtain the assent of such
person to such an act or abstinence, he is said to make a proposal or an
offer.‖

Essential Conditions of a Valid Offer:

(1) Expression of Willingness to do/ Abstain from doing to

obtain other's Assent:
 (i). One person signifies to other.
(ii). His willingness to do or to abstain from doing anything;
(iii). With a view to obtaining the assent of that other.
(2) Intension to Contract :
There is no provision in Indian Contract Act, nor has there been any
reported decision in India, requiring that an offer or its acceptance
should be made with the intension of creating legal relation, while
under English law it is so.
(3) Express or Implied Offer
Sec. 9 provides that a valid proposal may be made by words (written
or spoken) i.e. express offer, or by conduct i.e. implied offer.
(4) Certainty of Offer
The terms of the offer must be certain and not vague (Sec. 29).
(5) Communication of Offer
According to Sec. 3, to 'signify' means that the proposal must be
communicated to the other party.
According to Sec. 4, "the communication of a proposal is complete
when it comes to the knowledge of the person to whom it is made."

Lalman Shukla v. Gauri Dutt (1913):

In this case, the defendant's nephew absconded from home. The plaintiff, who was
defendant's servant, was sent to search the missing boy. After the plaintiff had left
in search of the boy, the defendant issued handbills announcing a reward of Rs.
501 to anyone who might find out the boy. The plaintiff came to
know of this offer only when he had already traced, and informed defendant about
the boy. The plaintiff brought an action to claim his reward. Held that since the
plaintiff was ignorant of the offer of reward, his act of bringing the lost boy did not
amount to the acceptance of the offer, and, therefore, he was not entitled to claim
the reward.
The court observed: A suit like the present one can only be founded on a contract.
In order to constitute a contract, there must be an acceptance of an offer and there
can be no acceptance unless there is knowledge of the offer.

The contention of the plaintiff was that a privity of contract was unnecessary
and neither motive nor knowledge was essential for acceptance of an offer. The
court observed that the motive is not essential, but knowledge and intention are.
Answer to Question no 2017(1),2015(2)(a),2016(1),2018(8)(c):

(6) General Offers and Specific Offer:

There are two kinds of offers - general and specific. The specific
offer is made to specific or an ascertained person, while the general
offer is made to the public or world at large.
However, in case of general offers, the contract is made only with
that person who comes forward and performs the conditions of the
proposal as such performance amounts to acceptance of performance
(Sec. 8).

Carlill v. Carbolic Smoke Ball Co.(1891)

Facts: The Defendant, the Carbolic Smoke Ball Company of London (Defendant),
placed an advertisement in several newspapers on November 13, 1891, stating that
its product, ―The Carbolic Smoke Ball‖, when used three times daily, for two
weeks, would prevent colds and influenza. The makers of the smoke ball
additionally offered a 100£ reward to anyone who caught influenza using their
product, guaranteeing this reward by stating in their advertisement that they had
deposited 1000£ in the bank as a show of their sincerity. The Plaintiff, Lilli Carlill
(Plaintiff), bought a smoke ball and used it as directed. Several weeks after she
began using the smoke ball, Plaintiff caught the flu.

Issue: Lindley, L.J., on behalf of the Court of Appeals, notes that the main issue at
hand is whether the language in Defendant‘s advertisement, regarding the 100£
reward was meant to be an express promise or, rather, a sales puff, which had no
meaning whatsoever.

Held: Defendant‘s Appeal was dismissed, Plaintiff was entitled to recover 100£.
The Court acknowledges that in the case of vague advertisements, language
regarding payment of a reward is generally a puff, which carries no
enforceability. In this case, however, Defendant noted the deposit of £1000 in
their advertisement, as a show of their sincerity. Because Defendant did this, the
Court found their offer to reward to be a promise, backed by their own sincerity.

Difference between General offer and specific offer:

 General offer Specific offer

General offer is made to the public in Specific offer is made to one person or
general or society or community as a group of persons.
whole.
General offer can be accepted by any Specific offer can be accepted only by
one. the person or persons to whom it is
made.
Acceptance need not be expressed, the The offer must express his acceptance
performance by the offeree according to to enforce the contract.
the terms of offer is sufficient to enforce
the contract.
Called as offer at large. Called as offer to individual.

It is generally made through media like Generally advertisement media is not

advertisement in newspapers necessary for specific offer
,pamphlets, radio and TV

Decision to Question : 2016(1)

She would succeed in claiming the reward promised by the company.

(7). Cross –offer: When two parties make identical offers to each other , in
ignorance of each other‘s offer, the offer are cross-offer.

For example: A wrote to B offering to sell him certain goods. On the same day, B
wrote to A, offering to buy the same goods the letter crossed in the post. There is
no concluded contract between A and B.

Offer and Counter Offers: Hyde v. Wrench

In this case, Wrench, the defendant offered to sell his farm to the petitioner, Hyde
for £1000. The petitioner declined the offer. The defendant again reinstated his
offer for selling the farm at £1000 to the petitioner‘s agent stating that it is the final
offer from their side. The petitioner, through a letter, offered to buy the farm for
£950. The defendant refused to sell the farm at that price. The petitioner, several
days later, offered to buy the farm at the initial price of £1000. The defendant did
not send any agreement to that and refused to sell the farm, because of which the
petitioner sued for breach of contract. It was held that no contract came to arise
between the parties as the price was not agreed upon. Rather, offers and counter-
offers were exchanged.

Answer to Question 2018(1),[2017(8)(a)],[2019(8)(c)], :

(8).Offer and Invitation to Treat (Offer)

An 'offer' is the final expression of willingness by the offeror to be bound by his
offer. Sometimes a person may not offer to sell his goods, but make some
statement or give some information with a view to inviting others to make offers
on that basis. Where a party, without expressing his final willingness, proposes
certain terms on which he is willing to negotiate, he does not make an offer but
merely 'invites' the other party to make an offer on those terms.

For example, a book-seller sends catalogue of books indicating price

of various books to many persons. This is an 'invitation to treat'. The interested
party may make an offer and the book-seller may accept or reject the offer.

Pharmaceutical Society of Great Britain v. Boots Cash Chemist (Southern) ltd

(1952)

Fact : On April 13, 1951, two customers took drugs from a shelf in pharmacy, put
it in their basket and paid at the cash register at the exit. The pharmacist station
was near the poisons section so they were able to oversee all transactions but the
pharmacist took no part in the transaction.
Boots Cash Chemists introduced a new method of purchasing drugs from their
store- the drugs would be on display, shoppers would pick them from the shelves,
and pay for them at the till. The Pharmaceutical Society of Great Britain objected
to this method, claiming that S.18(1) of the Pharmacy and Poisons Act 1933
mandated the presence of a pharmacist during the sale of a product listed under the
Act's schedule of poisons.

The Society alleged that the display of goods constituted an offer and a customer,
upon choosing a product/drug, had accepted the offer. Due to lack of supervision
of a pharmacist, the Boots Cash Chemists had, according to the Pharmaceutical
Society, violated the terms of the Pharmacy and Poisons Act of 1933. Matter was
taken to court
Issue:
1. At what stage of a purchase in a self-serve store is there an acceptance of
offer?
2. Is the customer bound to a purchase once they place an item in their basket?

Somervell, writing for the court, makes an analogy to a bookseller; the customer is
still browsing while putting items in their basket and there has been no acceptance
until completed at the checkout. As a result a shopkeeper's display cannot be an
offer and must be an invitation to treat. The logical conclusion of the plaintiff's
argument would be that once a customer put an item in their basket they would be
committed to the purchase and would not be able to change their mind.

 Held: Goods on a display are invitation not an offer; the customer makes an
offer when they take the goods to the register.
 The cashier is under the shopkeeper's authority to make acceptance, hence a
contract has not been made until the cashier accepts the purchase.

Harvey v. Facey [1893] A.C. 552.

Facts: Facey (D) was in negotiations with the Mayor and Council of Kingston
regarding the sale of his store. Harvey (P) sent Facey a telegram stating: ―Will you
sell us Bumper Hall Pen? Telegraph lowest cash price answer paid.‖ On the same
day, Facey sent Harvey a reply by telegram stating: ―Lowest price for Bumper Hall
Pen £900.‖ Harvey sent Facey another telegram agreeing to purchase the property
at the asking price. D refused to sell and P sued for specific performance and an
injunction to prevent Kingston from taking the property. The trial court dismissed
on the grounds that an enforceable contract had not been formed and P appealed.
Issue: Is a statement of the minimum price at which a seller would sell an offer?

Held: No. A mere statement of the minimum selling price is an invitation to treat
and not an offer to sell. The court held that by replying to P‘s question regarding
the lowest price of the property, D did not make an affirmative answer to the first
question regarding his willingness to sell. The court held that D had made an
invitation to trade and not an offer.

Difference between Offer and Invitation to offer:

Offer Invitation to Offer/treat

1. When a person signifies his An invitation of an offer is not an offer,

willingness to do or abstain from
doing something with a view to
obtain assent of another person is
called offer.
2. Offer is made with an objective to
get accepted.
but an indication of a person‘s
willingness to negotiate a contract.
Invitation to offer is made to get an offer
.

3. It is defined in Section 2(a) of It is not defined in Indian Contract Act,

Indian Contract Act, 1872 1872.

4. Offer becomes an agreement An invitation to offer becomes offer

when accepted. when accepted

5. Offer gives rise to legal Invitation of offer does not give rise to
consequences. legal consequences.

6. Offer is made to a particular party. Invitation to offer can be made to a

group of people.
 7. Person interested in buying from Book seller sending catalogue of books
the catalogue of book seller made indicating price of various books is an
an offer. invitation to offer.

Example : Carlill v. Carbolic Smoke Example: Harvey v. Facey (1893)

Ball Co.(1891)

Decision to Question 2018(1):

Display of goods in shop or mall is only invitation of offer hence X cannot able to
compel the company to sell the product.

Answer to Question No: 2015(7)(a):

REVOCATION
The Contract Act gives both proposer and acceptor the option of revoking their
communication, before a completed contract comes into existence. Thus,
revocation is an option given to the parties to stop the contract from coming into
existence.
(I) Revocation of Proposal Sec. 6 lays down the circumstances when an offer
lapses i.e. modes of revocation. A proposal is 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 fulfill a condition precedent to acceptance, or
(4) by the death or insanity of the proposer, if the fact of his death or insanity
comes to the knowledge of the acceptor before acceptance.

(1). Notice of Revocation

Sec. 5 provides that "a proposal may be revoked at any time before the
communication of its acceptance is complete as against proposer, but not
afterwards". As against the proposer, the communication of acceptance is complete
"when it is put in a course of transmission to him, so as to be out of the power of
acceptor" (Sec. 4). Thus, for the communication of revocation to be effective, it
must reach the acceptor before he mails his acceptance and makes it out of his
power.

(2).Revocation of General Offers

Where an offer of a general nature is published through newspapers, it can be
withdrawn by the same media and the revocation will be effective even if a
particular person, subsequently to the withdrawal, happened to perform its terms in
ignorance of revocation. Thus, such person could not recover.

(3).Revocation of Tenders
A tenderer can withdraw his tender before its final acceptance by a work or supply
order even if there is a clause in the tender restricting his right to withdraw. But
once an order is placed that will have to be complied with. However, a tender will
be irrevocable where the tenderer has, on some consideration promised not to
withdraw it or where there is a statutory prohibition against withdrawal. Just as the
tenderer has the right to revoke his tender as to future orders, so also the acceptor
of the tender has the right to refuse to place any orders whatsoever.

(4) Revocation of Bid

In an auction, the assent is signified on the part of the seller by knocking down the
hammer. Bidding at an auction is a mere offer which may be retracted before the
hammer is down i.e. before it was accepted by the
property being knocked down to him by the auctioneer. This principle has been
extended to cases where a bid has been provisionally accepted and is subject to
confirmation by higher officers. In such cases the
bidder will have the right to withdraw his bid, until the final approval is given to
him.

(5) Lapse of time

An offer lapses on the expiry of the time, if any, fixed for acceptance. However it
is enough if the acceptor has 'posted the acceptance before the stipulated time',
even if it reaches the offeror after the stipulated date.
Where no time for acceptance is prescribed, the offer has to be accepted within a
reasonable time. What is 'reasonable time' will depend upon the facts and
circumstances of each case.to a third party. Because of lack of consideration, the
plaintiff's action for damages was not allowed.
(6) By failure to fulfill a condition precedent
where the offer is subject to a condition precedent, it lapses if it is accepted without
fulfilling the condition.

(7). By death or insanity of offeror

An offer lapses on the death or insanity of the offeror, provided that the fact comes
to the knowledge of the offeree before he makes his acceptance. It means that if
such fact has not come to his knowledge while he accepts the offer, it is valid
acceptance giving rise to contractual obligations. Thus, death or insanity of the
offeror does not automatically make the offer to lapse

(II) Revocation of Acceptance

Under the English law, an acceptance once made is irrevocable. This rule,
however, is confined to postal acceptance. According to Anson, in other cases an
acceptance can be revoked at any time before acceptance is complete, provided
that the revocation is communicated before the acceptance arrives.
In India, on the other hand, acceptance is generally revocable. Sec. 5 provides that
'an acceptance may be revoked at any time before the communication of the
acceptance is complete as against the acceptor, but not afterwards'. As against the
acceptor, the communication is complete when the acceptance comes to the
knowledge of offeror i.e. when the letter of acceptance reaches the offeror (Sec.
4). Thus, an acceptor may cancel his acceptance by a speedier mode of
communication, which will reach earlier than the acceptance itself.

Decision to Question [2017(2)]:

Status of contract is void, if the letter of revocation of offer reached to the offeree
before the dispatchment of letter of acceptance to the offeror.

Answer to Question No 2019(1):

Acceptance:

Acceptance 2(b):- When the person to whom the proposal is made, signifies his
assent there to , the proposal is said to be accepted.
1. Acceptance must be absolute and unqualified
Example: A offers to sell his house to B for Rs. two lakhs. B accepts the
offer and promises to pay the price in four installments. This is not pay the
acceptance as the acceptance is with variation in the terms of the offer.

2. Acceptance must be communicated: Mere mental acceptance is no

acceptance, But there is no requirement of communication of acceptance of
general offer.
Example The manager of Railway Company received a draft agreement
relating to the supply of coal. The manager marked the draft with the words
―Approved‖ and put the same in the drawer of his table and forgot all about
it. Held, there was no contract between the parties as the acceptance was not
communicated. It may however, be pointed out that the Court construed a
conduct to parties as railway company was accepting the supplies of coal
from time to time.
3. Manner of acceptance
General rule say that it must be as per the manner prescribed by offeror. If
no mode is prescribed in which it can be accepted, then it must be in some
usual and reasonable manner.
4. If there is deviation in communication of an acceptance of offer,
offeror may reject such acceptance by sending notice within reasonable time.
If the offeror doesn‘t send notice or rejection, he accepted acceptance of
offer.
Example: A offers B and indicates that the acceptance be given by telegram.
B sends his acceptance by ordinary post. It is a valid acceptance unless A
insists for acceptance in the prescribed manner.
5. Acceptance of offer must be made by offeror.
Example : A applied for the headmastership of a school. He was selected by
the appointing authority but the decision was not communicated to him.
However, one of members in his individual capacity informed him about the
selection. Subsequently, the appointing authority cancelled its decision. A
sued the school for breach of contract. The Court rejected the A‘s action and
held that there was no notice of acceptance. ―Information by unauthorized
person is as insufficient as overhearing from behind the door‖.
6. Acceptance must be communicated to offeror
 Felthouse v Bindley [1862]:

Facts

The complainant, Paul Felthouse, had a conversation with his nephew, John
Felthouse, about buying his horse. After their discussion, the uncle replied
by letter stating that if he didn‘t hear any more from his nephew concerning
the horse, he would consider acceptance of the order done and he would own
the horse. His nephew did not reply to this letter and was busy at auctions.
The defendant, Mr Bindley, ran the auctions and the nephew advised him
not to sell the horse. However, by accident he ended up selling the horse to
someone else.

Issues

Paul Felthouse sued Mr Bindley in the tort of conversion, with it necessary

to show that the horse was his property, in order to prove there was a valid
contract. Mr Bindley argued there was no valid contract for the horse, since
the nephew had not communicated his acceptance of the complainant‘s
offer. The issue in this case was whether silence or a failure to reject an offer
amount to acceptance.

Held

It was held that there was no contract for the horse between the complainant
and his nephew. There had not been an acceptance of the offer; silence did
not amount to acceptance and an obligation cannot be imposed by another.
Any acceptance of an offer must be communicated clearly. Although the
nephew had intended to sell the horse to the complainant and showed this
interest, there was no contract of sale. Thus, the nephew‘s failure to respond
to the complainant did not amount to an acceptance of his offer.

7. Time limit for acceptance

• If the offer prescribes the time limit, it must be accepted within specified
time.
• If the offer does not prescribe the time limit, it must be accepted within
reasonable time.
Example : A applied (offered) for shares in a company in early June. The
 allotment (Acceptance) was made in late November. A refused to take the
shares. Held, A was entitled to do so as the reasonable time for acceptance
had elapsed.
8. Acceptance of offer may be expressly (by words spoken or written); or
impliedly (by acceptance of consideration); or by performance of conditions
(e.g.in case of a general offer)
9. Mere silence is not acceptance of the offer
Example A offers to B to buy his house for Rs.5 lakhs and writes ―If I hear
no moreabout it within a week, I shall presume the house is mine for Rs.5
lakhs. ―B does not respond. Here, no contract is concluded between A and B.
10. However, following are the two exceptions to the above rule. It
means silence amounts as acceptance of offer.
• Where offeree agrees that non – refusal by him within specified time shall
amount to acceptance of offer.
• When there is custom or usage of trade which specified that silence shall
amount to acceptance.
11. Acceptance subject to the contract is no acceptance
If the acceptance has been given ‗subject to the contract‖ or subject to
approval by certain persons, it has not effect at all. Such an acceptance will
not create binding contract until a formal contract is prepared and signed by
all the parties.
Answer to Question No:[2015(1)],[2018(2)]:

General Rules as to Communication of Acceptance :

When contract concluded - When the parties are in the presence of each
other, the contract is concluded when acceptance is communicated to the
proposer. This is the ordinary rule. However, an exception has been
engrafted upon this rule by Sec. 4. When the parties are at distance and are
contracting through post or by messengers or by telephone the question
arises when is the contract concluded?
Acceptance by Post
Sec. 4 lays down that the communication of acceptance is complete as
against the proposer, when it is put in the course of transmission to him so
as to be out of the power of the acceptor; as against the acceptor, when it
comes to the knowledge of the proposer.
The proposer or offeror becomes bound immediately on the posting of the
letter (correctly addressed) to him and it makes no difference that the letter is
delayed in transit or it is even lost in the post and offeror never receives it.
This is the position under the Indian as well as English law. The position is
advantageous to an acceptor because he is not bound by the letter of
acceptance till it reaches the offeror.
Difference between English and Indian Law13- In England, when a letter of
acceptance is posted, both the offeror and acceptor become irrevocably
bound. In India, the offeror becomes bound but the acceptor does not
become bound by merely posting his acceptance. He becomes bound only
when his acceptance "comes to the knowledge of the proposer." The gap
of time between the posting and the delivery of acceptance can be utilized by
the acceptor for revoking his acceptance by a speedier communication
which will overtake the acceptance.
Acceptance by Telephone/Telex (Direct/Instantaneous Communication)
Section 4 of the Contract Act supposes to deal with communication by post
only. Where, however, the parties are in each other's presence or, though
separated in space, they are in direct or instantaneous communication, as, for
example by telephone, the contract is complete only when the acceptance is
received (clearly heard and understood) by the offeror. A contract is
deemed to be made at the time and the place where acceptance is received
or heard (offeror hears the acceptance at his end, rather than when the
acceptor speaks words of acceptance).
Acceptance by Internet
In this case, the court also observed that an Email and whatsapp is like
post thus, the postal rules applies here, Once the offer is sent over the
internet , the sender loses control over the route and delivery time of the
message. The acceptance is made the instant the offer is sent. The
acceptance would be effective the moment the offer enters that node of
the network outside the control of the originator.

Decision to Question No 2019(1):

Communication through authorized agent considered to be valid form of
acknowledgement of acceptance of offer by offeree. Hence, Contract has
been concluded and it could be enforceable by law.
 According to the Apex court it was held that the form of communication
through E-mail considered being similar to the post. Hence there will no
change of decision if the communication medium was E-mail instead of
post.

Answer to Question No: 2016(2)

Bhagwandas Goverdhandas Kedia v. M/s Girdharilal Parshottamdas& Co.

(AIR 1966):
Facts: Plaintiff offered to get certain goods supplied at Ahmedabad to
defendants who accepted the offer at Khamgaon. On defendant failure to supply
requisite goods, the plaintiff sued them at Ahmedabad. A dispute arose as to
where was contract formed at Khamgaon where the acceptance was given by
defendants or at Ahmedabad where acceptance received by plaintiff.

Issue: Whether the contract was formed at the place of acceptance or at the
place where acceptance was received?

Held: The court held that the contract act does not expressly deal with the place
where a contract is made. The conversation over the telephone is analogous to
the conversation when the parties are in the presence of each other, where the
negotiations are concluded by instantaneous speech. In case of correspondence
by post or telegram, a third party agency intervenes which is responsible for
effective transmission of letter at any instance, however, in case of telephonic
conversation, once the connection has been established, there is no need of any
third agency to transmit the correspondence between the parties.
Hence as against the cases of correspondence by post or telegram, in the present
case where there was correspondence by telephone, a contract was formed
when acceptance was duly communicated to the offeror hence, at
Ahmedabad.

The majority and the minority views in the instant case were:
Majority view - A majority of the judges preferred to follow the English rule as
laid down in Entores case and saw no reason for extending the post office rule
to telephonic communications.
Shah J. felt that "Section 4 does not imply that the contract is made qua the
proposer at one place and qua the acceptor at another place. The contract
 becomes complete... when the acceptance of offer is intimated to the offeror."
But, he continued to say, that the draftsman of the Indian Contract Act could
not have envisaged use of telephone because it had not yet been invented and,
therefore, the words of the section should be confined to communications by
post.
Minority view - Hidaytullah J. said, "Though the law was framed at a time
when telephones, wireless, Telstar and Early Bird were not contemplated, the
language of Section 4 is flexible enough to cover telephonic communications.
When the words of acceptance are spoken into the telephone, they are put into
the course of transmission to the offeror so as to be beyond the power of the
acceptor. The acceptor cannot recall them. The communication being
instantaneous the contract immediately arises.
Comments - It is the majority opinion that is the law in India. The Supreme
Court, in the instant case, observed that the rule about communication by post'
makes the position of the offeror miserable. Thus, where a premium due on a
Life Insurance Policy was sent by money order, it was held that the policy had
revived from the date of the money order and not from the date of its receipt by
the company. The assured having died in the meantime, his widow recovered
the proceeds (Hairoon Bibi v United India Life Insurance Co. AIR 1947 Mad
122).

Case Comments:

In this case, the court decided the question of the place of origin of the cause of
action in a suit for breach of contract made over telephone. Here, the court also
clarified the rules regarding the communication, acceptance and revocation of
proposal and acceptance with respect to a contract made over the telephone. The
decision further clarified that the rule of communication and acceptance of offer
applicable to contracts made through post would not be applicable to contracts
made over the telephone.

Absolute and Unqualified Acceptance

Section 7 provides that in order to convert a proposal into a promise, the
acceptance must be absolute and unqualified i.e. without any qualification or
condition. For a valid acceptance, there must be an ad idem "concurrence of
 mind" i.e. agreeing on the same thing in the same course/ sense and at the same
time.
There should be an offer by one party, express and implied, and acceptance of
that offer by the other party in the same sense in which it was made by the
other.
Counter Proposals
An acceptance with a variation (e.g. introduction of new terms) is no
acceptance: it is simply a counter proposal, which must be accepted by the
original promisor before a contract is made. A counter offer implies that the
stage of negotiation has not yet passed. A counter offer puts an end to the
original offer and it cannot be revived by subsequent acceptance by the acceptor
unless it is renewed.
Provisional Acceptance
An acceptance made subject to final approval is called provisional acceptance.
It does not ordinarily bind either party until the final approval is given.
Meanwhile, the offeror is at liberty to cancel his offer unless there is a contrary
condition supported by consideration (Union of India v S.Narain Singh AIR
1953 Punj 274).
Decision of Question No []
Tenders
A tender is in the same category as a quotation of prices. It is not an offer but an
invitation to offer. When a tender is approved it is converted into a 'standing
offer' (an offer which is allowed to remain open for acceptance over a period of
time is known as standing, open or continuing offer). A contract arises only
when an order is placed on the basis of tender. A standing offer thus can be
revoked or withdrawn before the order has been placed unless the tenderer has
for some consideration promised not to withdraw or where there is a statutory
prohibition against withdrawal. Just as the tenderer has the right to revoke his
tender as to future orders, so also the acceptor of the tender has a right to refuse
to place any order whatsoever.

Answer to Question No:[2016(8)(a)],[2017(8)(b)],[2018(8)(b)],[2019(8)(a)]:

Standing, open and continuous offer:- An offer is allowed to remain open for
acceptance over a period of time is known as standing, open or continually offer.
Tender for supply of goods is a kind of standing offer.
Example:
When we ask the newspaper vendor to supply the newspaper daily. In such case,
we do not repeat our offer daily and the newspaper vendor supplies the newspaper
to us daily. The offers of such types are called Standing Offer.

Rajendra Kumar Verama v. State of M.P (AIR 1972 M.P. 131)

In this case, it was held that any offer, including a standing offer, may be revoked
before the same has been accepted. Any restriction on the right to revoke an offer
is void. In this case, the respondent State invited tenders for the sale of tendu
leaves. The petitioner submitted his tender and also deposited some security.
Before the date of opening of tender, he made an application withdrawing his
tender and requested that on the stipulated date the tender be not opened. But the
tender was opened, and that being the only tender the same was also accepted. The
petitioner refused to execute the agreement to purchase the leaves.
The Government sold the leaves to someone else and then sued the petitioner to
recover damages; it relied upon a clause in the tender notice according to which the
petitioner having submitted his tender was not entitled to withdraw the same. One
of the conditions in the tender notice was that a tenderer may withdraw his tender
before the tenders are opened provided that there should be at least one other valid
tender when the tenders are opened.
Held that inspite of such a clause, the tender or an offer could be withdrawn, and
since the offer had been withdrawn, no contract had arisen between the parties and
the petitioner could not be made liable. "A person who makes an offer is entitled to
withdraw his offer or tender before its acceptance is intimated to him." When the
tenders were opened, there was really no offer by the petitioner and, therefore,
there could be no contract impliedly or explicitly between the parties.

Kanhaiya Lal Agraval v. UOI (AIR 2002 SC 2766)

In this case, it was held that no violation of or illegality committed if the tenderer
offers concessional rates or rebate for early finalization of a tender. In this case, the
appellant made his offer of concessional rates along with the tender (5% if tender
finalized in 45 days; 3% within 60 days and 2% within 75 days) while the
respondent made such offer after opening of the tenders. The respondent filed a
writ petition claiming that his tender should have been accepted, as the rates
(subject to rebate offered after the opening of the tender) were the lowest. The
respondent in his offer (after five days of the opening of the tender) offered to
reduce rates by 1.25% if accepted in 30 days and 1% if accepted in 45 days.
The Supreme Court held that what the appellant offered was part of the tender
itself while the respondent made such offer separately and much later. The High
Court erred in holding that offering rebate amounted to impermissible alteration of
tender document.
The apex court noted that bureaucratic delay is a notorious fact and delay in
finalizing tenders will cause hardship to the tenderer. In such circumstances, if a
hardened businessman makes an attractive offer of concessional rates if tender is
finalized within a shorter period, it cannot be said that the rates offered are subject
to conditions.

Types of Tenders

There are two types of tenders. If a tender is invited for a definite quantity of
certain goods the acceptance of the tender is an acceptance in legal sense and
creates a legal obligation. This is the first type of tender.

On the other hand, an offer through a tender to supply goods over a period of time
of a certain article up to a certain quantity if and when demanded is a standing and
continuing offer which may be accepted from time to time by placing an order for
the required quantity upon the terms of the tender. The 'acceptance' of the tender in
such a case is not acceptance in the legal sense until an order is placed. This is the
second type of tender.

Union of India v. Maddala Thattiah (AIR 1966 SC 543)

In this case, the Railway authorities invited tenders for "the supply of 14,000
maunds of cane jaggery ... for the months of Dec. 1947 and Jan. 1948 and should
be delivered in equal lots of 17,500 imperial maunds each commencing from 10th
Dec. 1947 and completed on 31st Jan. 1948." One of the conditions stipulated
in the tender form was that the "Administration reserves the right to cancel the
contract at any stage during the tenure of the contract." The Administration
cancelled the further supply of jaggery by a letter and thus closed the contract. The
respondent sued for a breach of contract. The court observed that although the
dates by which the supplies were to be made had been mentioned, yet orders for
the supply had to be made from time to time.
It was held that the stipulation whereby the appellant (Administration) could cancel
the agreement (revoke the offer) as regards the supplies of jaggery about which no
formal order has been placed is a valid one, and the appellants are bound only for
the supply of such quantities for which specific orders have already been placed.
The court noted that a clause in tender authorizing the party inviting tenders to
terminate the contract at any time for the future supplies does not, destroy the very
basis of contract and the clause is valid. The acceptance of a tender may result into
different types of agreements depending upon the terms of the tender notice.

According to Cheshire, there are at least two possible cases. First, the Corporation
may have stated that it will definitely require a specific quantity of goods, no more
and no less, as for instance, where, it advertises for 1,000 tons of coal to be
supplied during the period Jan. 1 to Dec. 31. Here the 'acceptance' of the tender is
an acceptance in the legal sense, and it creates an obligation.
The trader is bound to deliver, the corporation is bound to accept, 1,000 tons and
the fact that the delivery is to be by instalments as and when demanded does not
disturb the existence of the obligation.
Secondly, the corporation advertises that it may require articles of a specific
description up to a maximum amount, as for instance, it invites tenders for the
supply during the coming year of coal not exceeding 1,000 tons altogether,
deliveries to be made if and when demanded, the effect of so-called 'acceptance' is
very different. The trader has made what is called a standing offer because of the
provisions of the tender requiring a deposit of security and placing of the formal
order. Until revocation he stands ready and willing to deliver coal up to 1,000 tons
when the corporation from time to time demands a precise quantity. The
'acceptance' of the tender, however, does not convert the offer into a binding
contract. Acceptance in the legal sense is complete as soon as a requisition for a
definite quantity of goods is made. Each requisition by the offeree is an individual
act of acceptance which creates a separate contract.
The court observed that the acceptance of tender is not equivalent to placing of an
order for any definite quantity of goods. It does not, therefore, amount to contract
where the terms of tender requires the placing of a formal order. Where the formal
order has got to be placed there must be actually an order placed for a definite
quantity of the thing concerned. If this is not done there is no binding obligation
created merely by the acceptance of the tender.

In Haridwar Singh vs. Bagun Sumbrui 1972 AIR 1242. .

In this case, a forest was knocked down to a bidder below the minimum price. The
reserve price fixed in the tender (auction) was Rs. 95,000, the appellant's bid of Rs.
92,000 being the highest, was accepted by the Divisional Forest Officer. Its
confirmation was still in the process that the bidder agreed to pay the minimum.
The department accepted this and telegraphed its acceptance to the forest officer
for onward transmission to the bidder. The forest officer never received the
telegram. Meanwhile another person offered still higher price. The department
accepted this and informed the forest officer, who received this communication
and passed it on to the new bidder.
It was held that no contract had been made on the earlier bid. Whatever acceptance
had taken place that was still within the department and not communicated to the
bidder. In other words, the final acceptance of the plaintiff's tender was not put into
the course of transmission to him. The existing state of affairs therefore, was that
of provisional acceptance. The government was held free to accept a higher tender,
on the principle that either party can withdraw before the final acceptance was
given.

Indian AirLiness v. Madhuri Chodhuty(AIR 1965 Cal 252)

This case highlights the inadequacy of the Indian Contract Act in providing relief
to the weaker party against the exemption clauses.
In this case, the plaintiff's husband was killed in a plane crash. The plaintiff
claimed compensation from the defendants i.e. Indian Airlines. The question was
regarding the validity of an exemption clause contained in the Air ticket exempting
the defendants from liability for negligence, viz. "for death, injury or delay to the
passengers or loss, damage, detention, etc. of personal property arising out of the
carriage or any other service or operations of the carrier."
Held that the liability of a common carrier was not governed by the provisions of
Indian Contract Act. The defendants were thus not liable. Holding the exemption
clause valid, the High Court said: "Any contract which contains conditions
enlarging, diminishing or excluding a carrier's common law duty of care to his
passengers cannot in the absence of a statutory restriction on the imposition of such
conditions, be pronounced unreasonable by a court with a view to one party getting
more than the contract allows him, but the conditions which are wholly
unreasonable are not binding upon a passenger even if steps otherwise reasonable
have been taken to give him notice of them. This exemption of liability may be
prevented by a statute. But in India no Act applies to internal carriage by air.

Consideration

(Q). Explain the definition and essentials of consideration.

An old lady by deed of gift, made over certain landed property to the defendant,
her daughter. By the terms of the deed, which was registered, it was stipulated that
an annuity of Rs. 5 lakh per annum should be paid every year to the plaintiff who
was the brother of the old lady. The defendant on the same day executed an
agreement in the plaintiff‘s favour to give effect to the stipulation of gift deed. The
annuity was, however, not paid and the plaintiff sued to recover it.
Decide.[2015(3)]

(Q). (a). A is caught in fire. B helps him to come out of it and A immediately
makes a promise to pay him Rs 20,000 for saving his life at the risk of his
own life. Subsequently on A‟s refusal to pay the said amount to B, B files a
suit for the recovery of the amount. „A‟ contents that promise to pay Rs
20,000 were without consideration and the agreement is not binding on him.
Decide. Give reason for your examples. [2018(4(a))]

(b). Explain the meaning of Past, Present, and Future Consideration. Give
example of each of them. [2018(4(b))]

(Q). Rule of Priority of Contract [2018(8(a))]

(Q). Privity of Contract. [2015(7(b))]

(b) Explain the doctrine of privity of contract. Discuss whether this doctrine
is followed in India or not. [2019(3(b))]

(Q). ―A stranger to a contract cannot sue‖. Elucidate the statement [2017(3(a))]

(Q). (a) An agreement without consideration is void but there are exceptions to
it. Elucidate those situations where agreement without consideration may be
enforceable. [2019(3(a))]
(Q). Discuss the exceptions to the rule that ―agreement without
consideration is void‖. [2016(3(b))]

(Q). Ashok filled a suit against his elder brother Vinod for possession of his
half share in a property. The suit was dismissed. However later on Vinod
agreed and executed a registered deed to give the same half share of property
to Ashok to keep peace in the family. Subsequently, Ashok filled a suit for
possession which was resisted by Vinod that the agreement was without
consideration and hence void. Decide. [2017(3(b))]

(Q). Privity of consideration. [2019(8(b))]

(Q). Explain the Indian and English Laws‟s position with regard to privity
of consideration. [2016(3(a))]

Answer to Question [2015(3)],[2018(4)(a)]:

Consideration

Consideration is a quid pro quo i.e something in return it may be –

(i) some benefit right, interest, loss or profit that may accrue to one party or,

(ii) some forbearance, detriment, loss or responsibility suffered on undertaken by

the other party [currie V mussa]

According to Sir Frederick Pollock, ―consideration is the price for which the
promise of the other is bought and the promise thus given for value is enforceable.

According to Salmond and Winfield "a promise without consideration is a gift; one
made for consideration is a bargain".

Consideration constitutes the very foundation of the contract. An agreement not

supported by consideration is void (Sec. 25, Contract Act). Consideration is the
cause of the promise and its absence would make the promise a gratuitous or bare
promise (nudum pactum). The fact that a promise has been made for consideration
goes to show that parties contemplated the creation of a legal obligation.
 Definition [Sec 2(d)]:- when at the desire of the Promisor, the promise or any
other person.
(a) has done or abstained from doing , or [Past consideration]
(b) does or abstains from doing, or [Present consideration]
(c) promises to do or abstain from doing something [Future consideration ] such
act or abstinence or promise is called a consideration for the promise.

Consideration must move at the desire of the promisor.

An act shall not be a good consideration for a promise unless it is done at the desire
of the promisor.

D constructed a market at the instance of District collector. Occupants of shops

promised to pay D a commission on articles sold through their shops. Held, there
was no consideration because money was not spent by Plaintiff at the request of
the Defendants, but at instance of a third person viz. the Collector and, thus the
contract was void. Durga Prasad v. Baldeo(1880)

Three ingredient of the consideration are:

1. That the act or abstinence, which is to be a consideration for the promise,

should be done at the desire of the promisor
2. That it should be done by promise or any other person; and
3. That the act or abstinence may have been already executed or is in the
process of being done or may be still executor that is to say, it is promised to
be done.

Kedar Nath v. Gorie Mohd. [(1886) ILR 14 Cal 64J

In this case, a town hall was to be constructed for which subscriptions were invited
from the public by the commissioners of Howrah municipality. The defendant was
a subscriber to this fund for Rs. 100. It was found that the subscriptions were
received or promised to the required amount of Rs. 40, 000. On the faith of the
promised subscription, the plaintiff (Vice-Chairman of the municipality) entered
into a contract with a contractor for the purpose of building the hall. The defendant
failed to pay the amount and contended that there was no consideration for his
promise.
Holding the defendant liable, the court observed that the persons were asked to
subscribe knowing the purpose for which money was to be applied; they knew that
on the faith of their subscription an obligation was to be incurred to pay the
contractor for the work. The promise is: 'In consideration of your agreeing to
enter into a contract to erect, I undertake to supply money for it.' The plaintiff's act
in entering into contract with the contractor was done at the desire of the defendant
(the promisor) so as to constitute consideration within the meaning of Sec. 2 (d).

Doraswami Iyer v. Arunachala Ayyar (AIR 1936 Mad 135)

In this case, the repair of a temple was in progress. As the work proceeded, more
money was required and to raise this money, subscriptions were invited. The
defendant became a subscriber for Rs. 125. It was to recover this sum that
the suit was filed. But no recovery was allowed.
The question was whether plaintiff's relying on the promise of the subscriber
incurred liabilities in repairing the temple ... does this amount to consideration?
The court observed that the definition of consideration in the Contract Act
postulates that the promisee must have acted on something amounting to more than
a bare promise. There must be some bargain between them in respect of which
consideration has been given ... there must have been some request by the promisor
to the promisee to do something in consideration of the promised subscription.
Where there is no such request for an act the promise will be a bare promise and
without any consideration.

Promisee or Any Other Person

A promise is enforceable if there is some consideration for it and it is quite
immaterial that it moves from the promisee or any other person. This is sometimes
called as 'Doctrine of Constructive Consideration'.
Under English law, however, there is a privity of consideration i.e. consideration
must move from the promisee and promisor only, a stranger or third person cannot
furnish consideration.

Venkata Chinnaya Rau v. Venkata Ramaya Garu [(1882)]

In this case, A, an old lady, granted an estate to her daughter (the defendant) with
the direction that the daughter should pay an annuity of Rs. 653 to A's brother (the
plaintiff). On the same day, the defendant made a promise with the plaintiff that
she would pay the annuity as directed by A. The defendant failed to pay the
stipulated sum. In an action against her by the plaintiff she contended that since the
plaintiffs themselves had furnished no consideration, they had no right of action.
The Madras High Court held that in this agreement (between the defendant and the
plaintiff), the consideration had been furnished by the defendant's mother and is
enough consideration to enforce the promise between the plaintiff and the
defendant. The court ruled that "plaintiff can only sue if the consideration moved
indirectly from him wholly or partly", which is so in the present case.

Decision to question No :[2015(3)]

In English law, past consideration and consideration by person other than promisee
could not consider to be a valid consideration. But in case of India scenario are
different, Past consideration and consideration by any other person are the part of
the Indian Contract Act.1872.

According to the Precedent of Venkata Chinnaya Rau case and Section 2(d) of
Indian Contract Act,1872, Plaintiff would able to recover the annuity of Rs 5 lakh
per annum which was the part of the deed.

Answer to Question [2018(4) (b)]:

Consideration can be Past, Executed or Executory.

According to Section 2(d) of the Indian Contract Act,1872, the types of

considerations for a contract are as follows:

Past Consideration
Past consideration refers to the act that has been done before a promise is made.
According to the Indian Law, this type of consideration is valid in the eyes of law,
if all other conditions for a valid consideration is fulfilled. However, according to
the English law, past consideration is not recognized as valid consideration for a
contract. It is considered to be a form of a gift or gratitude.

In India. Sec. 25(2) adequately covers a past voluntary service i.e. a service
rendered without any request or promise and there is a subsequent promise to pay
for the same. Thus, where A finds B's purse and gives it to him and B promises to
give A Rs. 50, this is a contract. Similarly, where A supports B's infant son and B
promises to pay A's expenses in so doing, this is a contract.

Past service at request is not adequately covered by Sec. 2(d) and Sec. 25(2). Sec.
2(d) requires that the act should be done at the desire of the promisor. This
presupposes the existence of a promise to pay for the act. But the provision can be
construed to include an act which has been done at request and for which a promise
to pay is given later. Even if no subsequent promise is given the courts can infer an
implied promise. Every request for an act carries an inbuilt promise to pay.

Decision of the Question No [2018(4) (a)]:

B would able to recover the promised amount of Rs.20,000/. According to the

Section 2(d) of Indian Contract Act, 1872, past consideration considered as valid
consideration.

At times, a person might render voluntary service without any request or promise
from another if the person receiving the services makes a subsequent promise to
pay for the services then such a promise is enforceable in India under 25(2) of the
Indian contract Act 1872 which states:

―An Agreement made without consideration is void, unless it‘s a promise to

compensate, wholly or in part, a person who has already voluntarily done
something for the promiser, or something which the promiser was legally
compellable to do, or unless ‖

Peter finds John‘s wallet on the road. He returns it to him and John promises to pay
Peter Rs 500 for his services. This is a valid contract.

Executed Consideration
When one party to the contract performs his part of the promise and has given his
part of the consideration to the other party and now only the part of the promise on
the side of the other party is left to be performed is referred to as an Executed
consideration. It is also called present consideration.

In case of executed consideration, the consideration is provided simultaneously

along with the making of the contract. It is the act which forms the consideration.
For example, A makes an offer of reward of Rs. 100 to anyone who finds out his
lost dog. When B finds the lost dog, that constitutes not only the acceptance of the
offer but that also provides the consideration in respect of the contract. In the case
of past consideration, on the other hand, consideration is provided prior to the
making of the contract.

Executory Consideration
Before the formation of a legally binding contract, when a person makes a promise
after the other person has also promised then it is termed to be an executory
consideration, wherein both the parties are yet to perform their part of the act. This
is also called future consideration.

There may be a simple exchange of promises and each promise is a consideration

for the other. In other words, the consideration is 'a promise for a promise.' For
example, A agrees to sell and B to buy a quantity of goods. In other words, A has
promised to sell and B has promised to pay. Thus, in mercantile contracts,
executory consideration is usually given. Unlike 'executed' consideration (where
liability is outstanding on one side only), in 'executory' consideration, the liability
is outstanding on both sides.

Consideration must be real and not illusory

Where consideration is physically impossible, illegal, uncertain or illusory, it is not

real. English common law has always insisted that "Consideration must be of some
value in the eyes of the law.‖ Thus, where A promises to give his new car to B,
provided B will fetch it from the garage, or where a promise made by the father
inconsideration that his son would not bore him, there is no legal consideration. In
the former case, the requirement that B is to fetch the car is not price of the
promise, but a condition precedent to the operation of A's generosity.

Consideration need not be adequate

Explanation 2 to Sec. 25 lays down that "an agreement to which the consent of the
promisor is freely given is not void merely because the consideration is
inadequate." Thus, if A agrees to sell a horse worth Rs. 1,000 for Rs. 10 and A's
consent to the agreement was freely given, the agreement is a contract
notwithstanding the inadequacy of the consideration.

Explanation 2 to Sec. 25 further lays down that "inadequacy of consideration may

be taken into account by the court in determining the question whether the consent
of the promisor was freely given". A party seeking to set aside a transaction on the
ground of inadequacy of consideration, must show such inadequacy as will involve
the conclusion that he either did not understand what it was about.

Answer to Question [2015(7)(b)],[2017(3)(a)],[2018(8)(a)],[2019(3)(b)]:

Privity of Contracts

Only a person who is a party to a contract can sue on it‘ or‘ a stranger to a contract
cannot sue‘ is an axiomatic principle of law of contract emanating from such
conceptions. This principle is known as ‗privity of contract‘, signifying that a
contract binds only those that are privy to it or that there must be contractual
privity for the enforcement of contractual rights and obligations.

There has been a divergence of opinion in India as to whether the Doctrine of

Privity of Contract, which prevails in the English Courts, is applicable to the Indian
Courts.

The Indian Contract Act, 1872 (hereinafter referred to as ―the Act‖) codifies the
methods of entering into a contract, executing a contract; rules to implement
provisions of a contract and effects of breach of a contract. The provisions of the
Act prevail over any usage or custom or trade however the same will be valid as
long as it is not inconsistent with provisions of the Act.

Section 2(d) of the Act says that ‖ 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 to abstain from doing, something , such act or
abstinence or promise is called a consideration for the promise‖

It is clear from this section that the consideration for a contract can proceed from
any person and not necessarily the parties to the contract. A promise is enforceable
if there is some consideration for it and it is quite immaterial whether it moves
from the promisee or any other person. However there is no specific provision in
the Act which either for or against the Doctrine of Privity of Contact. It is through
a series of case laws that the Doctrine has evolved.

In Debnarayan Dutt v Ramsadhan it was observed that the doctrine in Tweedle

v Atkinson is inapplicable in India and that ―The aim of the Mofussil Courts of
Justice in British India is to do complete justice according to the principles of
Justice, equity and good conscience.‖

The decision in Debnarayan Dutt v Ramsadhan was followed in N. Devaraja v

M.Ramakrishnan [ .The facts of the case in brief are that A sold a house to B under
a registered sale deed under the terms that a certain sum will be paid to A and the
remaining to C, A‘s creditor. B subsequently made part- payments to C informing
that the amount was in respect of the sale and that he would pay the remaining
amount, B failed to make the payment and C sued B for the same. It was held that
the suit was maintainable as B promised to pay the amount to C and hence C was
entitled to bring a suit against B for recovery of the amount.

However in Jamna Das v Ram Autar the Privy Council extended the doctrine to
India and held that the person not party to the agreement cannot recover the
amount due from one party. This decision has been followed in few cases later
like Babu Ram Budhu Mal v Dhan Singh Bhishan Singh where the mortgagee
was not allowed to recover the money retained by the second mortgagee under an
agreement between the owner and the second mortgagee.

Privity of Contract in English Law

The rule laid down in Tweedle v Atkinson laid down the foundation of the
doctrine of ―Privity of Contract‖ which means that a contract is a contract between
the parties only and no stranger to the contract can sue even if the contract is
avowedly made for his benefit. Thus a stranger to the consideration cannot sustain
the action on the promise made between two persons unless he has in some way
intervened in the agreement.

In the above case the plaintiff was to be married to the daughter of one G and in
consideration of this intended marriage G and the plaintiff‘s father entered into a
written agreement by which it was agreed that each would pay the plaintiff a sum
of the money. G failed to do so and the plaintiff sued his executors. Thus, although
the sole object of the contract was to secure a benefit to the plaintiff, he was not
allowed to sue as the contract was made with his father and not with him.

In Scruttons Ltd v Midland Silicones Ltd , it was observed that the principle is
that apart from special consideration of agency, trust, assignment or statute, a
person not a party to a contract cannot enforce or rely for protection of its
provisions. The principle was reaffirmed in Dunlop Pneumatic Tyre Co Ltd v
Selfridge & Co Ltd , where it was held that as the plaintiffs were undisclosed
principal, no consideration moved from them to the defendants and that the
contract was unenforceable by them.

The two basic principles under the English Law as can be ascertained from the
above cases are that firstly consideration should move from the promisee only and
secondly that a contract cannot be enforced by a person who is not a party to the
contract even if it is made for his benefit.

Exceptions to Privity Rule

In the course of time, the courts have introduced a number of exceptions in which
the rule of privity of contract does not prevent a person from enforcing a contract,
which has been made for his benefit but without his being a party to it.

Trust or Charge

A person (beneficiary) in whose favour a charge or other interest in some specific

property has been created may enforce it. In Khwaja Muhammad Khan v Hussaini
Begum (1910) 37 I.A. 152, there was an agreement between the lady's father-in-
law and her father that in consideration of her marriage with his son, he would pay
to her Rs. 500 per month in perpetuity for the betel-leaf expenses (Kharch-i-
Pandan). Some immovable property was specifically charged for the payment of
these expenses. A suit was brought by the wife for the recovery of arrears of
annuity.
Held that the wife, although not a party to the agreement, was entitled to enforce
her claim as the contract had been entered into for her benefit and certain
immovable properties had been specifically charged for the allowance. Further,
among Mohammedans, where marriages are contracted for minors by parents and
guardians, it might occasion serious injustice if the common law doctrine was
applied to agreements or arrangements entered into in connection with such
contracts. Thus, the rule laid down in Tweddle v Atkinson had no application to
the circumstances of the case.

Marriage settlement, Partition or other Family arrangements

Where a girl's father entered into an agreement for her marriage with the
defendant, it was held that the girl could sue the defendant for damages for the
breach of the promise of marriage even though she was not a party to the
agreement.

Where two brothers, on a partition of joint properties, agreed to maintain their

mother, she was held entitled to sue.

Where the defendant executed an agreement with his father-in-law to pay his wife
monthly maintenance (in case she is ill-treated and driven out), she was held
entitled to enforce the promise.

Similarly, an agreement between male members of a Hindu Undivided Family to

provide for the marriage expenses of a female member at the time of partition was
held to be enforceable.

Khwaja Muhammad Khan vs. Husaini Begum(1910):

Facts: The plaintiff, namely Husaini Begam, who was a Mohammedan lady,
married the son of the defendant, namely Khwaja Muhammad Khan. As per
Islamic customs the plaintiff was to be given Rs. 500 as Kharch-i-Pandan. The
agreement was enforced by the defendant at the time of marriage. The agreement
was to be initiated after her reception into conjugal domicile, which started 6 years
of their marriage. After 13 years of being together, the plaintiff abandoned her
husband‘s home and stayed in Moradabad as a result of certain altercations. The
husband Rustam Ali Khan never bought an action against his wife for the
restoration of conjugal rights.The plaintiff sued the defendant for recuperation of
Kharch-i-Pandan.
Issue: The contract between Khwaja Mohammad Khan and Husaini Begum
existed, as according to rule of privity of contract, no stranger to contract can sue
the parties in agreement to enforce the contract.

Judgement: The plaintiff was allowed to enforce the contract. The court said that
the rule of privity of contract does not apply to the said case, as the facts and
circumstances of this case are different.

Ratio Decidendi: The court advocated the fact that in India and among
communities circumstanced as the Mohammedans, among whom marriages are
contracted for minors by parents and guardians it might occasion serious injustice
if the common law doctrine was applied to agreements entered into in connection
with such contracts.

Acknowledgement or Estoppel

Whereby the terms of a contract a party is required to make a payment to a third

person and he acknowledges it to that third person (viz. while making a part
payment), a binding obligation is thereby incurred towards him. Acknowledgement
can be express or implied. Thus, in Devaraja Urs v Ram Krishniah (AIR 1952 Mys
1091), A sold his house to B and left a part of the sale-price in his hands desiring
him to pay this amount to C. Subsequently B made part payments to C, but failed
to remit the balance. B while making part payments had informed C that they were
out of the sale price left with him and the balance would be remitted soon. Held
that though originally there was no privity of contract between B and C, B having
subsequently acknowledged his liability. C was entitled to sue him.

Covenants running with land

A person who purchases a land with notice that the owner of the land is bound by
certain duties created by an agreement or covenant affecting the land, shall be
bound by them although he was not a party to the agreement [Tulk v Moxhay
(1919) 88 LKJB 861].

Assignee in insurance policy

The assignee of an insurance policy (e.g. a wife in case of husband or vice versa) is
entitled to sue on the contract made between the insured and the insurer (insurance
company).
Contracts entered into through an agent

In a contract of Agency, a person appoints another person to act on his behalf with
a third party. The person who appoints another person is called 'Principal' and the
person, who is appointed is called 'Agent'. When an agent enters into a contract on
behalf of the principal, the principal can enforce the contract.( here Principal is a
stranger to the Contract; the agent and other parties are parties to the Contract.

Conclusion
The Act does not specifically provide for the doctrine of Privity of Contract,
however through a series of case laws the doctrine as laid down in Tweedle v
Atkinson is now applicable in India along with various exceptions.

With reference to consideration of a contract the position in India and England are
however different. Under the English law only a party to the contract can pay the
consideration. If he doesn‘t pay the consideration he becomes a stranger to the
contract. Under the Indian Law, it is not necessary that consideration should be
paid by the promisee.

Though there are no express provisions as to assignment of rights and obligations

under a contract in the Act, the Principle of assignment has been recognized and
developed by the courts through its various decisions.

Answer to Question No [2016(a)(3)],[2019(8)(b)]:

Doctrine of Privity of Consideration & its position in England & India

The doctrine of privity of consideration states that the consideration must only
move from the promisee and the stranger to the contract, although a beneficiary
can enforce the terms of the agreement.

Position of Privity of Consideration in England

Firstly, the doctrine of privity of consideration was not applicable in England. The
court in Dutton v. Poole did not consider this principle. In this case, a son made a
contract with his father to forbear him to cut down oak woodland. The son in
return, would make a payment to his sister of £1000 once she had married. The
father died before the sister was married and the son subsequently refused to pay
his sister the money as was previously agreed, at the time of her marriage. The
sister and her husband sued her brother for the amount that was originally
promised between the father and son.

Here, the agreement was between the father and the son, the defendant had made a
promise to pay the amount to the plaintiff. The consideration for the promise is the
abstinence by the father to sell the wood. The court did not consider the plaintiff‘s
privity to the contract nor interested in the consideration. The purport behind the
agreement was to provide the plaintiff a certain amount of money. The court held
that it was inequitable for the defendant to keep the wood also and deprive the
plaintiff of her share. Thus, the relationship between the father and the son had
made the sister a party to the agreement, even if she was not included at the time
the contract was agreed. The relationship between father and daughter was found
to extend the consideration that the father gave in the promise to the children.

Later, in 1861, the position in England changed in Tweddle v. Atkinson. The

court of Queen‘s Bench denied the principle and ruled that a beneficiary who is
stranger to the consideration cannot take advantage of it. Here, the plaintiff‘s father
and ‗G‘ entered into an agreement to pay the plaintiff a certain sum of money in
consideration to plaintiff‘s marriage to the daughter of ‗G.‘‗G‘ failed to do so and
the plaintiff sued his executors for the same. Thus, though the contract entered
between his father and ‗G‘ was for he is benefiting he remained stranger the
contract and the contract denied to give him rights to enforce the terms of the
contracts.

Further in Dunlop Pneumatic Tyre v. Selfridge and Co. Ltd.,the fundamental

proposition in the English law, i.e. the Consideration must move from the promisee
to the promisor only. If any other person furnishes the consideration, the promisee
becomes the stranger and, therefore, cannot enforce the promise. This is the
postulate of the doctrine of privity of consideration.

Position of Privity of Consideration in India

This principle of the doctrine of privity of consideration is not applicable in India.

As per the Indian Contract Act, 1872 the definition of consideration in Section
2(d) states, consideration may be furnished by ‗the promisee or any other
person’ as long as it is ‗at the desire of promisor’. Thus, the consideration may
move from promisee, or some other person, if the promisor has no objection, from
any other person. The leading authority, in this case, is the case of Venkata
Chinnaya v. VenkataramayaGaru.

An old lady gave to the defendant, her daughter, and certainly landed property by
way of gift deed. The terms being that a stipulated annuity of ₹ 653 should be paid
every year to the plaintiff, sister of the old lady. The defendant executed in
plaintiffs favour and iqraranama, agreeing to give effect to this stipulation. The
plaintiff filed a suit upon the failure of the defendant to pay the annuity.

The defence put forward by the defendant was that the promisee, i.e. the plaintiff
had furnished no consideration. The consideration for the iqraranama, the
agreement between the plaintiff and the defendant,was furnished by the old, the
plaintiff‘s sister.

Here, the consideration for the defendants promise to pay the annuity was the gift
deed made by the old lady and the consideration was being furnished by the
plaintiff. According to Section 2 (d) of the Indian Contracts Act, 1872, the
consideration may move from the promisee or any other person, at the desire of the
promisor. The defendant, the promisor agreed to the agreement and also executed
an iqraranama in favour of the plaintiff which shows that the term of the gift deed
that the consideration will move from the third person was at the desire of the
promisor.

The court relied on the judgment of Dutton v Poole, that the gift deed and the
contemporaneous agreement between the plaintiff and the defendant may be
considered as one transaction and the defendant obtained an estate from her mother
that would suffice to constitute consideration under Section 2(d).

American judicial opinion also recognizes this rule and the doctrine of privity of
consideration do not hold well in American judicial system.

English Law v Indian Law on Consideration

(1). Under the English law, there is a ‗privity of consideration‘, i.e consideration
must move from the promisee only. Under the Indian Law, Consideration may
flow from promisee or any other person, thus is no concept of privity of
consideration.
(2).under the English law, a past consideration is no consideration. While under the
Indian Law past consideration (past voluntary service) is a good consideration Sec
25.

(3). Under the English law, for a contract under seal (formal or real contract) no is
consideration is required, while for a simple contract consideration is required.
Under the Indian law, all promises must be supported by consideration except
those covered by Sec. 25. Even in the case of negotiable instruments, where the
consideration is presumed under Sec. 118 of Negotiable Instruments Act, they
would be void if as a matter of fact it is proved that no consideration has passed
between the parties.

Answer to Question [2019(3)(a)][2016(3)(b)][]:

A agreement without Consideration is Void

Consideration is one of the most essential element to constitute a

contract. Consideration means "something in return". It is the price paid for the
Contract. Section 2(d) of the Indian Contract Act, 1872 defines Consideration
as "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 to
abstain from doing, something, such act or abstinence or promise is called a
consideration for the promise"
The General rule is that an Agreement without Consideration is Void.
Section 25 of the Indian Contract Act, 1872 deal with the exception to this rule. In
such cases, the agreements are enforceable even though they are made without
considerations.
These cases are as follows: - Exceptions

Sec. 25. An agreement made without consideration is void unless -

(1) it is expressed in writing and registered, and is made on account of natural love
and affection between parties standing in near relation to each other, or unless
(2) it is 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 authorised agent, to pay a debt of which the creditor might
have enforced payment but for the law of the limitation of suits.
In any of these cases, such an agreement is a contract.
Explanation 1 makes it clear that Sec. 25 does not apply to the cases of gifts. A gift
(which is not an agreement) does not require consideration in order to be valid.
There need not be natural love and affection or nearness of relationship between
the donor and donee. The gift must, however, be 'complete' i.e. it has been
delivered; a promise of gift, being without consideration, is void.
Explanation 2 makes it clear that the consideration must have some value in the
eyes of law, even though it need not be adequate.

1) Love and Affection

According to Section 25(1) of the said Act, where an agreement is expressed in
writing and registered under the law for the time being in force for the registration
of documents and is made on account of natural love and affection between parties
standing in a near relation to each other, it is enforceable even if there is
no consideration,

Example :
A, for natural love and affection, promises to give his son, B, $ 1,000. A puts his
promise to B into writing and registers it. This is a contract.

Decision of Question No [2017(3)(b)]:

If an agreement is in writing and registered between two parties in close relation (like
blood relatives or spouse), based on natural love and affection, then such an
agreement is enforceable even without consideration. A registered deed between
Ashok and Vinod considered to be a valid contract even without consideration.

2) Compensation for Voluntary services

According to Section 25(2), A promise to compensate, wholly or in part, a person
who has already voluntarily done something for the promisor, is enforceable, even
though without consideration.

Example :

(i) A finds B‘s purse and gives it to him. B promises to give A $ 50. This is
a contract.
(ii) A supports B‘s infant son. B promises to pay A‘s expenses in so doing.
This is a contract.
3) Promises to pay a time barred debt
A promise made by a debtor to pay a time barred debt is enforceable provided it is
made it is made in writing and signed by the debtor or by his agent generally or
specially authorized in that behalf. The promise may be to pay the whole or any
part of the debt. The debt must be such "of which the creditor might have enforced
payment but for the law for the limitation of suits," such an agreement is a contract.

Example :
A owes B $ 1,000, but the debt is barred by the Limitation Act. A signs a written
promise to pay B $ 500 on account of the debt. This is a contract.

4) Completed Gift
According to Section 25 Exception 1 "No Consideration, no Contract does not
apply to Completed Gifts.

5) Agency
According to Section 185 of the Indian Contract Act 1872, No consideration is
necessary to create an agency.

Abdul Aziz v Masun Ali, AIR 1914

Facts: The secretary of a mosque committee filed a suit to enforce a promise

which the promisor had made to subscribe Rs.500/- for rebuilding a mosque.

Judgment: ‗The promise was not enforceable because there was no consideration
in the sense of benefit‘, as ‗the person who promised gained nothing in return for
the promise made‘, and the secretary of the committee to whom the promise was
made, suffered no detriment (liability) as nothing had been done to carry out the
repairs. Hence the suit was dismissed.

Capacity to Contract

(Q). Explain the nature of an agreement with a minor with reference to

statutory provisions and decision of Privy Council in Mohori Bibee v.
Dharmodas Ghose. Whether a minor, who, by falsely representing
himself to be major, had induced a person to enter into a contract is
stopped from pleading his minority to avoid the contract.[2015(4)]

(Q). Mr. Raju, a 17 year old boy and his three younger siblings have been
orphaned. He, being eldest in the family, entered into the following
agreements:
(a) Oral agreement with Mr. Tarun for supply of groceries for the family.
(b) Agreement with M/s Happy Holidays Pvt. Ltd. for funding his travel
expenses for a trip to Greece.
(c)Mortgage agreement between him and Mr. Pradeep for a loan of Rs.
10 lakhs, the mortgaged property being a farmhouse that belongs to the
family.
Examine the validity of these agreements and the extent of liability of
Mr. Raju in each of these agreements. Cite relevant case.[2016(4)]

(Q). Dravid, aged 15 years agreed to sell his property to John, by fraudulently
misrepresenting his age. After having received the full consideration, Dravid
refused to perform his part of the contract on the plea that he was still a
minor and hence cannot enter into a contract. Can John get the property or
recover his amount back.
Decide in the light of nature of minor‟s agreement with reference to
statutory provisions and decided cases. [2017(4)]

(Q). Zhingu a young wrestler of about 17.5 looking much older than his age,
procured a loan of Rs.85, 000 on interest at the rate of 15% per annum from
Bheeru, a money lender and executed a promissory note in his favour.
Zhingu represented himself to be 19 years old at the time of getting the said
loan. Zhingu invested Rs80, 000 with a limited company at the rate of Rs
24% per annum and lost the remaining Rs5,000 in gambling.
However, the said company went into liquidation and Zhingu‟s entire
investment was lost.
When Bheeru filed a suit against Zhingu for recovery of the aforesaid
amount. The latter pleaded minority. As a judge, how will you adjudicate the
matter? [2018(3)]
(Q). Munna, a minor agree to sell a piece of land belonging to him to Raja for the
sum of rupees 50 lakhs by misrepresenting himself to be a major. Raja gave
an advance of 10 lakhs and promised to pay the balance amount after taking
the possession of land. Later on, Munna disagrees to hand over possession of
the said land or return the advance money taken. Aggrieved, Raja files a suit
before the court, praying to pass an order for specific performance by Munna
as per the agreement by giving possession of land or returning 10 lakhs paid
to him along with interest. Munna deposited Rs. 5 lakhs in the bank as fixed
deposit and the rest of the amount was spent in a trip to Goa with his friends.
Discuss whether Raja will be able to succeed in this suit or not by pleading
estoppel. How much amount can be recovered from Munna by applying
Section 13 of the Specific Relief Act 1963? Explain. [2019(2)]

Capacity to Contract – As a minor

Section 10 of the Contract Act requires that the parties must be competent to
contract. Sec. 11 defines who are competent to contract: "Every person is
competent to contract who is 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."

Section 10

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 effect 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.
Section 11
Every person is competent to contract who is of the age of majority according to
the law to which he is subject3, and who is of sound mind, and is not disqualified
from contracting by any law to which he is subject.

Minor

According to section 3, of the Indian majority act, 1875 ‗A minor is a person who
has not completed ―18‖ years of age. However, minority will continue up to ―21‖
years in case, if Hon‘ble court has appointed guardian for a minor‘s property‘.

Thus minors, persons of unsound mind and persons disqualified bylaw are
incompetent to contract. The age of the majority is 18, but where a guardian is
appointed it is 21.

An agreement by minor is absolutely void:

Where a minor is charged with obligations and the other contracting party seeks to
enforce these obligations against minor, in such a case the agreement is deemed as
void-ab-initio.

Mohiri Bibi (vs) Dharmodas Ghose (1903)

D. Dharmadas a minor executed a mortgage for a sum of Rs.20,000/- out of which

the money lender M had paid him only Rs.8,000/-. M had notice of the minority of
D, D sued to set aside the mortgage. It was held by privy council that the contract
was void ab-initio and no question of refunding moneys arose in such a
transaction. This has been followed in a number of cases. Hence it is settled that a
Minor's contract is void from the beginning.

The aim of the Contract Act is to protect the interests of a minor, and to save him
from the transactions in which the other party may have taken advantage of the
minority of the person. It has been held that if a minor performs his promise and
delivers goods to another party, the minor has got a right to recover the price
through his guardian. The minor is entitled to plead his minority and is not
estopped under the provisions of the evidence act (Sn.115).
The rationale behind is clear: A child may show poor judgment in making a
particular contract, and it is a protection against his own ignorance and immaturity
- not merely fraudulent manipulation by others – that the law affords. The general
presumption that every man is the best judge of his own interests is suspended
in the case of children. Thus, law acts as the guardian of minors and protects their
rights, because their mental faculties are not mature.

Also, in the modern circumstances of society it does not seem to be possible and
much less desirable for law to adhere to the categorical declaration that a minor's
agreement is always "absolutely void". Today, minors are frequently involved in
contractual transactions e.g. travel, education, shopping, entertainment,
etc.
A minor's agreement being void, ordinarily it should be wholly devoid of all
effects (except where the contract is for the benefit of minor). As there is no
contract, all the effects of a minor's agreement must be worked out independently
of any contract.

No Estoppel against Minor

When a minor misrepresents at the time of the contract that he is a major, the
question arises - does the law of estoppel contained in Sec. 115, Evidence Act,
apply against him, so as to prevent him from alleging that he was a minor when the
contract was made?

As per Sec. 115: "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 other person or his representative to deny
the truth of that thing."

The term ‗estoppel‘ may be defined as prevention of a claim or assertion by law. In

other words, when someone makes another person to believe that a particular thing
or fact is true, then later on he cannot be allowed to deny the truth of that thing.It
will be interesting to know that there is no such estoppel against the minor. In other
words, when a minor fraudulently enters into a contract, representing that he is a
major, but in reality he is not, then later on he can plead his minority as a defence
and cannot be stopped (i.e. prevented) from doing so.
The policy of the law of contract is to protect persons below the age from
contractual liability and naturally the doctrine of estoppel cannot be used to defeat
that policy. Further, a procedural rule like estoppel cannot overrule a plain
provision of law laid down in the Contract Act i.e. a matter of substantive law.

He can be a promisee (or) a Beneficiary:

Any agreement which is some benefit to the minor and under which he is required
to bear no obligation is valid. Thus, a minor can be a beneficiary (or) a promisee.

His agreement cannot be ratified by him an attaining the age of majority:

An agreement by minor is void-ab-initio and therefore ratification by minor is not

allowed. There is a fundamental principal in law (i.e.., an agreement Void-ab-initio
cannot be validated by subsequent action).
If he has received any benefit under a void agreement, he cannot asked to
compensate (or) pay for it:

Under section 64 and 65 of the act, provides a minor cannot be ordered to make
compensation for a benefit obtained in a void agreement. Because section 64 and
65, which deals with restitution of benefit.

Minor can always plead minority:

A minor‘s contract being void, any money advanced to a minor on a promissory

note cannot be recovered even though a minor procures (or) take a loan by falsely
representing that he is of full age it will not stop him from pleading his minority in
a suit, to recover the amount and the suit will be dismissed. ―The rule of estoppel
cannot be applied against a minor‖.
Example: Leslie (vs) Shiell (1914).

Facts: ‗S‘, a minor, by fraudulently representing himself to be of full age, induced

‗L‘ to lend him L 400 (pounds). He refused to repay it and ‗L‘ sued for his money.
Judgment: The contract was void and ‗S‘ was not liable to repay the amount.

There can be no specific performance of the agreement entered into by him as

they are voidab-initio:
 A contract entered into, on behalf of a minor by his parent/guardian (or) the
manager of his estate can be expressly enforced by (or) against the minor, provide
the contract is
• With in the authority of the guardian and
• For the benefit of the minor.

He cannot enter into a contract of partnership:

A minor being incompetent to contract but be a partner of a partnership firm, but

u/s 30 of the Indian partnership Act, provides he can be admitted for the ‗benefits
of a partnership‘ with the consent of all the partners.

He can be an agent:

A minor can be an agent. It is so because the act of the agent is the act of the
principal and therefore, the principal is liable to the third parties for the act of a
minor agent.

His parents/guardian is not liable for the contracts entered into by him:

The parents/guardian is not liable for the contract entered into by minor. The
parents can held liable for contracts for their minor children only when they are
acting as agent.

A minor is liable in tort ( A civil wrong):

Minors are liable for negligence causing injury (or) damage to the property that
does not belongs to them.

Action in contract cannot be converted into an action in tort:

In Jhonson v. Pye an infant by fraudulently misrepresenting his age induced the

Plaintiff to lend him 300 dollar. The plaintiff brought an action against for the tort
of deceit. The action was rejected by the court on the grounds that it was an
indirect way of enforcing the contract which is void. Thus an action of contract
cannot be converted into an action in tort so as to make the infant responsible. The
court added than if an action in contract is allowed to be converted into an action in
tort, all the minor‘s in England may be ruined.
A minor is liable for necessaries:

Minor‘s estate is liable for necessaries supplied to minor during minority. Minor
does not personally liable for the supply of necessaries. The necessaries such as
food, clothing, and shelter etc.., necessaries also include ‗goods‘ and ‗services‘.

Section 68. If a person, incapable of entering into a contract, or anyone 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 entitled to be reimbursed from B's property.

Doctrine of Restitution
English Law. If the minor has unjustly enriched himself, equity demands that such
property or goods be restored. The English courts developed the equitable 'doctrine
of restitution' to deal with the matter.

If a minor obtains some property by fraudulently misrepresenting his age, he can

be ordered to restore the property or goods thus obtained. This is called the
equitable doctrine. Under the English law, a minor may be compelled to restore the
goods or property so long as they are traceable. Money being generally not
traceable, a minor cannot be asked to restore it.

In Leslie (R) Ltd. v Sheill (1914) 3 KB 607, the court laid down the three main
propositions of this doctrine:
(i) If an infant obtains property or goods by misrepresenting his age, he can be
compelled to restore it, but only so long as the same is traceable in his possession.
(ii) Where the infant has sold the goods or converted them, he cannot be made to
repay the value of goods, because that would amount to enforcing a void contract.
(iii) The doctrine of restitution is not applied where the infant has obtained cash
instead of goods, for 'restitution stopped where repayment began'. Since it is
difficult to identify money and to prove whether it is the same money or different
one, the doctrine does not apply to money.

Answer to Question [2015(4)] :

Mohoribibi v. Dharmodas Ghose(1903):

In this case, the plaintiff, a minor, mortgaged his house in favour of the defendant,
a money-lender, to secure a loan of Rs. 20,000. A part of this amount was actually
advanced to him. While considering the proposed advance, the attorney (acting for
the money-lender) received information that the plaintiff was still a minor.
Subsequently the minor commenced this action stating that he was under-age when
he executed the mortgage and the same should, therefore, be cancelled. The relief
of cancellation had to be granted as the plaintiff was entitled to it under Sec. 39 of
the Specific Relief Act, 1877. The moneylender's only request was for the
repayment by the minor of the sum or Rs. 10,500 advanced as part of the
consideration for the mortgage.

The defendant first relied upon the Sec. 64 of the Contract Act, according to which
a person who, having the right to do so, rescinds a voidable contract, he shall have
to restore to the other party any benefit received by him under the contract. The
court held that this section cannot apply to the agreement of a minor, which is
absolutely void. Similarly no relief-was allowed under Sec. 65 of the Contract Act,
according to which a party receiving any benefit under a contract shall have to
restore it if the contract becomes void or is discovered to be void. The court said
that Sees. 64 and 65 starts from the basis of there being a contract between
competent parties, while in a minor's case there never was. and never could have
been any contract. The question whether a contract is void or voidable presupposes
the existence of a contract within the meaning of the Act, and cannot arise in the
case of a minor because of his incompetency to contract. Thus a minor's contract is
absolutely void.

The Privy Council observed that under Indian law, a contract by an infant is
absolutely void and not as under English law, where it is voidable only. In India,
all agreements entered into by minors are of no legal effect whatsoever, and the
policy of law appears to be to protect the minors not only from the viles of
unscrupulous persons who may choose to deal with them, but also against their
actions, however generous or honourable they may be.

The Privy Council also held that it was not necessary to deal with the rule of
estoppel in the present case because the statement relied upon is made to a person
who knows the real facts and is not misled by untrue statement. Further, it is clear
from the Act that a minor is not to be liable even for necessaries supplied to
him, and that no demand in respect thereof is enforceable against him by law,
though a statutory claim is created against his property (Sec. 68, Contract Act).

Finally, the defendant relied upon Sec. 41 of the Specific Relief Act, 1877 (Sec. 33
of 1963), according to which on adjudging the cancellation of an instrument the
court may require the party to whom such relief is granted to make any
compensation to the other which justice may require. The court, however, said that
under the circumstances of this case (the defendant was aware that he was dealing
with a minor); considering the provisions for protection of minors in Contract Act
and Partnership Act (a minor may be admitted to benefits of a partnership but he
can not be made liable for any of its obligations); and, that doctrine of restitution
does not cover the cases of money, a minor cannot be made to repay. From this
case, it is evident that relief under the Specific Relief Act is discretionary, and the
court must be satisfied of the justice in the defendant's case.

Khan Gul v. Lakha Singh AIR 1928 :

In this case, a minor, by fraudulently concealing his age, contracted to sell a plot of
land to the plaintiff. He received the consideration of Rs. 17,500 and then refused
to perform his part of the bargain. The plaintiff sued the defendant minor for
delivery of the possession of the plot, or in the alternative, for a decree for
recovery of the amount along with interest. The defendant minor pleaded minority
to avoid the contract.
The issue arose whether a minor can be made to repay, as the English doctrine of
restitution does not cover the cases of money.
The court observed that the doctrine of restitution finds expression in Sec. 41 of the
Specific Relief Act. The statute, however, nowhere says that pecuniary
compensation should not be allowed, when the award thereof would tantamount to
a repayment of money borrowed on the strength of void transaction. The courts in
India have ordered the minor to refund the money received by him before allowing
him to recover the property sold or mortgaged to the other party. Thus, the doctrine
of restitution would not be of any help unless it was extended in India to cover
money cases also.

The learned Chief Justice, Sir Shadilal, found sufficient reason for the extension as
he said: "There is no real difference between restoring the property and refunding
the money, except that the property can be identified but cash cannot be traced ... It
must be remembered that, while in India all contracts made by infants are void,
there is no such general rule in England. There should therefore be a greater scope
in India than in England for the application of the doctrine of restitution. The
doctrine rests upon the salutary principle that an infant cannot be allowed by a
court of equity to take advantage of his own fraud. A false representation by an
infant that he was of full age gives rise to an equitable liability."

The court (Shadilal, C.J.) observed that the grant of such a relief is not an
enforcement of the contract, but a restoration of the state of affairs as they existed
before the formation of the contract (status quo ante). The court, while giving this
relief, has not look at the contract to give effect to any of the stipulations contained
therein. Indeed the relief is granted not because there is a contract which should be
enforced but because the transaction being void does not exist and the parties
should revert to the condition in which they were before the transaction.

Thus, the court relied upon the equitable jurisdiction of the court to order
restitution of Rs. 17,500 to the plaintiff. It may be noted that Sec. 41 of the
Specific Relief Act is applicable only when the minor himself invokes the aid of
the court (i.e. when minor is a plaintiff); while in the present case he is a defendant.
The court held that the equitable jurisdiction of the court rests purely upon the
principles of justice, whether the quondam infant is a plaintiff or a defendant.

Ajudhia Prasad v. Chandan Lal AIR 1937 All. 610

This is a second appeal arising out of a suit for sale on the basis of a
mortgage deed dated 15th October 1925 executed by the defendants in favour of
the plaintiffs. The defendants pleaded that they were minors at the time of the
mortgage deed, a certificated guardian having been appointed for them, and also
pleaded that there was no necessity for contracting the debt. In the rejoinder the
plaintiffs denied that the defendants were minors and also asserted that the
defendants were liable to pay the amount under S. 68, Contract Act. The
issues framed by the trial Court related to the minority of the defendants, the object
of the debt and its proper attestation and consideration.

The trial Court found that the defendants were more than 18 years of age but under
21 years, and that there was no evidence of representation either by the defendants
or their father Sital Prasad. The Court held that the plaintiffs could not recover the
amount under S. 68, Contract Act. The lower appellate Court held that the
defendants were in fact minors, being under 21 years of age, and also held that
the marriage expenses for which the money was said to have been advanced were
not ―necessaries,and therefore, S. 68 had no application.

But it held that the respondents and their father not only concealed the fact that
there was already a guardian appointed for the minors, but the father even went to
the length of declaring before the Sub-Registrar that his younger son was over 18,
and that the dishonest suppression of the fact that the executants were under his
own guardianship indicated to the plaintiffs that they were dealing with persons
competent to contract, and then remarked: ―Thus in my opinion there was a
fraudulent misrepresentation made by or on behalf of the respondents.

Section 33 of the Specific Relief Act, 1963, provides as follows:

―(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 suit 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, ought to be enforced against him in the Suit is Void by
reason of his not having been competent to contract under Section II of the Indian
Contract Act, 1972, 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.‖

Section 68, of Indian Contract Act,1872, 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.

In the Indian Contract Act, section 68 provides that a minor falls within the class of
persons referred to in the section, and so, though he is not liable even for
necessaries and no demand in respect thereof is enforceable against him by law, a
statutory claim is created thereby against his property. But though the property
of the minor may be liable for the necessaries under section 68 of the Contract Act,
the minor himself is not personally liable as in English Law. Section 68 will not
apply where necessaries are supplied to a person or to someone whom that person
is bound to support when such person is competent to contract.

Answer to Question No 2016(4):

According to the precedent of Mohori Bibi, Khan Gul and Ajudhia Prasad case
and the provisions of Indian contract act, 1872, Section 10 defined parties must be
competent to contract, Section 11 defined who are competent for the contract.
(a) Groceries supply for the family come under the category of necessaries
requirement which create statutory claim against his property under section 68 of
Indian contract act, 1872. Personally Mr. Raju wouldn't be held to be liable.
(b) Mr. Raju would not be held to be liable if he took the defence of being a minor.
(c) According to the Section 33(2) of Specific Relief Act,1963, the court may
decide to restore if he benefited from the agreement and According to the
precedent of Khan Gul v. Lakha Singh Case, Property of the minor may be used to
restore the liability against him provided that mortgage must be used for the benefit
of him or his estate, otherwise Mr. Raju would not be held to be liable.

Answer to the question No 2017(4):

According to the doctrine of Restitution,

When the infant has obtained cash instead of goods, for ' restitution stopped where
payment began'. Since it is difficult to identify money and to prove that whether it
is the same money or different one.
Hence Mr. John would not be able to recover the amount paid as consideration.
But According to the Section 68 of Indian contract act, and Khan Gul v Lakha
Singh Case, Property of the minor could be used to compensate Mr. John.

Answer to the Question No 2018(3):

According to the Mohori Bibi v Dharamdas Ghose, Ajudhia Prasad v.

Chandan Lal case and the doctrine of Restitution,
Money taken by the minor could be recovered only when it was retractable.
Provided in the case, Rs. 5000/ spent on gambling will not able to recover and for
the rest of the amount Rs. 80,000/ , if the investment have been recovered it could
be given back to the Mr. Bheeru but according to the information provided in the
question the entire amount invested into the company was lost. Hence, He would
not be able to recover the amount.
The object of the doctrine of Restitution is to restore back the ill-gotten gains taken
by the minor rather than enforcing the contract which are considered to be void due
to incompetency of the minor to form a contract.
Answer to Question [2019(2)] :

Section 13(1) in The Specific Relief Act, 1963

(1) Where a person contracts to sell or let certain immovable property having no
title or only an imperfect title, the purchaser or lessee (subject to the other
provisions of this Chapter), has the following rights, namely:—
(a). if the vendor or lessor has subsequently to the contract acquired any
interest in the property, the purchaser or lessee may compel him to make
good the contract out of such interest;
Section 13(1) states about the ratification after he acquired any interest in the
property.
But According to the previous judgment of the Apex Court: it was held that a
person cannot on attaining majority ratify an agreement made by him during his
minority. Ratification relates back to the date of the making of the contract and,
therefore, a contract, which was then void, cannot be made valid by subsequent
ratification and on that a suit cannot be maintained. it was held that a minor when
he attained majority could not take upon himself a liability which from the point of
view of law, never really existed.
Held that the consideration received by a person during his minority cannot be
called consideration within the meaning of Sec. 2(d), and there is no question of
that consideration being considered valid for a fresh promise. No doubt under Sec.
2, a past consideration may be a good consideration, but that past consideration
must be an existing one and a valid one. The promisor, therefore, could not be
made liable in respect of such a promise.
No Estoppel against Minor
When a minor misrepresents at the time of the contract that he is a major, the
question arises - does the law of estoppel contained in Sec. 115, Evidence Act,
apply against him, so as to prevent him from alleging that he was a minor when the
contract was made? As per Sec. 115: "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 other person or his
representative to deny the truth of that thing."
The policy of the law of contract is to protect persons below the age from
contractual liability and naturally the doctrine of estoppel cannot be used to defeat
that policy. Further, a procedural rule like estoppel cannot overrule a plain
provision of law laid down in the Contract Act i.e. a matter of substantive law.

According to the Doctrine of Restitution:

If an infant obtains property or goods by misrepresenting his age, he can be

compelled to restore it, but only so long as the same is traceable in his possession.

Hence we can conclude that the amount deposited as Rs. 5 lakhs in the bank as
fixed deposit would able to recover it remaining amount spent on trip to Goa with
friends are unrecoverable.

Free Consent

(Q).What are the essential ingredients of undue influence and how a

plaintiff who seeks relief on this ground should proceed to prove his
case and when the defendant is called upon to show that the contract
was not induced by undue influence. Discuss the three stage of
consideration of a case of undue influence which were expounded in
the case of Raghunath Prasad v. Sarju Prasad and applied by Supreme
court in Subhash Chandra V. Ganga Prasad. [2015(5)]

(Q). (a) Explain the three stages for consideration of a case of undue influence
which were expounded in Raghunath Prasad v. Sarju Prasad, AIR 1924
PC 60. [2016(5)]

(Q). ―Error is almost sure to arise if the order of these propositions be

changed.‖ ----- Raghunath Prasad v.Sarju Prasad,(1923) 51.I.A. 101.
What are the propositions talked about in the case of Raghunath Prasad vs. Saryu
Prasad, in the context of Section 16 of the Indian Contract Act, 1872? Why will
error arise if the order of the proposition is changed ? Explain with the help of
cases. [2019(4)]
(Q). what are the essential ingredients of ―undue influence‖? [2017(7(a))]

(Q). (a). Discuss the essential ingredient of ―undue influence‖ and explain how
the court should proceed in a case where there is allegation of ―undue
influence‖ in a contract. [2018(5)]

(b). Mr. Sunil‟s teenage son met with a serious accident, two days after
the demonetization of Rs.500 and Rs 1000 notes. He took his son to a
private hospital. The doctors advised an urgent surgery of his son. Mr.
Sunil had cash in hand consisting of the demonetized notes, but the hospital
refused to accept the same. He went to Mr. Naresh, a moneylender to exchange the
notes. However, Mr. Naresh insisted that he would accept the demonetized notes
only if Mr was ready to exchange it for half of its value, i.e Mr. Sunil would get
Rs.. 250 and Rs. 500 in exchange of the old notes Rs. 500 and Rs. 1000 notes
respectively. Mr. Sunil did not have any option but to agree to the terms of Mr.
Naresh because of the circumstance he was in. He exchanged Rs. 10 Lakh
(demonetized notes) and got half of its value i.e.., Rs. 5 lakh and used it for the
treatment of his son. Mr. Sunil feels that his consent to the transaction was caused
by undue influence and wants Mr. Naresh to give him Rs. 5 lakh more.
Advise him. [2016(5)]

(b). M‟s son is bedridden and he needs money badly for his treatment. He
agrees to dispose of his shop worth Rs. 50 lakhs for Rs.5 lakhs only to N.
After one month of the agreement, M applies for the cancellation of the said
agreement on the ground of ―undue influence‖. Will he be succeeds. Decide
[2018(5)]

Answer to Question No:

[2015(5)],[2016(5)],[2019(4)],[2017(7)(a)],[2018(5)],[2016(5)],[2018(5)]

UNDUE INFLUENCE

According to Sec. 16(1), 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 that position to obtain an unfair advantage over the other, there is said to be
undue influence.
According to clause (2), a person is said to be able 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.
According to clause (3), where a person who is in a position to dominate the will
of another enters into a contract with him, ant the transaction appears, on the face
of it or on 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.

Illustrations :

(a) A having advanced money to his son, B, during his minority, upon B's
coming of age obtains, by misuse of parental influence, a bond from B for a greater
amount than the sum due in respect of the advance. A employs undue influence.

(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.

3) Essential elements of Undue Influence:

  One of the Contracting Parties dominates the will and mind of another;

 The Dominating Party has taken an unfair advantage over the weaker
party or the transaction is unconscionable.

Ability to dominate the will of other

The dominant position is not defined in the Indian Contract Act but Section 16(2)
provides certain conditions when a person is in a position to dominate the will of
another. Cases, where a person is in a position to dominate the will of others, are as
follows:

1. There must be a relation between the parties:

a) Real or apparent authority/relation in which one party can be dominated by the

other party. For example, father and son, mother and daughter.

b) Fiduciary relation is the relation which is made upon the belief and trust
between the parties. One party must believe the other. For example, Advocate and
client, teacher and student, Doctor and patient.

Example of real or apparent authority:

 A Father exerts undue influence upon his son to do something on the will
of his father. Otherwise, he will part his relation with a son.
 A factory owner exerts undue influence upon his employee to make a
certain agreement with him. If not he (employee) will be drawn from his
job.

Example of fiduciary relation:

 An advocate asks his client to give him extra money to fight the case from
his side.
 2. Mental or bodily distress means the mental capacity of a person is affected.
It can be either permanently or temporarily affected. The reason behind such
health condition can be age, illness, mental or bodily distress.

Consent under pressure

Consent under pressure means when consent is obtained forcefully. In this manner,
consent is not lawful, so it had no binding effect.

Subtle species of fraud

Undue influence is said to be subtle species of fraud due to which a party controls
the mind of the victim by his clever skills and with gradual proceedings but with
very harmful effects. Sometimes the contract is signed due to fear, coercion,
importunity or other domination. It was observed by the Privy Council in
Someshwar Dutt vs Tribhawan Dutt, that acts of undue influence range
themselves under the heads of coercion or fraud. Generally, undue influence is
often confused with coercion or duress. Duress occurs when there is a physical
compulsion or direct force upon a person or there is a threat to a person‘s life. In
contrast to duress, undue influence may exist with or without force or threat to a
person‘s life. For example, ‗A‘ advances a sum of money to his son ‗B‘ in his age
of minority and through his parental influence over his son make him sign a bond
of a greater amount of a sum due in respect of the advance. A used undue influence
in this case as there is a fiduciary relationship between father and son as there is
natural confidence between both which A abuses by making his son sign a bond.

Relations which involves domination

All cases where there is an active trust and confidence between the parties and both
parties are not on equal footing. The principle of undue influence applies to all the
cases where influence is acquired and abused. It applies to all relations where
domination can be exercised by one party over another. i.e where exists a real or
apparent authority or fiduciary relationship. In the category of undue influence, the
circumstances under which the contract was made is taken in the account along
with their relationships. The existence of a dominating position along with its use
is mandatory to invoke an action. Merely a dominant position does not lead to
undue influence.

Real or Apparent authority

Section 16(2) of the Indian Contract Act states that Undue Influence can arise
wherever the donee stands in a fiduciary relationship to the donor or holds a real or
apparent authority. In this type of influence, there is a real authority like a police
officer or an employer who uses his dominance for his enrichment. Apparent
authority is pretending as a real authority without its existence.

Mental distress

An only mental distress state of mind does not amount to undue influence until the
defendant has used this opportunity to take unfair advantage from another party.
Similarly, instigating a person to enter into a contract who has just attained
majority amounts to undue influence under this category due to a lack of the
plaintiff‗s experience.

Burden of proof

Generally, the party bringing a claim has the burden to prove the truth of the facts
on which he or she is relying. The burden of proof is on the claimant to show that
undue influence was exerted by a stronger party over the weaker party, and the
latter could not exercise free choice when entering the agreement. However, this
burden can be shifted to the defendant in an undue influence case if the plaintiff
can demonstrate that a confidential relationship existed between the testator and
defendant, and that suspicious circumstance surrounded the preparation and
execution of the will. When this occurs, the burden shifts totally on the defendant
to prove that undue influence did not occur. When a person is found to be in a
position by which he can dominate the will of the other or a transaction appears to
be affected due to dominance, the burden of proof that no undue influence was
exercised in the transaction lies on the party who is in a position to dominate the
will of others.

Presumption of undue influence

There are some cases in which the Honourable Courts of India presume the
existence of undue influence between the parties:

1. Where one of the parties to a contract is in a position to dominate the will

of the other and contract is prima facie unconscionable i.e unfair, the
court presumes the existence of undue influence in such cases.
2. Where one of the parties to a contract is a Pardanashin Woman, the
contract is presumed to be induced by undue influence. In relation to
Pardanashin Woman, Bombay High Court made an opinion that a woman
becomes Pardanashin because she is totally exempted from ordinary
social intercourse not because she is the seclusion of some degree.

A Transaction with Pardanashin Woman

When a Woman can be viewed from the screen or is placed behind the screen i.e
veiled is called Pardanashin Woman. The protection of those women is rooted in
the principle of good conscience and equity. Special laws are made for these
women because they are subjected to ignorance, infirmity, illiteracy, etc are thus
easily influenced. The burden of proof should be provided against the person who
is transacting with a Pardanashin woman. He has to prove that the transaction had
taken place with the consent of the women and her decision was taken by her
without any coercion or enforcement and she was made well aware of the
provision mentioned in the document of the transaction by the other party with
whom she has made the contract.

Raghunath Prasad v. Sarju Prasad (1923)

This is an appeal from a decree, dated November 9, 1920, of the High Court
of Judicature at Patna, which varied a decree, dated September 25, 1917, of
the Subordinate Judge of Arrah.
The suit is for recovery of the amount of principal and interest due by the
appellant to the respondents (the plaintifis) under a mortgage of date May
27, 1910. The Subordinate Judge gave decree in the mortgage suit, but only
allowed simple interest. The High Court allowed compound interest.
The substantial question raised on the appeal is whether the appellant, in the
circumstances proved in the case, fell within the protective provisions of s. 2
of the Indian Contract (Amendment) Act, 1899.
It may be convenient to set out that section in full:
―2. Section 16 of the Indian Contract Act, 1872, is hereby repealed, and the
following is substituted therefore, namely:-
―16. – (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 that position to obtain an
unfair advantage over the other.
(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 s. 111 of the Indian
Evidence Act, 1872.
The statement in the defence admits that at the time of the execution of the
mortgage the defendant was owner of one half of a valuable joint family
property. The owner of the other half was his father. Father and son had
quarreled. Serious allegations are made by the son against the father;
whereas it appears that the father had instituted criminal proceedings
against the son. Shortly before the date of the mortgage the defendant had
borrowed Rs. 1000 from the plaintiffs, so as to enable him to defend himself
in these criminal proceedings. It is alleged that they caused him great mental
distress, and that he required more money to conduct his litigations. That is
the story.

Evidence was taken in the case. It is sufficient to say that the defendant gave
no evidence at all. It is quite plain that no Court can accept a story thus
unproved by its author as establishing a case either of mental distress or of
undue influence under the Indian Contract Act. The only case which the
appellant has in the case derived from the contents of the mortgage itself.

Their Lordships think it desirable to make clear their views upon, in

particular, s. 16, subs. 3, of the Contract Act as amended. By that section
three matters are dealt with.

In the first place the relations between the parties to each other must be
such that one is in a position to dominate the will of the other.

Once that position is substantiated the second stage has been

reached – namely, the issue whether the contract has been induced by
undue influence.

Upon the determination of this issue a third point emerges, which is that of
the onus probandi. If the transaction appears to be unconscionable, then the
burden of proving that the contract was not induced by undue influence is to
lie upon the person who was in a position to dominate the will of the other.

Error is almost sure to arise if the order of these propositions be

changed. The unconscionableness of the bargain is not the first thing to be
considered. The first thing to be considered is the relations of these parties?
Were they such as to put one in a position to dominate the will of the other.
Having this distinction and order in view the authorities appear to their
Lordships to be easily properly interpreted.
 In these circumstances, even though the bargain had been unconscionable
(and it has the appearance of being so), a remedy under the Indian Contract
Act does not come into view until the initial fact of a position to dominate
the will has been established. Once that fact is established, then the
unconscionable nature of the bargain and the burden of proof on the
issue of undue influence come into operation. In the present case, for the
reasons stated, these stages are not reached.

As between parties on equal footing, the mere unconscionableness of the

bargain does not create the presumption of undue influence.
The mere fact that the bargain is a hard one is no ground in itself for
granting relief. It was held that the appellant was not in such mental distress
as would enable a moneylender to dominate his will. Since the fact of the
domination of the will was not there, presumption of undue influence could
not be raised, even though the bargain had been unconscionable.

Decision to the Question No: [2016(5)],[2018(5)]

Essential condition of undue influence:

 One of the Contracting Parties dominates the will and mind of

another;
 The Dominating Party has taken an unfair advantage over the
weaker party or the transaction is unconscionable.

In both the cases other parties had taken unfair advantage of person who are in
distress and concluded a contract which are unreasonable to them.

Both the cases fall under the category of undue influence.

Hence, when consent to an agreement is caused by the coercion, undue

influence, fraud, or misrepresentation, the agreement is a contract voidable
at the option of the other party whose consent was so caused.

Subhash Chnadra Das Mushib v. Ganga Prasad (AIR 1967)

In this case, some agricultural property was gifted by a person to his only
grandson (through one of his two sons) to the total exclusion of his sons.
Although the donor was quite old, he was taking active interest in his property.
Four years after the gift he died and still four years after that the other son
questioned the validity of the gift on the ground of undue influence.

The court approved the principles laid down in Raghunath Prasad v Sarju
Prasad (discussed above) and also noted the fact that Sec. 16 is based on the
English common law as noted in the judgment of the Supreme Court in Ladli
Prasad Jaiswal v Karnal Distillery Co., and held that on the facts of the case
no presumption of undue influence could arise. "The circumstance that a
grandfather made a gift of a portion of his property to his only grandson (on
account of natural love and affection), a few years before his death is not on the
face of it an unconscionable transaction." "The circumstance that a grandfather
made a gift of a portion of his property to his only grandson (on account of
natural love and affection), a few years before his death is not on the face of it
an unconscionable transaction."

It must also be noted that merely because the parties were nearly related to each
other no presumption of undue influence can arise. As was pointed out by the
Judicial Committee of the Privy Council in Poosathurai v. Kappanna Chettiar
(AIR 1920 PC 65, 66):
It is mistake (of which there are a good many traces in these proceedings) to
treat undue influence as having been established by a proof of the relations of
the parties having been such that the one naturally relied upon the other for
advice, and the other was in a position to dominate the will of the first in giving
it. Up to that point ―influence‖ alone has been made out. Such influence may be
used wisely, judiciously and helpfully. But whether by the law of India or the
law of England more than mere influence must be proved so as to render
influence, in the language of law, ―undue‖.

It will be noted that the High Court did not come to a finding that Balaram was
in a position to dominate the will of his father (Subhas his son being only about
14 years of age at the date of the deed of gift). Nor did the High Court find that
the transaction was an unconscionable one. The learned Judges made
presumptions which were neither warranted by law nor supported by facts.
Indeed, it appears to us that the learned Judges reached the third stage referred
to in the case of Raghunath Prasad v. Sarju Prasad (1923)completely
overlooking the first two stages.
 Once we come to the conclusion that the presumptions made by the learned
Judges of the High Court were not warranted by law and that they did not take a
view of the evidence adduced at the trial different from that of the Subordinate
Judge on the facts of this case we must hold that the whole approach of the
learned Judges of the High Court was wrong and as such their decision cannot
be upheld.

Lakshmi Amma v. Talengal Narayana Bhatta (AIR 1970)

In this case, a person made a very negligent provision for his third wife (the
first two being dead) and the daughters borne by her, and donated the whole of
his property only to one of his grandsons. The donor was suffering from several
ailments and executed the deed in the nursing home.
The Supreme Court held that, in the absence of any explanation from the side of
the donor for the discrimination, the presumption of undue influence arose. The
deed of settlement on the face of it was an unnatural and unconscionable
document. The plaintiff (donor) made negligible provision for his third wife in
the form of maintenance from the respondent. Thus, she was left to the mercy
of the respondent. No provision was made regarding her right to reside in the
residential house till her death. Further, there was no reason why he should have
left nothing to his two daughters or to his other children and given his entire
estate to only one grandson.
In the present case, no draft of settlement deed was prepared with the approval
or under the plaintiff‘s directions. The plaintiffs wife had stated that the
document was got executed by using pressure on the plaintiff while he was of
an infirm mind and was not in a fit condition to realize what he was doing. The
respondent grandson had failed to dispel the suspicion as to the genuineness of
the execution of the deed. Thus, the settlement deed was held to be invalid.

Limitation On Freedom Of Contract

(Q). Void agreement, Void contract and Voidable contract.[2016(8(b))]

(Q). Difference between void agreement and voidable contracts. [2017(8(d))]

(Q). What are the differences between void agreement and void contract ? Explain
with the help of Examples. [2019(7(b))]

Section 2 in The Indian Contract Act, 1872

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

Section 2(h) An agreement enforceable by law is a contract;

Section 2(i) An agreement which is enforceable by law at the option of one or

more of the parties thereto, but not at the option of the other or others, is a
voidable contract;

Section 2(j) A contract which ceases to be enforceable by law becomes void

when it ceases to be enforceable.

Unlawful Agreements (Sec. 23)

According to Sec. 23, the consideration or object of an agreement are lawful
unless:

i) it is forbidden by law, or
ii) is of such a nature that it would defeat the provision of law, or
iii) it is fraudulent, or
iv) It involves or implies injury to the person or property of another, or
v) 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.

Void Agreements
Sec. 2 (g) says: "An agreement not enforceable by law is said to be void". There
are some agreements which have been specifically or expressly declared as void
by the Indian Contract Act. These are;
 (i) Agreements of which the consideration or object is unlawful (Sec. 23 and
24).
(ii) Agreements without consideration (Sec. 25).
(iii) Agreements in restraint of marriage (Sec. 26).

(iv) Agreements in restraint of trade (Sec. 27).

(v) Agreements in restraint of legal proceedings (Sec. 28).
(vi) Agreements which are uncertain and ambiguous (Sec. 29).
(vii) Agreements by way of wager (Sec. 30).
(viii) Agreements to do impossible acts (Sec. 56).

Difference Between Void Agreement and Void Contract:

A void agreement is void ab-initio, in essence, it is null since it is formed. But on
the other hand, a void contract is one that is valid at the time of creation but
eventually becomes void, due to certain circumstances, which are beyond the
control of parties concerned.

In finer terms, it can be said that a void agreement, is always invalid, but if we talk
about the void contract, is one that is enforceable in the beginning, but
subsequently lacks it due to changes in government policy or some other reason.

Basis of comparison Void Agreement Void Contract

Meaning Void agreement refers to Void contract implies a

an agreement which as valid contract that ceases
per law, is unenforceable to be enforceable, become
and has no legal a void contract, when it
consequences. lacks enforceability.

Void ab-initio It is void from the It is valid at the beginning

beginning. but later on become void.

Period of Validity It is never valid. It is valid, till it does not

cease to be enforceable.

Causes Due to absence of one or Due to impossibility of

 more essentials. performance.

Prerequisite of Contract When the agreement is When the contract is

created, all the
prerequisite of the
Contract are not satisfied,
thus making it voids.
entered into, all the
prerequisite of the
contract are satisfied,
which due to certain
circumstances,
subsequently becomes
void.

Restitution In general, the restitution Restitution is allowed

is not allowed, however, when the contract is
the court may grant discovered as void.
restitution on equitable
grounds.

What are the difference between a Void Contract and a Voidable Contract?

When dealing with contracts, the terms "void" and "voidable" are often confused.
Even though these two contract types seem similar, they are actually completely
different.

A contract that is "void" cannot be enforced by either party. The law treats a void
contract as if it had never been formed. A contract will be considered void, for
example, when it requires one party to perform an act that is impossible or illegal.

A "voidable" contract, on the other hand, is a valid contract and can be

enforced. Usually, only one party is bound to the contract terms in a voidable
contract. The unbound party is allowed to cancel the contract, which makes the
contract void.

The main difference between the two is that a void contract cannot be performed
under the law, while a voidable contract can still be performed, although the
unbound party to the contract can choose to void it before the other party performs.
Voidable Contract vs. Void Contract
While a void contract is often considered not executable by design, a contract may
be deemed voidable if the agreement is actionable, but the circumstances
surrounding the agreement are questionable in nature. This includes agreements
made where one party withheld information or intentionally provided inaccurate
information. Failure to disclose items as required by law, or misrepresenting
information, may render the contract voidable but doesn't automatically make it
void. In instances when one party is allowed to cancel the contract because of the
illegal or unfair (voidable) actions by the other party, the contract or agreement
then becomes void.

Examples of Void and Voidable Contracts

Void contracts are unenforceable by law. Even if one party breaches the
agreement, you cannot recover anything because essentially there was no valid
contract. Some examples of void contracts include:

 Contracts involving an illegal subject matter such as gambling, prostitution,

or committing a crime.
 Contracts entered into by someone not mentally competent (mental illness or
minors).
 Contracts that require performing something impossible or depends on an
impossible event happening.
 Contracts that are against public policy because they are too unfair.
 Contracts that restrain certain activities (right to choose who to marry,
restraining legal proceedings, the right to work for a living, etc.).

Voidable contracts are valid agreements, but one or both of the parties to the
contract can void the contract at any time. As a result, you may not be able to
enforce a voidable contract:

 Contracts entered into when one party was a minor. (The law often treats
minors as though they do not have the capacity to enter a contract. As a
result, a minor can walk away from a contract at any time.)
 Contracts where one party was forced or tricked into entering it.
 Contracts entered when one party was incapacitated (drunk, insane,
delusional).
In Dhurandhar Prasad Singh v Jai Prakash University (AIR 2001 SC
2552), the apex court observed that the expressions "void and voidable"
have been subject matter of consideration on innumerable occasions by
courts. One type of "void" acts, transactions, decrees are those which are
wholly without jurisdiction, ab initio void and for avoiding the same no
declaration are necessary.
The other type of void act, for example, may be transaction against a minor
without being represented by a next friend. Such a transaction is good one
against the whole world. So far the minor is concerned, if he decides to
avoid the same and succeeds in avoiding it by taking recourse to appropriate
proceeding, the transaction becomes void from the very beginning. Another
type of void act may be which is not a nullity but for avoiding the same a
declaration has to be made.
"Voidable" act is that which is good unless avoided e.g. if a suit is filed for a
declaration that a document is fraudulent and/ or forged and fabricated, it is
voidable as apparent state of affairs is real state of affairs and a party who
alleges otherwise is obliged to prove it. If it is proved that the document is
forged, etc. and a declaration to that effect is given a transaction becomes
void from the very beginning.
There may be a voidable transaction which is required to be set aside and the
same is avoided from the day it is so set aside and not any day prior to it. In
cases, where legal effect of a document cannot be taken away without setting
aside the same, it cannot be treated to be void but would be obviously
voidable.
(b) Where consent to an agreement is caused by coercion, undue influence,
fraud or misrepresentation, the agreement is a contract voidable at the option
of the party whose consent was so caused. However, where consent is
caused by mistake, the agreement is void.
The reason for such distinction lies in the definition of 'consent' as given in
Sec. 13: "Two or more persons are said to consent when they agree upon the
same thing in the same sense." An agreement upon the same thing in the
same sense is known as true consent or consensus ad idem, and is at the root
of every contract.
In the case of 'voidable' contract, the parties do enter into a contract and
agree upon the same thing in the same sense though by way of fraud,
coercion, etc. While in the case of 'void' contract caused by mistake,
the consent is 'unreal' as there is no consensus ad idem. The offer and
acceptance do not coincide and thus no genuine agreement is constituted
between the parties. Even if a genuine agreement is there, one or both of the
parties may be working under some misunderstanding or misapprehension of
some fact relating to the agreement. If such a misunderstanding or
misapprehension had not been there, probably they would not have entered
into the agreement. In other words, the parties never intended to sign what
they did sign.
To make it more clear: in the case of 'voidable' contract, the "content" of the
document is in question, while in the case of 'void' contract, the "character"
of the document is in question which is a more fundamental aspect.

Distinction between Illegal and Void Agreements (Consequences of Illegal

Agreements)
An illegal transaction is one which is actually forbidden by law (Sec. 23),
but a void agreement may not be forbidden, "the law may merely say that
if it is made, the courts will not enforce it" (Secs. 25 to 30). Thus
every illegal contract is also void, but a void contract is not necessarily
illegal. However, in both, the main or the primary agreement is
unenforceable. But a collateral transaction to the main agreement is
enforceable if the main agreement is void but not illegal (see above). If the
main transaction is illegal, for instance, smuggling, a collateral transaction
like money given to enable a person to smuggle, will also be illegal.

Exceptions

Where the contract is still executory - Where no part of the illegal purpose
has been carried into effect, the money paid or goods delivered under it may
be recovered.

Parties not 'in pari delicto' - Pari delicto means 'in equal fault'. Where the
parties are not in pari delicto the less guilty may be able to recover money
paid, or property transferred, under the contract.

Where recovery possible without; relying on the illegal contract-

Machine tools delivered under an illegal sale were allowed to be recovered.

According to sec 23, The consideration or object of an agreement are

unlawful when immoral or opposed to public policy

Gherulal Parekh v. Mahadeodas Maiya, AIR 1959:

FACTS:

Plaintiff and defendant entered into Partnership agreement with object of entering
into wagering transactions with obligation to bear equal loss or profit arising out
of such partnership. When plaintiff asked for reimbursement of half of money paid
by him to discharge losses of partnership, defendant alleged that the agreement
made between them was illegal and unenforceable on account of S.23

ISSUE: Whether the alleged Partnership agreement was either forbidden by law,
or opposed to public policy or immoral so as to render it void ab initio?

The subordinate judge held that the wagering agreement entered into by the
partners was void under section 30 of the act. Later on appeal, the high court held
that although the agreement entered into by the parties was void yet its object was
not unlawful as under section 23 of the same act and, therefore, was subsisting
between the parties.

An interesting interpretation of this case was that although all illegal agreements
are void and unenforceable by law, yet all void agreements are not illegal or
immoral or as opposed to public policy. Therefore though all wagering agreements
are void and unenforceable by law yet in a wagering agreement it is important to
determine if such an agreement is also unlawful under Section 23 of the Indian
Contract Act in order to test its legality.

Public policy or the policy of the law is an illusive concept: it has been described
as an 'untrustworthy guide', 'variable quality', 'uncertain one', etc. The primary duty
of a court of law is to enforce a promise which the parties have made and to uphold
the sanctity of contracts which form the basis of society, but in certain cases, the
court may relieve them of their duty on a rule founded on what is called the public
policy. Something done contrary to public policy is harmful thing, but the doctrine
is extended not only to harmful cases but also to harmful tendencies.

This doctrine of public policy is only a branch of common law, and thus, it is
governed by precedents and the principles have been crystallized under different
heads. The ordinary functions of the courts is to rely on the well-settled heads of
public policy and to expound and apply them to varying situations; it should only
be invoked in clear and incontestable cases of harm to the public. Though the
heads are not closed and though theoretically it may be permissible to evolve a
new head under exceptional circumstances of a changing world, it is advisable in
the interest of stability of society not to make any attempt to discover new heads in
these days.

That the case law both in England and India confines the operation of the doctrine
to sexual immorality (viz. settlements in consideration of concubinage, promises in
regard to marriage for consideration, contracts facilitating divorce, etc.). The word
"immoral", being very comprehensive one, must be given restricted meaning. The
juxtaposition of immorality with public policy, an equally elusive subject, indicates
that it is used in restricted sense, otherwise there would be overlapping between the
two. Accordingly the court held that a wagering agreement could not be regarded
as immoral.

In Central Inland Water Transport Copn, Ltd. v Brojo Nath (AIR 1986 SC
1571), the court observed: "The principles governing public policy must be and are
capable on proper occasion, of expansion or modification. New heads of public
policy can be evolved in the light of the Fundamental Rights and Directive
Principles in the Constitution of India." In this case, it was held that an unfair and
unreasonable contract entered into between parties unequal in bargaining power
(government corporation and its employees) is opposed to public policy. Such
contracts, which are rarely induced by undue influence as defined by Sec. 16,
Contract Act, and which affect a large number of persons, if they are
unconscionable, unfair and unreasonable, are injurious to the public interest. To
hold that such contracts are only voidable will result in more misery to the weaker
party as it had to go to the court to have the contract adjudged voidable. Such
contracts are thus void. In the aforesaid case, a government corporation imposed
upon a needy employee a term that he can be removed just by three months' notice
or pay in lieu thereof and without any ground. The court held that it is harmful and
injurious to the public interest for it tends to create a sense of insecurity in the
minds of those to whom it applies and consequently it is against public good.
Similarly, in D. T.C. v D. T.C Mazdoor Congress (AIR 1991 SC 101), the
provision for termination of service of permanent employees of public/semi-
government undertakings or statutory corporations only on one month's notice or
pay in lieu of notice without any inquiry was held illegal.

Restrain of trade 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. —Every agreement by which
any one is restrained from exercising a lawful profession, trade or business of any
kind, is to that extent void."

Exception 1.—Saving of agreement not to carry on business of which goodwill is

sold.—One who sells the goodwill of a business may agree with the buyer to
refrain from carrying on a similar business, within specified local limits, so long as
the buyer, or any person deriving title to the goodwill from him, carries on a like
business therein, provided that such limits appear to the Court reasonable, regard
being had to the nature of the business.

Exceptions to the Rule

Restraint imposed on freedom of trade and business, has been recognised as valid
in certain circumstances.
Exception 1
The first of such circumstances is contained in the statutory exception to Section
27, which provides that, if a party sells the goodwill of his business to another he
can agree with the buyer that he will not carry on a similar business within the
specified local limits. As per Section 27, ―one who sells the goodwill of a business
may agree with the buyer to refrain from carrying on a similar business, within
specified local limits; so long as the buyer, or any person deriving title to the
goodwill from him, carries on a like business therein, provided that such limits
appear to the Court reasonable, regarding being had to the nature of the business.‖
In such cases, courts will generally grant suitable injunctive remedies, to prevent a
contracting party from carrying on a trade or business, the goodwill of which has
been transferred by him for good consideration.
Second Exception
The second exception has been carved out by courts, by subjecting Section 27 to a
less literal construction, and pertains to employment relationships.
In the case of Niranjan Shankar Golikari v. Century Spinning & Mfg. Co,
the Supreme Court held that restrictions that are to operate only while the
employee is contractually bound to serve his employer are never regarded as being
in restraint of trade, at common law, or under Section 27. Therefore, where a
clause imposes a partial restraint, prohibiting the employee from performing
services in the same area of business, as that of the employer, during the stipulated
period of the agreement, such restraint would not violate Section 27.
As far as post-termination employment restraints are concerned, it has been
reiterated time and again, that in order to restrain an employee from joining a
competitor, the onus would be on the employer to prove that there is actual theft of
confidential and proprietary information, and that the loss of trade secrets, or the
disclosure of trade secrets to the competitor has caused or is likely to cause
damage/loss to the employer. Even in this case, it is likely that courts would only
restrain the employee from disclosing any confidential/proprietary information to
the competitor, but may not necessarily prohibit him from joining the competing
organisation. In any event, the burden of proof in such cases is on the employer,
and is very high.
Third Exception
The third exception relates to the restrictions on a franchisee‘s right to deal with
competing products during the subsistence of the franchise agreement.
In M/S Gujarat Bottling Co. Ltd. v. The Coca Cola Co., the Supreme Court held
that some terms of commercial contracts have passed into the accepted currency of
contractual or conveyancing relations, and aim at promoting trade and business.
Such terms due to their nature and purpose cannot be said to enter into the field of
restraint of trade. In this case, the Supreme Court held that a negative stipulation in
a franchising agreement, restraining the franchisee from dealing with competing
goods, during the subsistence of the franchising agreement, could not be regarded
as restraint of the franchisee‘s right to trade.

Discharge of Contract (Doctrine of Frustration)

(Q). ―The doctrine of frustration is really an aspect or part of the law of

discharge of contract by reason of supervening impossibility of the act
agreed to be done and hence comes within the purview of Section 56
of Indian Contract Act.‖ Examine the validity of the above statement
with reference to decided cases. [2015(6)]

(Q). The supervening impossibility of performance envisaged in Section 56

of the Indian Contract Act 1872 is not only literal impossibility but also
includes those caused by impracticability and futility of performance
from the point of the object and purpose which the parties had in view, at
the time of entering into the contract.

Elucidate the above statement with the help of decided cases. [2016(6)]

(Q). ―The doctrine of English law relating to frustration of contract has no

application in India in view of the statutory provisions contained in Sec. 56
of the Indian Contract Act, 1872. Critically examine the statement with
reference to decided cases. [2017(5(a))]

(Q). A entered into a contract with a wholesaler for supply of cracker to be

sold in Delhi, before Diwali. Before the consignment arrives, the Hon‟ble
Supreme Court imposes a ban on sale of crackers in Delhi. A refuse to take
delivery of crackers and asks for refund of money deposited. Decide. [2017(5(b))]

(Q). Discuss whether A can take the plea of ―frustration‖ in the following
cases:-
(a) A agreed to supply 500 picture tubes of colour television at Rs 3,000 per
piece to B on 1.1.2018. The goods were to be delivered within one month.
On 15.1.2018, the Government announces enhancement in the Excise duty
leviable on these pictures tubes and in consequence there of the cost price
rises from Rs. 2,700 to Rs. 4,000 per tube. A decline to supply the goods.
[2018(6(a))]
(b). A agrees to sing at B‟s theatre at the night on January 1,2018 but falls ill
and is unable to perform on the agreed date. B sues A for breach of contract
and claims damages. [2018(6(b))]

(Q) . Present a case summery of the case, Satyabrata Ghose vs. Mugneera,
Bangur & Co. , AIR 1954 SC 44. Discuss Whether the judgment will differ if
(a)the land had been acquisitioned by the government for the purpose of
constructing a Special Economic Zone(SEZ) or
(b) two years had been specified as the timeline for handing over the
developed land. [2019(5)]

Answer to Question [2017(5(a))], [2016(6)], [2015(6)], [2019(5)]

[2017(5)(a)],[2018(6)(a),(6)(b)],[2019(5)(a),(5)(b)]:

Doctrine of Frustration

When the performance of the contract becomes impossible, the purpose, which the
parties have in mind, is frustrated. If the performance becomes impossible, because
of a supervening event, the promisor is excused from the performance of the
contract. This is known as doctrine of frustration under English law, and is
covered by Section 56 of the Indian Contract Act.

Section 56 Of the Indian Contract Act :

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

Illustrations:
(a) A agrees with B to discover treasure of magic. The agreement is void.
(b) A and B contract to marry each other. Before the time fixed for the marriage, A
goes mad. The 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 practice 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.

Initial impossibility - Para 1 of Sec. 56 provides that if a contract is impossible of

being performed, the parties to it will never be able to fulfill their object, and hence
such an agreement is void.

Illustrations:
(a) A agrees with B to discover treasure of magic. The agreement is void.

Subsequent or supervening impossibility - Para 2 of Sec. 56 provides that the

performance of contract may be possible when the contract is entered into but
because of some event, the performance may subsequently become impossible or
unlawful.

Illustrations:

(b) A and B contract to marry each other. Before the time fixed for the marriage, A
goes mad. The contract becomes void.

(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.

Para 3 of Sec. 56 deals with situation where one party knew about the
impossibility of performance of the contract, but the other didn't.

Illustrations:

(c) A contracts to marry B, being already married to C, and being forbidden by the
law to which he is subject to practice polygamy. A must make compensation to B
for the loss caused to her by the non-performance of his promise.

The genesis of the Doctrine of Frustration

The origin of the doctrine can be traced back to the Queen‘s Bench judgment in the
case of Taylor v Caldwell in 1863 in England. Prior to this judgment, in both
Roman Law and Common Law, the law regarding contractual obligation was
extremely rigid. Supervening unforeseen events, owing to which the performance
has become impossible or more onerous, were not regarded as an excuse for non-
performance. With the evolution of the doctrine, ―loss of object‖, ―radical change
in the obligation‖, ―implied condition‖ and the need to find a ―just and
reasonable‖ solution have become established justifications, as explained below,
for excusing the performance of a contract.

Prior to Caldwell, it was presumed that the parties could have provided for such
eventualities in their contract if they wanted to. This rule of ―absolute contracts‖
was reaffirmed in the renowned judgment, Paradine v Jane, where a lessee was
made liable to pay the arrears of rent even when he was evicted as the alien enemy.
The reasoning cited was that ―when the party of his own contract creates a duty
upon himself, he is bound to make it good, if he may, notwithstanding any accident
by inevitable necessity, because he might have provided against it by his contract‖.

This rigidity in Common Law was diluted in Caldwell. In this case, an opera
house was rented for holding concerts; however, it was destroyed by fire before the
night of the concert.
In this case, Blackburn J evolved the theory of ―implied condition‖ or ―implied
term‖ while holding that ―in contracts in which the performance depends on
the continued existence of a given person or thing, a condition is implied that
the impossibility of performance arising from the perishing of the person or
thing shall excuse the performance‖. The courts applied this implied condition
ab initio because the parties themselves had decided this, though subconsciously,
while entering into the contract. This theory faced much criticism as the implied
condition was nothing more than a fiction created by courts. The objection to
the implied condition theory rested on the deliberate nature of risk taken by the
parties in not incorporating any possible intervening circumstances in their
contract, therefore, no question of an implied condition could really arise.

The House of Lords rejected the implied condition theory in National Carriers
Ltd v Panalpina (Northern) Ltd while criticizing that ―The weakness […] of the
implied term theory is that it raises once more the spectral figure of the officious
bystander intruding on the parties at the moment of agreement‖.

The ―loss of object‖ or the ―loss of foundation‖ of the contract by the supervening
events is another theory and more sophisticated one, justifying the doctrine. The
classic example for this theory is Krell v Henry, popularly known as one of the
―coronation cases‖ where it was held that the foundation of the contract had been
frustrated with the cancellation of the coronation procession which was the
object of the agreement and that the defendant was excused from performance. The
performance is dependent on the continued availability of a specific state of things.
Unlike ―implied condition‖, the ―loss of object‖ or the ―loss of foundation‖ of
the contract has been widely accepted by the courts as well as by many reputed
authors as it obviated the necessity of speculation involved in ascertaining the
intention of the parties.

The next theory counts on the intervention of the court to impose a ―just and
reasonable‖ solution to a case of frustration. Even if the contract is absolute in its
term, nevertheless, it will not be held absolute in effect when it is not absolute in
intent. Soon this theory also invited criticism as the courts applied it in cases by
assuming vast powers to qualify the absolute or wide terms of the contracts in
order to do what they seem just and reasonable in that situation.
Another widely accepted theory to excuse the performance of the contract is the
theory of ―radical change in the obligation‖ (also known as ―construction
theory‖) formulated by Lord Radcliffe in Davis Contractors Ltd v Fareham
Urban District Council. In this case, it was observed that:

Frustration occurs whenever the law recognises that without the default of either
party a contractual obligation has become incapable of being performed because
the circumstances in which performance is called for would render it a thing
radically different from that which was undertaken by the contract. Non haec in
foedera veni. It was not this that I promised to do.

Interpreting the Doctrine under the Contract Act

The doctrine of frustration has been well-codified in India under section 56 of the
Contract Act, and this obviates the dependence on different theories to justify the
application of the doctrine. It lays down a positive rule relating to the frustration
of contract and does not leave the matter to be determined according to the
intention of the parties or the choice of theory to be applied by the court. The relief
under this section is given by the court on the ground of subsequent impossibility
when it finds out that the whole purpose or the basis of a contract was frustrated by
the intrusion or occurrence of an unexpected event or change of circumstances
which was beyond the control of the parties.

Section 56 states that an agreement to do an act which becomes impossible or

unlawful is void. A thorough explanation of the section can be sought from the
celebrated and seminal decision of

Satyabrata Ghose v Mugneeram Bangur and Co.

In this case, the defendant company promised to sell the plaintiff a plot of land
after developing it by constructing the roads and drains. However, some portion of
the area comprised in the scheme was requisitioned for military purposes. The
Supreme Court, while applying the doctrine, held that the requisitioning of the area
had not substantially prevented the performance of the contract as a whole and
therefore, the contract had not become impossible within the meaning of section
56.
While enunciating the law laid down under section 56, Mukherjee J. explained
that the first paragraph of section 56 is on the same lines as of Common Law,
which discharges the obligation to perform because of inherent impossibility
attached to it. An illustration of ―inherent impossibility‖ is provided therein as ―A
agrees with B to discover treasure by magic.‖ Such agreements are inherently
impossible to be performed and therefore, they are void ab initio.

The second paragraph has been a fertile source of litigation as the court has
deliberated much on the interpretation of the word ―impossible‖. Mukherjee J.
further stated while referring to the second paragraph to section 56:

The word ―impossible‖ has not been used in the sense of physical or literal
impossibility. The performance of an act may not be literally impossible but it
may be impracticable and useless from the point of view of the object and
purpose which the parties had in view. Therefore, if an untoward event or
change of circumstances totally upsets the very foundation upon which the parties
rested their bargain, it can very well be said that the promisor finds it impossible to
do the act which he promised to do.

The question that is to be addressed here is how far the indisputable departure
from the rule of literal interpretation can be compatible with the scheme of
section 56. The second paragraph of section 56 deals with two conditions:

(i) Impossibility
(ii) By reason of some event which the promisor could not prevent, illegality.

While the second condition expressly prescribes that the illegality should arise
out of an event which is within the control of, as a result of fault, of parties, the
first condition does not make such a prescription. Thus, a contract will be
discharged even if the performance has become ―impossible‖ by the fault a
party or due to the failure of a party to prevent the relevant event. However, this
is not the extant position of the doctrine under Indian law, in fact, it is exactly
opposite. As clarified later in the paper, self-induced frustration, i.e.,
impossibility to perform because of the fault of any party, cannot discharge
performance under section 56. Though it seems here that the interpretation
which was adopted by the Supreme Court in Satyabrata cannot be reconciled
with the wordings of section 56, however, this understanding changes when we
consider the illustrations provided within the section. Illustration (e) under
section 56 is as follows:

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.

In the above illustration, incapability to perform is adequate event to satisfy the

test of impossibility and trigger the section. It clarifies that the term
―impossible‖ is not restricted to its literal understanding and here we can
conclude that the deviation from literal interpretation of the section is justified
considering the whole scheme of section. The third paragraph provides
compensation to the promisee in a case where he has suffered loss because of
the promise of the promisor, which the promisor knew or should have known to
be impossible or unlawful to perform. The third paragraph postulates that one
of the parties already had or should have the knowledge of impossibility to
perform at the time of contracting whereas the second paragraph deals with the
supervening impossibility that has arisen after the contract is entered into.

Eg, ―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.‖

The obligation to compensate is dependent upon

(1) The knowledge as well as the reasonable diligence in obtaining that

knowledge as to the act being impossible,

(2) The want of knowledge on the part of the promisee, and

(3) Whether the promisor could have prevented that event which renders the act
impossible.

Be that as it may, any change in circumstances ipso facto does not frustrate the
contract. The frustration of contract is not to be lightly invoked to dissolve the
contract. It must be applied within very narrow limits.―The courts have no
general power to absolve a party from the performance of his part of the
contract merely because its performance has become onerous on account of an
unforeseen turn of events.‖

In an English case, Tsakiroglou and Co Ltd v Noblee Thorl GmbH,despite

the fact that the customary route for shipping, i.e., Suez canal, was closed, the
court held that the contract was not frustrated. The court further directed the
relevant party to perform the contract by an alternative route which was much
more expensive, as a mere rise in freight price cannot be the reason discharge of
its obligations under the contract.

Section 56 applies when a contract does not incorporate provisions dealing with
the consequences of certain supervening events. When the consequences of
such events are expressly provided in the contract, the parties shall be bound by
them and cannot take the defence under section 56. Therefore, the application
of section 56 depends on the contractual terms.

The Supreme Court in 2016 held that: If the parties do contemplate the
possibility of an intervening circumstance which might affect the performance
of the contract, but expressly stipulates that the contract would stand despite
such circumstance, there can be no case of frustration because the basis of the
contract being to demand performance despite the happening of a particular
event, it cannot disappear when that event happens.

A force majeure clause in a contract may relieve the parties from the
uncertainties regarding the consequences of an event on which they have no
control. Also, if an alternative mode of performance is provided in the
contract, then the party has to switch to this mode instead of calling for the
application of a force majeure clause. Moreover, if a person expressly
contracts to absolutely do a thing which is not naturally impossible, the defence
of the act of god or illegality for non-performance cannot be taken.

Section 56 of the Contract Act has been drafted in a manner such that it
captures the frustration of contracts exhaustively.

The Law Commission of India has recognised this position and the relevant
portion reads as follows: This section (56) marks a departure from the
English Common Law to a considerable extent and it is neither profitable nor
necessary to examine which of the various theories underlying the doctrine of
Frustration in English Law are applicable to cases arising under this section.
The decision of East Punjab High Court in Purshotam Das Shankar Das v
Municipal Committee Batala that section 56 is not exhaustive of the law
relating to the frustration of contracts in India, had been declared as a wrong
understanding of law by the Supreme Court in Dhruv Dev Chand v
Harmohinder Singh. It has been further held, including in a 2018 case that the
reliance on foreign judgments to understand Indian law is fruitless.
Common Law judgments ―cannot‖ be of direct assistance; however, they
possess persuasive value and show how the courts in England have approached
and decided cases under similar circumstances. Although the Supreme Court
has explicitly taken the stance that Indian law on frustration is exhaustive and
not dependent on Common Law, Indian courts have time and again cited,
considered and even relied on Common Law cases.

Differentiating section 32 and section 56 of the Contract Act

Under the Contract Act, both sections 32 and 56 apply to cases of frustration
of contacts and it is important to understand the difference between section 32
and section 56.

The party (ies) may see an incentive to go under section 56 instead of section
32. This incentive is the compensation under the third paragraph of section 56
that a loss-incurring party may receive for loss through non-performance of act
known to be impossible or unlawful.

Technically, under both sections 32 and 56, the contract can be discharged on
the impossibility of certain events in the future. Section 32 deals with a
contingent contract, which is dependent on the fulfilment of a condition for its
survival. A contingent contract will dissolve under its own force if the
condition is not satisfied, whereas, section 56 is attracted when a contract
becomes impossible to perform because of an outside force. Therefore, it can
be said that ―it is sometimes a matter of doubt whether a contract falls under
section 32 or section 56‖.

In Satyabrata Ghose Case, the Supreme Court stated that: In cases, therefore,
where the Court gathers as a matter of construction that the contract itself
contained impliedly or expressly a term, according to which it would stand
discharged on the happening of certain circumstances the dissolution of the
contract would take place under the terms of the contract itself and such cases
would be outside the purview of section 56 altogether. Although in English
law these cases are treated as cases of frustration, in India they would be
dealt with under section 32 of the Contract Act which deals with contingent
contracts or similar other provisions contained in the Act.Section 32 will not
only apply to a contract that expressly provides a condition on which
performance is dependent, but also to a contract where such condition is
implied.

The Test of Frustration under section 56

There exist three basic conditions that are needed to satisfy the doctrine under
section 56:

(1) There must be a subsisting contract,

(2) Some part of the contract is still to be performed and

(3) The performance has become impossible after the contract is entered into.
Physical impossibility is not a prerequisite as already discussed. A radical
change in the fundamental assumption, on the basis of which contract was
entered into, is required to make the performance impracticable, illegal or
impossible without the default of either of the parties. 48 The determination of
the degree of change in the obligation must be done by looking into the
construction of the contract in the light of facts existing at the time of its
formation.

Decision to Question No [2019(5)] :

(a). The acquisition of land for the purpose of special economic zone by the
government is permanent in nature. Hence the case comes under the preview of
Doctrine of Frustration.

(b). If the 2 years of timeline was specified in the contract itself . Contract may
come under the category of section 56.
In the above judgment of the Satyabrata ghose case it was held that, there was
no time limit fixed with which the roads and drains were to be made, and the
requisition of the land was only temporary in character. But if there is specified
time limit limit of 2 years, contract may be come under the category of section
56 or section 32 where the implied condition was mentioned for the survival of
contarct.

Specific Grounds of Frustration

The principle of frustration of contract, or of impossibility of performance is

applicable to a great variety of contracts. The following grounds of frustration,
however, have become well established.

Destruction of the Subject-matter

Taylor v Caldwell is the best example of this class. There a promise to let out a
music hall was held to have frustrated on the destruction of the hall. The court
held that where the parties have contemplated that their contract could not be
fulfilled unless some particular specified thing continued to exist when the time
for the fulfillment of the contract arrived, then such a contract must be regarded
as subject to an implied condition that the parties shall be excused, in case,
before breach, performance becomes impossible from perishing of the thing
without the default of the contractor.

Change of Circumstances
The change of circumstances must be such as to make performance of the
contract impossible or even extremely difficult in the manner and at the time
contemplated, and thus upset altogether the purpose of the contract.

Illustration (b), Sec. 56 reads: 'A and B contract to marry each other. Before the
time fixed for the marriage, A goes mad. The contract becomes void.‘

Commercial Hardship
The alteration of the circumstances must be such as to upset altogether the
purpose of the contract. Some delay or some change is very common in all
human affairs and the contract would not be frustrated merely because, on
account of an uncontemplated turn of events, the performance of the contract
may become onerous (or difficult). A situation like this has been described as
one of "commercial hardship" which may make the performance unprofitable
or more expensive or dilatory, but it is not sufficient to excuse performance, for
it does "not bring about a fundamentally different situation such as to frustrate
the venture." The nature and terms of the contract may help in deciding whether
the performance has become impossible, or merely commercially difficult.
The following cases were held to be the cases of commercial hardship. These
cases show that merely because the procurement of the goods become difficult
due to mill strike, or there is a rise in prices, or there is sudden depreciation
of currency, or a person will not be able to earn the expected profits, or there
is an unexpected obstacle to execution or the like, it is not enough to frustrate
the contract.

Decision to Question [2018(6(a))] :

Enhancement of Excise duty comes under the concept of commercial hardship

in which performance of the contract may become onerous. Which may make
the performance unprofitable or more expensive or dilatory, but it is not
sufficient to excuse performance of contract. Contract still binds A to supply the
picture tubes to B.

M/S. Alopi Prasad Sons Ltd v. UOI (AIR 1960 SC 588)

In this case, the plaintiffs (Government agents) were supplying Ghee for the use
of army personnel. The performance was in progress when the Second World
War intervened and the rates fixed in peace time were entirely superseded by
the totally altered conditions obtaining in wartime. The agents demanded
revision of rates, but received no replies. They kept up the supplies. The
Government terminated the contract in 1945 and the agents claimed payment on
enhanced rates. Held that the performance of contract had not become
impossible or unlawful but only onerous, thus it was not frustrated.

The plaintiff's contention was that the terms of the contract agreed upon ...
could not in view of the turn of events which were never in contemplation of
parties, remain binding upon them. The court observed that a
contract is not frustrated merely because the circumstances in which the
contract was made, are altered, or that due to uncontemplated events, the
performance of contract becomes onerous. The performance of contract had not
become impossible or unlawful, the contract was in fact performed by the
agents. Ghee having been supplied by the agents under the terms of the
contract, the right of the agents was to receive remuneration under the terms of
the contract. The plaintiffs thus could not succeed. T

he court observed that the parties to an executory contract are often faced, in the
course of carrying it out, with a turn of events which they did not at all
anticipate viz. a wholly abnormal rise or fall in prices, sudden depreciation of
currency, an unexpected obstacle to the execution or the like. Yet this does not
in itself affect the bargain they have made. Further, there is no general liberty
reserved to the courts to absolve a party from liability to perform his part of the
contract when the performance of the contract had become onerous. That is the
law both in India and England. There is no general rule to which recourse may
be had, relying upon which a party may ignore the express covenant on account
of an uncontemplated turn of events since the date of the contract.

Easun engg Co. Ltd. v. fertilizers & Chemicals Travancore Ltd.(AIR 1991
Mad. 158)
In this case, a contract for the supply of Power Transformers was entered into
between the parties. Easun Co. failed to supply 2/3rd of transformers on
account of price increase in transformer oil. The contract between the parties
was a "firm price" contract, which meant that the prices indicated in the contract
are firm without any escalation on any account till the contract is completely
executed. The contract also provided for liquidated damages for any delay in
the supply of goods, and that such damages would not be applicable in case of
delay caused due to "force majeure'', viz. due to strikes, war, revolution, civil
commotion, epidemics, accidents, fire, wind, flood, because of any law/
proclamation/ ordinance/ regulation of Government, an act of God, or any other
cause beyond the control of the parties.
Easun contended that they were prevented from supplying, due to force majeure
conditions namely, strikes, power cut and phenomenal increase in the cost of
the transformer oil (a 400% increase) due to war conditions in the Middle East
and the Government of India's Ordinance imposing higher excise duties. The
Arbitrator came to the conclusion that despite the contract being a firm price
contract, Easun was justified in asking for variation of price in transformer oil,
in view of the aforesaid force majeure conditions. Further, the contract itself
provided that liquidated damages will not be applicable in case, of delay caused
due to force majeure conditions. The Madras High Court upheld the Arbitrator's
award. The court observed that the increase in price cannot be described as
anything which would be normal in the ordinary trade conditions; it is very
much abnormal. A contract ceases to exist if fundamentally different situation
unexpectedly emerge.

Death or Incapacity of Party

Where the nature or terms of a contract require personal performance by the
promisor, his death or incapacity puts an end to the contract. The performance
of the contract depends upon the existence of good health of the promisor in
such cases e.g. to paint a picture, to play piano, to sing in a concert, etc.
Illustration (e), Sec. 56 reads: '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.'

Government or Legislative Intervention

A contract will be dissolved when legislative or administrative intervention has
so directly operated upon the fulfillment of the contract of a specific work so as
to transform the contemplated conditions of performance (i.e. when resumed, a
different contract from the contract when broken-off). Thus where a vendor of
land could not execute the sale-deed because he ceased to be the owner by
operation of law, held that the contract had become impossible of performance.
The following cases explain the effect of Government or Legislative
intervention:

Boothalinga Agencies v V.T.C Poriaswami(AIR 1969 SC 110)

The case illustrates the point that where the intervention makes the performance
unlawful, the courts will have no choice but to put an end to the contract.
The defendant had a licence to import 'chicory' for manufacturing coffee
powder. The licence was subject to the condition that he would use it only in his
factory. He agreed to sell the whole shipload. Before the arrival of the ship, the
sale of such imported goods was banned. The contract thus held to have become
void.
 Decision of the Question [2017(5(b))] :

According to the above case,the Contract is frustrated under Section 56. Before the
arrival of the consignment the Hon‘ble Supreme Court imposes ban on the sale of
the crackers in Delhi. Hence, because of the Supervening event, the promisor is
excused from the performance of the contract.

Punj Sons Pvt. Ltd. v. UOI(AIR 1986 Del 158)

In this case, there was a contract between M/s Punj Sons Pvt. Ltd. and the Union of
India under which the former agreed to supply to the latter 8,420 milk containers of
20 litres each. The containers were to be coated with "hot dip coating". The coating
was to be done with tin ingots, which was not available in the market (it being a
canalised item). The supply of tin ingots could be obtained by the promisors on the
release of the quota by the Director General of Supplies and Disposals. Inspite of
reasonable efforts on the part of the promisors, the quota was not released and thus
they were not able to perform the contract.
The respondent (Union of India) pleaded that there was no condition or stipulation
in the tender for arranging release orders/ import license for tin ingots. The
respondent admitted that the ingots were not available but pleaded that it was not
obliged under the contract to make available tin ingots. The petitioners pleaded that
tin ingots formed integral part of the performance of the contract which could not
be procured unless the respondent got the release orders issued, thus it was
impossible to perform the contract.
The court observed that the said item could only be issued to the petitioner by the
MMTC, India Ltd. on the recommendation of the Union of India and/ or its
Department. It was held that the contract had become impossible of being
performed (because of non-availability of one of the essential items) and thus void.
The promisors were, therefore, not liable for the non-performance of the contract.

Decision to the Question No [2018(6(b))] :

Section 56: Illustration: (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.
Frustration may terminate a contractual liability, but does not extinguish the
contact itself. Thus, an arbitration clause may survive (AIR 1968 SC 522). Further,
when a contract becomes frustrated (i.e. becomes void), the party who has received
the benefits must restore them to the other (Sec. 65) or to make compensation
for it. A Contract to sing for B at a concert for Rs.1000 which are paid in advance.
A is too ill to sing. A is not bound to make compensation to B for the loss of
profits which B would have made if A had been able to sing, but must refund to B
Rs. 1000 paid in advance4a [Illus. (d), Sec. 65].

Intervention of War
Intervention of war or warlike conditions in the performance of a contract has often
created difficult questions.

Remedies for Breach of Contract

(Q). ―Where two parties have made a contract which one of them has broken,
the damages which the other party ought to receive in respect of such breach of
contract should be such as may fairly and reasonably be considered either
arising naturally , i.e.., according to the usual course of things, from such breach
of contract itself, or such as may reasonably be supposed to have been in the
contemplation of both parties, at the time they made the contract, as the
probable result of the breach of it.‖
Examine the above statement and explain the difference between general
damages and special damages with reference to statutory provision and decided
cases. [2015(8)]

(Q). Discuss the rules laid down in the Hadley V. Baxendale (1843-60) All
ER Rep 460. Examine whether the rule so laid down in the above
mentioned case finds a place in the Indian Contact Act, 1972. [2016(7)]
(Q). Discuss the rule relating to remoteness of damages as enunciated by
Hardley Vs. Baxendale. [2017(6(a))]

(Q). X, a launderer orders a boiler of very big capacity to expand his

business. The boiler was to arrive by 8th August 2016 but there was
inordinate delay and it arrives by 15th December 2016. X sues the supplier
for loss of profit which he might have earned because of increased business.
Decide? [2017(6(b))]

(Q). (a). ―Damages are Compensatory, not penal.‖

Elucidate. [2018(7)]
(b). A agrees to sell 2,000 shares of a company to B at Rs 170 per share. B
was to take delivery of the said share on 15th February 2018. By that date
there was depression in the share market and the value of the share had gone
down to Rs 80 only. B did not take the delivery to the shares on 15.2.2018.
A retained the shares and ultimately sold them in Sept 2018 at Rs.170 per
share. A Files a suit against B for the recovery of Rs1, 80,000 as damages.
B contends that A did not suffer any losses; he is not entitled to the damages
as claimed by the plaintiff. Decide the Case. [2018(7)]

(Q). Critically analyse the extent of compensation payable under section 73 of the
Indian Contract Act, 1872, when one party to a contract breaches the contract. If
a contract provides exorbitant liquidated damages in case of breach, will it be
mandatory to pay the same? Discuss. [2019(6)]

Answer to Question No [2015(8)],[2016(7)], [2017(6(a))] :

The Foundation of the Modern law of damages, both in India and England is to be
found in the Judgement in the case Hadley V. Baxendale (1854) 9 Ex 341. It is a
very important leading case, in which the basic Principle governing the fixation of
the quantum of damages was settled.

Hadley V. Baxendale (1854) 9 Ex 341.

Fact of the Case
In this case, the Plaintiff's Flour mill was stopped by the breakdown of a
crankshaft. He delivered the crankshaft to Defendant, a common carrier, to be
taken to a manufacturer to copy it and make a new. Plaintiff did not known to
Defendant that delay would result in a loss of profits. By some neglect on the part
Defendant, the delivery of the shaft was delayed in transit beyond a reasonable
time (so that the mill was idle for a longer period than otherwise would have been
the case had there been no breach of the contract of carrying).

Decision :
The House of Lord Held that the defendant was not liable for the loss of profit
accrued during the period of closure since the plaintiff did not disclose the
defendant that the mill was closed for want of the Crankshaft. If the plaintiff would
have informed that the work disclosed for want of crankshaft, the defendant could
have made alternative arrangements for quick transportation of the
crankshaft.

Alderson, B. Observed in this case as follows:

"Where two parties have made a contract which one of them has broken, the
damages which the other party ought to receive in respect of such breach of
contract should be such as may fairly and reasonably be considered either
arising naturally, i.e., according to usual course of things, from such breach of
contract itself, or such as may reasonably be supposed to have been in the
contemplation of both parties at the time they made the Contract, as the
probable result of the breach of it."

Principle Laid Down :

"Compensation for loss or damage caused by breach of contract" is based on the

judgment of the above case.

The rule in Hadley V. Baxendale :

When a contract has been broken, the injured party is entitled to -

 a) such damages which naturally arose in the usual course of things from such
breach. This relates to ordinary damages arising in the usual course things;

b) such damages which the parties knew, when they made the contract, to be
likely to result from the breach. This relates to special damages

c) Such compensation is not to be given for any remote or indirect loss or

damage sustained by reason of the breach and

d) such compensation for damages arising from breach of a quasi-contract shall

be same as in any other contract.

Remoteness of Damage
theoretically the consequences of a breach may be endless (e.g. loss of profits, loss
of social prestige and of business reputation, time and money and energy wasted
on defence), but there must be an end to liability. The defendant cannot be held
liable for all that follows from his breach. In other words, the compensation is not
to be given for any remote or indirect loss or damage sustained by reason of the
breach.

General damages- Those which arise naturally in the usual course of things from
the breach itself. This rule is 'objective' as it makes the liability to depend upon a
"reasonable man's foresight" of the loss that will naturally result from the breach.

Special damages- Those which arise on account of the unusual circumstances

affecting the plaintiff. They are not recoverable unless the special circumstances
are brought to the knowledge of the defendant so that the possibility of the special
loss was in the "contemplation of the parties". This rule is 'subjective' as the extent
of liability depends upon the actual knowledge of parties at the time of the contract
about the likely result of breach.

The following case illustrates these rules:-

British Columbia Saw Mill Co. v. Nettleship (1868):

Wherein a mill could not be commissioned due to loss of one the packages. The
defendant were not held liable for the loss of profits because the special
circumstance was not communicated to them.

Simson v. London & North Western Railway Co. (1876) :

Where the special circumstance was not formally communicated but was proved to
be already within the knowledge of the defendants, special damages in the form of
loss of profits was allowed to be recovered.

The rule of Hadley V. Baxendale, is reproduced in Section 73 of the Indian

Contract Act. The said section provides:

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.

Explanations: - In estimating the loss of damage arising from a breach of contract

the means which of remedying the inconvenience caused by the non-performance
of the contract must be taken into account.

Although eighteen illustrations have been given by the legislature, we may note the
illustration (i),(j) and (k) which are particularly important:

(i) A delivers to B, a common carrier, a machine, to be conveyed, without delay, to

A‟s mill informing B that his mill is stopped for want of the machine. B
unreasonably delays the delivery of the machine, and A, in consequence, loses a
profitable contract with the Government. A is entitled to receive from B, by way of
compensation, the average amount of profit which would have been made by the
working of the mill during the time that delivery of it was delayed, but not the loss
sustained through the loss of the Government contract.
(j) A, having contracted with B to supply B with 1,000 tons of iron at 100 rupees a
ton, to be delivered at a stated time, contracts with C for the purchase of 1,000 tons
of iron at 80 rupees a ton, telling C that he does so for the purpose of performing
his contract with B. C fails to perform his contract with A, who cannot procure
other iron, and B, in consequence, rescinds the contract. C must pay to A 20,000
rupees, being the profit which A would have made by the performance of his
contract with B.

(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.

Answer to the Question [2017(g)(b)],[2018(7)(a),(b)] :

The breach of contract occurs when-

(i). a party renounce his liability under the contract, or

(ii). by his own act makes it impossible that he should perform his obligations
under the contract, or

(iii). totally or partially fails to perform his part of the contact.

The ‗failure to perform‘ can be of two types:-

(1). Anticipatory Breach :- Where, prior to the promised date of performance, the
promisor announces his intension not to fulfill the contract.

(2). Actual Breach: -where the promiser, totally or partially fails to perform an
ongoing contact:
The doctrine of anticipatory breach is stated in Section 39 of the Indian Contract
Act, in the following words:

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.

In Karsandas H. Thacker v. Saran Engineering co Ltd AIR 1965 SC 1981:

There was a contract to supply 200 tons of scrap iron. The buyer undertook to
supply the same quantity to an Export Corporation. The seller failed to supply and
in consequences the buyer could not perform his contract with the Export
Corporation The Corporation recovered from him the difference between the
contract price and the market price. No damages were awarded in this case,
because the control price of iron scrap was still the same and the fact of another
contract was not in the knowledge of the seller.

The Supreme Court laid down the rule that loss of profits is a special loss,
the possibility of which must be brought to the knowledge of the defendant
if the damages are to be covered.

Once the extent of recoverable loss is determined by the applying Section

73, it has to be evaluated in terms of money. This is called the problem of
‗measure of damages‘ and there are three fundamental principles for
calculating the damages:-

(1). Damages awarded in law of contract are always compensatory, and

never penal. Ad far as possible, the plaintiff is put in the same position, he
would be in, if the contract has been fulfilled.

(2). ordinarily damages are not awarded for mental pain and suffering but only
in financial loss.

(3). Explanation of Section 73 puts every plaintiff under the duty to

mitigate his losses. He is expected to make reasonable efforts to avoid the
losses or to keep at a minimum. Such losses as could be avoided are not
recoverable from the defendant.
 Jamal v. Moola Dawood Sons & Co. [(1916) 43 IA 6]
In this case, it was held that the proper measure of damages is the difference
between the contract price and the market price on the date of the
breach of contract irrespective of the fact that the seller does not again
sell the goods on that day, but sells the same on a subsequent date and the
actual loss to him is different from the difference in prices on the date of the
breach of contract..

In this case, the appellants sold 23,500 shares to the respondent. The date of
delivery was 30th Dec. 1911. The shares were tendered on that date but the
respondents refused to take them. On that date the market price of those
shares was lower than the contract price by Rs. 1,09,218. The appellants sold
those shares in the market subsequently when the market was again rising
and he realized only Rs. 79,862 less than the price under the contract. The
respondents contended that they should be held liable to pay the loss of only
Rs. 79,862. But they were held liable for Rs. 1,09,218.
The Privy Council observed: It is undoubted law that a plaintiff who sues for
damages owes the duty of taking all reasonable steps to mitigate the loss
subsequent upon the breach and cannot claim as damages any sum which is
due to his own neglect. But the loss to be ascertained is the loss at the date of
the breach. If at that date the plaintiff could do something or did something
which mitigated the damage, the defendant is entitled to the benefit of it.

If the seller retains the shares after the breach, the speculation as to the way
the market will subsequently go is the speculation of the seller. Thus, he
cannot recover from the buyer any further loss if the market falls, nor is he
liable to have the damages reduced if the market rises (Thus, any loss or
profit made by the seller after the date of the breach is of no concern to the
purchaser). In other words, the fact that by reason of the loss of the contract
which the defendant had failed to perform the plaintiff obtains the benefit of
another contract which is of value to him does not entitle the defendant to
the benefit of the latter contract.

Decision of the Question No [2018(7)(b)]:

 A is entitle to claim the damages from the B. According to the law
discussed above, the damages are to be assessed on the date of the contract,
and subsequent loss or profit made by the seller is immaterial. In the present
case also, the damages payable are the difference between the contract price
and the market price on the date of the breach of contract.

Decision of the Question No [2017(g) (b)]:

According to the provision of Section 73 of Indian Contract Act, 1872

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. Illustration (i):

(i) A delivers to B, a common carrier, a machine, to be conveyed, without

delay, to A‟s mill informing B that his mill is stopped for want of the
machine. B unreasonably delays the delivery of the machine, and A, in
consequence, loses a profitable contract with the Government. A is
entitled to receive from B, by way of compensation, the average amount
of profit which would have been made by the working of the mill during
the time that delivery of it was delayed, but not the loss sustained through
the loss of the Government contract.
Yes, He could succeed in claiming the damages from the supplier.

Answer to Question [2019(6)]:

Liquidated Damages
Sometimes the parties to a contract, at the time of making the contract
agreed to the amount of compensation payable in the event of the breach of
contract. Such amount, which has been agreed beforehand, may be either
liquidated damages or penalty. If the sum to be paid on the breach of
contract is the genuine pre-estimate of the prospective damages, it is known
as liquidated damages. If such sum is excessive and highly
disproportionate to the likely loss, viz. the amount is fixed in terrorem,
with a view to discouraging breach of contract, it is known as penalty.
'Penalty' as a rule is never awarded as damages in the law of contract
(damages will then be calculated according to the ordinary principles); while
the whole of liquidated damages is recoverable (English law).
The stipulation contained in contract which specifies the damages or
penalties to be paid by the party in breach to the other party, reflects good
business sense and is advantageous to both parties. It enables them to
envisage the financial consequence of a breach; and if litigation proves
inevitable it avoids the difficulty and legal costs, often heavy, of proving
what loss has in fact been suffered by the innocent party.

In Dunlop Pneumatic Tyre Co. Ltd. v New Garage & Motor Co. Ltd.
(1915) AC 79, the court laid down the following propositions:
(1) The expression used by the parties is not conclusive. The court must find
out whether the payment stipulated is in truth a penalty or liquidated
damages.
(2) The question whether a sum stipulated is a penalty or liquidated damages
is a question of construction to be decided upon the terms and inherent
circumstances of each particular contract.
(3) To assist this task, various tests have been suggested:
(a) It will be a penalty if the stipulated sum is extravagant and
unconscionable in amount in comparison with the greatest loss that could
followed from the breach.

(b) It will be a penalty if the breach consists only in not paying a sum of
money and the sum stipulated is a sum greater than the sum which ought to
have been paid.
(c) The penalty may be presumed when a single lump sum is made payable
by way of compensation, on the occurrence of one or more or all of several
events, some of which may occasion a serious and others but trifling
damage.
An illustration of 'liquidated damages' is Dunlop Pneumatic Tyre Co.
case, in which a manufacturer of tyres supplied a quantity of tyres on the
condition that they would not be sold below the list prices and that liquidated
damages, not penalty, of £ 5 would be payable for every tyre sold in breach
of the agreement. Held that the stipulated sum was intended to be genuine
compensation for the loss suffered, and thus liquidated damages.
An illustration of 'penalty' is Ford Motor Co. v Armstrong (1915) 31 TLR
267, in which the defendant, a retailer, received from the plaintiffs, supplies
of cars and parts and agreed not to sell any item below the listed price. A
sum of £ 250 was payable for every breach as "agreed damages". Held that
the sum fixed was penalty as it might happen that a part sold in breach was
of lesser value than the damages payable. The sum bore no relation with the
degree or extent of breach. Similarly, where two-third of the price was made
payable in the event of a default, it was held to be penalty.

Section 74, Contract Act

Section 74 of the Indian Contract Act lays down a slightly different rule:
Compensation for breach of contract where penalty stipulated for- When a
contract has been broken, if a sum is named in the contract as the amount to
be paid in case of such breach, or if the contract contains any other
stipulation by way of penalty, the party complaining of the breach is entitled,
whether or not actual damage or loss is proved to have been caused thereby,
to receive from the party who has broken the contract reasonable
compensation not exceeding the amount so named or, as the case may be,
the penalty stipulated for.

Explanation- A stipulation for increased interest from the date of default may
be a stipulation by way of penalty. Illustration (d) reads: 'A gives B a bond
for repayment of Rs. 1,000 with interest at 12% per annum at the end of six
months with a stipulation that in case of default, interest will be payable at
the rate of 75% from the date of default. This is a stipulation by way of
penalty and B is only entitled to recover from A such compensation as the
court considers reasonable.'
Constitutional Bench Decision of the Supreme Court in Fateh Chandv. Balkishan
Das
The Constitutional Bench in Fateh Chand was dealing with a clause in a sale deed
which provided that, if for any reason the vendee fails to get the sale-deed
registered by the date stipulated, the amount of Rs. 25,000 (Rs. 1,000 paid as
earnest money and Rs. 24,000 paid out of the price on delivery of possession)
would stand forfeited.
The above condition which provided for forfeiture of Rs 24,000 was considered by
the 5 judge bench to be a stipulation in the nature of penalty rather than an
liquidated damage. The Court held it to be covered under Section 74 of the
Contract Act since it contains the phrase, ―as the case may be, the penalty
stipulated for.‖ The Court observed as follows:
―The expression if the contract contains any other stipulation by way of penalty
widens the operation of the section so as to make it applicable to all stipulations by
way of penalty, whether the stipulation is to pay an amount of money, or is of
another character, as, for example, providing for forfeiture of money already
paid.‖
The Court speaking though JC Shah J went to rule that for an Liquidated Damages
Clause which is in the nature of a penalty, reasonable compensation not exceeding
the amount stipulated has to be awarded depending upon what the Court considers
to be reasonable.
Also, while interpreting the phrase, ―whether or not actual damage or loss is
proved to have been caused thereby‖, the Court held that it merely dispenses with
the requirement of proof of actual loss or damages but nonetheless the necessity
that there has been a legal injury suffered by the party is a prerequisite before
awarding compensation under Section 74 of the Contract Act.

Three Judge Bench decision in Maula Bux v UOI :

The Supreme Court in this case was again dealing with a situation of forfeiture of
an amount that has already been paid under a contract and adjudicated that such a
fact situation would be a penalty covered under Section 74 of the Contract Act.
The Supreme Court in this case laid down some very important propositions:
 Earnest money - Giving an earnest or earnest money is a mode of signifying
assent to a contract of sale or the like by giving to the vendor a nominal sum as a
token that the parties are in earnest, have made up their minds.
'Earnest money' is a part of the purchase price when the transaction goes forward:
it is forfeited when the transaction falls through by reason of the fault or failure of
the vendee
Sec. 74 is applicable to forfeiture of deposits — Forfeiture of earnest money
under a contract of sale, if the amount is reasonable, does not fall within Sec. 74
(as it does not amount to imposing a penalty). But if forfeiture is of the nature of
penalty i.e. amount to be forfeited is unreasonable, Sec. 74 applies. Where under
the terms of the contract the party in breach has undertaken to pay a sum of money
or to forfeit a sum of money which he has already paid to the party complaining of
a breach of contract, such undertaking is a penalty (Fateh Chand v Balkishan Das
AIR 1963 SC 1405).
Actual loss whether necessary - Sec. 74 says that the named sum is recoverable
'whether or not actual damage or loss is proved to have been caused thereby'. The
court observed that these words only dispense with proof of 'actual loss or damage.'
The section does not justify the award of compensation, in consequence of a
breach when no legal injury has resulted. This is so because compensation can only
be awarded under Sec. 73 for loss which normally arose or was in the
contemplation of the parties. Thus, if no loss is proved to have been suffered, Secs.
73 and 74 are not attracted.
Significantly, while interpreting the phrase, ―whether or not actual damage or
loss is proved to have been caused thereby‖, it observed the following:
―It is true that in every case of breach of contract the person aggrieved by the
breach is not required to prove actual loss or damage suffered by him before
he can claim a decree, and the Court is competent to award reasonable
compensation in case of breach even if no actual damage is proved to have
been suffered in consequence of the breach of contract. (…)
Where the Court is unable to assess the compensation, the sum named by the
parties if it be regarded as a genuine pre-estimate may be taken into
consideration as the measure of reasonable compensation, but not if the sum
named is in the nature of a penalty. Where loss in terms of money can be
determined, the party claiming compensation must prove the loss suffered by him.‖
 From the above observations of the 3 Judge Bench of the Supreme Court speaking
though JC Shah J, it is clear that the Court has held that in situations where it
would be difficult to assess compensation, the sum named by the parties can be
considered to be a genuine pre-estimate and as a reasonable compensation to be
paid in situations where the clause is an Liquidated Damage Clause.
Division bench decision of the Supreme Court in ONGC Ltd v. Saw Pipes
The Court was dealing with a contract which provided for the following Liquidated
Damages Clause:
―Recovery from the contractor as agreed liquidated damages are not by way
of penalty, a sum equivalent to 1% (one percent) of the contract price of the
whole unit per week for such delay or part thereof (this is an agreed, genuine pre-
estimate of damages duly agreed by the parties) which the contractor has failed
to deliver within the period fixed for delivery in the schedule, where delivery
thereof is accepted after expiry of the aforesaid period. It may be noted that such
recovery of liquidated damages may be upto 10% of the contract price of whole
unit of stores which the contractor has failed to deliver within the period fixed for
delivery‖
While interpreting the contours of the above Liquidated Damages Clause, the
Court speaking through M B Shah J laid down certain key pointers relevant for
interpretation of LD Clause being the following:

 ―If parties knew when they made the contract that a particular loss is likely to
result from such breach, they can agree for payment of such compensation.‖
The Court went on to observe that in such a situation, the necessity of leading
evidence is discretionary, and it may not be required in situations unless the Court
concludes that no loss is likely to occur because of the event which triggered the
Liquidated Damages Clause.
 It went on to hold that: ―when parties have expressly agreed that recovery from
the contractor for breach of the contract is pre-estimated genuine liquidated
damages and is not by way of penalty duly agreed by the parties, there was no
justifiable reason for the arbitral tribunal to arrive at a conclusion that still
the purchaser should prove loss suffered by it because of delay in supply of
goods.‖
 Most importantly, it was stated that in situations where the Liquidated Damages
Clause is a pre-estimate, the burden would be on the other party to lead evidence
for proving that no loss is likely to occur by such breach.
Did Saw Pipes decide contrary to larger bench decision of Fateh Chand?
The Constitutional Bench in Fateh Chand had observed that Section 74 merely
dispenses with proof of ―actual loss or damages‖ but the requirement of
demonstrating legal injury still persists under Section 74. Therefore, the Saw Pipes
ruling that when parties have agreed to a genuine pre-estimate in the LD Clause,
there may not be any requirement of proving evidence to prove loss unless the
Court comes to conclusion that there may not be any legal injury suffered by a
party claiming the benefit of LD Clause, appears to be consistent with the decision
of Fateh Chand.
Concluding Thoughts: What does Fateh Chand, Maula Bux and Saw
Pipes hold for Liquidated Damages Clauses?
From a conjoint reading of the observations and rulings in the 3 (three) decisions
of the Supreme Court, it can be stated that parties may be able to take benefit of an
Liquidated Damages Clause and the requirement of proof that is strictly applicable
to a Section 73 situation may not be applicable under an Liquidated Damages
Claim particularly where the parties have expressly stated that the estimate of
damages is a pre-estimate that is agreed between the parties and is not in the nature
of a penalty.
However, to overcome the Maula Bux observations of the Supreme Court where
the 3 Judge Bench has ruled that, ―the sum named by the parties if it be regarded
as a genuine pre-estimate may be taken into consideration as the measure of
reasonable compensation‖ if the Court is unable to assess the compensation, the
parties may consider adding an acknowledgment by the parties that it would be
impossible or extremely difficult to exactly quantify such loss and therefore, the
estimate is to be considered as a genuine pre-estimate in the event a breach leads to
trigger of an Liquidated Damages Clause.
Sri Hanuman Cotton Mills v Tata Aircraft Ltd (AIR 1970 SC 1986)
In this case, it was held that if a contract requires the buyer to deposit 25% of the
total value of the goods (as part of the purchase price of Rs. 10 lacs) while placing
the order, with a stipulation that the amount shall be forfeited in case of default in
balance payment of price, the term is reasonable and binding on the parties. The
deposit in question was intended as earnest money. It was a part of the price and
the seller was
entitled to forfeit it. The contract read with the terms of business of the company
clearly referred to the earnest money being paid and to the fact of Rs. 2.5 lacs
having been paid as earnest.
In this case, the learned judge refused to consider the obiter observations made in
Maula Bux, that the earnest money can be forfeited without attracting Sec. 74 if
the amount thereof is reasonable as binding. He pointed out that the Supreme Court
itself had no occasion in that case to consider the question of reasonableness or
otherwise of the earnest deposit being forfeited. The Supreme Court also laid down
five principles regarding earnest money:
(i) It must be given at the moment when the contract is concluded;
(ii) It represents a guarantee that the contract will be fulfilled or, in other words,
"earnest" is given to bind the contract;
(iii) It is part of the purchase price when the transaction is carried out;
(iv) It is forfeited when the transaction falls through by reason of the default or
failure of the purchaser; and
(v) Unless there is anything to the contrary in the terms of the contract, on default
by purchaser, the seller is entitled to forfeit the earnest.

Quasi- Contract

(Q). Obligation of person enjoying the benefit of non-gratuitous act. [2015(7(c))]

(Q). Obligation of person who enjoyed benefit of non-gratuitous act. [2016(8(c))]

(Q). Discuss the liability for necessaries supplied to a person incapable of

entering into a contract. [2017(7(b))]

(Q). Quasi-contracts. [2017(8(c))]

(Q). Ajay told his new friend Amit, that he likes to give surprises to his friends.
That evening, a pizza was delivered to Amit, without him ordering for the same.
Presuming that Ajay must have ordered the pizza for him as a surprise, Amit ate it.
As per the rules of the Pizza Company, the pizza delivery boy had to pay the cost
of pizza for any error in delivering. The pizza boy paid Rs. 400 to the company and
the next morning he comes to you to ask your legal advise on whether he can
legally ask Amit to pay the cost of the pizza. Advise him. [2019(7(a))]

Answer to Question [2017(8)(c)]:

The contract aims to prevent one party from unfairly benefiting from the situation
at the other party‘s expense. These arrangements may be imposed when goods or
services are accepted, though not requested, by a party. The acceptance then
creates an expectation of payment.

A quasi contract is also known as an implied contract. It would be handed down

ordering the defendant to pay restitution to the plaintiff. The restitution, known in
Latin as quantum meruit, or amount earned, is calculated according to the amount
or extent to which the defendant was unjustly enriched

Quasi contracts are such contracts where legal obligations are imposed by law
without offer and acceptance. The quasi contractual obligations are based on the
principle that law as well as justice should try to prevent unjust enrichment i.e.
enrichment of one person at the cost of another and the retention of such
enrichment must also be unjust. In an action for unjust enrichment the following
essentials have to be proved:

 The defendant has been ‗enriched‘ by the receipt of a ‗benefit‘

 The enrichment should be at the expense of the plaintiff
 The retention of the enrichment should be unjust

Necessaries
Section 68 of the Contract Act states, ―If a person, incapable of entering into a
contract, or anyone 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.‖
In simple terms, if a person A supplies another person B (who is incapable of
entering into a contract) or his family or anybody else who is dependant on him,
with necessaries for life, he is entitled to take his due return from the property of
person B. He is entitled only to such a reasonable amount as the value of the goods
or services he may have supplied hold.

Section 68 permits reimbursement if:

 Necessaries are supplied

 To a person who is incapable of making a contract, or,
 To a person who is dependent upon such person incapable of making
contract i.e. a person whom the incapable person is legally bound to
support
 Suited to that person‘s conditions in life

Necessaries do not mean the bare necessities but means such things as may be
necessary to maintain a person according to his conditions in life. It depends upon
the status of a person and also his requirements at the time of actual delivery of the
goods.

Minor‘s agreement being void ab inito he cannot therefore be asked to pay for the
services rendered or goods supplied to him but the law recognizes a quasi
contractual obligation for the payment of necessaries supplied to a minor or lunatic
from their estate.

The following have been held to be 'necessaries':

- Supply of racing cycle for an infant apprentice.
- Debt incurred for performing the funeral rites of minor's father.
- Funeral expenses of the husband by the infant widow [Chappel v Cooper].
- House given to a minor on rent for living and continuing his studies.
- Wedding presents for a bride of minor.
- Money advanced for defending criminal proceedings.
- Loan given to a minor on the mortgage of his property with a view to save that
minor's property
from the execution of a decree.

Payment by an Interested Person

Section 69 of the Contract Act reads, ―A person, who is interested in the
payment of money which another is bound by law to pay, and who therefore pays
it, is entitled to be reimbursed by the other.‖

The following conditions must be satisfied to make a person liable for such quasi
contractual obligation:

1. The plaintiff should be interested in making the payment. It is not

necessary that he should have a legal proprietary interest in the property
in respect to which payment is made. His honest belief that he has an
interest to protect is enough.
2. The plaintiff himself should not be bound. He should only be interested in
making the payment to protect his own interest.
3. The defendant should be under the legal compulsion to pay the money
4. The plaintiff should have made the payment to another person and not to
himself.

For instance, Joe is a Zamindar. Annie holds one of his lands on lease in
Punjab. The revenue of Joe‘s land is payable to the government in arrears.
So, the land ends up being advertised for sale by the government. According
to the Revenue Law, if the land is sold, it will end Annie‘s lease. To prevent
this sale, Annie pays Joe‘s dues to the government. Joe is bound to pay back
to Annie.

Answer to Question [2015(7)(c)],[2016(8)(c)]:

Liability to pay for Non-Gratuitous Act

Section 70 of the Contract Act states, :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.‖

Following three conditions must be satisfied before Section 70 can be applied:

 1. A person should lawfully do something for another person or deliver
something to him
2. In doing the said thing or delivering the said thing he must not intend to
act gratuitously
3. The other person for whom something is done or to whom something is
delivered must enjoy the benefit thereof.

In cases falling under Section 70 the person doing something for another cannot
sue for specific performance nor ask for damages for breach as there is no contract
between the parties. All that Section 70 provides for is that if the services or goods
are accepted a liability to pay arises.

The person for whom the act is done is not bound to pay unless he had the choice
to reject the services. Also it is necessary that services should have been rendered
without any request and lawfully. The defendant must have derived a direct benefit
from the payment or services.

Illustrations:
(a) A, a tradesman, leaves goods at B's house by mistake. B treats goods as his
own. He is bound to pay A for them.
(b) A save B's property from fire. A is not entitled to compensation from B if the
circumstances show that he intended to act gratuitously.

Similarly, where a coolie takes the luggage at the railway station without being
asked by the passenger or a shoe-shiner starts shining shoes of the passenger
without being asked to do so, and if the passenger does not object to that, then he is
bound to pay reasonably for the same as the work was not intended to be
gratuitous.
In cases falling under Sec. 70, the person doing something for another cannot sue
for specific performance, nor ask for damages for breach, as there is no contract
between the parties. All that Sec. 70 provides for is that if the services or goods are
accepted a liability to pay arises. Thus, one of the purposes of the section is to
assure payment to a person who has done something for another voluntarily and
yet with the thought of being paid (it does not matter that he is personally
interested in the work). He should have contemplated being paid from the very
beginning. The Municipal Council, which constructed and maintained a bus stand
was allowed to recover some charges from bus operators who used the stand
though there was no agreement to that effect.
Secondly, the person for whom the act is done is not bound to pay unless he had
the choice to reject the services. Sec. 70 would not encourage officious
interference in the affairs of others. It is only where a person voluntarily accepts
the thing or enjoys the work done that the liability under Sec. 70 arises. The
court will not compel a person to pay for services which have been thrust upon him
against his will.
Thirdly, it is necessary that services should have been rendered without any
request. However, reasonable compensation may be recovered for services
rendered at request. Compensation may be recovered for services rendered at
request.
Fourthly, services should have been rendered lawfully. Payment for extra work
done in connection with a contract without any agreement has been allowed to be
recovered under this section. The lawful relationship should arise by reason of the
fact that what has been done by the plaintiff has been accepted and enjoyed by the
defendant. When a practicing advocate is appointed to act as Astt. Govt. Council
and she renders those services, she will be entitled to claim the fees for those
services, even if her appointment is void under the law. ( Indu Mehta v State of
U.P. AIR 1987 All 309)

Lastly, the defendant must have derived a direct benefit from the payment or
services. Where the works done by a railway company developed the adjoining
lands and consequently the municipality received more taxes, this was held to be
not a sufficient benefit to enable the railway company to recover compensation
from the municipality. Services rendered to a person incompetent to contract (e.g.
minor) at the time cannot be made the basis of an action under this section. Even
where the party making payment or rendering services is personally interested in
the matter, he can recover proportional contribution from those who have enjoyed
the benefits of his services [Damodara Mudaliar v Secy, of State, India (1894)
18 Mad 88].

State of West Bengal v. B.K Mondal & (AIR 1962 SC 779)

In this case, the plaintiff made certain constructions at the request of an officer of
the State. The State accepted the work but refused to pay pleading that there was
no valid contract. The court held in favor of the plaintiff. The Supreme Court, in
this case, made some important observations:
(i) The State even after having requested for the works had the right to reject. The
person said to be liable under Sec. 70 always has the option not to accept the thing.
Sec. 70 is not intended to entertain claims made by persons who officiously
interfere with the affairs of others or who impose on others services not desired by
them. It is only when a person voluntarily accept things or enjoys the work done
that the liability under Sec. 70 arises. The State could have called upon the
contractor to demolish the constructions and take away the material used; but if the
State accepted the constructions and used them and enjoyed their benefit, then Sec.
70 applies.
(ii) The plaintiff had no intention to act gratuitously. He contemplated being paid
from the very beginning. A request is not an element of Sec. 70 although the
existence of an invalid request may not make Sec. 70 inapplicable. However, the
thing delivered or done must not be delivered or done fraudulently or dishonestly.

(iii) Non-compliance of constitutional requirements of contracting with State -

Article 299 (1) of the Constitution of India states that - "All contracts made in the
exercise of the executive power of the Union or of a State shall be expressed to be
made by the President, or by the Governor of the State, and all such contracts ...
shall be executed on behalf of the President or the Governor by such persons and in
such manner as he may direct or authorise."

In view of Article 299 (1), the work carried out at the oral request of an officer
who is not authorised, would not be under a valid contract. Sec. 70 applies to such
cases because an award of compensation under this section is not a mode of
enforcing a contract, but rather a mode of preventing unjust enrichment. What
was sought to be enforced was not a contract, but a relation resembling those
created by a contract. Thus, in cases falling under Sec. 70 the person doing
something for another cannot sue for specific performance, nor ask for damages for
breach as there is no contract between the parties.
All that Sec. 70 provides for is that if the services or goods are accepted a liability
to pay arises. The mere act of construction and its acceptance by the State cannot
be said to contravene the provisions of Art. 299 (1). Sec. 70 does not nullify the
effect of Art. 299 (1), because a cause of action for a claim under Sec. 70 is
based not upon the delivery of the goods or the doing of any work as such but upon
acceptance and enjoyment of the said goods or said work. This requirement afford
sufficient and effective safeguard against spurious claim based on unauthorized
acts.
Thus, there is no conflict between the two provisions; in fact, Sec. 70 should be
read as supplementing the provisions of Art. 299 (1). It would not be reasonable to
suggest that in recognizing the claim under Sec. 70, the court is either directly or
indirectly mystifying the effect of Art. 299 (1), or, treating as valid a contract
which is not valid. The fields covered by the two provisions are separate and
distinct.

(iv) Sec. 70 requires that a person lawfully do something or lawfully deliver

something to another. The word "lawfully" is not surplusage and must be treated as
an essential part of the requirement of Sec. 70.
However, all that word "lawfully" in the context indicates is that after something is
delivered or something is done by one person for another and that thing is accepted
and enjoyed by the latter, a lawful relationship is born between the two which
under the provisions of Sec. 70 gives rise to claim for compensation.
(v) Sec. 70 prevents unjust enrichment and it applies as much to Corpo

rations and Government as to an individual. In a modern welfare State, government

officers have invariably to enter into variety of contracts which are often of a petty
nature; they may have to act orally or through correspondence, without complying
with the provisions of Art. 299 (1).

(vi) The position of the State cannot be compared with that of a minor (it was
contended that Art. 299 (1) make appellant State incompetent to enter into a
contract, unless the contract is made as required by Art. 299). The minor is
excluded from the operation of Sec. 70 for the reason that his case has been
specifically provided for by Sec. 68. Besides, in the case of a minor even the
voluntary acceptance of the benefit ... would not be present, and so Sec. 70 cannot
be invoked against a minor.]
The principle of this case has been reaffirmed in Pillo Dhunjishaw v Municipal
Corpn., Poona (AIR 1970 SC 1201). Here too the corporation tried to escape
liability for spare motor parts supplied to it on the ground that the contract was not
made in accordance with the Bombay Municipal Corporation Act. The Corporation
was held liable under Sec. 70.
Decision of the cases in question
In both the cases, there is no valid contract, but Government will be liable under
Sec. 70.
Finder of Goods
Section 71 of the Contract Act states, ―A person who finds goods belonging to
another, and takes them into his custody, is subject to the same responsibility as a
bailee.‖

A bailee is bound to take as much care of the goods as a man of ordinary prudence
would, under similar circumstances, take his own goods for the same bulk, quality
and value. To avoid the liability of criminal misappropriation of property, the
finder must try to find out the real owner of the goods and must not appropriate the
property to his own use. However if the goods are perishable then the finder of
goods may use them after taking reasonable measures.

Duties of the finder of goods

1. The finder has a duty to take reasonable care.

2. He/she has a duty not to use the goods for his personal purposes.
3. He/she has a duty not to mix the found goods with his own goods.
4. He/she has a duty to make reasonable efforts to find the actual owner of
the goods.

Rights of the finder of goods

1. Right to Lien– The right to retain the goods found until he receives
compensation for all the expenses suffered in finding the owner.
2. Right to Sue– If the owner had announced a reward for whoever finds the
good, the finder has the right to sue the owner for such reward or retain
the goods until he is compensated.
3. Right to Sell– The finder of goods has the right to sell the goods in certain
specific circumstances, for example:

i) If the owner could not be found even after reasonable efforts.

ii) If the owner is found but refuses to pay compensation or the lawful charges of
the finder.
iii) If the goods are in immediate danger of perishing if not used.iv) If the lawful
charges of the finder amount to two-thirds of the value of goods.

Mistake or Coercion
Section 72 of the Contract Act states, ―A person to whom money has been paid,
or anything delivered, by mistake or under coercion, must repay or return it.‖

The payment by mistake refers to a payment which was not legally due and which
could not have been enforced; the mistake is thinking that the money paid was due
when in fact it was not due. The payment made under coercion or undue pressure
shall be treated in same way as payment made under mistake. This quasi
contractual obligation arises from the principle of ‗unjust enrichment‘ it
incorporates rule of equity. Thus if the claimant has not suffered any prejudice or
loss then, there arises no question of reimbursing him.

The word coercion is Section 72 implies undue pressure. It has been used in its
general and ordinary sense and not as defined in Section 15 of the Contract Act.

Illustrations: (a) A and B jointly owe Rs. 100 to C. A alone pays the amount to C,
and B, not knowing this fact, pays Rs. 100 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.

Sec. 72 is usually regarded as dealing with the doctrine of 'unjust enrichment'.

Lord Mansfield in Moses v Macfertan (1760) 2 Burr 1005, observed that an
action lies for money paid by mistake; or upon a consideration which happens to
fail or for money got through imposition, extortion or oppression. The defendant in
such cases is obliged by ties of natural justice and equity, to refund the money. The
view of Lord Mansfield on 'equity' has been accepted by the Supreme Court in
Mafatlal Industries Ltd. v Union of India (1997) 5 SCC 536.
Answer to Question [2017(7)(b)] :

Section 68 of Indian Contract Act (ICA), 1872 is enshrined under Chapter 5 of

ICA which states ―Of Certain Relations resembling those created by Contract‖.
Basically, chapter 5 of the said Act relates to establishment of Quasi Contract.
The word Quasi means ―pseudo‖ hence known as quasi contract. Whenever we
talk about any contract we must at the first instance think of offer, acceptance,
consideration, capacity to contract and free will but quasi contract is an exception
to this. In this type of contracts obligation is conferred to other party and the rights
are given to other party. Quasi Contract enforces indirect contract rather than direct
contract. It is a contract which is legally recognized by court.
Quasi Contract is an obligation and not merely the contract. It may be noted that
law regarding Quasi contract is same in both English and Indian law. Simply,
Quasi Contract are the obligations which are imposed by the law without mutual
assent.
Example of Quasi contract: Arjit orders pizza to be delivered on cash on delivery
but the pizza man delivers that particular pizza to Arjit‘s neighbour Ayushman and
Ayushman pays for that particular pizza and enjoys it, now the obligation arises on
Ayushman to reimburse the payment of that particular pizza to Arjit and ultimately
Quasi contract arises.
Chapter 5 of ICA contains 5 sections that is from section 68-72. Section 68 if
Indian Contract Act states ―If a person who being incapable to enter into a contract
or anybody whom such person is legally bound to support, is supplied by another
person with certain necessaries which is suited to such person‘s condition in life
then the person who has furnished such supplies is entitled to be reimbursed from
the property of such person who was incapable or to whom the supplies are
transferred‖.
An illustration to this section would be, suppose a person Mukund supplies Kshitiz
who is a luntic, with necessaries which would be suitable to his condition in life
then Mukund is entitled to be reimbursed from Kshitiz‘s property.
Necessaries in this section refers not merely to necessities of life but such thing as
may be necessary to maintain a person. Things necessary are those without which
an individual cannot justly exist. It is the most basic to moderate requirement so as
to attain a proper life. Nessesaries includes food, clothes, intellectual development,
religious morals, etc. The burden of proof will lie on the person who gives
necessaries to minor. Necessaries may depend on status of person.
The term necessaries has widen scope in Indian law than English law. In English
law the term necessaries is confined to articles which is necessary to support life
only, whereas in Indian law the term necessaries is with respect to either minor
personally or to the benefit of his estate.
In Clyde Cycle Co. v. Hargreaves, in this case it was held that racing cycle is
necessary for an infants apprentice.
Kunwarlal v. Surajmal,in this case it was held that the house given to a minor on
rent so that he can live in that particular house and continue his study is said to be a
supply given for the child‘s necessity and the person who gave the house on rent
can recover his rent. Articles purchased by an infant in his/her marriage may be
regarded as necessaries.
In Sham Charan Mal v. Chowdry Debya Singh, the Calcutta High Court held
that giving certain sum of money to an infant so that he can defend himself in
certain proceeding then that sum would be treated as given under necessity.
Bacchu Singh v. Baldeo Prasad, It was held that the expenses incurred for
performing funeral of father of minor would come under necessaries.
Tikki Lal v. Komal Chand, the court held that the money supplied to a minor for
marriage of a female minor of the same family are held as necessity.
In Nandan Prasad v. Ajodhya Prasad, the court held that the term necessaries is
not confined to minors only but it also to such member of his family whom he is
bound to support. Further, the court held that if necessaries are supplied with mere
kindness and without the intention of constituting any debt, then the minor‘s estate
will not be liable that means such person will not be entitled for reimbursement.
But there are certain exceptions with respect to necessities.
In Nash v. Inman this case the minor was already in possession of certain quantity
of clothes which is suitable with regards to his needs, but minor was supplied with
more clothes. It was held that excess quantity of clothes which is supplied to minor
will not come under necessaries.
And expensive valuables such as jewelery and diamonds will not come under the
term necessaries as these articles have little or no contribution in enhancing one‘s
development.
Thus, if a blind person is supplied by android or if a person has no arms is supplied
with bag pack then it will not be considered as necessities. Minor is supplied with
certain goods and now the liability will lie on him to pay back for those goods. But
agreement with the minor is regarded as void ab initio, as per section 11 of ICA
for establishing a contract, the parties to it should be of competent age and that
competent age is defined in section 3(1) of Indian Majority Act, 1875 as
eighteen years of age and not before. And if such minor is appointed by any
guardian on a consideration of taking care of minor or of his property then the
competent age of such minor will be twenty-one years and not before. The
guardian‘s and minor‘s relationship is governed by Guardian and Wards Act, 1890.
However, if the necessaries are supplied to a minor, then the person who is
supplying such minor will be entitled to get reimbursement. The enforcement of
reimbursement is not just because of contract between the parties but because
Quasi Contract between the parties which creates obligation and, this obligation
will ensure reimbursement.
A person who supplied minor with necessities would get reimburse by mainly two
ways that is either from the minor‘s property or from the minor itself, when he
becomes of competent age. And in the absence of any consensual contract, the
minor will be liable for the necessaries supplied to him at a reasonable price.

Decision of Question No [2019(7)(a)] :

Pizza boy can sue Amit for the recovery of amount equal to the price of pizza. A
quasi-contract between the pizza boy and Amit has been established. Now its Amit
duty to fulfill his obligation by paying the price of pizza if he had utilized it.