LAW OF CONTRACT

According to syllabus of Dr.
Bhimrao Ambedkar Law University, Jaipur 1
Q.1 What is the contract? What are the essential elements of a contract?
Ans. “Every agreement and promise enforceable at law is a contract. The
term contract has been defined under section 2[h] of the Indian
contract act 1872. It defines a contract as an agreement enforceable
by law.
The essentials elements of contract as defined under section 10 of
the Indian contract act 1872 are:
1. Offer
2. Acceptance
3. Consideration
4. Free Consent
5. The capacity of parties
6. Lawful Object
7. The Certainty of terms
8. Not expressly declared void
Q.2 How many kinds of contracts are there?
Ans. The purpose of a contract is to establish the agreement that the
parties have made and to fix their rights and duties in accordance
with that agreement. The courts must enforce a valid contract as it is
made, unless there are grounds that bar its enforcement.
Types of Contract:
1. Contract under seal: A contract was an enforceable legal document
only if it was stamped with a seal.
2. Express Contracts: In an express contract, the parties state the terms,
either orally or in writing, at the time of its formation. There is a
2 LAW OF CONTRACT
definite written or oral offer that is accepted by the offeree.
3. Implied Contracts: Although contracts that are implied in fact and
contracts implied in law are both called implied contracts, a true implied
contract consists of obligations arising from a mutual agreement and
intent to promise.
4. Executed and Executory Contracts: An executed contract is one in
which nothing remains to be done by either party. The phrase is, to a
certain extent, a misnomer because the completion of performances
by the parties signifies that a contract no longer exists. An executory
contract is one in which some future act or obligation remains to be
performed according to its terms.
5. Bilateral and Unilateral Contracts: A bilateral contract is sometimes
called a two-sided contract because of the two promises that constitute
it. The promise that one party makes constitutes sufficient
consideration for the promise made by the other.
A unilateral contract involves a promise that is made by only one
party. The offeror (i.e., a person who makes a proposal) promises to
do a certain thing if the offeree performs a requested act that he or
she knows is the basis of a legally enforceable contract.
6. Unconscionable Contracts: An Unconscionable contract is one that
is unjust or unduly one-sided in favour of the party who has the
superior bargaining power. An unconscionable contract is one that
no mentally competent person would accept and that no fair and
honest person would enter into.
7. Adhesion Contracts: Adhesion contracts are those that are drafted
by the party who has the greater bargaining advantage, providing
the weaker party with only the opportunity to adhere to (i.e., to accept)
the contract or to reject it. (These types of contract are often described
by the saying “Take it or leave it.”)
8. Aleatory Contracts: An aleatory contract is a mutual agreement the
effects of which are triggered by the occurrence of an uncertain event.
In this type of contract, one or both parties assume risk. Example:- A
fire insurance policy is a form of aleatory contract, as an insured will
not receive the proceeds of the policy unless a fire occurs, an event
that is uncertain to occur.
9. Void and Voidable Contracts: Contracts can be either void or Voidable.
A void contract imposes no legal rights or obligations upon the parties
and is not enforceable by a court. It is, in effect, no contract at all.
10. Voidable Contract: Voidable contract is that form of a contract,
wherein one party to the contract has the right to put it to an end if
it is discovered that the contract contains some defects, concerning
According to syllabus of Dr. Bhimrao Ambedkar Law University, Jaipur 3
the lack of free consent.
Q.3 Difference between Contract and Tort.
Ans.
Chacracteristic Contract Tort
Meaning Sets of law the Set of legal remedies
law can enforce entitling a victim to
recover from losses,
injuries, or damages
Rights and In contract law, In tort, the court
obligations the obligations, usually creates the
as well as rights, obligations and rights
are as a result of and applies the
the acts of agreement common law.
among the parties
involved
Duties Parties determine Law determines the
the duties duties
Minors Minors are limited Minors Can be sued
in liability and damages recovered
from their properties
Privacy Privacy must exist Privacy does not exist
which means the nor is it needed because
parties involved have harm is always done
to be legally bound against the injured
to each other. party 's will
Q.4 Define Promise.

Ans. Section 2(b) ”When the 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;”
A promise in law is an accepted proposal. When the offer made by
one to another is accepted by other, it becomes a promise which
simply means that now it is binding on both parties, it now take the
scope of an obligation for both parties.
Promiser and Promisee - Section 2(c) specifies that the person making
the proposal is called the promiser and the person accepting the
proposal is called the promisee.
For the formation of a contract it is essential that there must be at
least two parties to a contract. The party making a proposal which
has been accepted is called the promiser and the person accepting
the proposal is called the promisee. In the case of reciprocal promises
each party is at once the promiser and the promisee.
4 LAW OF CONTRACT
Hence, promises are-
1. When someone expresses his willingness to do (or not to do)
something, he is said to make a proposal.
2. When the other person (to whom the proposal is made) accepts the
proposal, the proposal becomes a promise.
3. Here, the person who made the proposal is the ‘promisor’, and the
person to whom the proposal is made is called the ‘promisee’.
4. When, at the desire of the promisor, the promisee does something,
does not to something or promises to do something; this act of the
promise is called ‘consideration of the promise’.
5. These promises (that the promisee does to form the consideration)
form an agreement.
6. Such promises that form an agreement are called reciprocal promises.
Q.5. What are reciprocal promises?
Ans. An agreement may consist of either (a) a promise supported by
consideration given, or (b) a promise supported by another promise.
In the latter case, when an agreement is supported by another promise,
it will be a reciprocal promise. Thus, in reciprocal promises each party
gives a promise for a promise.
Section 2 (f) “Promises which form the consideration or part of the
consideration for each other are called reciprocal promises;”
In other words, when the parties to an agreement make mutual promises
to do or to abstain from doing something, these are referred to as
reciprocal promises. Thus, there is an obligation on each party to
perform his promise and to accept performance of the other’s promises.
Types of Reciprocal Promises:
Reciprocal promises are of the following types:-
Mutual and Independent: When each party performs his promise
independently and irrespective of the fact whether the other party
has performed, or is willing to perform his promise or not, the promises
are mutual and independent.
Conditional and Dependent: When the performance of one party
depends on the prior performance of the other party.
Mutual and Concurrent: When the promises are to be performed
simultaneously.
Q.6 (a) What is the proposal?
Ans. The whole process of entering into a contract starts with a proposal
or an offer made by one party to another. To enter into an agreement
such a proposal must be accepted. Let us take a look at the definition
and classification of an offer and the essentials of a valid offer.
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.”
Q.6 (b) What are its essential elements?
Ans. Essentials of Valid offer are:
1. Offer must create legal relations: The offer must lead to a contract
that creates legal relations and legal consequences in case of non-
performance. So a social contract which does not create legal relations
will not be a valid offer. Say for example a dinner invitation extended
by A to B is not a valid offer.
2. Offer must be clear, not vague: The terms of the offer or proposal
should be very clear and definite. If the terms are vague or unclear, it
will not amount to a valid offer. Take for example the following offer –
A offers to sell B fruits worth Rs 5000/-. This is not a valid offer since
what kinds of fruits or their specific quantities are not mentioned.
3. Offer must be communicated to the offeree: For a proposal to be
completed it must be clearly communicated to the offeree. No offeree
can accept the proposal without knowledge of the offer. The famous
case study regarding this is Lalman Shukla v. Gauri Dutt. It makes
clear that acceptance in ignorance of the proposal does not amount
to acceptance.
4. Offer may be conditional: While acceptance cannot be conditional,
an offer might be conditional. The offeror can make the offer subject
to any terms or conditions he deems necessary. So A can offer to sell
goods to B if he makes half the payment in advance. Now B can
accept these conditions or make a counteroffer.
5. Offer can be specific or general: As we saw earlier the offer can be to
one or more specific parties. Or the offer could be to the public in
general.
6. Offer cannot contain a negative condition: The non-compliance of
any terms of the offer cannot lead to automatic acceptance of the
offer. Hence it cannot say that if acceptance is not communicated by
a certain time it will be considered as accepted. Example: A offers to
sell his cow to B for 5000/-. If the offer is not rejected by Monday it
will be considered as accepted. This is not a valid offer.
7. Offer may be expressed or implied: The offeror can make an offer
through words or even by his conduct. An offer which is made via
words, whether such words are written or spoken (oral contract) we
call it an express contract. And when an offer is made through the
conduct and the actions of the offeror it is an implied contract.
Q. 7. ”Acceptance is to an offer what a lighted match is to a train of gun
powder.” Explain with reference to its condition and incidents as
dealt with in English and Indian law.
Ans. A proposal, when accepted results in agreement. It is only after the
acceptance of proposal that a contract between the two parties can
arise. According to Section 2(b) of Contract Act:
“When the 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.”
A contract is created only after an offer is accepted. Before the
acceptance is made neither party is bound thereby. Therefore it is
6 LAW OF CONTRACT
necessary to know when the communication of an offer and its
acceptance is complete and when offer or acceptance as the case may
be revoked.
Section 4 provides that “Communication of a proposal is complete
when it comes to the knowledge of the person to whom it is made.
Communication of acceptance is complete: “as against the proposer,
when it is put in course of transmission to him so as to be out of the
power of acceptor as against the acceptor, when it comes to the
knowledge of proposer..”
Section 5 provide as when proposal or acceptance can be revoked
and lays down ‘A proposal may be revoked at any time before the
communication of its acceptance is complete as against the proposer
but not after words, An acceptance may be revoked at any time before
the communication of acceptance is complete as against the acceptor,
but not afterwards.
So when acceptance of a proposal is communicated as per Section 4
of Act so as to leave no scope of revoking the acceptance, then the
moment offer is accepted it result into binding contract. The effect of
acceptance of an offer has been explained by Anson in “Anson’s law
of contract” in following words :
“Acceptance is to an offer what a lighted match is to a train of
gunpower. It produces something which cannot be recalled or
undone. But the powder may have laid until it has become damp, or
the man who laid the train may remove it before the match is applied.
So an offer may lapse for want of acceptance or be revoked before
acceptance. Also the offeree may decide to reject the offer. Until an
offer is accepted, it creates no legal rights, and it may be terminated
at any time.”
Q.8 When will be the communication of proposal or offer completed?
Ans. The communication of proposals the acceptance of proposals, and
the revocation of proposals and acceptances, respectively, are deemed
to be made by any act or omission of the party proposing, accepting
or revoking by which he intends to communicate such proposal,
acceptance or revocation, or which has the effect of communicating
it.
According to section 4 of the Indian Contract act, 1872. The
communication of proposal is complete when it comes to knowledge
of the person to whom it is made
Example: “A” proposes, by letter , to sell a house to “B” at a certain
price . The communication of the proposal is complete when B receives
the letter.
Q.9 How offer may come to an end?
Ans. Offer may come to an end:
1. By communication of notice of revocation: An offer may come to an
end by communication of notice of revocation by the offeror
2. By lapse of time: Sometimes, the time is fixed for the acceptance of
the offer, and it is not accepted within the fixed time .In such cases ,
the offer comes to an end.
3. By failure to accept condition precedent: Sometimes, the offer requires
that some condition must be fulfilled before the acceptance of the
offer. In such cases, the offer lapses, if it is accepted without fulfilling
the condition
4. By the death or insanity of the offeror: Sometimes, the offeror dies or
becomes insane. In such cases, the offer comes to an end if the fact of
his death or insanity comes to the knowledge of the acceptor before
he makes his acceptance.
5. By counter-offer by the offeree: Sometimes, a counter-offer is made
by the offeree. In such cases, the original offer automatically comes
to an end, as the counter-offer amounts to rejections of the original
offer.
6. By rejection of offer by the offeree: Sometimes, the offeree rejects the
offer. In such cases, the offer comes to an end. Once the offeree
rejects the offer, he cannot revive the offer by subsequently attempting
to accept it.
7. By change in law:- Sometimes, there is a change in law which makes
the offer illegal or incapable of performance. In such cases also, the
offer comes to an end.
Q.10 Explain the difference between an offer and an invitation to offer.
Ans.
Basis for Offer Invitation to offer
Comparison
Meaning When one person expresses When a person expresses
his will to another person to something to another
do or not to do something, person, to invite him to
to take his approval, is make an offer, it is known
known as an offer. as an invitation to offer.
Defined in Section 2 (a) of the Indian Not defined
Contract Act, 1872
Objective To enter into a contract. To receive offers from
people and negotiate the
terms on which the
contract will be created.
Essential to make Yes No
an agreement
Consequence The Offer becomes an An Invitation to offer,
agreement when accepted. becomes an offer when
responded by the party
to whom it is made.
Q.11 What is Cross Proposal?
Ans. In certain circumstances, two parties can make a cross offer. This
means both make an identical offer to each other at the exact same
time. However, such a cross offer will not amount to acceptance of
8 LAW OF CONTRACT
the offer in either case.
For example, both A and B send letters to each other offering to sell
and buy A’s horse for Rs 5000/-. This is a cross offer, but it will be
considered as acceptable for either of them.
Q.12 What do you understand by the Counter proposal ?
Ans. Counter Proposal Law and Legal Definition Counter proposal is an
offer made by either party in a collective bargaining during
negotiations in response to a proposal made by the other party.
Agreement is usually reached after a series of proposals and counter-
proposals are made by all parties.
Example: A offer to B to sell his car for 2,50,000, to be paid in 40 days.
B receives the offer and gives a counter offer to A to buy his car for
2,20,000 in 35 days. So here the original proposal or offer is dead and
a new offer or proposal has taken place.
Q.13 What is a general and specific proposal?
Ans. General Offer: A general offer is one that is made to the public at
large. It is not made for any specified parties. So any member of the
public can accept the offer and be entitled to the rewards/
consideration. Say for example you put out a reward for solving a
puzzle. So if any member of the public can accept the offer and be
entitled to the reward if he finishes the act (solves the puzzle.)
Specific Offer: A specific offer, on the other hand, is only made to
specific parties, and so only they can accept the said offer or proposal.
They are also sometimes known as special offers. Like for example, A
offers to sell his horse to B for Rs 5000/-. Then only B can accept
such an offer because it is specific to him.
Q.14 When revocation of proposal can be made?
Ans. Revocation is the act of recall or annulment. It is the cancelling of an
act, the recalling of a grant or privilege, or the making void of some
deed previously existing. A temporary revocation of a grant or privilege
is called a suspension.
A proposal may be revoked at any time before the communication of
its acceptance is complete as against the proposer, but not afterwards.
The Indian Contract Act lays out the rules of revocation of an offer in
Section 5. It says the offer may be revoked anytime before the
communication of the acceptance is complete against the proposer/
offeror. Once the acceptance is communicated to the proposer,
revocation of the offer is now not possible.
Example: “A” proposes, by a letter sent by post, to sell his house to
“B”. B accepts the proposal by a letter sent by post. “A” may revoke
his proposal at any time before or at the moments when B posts his
letter of acceptance, but not afterwards.
Q.15 What do you understand by offering a performance or tender?
Ans. . In case of an offer of performance of tender, the promisor is willing to
perform the contract and offers the same, the promisee as an obligation
to accept the same and in case, the promisee rejects the offer, then the
promisor cannot be made liable for non-performance of the contract,
nor does he lose his rights under the contract. The act of non-providing
reasonable opportunities/facilities for the performance of the contract
by the promisee to the promisor also excuses the promisor from the
performance of the contract and the same has been upheld by section
67 of the Indian Contract Act, 1872. An offer of performance is also
known as Tender.
Essentials of a Valid Offer of Performance/Tender
The essentials of a valid offer of performance/Tender are stated under
section 38 of The Indian Contract Act, 1872. These essentials are
as follows:
1. The Tender must be unconditional: The tender must be unconditional.
In the case of Sitaram v. Ramrao, it was held that the offer of the
promisor to pay only a fraction of the total sum and consideration of
the part payment as full payment will amount to the imposition of a
condition and thus, the tender was considered invalid. In the case
of Navin Chandra v. Yogendra Nath, it was held that payment by
cheque is deemed to be subject to encashment and tender was
considered a conditional tender, and the promisee was given the right
to lawfully refuse to accept the tender. Thus, the unconditional nature
of tender is essential for a valid tender.
2. The Creation of the Tender at A Proper Place and Time: Another
important essential of a valid tender is the creation of the tender at a
proper place and time, with the opportunity to the promisee to
determine or establish the proper performance of the tender by the
promisor in the future. If a place and time are determined and the
contract is performed according to that place and time, then the
contract is discharged and both the parties are discharged from their
obligation.
3. The Opportunity to the Promisee to Ascertain/Establish that the
Goods are in accordance with the Contract: Another essential of a
valid tender is the reasonable opportunity provided to the offeree/
promisee to ascertain that the thing offered is the same thing which
the promisor is bound by his promise to deliver. A similar provision is
provided under Section 41(2) of the Sales of Goods Act, 1930 laying
emphasis on the same point made above.
The Offer of Performance to One of The Joint Promisees is a Valid
Tender: It has been stated in section 38 of the Indian Contract Act,
1872 that an offer to one of the several joint promisees has the same
legal consequences as an offer to all of them, in case there is the
involvement of several joint promisees.
Q.16 What is consideration? Whether consideration should be legal?
Ans. One of the essential elements of a valid contract is that it must be
10 LAW OF CONTRACT
supported by some consideration. The term consideration is used in
the sense of quid pro quo (a favour or advantage granted in return of
something). It means that when a party to an agreement promises to
do something, he must get something in return. This something which
a party gets in return is the consideration. In simple words,
Consideration is what a promisor demands as the price for his promise.
Section 2 (d) 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.
Whether consideration should be legal?
Consideration is a required element of a legally binding contract. In
order for a contract to be valid, it must have consideration, an offer,
and acceptance.
Q.17 What is past consideration?
Ans. . Past consideration is a promise for a voluntary act done in the past to
help the party who is making promise to pay or to do something
subsequently. It means consideration is promised to pay later for an
act done without any promise from the other party. A promise is said to
be given for past consideration when the promisor’s motivation for
making the promise is a past benefit he received that gave rise to an
obligation to make compensation.
Where the promisor had received the consideration before the date
of the promise, the consideration is past consideration or executed
consideration. Where the promisor had received the consideration
before the date of the promise, the consideration is past consideration
or executed consideration.
Past consideration in English law
The English law does not recognize a past consideration. In English,
Law consideration may be present or future but not past. Past
consideration is no consideration at all in English Law. Hence an
agreement based on past consideration is void. Consideration may
be executory but it must not be passed.
Past consideration in Indian Contract law
In India, past consideration is a good consideration. It is sufficient to
support a promise. Section 2(d) of the Contract Act clearly lays down
that consideration may be past, present or future. Hence an agreement
based on past consideration is perfectly valid in India.
In Sindha v. Abraham, A rendered services to B during his minority at
B’s request; which were continued after B ceased to be a minor. After
attaining a minority, B promised to pay an annuity to A for the services
rendered in the past. It was held that this was a good contract and A
can recover the money.
In Siva Saran Kesava Prasad’s case, a legal advisor gave his training
and filled in as supervisor of a property manager at the latter’s request
in lieu of which the landowner hence guaranteed a pension. It was
held that there was acceptable past consideration.
Exceptions to the rule that past consideration is no consideration
There are, nonetheless, certain special cases for the standard rule that past
consideration is no consideration.
1. Service is done by request
2. Promise to pay time-barred debt
3. Negotiable instrument
Q.18 Define: “Doctrine Constructive Consideration”.
Ans. In order to constitute legal consideration, the act or abstinence forming
the consideration for the promise must be done at the desire or request
of the promisor. The second essential of valid consideration, as
contained in the definition of consideration in Section 2(d), is that
consideration need not move from the promisee alone but may proceed
from a third person.
Thus, as long as there is a consideration for a promise, it is immaterial
who has furnished it. It may move from the promisee or from any
other person. This means that even a stranger to the consideration
can sue on a contract, provided he is a party to the contract. This is
sometimes called the ‘Doctrine of Constructive Consideration’.
Q.19 What do you mean by privity of contract?
Ans. . General Rule is that a person stranger to contract or one, who is not
party to contract, cannot bring any suit in respect of any such contract.
When a contract is made between two or more parties upon certain
terms and conditions, it is only those parties to contract are entitled to
bring suit, complaining breach of any terms or conditions or for
enforcement thereof. So doctrine of privity of contract means that
only those persons who are parties to the contract can enforce the
same. A stranger to the contract cannot enforce a contract even though
the contract may have been entered into for his benefit.
Privity Of Contract and Consideration The doctrine of privity of
Contract is distinguishable from definition of term “Consideration”
under section 2(d) of Indian Contract Act which says-
“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
12 LAW OF CONTRACT
act or abstinence or promise is called a consideration for the
promise”
So consideration is not confined to only party to contract and may
pass from the promise or any other person. So the rule that a stranger
to contract cannot sue has to be distinguished from the rule that a
person who is stranger to consideration can sue. However, under
English Law, consideration can pass only from promise and not from
any other person or stranger as under Indian Law.
Doctrine of Privity of Contract Under English Law Under English
Law it is well settled proposition that only party to contract can
enforce it. Well known English case on the subject is Dunlop
Pneumatic Tyre Co.Ltd. v. Selfridge and Co.Ltd., (1915) A.C. 847 in
which it was observed-
“In the law of England certain principles are fundamental. One is
that only a person who is party to a contract can sue on it.......”
Indian Law Doctrine of Privity of Contract is similarly well-established
in India. Under Indian law also only party to a contract can enforce it
and a stranger to it is not entitled to enforce it.
In M.C. Chacko v. State Bank of Travancore, AIR 1970 SC 504, it
was observed that a person not a party to contract, cannot subject to
certain well-recognized exceptions, enforce the terms of the Contract.
Exceptions To Doctrine Of Privity Of Contract - In following
exceptional circumstances doctrine of privity of contract is not
applicable:-
(1) Trust of Contractual rights or beneficiary under a Contract
In case of trust, the property of the trust is for the benefit of the
beneficiaries: they are not parties to the contract of trusts but they
have a right to file the suit for preserving trust property and
safeguarding their interests.
In Khawja Muhammad Khan v. Hussaini Begum, I.L.R. (1910) 32
All 410 there was an agreement between fathers of a boy and a girl
that if girl (plaintiff) get married with boy, Boy’s father (Dependant)
would pay “Kharcha-i-pandan” (Personal expenses allowances to
girl). It was also settled that certain property was kept aside by father
of boy (Defendant) and allowance was to be paid to plaintiff out of
income of that property. Plaintiff married the defendant’s son but
defendant failed to pay the allowance as agreed upon. Plaintiff
brought suit claiming said allowance in which defendant contended
that contract to pay allowance was entered into by him with father of
plaintiff and plaintiff being stranger to contract cannot enforce it.
It was held that basis of plaintiff’s claim being a specific charge on
immovable property in her favour and therefore she is entitled to
claim the same as beneficiary.
(2) Charge - When by parties to the contract a charge is created on some
property for the benefit of a person who is not a party to the contract
the person in whose favour the charge is created has a right to file a
suit for ensuring the benefit from charge irrespective of the fact that
he is not party to the contract.
(3) Partition - At the time of partition of the joint Hindu family property,
if some arrangement is made for the marriage or maintenance of a
minor or a girl, such persons can file a suit for their maintenance or for
the expenses of marriage although they have not been the parties to
the partition agreement.
(4) Marriage agreement - Where the parents of the bride and bridegroom
agree that the bride will get a definite amount regularly for her expenses
(Kharcha-Pandan), the bride can file a suit for getting the amount if
not paid.
(5) When under the contract a promise is made to a person who is not a
party to the contract and the contract is mainly based on such promise
that third person (stranger) can bring a suit for the performance of the
contracts if he fails to get the amount as per promise.
(6) If the court feels that not allowing the stranger to bring an action will
amount to or result in injustice the court may authorise such person
to bring an action.
Q.20 Which is the famous case on minor’s agreement by privy council?
Ans. Mohori Bibee V/S Dharmodas Ghose is a case that covers the ambit
of minors agreement. This case basically deals with a minor’s contract
or a contract with a minor. In India, an agreement or a contract with a
minor ( a person who is below the age of 18 yrs. or any person who
has not completed 18 yrs. of age legally) is void ab-initio (void from
very beginning) such rules and regulations are made because,
according to law such people does not comes under the ambit of
capacity of contract or agreement of doing so. This case has basically
provided us with the knowledge that, since minors are legally
incompetent to give their assent so they need to deserve or be provide
with the protection in their dealings with the other major persons.
In this case, the Privy Council declared the law that any contact by
minor or any minor’s agreement is “absolutely void” and it has also
been strictly followed and is still growing also. Section 10(3)of Indian
Contact Act, 1872 provides for what agreements are contracts, and
Section 11(4) provides that a person who are competent to contract
Q.21 Distinguish between Void and Voidable Contracts?
Ans. Difference between Void and Voidable Contract
14 LAW OF CONTRACT
S. N. Void Contract Voidable Contract
1 Void Contract is the Voidable Contract is the
contract which cannot contract which is
be enforceable by law enforceable by law at the
option of one or more
parties thereof , but not at
the options of others
2 It is defined in section It is defined in section
2 ( j) of the Indian 2 i of the Indian contract
Contract Act ,1872. act 1872
It is defined in the
section 10 of Indian
contract act.
3 A void contract cannot A voidable contract takes
create any legal rights. its full and proper legal
All contracts between effect unless it is disputed
adults and minors are void. and set aside by the person
entitled to do so.
4 In void contract , No party In a voidable contract,
can claim damages for the aggrieved party can
the non  performance of claim the damages for
the contract. any loss sustainable.
5 The contract is valid, The contract is valid,
but subsequently becomes until the party whose
invalid due to some reason consent is not free, does
not revoke it..
6 A void contract originates by A voidable contract
an agreement made by a originates by contracts
minor, agreements without brought by coercion,
consideration, certain undue influence and
agreements against the public misrepresentation.
policy, illegal objectives
7 In void contract, rights In a voidable contract,
obtained by void contract, unless the affected party
if transferred to a third party, declared the contract to
the third party does not, be void , the third party
under any circumstances gains legal title for the
obtain a legal title rights transferred, if
he / she acts upon
good faith.
Q.22 Which agreements are contract?
Ans. . An agreement becomes a contract when it is enforceable by law
(Section 2(h) of Indian Contract Act). In other words, an agreement
that the law will enforce is a contract. The conditions when an agreement
will enforce are given in Section 10 of Indian Contract Act, 1872.
According to Section 10:
All agreements are contracts if they are made by the:
a. free consent of parties
b. Parties competent to contract,
c. for a lawful consideration and
d. with a lawful object, and
e. are not hereby expressly declared to be void.
Section 10 further provides that, nothing herein contained shall affect any
law in force in India, and not hereby expressly repealed, by which any
contract is required to be made in writing or in the presence of
witnesses, or any law relating to the registration of documents.
Thus, it can be said that, a contract is a legally binding agreement that exists
between two or more parties to do or not do something. An agreement
starts from an offer and ends on consideration but a contract has to
achieve another target i.e. enforceability.
An agreement is a contract when it is made for some consideration, between
competent parties, with their free consent and for a lawful object.
Q.23 What is meant by free consent?
Ans. . In the Indian Contract Act, the definition of consent is given in
Section 14.
Section 14:
“‘Free consent’ defined.—Consent is said to be free when it is not
caused by— —Consent is said to be free when it is not caused by—
”
(1) coercion, as defined in section 15, or
(2) undue influence, as defined in section 16, or
(3) fraud, as defined in section 17, or
(4) misrepresentation, as defined in section 18, or
(5) mistake, subject to the provisions of sections 20, 21 and 22. Consent
is said to be so caused when it would not have been given but for the
existence of such coercion, undue influence, fraud, misrepresentation
or mistake.”
The principle of consensus-ad-idem is followed which means that the
parties entering into the contract must mean the same thing in the
same sense. The parties to the contract must have the same
understanding in regards to the subject matter of the contract.
Clearly, free Consent means the absence of any kind of coercion,
undue influence, fraud, misrepresentation or mistake. When the
16 LAW OF CONTRACT
consent which is given is affected by these elements it calls into
question whether the consent given was free and voluntary.
The objective of this principle is to ensure that judgment of the parties
while entering into the contract wasn’t clouded. Therefore consent
given under coercion, undue influence, fraud, misrepresentation or
mistake has the potential to invalidate the contract.
Q.24 Whether silent amounts to fraud?
Ans. The silence may amount to fraud when a person discloses only the
half truth and then keeps silent. A person may become guilty of fraud
by non-disclosure also if he voluntarily discloses something and
then stops half the ways. A person may keep silent. But if he speaks,
he is duly bound to disclose the whole truth.
1. Mere silence is not fraud:
A person is not bound to disclose the defect of his articles. Example:
Advertisements:
A sells by auction to B, a horse which A knows to be unsound. A says
nothing to B about the horse’s unsoundness. It is not fraud.
2. Silence is fraud if silence is equivalent to speech:
Again where silence is equivalent to speech, silence amounts to fraud.
For example, B says to A “If you do not deny it, I shall assume that the
horse is sound.” A says nothing. Here A’s silence is equivalent to
speech and as such, it is fraud.
Q.25 What is undue influence? What is its effect on contract?
Ans. Undue Influence is the manipulation of person who is vulnerable or
dependent on someone else. It occurs when an individual is able to
persuade another’s decision due to the relationship between the
parties.
Section 16:
“‘Undue influence’ defined.—
(1) A contract is said to be induced by ‘undue influence’ where the
relations subsisting between the parties are such that one of the
parties is in a position to dominate the will of the other and uses
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.”
When all the following three conditions are fulfilled then only the
situation is considered as an undue influence:
1. One person is in a position to dominate the will of others.
Cases, where a person is in a position to dominate the will of others,
are as follows:
i. 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.
ii. 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.
2. He mis-uses his position.
3. He obtains an unfair advantage.
Effect of Undue Influence
Section 19A:
“Power to set aside contract induced by undue influence.—
When consent to an agreement is caused by undue influence, the
agreement is a contract voidable at the option of the party whose
consent was so caused.” Any such contract may be set aside either
absolutely or, if the party who was entitled to avoid it has received
any benefit thereunder, upon such terms and conditions as to the
Court may seem just.”
Lakshmi Amma v. T. Narayana [AIR1967 SC 878]
In this case, a person was suffering from a number of ailments, which
confined him to a nursing home. There he made a deed gifting all his
properties to one of his sons to the exclusion of others. Court held
that the gift was caused by undue influence voidable.
Q.26. “Undue influence is a subtle form of coercion”. Discuss the
relationship between these two contractual concepts in all their
aspects and refer to provisions and decisions.
Ans. Section 10 of Indian Contract Act gives a general rule of law of
contract and provides :
“All agreements are contracts which are by free consent of parties,
competent to contract for lawful object and for lawful consideration
and are hereby not declared expressly to be void.” So, one of the
essential conditions for enforceability of the contract is that parties
must have entered into the contract by their free consent.
Section 14 of the Act-
18 LAW OF CONTRACT
‘Free consent’ defined—Consent is said to be free when it is not
caused by—
(1) coercion, as defined in section 15, or
(2) undue influence, as defined in section 16, or
(3) fraud, as defined in section 17, or
(4) misrepresentation, as defined in section 18, or
(5) mistake, subject to the provisions of sections 20, 21 and 22. Consent
is said to be so caused when it would not have been given but for the
existence of such coercion, undue influence, fraud, misrepresentation
or mistake.”
Coercion : When the consent of any party to contract is caused by
coercion, then consent is not a free consent and then such contract is
voidable at the option of party whose consent is so obtained by the
coercion in view of Section 19 of Contract Act. Section 15 of Act
defines ‘Coercion’ and says:
“Coercion is committing or threatening to commit, any act forbidden
by Indian Penal Code or the unlawful detaining or threatening to
detain, any property, to the prejudice of any person whatever, with
the intention of causing any person to enter into an agreement.”
Explanation: “It is immaterial whether the Indian Penal Code is or
is not in force in the place where the coercion is employed.’
In Ranganayakamma v. Alwar Setti I.L.R. (1889) 13 Mad. 214 the
question involved was regarding the validity of the adoption of a boy
by a widow, aged 13 years. On the death of her husband, the husband’s
dead body was not allowed to be removed from her house, for
cremation, by the relatives of the adopted boy until she adopted the
boy. It was held that adoption was not binding on the widow as her
consent has been obtained by coercion.
Section 16 of Indian Contract Act then defines Undue influence as:
(1) “Contract is said to be induced by undue influence when relation
subsisting between the parties are such that one of the parties is in
a position to dominate the will of other and exercise the use of such
position to obtain unfair advantage over the other.
(2) In particular and without prejudice to generality of foregoing
principle, a person is deemed to be in position to dominate the will
of other:
(a) When he holds a real or apparent authority over the other or where
he stands on fiduciary relation to the other.
(b) Where he makes a contract with a person whose mental capacity is
temporarily or permanently affected because of age, illness, bodily
mental distress.
(3) Where a person who is in position to dominate the will of other,
enters into a contract with him and transaction appears on the face
of it or upon the evidence to be unconscionable, the burden of proving
that contract is not induced by undue influence lies on that person
who hold the position to dominate the will of other.
(4) Nothing in this sub-section shall affect the provisions of section 111
of the Indian Evidence Act, 1872 (1 of 1872).”
In Lakshmi Amma v. Telengala Narayana Bhatta, AIR 1970 SC
1367 Executant of deed of settlement was a person of advanced age
and was suffering from many ailments and whose physical and mental
condition was very weak. He executed the deed settling his entire
property in favour of one of his grandsons to the exclusion of his
own issues and other grand children. He did not make any provision
for residence of his wife and also debarred himself from dealing with
the property during his life time. He subsequently applied for
cancellation of deed on account of undue influence. Supreme Court
held that facts and circumstances raised grave suspicion as to
genuineness of deed and it was for grandson, who is settlee of the
property, to show that said deed had been executed voluntarily and
without undue influence.
In Ladli Parshad Jaiswal v. Karnal Distillery Co. Ltd., AIR 1963
SC 1279, it was observed that a transaction may be vitiated on
account of undue influence where relations between the parties are
such that one of them is in position to dominate the will of other and
he uses his position to obtain an unfair advantage over the other. It is
menifest that both the conditions have to be established by person
seeking to avoid the transaction, he has to prove:
(a) that the other party to a transaction was in a position to dominate the
will and
(b) that the other party had obtained an unfair advantage by using that
position.
So ‘Undue Influence’ as defined under Section 16 of Act can be
termed as “Moral Coercion” as distinguished from
“Physical Coercion” or “Coercion” as defined in Section 15 of Act.
To make out the case of “undue influence” there must be some
relationship between parties which place one party in a position to
dominate the will of other, on the other hand existence of such
relationship is not necessary in case of “coercion”.
Q. 27. Discuss the effect of mistake on contracts. Can a party claim the
return of benefit in case where consent has been given under
mistake?
Ans. In some cases, a contract (though complete and valid in all respects)
may be impeached on the ground that the genuineness or consent is
affected by the presence of some vitiating element. It may result from
mistake also. It renders the contract void “ab initio”. Mistake may be
20 LAW OF CONTRACT
said to arise when the parties have not meant the same thing, or one
or both, while meaning the same thing, may have formed untrue
conclusion as to some essential element in the agreements.
A contract, where the promisor and the promisee both have laboured
under a mistake as to the existence of a fact, which is so fundamental
that if forms the basis of the contract, is said to be vitiated by common
mistake.
Sections 20, 21 and 22 of the Indian Contract Act, deal with the effect
of the mistake of the parties contracting on the contract. Section 20
reads as under:
“Where both the parties to an agreement are under a mistake as to
a matter of fact essential to the agreement, the agreement is void.
Explanation : An erroneous opinion as to the value of the thing
which forms the subject matter of the agreement is not to be deemed
a mistake as to a matter of fact.”
Illustration: A agrees to sell to B a specific cargo of goods supposed
to be on its way from England to Bombay. It turns out that, before the
day of the bargain, the ship conveying the cargo had been cast away
and the goods lost. Neither party was aware of these facts. The
agreement is void.
In order to render a contract void on the ground of mistake, there
should exist three conditions as under:
(i) Both parties to the contract must be under a mistake. The mistake
should not be unilateral.
(ii) Mistake should be one of fact and not of law; and
(iii) Mistake should be essential to the agreement.
Section 21: Effect of mistake as to law:
“A contract is not voidable because it was caused by a mistake as to
and law in force in India, but a mistake as to a law not in force in
India has the same effect as a mistake of fact.”
Illustration: A and B make a contract grounded on the erroneous
belief that a particular debt is barred by the Indian Law of Limitation.
The Contract is not voidable.
Section 22: Contract caused by mistake of one party as to matter of
fact:
“A contract is not voidable merely because it was caused by one of
the parties to it being under a mistake as to a matter of fact.”
Q.28 Distinction between fraud and misrepresentation.
Ans.
Basis for Fraud Misrepresentation
Comparsion
Meaning A willful misrepresentation The representation of a
of a material fact misstatement, made
innocently, which
persuades other party to
enter into the
contract, is known as
misrepresentation.
Defined in Section  17 of the Indian Section  18 of the
Contract Act, 1872 Indian Contract Act
Purpose to Yes No
deceive the
other party
Variation in In a Fraud, the party In misrepresentation,
extent of truth making the representations the party making the
knows that representation believes
the statement is not true the statement made by
him is true, which
subsequently turned
out as false.
Claim The aggrieved party, has The aggrieved party has
the right to claim for no right to sue the other
damages. party for damages.
Voidable The contract is voidable The contract is not
even if the truth can be voidable if the truth
discovered in normal can be discovered in
diligence. normal diligence.
Q.29 When is a person said to be in dominating position as per Sec 16 of

Indian Contract Act, 1872?
Ans. Section 16 of the Indian Contract Act, 1872 defines Undue Influence.
Undue influence most commonly occurs when a more powerful party
exerts its influence over a less powerful party in order to achieve its
desired outcome. It involves one person taking advantage of a
position of power over another person. This inequity in power between
the parties can vitiate one party’s consent as they are unable to freely
exercise their independent will.
Example: A landlord induced his tenant to sell his new motorbike to
22 LAW OF CONTRACT
the former at a price which is less than its market price, to live in the
house for the next few months. Due to the influence, the tenant sold
his motorbike to the landlord. So, here Landlord is in dominating
position.
Q.30 What is the meaning of Consensus ad idem.
Ans. Consensus ad idem is a Latin term that means, simply, agreement. It
means that there has been a meeting of the minds of all the parties
involved and everyone involved has accepted the offered contractual
obligations of each party. Consensus ad idem means that the parties
to the agreement must have agreed about the subject matter of the
agreement in the same sense and at the same time. Unless there is
consensus ad idem, there can be no contract .
Example: “A” , who owns two cell phones named iphone and
blackberry , is selling Blackberry to “B” . B thinks he is purchasing
iphone. There is no Consensus ad idem and consequently no contract.
Q.31 “Agreement in restraint of marriage are void. Explain.
Ans. The right to marriage comes under the purview of Article 21, which is
considered to be the heart and soul of the Indian Constitution qua it
guarantees the right to life and personal liberty to ‘citizens’ as well as
‘non-citizens’ of India.
Section 26 of the Indian Contract Act, 1872, states that, “every
agreement in restraint of marriage, except those in restraint of
marriage of minors, is void.”
Thereby, it reinforces a person’s right to enjoy the freedom of marriage
by delegitimizing the agreements which impede that granted freedom.
However, the Hon’ble Supreme Court of India has never failed to
affirm that any contract that has marriage as its object is null and void
as it is contrary to public policy. Hence, such agreements are not
legally tenable in India.
Pursuant to Section 26 of Indian Contract Act, an agreement that
implies impediments on marriage either wholly or partially i.e. terms of
which prescribes not to marry certain people of the specified class or
community or to remain unmarried till a predetermined period is void.
Though these agreements resemble to be valid as it fulfills all the
essentials required for a valid contract, it is expressly declared void
as it considered as the injury to the moral welfare of the people.
In the case of Abbas Khan v. Nur Khan,[AIR 1920 Lah 357] the
Allahabad High court affirmed that even though the customary
practices impose a partial restraint on marriage, it is void as it counters
the scheme of Section 26 of Indian Contract Act. The judiciary since
followed the rationale of this case and has been upheld that in India,
an agreement either imposes absolute or partial restraint in marriage
is void. Per contra, Law Commission’s 13th report prescribed that the
partial restraint in marriage might be endorsed valid, but only at the
court’s discretion i.e. after analyzing the factual matrix of the case, if
the court finds its reasonableness.
The Rao Rani v. Gulab Rani [AIR 1928 All 552] and the A.
Suryanarayana Murthi v. P. Krishna Murthy [AIR 1957 Ori 125]
are the cases where the court had held that the agreement which
curbs one of the widows of the same man from inheriting his properties
after such widow’s remarriage as valid. It was ascertained that as the
agreement has not implicated direct restriction on marriages, it will
never come under the purview of Section 26.
In the former case, chief justice Ahmad expressed that “All that was
provided was that if a widow elected to re-marry, she would be
deprived of her rights given to her by the compromise. In other
words, no direct prohibition to re-marry was imposed by the
compromise and the compromise was arrived at in order to preserve
the family properties and to ensure their proper management.”
Conclusively, as per the scheme of Section 26 of the Indian Contract
Act, in general, all the agreement in restraint of marriage is void
regardless of whether it imposes partial or absolute limitations on
marriage that challenges the fundamental right granted under Article
21 of the Indian constitution. The only exception that has been
mentioned in the Section itself is that the agreement in restraint of
minor marriage; it is valid as the minor marriages are against the
collective social policy and public interest.
Q. 32. Explain that agreements in restraint of legal proceedings are void.
Ans. If the parties enter into an agreement for restraint in legal proceedings,
such an agreement is void. In this connection Section 28 of the Act
provides as under -
“Every agreement by which a party thereto is restricted absolutely
from enforcing his rights under or in respect or any contract by the
usual legal proceedings in the ordinary tribunals, or which limits
the time within which he may thus enforce his rights, is void to that
extent.”
Thus the agreement restricting the rights of the parties of prosecuting
legal proceedings and the agreements limiting the time by which
proceedings be started are void under this section. However, this
section has the following two exceptions:
Exception 1 : This section shall not render illegal a contract by which
two or more persons agree that any dispute which may arise between
them in respect of any subject or class of subjects shall be referred to
24 LAW OF CONTRACT
arbitration and that only the amount awarded in such arbitration shall
be recoverable in respect of the dispute so referred.
Exception 2 : Now shall this section render illegal any contract in
writing, by which two or more persons agree to refer to arbitration
any question between them which has already arisen, or affect any
provision of any law in force for the time being so as to refer to
arbitration.
Thus the general rule is that an agreement for restraint in legal
proceedings has two exceptions, i.e.,
a. Arbitration agreement for referring any future dispute to arbitration
and
b. Arbitration agreement in matter or dispute which has already arisen.
In A.B.C. Laminart Pvt. Ltd. & Anr. v. A.P. Agencies, AIR 1989 SC
1239, it was held where parties to a contract agreed to submit the
disputes arising from it to a particular jurisdiction of court, which
would otherwise also be a proper jurisdiction under the law, their
agreement to the extent they agreed not to submit to other jurisdiction
was not violative to provisions of Section 28 of Indian Contract Act.
Q.33 What is doctrine of restitution?
Ans. Meaning of restitution: Restitution in normal sense means to restore
the benefit which a person has obtained and its main purpose is First
to restore the position of victim .i.e ‘ Plaintiff ‘ in case of a contract to
the original position which he enjoyed before entering into contract
and secondly to prevent the unjust enrichment of the defendant i.e.
to stop him from making wrongful gains which he is not entitled as
per law to make.
Doctrine of restitution:- Sec 65 of the Indian contract act,1872 mainly
deals with doctrine of restitution and it relates to the obligation of the
person who has received some advantage under void agreement or
contract. This section starts from the very basis that there being an
agreement or contract and if there was no agreement or contract then
the doctrine of restitution cannot come into play. This doctrine is
based on a very common rule of consideration which means that a
person pays consideration only when he gets something in return.
Doctrine of restitution includes the key points as follows:
1. One party has entered into a contract with another for consideration.
2. There was some consideration involved in the said contract.
3. Both parties were competent to enter into a contract
4. Thereafter one party failed to perform his part of the contract or the
contract became void due to any unforeseen condition.
5. Now the party which has paid any consideration as the advance is
entitled to recover the same from the other party and other party is
not entitled to receive an unfair advantage over it.
Q.34 What do you mean by interference of unconscionable bargains?
Ans. An unconscionable bargain is an unfair provision or clause identified
in a contract that could deem the entire contract invalid. It is essentially
a transaction that no reasonable person would enter into. Courts
almost always invalidate unconscionable bargains as the entire
contract would be unfair for one of the parties.
There are five factors that could deem a contract unconscionable,
and these include:
1. undue Influence
2. Duress
3. Unequal bargaining power
4. unfair surprise
5. Limiting warranty
Q.35 What is a contingent contract?
Ans. Contingent Contract: Contracts are of different types. Since people
can get into various kinds of agreement for performance or non-
performance of certain acts. One way of understanding contracts is
by dividing them into two types: Absolute and Contingent. Let us
take a detailed look at contingent contracts.
Contingent Contracts
An absolute contract is one where the promisor performs the contract
without any condition. Contingent contracts, on the other hand, are
the ones where the promisor performs his obligation only when certain
conditions are met.
Section 31 of the Indian Contract Act, 1872 defines the term
‘Contingent Contract’ as follows:
‘A contingent contract is a contract to do or not to do something, if
some event collateral to such contract does or does not happen’.
If you look at the contracts of insurance, indemnity or guarantee,
they have one thing in common – they create an obligation on the
promisor if an event which is collateral to the contract does or does
not happen.
Chandulal Harjivandas v. CIT– In this case, it was held that all
contracts of insurance and indemnity are contingent.
Essentials of Contingent Contracts
1] Depends on happening or non-happening of a certain event
2] The event is collateral to the contract
3] The event should not be a mere will of the promisor
4] The event should be uncertain.
26 LAW OF CONTRACT
Q.36 “Agreement by way of wager are void.” Explain.
Ans. Wagering Agreement: Agreements entered into between parties under
the condition that money is payable by the first party to the second
party on the happening of a future uncertain event, and the second
party to the first party when the event does not happen, are called
Wagering Agreements or Wager. There should be mutual chance of
profit and loss in a wagering agreement. Generally wagering
agreements are void. Wager means a bet. . It is a game of chance
where the probability of winning or losing is uncertain. The chance of
either winning or losing is wholly dependent on an uncertain event.
According to Section 30 of the Indian contract act, 1872, Wagering
agreements cannot be enforced in any court of law as they have been
expressly declared to be void.
No suit can be filed in the court of law with the intention of recovering
anything claimed to be won in any wager or non-compliance of any
party to abide by the results of the wager.
Example: A and B agree with each other that if it rains on Tuesday, A
will pay Rs. 100 to B and if it doesn’t rain on Tuesday , B will pay Rs.
100 to A. Such an agreement is wagering agreement and hence is
void.
Q.37 Write the exceptional cases of Wagering Agreement?
Ans. The exceptions are as follows in case of wagering agreement:-
1. Contract of Insurance are not wagers: Insurance contracts are
contracts of indemnity. They are entered into, to safeguard the interest
of one party to the contract. In this contract, the insured has insurable
interest in the property or life hence, it is not a wager.
2. Skill competitions is not wager: Skill plays a substantial part for the
successful solution of certain competitions. For e.g., crosswords
competitions, picture, puzzles etc. Here, the prizes are awarded as per
the merits of the solution. Such competitions are not wagers. However,
if prizes depend upon a chance, that is a lottery and therefore a wager,
as per law, the prize competitions involving games of skill are not
wagers. But if the amount of prize exceeds certain amount, they will
be regarded as gambling and void.
3. Horse race competition is not wager: State Governments may
authorize the horse race competition, if it is permitted by the local
laws. In such cases, any subscription or contribution of the value of
Rs.500 or upwards made towards any prize or sum of money which is
to be awarded to the winner of any horse race, shall not be unlawful.
In other words, agreements to subscribe or contribute towards such
prize or sum of money is also valid and enforceable.
Example: A entered into an agreement with the race course authority
who was permitted to conduct the race course competition , to
contribute Rs. 600 towards the money which was to be paid to the
winner of the horse race to be held on a particular day. This is not a
wager.
4. Share market transactions are not wagers: Transactions for the
purchase and sale of shares and stocks, with an intention to take and
give delivery of shares, is not a wager. However, if the intention is
only to settle the price difference, the transaction is a wager and
hence void.
5. Sports competitions are not wager.
Q.38 What are the various modes of discharge of contract?
Ans. A contract is said to be discharged when the obligations created by it
come to an end. In other words discharge of contract means ‘
termination of the contractual relationship between the parties’. There
are various modes of Discharge of Contract, a contract may be
discharged either in a positive way (Positive - by performance) or in
negative. (Negative - by breach or failure to perform contractual
obligation by either of the parties).
There are various modes of discharge of contract which are as follows:
1. By performance
2. By agreement or consent
3. By impossibility
4. By lapse of time
5. By operation of law
6. By breach of contract.
Q.39 What is anticipatory breach of contract?
Ans. An anticipatory breach of contract means the repudiation of contract
by one of the party to it before the arrival of prescribed date of its
performance.
For example : “A agrees to give 100 ton of wheat in bags to B after 3
months of making agreement with B. After month of contract A
refused to supply above said consignment to B. This is a case of
anticipatory breach of contract.”
Section 39 of Indian Contract Act provide regarding anticipatory
breach of contract as:
“When a party to a contract has refused to perform or disabled
himself from performing, his promise in its entirety, the promisee
may put the contract to an end unless he has signified by his words
or conduct his acquiescence in its continuity.”
It is important to note that this rule apply only to an executory contract
and not to a case in which time for performance has arrived and there
28 LAW OF CONTRACT
has been a breach (Kumaraswami v. Kuruppuswami AIR 1953 Mad.
38).
So following points emerge regarding anticipatory breach of a
contract:
(i) Anticipatory breach of contract can be made by promisor either by
refusing to perform his promise under the contract, or
(ii) By disabling himself from performing his part of promise under the
contract before the arrival of date of performance.
(iii) It is only when promisor refuse or disable himself to perform his part
of promise in its entirety, then only there is anticipatory of contract.
(iv) Upon Anticipatory breach of Contract by promisor, promisee has
option either:
a) to put the contract to an end immediately before waiting for date of
performance and when promisee so elects he is discharged from
performing his promise under the contract or
b) promisee may not put the contract to an end but treat it still subsisting
and wait for the performance of contract on appointed date.
Q.40 “Time is the essence of contract” Explain.
Ans. “Time is the essence” is a term in contract law which indicates that
the parties to the agreement must perform by the time to which the
parties have agreed. In the business matter generally time is of the
essence. The business matters depend upon the intention of the
parties.
For Example: time is of the essence when a lender must fulfil a loan
contract by funding a loan on time, else the buyer will miss out on his
chance to buy the property in question, or fund the pending business
opportunity.
Another type of case wherein a time is of the essence provision is
important is one involving the delivery of goods. If a seller fails to
deliver goods by a specified delivery date, then he is usually
considered to be in breach of the contract. A date set for paying for
goods, however, is different. If a party misses the deadline for payment,
the courts are usually less strict because the situation can typically
be rectified by simply charging interest on the amount in arrears.
Q. 41. Who can perform the contract? When can the contract be performed
by a third party?
Ans. The parties to a contract shall be discharged from the obligation
created by the contract normally by performance of the obligation of
the parties concerned.
Section 37 of the Indian Contract Act reads as under -
“The parties to a contract must either perform, or offer to perform
their respective promises unless such performance is dispensed with
or excused under the provisions of the Act, or of any other law.”
The normal method of discharge of a contract is when both the parties
perform their obligation under the contract. Then both the parties are
free from further liability under it and the relationship comes to an
end. There must be a complete and proper performance. According to
Section 38 of the act, actual performance an offer of performance (or
tender) by promisor discharges a promisor from his obligation under
the contract.
The parties to contract, however need not be perform their promise,
where :-
(a) such performance is dispensed with or
(b) excused under the provisions of this Act or of any other law
Offer Of Performance Or Tender: When the promisor is willing to perform
the contract and he offers to perform the same, the promisee has duty
to accept the performance of the contract. If the offer of performance
is not accepted by promisee, the promisor cannot be blamed for the
non-performance of the contract.
Section 38 of Indian Contract Act says in this regard -
“Where a promisor has made an offer of performance to the promisee,
and the offer has not been accepted, the promisor is not responsible
for non- performance, nor does he thereby lose his rights under the
contract.”
Every such offer must fulfil the following conditions:
(1) It must be unconditional;
(2) It must be made at a proper time and place, and under such
circumstances that the person to whom it is made may have a
reasonable opportunity of ascertaining that the person by whom it is
made is able and willing there and then to do the whole of what he is
bound by his promise to do;
(3) If the offer is an offer to deliver anything to the promisee, the promisee
must have a reasonable opportunity of seeing that the thing offered
is the thing which the promisor is bound by his promise to deliver.
An offer to one of several joint promisees has the same legal
consequences as an offer to all of them.
By Whom Contract Should Be Performed:
Section 40 of Indian Contract Act contains the general rule, which
lays down:-
“If it appears from the nature of the case that it was the intention of
the parties to any contract that any promise contained in it should
be performed by the promisor himself, such promise must be performed
by the promisor. In other cases the promisor or his representatives
may employ a competent person to perform it.”
So from Section 40 of Act it is clear that if the performance of contract
depends upon personal volition, talent or upon exercise of personal
30 LAW OF CONTRACT
skill of promisor then it should be performed by promisor only and
nonelse but in any other case contract can be performed by promisor
or his agent. However it is pertinent to mention that once performance
of contract (whatever may be its nature) by other is accepted by
promisee, he cannot thereafter complain that contract should have
been performed by promisor only.
Section 41 of Act says :
“When a promisee accepts performance of promise from a third
person he cannot afterward enforce it against the promiser.”
Q.42. Discuss the law relating to time and place for the performance of
contract.
Ans. The rules relating to the time and place for the performance of the
contract have been specified in Sections 46 to 50 of the Act as follows
:
(1) When no time is specified [Section 46]
(2) When day is fixed [Section 47]
(3) Performance on a certain day on application [Section 48]
(4) When no place is fixed [Section 49]
(5) Performance in manner or at time prescribed or sanctioned by promisee
[Section 50]
(1) When no time is specified. - Section 46 of the Act specifies the rule
about the time for the performance of the promise where no application
is to be made by the promisee in this respect and no time is specified
in the agreement. The provision is that where, by the contract, a
promiser is to perform his promise without application by the promisee
and no time for performance is specified, the agreement must be
performed within a reasonable time and the question as to what is a
reasonable time is, in each particular case, a question of fact which is
decided by taking into consideration all surrounding circumstances.
(2) When day is fixed - Section 47 of the Act lays down that when a
promise is to be performed on a certain day, and the promiser has
undertaken to perform it without application by the promiser, the
promiser may perform it at any time during the usual hour of business
of such day not at the place at which the promise ought to be
performed.
(3) Performance on a certain day on application - Section 48 of the Act
lays down that when a promise is to be performed on a certain day
and promiser has not undertaken to perform it without application by
the promisee, it is the duty of the promisee to apply for performance
at a proper place and within the usual hours of business and
explanation to this section makes it clear that the question as to what
is a proper time and place is in each particular case a question of fact
which is to be decided by taking all surrounding circumstance into
consideration.
(4) When no place is fixed - The point, about the place for the performance
of a promise in a case where no application is to be made by the
promisee and no place is fixed for the performance can be settled
according to the rule laid down in section 49 of the Act which provides
that when a promise to be performed without application by the
promisee and no place is fixed for the performance of it, it is the duty
of the promiser to apply to the promisee to appoint a reasonable
place.
Illustration: A undertakes to deliver a thousand quintal of jute to B
on a fixed day. A must apply to B to appoint a reasonable place for
purpose of receiving it, and must deliver it to him at such place.
(5) Performance in manner or at time prescribed or sanctioned by
promisee - Section 50 of the Act specifies that the performance of
the promise, in a case where the manner or the time of the performance
is presented or sanctioned by the promisee, must be in accordance
with that manner or at that time.
Section 50 lays down that -
“The performance of any promise may be made in any manner or at
any time which the promise prescribes or sanctions.”
The section specifies about the prescribed or sanctioned manner and
time. It may be in any manner as prescribed or sanctioned; similarly it
may be at any time as prescribed or sanctioned.
Q.43 “An agreement to do an act impossible in itself is void” Explain.
Ans. Sec 56. Agreement to do impossible act: An agreement to do an act
impossible in itself is void. Contract to do act afterwards becomes
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 be
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.
Examples:
(a) A agrees with B to discover treasure by magic. The agreement is void.
(b) A and B contract to marry each other. Before the time is fixed for the
marriage, A goes mad. The contract becomes void.
32 LAW OF CONTRACT
(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 contract 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 contract 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.
Q.44 What is the Doctrine of Frustration?
Ans. Frustration in general scenario means defeated; and this term has
been widely used in agreements and contracts between parties. The
term frustration is being used to deal with unsuccessful transactions
which could not be completed due to any reason. In law of contracts
doctrine of frustration has emerged as one of the most common issues
which have arrived to deal with failed contracts.
Doctrine of frustration: As general rule parties to contract are having
an intention towards the fulfilment of their part and in case of breach,
party breaching is liable to compensate for the same. But an exception
to this rule is laid down in Section 56 of the Indian contract act 1872.
Section 56 deals with the doctrine of frustration as being acts which
cannot be performed. Under this doctrine a promisor is relieved of
any liability under a contract in the event of the breach of contract
and contract will be deemed to be void.
Section 56 is based on the maxim,“ les non cogit ad impossibilia”
which means that the law will not compel a man to do what he cannot
possibly perform.
Q.45 What are the cases where Doctrine of Frustration is applicable?
Ans. The doctrine of frustration is however applicable only in 2 cases:
• If the object of the contract has become impossible to perform
Or
• An event has occurred making the performance of the contract to be
impossible beyond the Control of promisor.
Illustration:
1. A, a resident of India entered into a contract with B, a resident of
China for the export of 550 heavy Trucks. Initially, 100 Trucks were
delivered, later war was announced between India and China and the
government of India suspended all the business transactions with
China. Now after this contract has become void.
2. A and B contract to marry each other. Before the time fixed for marriage
A dies and therefore the said contract between A and B will become
void as one party to a contract has died.
Q.46 What is Novation?
Ans. A novation is a mutual agreement among all concerned parties to
substitute a new contract in place of a valid existing agreement. A
novation is often used when the parties find that payments or
performance are impossible under the terms of the original agreement,
or the debtor will be forced to default or go into bankruptcy unless
the debt is restructured. Legacies, mortgages, negotiable instruments,
and simple contractual debts may be discharged by novation.
Novation of contract means creating a new contract while the old one
is terminated and need not be performed. It is an act substituting a
new obligation or party in a contract for the old one. Further, the
newly substituted agreement should be valid, enforceable, have
consideration and should be by the mutual consent of the parties.
Basically, it should fulfil the requirements of a valid contract.
Section 62 of the Indian Contract Act states that:
“If the parties to the contract agree to substitute a new contract for
it or to rescind it or alter it, the original contract need not to be
performed.”
Essentials of Section 62 of the Indian Contract Act are:
a) Consensus ad idem between the parties to a contract.
b) There should be a previous contract entered into between the parties.
c) Substitution, recession or alteration of a contract giving rise to a
valid new contract.
d) Termination of the original contract.
Effect of Novation:
Novation may be accomplished by a substitution of another for one
of the parties to the contract, or substitution of the performance to be
made under the contract. The effect of a novation that substitutes
one party for another is to bind the substituted party to all the terms
of the original contract to the same extent as the original party so that
the discharged party may not sue or be sued on the original contract.
A novation that substitutes one contract for another destroys the
original contract.
Q. 47 Discuss “Accord and Satisfaction”.
Ans. The Doctrine of Accord and Satisfaction means discharge of one’s
contractual obligations by way of performing substituted obligations.
It is a mode of one’s discharge from its contractual obligations wherein
34 LAW OF CONTRACT
parties to a contract perform a new set of obligations in substitution
of older contractual terms.
Section 63 of the Indian Contract Act runs as under: “Every promisee
may dispense with or remit, wholly or in part, the performance of the
promise made to him, or may extend the time for such performance,
or may accept instead of it any satisfaction which he thinks fit.”
Under this Section the performance, the whole or in part, of a contract
may be effectually dispensed with by the promisee, without either an
agreement with the promisor, or consideration for the dispensation.
A promisee may if he so chooses or agrees to accept a smaller amount
in full discharge of the whole amount due to him and that no
consideration is necessary for the same; he may remit wholly the
performance of the contract. Where a promisor has paid a smaller
amount and the promisee has accepted it, it will be a question of fact
whether the promisee had really agreed to accept the amount in full
satisfaction for the debt.
Therefore, where there has been a true accord under which the creditor
voluntarily agrees to accept a lesser sum in satisfaction and the debtor
acts upon that accord by paying the lesser sum and the creditor
accepts it, then it is inequitable for the creditor afterwards to insist
upon the balance [Union of India v. Kishori Lal Gupta and Bros.,
AIR 1959 S.C. 1362].
It may also be stated that an agreement to remit in future clearly
requires consideration if it is to be a binding contract[Ramaswami v.
Rudrappa, AIR 1939 Mad. 688].
Illustrations (b) and (c) to Section 63 of the Act well explain the
doctrine of Accord and Satisfaction:
(b) A owes B 5,000 rupees. A pays to B, and B accepts, in satisfaction of
the whole debt, 2,000 rupees paid at the time and place at which the
5,000 rupees were payable. The whole debt is discharged.
(c) A owes B 5,000 rupees. C pays to B 1,000 rupees, and B accepts them,
in satisfaction of his claim on A. This payment is a discharge of the
whole claim.
Doctrine of Accord and Satisfaction is different from Doctrine of Waiver:
1. Waiver includes complete abandonment of contractual rights or
obligations by mutual consent, whereas ‘accord and satisfaction’
involves replacement of an old set of obligations with new contractual
obligations.
2. Waiver of contractual obligations does not require any consideration,
whereas discharge by way of ‘accord and satisfaction’ requires new
set of obligations to be performed and such substituted obligations
have to adhere to the basic principles of contract i.e. offer, acceptance
and consideration.
3. The doctrine of Accord and Satisfaction is a mode of discharge of
contractual obligations as opposed to Waiver of Contractual Rights
which only covers the liberty of a person to let go of certain obligations
irrespective of the fact whether the remaining obligations have been
fulfilled or not.
Q.48 What is a Quasi contract?
Ans. A quasi contract is a contract that exists by order of a court, not by
agreement of the parties. Courts create quasi contracts to avoid the
unjust enrichment of a party in a dispute over payment for a good or
service. In some cases a party who has suffered a loss in a business
relationship may not be able to recover for the loss without evidence
of a contract or some legally recognized agreement. To avoid this
unjust result, courts create a fictitious agreement where no legally
enforceable agreement exists.
Let’s look at an example of a Quasi contract: Peter and Oliver enter a
contract under which Peter agrees to deliver a basket of fruits at
Oliver’s residence and Oliver promises to pay Rs 1,500 after consuming
all the fruits. However, Peter erroneously delivers a basket of fruits at
John’s residence instead of Oliver’s. When John gets home he assumes
that the fruit basket is a birthday gift and consumes them. Although
there is no contract between Peter and John, the Court treats this as
a Quasi-contract and orders John to either return the basket of fruits
or pay Peter.
Q.49 What is the Doctrine of Quantum Meruit?
Ans. Quantum Meruit means, “as much as he deserved” in Latin, and
when applied to the law, it refers to the determined value of the services
performed and paid. In contract law, quantum meruit is a doctrine that
implies a promise or agreement to pay a fair sum for labor and provided
materials. This doctrine goes into effect even if there is doubt as to
the amount due for the work done under circumstances. This would
occur if there were no specific lawfully enforceable agreement between
the parties involved and payment is in arrears.
Doctrine of Quantum Meruit: According to contract law, quantum
meruit is a doctrine that states there is an inferred promise to pay a
fair amount for work and the materials provided, even without a lawful,
enforceable agreement between the parties.
Q.50 Distinguish between penalty and liquidated damages.
36 LAW OF CONTRACT
Ans. Liquidated damages: If the amount fixed by all parties is a genuine
estimate of the loss by a future breach of contract, then it is liquidated
damages. Thus, all parties to the contract agree that the amount is fair
compensation for the breach.
Penalty: If the amount fixed by all parties is unreasonable or used to
force the performing party to fulfil the obligation, then it is a penalty.
In such cases, the amount is disregarded and the suffering party
cannot claim more than the actual loss.
Liquidated damages Penalty
Liquidated damages is the amount fixed by Penalty is an amount fixed by way of
the parties on the basis of probable loss to punishment and as threat to a party for
a party will suffer in case of breach of non performance or failure to meet the
contract like not meeting the completion contractual requirements.
schedule or failure to perform etc.
Liquidated damages, are the true pre- The crux of the penalty is the payment of
estimate of the damage. money as a terrorism of the defaulting
party.
In the common law jurisdictions, If the sum payable is far in excess of the
“liquidated damages” are defined as "ex- probable damage on breach of the
ante" reasonable estimation of the true contract, then it is a penalty. Unlike the
losses: the party suf fering from the other liquidated damages, the penalty clause
party’s default shall receive a may impose a sanction on the non
predetermined indemnity. performing party in addition to the
compensation. In other words, penalty
clauses may result in supra-compensatory
sanctions, in order to discourage possible
breaches of contractual obligations.
Liquidated damages shall fully compensate If a contract mentions an amount payable
the non- defaulting party from losses. Thus, at a certain date and an additional amount
they should include subjective losses. if a default happens, then the additional
However, liquidated damages will not be sum is a penalty. This is because a mere
enforceable if they are drafted using such a delay in payment is unlikely to cause
language which will re sult punitive rather damage.
than compensatory.
Q.51 How to differentiate between Liquidated Damages and Penalty?

Ans. Here are some principles to help you distinguish between a penalty
and liquidated damages:
• If the sum payable is far in excess of the probable damage on breach
of the contract, then it is a penalty.
• If a contract mentions an amount payable at a certain date and an
additional amount if a default happens, then the additional sum is a
penalty. This is because a mere delay in payment is unlikely to cause
damage.
• Even if the contract specifies a sum as ‘penalty’ or ‘damages’, the
Court needs to discern from the facts of the case if the amount
mentioned therein is, in fact, a penalty or liquidated damages.
• The crux of the penalty is the payment of money as a terrorem of the
defaulting party. Liquidated damages, on the other hand, are the true
pre-estimate of the damage.
• While the English law distinguishes between a penalty and liquidated
damages, in India, there is no such distinction. The Indian Courts
focus on awarding a reasonable compensation to the suffering party
which does not exceed the amount fixed in the contract.
Q. 52. What do you mean by discharge of contract? Discuss when a contract
stands discharged.
Ans.
Discharge of Contract
Every Contract create certain right in favour of one party to it and
certain obligation upon other party and each party is to perform this
part of obligation. When each party fulfils his promise, the contract is
said to be discharged. There are following ways by which contract is
said to be discharged:-
(1) By performance
(2) By breach of contract
(3) By impossibility of performance
(4) By waiver or Novation
I. By Performance: When each party to contract perform its part of
promise, then contract is discharged and each party is satisfied.
Section 37 and 38 of Indian Contract Act lays down the rules as to
performance of contract.
II. By Breach of Contract: When a party having duty to perform a
contract fails to do that or does an act by which performance of
contract by him becomes impossible or when he refuses to perform
the contract, it is a breach of contract. When one party to contract
commits breach of contract other party is discharged from performing
his part of promise under the contract and he also becomes entitled to
sue the party committing breach of contract for damages for loss
arisen due to breach of contract. Breach of contract may be:-
(A) Actual i.e. refusal to performance of contract on date of performance.
(B) Anticipatory i.e. refusal of performance of contract even before due
date of performance.
III. Discharge by Impossibility of Performance ; When the performance
of contract become impossible because of certain reasons beyond
the control of either party to contract then each party to it, stands
discharged from performing their part of promise under the contract.
Section 56 of Indian Contract Act deals with impossibility of
38 LAW OF CONTRACT
performance of Contract which is also known as “Doctrine of
frustration”. As per section 56 there can be two kind of impossibility
:-
Firstly :- Impossibility existing at the time of making of contract
Secondly :- Impossibility of performance which become so, after
contract was entered into, due to some supervening event.
IV. By Waiver and Novation etc.: Parties create contract by their
agreement and in the same way, by their agreement, the parties may
bring a contract to an end. This type of ending of the contracts is
known as the discharge of the contract by agreement. The discharge
of the contract by agreement may be in any one of the following ways
:
(a) By Waiver [section 63]
(b) By Novation [section 62]
(c) By alteration in terms of contract.
(a) By Waiver - Where a party to contract having some right, gives up
its right, the other party to the contract stands relieved from its liability
and the contract comes to an end. A party to the contract having
certain rights may relieve the other party by accepting consideration
less than the agreed consideration. Thus, by agreement one party
may relieve another party by giving up its right in full or by accepting
less than the agreed consideration.
(b) By Novation - If by an agreement one party is relieved of its liability
and its liability is taken over by the new party, it is said that the old
contract has come to an end. It is known as novation of the contract
and the old contract comes to an end.
(c) By alteration in terms of Contract - If a change in the terms of contract
is made in such a way that a new contract comes into force in place of
old one then, old contract is deemed to have come to an end.
Q.53 A young wife says to her old husband that if the husband doesn’t sign
some agreements in her favour, she would commit suicide. The
husband signs the agreements accordingly. Can these agreements
be enforced by court of law?
Ans. The act of committing suicide is prohibited under IPC, and therefore
a threat to commit suicide leads to coercion. The Madras High Court,
in the case of Ammiraju v. Seshamma, where Amiraju threatened to
commit suicide to his wife and son if they did not release some
properties in favour of his brother. His wife and son executed the
deed but later took the plea of coercion in the court. The judges took
the view that as threat to commit suicide is an offence punishable
under Indian Penal Code, it commits to coercion.
Effect of coercion in a contract
In cases where a contract is exercised under force by one party, the
party which receives any benefit due to it, must restore it back. If the
aggrieved party suffers from any loss, he can recover it from the
other party of the contract.
Section 16 of the act mentions about undue influence wherein a
contract is said to be induced by ‘undue influence’ where the relations
subsisting between the parties are such that one of the party stands
in a by which he can dominate the will of the other party and uses that
position to obtain an unfair advantage over the other.
So the said contract would be treated accordingly under coercion.
Q.54 “A” and “B” contract to marry each other. Before the time is fixed
for the marriage, “A” goes mad. Test the validity of the contract.
Ans. A and B contract to marry each other. Before the time is fixed for the
marriage, A goes mad. The contract becomes void. A void contract is
not void from the beginning , it becomes void at a subsequent stage
due to the occurrence of an event or change in the original conditions.
Void Contract: Section 56(b) in The Indian Contract Act, 1872
Void contracts can occur when one of the involved parties is incapable
of fully comprehending the implications of the agreement. For
example, a mentally impaired individual or an inebriated person may
not be coherent enough to adequately grasp the parameters of the
agreement, rendering it void.
When contract becomes void: Void Contracts are valid contracts when
they are entered into, but they fail to enforce afterwards, because of
certain reasons discussed as under:
• A contract turns out as void when after the formation of the contract,
due to the happening of an event which is not under the control of
the promisor, the performance of contract turns out as impossible,
such as the destruction of the subject matter of the contract, makes it
void.
• A valid contract becomes void by a change in certain circumstances,
supervening impossibility or subsequent illegality (change in law),
making it a void contract.
• Any contract to perform or not perform anything, if an uncertain
future event takes place, turns out as void when the event becomes
impossible to take place.
Q.55 “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. Is it a valid agreement?
Ans. A contract is said to be induced by ‘undue influence’ where the
relations subsisting between the parties are such that one of the
40 LAW OF CONTRACT
parties is in a position to dominate the will of the other and uses that
position to obtain an unfair advantage over the other.
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.
So, as per the above discussions this contract is not valid since its
comes under the section 16 undue influence of Indian contract
act,1872.
Q.56 “A” a singer enters into contract with B the manager of a theatre, to
sing at his theatre two nights in every week during the next two
months and B engages to pay her Rs. 100 for each night’s
performance. On the 6th night “A” willfully absents herself from
the theatre. What is the remedy of B?
Ans. When a party to a contract has refused to perform, or disabled himself
from performing, his promise in its entirely, the promise may put an
end to the contract , unless he has signified , by words or conduct ,
his acquiescence in its continuance According to the sec 39 in Indian
Contract Act, 1872, B is at liberty to put an end to the contract.
Section 39 in The Indian Contract Act, 1872 .39. Effect of refusal of
party to perform promise wholly: when a party to a contract has
refused to perform, or disabled himself from performing, his promise
in its entirety, the promisee may put an end to the contract, unless he
has signified, by words or conduct, his acquiescence in its
continuance.
Q.57 “A” undertakes to repay “B” a loan of 1000 Rs. By five equal monthly
instalments with a stipulation that in default of payment of any
instalment the whole shall become due. State the validity of contract.
Ans. 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 provided to
have been caused thereby, to receive from the party who has broken
the contract reasonable compensation not exceeding the amount so
named, or the case may be, the penalty stipulated for.” Sec 74
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.]This stipulation is not
by way of penalty, and the contract may be enforced according to its
terms. So, in this statement, this stipulation is not by way of penalty,
and the contract may be enforced according to its terms.
Q.58 What remedies are available to a person dispossessed of immovable
property under specific relief act?
Ans. Section 6 in The Specific Relief Act, 1963, Suit by person dispossessed
of immovable property:
(1) If any person is dispossessed without his consent of immovable
property otherwise than in due course of law, he or any person claiming
through him may, by suit, recover possession thereof, notwithstanding
any other title that may be set up in such suit.
(2) No suit under this section shall be brought.
(a) After the expiry of six months from the date of dispossession; or
(b) Against the Government.
(3) No appeal shall lie from any order or decree passed in any suit
instituted under this section, nor shall any review of any such order
or decree be allowed.
(4) Nothing in this section shall bar any person from suing to establish
his title to such property and to recover possession thereof.
Q.59 What are those cases in which specific performance of a contract is
enforceable?
Ans. Specific performance means enforcement of exact terms of the contract.
Under it the plaintiff claims for the specific thing of which he is entitled
as per the terms of contract. For example, if A agrees to sell certain
shares to B of a specific company which are limited in number and
after the payment made by B, if A refuses to sell the shares then B is
entitled to recovery of those shares.
According to Section 10 of Specific Relief Act 1963 in the following
conditions specific performance of the contract is enforceable:
• When there exist no standard for ascertaining actual damage: It is the
situation in which the plaintiff is unable to determine the amount of
loss suffered by him. Where the damage caused by the breach of
42 LAW OF CONTRACT
contract is ascertainable then the remedy of specific performance is
not available to the plaintiff. For example, a person enters into a
contract for the purchase of a painting of dead painter which is only
one in the market and its value is unascertainable then he is entitled
to the same.
• When compensation of money is not adequate relief: In following
cases compensation of money would not provide adequate relief:
a) Where the subject matter of the contract is an immovable property.
b) Where the subject matter of the contract is movable property and,
c) Such property or goods are not an ordinary article of commerce i.e.
which could be sold or purchased in the market.
d) The article is of special value or interest to the plaintiff.
e) The article is of such nature that is not easily available in the market.
f) The property or goods held by the defendant as an agent or trustee
of the plaintiff.
Q.60 Explain those contracts which are not specifically enforceable.
Ans. According to Section 14 of Specific Relief Act 1963, there are certain
contracts which cannot be specifically enforced and these are:
• Where compensation in money is an adequate relief: Here the court
will not order specific performance of contract as it is expected that
the plaintiff will bank upon the normal remedy for breach of contract
i.e. remedy of compensation. For example, contract of mortgage of
immovable property (Rambai v. Khimji), contract of sale of goods
(Bharat v. Nisarali), contract of repair of premises etc.
• Where a contract runs into minutes or numerous details: These
contracts include a contract which depends upon the personal
qualification or the violation of the parties or is of such nature that
the court cannot enforce specific performance of its material terms. In
Robinson Davison, it was held by the court that the contract to perform
in concert depends upon the personal kill of the defendant’s wife,
and the contract cannot be specifically enforced due to her illness.
The other example is construction contracts where the detailed terms
of contract are not explained.
• Contracts of determinable nature: Determinable contract means a
contract which can be determined or revoked or put to an end by a
party to the contract. For example in case of partnership at will any
partner can retire by giving notice in writing to other partners and can
dissolve the firm.
• Contracts which involve the performance of continuous duty which
the court cannot supervise: Earlier under Specific Relief act, 1877 the
continuous duty which the court cannot supervise is considered
over a period of 3 years which was omitted under Specific Relief Act,
1963 and no time limit restricted for the performance of a continuous
duty. These include a contract of appointment of employees for
continuous service or a contract to execute sales deeds every year. In
Central Bank v. Vyankatesh, the defendant was required to execute
deed every year for the period of 25 years and contract is held to be
specifically unenforceable.
• Contract of arbitration: According to Section 14(2), a contract to refer
present or future differences to arbitration shall not be specifically
enforceable.
Q.61 Who are those persons in favour of whom specific performance of
contract may not be enforced?
Ans. Section 19 of the Specific Relief Act, 1963, provides for those persons
against whom specific performance can be enforced. Those are as
follows:
1. Either party to a suit;
2. Any other person claiming under him by a title arising subsequently
to the contract except a transferee for value who has paid his money
in good faith and without notice of original contract;
3. If a company has entered into an amalgamation with another company
through a contract, the new company which arises out of such
amalgamation;
4. If the promoters of a company entered into a contract before its
incorporation for purposes of the company and such contract is
warranted by the terms of the incorporation, the company provided
that the company accepted the contract and communicated such
acceptance to the other party of the contract;
5. Any person claiming under a title which, though prior to the contract
and known to the plaintiff might have been displaced by the defendant.
Q.62 When an instrument may be rectified?
Ans. Under section 26 of Specific Relief Act, 1963 , An instrument may be
rectified under following circumstances:-
(1) When, through fraud or a mutual mistake of the parties, a contract or
other instrument in writing (not being the articles of association of
company to which the Companies Act, 1956 (1 of 1956) applies) does
not express their real intention, then-
(a) either party or his representative in interest may institute a suit to
have the instrument rectified; or
(b) the plaintiff may, in any suit in which any right arising under the
instrument is in issue, claim in his pleading that the instrument be
rectified; or
44 LAW OF CONTRACT
(c) a defendant in any such suit as is referred to in clause (b), may, in
addition to any other defence open to him, ask for rectification of the
instrument.
(2) If, in any suit in which a contract or other instrument is sought to be
rectified under sub-section (1), the court finds that the instrument,
through fraud or mistake, does not express the real intention of the
parties, the court may, in its discretion, direct rectification of the
instrument so as to express that intention, so far as this can be done
without prejudice to rights acquired by third persons in good faith
and for value.
(3) A contract in writing may first be rectified, and then if the party claiming
rectification has so prayed in his pleading and the court thinks fit,
may be specifically enforced
(4) No relief for the rectification of an instrument shall be granted to any
party under this section unless it has been specifically claimed:
Provided that where a party has not claimed any such relief in his
pleading, the court shall, at any stage of the proceeding, allow him to
amend the pleading on such terms as may be just for including such
claim.
Q.63 When a contract may be rescinded?
Ans. To have a contract rescinded, a judge must determine that there is a
valid reason to undo the contract. Since a contract is a legally binding
agreement between two parties, it cannot be rescinded because the
parties have simply had a change of mind. You can rescind a contract
for:
• Mutual consent: If both parties feel that rescinding the contract is in
their best interest, they can consent to rescission through a written
document.
• Issues with the way the contract was formed: There are certain legal
conditions that must be present for a contract to be legally formed. If
there are any conditions that exist in the formation of the contract
such as fraud or acquiring by force, then the contract can be rescinded.
Fraud can be characterized as a false representation of part of the
contract. It is also illegal to form a contract with someone who is
under duress or does not have the capacity to enter into a contract
agreement.
• One party will not perform their obligations: If one of the contracting
parties performs actions that indicate their inability or unwillingness
to perform their obligations, a contract can be rescinded.
• Failed consideration — If the consideration of a contract has failed,
is inadequate, or is illegal, then there would be a case to have the
contract rescinded.
• Against the interest of the public: If the contract is considered to be
made in a way that would be against the general consent of the
public, then rescission can occur.
Q.64 When the declaratory decree can be passed?
Ans. According to Section 34, of the Special Relief Act, 1963, any Person
entitled to any legal character, or to any right as to any property, may
institute a suit against any person denying, or interested to deny, his
title to such character or right, and the court may in its discretion
make therein a declaration that he is so entitled, and the plaintiff need
not in such suit ask for any further relief.
Q.65 What are the essentials of Declatory Decree?
Ans. Essentials of a declaratory suit
There are a total of four essential elements considered for a declaratory
Suitor for the valid suit for Declaration and all the four elements are
mentioned below.
• The plaintiff at the time of suit was entitled to any legal character or
any right to any Property.
• The defendant had denied or was planning or interested in denying
the rights of the plaintiff.
• The declaration asked for should be the same as the declaration that
the plaintiff was entitled to a right.
• The plaintiff was not in a position to claim a further relief than a mere
declaration of his rights which have been denied by the defendant.
Q.66 What do you mean by injunction?
Ans. A court order by which an individual is required to perform, or is
restrained from performing, a particular act. An injunction is a legal
remedy imposed by a court. In simple terms, an injunction means that
one of the parties to a certain action must either do something or
refrain from doing something. There are three types of injunctions:
preliminary injunction, temporary restraining order, and a permanent
injunction.
An injunction has three characteristic features: (i) it is a judicial
process; (ii) the object obtained thereby is restraint or prevention
and in some cases doing of certain acts; and (iii) the thing restrained
or prevented is a wrongful act.
Q.67 What do you mean by liquidated damages?
Ans. Generally, contracts that involve the exchange of money or the promise
of performance have a liquidated damages stipulation. The purpose
of this stipulation is to establish a predetermined sum that must be
paid if a party fails to perform as promised. An amount of money
agreed upon by both parties to a contract which one will pay to the
46 LAW OF CONTRACT
other upon breaching (breaking or backing out of) the agreement or if
a lawsuit arises due to the breach. Sometimes the liquidated damages
are the amount of a deposit or a down payment, or are based on a
formula (such as 10% of the contract amount). The non-defaulting
party may obtain a judgment for the amount of liquidated damages,
often based on a stipulation (clear statement) contained in the
contract, unless the party who has breached the contract can make a
strong showing that the amount of liquidated damages was so
“unconscionable” (far too high under the circumstances) that it
appears there was fraud, misunderstanding or basic unfairness.
Q.68 Which are the contracts not specifically enforceable by specific
relief act, 1963?
Ans. Section 14 of the Specific Relief Act,1963 specifically talks about the
types of contracts that are specifically not enforceable. This section
says :
The following contracts cannot be specifically enforced namely:-
1. Where the party to the contract has obtained substituted performance
of a contract in accordance with the provision of section 20.
Illustration: If A and B enter into a contract of building a house by A
and if due to some reasons A is unable to perform the contract then
B can execute the said contract by some other third party e.g C and
all the expenses should be barred by the non performer A, and after
which this contract cannot claim the Specific relief under this act.
2. A contract, the performance of which involves the performance of a
continuos duty which the court cannot supervise.
Illustration: A breach of contract that was involved in constructing
a road cannot get relief under thus act as it is a continuous duty that
the court cannot supervise.
3. A contract which is so dependent on the personal qualifications of
the parties that the court cannot enforce specific performance of its
material terms.
Illustration: A and B enters into a contract in which B has to make a
personalized painting for A. Due to some reasons A fails to do so.
Now , A cannot enforce B for the performance of the contract under
this act.
4. A contract which is in its nature determinable.
Illustration: A and B enter into a contract which involves a condition
that it may get terminated after sometime . So in a condition or non
performance of contract , none of the parties may enforce the duty of
performance on the other party involved in a contract under this act.

Q.1 What do you mean by a contract? Define it and mention its essential
characteristics.
OR
What do you understand by ‘Contract’? Explain the essential elements
of a valid contract?
OR
“An agreement enforceable by law is Contract”, define it.
Ans. Definition of Contract: According to Salmond, “Contract is an
agreement creating and defining obligations between parties.”
Similarly, Sir Fredrick Pollock has defined the word “Contract” as
follows:
“Every agreement and promise enforceable at law is a contract.”
Anson has defined the word ‘contract in the following words:
“A contract consists in an actionable promise or promises. Every such
promise involves two parties, a promisor and a promisee, an expression
of the common intention and of expectation as to the act or forbearance
promised.”
A similar definition has been given under the Indian Contract Act.
Section 2 (h) of the Act defines contract as “An agreement enforceable
by law is a contract”.
It is an agreement made between two or more persons which is intended
to be, and is, enforceable at law. It is constituted by the acceptance by
one party of an offer made to him by the other party to do or to abstain
from doing an act. An offer when accepted becomes a promise. And
the term contract denotes the legal obligation which is thereby created
on one party to perform the “promise” and on the other to accept the
performance of it.
Essential elements of a contract
It follows from the definition provided under Section 2 (h) of the Indian
Contract Act, 1872 that there are two main elements of a contract:
(1) There must be an agreement; and
(2) Such agreement must be enforceable at law.
1. Agreement: There must be an agreement between the parties. The
word “agreement” is defined under Section 2 (e) of the Indian Contract
Act, 1872. Section 2(e) provides, “Every promise and every set of
promises, forming the consideration for each other, is an agreement.”
48 LAW OF CONTRACT
Section 2 (b) of the Indian Contract Act, 1872 defines the word
tipromise”, It provides, “When the 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 person cannot enter into an
agreement with himself.
Thus, agreement = Proposal + Acceptance
2. Agreement must be enforceable at law [Section 10]: This section of
the Indian Contract Act deals with the conditions of the enforceability
of an agreement of law. It provides “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.”
The second Para of the Section 10 further says-
“Nothing herein contained shall affect any law in force in India, and
not hereby expressly repealed, by which any contract is required to be
made in writing or in the presence of witnesses, or any law relating to
the registration of documents.”
Thus, according to Section 10 of the Contract Act, following conditions
must also be essential to become a contract valid:-
(a) The parties must be competent to contract [Sections 11-12]: The parties
should be of the age of majority and of sound mind and not disqualified
from contracting by any law to which they are subject. Certain persons
are incapable of binding themselves by a promise or of enforcing a
promise made to them. According to Section 11, the following persons
are not competent to contract:
(1) Minors;
(2) Persons of unsound mind; and
(3) Persons disqualified from contracting by any law to which they are
subject.
(b) The agreement must have been made by free consent of the parties
[Section 13-22]: They must have agreed to something in the same
sense and the consent of a party must not have been obtained by (i)
coercion, or (ii) undue influence, or (iii) fraud, or (iv) misrepresentation,
or (v) mistake.
(c) The agreement must be for a lawful consideration and with a lawful
object [Section 23]: Consideration or object is said to be unlawful if:
(i) it is forbidden by law, or
(ii) it is of such a nature that if permitted it would defeat the provisions of
any law, or
(iii) it is fraudulent, or
(iv) it involves or implies an injury to the person or property of another, or
(v) the Court regards it as immoral or opposed to public policy.
(d) The agreement must be made for some consideration [Section 25]:
Section 25 declares that an agreement without consideration is void.
However, there are certain conditions enumerated under Section 25
under which a contract without consideration is treated to be a valid
one.
(e) The agreement must not have been expressly declared to be void
[Sections 24-30, 36 and 56]: Under this Act, the following agreements
are declared void:
(i) Where both the parties to an agreement are under a mistake of fact
essential to the agreement (Section 20); or
(ii) agreement without consideration (Section 25); or
(iii) agreement in restraint of the marriage of any person other than minor
(Section 26); or
(iv) agreement in restraint of trade (Section 27); or
(v) agreement in absolute restraint of judicial proceeding (Section 28); or
(vi) agreement the meaning of which is uncertain and incapable of being
made certain (Section 29); or
(vii) agreement by way of wager (Section 30); or
(viii) agreements contingent on impossible events (Section 36); or
(ix) an agreement to do an act which is impossible in itself or which
subsequently becomes impossible subsequently becomes impossible
without any default of a party (Section 56)
(f) Other legal requirements: An agreement must fulfill the requirements
or formalities necessitated by any particular law. An agreement must
be in writing, attested and registered, if so required by any law in force
in India. Certain agreements, such as:—
(i) agreement to pay a time-barred debt; or
(ii) agreement for transfer of immovable property; or
(iii) agreement to refer the matter to an arbitrator in case of disputes, are
such agreements which must be reduced to writing and registered
before they can be legally enforced.
Q.2 “All contracts are agreements, but all agreements are not contracts.”
Explain?
50 LAW OF CONTRACT
OR
“All contracts are agreements, but all agreements are not contracts.”
Explain this statement?
OR
What is difference between agreement and contract ? Explain?
Ans. Agreement:
Section 2(e) of the Indian Contract Act, 1872 says, “Every promise
and every set of promises forming the consideration for each other is
an agreement.”
Here, promise flows from the sides. Promise has been defined in Section
2(b) of the Indian Contract Act, “When the person to whom proposal
is made signifies his assent thereto, the proposal is said to be accepted.
A proposal when accepted becomes promise.”
In simple words, when a proposal is accepted it becomes promise and
promise from the two parties to one another is known as an agreement.
How is an agreement formed?
To form an agreement, the following ingredients are required:
1. Parties: There need to be two or more parties to form an agreement
2. Offer/ Proposal: When a person signifies to another his willingness
of doing or omitting to do something with a view to obtain other’s
assent. [Section 2(a)]
3. Acceptance: When the person to whom the proposal is made signifies
his assent for the same thing in the same sense as proposed by the
offeror. [Section 2(b)]
4. Promise: When a proposal is accepted, it becomes a promise. [Section
2(b)]
5. Consideration: It is the price for the promise. It is the return one gets
for his act or omission. [Section 2(d)]
An agreement is, therefore, a promise or set of promises forming
consideration for all the parties. [Section 2(e)]
Agreement = Promise or set of promises (offer + acceptance) +
Consideration (for all the parties)
Definition of Contract Indian Contract Act, 1872:
Section 2(h) of the Indian Contract Act, 1872 says, “An agreement
enforceable by law is a contract.”
zBriefly, Contract is a pack of promises which give rise to several
obligations and those obligations are recognized by the law. It means
a legal remedy is available in case of non performance. It is to be noted
that all agreements cannot become contract i.e. only agreements which
satisfy all the essentials mentioned in Section 10 of Indian Contract
act, 1872 becomes contract.
According to legal scholar Sir John William Salmond, a contract is
“an agreement creating and defining the obligations between two or
more parties”
Sir William Anson elucidates that “A Contract is an agreement
enforceable at law, made between two or more persons, by which
rights are acquired by one or more to acts or forbearances on the part
of the other or others”.
Sir Fredrick Pollock defines, “Every agreement and promise
enforceable at law is a contract”.
How is a contract formed?
A contract is a lawful agreement. In other words, an agreement
enforceable by law is a contract.
Contract = Agreement + Legal enforceability
Or
Contract = Legally enforceable Agreement
Section 10 of the Indian Contract Act, 1872 provides us with essentials
for valid contract i.e. “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.”
So, an agreement is a contract when:
1. Free consent of the parties: The consent can be given expressly by
words- oral or written or impliedly by gestures or surrounding
circumstances. (Section 13).
But, the consent so given by the person must be free and not influenced
by any outside force. The consent of a person is said to be free unless
it is not caused by any of the acts mentioned below: (Section 14)
a) Coercion (Section 15)
b) Undue Influence (Section 16)
c) Misrepresentation (Section 18)
d) Fraud (Section 17)
e) Mistake (Section 20, 21, 22)
In the above-mentioned cases, the agreement becomes voidable on
the part of the aggrieved party because the consent was not free.
2. Capacity of the parties to contract: Section 11 and 12 lay down that
the competent parties are persons who have attained majority
[Exception for this was laid down in Mohori Bibee v. Dharmodas Ghose
ILR (1903) 30 Cal 539 (Pc)], persons who are of sound mind and
persons who are not disqualified by law.
3. Lawful consideration and Lawful object: The consideration and object
of an agreement are unlawful if it is:
a) Forbidden by law
52 LAW OF CONTRACT
b) Of such a nature that if permitted, would defeat the provisions of any
law
c) Fraudulent
d) Involves or implies injury to person or property
e) Regarded as immoral or opposed to public policy by the law
If any of the agreement contains abovementioned consideration or
object, the agreement becomes void.
Hence, Section 23 lays down that the consideration and object is
lawful unless it is forbidden by law or it defeats provisions of any law
or is fraudulent or involves injury to person or property or is violative
of public health, morality, peace and order.
4. The agreement should not expressly be declared to be void: There are
certain kinds of contracts which are expressly declared by The Indian
Contract Act, 1872 to be null and void. The following are some of the
agreements which are not enforceable in the eyes of law:
a) Agreements without consideration except it is written and registered
or is a promise to compensate for something done or is a promise to
pay a debt barred by limitation law.
b) Agreements in restraint of marriage
c) Agreements in restraint of trade
d) Agreements in restraint of legal proceedings
e) Agreements void for uncertainty
f) Agreements by way of wager
g) Agreements contingent on an impossible event
h) Agreements to do impossible act
The above-mentioned conditions are required to be fulfilled in order
to make an agreement legally enforceable. The agreement becomes
void if any of the mentioned conditions are left unfulfilled except in
the case of free consent where the agreement becomes voidable instead
of void and giving the party, whose consent was not free at the time of
entering into the contract, the discretion to continue the contract or
not.
For an agreement to become a contract it must give rise to a legal
obligation and if it is incapable of doing so, it is not a contract. In the
case of Balfour v Balfour [1919] 2 KB 571, Mr. Balfour promised to
pay his wife £30/month as she stayed in England for medical reasons.
When he failed to pay, Mrs. Balfour sued him. Her action failed because
there was no intention to create a legally binding agreement between
Mr. and Mrs. Balfour. A contract cannot be made without proper
indication about the legal rights and obligations of the parties to the
contract. So, if this were to be a contract then the wife would have had
a right to receive payment and the husband would have had the
obligation to pay his wife.
(Tarsem Singh Vs. Sukhiminder Singh A.I.R. 1988 S.C. 1400, 1403)
“All agreements are contract 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 hear by expressly declared to be void.”
According to S.10 an agreement to be enforceable must fulfill the
following conditions:
(i) The parties must be competent to contract,
(ii) The agreement must be made by consent of the parties,
(iii) The agreement must be made for some consideration,
(iv) The object of the consideration must be lawful,
(v) The agreement must not have been expressly declared to be void
under the contract act or any other act,
(vi) In some special cases as provided by the law the agreement should be
in writing or in the presence of witness or should be registered.
A concluded contract including an arbitration agreement can result by
tender and acceptance thereof though a formal document signed by
both the parties has not been executed.
(Union of India Vs. A.L. Raliya Ram, A.I.R. 1963 S.C. 1685)
In M.M. and M refinery, Bang Vs M.S.S.I. corporation A.I.R. 1974
Mad. 39
It was contented that under one of the tenders, the successful tenders
was required to execute an agreement within 10 days of the
announcement of acceptance of the tender and till such agreement
was executed there was no contract.
Rejecting this contention the madras High Court held that: It is a
question of construction whether the execution of the further con-tract
is a condition or term of the bargain or whether it is a mere expression
of the desire of the parties as to the manner in which the transaction
already agreed to will infect go through in former case there is no
enforceable contract because the condition is un-fulfilled or because
the law does not recognize a contract to enter into a contract in the
later case there is a binding contract and the reference to the formal
document may be ignored.
The above decision was relied on by the Delhi High Court in
M/s. progressive construction Ltd. Vs. Bharat hydro power
corpora-tion Ltd.
54 LAW OF CONTRACT
In this case a concluded contract was reached between the parties but
a formal contract remained to be signed because there were minor
discrepancies in the term which were negotiated between the parties.
It was held that the finalization of the details would not adversely
affect the conclusion which had arrived at with the acceptance of the
tender and award/later intent issue by the respondent to the petitioner.
The arbitration clause as contend in the tender document would bind
the parties. But where the contract was of more than two crores rupees
and the competent authority to enter into the contract was Punjab
state electricity board and telex message intimating the grant of contract
was issued by the chief engineer who had no power to enter into the
contract in question and the detailed draft of allotment was not issue
by the board and the allotment was made subject to rectification by
board and final of terms as to schedule to stage payment it cannot be
said that there was concluded contract between the board and the
contractor.
In Ghaziabad development authority Vs. union of India A.I.R. S.C.2003,
in respect of scheme development authority for allotment of plots
there was a provision in brochure excluding liability of authority to
pay interest in cases of refund of consideration. The Supreme Court
held that interest are equitable grounds can be awarded in appropriate
cases. Further the provision content in the brochure issued by the
development authority that it shall not be liable to pay any interest in
the event of an occasion arising for return of the amount should be
held to be applicable only to such cases in which the claimant is self
responsible for creating circumstances providing occasion for the
refund. In the cases under appeal the fault has been found with the
authority. The authority does not therefore any justification for
resisting refund of the claimant’s amount with interest.
Conclusion
The journey from offer to agreement is quite easy in comparison to the
journey from Agreement to Contract. An agreement needs to pass
through several checks to become a contract. Conclusively we can
say that all agreements are not enforceable by law therefore all
agreements are not contract i.e., some are enforceable and others are
not enforceable. Only those agreements which satisfy the essentials
provided in section 10 of the Indian Contract Act, 1872 are eligible to
become contract.
Hence, it is now very clear that all Contracts are agreements but all
agreements are not Contracts.
Difference between Agreement and Contract
BASIS FOR AGREEMENT CONTRACT

COMPARISON
Meaning When a proposal is accepted by the When an agreement is
person to whom it is made, with enforceable by law, it
requisite consideration, it is an becomes a contract.
agreement.
Elements Offer and Acceptance Agreement and
Enforceability
Defined in Section 2 (e) Section 2 (h)
In writing Not necessarily Normally written and
registered
Legal obligation Does not creates legal obligation Creates legal obligation
One in other Every agreement need not be a contract. All contracts are agreement
Scope Wide Narrow
Q.3 Explain, “All illegal agreements are void but all void agreements are
not illegal.”
OR
State the difference between void agreement and illegal agreement?
Ans. The difference between void and illegal contracts is subtle, but
important. In 1872, the Indian Contract Act defined the line between
void and illegal agreements. A void agreement is most likely not allowed
by law, and an agreement that is illegal is stringently not allowed by
law. Both parties can be disciplined for joining an illegal agreement.
Because a void agreement is invalid from the start, it doesn’t have any
legal consequences. No aspect of an illegal agreement is ever
considered legal.
Every illegal agreement is void, but not every void agreement is illegal.
Agreements connected to an illegal agreement are void. The classic
example is the illegal agreement of a murder for hire. Because murder is
illegal, two parties can’t make a contract to kill. If he isn’t paid his fee,
a hitman can’t go to court and sue the other party for breach of contract
because the contract is illegal and void. Some illegal agreements,
including the murder for hire example, are crimes by themselves.
However, a contract can be void even if it is legal. One of the main
reasons a contract would be made void is if one of the parties is
incapacitated and not allowed to join a contract.
Illegal Agreement
An illegal agreement is any contract that is forbidden by law. This
includes any agreement that is against the law, is criminal, or that is
against public policy. Illegal agreements are invalid from their creation,
meaning that agreements associated with the original contract are
also considered void. Because illegal agreements are against the law,
56 LAW OF CONTRACT
joining an illegal agreement can also bring punishment. Both parties
to the agreement receive the same punishment according to the Indian
Penal Code.
Illegal agreements include a contract with uncertain terms, an
arrangement to hurt someone, or perform any other illegal act. In an
illegal agreement, all connected agreements are void, and the money
received cannot be claimed or recovered.
Examples of illegal contracts
Here, are some examples of illegal contracts
(a) Contracts for the sale, or distribution of illegal substances i.e. drugs.
(b) Contracts of activities which are considered illegal by the law.
(c) Employment contracts for hiring workers who are not above the age
prescribed by law.
(d) Contract to wage war against State Government.
(e) Contract to illegal Mining.
(f) Agreement in Restraint of Legal Proceedings.
(g) Restraining Parental Rights.
(h) Agreement to illegally creating a monopolies.
Void Agreement
Section 2(g) of the Indian Contract Act, 1872 defines void agreements.
Further, Sections 24 to 30 and 56 of the Act specify the particular
kinds of agreements/contracts which are void. Since a void agreement
is meaningless in the eyes of law, it does not cause any change in the
position or relationship of the contracts.
Agreements in which a part of consideration or object is unlawful
This is mentioned in Section 24 of the Act. The basic essence of this
statement is that if the consideration, as a whole or in part is unlawful
or if the end product of the agreement is illegal then the agreement is
declared void.
Agreements without consideration
Section 25 of the Act mentions that all agreements devoid of
consideration would be declared void unless they fall into the following
categories:
(A) If the agreement is made out of natural love and affection
(B) The person has already done something voluntarily for the promisor
Restraint of marriage
Section 26 of the Act mentions that all agreements in restraint, either
partial or full, of a marriage except that with a minor, would be void.
Restraint of trade
This is dealt with under Section 27 of the Act. The freedom to practice
any form of trade and occupation is a fundamental right guaranteed
by the Constitution of India under Article 19(1). Hence, any agreement
in restraint of trade and occupation would be deemed as void. The
restraint can be both partial and complete.
In common law, a reasonability test is pursued. An agreement in
restriction of trade is legitimate, if:
(a) There is a substantial interest that the party forcing the restriction is
attempting to secure.
(b) The restriction is no more than what is important to secure this interest.
(c) Restriction isn’t in opposition to public interest.
Exceptions to Section 27
Statutory exceptions
a. Sale of Goodwill
According to this, a person who buys the business goodwill of another
person is thereby privileged to impose certain restrictions on the
business activities of the latter. The restrictions include preventing
the seller from carrying out similar business within local limits only.
This is done to protect the rights of the purchaser
b. Partnership Act
There are three provisions of the partnership act that provide for
restriction of business. They are:
1. Section 11, which states that none of the partners would carry on any
business till the continuity of the business.
2. Section 36, which provides the remaining partners to prevent the
outgoing partner from opening any business similar to theirs’ in the
same locality subject to certain restrictions.
3. Section 54, which prevents all the partners from engaging in any
business of similar kind after dissolution of the firm/business.
Agreement in Restraint of Legal Proceedings
Section 28 of the Indian Contract Act says that, all agreements are
void, if:
1. They render it invalid, by agreement, for a party to approach a relevant
court or tribunal if the parties rights have been violated.
2. Limit the time within which the aggrieved party can approach such a
court or tribunal.
3. Make a party immune from liability by agreement.
Exceptions
There are two exceptions to Section 28, as mentioned in the Act.
Agreements in restraint of legal proceedings are valid, if:
58 LAW OF CONTRACT
1. A future dispute or a past dispute is referred to arbitration. That is if
there is an arbitration clause in the said agreement.
2. Agreements stating the limit of time as per the Limitation Act, 1963. For
instance, as per the Limitation Act, 1963, a suit for breach of contract
may be brought within the period of three years from the date of the
breach.
Unmeaning agreement
Section 29 states that any unclear or ambiguous agreement whose
meaning can’t be made certain of then such agreements shall be deemed
as void agreement. For example, if A enters into an agreement with B
where he says that deliver a certain amount of wheat to his place of
business.
Agreements which are wagering in nature
Section 30 stipulates that when two people enter into an agreement
that if some future uncertain events happen then the first party will
pay the pre-decided amount to the second person and if the future
event doesn’t happen then the second person will pay the pre-decided
amount to the first person.
Agreement to do impossible act
Section 56 stipulates that any contract which has been entered to
undertake any impossible activity shall be considered as a void
contract. The act further states that if when the contract was entered
objective of the agreement wasn’t impossible but with the due course
of time the objective became impossible then also the fulfilment of the
contract isn’t necessary.
The last part of the act states that, if the promisor knows that objective
of the contract has become impossible but the still he enters into a
contract with the promisee then, in that case, the promisor shall be
liable to pay certain compensation which the promisee sustains because
of non-performance of the contract.
A void agreement means that the consensus between two parties isn’t
legally binding. When an agreement becomes void, it can no longer be
enforced by law and loses its legally binding nature. In a void
agreement, neither party has any legal rights or obligations or any
kind of legal status. However, any transactions linked to a void
agreement are valid. When an agreement is void, money that has been
paid can be claimed back.
Certain types of agreements are considered void from the beginning
according to the Indian Contract Act, including:
a) Agreement that restricts marriage
b) Agreement that restricts legal proceeding
c) Agreement that restricts trade
d) Agreement that is considered illegal
e) Wagering agreement
f) Agreement with a minor
Connected agreements are not always void and can be valid in some
situations.
It is rightly said that all illegal agreements are void but all void
agreements are not illegal.
An illegal agreement is narrower in scope than a void agreement.
‘All illegal agreements are void but all void agreements are not
necessarily illegal.’ The object or consideration of an agreement may
not be contrary to law but may still be void.
An illegal agreement is wider in effect in relation to collateral
transactions than a void agreement. When an agreement is illegal,
other agreements which are incidental or collateral to it are also tainted
with illegality, hence void, provided the third parties have the knowledge
of the illegal or immoral design of the main transaction.
The reason underlying this rule is that no person shall be allowed to
invoke the aid of the court if he is himself implicated in the illegality.
On the other hand, when an agreement is void (but not illegal),
agreements which are collateral to it are not invalidated and remain
valid.
Illustrations:
(a) A minor enters into a contract with a major to supply certain clothes to
the minor, this is a void agreement as the parties are not competent to
the contract and it cannot be said that it is illegal.
(b) A contract entered between the parties to sell the horse and both the
parties are at mistake that the horse is alive whilst, the horse is dead at
the time of making the contract. This contract would have called illegal
if the object or consideration were unlawful. For example, here the
contract is to sell horse which is lawful and if in place of the horse the
agreement is made to sell the stolen diamond, then it would be illegal
agreement.
(c) A and B enter into an agreement that if A provides B into an employment
of the public servant then B will pay A 50000/- rupees. The agreement
is void, as the consideration is unlawful.
Difference between Void Agreement and Illegal Agreement
60 LAW OF CONTRACT
BASIS FOR VOID AGREEMENT ILLEGAL AGREEMENT

COMPARISON
Meaning An agreement, which lacks legal An agreement whose creation
enforceability, is void agreement. is forbidden by the court of law
is an illegal agreement.
Consequence An agreement becomes void when it An illegal agreement is void ab
loses its enforceability by law. initio i.e. void from the very
beginning.
Prohibition by No Yes
IPC
Scope Wide Narrow
Penalty Parties to void agreement are not Parties to illegal agreement are
liable for any penalty under law. penalized.
Connected May not necessarily be void, they may All connected agreements are
agreements be valid also. void.
BASIS FOR AGREEMENT CONTRACT
COMPARISON
Meaning When a proposal is accepted by the When an agreement is
person to whom it is made, with enforceable by law, it becomes
requisite consideration, it is an a contract.
agreement.
Elements Offer and Acceptance Agreement and Enforceability
Defined in Section 2 (e) Section 2 (h)
In writing Not necessarily Normally written and
registered
Legal obligation Does not creates legal obligation Creates legal obligation
One in other Every agreement need not be a All contracts are agreement
contract.
Scope Wide Narrow
Q.4 Define a ‘Proposal’. Distinguish between a ‘Proposal’ and an ‘Invitation

to make a proposal’.
OR
Define Proposal. Discuss essential elements of a valid offer. What is
difference between proposal and invitation to offer?
Ans. The first step in the formation of a contract is making a Proposal or
Offer. There must be at least two parties to make a contract—one
person to make proposal and other to accept it. Then an agreement
comes into existence.
Definition of Proposal: The word ‘Proposal’ has been defined in Section
2(a) of the Indian Contract Act. It says, “When one person signifies to
another his willingness to do or to abstain from doing anything with a
view to obtaining the assent of that other to such act or abstinence, he
is said to make a Proposal.”
According to above definition, there must be two elements in the offer
or proposal: First, is willingness of a person to act, second, is a request
to the other party to accept his act. The person who signifies his
willingness to act is called promisor or offerer and the person who
accept the proposal is called promisee or offeree.
Elements of a valid proposal: A proposal to be valid must contain not
only the above mentioned two elements but also the following elements
as well:
Proposal must be communicated: Proposal must be in the knowledge
of the promisee. Merely by acting in accordance with the terms of the
proposal without their knowledge a party cannot accept an offer. Lord
Lindlay says. “A state of mind not commu-nicated cannot be regarded
as dealings between man and man.” On this point Lalman Shukla Vs.
Gauri Dutt 1(1918) II, AILL.J. 4891 is an important case. In this case
G’s nephew has absconded. He sends his servant ‘L’ to search the
boy. In the meantime `G’ declared that he will award Rs. 501 to any
person who would find out the missing boy. ‘L’ found out the missing
boy. Later on he came to know about the reward and sued `G’ for the
sum. Allahabad High Court held that he could not claim the sum as he
had no knowledge of the offer.
‘A’ wrote to ‘B’ offering him to sell certain quality of goods at certain
price. On the same day, ‘B’ wrote to ‘A’ to buy identical quantity of
goods at the same price. The letters crossed in the post. There is no
contract between ‘A’ and ‘B’ because proposal is not communicated
either to ‘A’ or to ‘B’.
The proposal must disclose an intention to create legal relation: An
offer will not become a binding promise even if it is accepted, unless it
is was made with intention to create legal relationship. An offer to
perform a moral act without any intention to create legal relationship is
not a valid offer. An invitation to dinner, which is merely a social offer
can never create a legal duty en the person making it.
In S. V. R. Mudaliar (dead) by Lrs Vs. Rajabu F. Buhari (dead) By Lrs,
A.I.R. 1995, S.C. 1607, it was observed, “that once it is inferred from
the agreement that an enforceable contract had come into existence or
that the parties intended to create legal relations, there is valid contract
and no further condition is required for its enforceability.
The offer must be certain and not vague: To create a valid contract the
offer must be certain and unambiguous. Section 29 of Indian Contract
Act declares that uncertain contracts are void. In Scamuell Vs. Ouston,
House of Lords 1(1941) 1. All. E.R. 141 it was held that the offer must
not be based on a condition which is uncertain or incapable of
62 LAW OF CONTRACT
performance. In Montreal Gas Co. Vs. Vasey 1(1900) A.C. 5951 ‘A
made a contract with ‘13’ and promised that if he was satisfied, he
would favorably consider his application for the renewal of the contract.
The promise is vague, therefore, it was held as uncertain, hence void.
Offer may be Expressed or Implied: When offer is made in express
words spoken or written it is called express offer, when the offer is
made by the conduct of the parties and not by the express words it is
called implied offer.
Offer may be Positive or Negative: When one person signi-fies his
willingness to do something, it called positive proposal and when one
person signifies his willingness to abstain from doing something it is
called negative proposal.
Proposal may be General or Specific: When the offer is addressed to
a particular person, it is said specific offer, when the offer is made not
to any particular person but to the whole world or public at large it is
said general offer. Specific offer must be accepted by that specific
person to whom it is made but the general offer can be accepted by
any person who is willing to act according to the terms of the offer. It
means to create a binding contract, offer need not to be made to a
certain person but it should be accepted by a certain person.
Carlin Vs. Carbolic Smoke Ball Co. [Q.B. 256, 1893] is the leading
case on this point. Carbolic Smoke Ball Co. made an advertisement
that whosoever would take the ball according to the printed directions,
he would not contract influenza. The company declared an award of
£100 to a person who contracts influenza even after taking balls
according to directions. One Mrs. Carlill used the balls but contracted
influenza. She claimed £100. Company argued that it was not an offer
to create a lega! relationship between company and Mrs. Car1111, but
mere an advertisement. But it was held that it was an offer and it was
general offer, Mrs. Carlill had accepted it by acting according to the
terms of the offer, therefore, she was entitled for reward.
The principles of Carlill’s case were also affirmed in Union of India Vs.
M/s Rameshwar Lal Bhagchand, A.I.R. 1973, Gauhati 111. This case
was related to demand of a balance of amount. The creditor encashed
a cheque for smaller sum which was specified to have been paid in full
and final settlement of the whole claim. It was held that the demand for
the balance amount of claim cannot be successfully made after the
encashment of the said cheque.
Special condition attached to the offer must also be Communicated:
Not only offer must be communicated to the offeree. If there is any
special condition attached to the offer it should also be communicated.
If offer is accepted it will be presumed that condition attached had
also been accepted. The only responsibility of the offerer is to bring
the condition in the notice of the offeree.
In Thompson Vs. L. M. & S. My. Co. [(1930) 1, K.B. 41] an uneducated
old person purchased a Railway ticket. On the front side of the ticket
it was printed ‘see conditions behind’, one of the conditions was the
Co. shall not be responsible for personal injuries to the passengers.
Due to accident Thompson received injuries and he sued for damages.
It was held that he was not entitled for any damages as he was bound
by the conditions printed on the back side of the ticket.
No doubt, condition attached to the offer is binding, but the condition
attached to the offer should not be irrelevant and unreasonable, immoral
or against the public policy. The offerer is not bound by such conditions
which are illegal or immoral or against the public policy. In Lily White
Vs. Munnuswand(1966), Mad. 131 the defendant delivered a suit to a
laundry for dry cleaning. On the back of the receipt of laundry it was
mentioned that customer would be entitled to recover only 50% of the
market price of the article if it is lost. The suit of the defendant was lost
due to negligence of the laundry. The Court held that condition that
the customer will be paid only 50% price is against public policy,
therefore, offeree is not bound by the condition.
Invitation to an Offer: There is a difference between an offer and
invitation to an offer. An advertisement for tenders or for inviting
applications for Jobs or prospectus of a company or exhibition of
articles in show window by the shopkeeper are mere invitations to
deal or invitations to negotiate or they are only invitations to offer and
not actual offers. The person who responds to such invitation actually
offers. The person who makes invitation to offer has every right to
accept the offer or to refuse it.
In Pharmaceutical Society of Great Britain Vs. Boot Cash Chemists
1(1971) 2 Q.B. 7951 a shopkeeper displayed goods for sale with price
tags attached with the goods. There was self service system in the
shop. It was held that displaying the goods in shop is only invitation
to offer and not offer. The shopkeeper can refuse to sell any article
unless he accepts the price.
Similarly an answer to a question cannot be termed as offer. In Hervey
Vs. Facey 1(1893), A.C. 5521 ‘H’ wired to ‘F’, “will you sell your Bampur
hall pen, telegraph lowest cash price.” ‘F° replied telegraphically,
“lowest cash price is £900.” ‘H’ wired, we agree to pay £900 asked by
you. Please send us your title deed.” For this no reply was given. It
was held that ‘F’ communicated only lowest price, he did not state
whether he wanted to sell his property or not. Therefore, there was no
offer and hence there was no contract.
64 LAW OF CONTRACT
In Executive Engineer, Sundergarh R and B Division and Others Vs.
Mohan Prasad Sahu, A.I.R. 1990, Or!. 25, at pp. 27-28 it was observed
that, “A tender notice does not amount to an offer or proposal but
merely an invitation to the contractors for making an offer, An
advertisement for tenders is not a proposal which would bind the
authority to sell to the person who makes the highest tender. It is
merely an attempt to ascertain whether an offer can be obtained within
such a margin as the seller is willing to adopt. The advertisement
calling for tenders, therefore, is not a proposal within the meaning of
the Contract Act but it invites a proposal.
All these cases show that offer is different from invitation to offer or
an answer to a question. In these cases the invitation of the offerer is
to circulate information of his willingness to deal with anybody.
Q.5 What are the essential elements of a valid acceptance. Explain?
OR
Define “Acceptance”? Discuss the essential elements of a valid
acceptance?
OR
A mere mental acceptance not evidenced b. in the eye of law no
acceptance.” Explain?
Ans. An agreement and a contract emerge from an offer and its acceptance.
Acceptance means the readiness of offeree to abide by the terms of
offer. When an offeree agrees to an offer, It is said to be his-acceptance.
According to Section 2(b) of India Contract Act, when the person to
whom the proposal is made signifies his assent there to the proposal
is said to be accepted. An offer when accepted becomes a promise and
creates an agreement. According to section 2(c), The person making
the proposal is called the promiscr and the person accepting the
proposal is called the promisee
Acceptance may be express or implied. It is express when it is
communicated by words spoken or written or by doing some required
act. It is implied when it is to be gathered from the surrounding
circumstances or the conduct of the parties.
Example:
(a) At an auction sale, S is the highest bidder. ‘The auctioneer accepts the
offer by striking the hammer on the table. This is an implied acceptance.
(b A widow promised to settle some immovable property on her niece if
the niece stayed with her in her residence. The niece stayed with her in
her residence till her death. Held, the niece was entitled to the property.
[V. Rao v. A. Rao, (1916) 30 Mad. 509].
Acceptance of an offer requires more than a tacit (implied) formation
of intention to accept. To give evidence of that intention, there must
be some overt (apparent) act, or words spoken or written must be
used.
Who can accept:
Acceptance of particular offer. The person to whom the offer is made
can accept the offer. A general offer can be accepted by a person.
Example:
Boulton bought a hose-pipe business from Brocklehurst. Jones to
whom Brocklehurst owed a debt, placed an order with Brocklehurst
for the supply of certain goods. Boulton supplied the goods even
though the order was not addressed to him. Jones refused to pay
Boulton for the Goods because he, by entering into contract with
Brocklehurst, intended to set off his debt against Brocklehurst. Held,
the offer was made to Brocklehurst and it was not in the power of
Boulton to step in and accept and therefore there was no contract.
Under a quasi-contract, Boulton can however recover the good from
Jones.
[Boulton v. Jones. (1857) 2H. and N. 5641]
Acceptance of general offer: When an offer is made to world at large,
and persons to whom the offer is made can accept it.
[Carlil v. Carbolic Smoke Ball Co., (1893) 1 Q. B. 256J]
Legal Rules for a Valid Acceptance
The acceptance of a proposal or offer to be legally effective, must
fulfill the following conditions:
(1) Acceptance must be absolute and unqualified: Section 7(1) of the
Contract Act provides that- “In order to convert a proposal into a
promise, the acceptance must be absolute and unqualified.” Thus an
offer must be accepted in full, i.e., all the terms of the offers must be
accepted daily of the term is not accepted; it will be a counter offer and
will not be a valid acceptance.
For example, M offered to sell his land to N for Rs. 5,000. N replied to
mean his acceptance and enclosed Rs. 1,000, promising to pay the
balance of Rs. 4,000 by monthly installments of Rs. 1,000 each. It was
held that N could not enforce his acceptance because it was not
unqualified and therefore created no contract. (Neale vs. Merett, 1930
Wn 189). For further example, X offers to sell his house to Y for Rs.
10,000. Y replies, “I can pay Rs. 9,000 for it.” The offer of X is rejected
by Y as the acceptance given is qualified. However, Y subsequently
changes his mind and is prepared to pay Rs. 10,000. This will be treated
as a counter-offer and it is upto X whether he accepts the same or not.
66 LAW OF CONTRACT
(Union of India vs. Babula AIR 1968 Born 294).
(2) Acceptance must be in the prescribed manner: Section 7(2) of the
Contract Act provides that “In order to convert a proposal into a
promise the acceptance must be expressed in some Usual or reasonable
manner in which it is to be accepted.” ‘Usual or reasonable manner’
would mean a manner which is within the intention or expectation of
the parties according to the ordinary practice followed in a particular
trade or business or place. If the proposal prescribes
some mode of acceptance, it must be accepted in that particular manner.
In case it is not made in such manner, the offeree may insist that the
acceptance be made in the prescribed manner. If he does not insists
upon it within a reasonable time after its communication to him, it is
taken to mean that he has treated the acceptance as properly made. It
may be noted that the offerer has the option of waiving the compliance
of the prescribed manner. He has to exercise his option within a
reasonable time.
For example, B sent a letter to H through a messenger offering to buy
300 tonnes of flour from H and requested that reply should be sent
through the messenger who brought the offer. H sent his letter of
acceptance by post. It was held that there was no resulting contract
because the offer was not “accepted according to the terms in which
the offer was made.”
(Eliason vs. Henshaw, 1819, 4 Wheaton 225).
(3) Acceptance must be communicated to the offeree: (A mere mental
acceptance not evidenced by words or conduct is no acceptance in
the eyes of law), Acceptance must be communicated to the person for
whom it is meant an acceptance is complete and effective only when it
has been communicated either by words or by conduct.
For example, the manager of a railway company received a draft
agreement from B relating to the supply of coal to the company. He
wrote the word ‘approved’ on it and put it in his drawer. It was held
that there was no contract as the acceptance had not been
communicated. (Brogden vs. Metropoliton Railway Company, 1877
AC 66) It has been decided that a mere resolve or mental determination
on the part of the offeree to accept an offer, when there is no external
manifestation of the part of the offeree to accept an offer, when there
is no external manifestation of the intention to do so, is not sufficient
(Bhagwan Dass Kedia vs. Girdhari Lal, AIR 1966 Sc 543). In order to
have a legal binding on the offerer, the acceptance must actually be
communicated to him.
Acceptance must be given by the party to whom the offer is made: An
acceptance is valid only when it has been given by the offeree himself
or by a person who has the authority to accept. If it is communicated
by an unauthorized person, it will not result in an enforceable
agreement.
For example, P was selected for the post of the headmaster in a school
by the managing committee. But the decision of his appointment was
not communicated to him. One-of the members of the committee, in his
individual capacity and without any delegated authority, informed P
about the fact of his appointment. Subsequently, the managing
committee cancelled its earlier resolution and appointed someone else
as headmaster. P filed a suit for breach of contract. It was observed
that there must be “notice of acceptance from the contracting party in
some way. Information from an unauthorized person is as insufficient
as overhearing from behind the door”. It was held that there was no
contract as there has been no authorized communication on the part
of the managing committee. (Powell vs. Lee, 1908, 99 LT 284)
(5) Acceptance cannot be given before communication of an offer:
Acceptance always follow the offer. It can never preceed the offer.
Thus, an acceptance can be given only when the offer. is communicated
to the person who is giving such acceptance. Acceptance of an un
communicated offer will not create a binding contract. Case of Lalman
sukhla vs. Gauri Dutt is very important in this regard.
(6) Acceptance must be given within the prescribed time or within a
reasonable time: Acceptance must be given within the time prescribed
in the proposal. If it is not accepted with prescribed time, the acceptance
will not be binding. If no specific time is mentioned in the proposal. It
must be accepted within a reasonable time.
(7) Acceptance must be made before the offer lapses or is withdrawn: An
acceptance must be made while the offer is in force and has not been
lost or withdrawn. If the offer is revoked, then it cannot be accepted.
Counter-offer also puts an end to the original offer.
(8) Acceptance cannot be presumed from silence: As a rule, the acceptance
of an offer cannot be taken as implied from the silence of the offeree or
his failure to reply. However, if the offeree has show in previous dealings
by his conduct that has silence amounts to acceptance, in such cases
silence does amount to acceptance. Moreover, where the offeree having
reasonable opportunity to reject the offer, takes the benefit of the
offer, it (silence) will amount to acceptance. These are only exceptions,
and not the rule.
(9) Acceptance must show intention to fulfil the promise: Acceptance
must be made in such circumstances as to show an intention on the
part of the acceptor to fulfil the terms of the promise. If a person has no
intention to perform such promise its acceptance is not valid.
68 LAW OF CONTRACT
Q.6 Describe the law relating to the communication of proposal,
acceptance and revocation. If offer and acceptance both are being
made on telephone what would be place of entering in to contract?
OR
When does the communication of proposal and acceptance complete?
What are the various modes of revocation of proposal and acceptance?
OR
Discuss the rules of communication and revocation of proposal and
acceptance?
Ans. Mode of Communication, acceptance and revocation [Section 3].—
Section 3 of the Indian Contract Act lays down:
The communication of proposals, the acceptance of proposals, and
the revocation of proposal and acceptance are deemed to be made by
any act or omission of the party proposing, accepting or revoking—
(a) by which he intends to communicate such proposal, acceptance or
revocation, and
(b) which has the effect of communicating it.
Communication whether of a proposal or of acceptance or of revocation
consists of an act or omission with intent to communicate, and which
effectively communicates the proposal, acceptance or revocation.
Leading Case: Brigalen v. Metropolitan Railway Company, (1877) 2
A.C. 666. Held, If in the proposal, any act has been specified to do, it
is sufficient to do the same. The act done shall take effect in the
manner as the communication of acceptance.
Communication may be by conduct: Communication may be by the
conduct. It need not necessarily be by words. There must be some
overt act. A mere mental assent cannot be treated as communication.
Intention may be communicated with the help of pre-arranged code of
words, or secret writings.
Thus, no words are needed to explain the intent with which a man
steps into a ferry boat or a train car or drops a coin into an automatic
weighing machine.
Communication when complete
(1) Communication of proposal [Section 4]: Section 4 provides that the
communication of proposal is complete when it comes to the knowledge
of the person to whom it is made.
Illustration: A proposes by a letter to sell his house to B, the
communication of the proposal is complete when B receives the letter.
(2) The Communication of an ‘acceptance’ [Section 4]:
(i) “as against the proposer”: When it is put in a course of transmission
to him, so as to be out of the power of the acceptor;
(ii) “as against the acceptor”, When it comes to the knowledge of the
proposer.
Thus, the communication of an acceptance is complete as against the
proposer when it is put in the course of transmission; whether it is
delayed in delivery or miscarried, is immaterial. Posting of a duly
addressed letter is communication of acceptance.
Illustration: B accepts proposal of A’s house and communicates his
acceptance by the post, communication of an acceptance is complete
as against A when B posted the letter, so as to be out of the power: of
B (the acceptor).
It is the duty of the acceptor to prove that the letter of acceptance was
duly posted. When the letter of acceptance bears correct address of
the proposer, and proof of dispatch date, mode of dispatch or any
other material proof such as receipt given by the postal or courier
agent etc. is produced then only it can be inferred that the letter was
duly dispatched or put in the course of transmission to the proposer.
Leading Case: Households Fire and Accident Insurance Company v.
Grant, (1879) L. R. 4 Ex. D. 29 (C.A.). The Court observed that where
the proof of dispatch of letter of acceptance is present, the acceptance
will bind the proposer irrespective of the fact that the proposer never
received the letter of acceptance and the same was lost in transit.
[Followed in J. K. Enterprises v. State of M. P., AIR 1997 M. P. 68-70]
Communication of acceptance will be complete and, therefore, binding
(provided other essentials of a contract are present) as against the
acceptor when the communication comes to the knowledge of the
proposer. In other words, an acceptance is complete, when it is in the
course of transmission as against the proposer only, a further time
must elapse before it is complete as against the acceptor, namely,
when it reaches the proposer.
Illustration: When A (the proposer) receives B’s (the acceptor’s) letter
of acceptance the communication is complete as against B (the
acceptor).
(3) The communication of a revocation is complete (Section 4):
(i) “as against the person who makes it”: When it is put into course of
transmission to the person to whom it is made so as to be out of the
person who makes it;
(ii) “as against the person to whom it is made”: When it comes to the
knowledge of person to whom it is made.
70 LAW OF CONTRACT
Thus a revocation of the proposal reaching the acceptor after the
latter has forwarded his acceptance will not be good. A proposal may
be revoked at any time before the communication of its acceptance is
complete as against the proposer.
Illustration: If A revokes his proposal to B by a telegram (the
communication of revocation is complete) against A (that is the person
making the revocation) when the telegram is dispatched to B (that is,
the person to whom revocation is made) so as to be out of the power
of A (the person who makes the revocation). It is complete against B
(the person to whom revocation is made), when it comes to his
knowledge.
Difference between Indian and English law
According to English Law, the communication of an acceptance is
complete as soon as it is posted and cannot be revoked, for example,
by a telegram dispatched after the posting of the acceptance letter.
But under the Indian Contract Act, since the communication of
acceptance is complete as against the acceptor only when it reaches
the proposer, the acceptor has the right to revoke the letter of
acceptance (if posted) by some means of communication (for example,
by a telegram, which would reach earlier than his letter of acceptance).
This rule has been very well summed up by Hershell in Henthorn v.
Fraser, (1892) 2 Ch 27, in the following words: “the revocation of a
proposal is effectual only if actually communicated before the dispatch
of an acceptance. But when an acceptance, without notice of offer
being revoked, is dispatched in due course by means of communication
such as the post, the acceptance is complete from the date of dispatch.”
Acceptance by Telephone
When the communication of acceptance is made by Telephone, the
acceptance is not complete, until the offerer comes to have knowledge
of the fact of acceptance.
Leading Cases: Entores Ltd. v. Mills Far East Corporation, (1955) 22
QB 327. An offer was made by the plaintiff for the purchase of certain
goods by the plaintiff from London by telex, and it was accepted by a
communication received on the telex machine of the plaintiff situated
in the same place. It was observed by Denning L. J. that the rule about
instantaneous communications between the parties is different from
the rule about the post. The contract is only complete when the
acceptance is received by the offerer, and the contract is made at the
place where the acceptance is received.
Bhagwandas v. M/s. Girdharilal and Co., AIR 1966 SC 543. In this
case the rule laid down in the Entores Ltd. was affirmed by the Supreme
Court
Thus, in the case of acceptance by telex or telephone, the rule regarding
acceptance by post does not apply and acceptance is not complete
until it is received by the offerer.
Q.7 What are the different modes of revocation of proposal or offer?
Examine.
OR
Discuss the various modes of revocation of proposal or offer.
Ans. Rule of Revocation of proposal [Section 5]: Section 5 of the Indian
Contract Act, 1872 deals with rules regarding revocation of proposals
and acceptances. With respect of revocation of proposal.
Section 5 of the Indian Contract Act lays down;
“A proposal may be revoked at any time before the communication of
the acceptance is complete as against the proposer but not afterwards.”
According to Section 4 of the Contract Act, the communication of the
acceptance is complete, as against the proposer, whether the letter of
acceptance is put in a course or transmission to the proposer, so as to
be out of the power of the acceptor.
Illustrations: A proposes by a letter sent through post to sell his
house to B. B accepts the proposal by a letter sent through post.
A may revoke his proposal at any time before or at the moment when
B (the acceptor) posts his letter of acceptance, but not afterwards.
Modes of revoking a proposal [Section 6]: Section 6 of the Contract
Act lays down that a proposal is revoked in following manner :
1. By Notice of Revocation: It is revoked by the communication of notice
of revocation by the proposer to the other party; or
2. By Lapse of Time Prescribed: It is revoked by the lapse of the 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; or
3. By Failure to Fulfil A condition Precedent: It is revoked by the failure
of the acceptor to fulfil a condition precedent to acceptance; or
4. By Death or Insanity of Proposer: It is revoked 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.
5. By counter-offer or by rejection: If offer has been rejected or if in
reply of offer, a counter-offer has been made, the offer would lapse.
1. Revocation of proposal by the communication of notice of revocation
by the proposer to the other party: The time of such revocation has
been stated in Section 4, which lays down that a proposal may be
72 LAW OF CONTRACT
revoked at any time before the communication of its acceptance is
complete as against the proposer, that is, before the communication of
its acceptance is put in the course of transmission to the proposer.
Communication must be from proposer or his authorized agent: The
words, “by the proposer” used in the clause imply that a notice of
revocation shall be communicated to the other party by the proposer
himself or his agent and not by any third person. But under the English
law, the acceptor must come to know of the proposal by the proposer
through some source. In English Law it is not necessary as under the
Indian law that the proposer himself should communicate revocation
of the proposal to the other party.
Leading Case: Dickinson v. Dodds, (1872) 2 Ch. D 463: On the 10th
June, Dodds made Dickinson an offer to sell-him a house at £ 800.
“The offer to be left open until Friday, 9 A. M. 12th June. On the 11th
June, Dodds entered, into contract to sell the house to one A. One B
informed Dickinson of his sale to A, but this B was not acting under
the authority of Dodds, Dickinson handed Dodds an acceptance of
the offer a few minutes before 9 A. M. on the 12th. Dodds said. “You
are too late, I hare sold my property”. On Dickinson’s suing for specific
performance, it was held by the law Courts of England that there was
no contract relying perhaps on Dickinson’s knowledge of the sale of
third party which was communicated to him by B.
The case of Dickinson v. Dodds, is not authority in India, since Section
6 (1) makes it clear that the revocation of a proposal can be made by a
communication of a notice of revocation by the proposer to the other
party and therefore, knowledge of the proposer’s intention to revoke
coming to the acceptor from whatever other source would not be
good notice of revocation.
(Notice of revocation must come from the proposer or his agent duly
appointed).
2. By the lapse of time prescribed in such proposal for its acceptance or
if no time prescribed by the lapse of a reasonable time without any
communication of the acceptance: In other words, where time has
been fixed in a proposal for acceptance, then proposal is revoked
automatically by the lapse of fixed time. Where no such time is
prescribed by the proposer his proposal is open to acceptance within
a reasonable time only.
Illustrative Case: Ramsgate Victoria Hotel v. Mantefiore: A offered
by letter dated June 10, 1923, to purchase certain shares in a certain
company. No reply was sent to him until November 10, 1923, when he
was informed that shares were allotted to him (A). It was held that A
was not bound by the allotment and could refuse to accept the shares
as the acceptance of his proposal was too late.
3. By the failure of the acceptor to fulfill a condition precedent to
acceptance: If there is a condition set in the proposal, before fulfilling
of which, the acceptor cannot accept the proposal, the proposal will
naturally be revoked if the acceptor fails to fulfil that precedent
condition.
4. By the death or insanity of the proposer, if the fact of his death or
insanity comes to knowledge of the acceptor before acceptance: A
proposal is revoked by the death or insanity comes to the knowledge
of the acceptor before acceptance.
Under English Law, if the proposer dies or becomes insane before his
offer is received and accepted, the offer becomes a nullity, though
accepted before the death is known to the acceptor. Death of the
offeror according to English law is enough to cause the offer to lapse.
It is not necessary that the fact of the death of the offeror must have
come to the knowledge of the other party (the acceptor) before
acceptance. Knowledge of death is essential under Section 6 of the
Indian Contract Act.
5. By counter-offer or by rejection: A proposal may also lapse if in its
reply a counter-proposal has been made or if it has been rejected.
Leading Case: Hyde v.Wrench (1840) 3 Beav, 334. It was held that if
the counter offer is made by the plaintiff it destroys the offer made by
the defendant.
Q.8 Minor’s agreements are void-ab-initio.” In which case the above rule
was established? Discuss in brief that case and also bring out the
exceptions to the above rule?
OR
“What do you understand by capacity to contract? What is the effect
of minor’s agreement and when can it be enforced?
Or
Who are competent to contract? Discuss the law relating to minor’s
agreements in India with the help of decided cases? Is there any
difference between Indian Law & English Law in this context?
OR
“A minor binds others, but is never bound by others.” Explain by
giving illustrations?
74 LAW OF CONTRACT
Ans. As laid down in Section 10, for entering into a valid contract the
parties must be competent to contract. Section 11 lays down the
provision about the persons who are competent to contract:
“Every person is competent to contract who,
(i) he is of the age of majority according to the law to which he is Subject
to and
(ii) he is of of sound mind;
(iii) he is not disqualified from contracting by any law to which he is
subject.”
Persons disqualified from contracting: Certain persons are by law
incapable of making a contract that is incapable of binding themselves
into promise. This capacity may be complete or only partial. The
incapacity to contract may arise from any one of the following causes:
(i) Political status; or
(ii) Infancy or minority; or
(iii) Mental deficiency; or
(iv) Artificial personality.
1. Political status
(i) Alien enemies: The phrase ‘alien enemies’ means persons who are
residents or carrying on business within the territories of the enemy.
Even a citizen of India may be classed as an alien enemy during the
war if he is resident within the enemy tan territory. In times of war alien
enemies cannot enter into any contract with Indian subjects without
some special license from the Government. On the same principle, the
Government’s subjects cannot trade With their alien enemies unless
they get Government’s license.
(ii) Foreign Sovereigns and ambassadors: These persons have got a
particularly privileged position. The can enter into contract with Indian
subjects and enforce the contract in our courts. But no contracts can
be enforced against them.
Sultan of Johore’s case: The Sultan of Johore was living at Corote in
England under the name of Albert Baker. He agreed to marry a English
girl: Afterwards he broke the engagement. In a suit by the girl for
breach of promise, he revealed his identity and claimed that the British
Courts had no jurisdiction to make him a party to a suit. It was held
that being a foreign sovereign he could not be sued in British Courts.
The same principle would apply in India.
2. Infancy or minority: A minor’s contract is void and not merely voidable.
(Mohiri Bibi V Dharmodas Ghosh ). A minor cannot enter into a valid
contract but minority does not affect marriage, dower, divorce and
adoption. But a deed executed by him is a nullity. It must, however, be
understood that these contentions arise only in those cases where an
obligation is charged on a minor and the other party wants to enforce
it against the minor. Where under the contract, the minor has to perform
some part, the contract is void but not otherwise. And thus, a minor
can enforce a contract, in his favor which imposes no obligation on
him. A mortgage executed in favor the minor who has advanced
“mortgage money for it, is enforceable; by him or by any other person
on his behalf”. (Satyadeo v. Tribeni). Similarly sale of immovable
property in favor of the minor is valid and the Minor may sue as a
vendee. Nothing in the Contract Act prevents the minor from being a
promisee or transferee . On the same principle it has been held by the
High Courts of Madras and Rangoon, that a promissory note executed
in favor of a minor is not void and can be enforced. (Rungarazu v.
Maddura, (AIR 1936 Pat. 153).
In Dhurandhar Prasad Singh v. Jai Prakash University (AIR 2001
S.C. 2552) a transaction against a minor without being represented
by a next friend is a void one. Such a transaction is good transaction
against the whole world. So far as the minor is concerned, if he decides
to avoid the same and succeeds in avoiding it by taking recourse to
appropriate preceding the transaction becomes void from the very
beginning.
Minor’s contract: According to Section 10 of the Act, the parties to a
contract must be competent and Section 11 the Act further provides
that a minor is not competent to contract. But neither section make it
clear that whether a contract entered by the minor is voidable or void,
it was previously considered that a minor’s contract is voidable and
can be ratified by the minor on attaining majority. But the Privy Council
decision in Mohiri Bibi v. Dharmodas Ghosh, 7 CWN 441, has set at
rest the controversy and the crystallized law now is that minor’s
contracts are void ab initio and not merely voidable. The facts of the
case were as follows:
The respondent Dharmodas minor fraudulently representing himself
to be of full age induced Brahmodatt to advance Rs. 20,000 on a simple
mortgage of his property with interest at 12 percent. Subsequently,
the respondent sued through his mother to set aside the mortgage.
The defense was that even if the plaintiff was minor, he had fraudulently
represented that he was of full age and consequently (in equity he
who comes to equity must come with clean hands) the plaintiff was
not entitled to succeed. The defendant prayed for the return of the
mortgage amount in case the mortgage was set aside. It was held by
their Lordships that:
76 LAW OF CONTRACT
The Indian Contract Act makes it compulsory that all contracting
parties should be competent to contract and expressly provides that a
person who by reason of infancy is incompetent to contract cannot
make a contract within the meaning of the Act. (Secs. 10 and 11)
3. Mental deficiency: Persons who are mentally deficient cannot make a
valid contract. A person may be mentally deficient by reason of lunacy,
idiocy or drunkenness. A contract entered into by a person-of unsound
mind is void (Kamola Ram v. Kaura Ram, 41 PR of 1912, following
Mohiri Bib! s’ case). It would appear from the authorities and from an
analogy derived from similar case dealing with minors that where a
person of unsound mind has advanced a loan or mortgage is executed
in favour of the person of unsound mind as security for moneys
advanced by him, the other party will be compelled to fulfil his obligation
[fugal Kishore v. Cheddu, (1902)1 All 431. A person of unsound mind
is liable to pay a reasonable price for necessaries supplied to him.
English Law: Under English Law the contract of a lunatic is not void
ab initio. It is voidable if it can be shown that the other party knew of
his unsoundness of mind. The burden of proof regarding unsoundness
of mind and knowledge of the other contracting party rests on the
party who seeks to avoid the contract.
Indian Law: Under Indian Law it is not necessary to prove that the
person dealing with the lunatic knew of his being a person of unsound
mind. The corm let of a lunatic, like that of a minor, is void. The
presumption is primarily in favour of sanity and so the defendant has
the burden upon him to prove his (defendant’s) lunacy or unsoundness
of mind. Section 12 of the Act lays down:
A person is said to be of sound mind for the purposes of making a
contract if at the time when he makes it he is capable of understanding
it and of forming a rational judgment as to its effect under his in
interests.
A person who is usually of unsound mind, but occasionally of sound
mind, may make a contract when he is of sound Mind.
A person who is usually of sound mind, may make a contract when he
is of sound mind.
4. Artificial personality: Corporation and joint stock companies are
persons in the eye of law, but their personality is an artificial one.
bestowed on them by some statute, no provision is made in the Indian
Contract Act regarding the capacity of corporation to enter into a
contract. The capacity of a corporation or a company to make contracts
is regulated and limited by law. The powers of a corporation to make
contracts vary according to the character of the corporation. An
agreement entered into by corporation is excess of its power in
Memorandum of Association would be void being ultra vires. For
example, a contract purporting to be made by a Municipality but not
signed by the Chairman or Vice-Chairman and a Councillor as required
by the express statutory provisions governing the bony is not binding
on it. [Ramaswamy v. Municipal Council, Tanjore, ILR (1906) 23 Mad.
360.]
What is sound mind under the Act:
(1) A person shall be regarded as of sound mind if at the time he enters
into the contract (i) he thoroughly understands the nature and contents
of the contract he is entering into and (ii) he has capacity of forming a
rational judgment as to the consequences which he will have to suffer
by being party to the contract.
(2) If a person is generally of unsound mind but sometimes of sound mind
he may enter into a contract during the period of lucid interval, that is,
when he is of sound mind.
(3) If a person is generally of sound mind but sometimes of unsound
mind, he cannot enter into a contract during the period of unsoundness
of mind.
Agreements by Minors
From Section II it can be deduced that minors are incapable to contract,
“Every person is competent to contract who is of the age of majority
according to the law to which he is subject.” The age of majority is
determined by Indian Majority Act, 1875. According to this Act every
minor who has attained the age of 18 years becomes a major unless the
superintendence of his property has been assumed by Court of Wards
in which case a minor becomes a major on completion of 21 years of
age and not before.
Contract by minor is void: According to Indian ,Law, a contract made
by a minor is void and not merely voidable and this is so whether the
person contracting with him is aware of his minority or not [Mohiri
Bibi v. Dharmodas, 7CWN 441 and Kamta Prasad v. Sheo Gopal, ILR 26
All 342]. In Dhurandhar Prasad Singh V Jai Prakash University (AIR.
2001 S.C. 2552), the Supreme Court observed that a transaction against
the minor without being represented by a next friend is void. Such a
transaction is good so far as the minor is concerned, if he decides to
avoid the same and succeeds in avoiding it by taking recourse to
appropriate proceeding the transition becomes void from the very
beginning.
No estoppel against minor: In case where minor has misrepresented
about his age and thereby induced another to contract with him, will
there be any estoppel against such minor? At one time this question
78 LAW OF CONTRACT
created a controversy but it is now settled law that there is no such
estoppel against the minor. [AIR 1931 Born. 361 and Khan Gul v. Lakha
Singh, AIR 1928 Lah 609]
Minor and ratification: If a minor makes an agreement he cannot ratify
it even after attaining majority for there can be no ratification of a void
contract. If, therefore, a minor passes a promissory note during minority,
and after attaining majority purports to ratify his act by renewing the
promissory note the ratification is of no effect and the note is void and
cannot be sued upon except where there is a new consideration at time
of renewal. [Suraf Narain v. Sukhu Ahir, (1929) 51 All 164 (F.B.)]
Minor and sale of goods:A minor buys goods on credit. Subsequently
he refuses to pay the price, the shopkeeper cannot recover the price of
the goods from the minor. The reason is that the contract of sale is
void, therefore, the obligation to pay the price is not binding on the
minor. But the contract of the same is void, it follows that the ownership
in the goods has not passed to the minor. The ownership still remains
vested in the seller. Therefore, the seller can recover the goods from
the minor. It however, the minor, has already consumed the goods (for
example, eaten up the fruits) the shopkeeper cannot recover the price.
If the minor resells the goods to third person the second contract of
sale is also void and of no effect. The reason is that in contract of sale
the ownership in goods is transferred from the seller to the buyer but
in this case the minor never acquired any ownership of the goods and
he can recover them from any subsequent purchaser.
Minor and supply of necessaries: Section 63 gives an exception to the
general rule that contracts by minor are void. According to the section
though a minor cannot enter into valid contracts for the loan of money
for the purchase and sale of goods or property for profit, yet he can
enter into contracts for necessaries of life and bind his property. This
section tells us that if necessaries of life are supplied to minors, the
person who supplies them is liable to be reimbursed out of the property
of the minor, if there is any. In other words we can say that if a minor
has no property there is no remedy for a person who supplies the
necessaries. Again, even in the case of necessaries there is no personal
obligation on the minor to pay. If he has property of his ,own, the
supplier, can reimburse himself from that property, but he cannot file a
suit against a minor and cannot get a decree against a afar personally.
Nature of Minors Contract
According to Section 11, a minor is incompetent to contract but the
Indian Contract Act is conspicuous by its silence about the nature of
minor’s contract. That is to say, it is not clear as to whether it is void or
simply voidable. There was a great controversy in this connection
among the Indian High Courts up to 1903. In the year 1903, the Privy
Council finally resolved the controversy by declaring that the combined
effect of Sections 10 and 11 is to make the minor’s contract void. This
was held by the Privy Council in Mohori Bibee v. Dharmodas Ghose.
The Privy Council held that the minor’s contract is void and not merely
voidable on the basis of Sections 10, 11, 183, 184 and old Sections 246
and 247 (now Section 30 of the Partnership Act). The combined effect
of these sections and particularly Sections 10 and 11 renders the minor’s
contract completely void. According to the Privy Council Section 11
should be literally construed and that only a person who is of the age
of the majority is competent to contract. A minor’s contract is, therefore
ab initio and wholly void. In the view of the Privy Council, this was
also in accordance with the Hindu notion of a minor’s incompetence
to contract.
What are ‘Necessaries’: Necessaries mean goods suitable to the
conditions of a life of minor. The word ‘necessary’ is not Confined to
the barest necessaries which would enable a minor to keep the body
and soul together, but extends to articles fit to maintain the particular
minor in the state or station or degree in the life in which he lives. For
example, in the case of an Oxford undergraduate a watch was held to
be necessary. In the case of the son of an English Cabinet Minister
(Mr. Amery) it was held that an engagement ring bought by him on
credit for £2 for presentation to his lady loved should be classed as
necessary but a vanity bag costing £20/-for presentation to the same
lady was held to be, not necessary. [As regards reasonable marriage
expenses of the minor, the passing of Child Marriage Restraint Act,
1929, has effected the law and the moneys advanced for the marriage
of a male Hindu minor are held to be not necessaries],
N.B.-Desai says, “the application of the rule stated in this section is
not confined to the necessaries supplied to the minor himself but
extends to necessaries provided for the members of his family.”
Validity of Contracts of immovable property entered by the guardian
of a minor: On this point the development of law took the following
course
(1) In Mir Sarwarjan v. Fakaruddin, (1911) ILR 39 Cal. 232.
A minor entered into a contract for the purchase of land through his
guardian. The minor sued for specific performance of the contract.
That time his action failed though the contract was for his benefit. In
the opinion of the court it was not within the competence of the guardian
of a minor to bind the minor or the minor’s estate.
(2) In the case of Sri Kakulam Subrahmanyam vs Kurra Subba Rao, AIR
1948 PC 45. (See AIR 1962 Pat. 318).
80 LAW OF CONTRACT
The position was subsequently changed. The PC overruled its earlier
decision. In this case a transaction or land, entered through his mother
as guardian, was held binding. In Durga Thakurain’s case, (AIR 1982
On. 158) the opinion of PC as expressed in Subrahmanyam’s case was
upheld unequivocal and birding.
Minor and contract for benefit: A contract for the benefit of a minor
has same position as an agreement for the supply of necessaries to
the minor.
Illustration:
A minor who was a very promising tennis player received coaching lessons in
tennis from well-known professional coach under an agreement by
virtue of which the professional was to be paid a certain sum of money
for his coaching. It was held that the coach could be reimbursed himself
from the estate of the minor, if any.
Minor and refund of benefit: Section 65 lays down that, “when an
agreement is discovered to be void or when a contract becomes void
any person who has received any advantage under such agreement or
contract is bound to restore it or to make compensation for it, to the
person from whom he received it.”
The extent of applicability of this section in the case of a minor who
has received benefits under an agreement made by him, are governed
by the following rules:
(i) The minor must return any benefit received by him under the
agreement.
(ii) But this principle mentioned just above, must not be used as pretext
for imposing upon the very obligation under the agreement
Illustrations:
(a) A minor agrees to buy a motorcar on part payment, the balance agreed
to be paid after six months. This contract of sale is void. The minor
cannot be compelled to pay the balance as the price. But the minor
must return the car to the seller.
(b) A minor agreed to sell his house and received the entire sale price in
advance; afterwards he repudiated the contract and refused to give
possession of the house to the buyer. It was held that being a minor he
could not be compelled under the law to carry out his obligation under
the contract, but he must restore all benefits received by him under
that contract. In other words he must refund the entire sale price
received by him.
A minor bought goods consisting of fruits and sweet on credit. The
goods were consumed before the price was paid, afterwards the minor
refused to pay the price. In this case the minor cannot be compelled to
pay the price. Moreover, Sect’, L cannot apply to this case because,
though the minor has received benefit under this agreement, it is not -
possible for him to restore the goods to the seller, the only way in
which he can be compelled to pay the price of the goods. But this
amounts to enforcing the contract against the minor.
Q.9 Explain the term ‘Free Consent’. What factors vitiate the consent
given by a person? Give example.
OR
What is consent? When is consent said to be free under Indian
Contract Act?
OR
What are the factors which vitiate consent and make the agreement
void or voidable?
Ans. Consent: Section 13 of the Contract Act defines the term “consent”. It
provides :
“Two or more persons are said to consent when they agree to the
same thing in the same sense”.
The parties must agree to the same thing in the same sense; only then
the parties are said to consent. Where the parties have different things
in mind or understand the same things in different ways, there is no
real consent. For example, two parties may enter into an apparent
contract regarding a particular person or ship misled by the similarity
of names. In such case there is no contract. On the other hand, if the
parties agree to the same thing in the same sense a mere verbal error
will not vitate or affect a contract. In some cases it may so happen that
the consent may have been given under the mistake and the mistake
may be complete as to prevent the formation of any real agreement
“upon the same things”. Such fundamental error may relate to:
(1) the identity of the party; or
(2) the nature of transaction; or
(3) the subject-matter of the agreement.
(1) Mistake as to the identity of the party: A case where there has been a
mistake or error as to the identity of party or person with whom an
agreement is made. It generally occurs where one of the parties
represents himself to be some other person than he really is.
Leading Case: Cundy v. Lindsay & Co. (1878) 3 AC 459. One Blenkarn
taking advantage of similarity of his name with Blenkiron, wrote to
Lindsay & Co. and ordered goods from them. They mistook his order
for that of Blenkarn (because the signature on the letter ordering the
goods was also made to look like Blenkiron’s) a respectable firm, and
82 LAW OF CONTRACT
delivered the goods to Blenkarn. Blenkarn sold the goods to Cundy
and did not pay Lindsay & Co. for them. In a suit by Lindsay & Co.
against Cundy, it was held that owing to the mistake caused by Blenkarn
there was no real agreement between him and Lindsay & Co. and that
Cundy could get no title to the goods.
The mistake of identity can be only when a particular identity exists in
the knowledge of the plaintiff.
Mistake as to the nature of transaction: In case where there is a
mistake as to the nature of the transaction, the contract is void. If a
person signs a gift deed under the mistaken impression that the deed
pertains to the power of attorney. The deed will be void on this ground.
(2) Mistake as to the subject-matter of the agreement:: Where parties to
an apparent agreement have made a mistake as to the identity of the
thing (that is, the subject-matter of the contract) contracted for, the
case must obviously fall under Section 13. If one party intends to
contract with regard to one thing and the other with regard to something
else, there is no agreement, for the parties are not one as to the subject-
matter of the agreement.
Leading Case: Raffles v. Wichelhaus, (1864) 159 ER 375.—A agreed to
buy of B a cargo of cotton. “To arrive ex-Pearless from Bombay”.
There were two ships named “Pearless” both sailing from Bombay,
and the plaintiff had in his mind one of these ships, the defendant the
other. It was held that as there was a mistake as to the identity of
subject matter of the supposed contract, there was no contract at all.
Parties ad idem: Ad idem means agreeing to the same thing in the
same sense. Where two or more persons agree upon the same thing in
the same sense, they are said to be ad idem. It is necessary that they
should be of the same intention concerning the matter agreed upon.
They should come to the same determination. While dealing with the
nature of “consent”, it has become clear to us that it is necessary that
the parties should be ad idem for a valid contract.
Effect: When consent is free
According to the Section 14 of the Contract Act, “Consent is said to
be ‘free’ when it is not caused by:
(1) coercion (as defined in Section 15), or
(2) undue influence (as defined in Section 16), or
(3) fraud (as defined in Section 17), or
(4) misrepresentation (as defined in Section 18), or
(5) mistake (subject to the provisions of Sections 20, 21 and 22).
Thus, “free consent” is the consent which has been obtained by the
free will of the parties, voluntarily given out of their own accord and
no pressure was used on either of the contracting parties in the form
of (a) coercion, or (b) undue influence, or (c) fraud, or (d)
misrepresentation, or (e) mistake.
Illustrative Case: In Smt. Kiran Bala v. Bhaire Prasad, AIR 1982 All.
242, first marriage of a girl was annulled on the ground of her
unsoundness of mind. She was married for the second time. Facts of
unsoundness of her mind were concealed from the bridegroom; under
these circumstances, it was held that consent of the husband was
obtained by fraud and marriage could be annulled.
Effect: When consent is not free
The effect of the first four circumstances, namely, coercion, undue
influence, fraud and misrepresentation is that the contract becomes
voidable at the option of the party, while the effect of mistake is to
render the contract altogether void.
According to the definition:
(i) Not only consent but free consent is necessary to complete the validity
of a contract. (Section 10)
(ii) Where there is no consent, or no real and certain object of consent,
there can be no contract at all.
(iii) Where there is consent but not free consent there is generally a contract
voidable at option of the party whose consent was not freely obtained
(iv) If consent is given under any of the first four circumstances, mentioned
in Section 14, then the contract is voidable at the option of the party
whose consent was so caused. (Sections 19 and 19-A)
(v) If the consent is caused by mistake of the parties then the agreement
is void. (Section 20)
(vi) Thus, it is essential for the formation of a valid contract that there
should be free consent of both the parties to the contract.
Q.10 What do you understand by term Coercion? Whether threat to commit
suicide is coercion? Explain.
OR
What is ‘coercion’? Explain its effect on contract and distinguish
between Coercion and Duress.
Ans. Coercion: Section 15 of the Indian Contract Act, 1872 defines the term
“coercion”. According to Section 15,
The consent of a party will be deemed to have been caused by coercion
if it is obtained under any one or more of the following circumstances:
(i) Commission of an offence: If the other party commits an offence
forbidden by the Indian Penal Code with intention of obtaining such
consent.
(ii) Threatening to commit an offence: If the party threatens to commit an
offence forbidden by the Indian Penal Code, with the intention of
obtaining such consent.
84 LAW OF CONTRACT
(iii) Unlawfully detaining any property: If the other party unlawfully detains
any property to the prejudice of any person whatever, with the
intention of obtaining such consent.
(iv) Threatening to detain unlawfully any property: If the other party
threatens to detain unlawfully any property, to the prejudice of any
person whatever, with the intention of obtaining such consent
(Section 15).
Explanation to Section 15: “It is immaterial whether the Indian Penal
Code is or is not in force in the place where the coercion is employed”.
Illustration: A, on board an English ship on the high seas, causes B to
enter into an agreement by an act amounting to criminal intimidation
under the Indian Penal Code. A afterwards sues B for breach of contract
at Calcutta. Here A has employed coercion, although his act is not an
offence by the law of England, and although Section 506 of the Indian
Penal Code was not in force at the time when or place where the act
was done.
Illustrative Cases:
(a) On the death of the husband the widow was threatened by the relatives
that unless she adopted a boy they would not allow her to remove the
dead body. It was held that the adoption was invalid since it had been
obtained by coercion [Ranaganyakamma v. Alwar Setti, (1890) 13 Mad
241].
(b) It was held by their Lordships that a threat to commit suicide is coercion
against the wife and son of the person threatening to commit suicide
[Ammiraju v. Sheshamma, (1917) 41 Mad. 33].
(c) The plaintiff was threatened that he would be arrested and detained
under MISA, such a threat would fall within the mischief of Section 15
of the Indian Contract Act [Kishori Lal Kalra v. N.D.M.C., AIR 2001
Delhi 402].
Effect off “coercion” on contract [Section 19]: Section 19 of the
Contract Act provides for effect of “free consent” on agreements. It
provides:
“When consent to an agreement is caused by coercion, fraud or
misrepresentation, the agreement is a contract voidable at the option
of the party whose consent was so caused.”
Threat to commit suicide, whether coercion: There is some
controversy regarding the question whether an attempt to commit
suicide constitutes coercion within the meaning of Section 15 of the
Contract Act. According to Section 15 of the Contract Act an offence
to constitute coercion should be an act forbidden by the Indian Penal
Code. Under the Indian Penal Code, attempt to commit suicide is
punishable and not the threat to commit suicide.
Leading Case: Ammiraju v. Seshamma, (1917) 41 Mad. 33.-In this case,
a man gave a threat to his wife and son to commit suicide if they did
not execute a release bond regarding some property which the wife
and son claim as their own. The majority judgment held that the threat
to commit suicide must be deemed to be forbidden since the attempt to
commit suicide was punishable under Section 309 of the Indian Penal
Code. But in his dissenting judgment Oldfield J. argued that the Section
15 of the Indian Contract Act must be interpreted strictly. An act could
be said to be forbidden by the Indian Penal Code only when it was
punishable under it. Since the threat to commit suicide was not
punishable, it could not be said to be forbidden.
Distinction between Coercion and Duress: What is ‘coercion’ in India,
is called ‘duress’ in England. The following are the point of distinction
between Coercion and Duress.
Coercion Duress
Under Indian Contract Act, In England, to constitute
‘Coersion’ includes both ‘Duress’ it must be a menace
menace to person and menace against person and not
to goods. against goods.
In India, ‘Coersion’ may be But, in England the subject of
directed even against a ‘Duress’ must be the contracting
third party. party, his wife or children.
In India, it is sufficient to In England, the standard of
constitute ‘Coercion’ if the ‘Duress’is whether a person of
unlawful threat includes the ordinary firmness shall be
consent to the agreement. constrained under the circumstances
to enter into the agreement.
Q.11 What is lawful consideration and object? When is the consideration

or object of an agreement unlawful? Give Example.
OR
Discuss the meaning of ‘consideration’. When the consideration
becomes unlawful? How does the public policy affect the Consideration?
OR
An agreement without consideration is void.” Discuss with exceptions.
OR
Define ‘Consideration’. In what cases the consideration agreement
are said to be unlawful under the Contract Act? Illustrate with suitable
examples.
86 LAW OF CONTRACT
Ans. According to Section 10 of Indian Contract Act all agreements are
valid contracts provided their objects and considerations are lawful,
therefore, the last requirement for a valid contract is that its object and
consideration must be lawful.
Lawful consideration and object :
Section 23 of the Act prescribes what considerations and objects are
unlawful. According to Section 23, “The consideration or object of an
agreement is lawful, unless:
(i) it is forbidden by law;
(ii) is of such nature that, if permitted, it would defeat the provisions of
any law; or
(iii) is fraud; or
(iv) involves injury to the person or property of another; or the Court
regards it as immoral or opposed to Public Policy.”
Therefore following considerations and objects shall be deemed to be
unlawful:
(1) Forbidden by Law: Only those objects and considerations are lawful
which are not forbidden by law. Where objects and considerations are
forbidden by law, the contract is unlawful. Law here means law in force
in India, Hindu law and Mohammedan law. For example, ‘A’ agrees to
sell certain goods to ‘B’. A knows that the goods are to be smuggled
out of the country, the contract is unlawful Bizgs Vs. Lawrence [(1789)
3, T.R. 454].
In Budha Ram Balak Ram and others Vs. The Dhuri cooperative
Cum Marketing Cum-Processing Society, Dhuri and Others, [A.I.R.
(1972) Punj. and Har. 1851] license was issued under Cotton Control
Order, 1955. Cotton Control Order, 1955, prohibits carrying on of the
business except by the license. This prohibition is applicable to
partnership contract also. Therefore, the Court held that, “the
constitution of partnership is obviously illegal and such a contract is
void being hit by Section 23 of the Act”.
(2) If permitted, it would defeat the provisions of law: An agreement is of
such nature that if permitted, it would defeat the provisions of law, the
consideration or object of such agreement is unlawful. It means that
not directly but even indirectly if consideration or object of an
agreement is against law, it is unlawful. In Napier Vs. N.B. Agency
Ltd., [(1951) 2, All. E.R. 264] Plaintiff centered into a service contract in
consideration of a weekly wages of 100 and a weekly expense allowance
of 20. Both the parties were that expense allowance is a device to
conceal the revenues. The Court held that agreement is void, as it
defeats the provisions of law. Similarly in Patch Singh Vs. Sanwal
Singh, [1878) 1, I.L.R., All. 751] an accused was asked to furnish surety
of Rs. 5,000 for good behavior in accordance with the provisions of
Section 107 of Cr.P.C., the accused deposited the sum of Rs. 5,000 with
the defendant and made him agree to become his surety. After the
expiry of bond period the accused claimed the said amount. The
Allahabad High Court held that agreement was void.
(3) Fraudulent: If the object of the agreement is to cheat the other party
by concealment of any material fact or otherwise, the agreement would
be deemed void under Section 23. For example, In Ram Nath Mishra
Vs. Rajendra Nath Sanyal, (142, I.C. 525) the plaintiff agreed with the
defendant for a prospective purchaser that he would not bid against
him in consideration of an agreed sum. The property was knocked
down to the defendant for a very small price. The Court held that the
object of the agreement was fraudulent as it deprived the owner of the
property of what he would have got if the sale would have been for
complete value.
(4) Injurious to person or property: An agreement entered into by two
parties to injure some other person or property of some other person,
such an agreement is unlawful, hence void under Section 27. In Rasa
Sarup Vs. Band Mander, [(1915) 42, Cal. 742] it was held that an
agreement which compels a debtor to do manual labour for the creditor
as long as the debt is not repaid in full, is unlawful.
(5) Immoral: An agreement of which consideration or object is immoral is
void. What is ‘Immoral’, it depends -upon the standard of morality
prevailing at a particular place and at a particular time and as approved
by the Courts. Certain acts are regarded immoral everywhere and from
times immemorial and will always be regarded so. For example, in
Baivijli Vs. Nausa Nagar, [(1885) 10, Born. 152] a married woman was
given money to enable her to obtain divorce from her husband, the
lender promised to marry her. It was held that money lent to the woman
cannot be recovered. Prostitution has always been regarded as immoral.
In Upfill Vs. Wright, [(1911) 1, K.B. 506] it was pointed that if article
out that if article are sold or something is hired to a prostitute for the
purpose of enabling her to carry on her profession neither the price of
the articles sold nor the rent of the thing hired can be recovered.
A promise to pay for past sexual intercourse is not enforceable In
England as past consideration is no consideration there. But in India
in Dhiraj Kumar Vs. Vikramjit Singh, [(1881) 3, All. 787] Allahabad
High Court allowed a woman to recover arrears of allowances promised
to her for past cohabitation. But in Alice Vs. Clark, [(1904) 27, All.
266] it has been held that adulterous is illegal, therefore, promise made
for such cohabitation is not enforceable. A promise to pay for future
cohabitation is also unenforceable.
88 LAW OF CONTRACT
(6) Against Public Policy: An agreement can be declared void, if in the
eyes of Court it is opposed to public policy. ‘Against Public Policy’
means an act injurious to public goods. What is against public good
and public interest cannot be enforce are against public policy. No
exhaustive list can be prepared of all the agreements opposed to Public
Policy yet the circumstances in which a contract is likely to be struck
down as one opposed to public policy are pairly well established in
England. “So a contract of marriage brokerage, the creation of
perpetuity, a contract in restraint of trade, wagering contract, or
assisting of the king’s enemy are all unlawful things on the grounds of
public policy.”
Ordinarily Courts rely on the above mentioned heads of the public
policy. If a contract fits in any of the well-settled categories It will be
declared void. The general opinion in England is that Courts should
not create new heads of public policy. For example, Lord Hansbury
observed, “The categories of Public Policy are closed and no Court
can invest new heads of Public Policy. But contrary to this Justice
Subba Rao in, Gheiu Lal Vs. Mahadoe [(1959) 2, S.C.A. 342] expressed
the present Indian position regarding doctrine of Public Policy. He
remarked, “The principles have been crystallized under different heads
and though it is permissible for the Courts to expound and apply them
to different situations it should only be invoked in clear and
uncontestable cases of harm to the public, through theoretically it
may be permissible to evolve new heads under exception cases of
changing world, it is advisable in the interest of stability of society not
to make any attempt to discover new heads in these days.” But new
heads of public policy should be created with greatest care. Justice
Burrough has remarked against Public Policy that, “it is a very unruly
horse, and when once you get astride it you never know where it will
carry you.”
However the following are the cases in which Courts have held the
agreements against public policy:
(1) Trading with enemy: King’s subject cannot trade with king’s enemy.
i.e., a person cannot be allowed to enter into a contract with a person
who is enemy of the country. Contract entered into before break of war
cannot be performed during war with the citizens of the enemy country.
(2) Agreement for setting prosecution: Policy of law is that an offender
must be punished. In Sudhindra Kumar Vs. Ganesh Chadra, [(1939)
1, Ca. 241] the Court declared that, “no Court of law can give effect to
an agreement, which attempts to take administration of Justice out of
the hands of the Judges and to put it in the hands of private
individuals.”
(3) Marriage brokerage contracts: A contract to procure marriage for
price is void. The validity of the marriage cannot be challenged, but
the money paid under such contract cannot be recovered. If not paid
suit to recover promised money cannot be maintained But in Dharni
Dhar Vs Kanhji Sahay, 1(1949) Pat. 2501 it was held that if promised
money has been paid and no marriage has taken place, the money can
be recovered as the illegal purpose has not been carried out.
(4) Traffic in public officers: An agreement for the sale of public officer
for monetary consideration is void as it will corrupt the public officers.
In Parkinson Vs. Ambulance Ltd., [(1925) 2, K.B. 1] secretary of the
college promised to the plaintiff that if he made large donations to the
college he would use his influence to get him knighthood. Plaintiff
made donations but did not get knighthood. Plaintiff sued for the
recovery of money. It was held that he could not recover the money as
the agreement was against the Public Policy.
(5) Interference with administration of Justice:
(A) Maintenance: Maintenance means an agreement in which a person
promises to help another by money or otherwise to continue litigation
in which he himself is not interested. In the words of Lord Haldane
maintenance is unlawful for a stranger to render officious by money or
otherwise to another person in a suit in which that third person has
himself no legal interest for its prosecution or defense.
(B) Champerty: Champerty is a bargain wherein one promises to help
another in recovering property in consideration of the latter giving the
former a share in the property so recovered.
In England all maintenance and champerty agreements are void as
they are treated against public policy. In India they are valid if they are
made with bonafide intentions and the amount of compensation is
reasonable. Privy Council in Bhagwat Dayal Singh Vs. Devi Dayal
Sahu, [(1907) 35, I.A. 481 held long back that, “An agreement
champertous according to law of England was not necessary void in
India. It must be against public policy to render it void here. The
principle is taken to be part of the law of Justice, equity and good
conscience and if any agreement tends to go against these it would
not be enforced. The difference between Indian and English Law is
because of economic and social conditions of India. Here the majority
of population is illiterate and poor, therefore; if one person assists the
other to obtain his legal right. it is not treated against public policy,
therefore not void.
90 LAW OF CONTRACT
In India champertous agreement is enforceable or not depends upon
the quantum of shares which the financer has stipulated to get in the
proceeds of the action. For example, in Nuthabi Venkataswami Vs.
Katta Nagi, [1962) A.P. 1571] a stipulation for 3/4th share in the property,
if recovered, has been held and agreement against public policy,
therefore, champertous and void. But in Ram Swaroop Vs. Court of
Wards [(1940) Lah. 1. P.C.] the agreement provided that the financer
will be entitled to take three Annas share from the property, if recovered,
in consideration of assistance given to the ward of the minor, was held
valid. In Kothi Jairam Vs. Vishvanath [(1925), Bom. 470] an agreement
by a client to pay his advocate according to the result of the case is
against public policy.
Agreement to use influence with Ministers so as to obtain favorable
decision: “An agreement, the object of which is to use the influence of
a person with Ministers of Government to obtain favorable decision is
destructive of all sound and good administration.”
In Ratan Chand Hira Chand Vs. Askar Nawas Jung and others [(1976)
A.P. 12] the plaintiff had paid Rs. 75,000 to one of the claimants of the
estate of late Nawah Salar Jung under an agreement. It was also agreed
that plaintiff would get one Anna share in the estate of Salar Jung.
Before the said amount could be paid by the plaintiff, Sajjad Yar Jung
died. The plaintiff filed a suit against heirs of the defendants. The
heirs of Nawab resisted the suit on the ground that the agreement in
question was against public policy.
The City Civil Court of Hyderabad held that the agreement was not
enforceable as the object of the agreement, was to influence the Central
or State Minister to have Sajjad Yar Jung recognized as heir of Salar
Jung in return for his being given one Anna share in the amount to be
received by Sajjad Yar Jung.
Against this decision the plaintiff an Appeal to the Andhra Pradesh
High Court. The High Court dismissed the Appeal and remarked. “It
was against the public policy to enter into an agreement, the object of
which was to influence the Central and the State Ministers; If it is a
new head of public policy we are ready to sponsor it. But it is by no
means a new head of policy. It comes under the head “Agreements
tending to injure the public service.”
“An Agreement without consideration void”
In Currie v. Misa, (1875) L.R. 10 Ex. 162, the term ‘consideration’
has been defined as ‘some right’, interest, profit or benefit accruing to
one party, or some forbearance, detriment, loss or responsibility given,
suffered or undertaken by any other.
The Calcutta High Court observed in the case of Fazaluddin v. Panchu
Das, A.I.R. 1957 Calcutta 92, that “consideration is the price of a
promise a return or quid pro quo something of value received by the
promisee as inducement of the promise. The payment of money is the
most common form of consideration. A nudum pactum (agreement
without consideration) promise is not enforceable. However sacred
and binding in honour it may be it is after all purely gratuitous acts and
hence cannot create any legal obligation.
Section 25 of the Contract Act reads-
“Agreements without consideration is void unless it is writing and
registered or is a promise to compensate for something or is a promise
to pay a debt barred by limitation law.
An agreement made without consideration is void, unless—
(1) it is expressed in writing and registered under the law for the time
being in force for the registration of 1[documents], and is made on
account of natural love and affection between parties standing in a
near relation to each other; or unless
(2) it is a promise to compensate, wholly or in part, a person who has
already voluntarily done something for the promisor, or something
which the promisor was legally compellable to do; or unless.
(3) It is a promise, made in writing and signed by the person to be charged
therewith, or by his agent generally or specially authorized in that
behalf, to pay wholly or in part a debt of which the creditor might have
enforced payment but for the law for the limitation of suits. In any of
these cases, such an agreement is a contract.
Explanation 1.—Nothing in this section shall affect the validity, as
between the donor and donee, of any gift actually made. Explanation
2.—An Agreement to which the consent of the promisor is freely
given is not void merely because the consideration is inadequate; but
the inadequacy of the consideration may be taken into account by the
Court in determining the question whether the consent of the promisor
was freely given.”
The act defining consideration in definition clause in Section 2(d)
declares that “consideration is the vital part of a valid contract”
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:
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
92 LAW OF CONTRACT
natural love and affection between parties standing in a near relation
to each other, it is enforceable even if there is no consideration.
Case – Rajlukhy Dabee v. Bhootnath Mookherjee(1900)
In this, Defendant has promised to give his wife a certain amount as
maintenance every month and it was also in writing. Wife filed a case
for recovering the entire amount. The court gave the decision in favour
of defendant stating that there was no natural love and affection
between them so the defendant is not liable to pay.
Example : A, for natural love and affection, promises to give his son,
B, Rs. 1,000. A puts his promise to B into writing and registers it. This
is a contract.
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 Rs. 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.
Case –Sindha Shri Ganpatsingji Himatsingji v. Abraham Alias Vajir
Mahomed Akuji (1895)
Plaintiff rendered services to defendant when he was a minor. When
defendant became major, he asked plaintiff to continue services and
promised to compensate him. In this the court held that the minor is
not entitled to compensate as he is not liable and also plaintiff have
rendered the services voluntarily to the minor defendant.
3) Promises to pay a time barred debt
Section 25(3), 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 Rs. 1,000, but the debt is barred by the Limitation
Act. A signs a written promise to pay B Rs. 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.
Consideration is not necessary to be adequate.
Adequacy of consideration refers to a fair price which is given by an
offeree to offeror as a return price which is either equal in measure or
reasonable proportional to each other for making of a lawful agreement
between the two parties. In simple words, it may be referred as mutual
exchange of a fair price in comparison to the promise which is taking
place. But in Indian law it is not necessary for an agreement because it
will not be possible by courts to decide a specific reasonable and fair
price. As a matter of principle, it is obvious that court should not
interfere in such issues which are already pre-decided.
Q.12 “A Contract cannot be enforced by a person who is not a party to it
even though it is made for his benefit.” Discuss it with decided cases.
OR
“Stranger to the contract cannot file suit.” Is there any exception to
it?
Ans. General rule is that a person stranger to contract or one who is not
party to contract, cannot bring any suit in respect of any such contract.
When a contract is made between two or more parties upon certain
terms and conditions, it is only those parties to contract are entitled to
bring suit, complaining breach of any terms or conditions or for
enforcement thereof. So doctrine of privity of contract means that
only those persons who are parties to the contract can enforce the
same. A stranger to the contract cannot enforce a contract even though
the contract may have been entered into for his benefit.
Privity Of Contract and Consideration The doctrine of privity of
Contract is distinguishable from defination of term “Consideration”
under section 2(d) of Indian Contract Act which says-
“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;”
So consideration is not confined to only party to contract and may
pass from the promise or any other person. So the rule that a stranger
to contract cannot sue has to be distinguished from the rule that a
person who is stranger to consideration can sue. However, under
English Law, consideration can pass only from promise and not from
any other person or stranger as under Indian Law.
Doctrine of Privity of Contract Under English Law Under English
Law it is well settled proposition that only party to contract can enforce
it. Well known English case on the subject is Dunlop Pneumatic Tyre
Co.Ltd. v. Selfridge and Co.Ltd., (1915) A.C. 847 in which it was
observed-
94 LAW OF CONTRACT
“In the law of England certain principles are fundamental. One is that
only a person who is party to a contract can sue on it.......”
Indian Law Doctrine of Privity of Contract is similarly well-established
in India. Under Indian law also only party to a contract can enforce it
and a stranger to it is not entitled to enforce it.
In M.C. Chacko v. State Bank of Travancore, AIR 1970 SC 504, it was
observed that a person not a party to contract, cannot subject to
certain well-recognized exceptions, enforce the terms of the Contract.
Exceptions to the Doctrine of Privity of Contract:
The following are the exceptions to the doctrine Privity of Contract. In
other words “a stranger to a contract can sue.
1) A trust or charge: A person in whose favour a trust or other interest in
some specific immovable property has been created may enforce it
even though he is not a party to the contract
Example:
a) A agrees to transfer certain properties to B to be held by B in trust for
the benefit of C. C can enforce the agreement (i.e, trust) even though
he is not a party to the agreement.
b) A husband who was separated from his wife executed a separation
deed by which he promised to pay to the trustees all expenses for the
maintenance of his wife. In this case, court held that the agreement
created a trust in favour of the wife and could be enforced. [Gundy Vs
Gundy (1884)]
c) A had a son SA and B had a daughter DB. A agreed with B that in
consideration of the marriage of DB with SA, he would pay to DB, his
daughter in law an allowance of 5000 a month in perpetuity. He charged
certain properties with the payment with the power to DB to enforce it.
In this case, court held that, DB although no party to the arrangement
was clearly entitled to recover the arrears of the allowance. [Khwaja
Mohd. VS Husaini Begum (1910)]
2) Marriage settlement, Partition or other family arrangements : Where
an agreement is made in connection with marriage, partition or other
family arrangements and a provision is made for the benefit of a person,
he may sue although he is not a party to the arrangement
Examples:
a) Two brothers on a partition of joint properties agreed to invest in
equal share a certain sum of money for the maintenance of their mother.
In this case, she (Mother ) was entitled to require her sons to make the
investment.
b) J’s wife deserted him because of his ill treatment. J entered into an
agreement with his father in law to treat her property or else pay her
monthly maintenance, subsequently, she was again ill treated and
also driven out, here she was entitled to enforce the promise made by
J to her Father.
3) Acknowledgement or estoppels : If the promisor by his conduct or
acknowledgment or part payment or by estoppel creates privity of
contract between himself and the stranger, the stranger can sue.
Example: A receives some money from B to be paid over C. A admits
of this receipt to C. C can recover the amount from A, who shall be
regarded as the agent of C.
4) Assignment of a contract: If the benefits under the contract are
assigned to the third party, the assignee can sue.
Example :
Krishnan Lal Sahu Vs. Promila Bala, A.I.R (1928) 518 cal. In this
case, Court held that “the assignee of rights and benefits under a
contract not involving personal skill can enforce the contract subject
to the equities between the original parties.
5) 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.
[Note: A stranger to Contract cannot sue. But, a stranger to
Consideration can sue. Both have exceptions.]
IMPORTANT CASE LAWS ON CONSIDERATION AND PRIVITY
OF CONTRACT
1. Chinnaya vs. Ramayya
Facts: A lady granted/ gifted a property consisting of some land to her daughter
(defendant) by a gift deed. The deed was registered to the proper
authorities. One of the terms of the deed was that the daughter had to
pay a sum of Rs.653 annually. Later the old lady died, and the defendant
refused to pay the money the sister whom she had promised to pay so.
And hence the plaintiff sued the defendant for the recovery of the
same.
Issue: Whether the plaintiff can bring an action against the defendant for the
amount promised in a contract where the consideration for such promise
has been furnished by the mother of the defendant (plaintiff’s sister)?
Appellants argument: The consideration for getting the property was
a promise to pay the amount annually to the plaintiff.
96 LAW OF CONTRACT
Respondents argument: The plaintiff was not a party to contract, hence
was had no right to compel respondent for paying the promised amount.
Judgement: The Madras High Court held that in this agreement
between the defendant and plaintiff the consideration has been
furnished on behalf of the plaintiff (sister) by her own sister
(respondents’ mother). Although the plaintiff was stranger to the
consideration but since he was a party to the contract, he could enforce
the promise to the promisor, since under law, Consideration may be
given by the promise or anyone on her behalf – vide section 2(D) of
Indian Contract Act,1872.
Thus, consideration furnished by the old lady constitutes sufficient
consideration for the plaintiff to sue the defendant on her promise.
Held, the sister was entitled to a decree for payment of the annual sum
of money.
Conclusion: In Indian Law, consideration may be given by the promise
or any other person. In India, there is a possibility that consideration
for the promise may move not from the promise but a third person,
who is not a party to the contract, different from the English Law in
which the consideration must move from only the promise.
2. Khwaja Muhammad Khan vs. Husaini Begum
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.3The 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.
(Ratio decidendi is a Latin phrase meaning “the reason” or “the
rationale for the decision”. The ratio decidendi is “the point in a case
that determines the judgement” or “the principle that the case
establishes”)
Q.13 Define e-contracts. What are the types of e-contracts?
OR
Explain the e-contracts and its types. Write the issues and challenges
of e-contracts.
OR
What is e-contracts? What are the types of e-contracts?
Ans. Technology advancements around the world have led to robust
development in trade and commerce. E-commerce industry has become
the one of the most lucrative industries in the world. The internet acts
as an agent through no conscious of its own and initiates agreements
between parties. With the burgeoning of e-commerce, there is rise in
E-contracts also. Such lucrative and fast-moving industry need a legal
framework to protect the interest of parties involved. The Information
Technology Act 2000, The Indian Contract Act 1872, The Indian
Evidence Act 1872 determines the validity and enforceability of e-
contracts in the country. One can come into an e-contract through
email agreements and online agreements such as the Browse Wrap
Agreements, Shrink Wrap Agreements and Click Wrap Agreements.
We often come across such e-contracts every day in our life but have
always been unaware of the legal complexities it possesses. Though,
with the help of e-contracts we have advanced from the conventional
sources to enter into a contract but still there is a lot of challenges
which needs attention such as common awareness and application of
law. Just like a coin, e-contracts has two faces. On one hand it, re-
engineers and facilitates the growth of e-commerce and on the other
hand it poses as challenge for technical and legal understanding.
E-contracts in India: An Analysis
With the wave of industrialisation in the country, deals in businesses
have increased along with the monetary stakes. Thus, these deals
need to be protected. Luckily, one of the oldest legislations, the law of
contracts does the work. A contract is “an agreement enforceable by
law”. Today for every minor business activity a contract is formed as
it legally binds two or more parties in a relationship. In furtherance,
when a party breaches to perform any work in the agreement, the other
party seek damages through the court of law. The law of contracts is
based on the idea that the parties by agreement create a legal obligation
which is enforceable by other parties.
98 LAW OF CONTRACT
Now with the advancement in technologies, people are moving their
business over the internet which involves a higher risk compared to
the other business. To curtail such a risk e-contracts have come into
force and also to relax the various dealings on the internet. An e-
contract or electronic contract is a contract which is drafted and signed
in an electronic form. Moreover, such contracts are executed through
the internet. E-contracts cab be used as employment contracts,
consultant contracts, distribution agreements, Licensing agreements
and also Non-disclosure agreements. E-contracts are existing
everywhere across the internet. E-contracts can be formed through e-
mails, when parties who coming in a contract communicate the details
of the contract via e-mail.In the case Trimex International FZE Ltd. v.
Vedanta Aluminium Ltd. the Supreme Court ignored the argument that
communication and exchanges over emails does not constitute as a
contract and said that”once the contract is concluded orally or in
writing, the mere fact that a formal contract has to be prepared and
initiated by the parties would not affect either the acceptance of the
contract so entered into or implementation thereof, even if the formal
contract has never been initiated”.Also, various website formswhich
pop-up on the screen intends to form a legal relationship with the
party who accepts such form. Such forms will become contracts as
soon as the party accepts it. Furthermore, the EULA (End User License
Agreements) is also used form valid contracts at the end of which
users click on “I Accept” or “I Accept the Terms” icons to move
further. These are most prominently used in various applications
downloaded in phone and various online websites.
E-contracts become a cost-effective way of to enter into an agreement
as it saves the amount used for buying papers as it is paperless. It
saves time also as sometimes the party entering into a contract are not
in front of each other. Thus, E-contracts negate all the difficulties and
ensure faster running of the business.
Understanding the types of E-contracts: E-contracts are of three types
(1) Shrink-wrap Agreement
(2) Click-wrap Agreement
(3) Browse-wrap Agreement
(1) Shrink-wrap Agreement: It is a type of online agreement which is
used usually for a licensing agreement to purchase software. Under
these contracts the terms and conditions of the contract are provided
which are enforced by the person buying it. Shrink-wrap agreements
can also appear once the software has been downloaded in the
computer. These agreements are used to absolve the manufacturers
from any violation of copyrights or any of the other intellectual property
rights. However, the applicability of shrink-wrap agreements does not
exist in India because of lack of a judgement or precedent.
(2) Click-wrap Agreement: This type of agreement is used to get the
consent of the user regarding the terms and conditions of the contract
with the use of “Ok” and “I Accept” options. Such agreements appear
before a person starts using particular software. Subsequently, when
the user denies or does not accepts the terms and conditions, he
cannot use the particular software. The terms of the contract are
presented to the user before he starts using particular software and
only with the acceptance of the terms and conditions the user can
move forward.
(3) Browse-wrap Agreement: Browse-wrap agreements are the agreements
which can be seen on the internet on daily basis. These agreements
are intended to bind two parties in a contract through the use of a
website. For the continuous use of the website the terms of the website
need to be accepted by the user. The terms include the ‘user policies’
and the ‘terms of service’ of the website and are in the form of a “terms
of use” or “terms of service”.
These agreements have become of a common use in businesses these
days but there is lack of judicial precedent for these agreements. Various
countries like USA have held such agreements enforceable. Though,
in India there is lack of judicial precedent but when the essentials or
the general principles of contract are followed these agreements can
be enforced.
Essentials of E-contracts
To make an E-contract a valid contract all the essentials required to
make a valid contract, enumerated in Sec. 10 of the Indian Contract Act
need to be fulfilled such as free consent, lawful consideration,
competency of the parties and the others. The agreement with the
parties is legally binding if it satisfies the requirements of law.
An offer from one party needs to present to in order to form a valid e-
contract. But one needs to understand that an advertisement on the
internet may not constitute to be an offer as invitation to offer and
offer are two different concepts. To identify whether an advertisement
is an offer or an invitation to treat the test of intention is performed. A
customer when files a responds a mail or fills an online form of a
website, he is understood to make an offer. The manufacturer or the
seller can either accept such an offer by conduct or expressly confirming
it.
After an offer is communicated an unconditional communication of
acceptance is required to create a valid e-contract. The most important
task after acceptance is to identify at which point the contract comes
into existence. There is a settled rule that acceptance is completed
100 LAW OF CONTRACT
when it is received. It is important in e-contracts to identify the actual
point of receipt as to decide the jurisdiction in which the e-contract
will be concluded. If the server in the working is trusted than the
postal rule can be applied. However, if the server cannot be trusted the
postal rule should not be applied. The “receipt at the mail box” rule is
preferred in such situations.
A contract only comes into existence when promise made in exchange
of something valuable. This is called as consideration of the contract.
It is essential to understand that contracts work on the principle of
quid pro quo. The present principle also applies to E-contracts. Various
consumers feel concerned about the transaction’s security over the
internet. This has been reduced widely due to different methods such
as a written confirmation sent to the consumers, consumers having
the right to withdraw from the transaction, reimbursement from various
fraudulent activities. Such e-directives have made online transactions
safer and viable.
Issues and Challenges or Problems with E-Contracts
E-contracts have been a recent development in the legal field. Its
implementation faces a lot of issues and challenges.
Capacity to Contract
It is a very essential element to ensure that the parties who come
under a contract have the capacity to do so. If a person does not have
legal competence than the contract stands void. Problem of capacity
to contract arises because often there are nameless individuals who
enter into contracts and there is a possibility that these individuals
who agree to the terms and conditions of an e-contract might be minors.
Free Consent
Free consent is an essential element to form a valid contract. E-contracts
do not provide any party to negotiate with the existing offer as the
parties are not aware of each other. Further, the user cannot use nay
system or software without accepting the terms and conditions. Thus,
an e-contract only provides a “take it or leave it” offer. In such a
scenario, the user will only have two options either to accept the terms
and conditions which he is unwilling to or to forego the service which
he requires.
Non-repudiation of Contracts
When one accepts the terms and conditions of an online contract, he
cannot change the terms of the contract. This puts the person accepting
such terms in an unfair condition has he has no means to change or
alter any part of the contract as the parties present in such contracts
do not know each other. Moreover, these contracts bind them legally
for a long period of time and they cannot alter the terms of the contract
to benefit themselves.
E-Contracts: Legislative Analysis
Indian Contracts Act, 1872
All the laws related to contracts are covered by the ICA. This legislation
provides all the essentials required to form a valid contract. Any normal
contract which fulfils the conditions given by the ICA and is paperless
or in electronic form is an e-contract. These contracts are as valid as
written contracts. Thus, any legal query which includes e-contracts
can be solved using the ICA.
Indian Evidence Act, 1872
It is important that the courts accept electronic mode of contracts as
an evidence. The case of Société des products Nestlé S.A v. Essar
industries & Ors. Paved the way for the introduction of Sec. 65A and
Sec. 65B in the Indian Evidence Act which is related to the admissibility
of computer-generated evidence. This was to eliminate challenges
related to e-contracts and other electronic evidence. Further, in the
case of State vs Mohd. Afzal And Ors. it was held that, “electronic
records are acceptable in court”.
Information & Technology Act, 2008
The IT Act gives legislative authority to e-contracts under Sec. 10 of
the act. In furtherance, any contract to become valid requires signatures
from both the parties. In e-contracts, digital signatures come into play.
Sec. 2(p) of the IT Act defines electronic signature used in e-contracts.
These signatures are very necessary in several contracts like in
government to government (G2G) and in government to business (G2B).
Furthermore, there are two parties involved in e-contracts – the
originator and the addressee both of which are defined by the act.
Thus, the IT Act safeguards that the interests of the parties are
maintained through its various provisions.
Moving Forward: Conclusion
E-contract facilitates re-modelling of the businesses into fast with its
time and cost saving benefits. With the help of e-contacts people can
make agreements from different parts of the world at the same time.
With lack of paperwork and increasing productivity e-commerce is
expected to have a revolutionary change in the business, legal and
technical know-how. Though e-contracts with all its benefits still
absences in proper implementation because of lack of proper
legislations. The legislations present right now mostly is mostly
exclusive to the needs of the originator or the service providers. The
needs of the addressee or the users are well ignored. Thus, proper
concrete legislation needs to be enacted to protect not only the
originator but the addressee as well. E-contracts are the epitome to
show how law is dynamic and it changes itself according the needs of
102 LAW OF CONTRACT
the society. Even though with all the challenges and issues, e-contracts
is one of the most desirable field in law because it caters the needs of
masses. With proper legislative developments and judicial precedents,
the evolution of e-contracts will be productive to India.
Q.14 What is the Validity of e-contract? Write about Jurisdiction of courts
under e-contract?
OR
Write a note, “E-contracts: Understanding its Implementation and
Challenges”.
Ans. Validity of E-Contracts: With the e-commerce boom and the growing
trend of commercial transactions being concluded by way of internet,
execution of contracts by electronic means has become quite
prevalent.
Like an ordinary paper contract, an electronic contract (or e-contract)
is also primarily governed by the codified provisions of Indian Contract
Act, 1872, as applicable to contracts in general. Therefore, an electronic
contract also cannot be validly executed unless it satisfies all the
essentials of a valid contract, such as (a) “Offer” and “Acceptance”;
(b) Lawful consideration; (c) Lawful object; (d) Free consent; (e) Parties
to be competent to contract; (f) Intention of parties to create legal
relationship; (g) Certainty and possibility of performance; (h) Not be
expressly declared to be void; and (j) Compliance with formalities
under different laws governing the agreement. All other statutes
applicable to an electronic contract are to be read in conjunction, and
not in substitution, with the ICA. Therefore, in this context, if an
electronic contract has been formed over a series of electronic
communications where the essential elements of the contract (such as
offer, acceptance, consideration etc.) are captured separately, then
proper maintenance of all such electronic records and emails becomes
essential to prove the record of the contractual arrangement between
the parties.
Electronic contracts/records have also found statutory recognition
under the Information Technology Act, 2000 (“IT Act”). Amongst other
things it specifically states that a contract shall not be deemed
unenforceable, solely on the ground that electronic form/means were
used for communication of proposals, acceptance of proposals,
revocation of proposals or acceptances, as the case may. The IT Act
also recognizes “digital signatures” or “electronic signatures” and
validation of the authentication of electronic records by using such
digital/electronic signatures. The contents of electronic records can
also be proved in evidence by the parties in accordance with the
provisions of the Indian Evidence Act, 1872.
Conclusion of contracts through electronic means, such as through e-
mail communications (or execution of electronic contracts) have also
been recognized by Indian courts from time to time. For instance, in
the case of Trimex International FZE Limited, Dubai vs. Vendata
Aluminum Ltd., the Hon’ble Supreme Court of India held that the
contract between the parties was unconditionally accepted through
e-mails and was a valid contract which satisfied the requirements of
the ICA.
Jurisdiction of Courts under E-Contracts:
Given the nature of e-contracts, one question which often comes to
fore is – which court would have territorial jurisdiction to try disputes
arising out of such e-contracts?
The Code of Civil Procedure, 1908 (“CPC”) prescribes the manner of
determining the jurisdiction of civil courts in India, based on two
fundamental principles:
(i) The place of residence of the defendant; and
(ii) The place where the cause of action arises.
Subject to the above, while the parties remain free to determine the
choice of courts to adjudicate their disputes, they can choose only
such court(s) which is/are not barred from exercising jurisdiction, i.e.
parties cannot confer jurisdiction upon a court which does not have
jurisdiction to entertain their case.
Ordinarily, contracts contain a specific provision with respect to the
place of execution thereof, and the courts of such a place would have
territorial jurisdiction to entertain and try the disputes arising under
such contracts if in accordance with the CPC as aforesaid.
However, since e-contracts are not physically signed/executed and
are concluded in a virtual space, simply imposing the traditional
principles of jurisdiction, applicable to physical contracts, to such
transactions can prove to be challenging.
The jurisdictional issues of e-contracts have, however, been addressed
to an extent under the IT Act. Section 13 of the IT Act governs the
provisions relating to time and place of dispatch and receipt of an
electronic record, and addresses the issue of deemed jurisdiction in
electronic contracts, as under:
(1) ”Save as otherwise agreed to between the originator and the addressee,
the despatch of an electronic record occurs when it enters a computer
resource outside the control of the originator.
104 LAW OF CONTRACT
(2) Save as otherwise agreed between the originator and the addressee,
the time of receipt of an electronic record shall be determined as
follows, namely:
(a) If the addressee has designated a computer resource for the purpose
of receiving electronic records,
(i) Receipt occurs at the time when the electronic record enters the
designated computer resource~ or
(ii) If the electronic record is sent to a computer resource of the addressee
that is not the designated computer resource, receipt occurs at the
time when the electronic record is retrieved by the addressee~
(b) If the addressee has not designated a computer resource along with
specified timings, if any, receipt occurs when the electronic record
enters the computer resource of the addressee.
(3) Save as otherwise agreed to between the originator and the
addressee, an electronic record is deemed to be dispatched at the
place where the originator has his place of business, and is deemed to
be received at the place where the addressee has his place of business.
(4) The provisions of subsection (2) shall apply notwithstanding that the
place where the computer resource is located may be different from
the place where the electronic record is deemed to have been received
under subsection (3).
(5) For the purposes of this section:
(a) if the originator or the addressee has more than one place of business,
the principal place of business, shall be the place of business~
(b) if the originator or the addressee does not have a place of business,
his usual place of residence shall be deemed to be the place of
business~
(c) ”usual place of residence”, in relation to a body corporate, means the
place where it is registered.”
To further illustrate application of the aforesaid principles, we may
refer to the case of PR Transport Agency vs. Union of India, wherein
the Allahabad High Court had to decide the question of jurisdiction
where the respondent had sent the letter of acceptance by an e-mail to
the petitioner’s e-mail address. Subsequently, the respondent sent
another e-mail cancelling the e-auction in favour of the petitioner “due
to some technical and unavoidable reasons”. When the petitioner
challenged this communication in the Allahabad High Court, the
respondent raised an objection as to the “territorial jurisdiction” of
the Court on the ground that no part of the cause of action had arisen
within Uttar Pradesh (UP), and therefore, the Allahabad High Court
(UP) had no jurisdiction to try the dispute. In the case, the principal
place of business of the petitioner was in district Chandauli (UP), and
the other place where the petitioner carried on business was Varansi,
which is also in the State of UP. The Court, therefore, on the basis of
section 13(3) of the IT Act, held that the acceptance of the tender by e-
mail would be deemed to have been received by the petitioner at
Varanasi/Chandauli, which are the only two places where the petitioner
has his places of business. As both these places fell within the territorial
jurisdiction of the Allahabad High Court, the Court assumed jurisdiction
to try the dispute.
In view of the foregoing, the place of contract in an e-contract for the
purposes of determining jurisdiction (i.e., the place where the cause of
action arose) would be deemed to be where the originator has his
place of business and where the addressee has his place of business.
However, since Section 13 of the IT Act is subject to the mutual
agreement of the contracting parties with respect to the agreed place
of contract, it is recommended that all parties in their electronic contracts
provide for a specific clause on jurisdiction.
Concluding Remarks:
The common legislative and judicial intent appears to be clear that any
legally valid acts that are ordinarily performed would continue to be
valid even if performed electronically or digitally, as long as such
electronic/digital performance consists of all the attributes of legally
valid contract, as may be prescribed under the applicable laws.
That said, determination of territorial jurisdiction for e-contracts
becomes complicated in the absence of geographical or national
boundaries for execution and implementation of such contracts. While,
the IT Act and judicial interpretations related to contracts in general,
have to a certain extent clarified the jurisdictional aspect of e-contracts,
in view of the aforesaid discussions, it is generally advisable to clearly
specify both jurisdictional and governing law provisions in the e-
contracts, to avoid future conflicts on jurisdictional or choice of law
issues.
Q.15 What considerations and objects are lawful and what not?
OR
What Contracts have been expressly declared Void by Indian Contract
Act?
Ans. Section 10 of the Indian Contract Act provides that all agreements are
contract, if they are made by free consent of parties competent to
contract, for a lawful consideration and with lawful object and are not
expressly declared void.
106 LAW OF CONTRACT
There are certain agreements which have been declared void by the
Act. These agreements are as follows:
(1) Agreements made by incompetent parties: According to Section 11 of
the Contract Act “Every person is competent to contract who is of the
age of majority according to the law to which he is subject and who is
of sound mind and is not disqualified from contracting by any law to
which he is subject. Thus, following three kinds of person are
incompetent to enter into a contract. A minor, a person of unsound
mind and a person disqualified from contracting by any law in force.
(2) Agreement made under common and mutual mistake of fact:
According to Section 20 of the Act, “Where both the parties to an
agreement are under a mistake as to a matter of fact essential to the
agreement, the agreement is void.” It is a common mistake and in such
circumstances an agreement is void. Similarly in mutual mistake, where
there is absence of consent, Le_ where there is no consensus ad idem,
e.g., mistake as to identity of erson, mistake as to identity of subject-
matter and mistake as to nature of transaction are void.
(3) Agreement, the consideration or object of which is unlawful: Section
23 of the Act provides that the consideration or object is unlawful if:
(i) It is forbidden by law; or
(ii) It is such nature, if permitted, it would defeat the provisions of law; or
(iii) It is fraudulent; or
(iv) It involves 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 eases, the consideration or object of an agreement is
said to be unlawful. In an agreement if the consi-deration or object is
unlawful, is void.
(4) Agreement the consideration or object of which is unlawful in part:
According to Section 24 of the Act, “Agreement of which consideration
or object is unlawful in part is, void subject to the following rules:
(i) If the legal part of the agreement cannot be separated from the illegal
part then—
(a) If there are several objects, but a single consideration the agreement is
void, if any one of the object is unlawful.
(b) If there is a single object but several considerations the agreement is
void, if any one of the consideration is unlawful.
According to Section 57 of the Act:
(ii) Where there is a reciprocal promise to do some things legal and other
things illegal and the legal part can be separated from the illegal part,
the legal part is a contract and illegal part is void agreement.
(iii) Where in an alternative promise, one branch of which is legal and the
other illegal, the legal branch can be enforced.
(5) Agreement made without consideration: Section 25 of the Indian
Contract Act declares that and agreement made without consideration
is void. There are three exceptions to this general rule. They are as
follow
(i) Agreement made for natural love and affection. For such agreement, it
is further necessary that it should be in writing and registered.
(ii) It is a promise to compensate past voluntary services.
(iii) Agreement to pay time-barred debt. For such agreement also it is
necessary that the promise should have been made in writing and
signed by promiser.
(6) Agreement in restraint of marriage: According to Section 26 every
agreement in restrain of marriage of any person other than a minor is
void. To restrict the freedom of marriage would be against the public
policy and therefore void. In India no distinction is void, whereas in
England agreement for partial restriction is not void.
In Smt. Kamla Bat and another Vs. Arjan Singh and Others, (A.I.R.
1991, M.P. 275) the Madya Pradesh High Court held that, “A woman
cannot marry another man while her husband is alive, except where
her marriage has been dissolved by divorce and, therefore the transfer
of suit property in favor of Prahlad Singh (father) was for immoral
purposes and was against the public policy. It is settled law that a
marriage brokerage contract where a third persons intervenes and
wants to make money out of the marital relationship between the two
partners is against public policy and not enforceable by a Court of
law.”
(7) Agreement in restraint of trade: The constitution of India provides a
fundamental right to freedom of trade and commerce. Neither legislature
nor individual can take away this right. This principle was long back
recognized in Leather Cloth Co. Vs. Lovsont, [(1869), L.R. 9, Eg. 345]
that “Public Policy requires that every man shall be at liberty to deprive
himself or the state of his labor, skill talent by any contract that he
enters into.”
This principle has also been adopted by the commissioner in Section
27 of the Indian Contract Act. The section lays down, “Every agreement
by which any one is restrained from exercising a lawful profession,
trade or business of any kind, is to that extend void.” Thus Section 27
declares that agreement in restraint of trade is void. Madhub Chandra
Vs. Raj Coomar, [(1974), XIV, Bengal Law Reports 76 was the first case
on this point. In this case plaintiff and the defendant were shop-
keepers in a locality in Calcutta. The defendant agreed to pay a sum of
108 LAW OF CONTRACT
money to the plaintiff, if he would close his business in that locality.
The plaintiff did accordingly, but defendant refuse to pay. Declaring
the agreement void, the Court held the words, “restrained from
exercising a lawful profession, trade or business”
include a partial restriction, a restriction limited to some particular
place.
In Sheikh Kalu Vs. Ram Saran Bhagat, [(1909) 8. C.W.N. 388] it was
explained that Section 27 includes every type of restriction. Whether
restraint is general or particular, unqualified, if the agreement is in the
nature of restraint of trade, the agreement is void.
In England with the development of trade, and commerce, the law
relating to restraint on trade changed with the end of the 19th century.
In Nordenfelt Vs. Maxima Nordenfelt Guns and Ammunition Co. Ltd.,
the House of Lords gave cognizance to these changing conditions.
In this case the appellant a maker and inventor of guns and ammunition
sold the business to a company with an agreement not to carry on
directly or indirectly, the trade or business of a manufacturer of guns.
Cartridges, gun-powder, explosive or ammunition for a period of 25
years. He also agreed not to carry on any business competing in any
way with that for the time being carried on by the Company. It was an
absolute restraint of tide. House of Lords held that only the restraint
which related to any business competing in any way with that for the
time being carried on by the company was unreasonable and therefore
void and the rest was valid. As a result of Mordenfelt’s decision the
Modern English Law on this point is
1. All restraint of trade, in the absence of special justifying circumstances,
are contrary to public policy.
2. It is a question of law for the decision of the Court whether the special
circumstances adduced neither do or do not justify the restraint the
restraint, and if a restraint is not justified, the Court will not enforce the
agreement being contrary to public policy.
3. A restraint can only be justified, if it is reasonable in the Interest of
contracting parties or in the interest of the public.
4. The onus, of showing that the restraint is reasonable between the
parties rests upon the person alleging that it is so.
Thus under English Law restraint on trade will be valid only if It is
reasonable in reference to the parties as well as the public, But in India
it will be valid if it is covered within the statutory exceptions, or
exceptions created by judicial interpretation.
These exceptions are as follow:
(i) One who sale the goodwill of business may agree with the buyer to
restrain from carrying on a similar business within specific local limits
so long as the buyer, or any person deriving title to the goodwill form
him carries on a like business, provided that such limits appear to be
reasonable to the Court, regard being had to the nature of the business.
To make the agreement by the purchaser of goodwill, though in restraint
of trade a valid one, the following conditions must exist:
a) The seller of the business should be restrained only form carrying on
a similar business.
b) The restriction should apply so long as the buyer or person deriving
title to the goodwill from him is carrying a similar business. The seller
will be free resume his business when the buyer cases to continue it.
c) The restriction should not be a general restriction; it must operate
within special local limits.
d) Restriction must be reasonable in the eyes of Court.
(ii) Section 11(2) of Partnership Act provides that an agreement amongst
the partners that anyone of them will not carry on any business other
than that of the firm until he is a partner, shall not be void as being in
restraint of trade.
(iii) According to Section 54 of Partnership Act, partners may agree that
after retirement they will not carry on business similar to that of the
firm.
(iv) Section 56(2) of Partnership Act provides that an outgoing partner
may agree with his other to carry on a business similar to that of the
firm within a specific period or within specific local limits.
(v) Section 55(3) of Partnership Act provides that any partner may, upon
the sale of goodwill of the firm, make an agreement, with the buyer that
such partner will not carry business similar to that of the firm within a
specific period or local limits.
(8) Agreement in restraint of legal proceeding: Agreement which tends
to prevent the course of justice is void because of illegality of object.
Justification of Court cannot be restricted by an agreement. It is not
the policy of law to restrict a person from enjoying the right of resorting
to a Court of law for relief. According to Section 28, “Every agreement
by which any party thereto is restricted absolutely from enforcing his
rights under or in respect of any control by the usual legal proceedings
in the ordinary tribunals of which limits the time within which he may
thus enforce his rights is void to that extent.”
There are two exceptions to this rule-namely
(i) Agreement to refer a future dispute to Arbitration.
(ii) Agreement to refer a present dispute to Arbitration.
(9) Agreement the meaning of which is uncertain: According to Section
29, “Agreement, the meaning of which is not certain or capable of
being made certain, is void.”
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An interesting example is Guthing Vs. Lynn, 1(1831) 2, Bad. 2321. In
this case a horse was purchased for a certain price with a promise to
give 5 more if horse proved lucky. The agreement was held void for
uncertainty. The Court observed that there was no machinery to
determine good luck or bad luck which the horse may bring.
(10) Agreement by way of wager: According to Section 30, agreements by
way of wager are void and no suit shall be brought for recovering
anything alleged to be won on any wager, or entrusted to any person
to abide by the result of any game or other uncertain event on which
any wager is made.
In Gheru Lal Vs, Mahadeo, 1(1959) 2, S.C.A. 3421 Justice Subba Rao
said, “Sir William Anson’s definition of wager as a promise to give
money or money’s worth upon the determination or ascertainment of
an uncertain event, brings out the concept of wager declared void by
Section 30 of Indian Contract Act.”
Essential of Wager :
1. Uncertain event;
2. Mutual change of gain or loss;
3. Neither party to have control over the events;
4. No other interest in the event;
5. The gain of one party must be the loss of other;
6. Promise must have been made with an intention to gamble.
Q.16 Define wagering contract. Is wagering contract void or illegal? Is
Horse-racing a wager? Discuss in the light of judgment of the
Supreme Court on the point.
OR
Explain those agreements which are considered to be void under the
Indian Contract Act, 1872.
OR
What is an agreement by way of wager? What test would apply to
determine if or not an agreement is by way of wager.
Ans. Agreements by way of wager are void [Section 30]: Section 30 Indian
Contract Act, 1872 provides only those agreements by way of wager
are void. It does not define the term ‘wager’. Under the Indian Contract
Act, agreements by way of wager, means the same thing as wagering
contracts under English Law.
Section 30 of the Contract Act lays down :
(a) Agreements by way of wager are void.
(b) No suit shall be brought for recovering anything to be won on any
wager, or
(c) Entrusted to any person to abide the result of any game or other
uncertain event on which any wager is made.
Exception: Section 30 shall not be deemed to render unlawful a
subscription or contribution, or agreement to subscribe or contribute,
made or entered into for or towards any plate, prize or sum of money,
of the value or amount of five hundred rupees or upwards to be awarded
to the winner or winners of any horse race.
Nothing in Section 30 shall be deemed to legalise any transaction
connected with horse racing in which the provisions of Section 294-A
of the Indian Penal Code apply.
Definitions:
According to Cheshire and Fifoot: “The primary meaning of ‘wagering’
is staking something of value upon the result of some future uncertain
event such as, a horse-race, or upon the ascertainment of the truth
concerning some past or present event, such as the population of
London, with regard to whip the wagering parties express opposite
view”.
According to William Anson: “‘Wager is a promise to give money or
money’s worth upon the determination or ascertainment of an uncertain
event and that the parties must contemplate the determination of
uncertain event as the sole condition of their contract”.
Gherulal v. Mahadeodas, AIR 1959 SC 781: In this leading case the
Supreme Court of India quoted the definition of William Anson with
approval regarding the principle of law relating to wager.
Classic Definition: The classic definition of a wagering contract has
been given by Hawkins, J. in Carlill v. Corbolic Smoke Ball Co., (1892)
2 QE 484 at p. 490 as follows:
A wagering contract is one by which two persons, professing to hold
opposite views touching the issue of a future uncertain event mutually
agree that, depending upon the determination of that event, one shall
win from the other, and that other shall pay or hand over to him a sum
of money or money’s worth as other stake, neither of the contracting
parties having any other interest in that contract then the sum or stake
he will so win or lose. There being no other real consideration for the
making of such contract by either of the parties, it is essential to a
wagering contract that each party may under it either win or lose,
whether he will win or lose being dependent on the issue of the event,
and, therefore, remaining uncertain until that issue is known. If either
of the parties may win but cannot lose, or may lose, but cannot win, it
is not a wagering contract.
The above definition was later on approved by the Court of Appeal in
Ellesmere v. Wallace, (1929) 2 Ch. I.
112 LAW OF CONTRACT
Illustrations: (a) A and B agree that if in case 6 inches of rain or more
will fall on a particular future day, A will pay to B a certain sum, if less
B will pay the said sum to A.
(b) A and B play a billiard match and the winner is to get the whole of the
money deposited jointly by A and B with a stake holder. Both are
undisguised wagers.
Essentials of Wagering Contract:
The following are essentials of a Wagering contract:
(i) Promise: The must be a promise to pay money or money’s worth.
(ii) Conditional Promise: Promise must be conditional on an event
happening, or not happening.
(iii) Uncertainty of Event: Event must be uncertain. The uncertain event
may be either past or future.
(iv) Equal chance to win or lose: Each party must stand to win or lose.
(v) Loss to one party and gain to another: Loss of one must be the gain of
the other.
(vi) Common Intention: There must be a common intention to bet at the
time of entering into such an agreement.
(vii) No substantial interest in event: Parties should have no interest in
the event except of the stake.
(viii) Event on which bet is placed should be unlawful: The agreement can
as well as be a wager even if the event is a unlawful one.
(ix) No control over event: Neither party to the contract should have
control over the event.
Validity of wagering contracts under Indian Contract Act: According
to Section 30, agreements by way of wager are void, and no suit shall
be brought for recovering anything alleged to be won on any wager,
or entrusted to any person to abide by result of any game or other
uncertain vent in which any wager is made.
Wagering Contract void or illegal: In Bombay, wagering contracts
are illegal but in other States wagering contracts are void. The result
of this difference is that in Bombay a collateral agreement based upon
a transaction which was originally a wagering transaction is void but
in other States collateral agreement \ based upon a transaction which
was originally wagering, is perfectly bailed and enforceable.
Collateral Transactions: According to Section 30 of the Contract ,
Act, a wagering contract is void and, hence, unenforceable, but it is
not forbidden by law. So except in some States (where wagering
contracts are illegal) generally collateral transactions’ based upon are
wagering contracts.
Leading Cases: Dealing with the validity of wagering contracts, the
Supreme Court in the leading case Gheerulal Pareakh v. Mahadeodas,
(AIR 1959 SC 781), held:
“Though a wager is void and unenforceable it is not forbidden by law
and, therefore, the collateral agreement of wagering contract is not
unlawful under Section 23 of the Contract Act.”
Subhash Kumar Munwan v. State of M.P., AIR 2000 MP 109.—The
principle and purpose behind Section 30 of the Contract Act to treat
an agreement by way of wager as void is that the law discourage
people to enter into games of chance and make earning by trying their
luck instead of spending their time, energy and labour for more fruitful
and useful work.
Speculative Transactions: A speculative transaction may or may not
be an agreement by way of wager. Whether a speculative transaction
is a wagering transaction or not, much depends upon the intention of
the parties. If the intention of the parties is simply to gain or lose the
difference between the contract price and the market price on a particular
day, it will be a wager. On the other hand, if the intention seems to be
and there is possibility that the goods contracted for can be delivered
then the mere fact that in certain circumstances other party would be
liable to make good to the other the difference in price, cannot make it
a wager.
Leading Case: Bhagwandas Parasram v. B.R. Bomanji, AIR 1917 PC
101.The Judicial Committee of the Privy Council has observed :
“Speculation does not necessarily involve a contract by way of wager,
and to constitute such a contract a common intention to wager is
essential”. These observations have been quoted with approval by
the Supreme Court, in Firm Pratap Chand v. Firm Kotrike, AIR 1975 SC
1223.
Insurance Contracts: Insurance policies provide for payment of
Money on the happening of a future event, which is uncertain, in the
case of fire, accident, etc. in contracts of insurance, the insured does
not stand to gain; even if the event happens, he is only saved harmless
and his actual loss is paid to him. This is true of all contracts of
insurance other than that of life. A contract of life insurance presents
some difficulty. Anson, in his earlier editions held insurance to be a
contract of wager but with this only difference that the law enforces
insurance contracts but no other wagering contracts. However, in the
later editions this view has been discarded and it has been held that
insurance transaction is a contract of indemnity. Proper says,
“Insurance is not a gaming or a wagering contract. It is a contract of
speculation in one sense”.
114 LAW OF CONTRACT
In fact these are known as contracts of contingency. The question
whether a contract of insurance is a wager depends upon whether the
policy-holder has an “insurable interest” (that is pecuniary interest) in
the event upon which the insurance money becomes payable. If he
has, the contract of insurance is perfectly valid; if he does not, the
contract is simply a wagering one and, therefore, void.
Leading Case: In Northern India Central Insurance Co. Ltd., Bombay
v. Kanwerjeet Singh, (AIR 1974 All, 354), it was held that the liability of
the insurer to indemnify the owner would arise when the owner is
found liable to pay compensation for injury to any person caused by
the use of the motor truck. There is nothing in the nature of a wager in
such a contract. The payment by the insurer to the owner of the truck,
the insured, is not merely based on a stake. When due to an accident
the owner suffers and has to pay some money then and only then the
insurer is bound by the contract to indemnify. It is not a contract like
two persons betting amongst each other that if it does not rain in the
afternoon then one will pay the other Rs. 10 and if it rains, then the
payment would be vice-versa.
Lottery: Section 294-A, IPC, makes it an offence to keep a house for
lottery or to announce a lottery. The lottery business is a wagering
transaction. The sale and purchase of a ticket in a lottery is invalid and
if any lottery draws prize; the ticket-holder, if he wins the prize, will not
be allowed to enforce his claim for the prize in a Court of law.
Illustrative Cases: A contract of agency for sale of raffle tickets is not
an agreement by way of wager (T. T. Augustine v. Changanacherry_
Municipality, AIR 1982 Ker. 307).
In M/s B. R. Enterprises v. State of U. P., [AIR 1999 SC 1867], the
Supreme Court observed, “the lotteries authorized by the State has a
sanction of law, a gambling may be raised and may be authorized for a
specific purpose, but it would not attain the status of trade like other
trades or becomes res commercium”.
Common-sense cross-word puzzles: It is not easy to say in every
case whether common-sense puzzles is a lottery or valid transaction.
The test is whether the winning of prize depends upon chance, if so, it
is a lottery and hence wagering transaction which is void. If winning
of prize depends upon skill and intelligence, it is a valid transaction.
Horse racing: Section 30 of the Act, engrafts an exception to this
general rule in favour of horse-racing. It lays down—”This section
shall not be deemed to render unlawful subscription or contribution,
or agreement to subscribe or contribute made or entered into for or
towards any plate, prize or sum of money, or the value or amount of
five hundred rupees or upwards to be awarded to the winner or winners
of any horse-race”.
Difference between Indian and English Law
There is no difference between the expression ‘by way of wager’ used
in the Indian Contract Act and the expression gaming and wagering
used in English statute. In India the exception to the rule against
wagers is confined only to cases of horse-racing while in England, it
extends to all cases of winners of any lawful game, pastime etc.
Q. 17. “An agreement in restraint of trade is void” explain and state
exception.
Ans. Part XIII of the Constitution of India contains provisions relating to
the freedom of trade, commerce and intercourse within the territory of
India. The provisions are laid down in Articles 301-307. Just as the
Legislature cannot take away individual freedom of trade, wise versa
the individual cannot barter it away by agreement.
“The Principle of law is this: Public policy requires that every man
shall be at liberty to work for himself, and shall not be at liberty to
deprive himself, skill or talent, by any contract that he enters into.”
So plain meaning of Section 27 is every agreement by which any one
is restrained from exercising a lawful profession, trade or business of
any kind, is, to that extent, void.
In Electrosteel Castings Ltd vs Saw Pipes Ltd, (2005) 1 CHN 612, the
words “lawful profession” in Section 27 include both an independent
professional and salaried professional. Self-employment and all modes
of economic survival or of earning one’s livelihood are covered.
Section 27 of Indian Contract Act, 1872 :
“Agreement in restraint of trade, void Every agreement by which
anyone 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
good will 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.”
Madhub Chander vs. Raj Coomar is the first case in which scope of
the section came up for consideration before the Calcutta High Court.
Here in this case restraint was only partial as he was restrained from
exercising his profession only in one locality and that such restraints
had been upheld in English law.
Section 27 of the Indian Contract Act, 1872 states that an agreement,
which restrains anyone from carrying on a lawful profession, trade or
business, is void to that extent. The main reason behind this section is
116 LAW OF CONTRACT
that agreements of restraint are unfair, injustice as they impose an
undue restriction on the personal freedom of a contracting party.
However, as an exception, if a party sells his goodwill to another he
can agree with the buyer that he will not carry on a similar business
within the specified local limits.
Restriction for long period
The doctrine of restraint of trade has been reconsidered by the House
of Lords in Esso Petroleum Co Ltd. vs. Harper’s Garage Ltd. In this
case, their Lordships struck down an exclusive dealing agreement
because it extended to a period of 21 years, which was unreasonable.
A five year period would have been held to be reasonable. They said
that the doctrine applied only if a man contracted to give up some
existing freedom which he had.
Zaheer Khan vs. Percept D’mark India (P) Ltd, AIR 2004 Bom 362, a
contract restricting the party’s future freedom to carry on his affairs in
a manner he likes and with persons of his choice, held, unreasonable
restraint of trade.
Coca Cola Company, (AIR 1995 SC 2372), where the defendant and
the plaintiff used to carry on the business of ferrying boats and arrived
at a business settlement whereby the defendant promised to pay a
certain amount to the plaintiff in order that the plaintiff abstain from
carrying on his boat business for a period of three (3) years, the court
held that the agreement was void as the restraining covenant was a
vital part of the agreement and did not fall under the “goodwill
exception” to section 27 of the Indian Contract Act, 1872.
In Petrofina (Great Britain) Ltd. vs. Martin (5), Diplock L.J., a
contract in restraint of trade is one in which a party (the covenantor)
agrees with any other party (the covenantee) to restrict his liberty in
the future to carry on trade with other persons not parties to the
contract in such manner as he chooses.”
In the same case, Lord Denning M.R. has expressed that:
“Every member of the community is entitled to carry on any trade or
business he chooses and in such manner as he thinks most desirable
in his own interests, so long as he does nothing unlawful: with the
consequence that any contract which interferes with the free exercise
of his trade or business, by restricting him in the work he may do for
others, or the arrangements which he may make with others, is a contract
in restraint of trade. It is invalid unless it is reasonable as between the
parties and not injurious to the public interests.”
Statutory Exceptions
1. Sale of Goodwill
The only exception mentioned in Section 27 of the Contract Act is
related to sale of goodwill. 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.
Meaning of Goodwill :- There should be real goodwill to be sold. The Goodwill
which has been the subject of sale is nothing more than the probability
that the old customer will resort to old place.
2. Partnership Act
According to Section 11 the Partnership Act,1932 partners during
the continuance of the firm to restrict none of them shall carry on any
other business than that of the firm. Section 36 the Partnership Act,
1932 is related to restrain an outgoing partner from carrying on a
similar business within the specified period and specified local limits,
Partners may in anticipation of dissolution make an agreement that
some or all of them will not carry on a business similar to that of the
firm within a specified period or within specified local limits and such,
agreement shall be valid if the restrictions imposed are reasonable.
[Section 54 Indian Partnership Act, 1932]
A partner may, upon sale of goodwill of a firm, make an agreement that
such partner will not carry on any business similar to that of the firm
within a specified period or local limits provided the restriction is
reasonable. [Section 55, Indian partnership Act, 1932].
Firm Daulat Ram vs. Firm Dharm Chand, AIR 1934 Lah 110, where
two ice factory owners constituting a partnership agreed that only
one factory will be worked at a time and its profits distributed among
them. The restraint was held to be justified.
3. Restraint upon employees
Restraint during Employment
Agreement of service contain negative covenants is for preventing
the employee from working anywhere during period covered by the
agreement. Nowadays trade secret is main contention for negative
covenants. Employer’s wants to protect his trade secrets because of
that employment agreement with negative covenants are generally
used. Agreements for protection of confidentiality and trade secrets
are not one sided or unfair or unreasonable. Any breach of such clauses
on the part of employee can be treated as misconduct.
Restraint during the employment and post-employment this issue was
first time discussed by Supreme Court in Niranjan Shankar Golikar
vs. Century Spg & Mfg Co. Ltd. a company manufacturing tyre cord
yarn was offered collaboration by a foreign producer on the condition
that the company shall maintain secrecy of all the technical information
from its employees. The Defendant was appointed for a period of five
118 LAW OF CONTRACT
years, the condition being that during this period he shall not serve
anywhere else even if he left the service earlier. Shelat J held the
agreement to be valid. The defendant was accordingly restrained from
serving anywhere else during the currency of the agreement.
Post-Employment Covenant
According to Indian laws any agreement which is related to restraint
of trade and profession shall not be binding on the parties and the
same shall be null and void. By using the term void ab initio, for such
type of agreements it has shown that it has kept such non-compete
clause in the agreements beyond consideration. Indian courts have
also consistently refused to enforce post termination non-compete
clauses in employment contracts as “restraint of trade” is impermissible
under Section 27 of the Indian Contract Act 1872, and have held them
as void and against the public policy because of their potential to
deprive an individual of his or her fundamental right to earn a living.
Covenants that prohibit employees from engaging in a business similar
to or competitive with that of the employer beyond the term of
employment or post-employment are invalid.
A non-compete clause is well known under the Contractual Laws as
the clause being made out into any agreement between two parties
where one party is the employer and the other party is the employee.
According to this non-compete clause, the employee undertakes and
gives his acceptance as per the condition of the employer that during
the course of the employment or even after post-employment, he will
not be the competitor of the employer in the form and nature of the
employment of the employer. The Non-compete clause finds place
under the agreements and contracts throughout the world. According
to Indian Contract Act, 1872 the non-compete clause, it is prohibited.
Pepsi Foods Ltd. & ors. vs. Bharat Coca-cola Holdings Pvt. Ltd., post-
employment restrictions were held to be invalid and violative of Article
19 (1)(g) of the Indian Constitution. Negative covenant in contract
restraining employee from engaging or undertaking employment for
twelve months after leaving the services of plaintiff was held to be
contrary and in violation of Section of the Indian Contract Act, 1872
and injunction was declined.
Conclusion
Article 21 of the Constitution of India guarantees the right to livelihood
and this is fundamental right. Nobody can take away fundamental
right because of this to enforce non-compete clauses in India even
more difficult. But if we consider the global market and new upcoming
conditions with new opportunities we need to adopt few legal changes.
Therefore, there is the need to find equilibrium between rights of the
employer and the employee.
It is believed that the factor of “reasonableness” would be the right
covenant between employer and employee interests.
Q.18 Explain the doctrine of Privity of Contract with Exceptions.
OR
A contract is a private relationship between the parties who makes it
and no other person can acquire rights or incur liabilities under it.
Explain.
OR
What is Privity of Contract?
Ans. The doctrine of privity of contract creates a tie or vinculum legis.
abond which is personal to the parties. Other parties (not being there
are representatives) are neither bound by the contract, nor entitled
under it. Thus, the Doctrine prevents a third party from enforcing a
contract. Applying the same logic, it also prevents the contracting
parties from enforcing obligations against a stranger, i.e. a third party.
The doctrine of privity of a contract is a common law principle which
implies that only parties to a contract are allowed to sue each other to
enforce their rights and liabilities and no stranger is allowed to confer
obligations upon any person who is not a party to contract even
though contract the contract have been entered into for his benefit.
The rule of privity is basically based on the interest theory’ which
implies that the only person having an interest in the contract is
entitled as per law to protect his rights.
Shiv Dayal v. Union of India, AIR 1963 Pun.538: If B and C enter into
an agreement under which B promises to write a book for C and C in
turn promises to pay Rs. 10,000/- to A if there is no payment A cannot
sue C as he is a stranger to the contract.
Essentials of Privity of contract
1. A contract has been entered into between two parties:- The most
important essential is that there has been a contract between 2 or more
parties.
2. Parties must be competent and there should be a valid consideration:-
Competency of parties and the existence of consideration are pre-
requisites for application of this doctrine.
3. There has been a breach of contract by one party:- Breach of contract
by one Party is the essential requirement for the application of the
doctrine of privity of contract.
4. Only parties to contract can sue each other:- Now after the breach,
only Parties to a contract are entitled to sue against each other for
non-performance Of contract.
English law v. Indian Law
120 LAW OF CONTRACT
As a general rule, both Indian and English law are similar to each other
that only parties to contract can sue each other. In a leading English
case of Tweddle v. Atkinson, it was held that the plaintiff cannot sue as
he was both a stranger to the contract as well stranger to consideration.
This concept of privity of contract was again analyzed in the case
of Dunlop Pneumatic Tyre Co.Ltd v. Selfridge & Co. Ltd.
In the Indian context also this concept of privity of contract is similar,
the only difference being that in India a person who is stranger to
consideration can sue whereas in England he cannot.
Exceptions:
(a) Trust or Charge- A well recognized exception to the doctrine of privity
of contract is that of a trust or charge created in some property in favor
of third person.
(Khwaja Mohammad Vs. Hussaini Begum [(1910) 37 1 A 152] In that
case C sued her father in law A to recover arrears of certain allowances
called Kharch-i-pandan payable A to C under an agreement made
between A and C’s father prior to and in consideration of C’s marriage
with Ns son D. Both C and D were minors at the date of marriage.
The agreement created a distinct charge in favour of certain immov-able
property belonging to A for the payment of the allowances. It was
contended on behalf of A on the authority of Tweddle Vs. Atkinson,
that C cannot sue upon the contract as she was not a party to the
agreement. But these contention was overruled and the suit was
decided in favor of C.
The court observed that in India and particularly in communities such
as the mohamedans among who marriages are contracted for minors
by parents and guardians, It might occasion serious injustice if the
com-mon law doctrine was applied to agreements or assignment entered
into connections with such contracts. Similarly where the provision is
made for the marriage expenses of a female member of a hindu family
on a partition of the joint family property between the male members,
the female member is entitled to sue the parties to the partition deed to
enforce the provision in her favour.
(b) Partition of Hindu Family, Marriage Settlement, Family Arrangement
Etc.
(Sundar Raja Vs. Lakshmimmal, (1914) 38 Mad.788 (24) IC 943.
The courts in India have applied the same principal regarding the
main-tenance of a female member of hindu family in the partition of
joint hindu family among the female members.
If on the partition of joint family property among the male members a
provision is made for the marriage expanses of a female member than
such a female member can sue to enforce the agreement.
(c) Acknowledgment: Yet another exception to the doctrine of privity of
contract is where under a contract a party undertakes an obligation to
make a payment to a third party and he acknowledges it to the said
third party, the third party though not a party to the contract can
enforce the contract. These is probably due to the application of the
principle of estoppel.
(d) Covenants attached or running with the Land: A person buying land
is bound by covenants or agreement affecting the land although he
may not be aparty to the said covenants or agreements.
(Smith and Shipes Hall Farm Ltd. Vs. River Doug is Catchment
board,(1949)2 KB 500
(e) Law relating to Negotiable Instruments.(1980) PCS: Law relating to
the negotiable instrument is also an exception to the doctrine of privity
of contract. These can be understood with the help of following
illustration.
A has an account in central bank. A draws a cheque of Rs. 1000/- in
favour of B. B goes to bank to encash the cheque. Although there is
no contract between the bank and B yet the bank will be liable to pay
Rs. 1000/- to B. B may also endorse the cheque to C and then C will be
entitled to receive Rs. 1000/- from the bank although there is no privity
between bank and C. Similarly the rule of privity of contract does not
apply in case of promissory note and bill of exchange.
Various kinds of consideration
Promise will be regarded as merely a gratuitous promise by A to pay B
Rs. 900/- An apparent consideration which has no legal value is no
consideration is all.
(i) Unlawful: The consideration or object of an agreement is lawful unless
(a) It is forbidden by law or
(b) Is of such a nature that if permitted it would defeat the provi-sions of
any law. or
(c) Is fraudulent or
(d) Involves or implies injury to the person or property of another Or
(e) The court regards it as Unmoral or apposed to public policy
In each of these cases the consideration or i) Executed- an executed
consideration is something actually done forborne or suffered
contempo-raneously with the making of the contract.
The offer of the reward for information accepted by the supply of the
information required the offer of the goods accepted by their use or
consumption are illustration of executed consideration.
A consideration is said to be executed when the promisee has al-ready
done or forborne something. Thus A promises to pay a sum of money
122 LAW OF CONTRACT
to B if he paints a picture for A. B paints the picture. B’s act is the
consideration for A’s promise since act is done already, it is said to be
executed consideration.
(ii) Executory: An executory consideration is a promise to do or forbear
from doing something in the future. Mutual promises to marry, a promise
to do work in return for a promise of payment are illustration of executory
consideration.
A consideration is said to be a executory when there is a promise for a
promise. Thus A promises to pay a sum of rupees to B in consid-eration
of B’s promise to paint a picture for A. as B’s promise has not yet been
performed it is executory.
(iii) Past: Past consideration is something wholly done for borne or suffered
before the making of the agreement.
(iv) Unreal - A consideration for a promise is said to be unreal when it
subsists merely in words, and not infect. If A promises to pay B Rs. -
1000/- on a particularly day in consideration of a promise to by B to
pay A Rs. 100/- al the same time the consideration is unreal and the
object of an agreement is said to be unlawful. Every agreement of
which the object or consideration is unlawful is void.
Q.19 What do you understand by a Contingent contract? How are such
contracts different from agreements?
OR
Define Contingent Contract and discuss in detail the rules for
enforcement of such contracts.
OR
What do you understand by ‘Contingent Contract’? Discuss various
rules regarding contingent contract. Differen-tiate between a
contingent contract and a wagering agree-ment.
Ans. A contract may be absolute or contingent, Lets understand the
difference first:
Absolute Contract: An absolute contract is that, where the promisor
undertakes to perform the contract in all events and the right and
liabilities arise-after, the conclusion of the contract.
Contingent Contract: A contingent contract is a contract to do or not
to do something, if some event collateral to such contract does or
does not happen.
In English Law there is no term ‘Contingent Contract’. There only a
‘Conditional Contract’ is envisaged. In American too the ‘Conditional
Contract’ is used.
The performances of contingent contract or as it is said in England
Conditional Contract, become due after the happening of a contingency
and so it is nor due immediately on the making of the contract.
Collateral event: In contract the event on which the perfor-mance of
the contract depends is only collateral to the -main contract. It is that
event regarding which neither of the parties’ makes any promises
even then it is so important that contract cannot be performed unless
it happens. Collateral event is that event which is neither a performance
directly promised as a part of contract not the whole consideration for
a promise.
Essential characteristics of contingent contracts: Following are the
essentials of contingent Contracts
1. Performance of contract depends upon the happening or not happening
of a future event;
2. The future event is uncertain;
3. The uncertain future event is collateral to the main contract.
In Ranchod Das Vs. Nathimal Hira Chand & Co. [(1949) 51, Bom. L.R.
491] defendants entered into a contract of sale of pieces of American
fine colored parachute cloths. It was stated in the contract that goods
belong to one H. Bisanesar & Co. and they are coming from America to
India by February shipment, and goods will be delivered when they
arrive. Defendants failed to perform the contract. The plaintiff sued for
the breach of contract and damages. It was contended by defendants
that the contract was a contingent contract; therefore, they were not
liable for damages. But the Court held that the provision that goods
will be given when arrive, is mode of delivery only and not contingency,
therefore, it is not a contingent contract.
Rules Regarding Contingent Contract: The rules regarding
performance of contingent contracts are contained in Sections 32 to
36 of the Indian Contract Act. They are as follows:
1. Contingent Contract to do or not to do anything if an uncertain future
event happens cannot be enforcing by law unless and until that event
has happened. If that event becomes impossible such contract
becomes void (Section 32)
2. Contingent Contract to do or r 3t to do anything, if an uncertain future
event does not happen can be enforced when the happening of that
event becomes impossible and not before.
3. If a contract is contingent upon how a person will act at an unspecified
time that event shall be considered to become impossible, when such
person does anything which renders it impossible that he should so
124 LAW OF CONTRACT
act within any definite time or otherwise than under future
contin-gencies. (Section 34)
Contingent Contract to do or not to do anything, if a specified uncertain
event happens within a fixed time becomes void, if at the expiration of
the time fixed, such event has not happened or if before the time fixed,
such event becomes impossible.
Contingent Contract to do or not to do anything, if a specified uncertain
event does not happen within a fixed time may be enforces by law
when the time fixes has expired and such event has not happened or
before the time fixed has expired, if it becomes certain that such event
will not happen. (Section 35)
5. Contingent agreements to do or not to do anything, if an impossible
event happens are Void, whether the impossi-bility of the event is
known or not to the parties to the agreement at the time when it is
made. (Section 35)
Difference between a contingent contract and a wagering agreement:
1. Wagering agreement consists of reciprocal promises. The performance
of promise depends upon uncertain future event. A contingent contract
may not consist, so.
2. Every wagering agreement is of contingent nature whereas a contingent
contract is not of wagering nature.
3. In wagering agreement parties are not interested in gain-ing or losing
money, whereas in contingent contract parties have interested in subject
of contract.
4. In wagering agreement future uncertain event is sole determining event
where as in contingent contract it is collateral to the main contract.
5. Wagering agreement is void whereas contingent contract is valid
enforceable contract.
Provisions regarding the enforcea-bility of contingent contracts:
As is evident form the definition of contingent contract it is a contract
to do or not to do any act, which depends upon happening or not
happening some future event. With this point of view the contingent
contracts with regard to their enforcement can be divided in the
following categories:
(A) Enforceable of Contracts contingent on an event happen-ing;
(Section 32)
(B) Enforcement of Contract contingent on an event happen-ing;
(Section 33)
(C) Enforcement of Contract contingent on an event happen-ing within a
fixed time; (Section 35)
(D) Enforcement of Contracts contingent on an event not happening within
fixed time; (Section 35)
(E) Agreement contingent on impossible events. (Section 36)
The description of each category is given below:
(1) Enforcement of Contract contingent on an event happening: According
to the provisions of Section 32 of the Act a contingent contract to do
or not to do anything, if an uncertain future event happens, cannot be
enforced by law until and unless that event has happened. If the event
becomes impossible, such contract becomes void; As for example,
(i) ‘A’ makes a contract with ‘B’ to buy ‘B’s horse if ‘A’ survives ‘C’. This
contract cannot be enforced by law unless and until ‘C’ dies in ‘A’s
life-time;
(ii) ‘A’ makes a contract with ‘B’ to sell a horse to ‘B’ at a specified price,
if ‘C’ to whom the horse has been offered, refuses to buy it, the contract
cannot be enforced by law, unless and until ‘C’ refuses to buy the
horse;
(iii) ‘A’ makes a contract with ‘B’ to pay him a certain sum of money, when
‘B’ marries ‘C’. ‘C’ dies without being married to ‘B’. The contract
becomes void.
(2) Enforcement of contracts contingent on an event not happening: As
laid down in Section 33 of the Act, a contingent contract to do or not
to do anything, if uncertain future event does not happen, cannot be
enforced when the happening of the event becomes impossible and
not before; As for example, ‘A’ agree to pay ‘B’ a certain sum of money,
if a certain ship does not return, the ship is sunk. The contract can be
enforced as the ship has sunk and cannot return.
According to Section 34 of the Act, if the future event on which, a
contract is contingent, is the way in which a person will act at an
unspecified time, the event shall be considered to become impossible
when such person does anything which renders it impossible that he
should so act with any definite time or otherwise that under future
contingencies; As for example, ‘A’ agrees to pay ‘B’ a sum of money if
‘B’ marries ‘C’; ‘C’ marries ‘D’; the marriage of ‘B’ to ‘C’ is now
impossible although it may be possible that ‘D’ may die and then ‘C’
may afterwards marry ‘B’.
(3) Enforcement of contract contingent on an event happening within a
fixed time: Section 35 of the Act provides that a contingent contract to
do or not to do anything, if a specified uncertain event happens within
fixed time become void, if at the expiration of the time fixed, such event
has not happened, or if before the time fixed such event becomes
impossible; As for example, ‘A’ promise to pay ‘B’ a certain sum of
126 LAW OF CONTRACT
money, if a certain ship returns within a year, the contract may be
enforced, if the ship returns within the year and bocomes void, if the
ship is burnt within the year.
(4) Enforcement of contract contingent on an event not happening within
a fixed time—Section 35 of the Act provides that a contingent contract
to do or not to do anything, if a specified uncertain event does not
happen within a fixed time, may be enforced by law, when the time
fixed has expired and such event has not happened, or. before the
expiry of the time fixed, it has become certain that such event will not
happen; As for example, ‘A’ promises to pay ‘B’ a certain sum of
money, if a certain ship does not return within a year, the contract may
be enforced if the ship does not return within the year or is burnt
within the year.
(5) Agreement contingent on impossible events—According to the
provisions of Section 36 of the Act, a contingent agreement to do or
not to do anything, if an Impossible event happens, is void, whether
the impossibility of the event is known or not to the parties to the
agreement at the time of making it;
As for example :
(i) ‘A’ agrees to pay a certain sum of money, if there straight lines should
make a circle, the agreement is void,
(ii) ‘A’ agrees to pay ‘B’ Rs. 2,000, if ‘B’ will marry ‘A’s daughter ‘C’, ‘C’
was dead at the time when agreement was made; the agreement is
void.
Q.20 What do you understand by anticipatory breach of contract? Discuss
the rights and liabilities of both the parties if anticipatory breach of
contract has occurred.
OR
State the law relating to, ‘anticipatory breach of contract’.
Ans. A breach of contract is said to have taken place when one of the
parties to the contract consents formally about abandoning his liability
under that contract or part of fully fails to perform his obligations
under that contract or by his conduct makes the performance of the
act impossible.
There are two types of breach:
1. Anticipatory breach – Where the failure of performance or renunciation
takes place before the time of performance has arrived.
2. Present Breach – Where the failure of performance or renunciation
takes place when the time of performance has arrived.
Anticipatory Breach of Contract: Anticipatory breach of contract is a
breach of contract occurring before the time fixed for performance has
arrived either by the promissor refusing to perform his promise or
disabling himself from performing promise. Section 39 deals with the
subject of anticipatory breach of contract as follows:
“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.”
An anticipatory breach of contract takes place before the time fixed for
performance of the contract. Thus, if a promisor by his own act disabled
himself from performing his promise or refused to perform his part of
the contract, the other party is entitled to treat the contract as
repudiated and can sue him for damages for breach of contract
immediately or may wait for the time of performance to arrive. The
other party is excused from performing his part.
Constituents of an anticipatory breach of contract
An anticipatory breach of contract happens in any of the following
situations or ways:
(a) The defaulting party expresses to the other party, a positive and
unconditional refusal: This is called expressed repudiation. This
refusal should be clear, straightforward, and directed towards the
innocent party. But in cases where the refusal is unqualified or
ambiguous, the non-breaching party may request an assurance for
performing from the other party and meanwhile may suspend his/her
performance.
(b) The breaching party, because of a certain cause, is unable to perform:
If the defaulting party voluntarily does something which makes his
performance of contractual obligations impossible, it will also be
considered as a repudiation of the contract.
(c) The transfer of the subject of the contract to someone else: In case of
contracts involving the sale of property, if the property is transferred
to a third party, the contract shall be considered to be repudiated.
Leading Cases: The case of Hochester v. De La Tour, 2F & B. 678, is
now treated as the leading one on ‘anticipatory breach of contract’.
The rule indicated in the case is that on the promissor’s repudiation of
the contract, even before the time for performance was arrived, the
promisee has an option to treat the contract repudiated, putting an
end to the contract for the future and giving the promisee a right of
action for damages. It must be remembered that, the option is entirely
with the promisee.
Frost v. Knight, 41 LJ Ex. 78: A Lady B, was given the promise by a
man, A, that as soon as A’s father died, he would marry B, while A’s
father was alive, A expressed his inability to marry B. On a suit instituted
128 LAW OF CONTRACT
by B, for breach of promise, it was held that B had two options any of
which she could avail. Either she may wait till A’s father died or she
may rescind the contract and sue for damages.
State of Maharashtra v. Digamber Balwant Kulkarni, AIR 1979 SC 1339:
The defendant accepted the tender of the plaintiff for the construction
of an aqueduct over Kulthi Nala. In the tender there was a stipulation
that in case the work was not completed within the specified time, the
plaintiff would be liable to pay compensation for the delay in the
execution as was fixed by the Superintending Engineer. If he abandons
the work either on account of serious illness or death or for any other
cause, and it is then the contract would become liable to rescission.
The Court held that till that time the contract was fully in force. As
soon as it is rescinded, the defendant has the right to forfeit the security
deposit.
Illustrations:
(a) A, a singer enters into contract with B, the manager of a theatre, to
sing at his theatre two nights in every week during the next two months
and B agrees to pay her 100 rupees for each night’s performance. On
the sixth night A willfully absents herself from theatre. B is at liberty to
put an end to the contract.
(b) A, a singer enters into a contract with B, the manager of a theatre to
sing at his theatre two nights in every week during the next two months
and B agrees to pay her 100 rupees for each night’s performance. On
the sixth night A willfully absents herself with the assent of B, A sings
on the seventh night. B has signified his acquiescence, in the
continuance of the contract and cannot now put an end to it but is
entitled to compensation for the damage sustained by him through
A’s failure to sing on the sixth night.
Promisee’s options after the anticipatory breach
The innocent party is excused from the further performance of his or
her contractual obligations in the first place. The original obligations
under the contract come to an end and are now replaced by the
operation of law under another obligation, namely payment of damages.
The only remnant of legal nexus between the parties is the payment of
the damages according to the old obligations under that contract. The
two options available to the aggrieved party are:
(1) Immediate Right of Action:
The anticipatory breach of the contract entitles the injured party to
either immediately sue for damages or wait for the time of performance
of the contract. So, even in cases where the time for performance of
contractual relation has not arrives, the aggrieved party may sue the
repudiating party for damages.
In the case of Hochester v. De La Tour, this principle was first
recognised. The facts of the case were that the plaintiff was a courier
who was engaged by the defendant for accompanying him on a tour
commencing on June 1, 1852. About a month before this date, the
defendant wrote a letter to the plaintiff stating about his change of
mind Wand declining the service. When the plaintiff sued him for
damages, the counsel for the defendant contended that there can’t be
any breach of contract before the date of the performance of the
contract. The court however held that the plaintiff in such cases has
the right to take immediate action.
Similarly in the case of Short v. Stone where a man promised to marry
a woman on a future day but marries someone else before that day. In
the case of Ford v. Tiley where a man contracts, on a certain term, to
execute a lease on and from a future day but before that day executes
the lease to a third party, an immediate action for breach of contract
was allowed.
Anticipatory breach of a contingent contract:
Even in the cases where the performance of a contract is dependent
upon the happening of a contingency, an immediate right of action will
lie if, before the happening of the contingent event, the promisor had
disabled himself from performance.
In the case of Frost v. Knight, the defendant had promised to marry
the plaintiff on the demise of his father but while the father was still
alive, the defendant had announced about his intention of non-fulfilment
of the promise and thus broke off the engagement. The plaintiff was
allowed to take an immediate action for breach of contract and was not
needed to wait till the death of his father.
(2) Waiting for the Performance:
The presence of words “signified, by words or conduct, his
acquiescence’’ in section 39 means that when the innocent party
affirms the continuance of the contract, the other party loses his/her
right to repudiate. Affirmation may be expressed or implied especially
as in cases where the innocent party does an act, which shows that he
intends to continue the contract. The effects of affirmation on the
parties are as follows:
(a) Effect of Affirmation on innocent party: Affirmation once made is
irrevocable if it is communicated to the party who was committing the
breach. In this case, he is subjected to all the contractual obligations
and liabilities arising under it.
(b) Effect of Affirmation on the party committing the breach: Affirmation
gives the chance to the party committing the breach to re abide and
fulfil the contractual obligations and hence escape from being sued.
Also it gives him/her an advantage as if now the other party fails to
130 LAW OF CONTRACT
perform any of the contractual obligations; he/she has the option to
sue for the breach of contract.
If the contract is left opened, a discharge by any other event like
frustration or supervening impossibility may take place in place of
discharge by repudiation. It would lead even to the promisor taking
the advantage of this.
In the case of Avery v. Bowden, the defendant had chartered the ship
of the plaintiff promising to load it with cargo at Odessa within forty-
five days. Later on the arrival of the ship the defendant refused to load
cargo but still the plaintiff stayed in the hope of the defendant fulfilling
the contract. But, a war broke out rendering the performance of the
contract illegal. Here, when the plaintiff brought an action for breach,
it was held that the contract has ended by frustration and therefore it
wasn’t the fault of either of the parties.
This principle can also be applied to the premature termination of the
contract of employment of an employee. If the repudiation is not
accepted, the contract remains alive. In such cases, positive covenant
can’t be enforced but negative covenant i.e., not to hire anyone else
till the expiry of term, can be enforced. Similarly, in cases of premature
termination of lease, although the court can’t enforce specific
performance, it can allow the lease-money for the unexpired term as
damage to injured party. This was held in the case of Food Corporation
of India v. Babulal Agarwal.
Repudiation
It is a declaration by one of the party of his intention of non-
performance of contract. It should be held to arise only in clear cases
of denial and not on minor irregularities. Repudiation or the breach
must be in entirety and should go to the root of the contract.
In the case of Maple Flock Co. Ltd. v. Universal Furniture Products
(Wembley) Ltd., there was a contract for delivery, in instalments, of
100 tons of flock of Government standard. The sixteenth delivery was
below standard and when the buyer tried to treat it as repudiation, the
court held that the intention of seller to repudiate the contract is absent
here so it won’t come under repudiation. The buyer was only allowed
damages for defective products.
Communication of Acceptance of Repudiation:
The innocent party, if wishing to be discharged, must make the other
party known about his decision or else the contract would be deemed
to be continued. The principle here is that there are two parties to the
contract and therefore mere repudiation from one side won’t end the
contract.
Mode of the acceptance here should be the same as the communication
of proposals. Since repudiation makes a contract voidable, its rescission
should be in accordance with Section 66 of the act. Also, the
acceptance is not revocable.
Remedies for the breach of the contract
The following remedies are available to the innocent party in the case
of anticipatory breach of contract:
(a) The aggrieved party may rescind the contract: Both the parties shall
be absolved from their contractual obligations. In such case, the
aggrieved party is liable to offer restitution as under section 64 of the
act.
(b) Cover and receive damages: The aggrieved party may receive monetary
compensation or damages for the breach of contract under section 73
of the act.
(c) Demand Specific Performance: The Court, in accordance with the
section 14 of The Specific Relief Act, 1877 order specific performance
of the contract in place or along with the damages.
(d) Demand Injunction: Injunction may be granted in cases like that of
employment for enforcing the negative covenant.
(e) Recover any consideration, if, given to the breaching party: All
consideration granted for the contract should be returned.
(f) Quantum Merit and Restitution: This remedy basically means payment
in accordance with the work done. Restitution means restoring of
original conditions.
Conclusion
Anticipatory breach of contract is the intentional breach by one of the
parties and therefore the innocent party must have remedies for it.
However, there is a certain obligation which needs to be fulfilled before
declaring an act as a repudiation so as to maintain the contract. Any
minor irregularity by one party can’t be held as breach and it should
be absolute. Also the way it is the obligation of the repudiating party
to communicate his intention of refusal, it is duty of the innocent party
to communicated its acceptance of repudiation or otherwise. The
contract is between two parties and so for establishing anything, the
contract as a whole need to be considered along with the conduct of
both the parties.
Q.21 What are the different modes in which contract may be discharged?
Explain fully.
OR
Explain the different ways in which the obligations under a valid
contract are discharged.
OR
What do you understand by discharge of a contract? Discuss the
circumstances under which a contract is discharged?
132 LAW OF CONTRACT
Ans. To discharge a contract is to end it. There are therefore as many kinds
of the discharge as there are different ways of ending a contractual
obligation. Discharge of a contract refers to the way in which it comes
to an end.
When the contract is formed by agreement, it may also be discharged
or terminated through agreement, subject to the conditions of the
contract. The agreement to extinguish or terminate the contract itself
becomes a binding contract if supported by consideration or made
under seal. The following are three main types of discharges:
• Bilateral Discharge: The contract will be mutually discharged where
the parties agree to release one another from any further obligations
existing from the original contract. The contract is discharged despite
the parties failing to fully or partially discharge all their obligations.
• Accord and Satisfaction: Accord and satisfaction occurs where one
party accords the release of another party, who is in breach of the
original agreement, from its obligations in return for the satisfaction
for the performance of another obligation.
• Unilateral Discharge: Unilateral Discharge occurs where one party
has completed its part of the bargain and agrees to release the other
party from its outstanding obligations under the contract. The
agreement is only binding if supported by consideration or made under
seal.
Different Modes of Discharge of Contract: The contractual relation
may be loosened and the parties wholly freed from the rights and
liabilities under the contract in various ways.
The various modes in which a contract may be discharged are as
follows :
(1) By agreement,
(2) By performance,
(3) By breach,
(4) By impossibility of performance,
(5) By operation of law.
(1) By agreement [Sections 62-67]: Sections 62 to 67 deal with the
discharge of contracts by agreement :
Section 62 provides: If the parties to a contract agree to substitute a
new contract for it or to rescind or alter it, the original contract need
not be performed.
Section 63 provides: Every promisee may dispense with or remit wholly
or in part the performance of the promise made to him, or may extend
the time for such performance or may accept instead of it, any
satisfaction which he thinks fit.
Section 64 provides: When a person at whose option a contract is
voidable rescinds it, the other party thereto need not perform any
promise therein contained in which he is promisor. The party rescinding
a voidable contract shall, if he has received any benefit there under
from another party to such contract, restore such benefit, so far as
may be to the person from whom it was received.’
Section 65 provides: ‘When an agreement is discovered to be void or
when a contract becomes void, any person who has received any
advantage under such agreement or contract is bound to restore it, or
to make compensation for it, to the person from whom he received it.’
Section 66 provides: ‘The recession of a voidable contract may be
communicated or revoked in the same manner, and subject to the same
rules, as apply to the communication, or revocation of a proposal.’
Section 67 provides: ‘If any promisee neglects or refuses to afford the
promisor reasonable facilities for the performance of his promise, the
promisor is executed by such neglect or refusal as to any non-
performance caused thereby.’
2. By performance [Sections 37, 38]: Sections 37 and 38 of the Contract
Act deals with the performance of contracts. A contract being an
agreement enforceable by law the parties are not absolved of their
obligations until the contract has been discharged and the most
common way of the discharge of contractual obligation is by
performance of the contract by the parties to it.
Section 37 of the Contract Act lays down the general rule, that the
parties to a contract must perform or offer to perform their respective
promises, unless such performance is dispensed with or excused under
the provisions of this Act or of any other law.
The promises bind not only the promisors but also their representatives
if they die before performing their promises. But the representatives
shall not be bound by the promises if a contrary intention appears
from the contract. Section 38 of the Contract Act provides that where
a promisor has made an offer of performance to the promisee and the
offer has not been accepted the promisor is not responsible for non-
performance, nor does he thereby lose his rights under the contract.
But an offer to be considered equivalent to performance, must fulfill
the following conditions:
(1) it must be unconditional,
(2) it must be made at proper time and place, and under circumstances
that the person to whom it is made may have a reasonable opportunity
of ascertaining that the person by whom it is made is able and willing
there and then to do the whole of what he is bound by his promise to
do.
134 LAW OF CONTRACT
3. By breach [Section 391]: A contract may be broken; if a new obligation
connects the parties. Breach will discharge either party from
performance of the contract as may still be due from him. When there
is a breach by one party, the other party gets a right to consider itself
exonerated from any further performance of the contract.
Forms of discharge by breach :
(a) Discharge by renunciation before performance is due. The renunciation
must deal with the whole of performance and it must be treated as
discharge;
(b) By impossibility created by one party before performance is due;
(c) By renunciation in the course of performance, for example, where a
purchaser of 50 bales after accepting delivery of 25 bales, refused to
accept the remaining 25, the seller is discharged and can sue for
damages;
(d) By impossibility created by one party in the course of performance;
(e) By failure of the performance, which may be of the whole of the promises
or of part.
4. By impossibility of performance [Section 55]: Contract may become
impossible by reason of certain circumstances which are held to
discharge the parties from their respective obligations, for example,
performance may become impossible through a change of law or
destruction of a specific thing essential to the performance of the
contract, or performance of the contract for personal services is
rendered impossible by the death or incapacitating illness of the
promisor.
5. By operation of law: There are rules of law, which operating upon
certain sets of circumstances, will bring about a discharge of contract,
for example :
(a) Merger: If a higher security be accepted in the place of a lower one,
the security which in the eye of law in inferior ipso facto merges and is
extinguished in the higher.
(b) Bankruptcy: It affects a statutory relief from debts and liabilities.
Q.22 Explain “Doctrine of frustration”.
OR
An agreement to do an act impossible in itself void.” Explain this
statement with illustrations.
OR
Discuss the law relating to Frustration of Contract under Indian
Contract Act. Is commercial impossibility a ground of frustration?
Explain?
OR
Discuss the doctrine of frustration of contract with reference
provisions of Indian Contract Act, 1872. What is the significance of
commercial impossibility in the said doctrine?
Ans. 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 impos-sible or
lawful.
E.g. A and B contract to many each other. Before the time fixed for the
marriage A goes mad. The contract becomes void.
A contract to take in cargo for B at a foreign pot as government
afterwards declared war against the country in which the port is
situated.
The contract becomes void when war is declared.
A contract to act at a theatre for six months of a sum paid in advanced
by B. On several occasions A is to ill to act the contract to act on those
occasions becomes void.
Sec. 56 lays down that the contracts becomes void upon the act being:
(i) Unlawful or (ii) Impossible, Though there is no condition to that
effect in the contract, a man who promises without qualification is
bound by the terms of the promise, if he is bound at all. If the parties
do not mean their agreement to be unconditional, it is for them to
qualify it by such conditions as they think fit.
“A contract to do 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 become impossible or
unlawful. E.g. J rented a house from P and occupied it.
Later he was expelled by the army of an enemy and thus without any
fault could not derived benefit from it. J was nonetheless held liable to
pay rent, as the undertaking was absolute. J could have in the contract
provided for such a contingency.
(Paradine Vs. Jane 1947 )
But a condition need not always be express in words, there are condition
which may be implied from the very nature of the transaction. On this
principle a promisee is discharged, without the promisor’s fault in
three cases:
(i) If the performance is rendered unlawful or impossible by law
(ii) If a specified subject matter assumed by the parties to exist is
accidentally destroyed.
(iii) If the promise was to performed something in person and the promisor
dies or is disable by sickness or miss adventure.
136 LAW OF CONTRACT
But in cases of such agreement becoming or being discovered to be
void, any person who has received any advantage under the agreement
or contract is bound to restore it or make compensation for it to the
person from whom he received it.(Sec.65)
Frustration by delay- The commercial frustration of adventure by delay
means the happening of some unforeseen delay without the fault of
either party to a contract of a character that if the fulfillment of the
contract is the only way in which the fulfillment is contemplated and
practicable and it is so inordinately postponed that its fulfillment,
when the delay is over will not accomplish the object with both the
parties to the contract had in mind.
Jackson Vs. Union Marine Insurance Co. LR 10 CP 148: A charters
from B a ship to go to port X, take a cargo there and carry it to port Y.
The ship runs a ground on the way to X and some weeks pass. Then
A charters another ship. B sues the insurance co. for total loss of
freight that B could have got from A. Here A was justifying in chartering
another ship as the long delay that would have been caused in taking
the ship off and repairing it would have ended the contract in a
commercial sense and to compel A to perform his promise after such
repairs had been done would be to compel him to perform a new
con-tract. A’s contract with B was frustrated when the ship ran the
ground, and B is entitled to recover damages from the insurer.
Grounds of Frustration:
Following are the well recognized grounds of frustration on which the
doctrine of frustration may be applied by the courts:
(1) Destruction of the subject-matter of the contract: Where the
performance of the contract becomes impossible by the destruction of
the specific thing essential to that performance that contract is
dis-charged. The destruction of the Music Hall in Taylor Vs. Caldwell
re-ferred to earlier is a good example for this ground.
(2) Non- Occurrence of a particular state of thing: The doctrine of
frustration has been applied in cases of non-occurrence of a particular
event which is essential for the performance of the contract. The
post-ponement of coronation of the prince owing to his sudden illness
in Krell Vs. Henry the facts and decision of which have been referred
earlier is a good illustration of such cases.
Death or Incapacity of the Party — Where the performance of a contract
depends upon the personal services of a party, the death or incapacity
of such a party may be treated to be a valid ground for frustration of
contract. A leading case on the the point is Robinson Vs. Davison. In
this case the defendant’s wife was a famous pianist (piano -player).She
contracted for performing a concert but could not fulfill her promise
because of a serious illness. The plaintiff brought an action to claim
damages for non-performance(breach) of contract. The court held that
in the case the continued health of the pianist was a condition attached
to the agreement. Her serious illness was a valid ground on the basis
of which she was discharged from her obligation under the con-tract.
(4) Changes of circumstances: If the change of circumstances make the
performance of the contract impossible the contract will frustrate and
parties will be discharged from their obligations under the contract. If
however despite the charge of circumstances the perfor-mance is still
possible the contract will not be deemed to have been charged.
(5) Building Contracts: Where the execution of the contract is delayed
or otherwise becomes impossible by the happening of an external
event, the contract is discharged. But much will depend upon the fact
and circumstances and each case has to be judged on its own merits.
A good illustration of the frustration of building contract in
Metropolitan water Board Vs Dick, Kerr and Co. Ltd. in this case the
defendants contracted with the plaintiff to construct a reservoir with
in a period of 6 years. After the lapse of two years the Minister of
Munitions while exercising his statutory powers ordered them to stop
discharged having being frustrated by the said order.
(6) Change in Law: The performance of a contract may also become legally
impossible by the change in law. If the performance becomes legally
impossible the contract will be discharged. But as pointed out in
Anson’s law of contract “The change in the law must be such as to
strike at the root of the agreement and merely to suspend or hinder its
operation in part”.
(7) Legislative or Government Intervention: Yet another ground for
frustration of contract is legislative or government .Metropolitan water
board vs. Dick Kers Co. Ltd, (1918) referred above is a good illustration
of frustration of contract by government or administration intervention.
Q.23 What do you understand by ‘quasi-contract’? State its essential
features.
OR
Quasi contracts are contracts in law, but not in fact. Explain.
OR
“Quasi contract is not the product of an agreement entered into
parties, but a creation of law on the basis of equitable principles”
Discuss the above statement and state the quasi contract recognised
by the India in Contract Act, 1872.
138 LAW OF CONTRACT
OR
What do you understand by Quasi-contracts? Explain some relations
which are resembling to those created by contracts as incorporated
under the Indian Contract Act, 1872.
Ans. A quasi-contract is not in fact a contract at all but merely resembles
one and produces similar effects. Pollok likes to call them constructive
contracts. “Quasi contracts are contracts in law but not in fact, being
the subject-matter of a fictitious extension of the sphere of contract to
cover obligations which do not in reality fall within it”, Salmond. The
latest definition is that of Prof Winfield, who defines it as “the liability
not exclusively referable to any other head of the law, imposed upon a
particular person to pay money to another particular person on the
ground of unjust benefit.” Quasi-contracts or implied contracts are
“exceptional kind of contracts by which one party is bound to pay
money in consideration of something done or suffered by the other
party. They are not founded on actual promises but arise when one
party has so conducted himself that he must be deemed bound as if he
had made a promise although in fact he has not”—Desai. No,
contractual relation whatever exists between the parties but one person
has done something for another or paid money on his behalf and the
court comes forward on the ground of equity saying that the person
receiving benefit must make compensation to the other i.e. adjust the
relation between them. Though no contract has been made between
the parties but law makes out a contract for them, and such contract is
termed as Quasi or implied contract in law.
Difference between Contracts and Quasi Contracts: In Contracts, it
is consent of the contracting parties which produces the obligation;
in Quasi-contracts there is no consent- the law alone, or natural equity
produces the obligation. They are called quasi-contracts, because,
without being contracts, they produce obligations in the same manner
as contracts.
Reasons for the recognition of Quasi contracts: Law has recognized
quasi-contracts for the following reasons:
1. The traditional classification of personal actions into contract and tort
raises a presumption that every person who owes a debt has promised
to pay it.
2. It supplies a theoretical basis of new forms of obligations established
by judicial decisions.
3. Th. plaintiffs have always a desire to obtain the benefit of “the superior
efficiency of contractual remedies.”
Basis of quasi-contracts: The theory on which quasi-contractual
obligations are based is not yet finally settled. Lord Mansfield founder
of this theory pointed out in Moses v. Macferlan, (1760), that law as
well as justice should try to prevent “unjust enrichment”. In other
words, the law will not allow enrichment of one person at the cost of
the other. No express provisions were made for such cases in the old
English Common Law; but these duties are now on the theory of
assumed contract dealt with as arising from quasi-contract. Though
no contract has been made by the parties, law makes a contract for
them and such a contract is termed as “contract implied in law.” For
the convenience certain liabilities have been made to figure in modern
jurisprudence as though they sprang from contract and haw,
appropriated the form of agreement. Certain legal relations are now
attached to quasi-contracts which once were resemblance of a promise.
Mr G M Sen writes that this liability arises by implications of law, and
not out of any agreement as in the case of contract. Hence apparently
the term quasi-contract is rather misleading and is apt to confuse.”
The doctrine that a person who had been unjustly enriched at the
expense of another is required to make restitution has found statutory
recognition in Sections 68 to 72. The extent to which the restitution is
to be made by the person who is unjustly enriched is merely the
excess of benefit received over the beam suffered by him [De Sweet
(India)Private Ltd. v. B. P Industrial corporation Ltd., AIR 1980
All 253].
Cases of quasi-contracts: Sections 68 to 72 of the Contract Act deal
with such cases.
Necessaries supplied to a person incapable of contracting: Where a
minor or a lunatic or any person whom such minor or lunatic 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 (Section 68).
Illustration:
A supplied B, a lunatic, with necessaries suitable to his condition in
life. A is entitled to be reimbursed from B’s property.
Payment made on behalf of another: Where a person is bound by law
to pay money and another is interested in that payment and the latter
makes the payment he is entitled to be reimbursed by the former.
Payment must have been made in good faith and not with to
manufacture evidence of title to some property (Section 69).
140 LAW OF CONTRACT
Illustration:
B holds in Bengal, on a lease granted by A, the Zamindar. The revenue
payable by A to the Government being in arrear his land is advertised
for sale by the Government under the Revenue law, the Consequence
of such sale will be the annulment of B’s lease. B, to prevent the sale
and the consequent annulment of his lease, pays to the Government
the sum due from A. A is bound to make good to B, the amount so paid.
Obligation of person enjoying benefit of non-gratuitous act: Where a
person lawfully does anything for another not intending to do so
gratuitously and the other enjoys benefit thereof, the person having
the benefit must reimburse the former. It must however, be shown that
the person claiming compensation had a lawful interest in doing what
he did or that interference was not officious (Section 70).
The Supreme Court laid down in State of West Bengal v. R.K. Mondal
& Sons, ( AIR 1962 SC 779): “It is plain that three conditions must be
satisfied before this section can be invoked. The first condition is that
the person should lawfully do something for another person or deliver
something to him. The second condition is in doing the said thing or
delivering the said thing, he must not intend to act gratuitously; and
the third is that other person for whom something is done or to whom
something is delivered must enjoy the benefit thereof. When these
conditions are satisfied, Section 70 imposes upon the latter person the
liability to make compensation to the former in respect of or to restore
one thing as done or delivered [per Gajendragadkar. J]
Illustration:
A, a trader for instance; leaves some gocds at B’s house by mistake. B
trades with the goods as his own, B must repay A.
Q.24 Discuss the law relating to measure of damages for the breach of
contract.
OR
Explain the various remedies available to the aggrieved party in case
of breach of contract. Can damages may be awarded to the aggrieved
party when there is no actual loss suffered by such party?
OR
With reference to Hadley vs. Bexandale, discuss the principles of
award of damages caused by breach of contract under Section 73 of
Indian Contract Act. Is monetary loss essential to claim damages?
Ans. Breach of contract means failure of the party to perform his or her part
of obligation under the contract. When a contract is broken the
aggrieved party is entitled to the following reme-dies, Rescission of
Contract, damages, quantum of merit, specific performance of contract
and injunction.
Damages: Damages are the value of the damage or the injury or loss
caused by the defaulting party of the contract. Damages are the value
of the loss incurred by the plaintiff which is paid by the defaulting
party to the injured party.
Remoteness of Damages: The principle regarding remoteness of
damages was established in Hadley Vs. Baxendale, [(1854) 9, Exch. 34].
In this case plaintiff’s mill was stopped, due to breakage of Cranck
Shaft. Defendant the common carrier was entrusted with the delivery
of this machine part for taking it to its maker. Defendant did not have
information that delay in carrying the machine would result in loss of
profits. The delivery was delayed beyond reasonable time by some
negligence on the part of the defendant. Plaintiffs claimed from
defendant compen-sation for the wages of workers and the
depreciation charged which were incurred during the period the factory
was-nosed for the delayed delivery and for the loss of profits which
might have been made if the factory would be working. The first two
claims were allowed because those were natural result of breach of
contract.
Loss of profits was disallowed as it was the remote loss which could
be recovered only when the party had information to it. Justice
Alderson observed, “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., in the
usual course of things, from such breach of contract, or such as may
reasonable be supposed to have been in contemplation of both the
parties at the time they made the contract, as the probable result of
breach of it.” It means the rule in Hadley Vs. Baxendale, [(1954) 9.
Exch. 341] can be summarized in the following two parts
(i) The first part deals with the damages as may fairly and reasonably be
considered either arising naturally, i.e., according to the usual course
of things. In short, we may say it general damages.
(ii) The second part deals with damages “as may reasonably be supposed
to have been in contemplation of both the parties at the time they
made the contract as the probable result of the breach of it. In short,
we can term it as special damages.”
General Damages: General damages depend upon the knowledge
which the parties are presumed to have. For example, in Hadley Vs.
Baxendale only circumstances communicated by the plaintiffs to the
defendant at the time of making the contract were that the article to be
142 LAW OF CONTRACT
carried was broken shaft and the plaintiff were the owners of the Mill,
since the defendant had only this knowledge, the plaintiff were held
entitled to recovery only general damages. General Damages are thus
damages which are the result of usual course of things.
For example, in Horns Vs. Midland Railway Company, [(1873) L.R. 8,
C.P. 131] plaintiff undertook to deliver Military shoes in London by a
particular date for the French Army at a very high rate. The Plaintiff
delivered the goods to the defendant, to be carried on to London. The
plaintiff informed defendant about the date of delivery. The shoes
having delayed in carriage were rejected by the purchaser. The plaintiff
brought an action to claim loss for the delay as well as the loss they
suffered from the rejection of the shoes by the purchaser. It was held
that he cannot claim loss for rejection of shoes.
Special Damages: The second part of the rules established in Hadley
Vs. Baxendale explains the principle regarding special damages. The
second part reads “, or such as may reasonable by supposed to have
been in the contemplation of both parties, at the time they made contract
as the probable result of the breach of it.” It means special damages
can be claimed when they are such as may reasonable by supposed to
have been claimed when they are such as may reasonably be supposed
to have been in the contemplation of both the parties at the time they
made the contract, provided that in both cases there should be the
probable result of the breach. The rule was explained by Alderson J.
himself, “Now, if the special circumstances under which the contract
was actually made were communicated by the plaintiffs to the
defendants and thus knows to both parties, the damages resulting
from the breach of such a contract which they would reasonably
contemplate, would be the amount of injury which would ordinarily
follow from a breach of contract under these special circumstances’ so
know and communicated. This amount will be called special damages.
For example, in Simpson Vs. London & North Railway Company,
[(1876) 1, Q.B.D. 274] the plaintiff used to send the specimens of his
goods for exhibition of agricultural shows. In exhibition he/ used to
sell them. He consigned his goods to the Railway Company to be
carried to a show ground at New Castle. The consignment note
contained the following words, “must be at New Castle on Monday
certainly.” Due to the negligence of the Railway the goods reached
late and could not be exhibited. The plaintiff brought action to recover,
.the damages for his loss of profits at New Castle’s show. The company
was held responsible, for it had knowledge about the goods to be
exhibited at the New Castle show and therefore it was in the
contemplation of the company that delay in delivery might lead to loss
of such kind. Similarly, where there is a contract for the sale and delivery
of goods, buyer may recover his damages for failure of delivering the
goods as loss of profits of the sub-sale of forward contact made by
him if the existence of the sub-sale so known to the seller at the time of
entering into the contract. Moreover, he might recover from the seller
May damages which can he has been forced to pay to the sub-
purchasers, together with any costs reasonably incurred defending
the action against him by them.
Principle for Measures of Damages: After the remoteness of loss is
determined, it is to be evaluated in terms of money. In this regard two
principles must be considered
(i) Compensatory nature of damages; and
(ii) Duty to mitigate the losses.
(i) Compensatory nature of damages: The nature of damages in contract
is compensatory and not penal. While the Court awards damages, it
tries to put the party whose rights have been violated or who has
suffered the losses in the same position so far as money can do so as
if the contract has been fulfilled or as if his rights have been observed.
When this is done the primary object of law of damages has been
fulfilled. If the injured party had not suffered any loss due to breach of
contract, the Court shall not award anything for the breach of contract.
For example, in Murlidhar Chiranjilal Vs. Harish Chandra
Dwarkadas, [(1962), S.C. 366] there was a contract for supplying canvas
to be consigned to Calcutta. F.O.B. Kanpur. The transport and the
labor charge were to be borne by the buyer, the seller failed to supply.
The question before the Court was whether damages, were to be
assessed according to Kanpur or the Calcutta prices, and whether the
seller was entitled to profits which he could have made by reselling at
Calcutta, The Court held the goods were to be delivered at Kanpur,
therefore, the damages should be assessed according to the difference
bet-ween the contract price and the market price at Kanpur. It was the
only loss which could be said to have been arisen naturally in the
usual course of things from the breach. Since there was no difference
between the contract price and the market price at Kanpur, therefore,
the Court held that appellant is not entitled for any damages. Similarly,
in Harshan Dass Thakkar Vs. Saran Engineering Company Limited,
[A.I.R. (1965), S.C. 1981] there was no difference between the contract
price and the market price of the iron scrap as it was controlled
commodity, the Court held there was no loss. Therefore, no quantum
of damages was awarded to the appellant.
Measures of damages from losses to perishable goods to delay by
common carrier: The measures of damages for the loss due to delay
by common carrier is the market value of the goods at the time and
144 LAW OF CONTRACT
place at ‘which they should have been delivered. This will include the
cost of freight and if the carrier’s charges have been paid, he may
deduct them form the damages payable. The consigner may include in
the claim any profits he might reasonably have expected to make from
the sale of goods at their market price. He cannot claim for abnormal
profits.
(ii) Duty to mitigate the losses: Another principle for the measurement of
damages is that it is the duty of the injured party to mitigate the loss as
much as possible. Since the damages are compensatory, therefore, he
who has suffered the loss from the breach of contract must take every
reasonable step available to him to mitigate the extent of the damages
caused by the breach. In estimating the loss or damages arising from
the breach of contract the means which existed to mitigate the loss
must be taken into consideration.
Jamal Vs. Moola Dawood Sons & Company, [(1916) 1, A.C. 175] is the
leading case on this point. In this case the plaintiff entered into a
contract. to sell the defendant 23,500 shares. The shares were to be
delivered on 30th December, 1911 Shares were tendered on that date.
But the buyer refused to take delivery. The market price of the shares
on that date was low, if the seller would have sold those shares in the
open market, the shares would have realized Rs. 1,09,218 less than the
contract price. The seller sold those shares in February when the
market was again rising and he realized only Rs. 79,862 less than the
contract price. The plaintiff claimed Rs. 1,09,218 as damages. The
defendant contended that he was liable only to pay the loss of Rs.
72,862 but the Court held that undoubtedly the plaintiff who sues for
damages owes the duty to take the reasonable steps to mitigate the
loss subsequent upon the breach and cannot claim as damages any
sum which is due to his own negligence and the loss must be
ascertained as the loss on the date of breach. Therefore, the defendant
is liable to pay Rs. 1,09,218.
Similarly, in M. Nanjappa Vs. M. P. Muthuswamy, [A.I.R. (1975), Knt.
146] the respondent Muthuswamy was employed by the appellant
Najappa under a contract on 2nd January, 1962 for a period of 5 years
at a salary of Rs. 120 per month, with an annual increment at the rate of
Rs. 10. The contract provided that Muthuswamy will not be allowed to
leave the service unless he starts his own business, but he was free to
leave the service after the completion of 3 years. Muthuswamy rendered
the service till 17-3-1964 when he was terminated from the service by
the employer. Muthuswamy sued the appellant for damages for breach
of contract of service and claimed a sum of Rs. 10,540 as damages for
a full period of five years as stipulated in the contract. The appellant
resisted the suit. The Court of the first instance held that Nanjappa
had committed the breach of contract, the termination of service was
without any just cause. The Court further held that Muthuswamy has
also not taken may reasonable steps to mitigate the losses hence he
was not entitled to claim remuneration for the unexpired period. The
Court therefore awarded Rs. 500 as the nominal damages for the breach
of contract, Muthuswamy challenged the decree in an appeal to the
District Judge who allowed the appeal and made the decree in favour
of Muthuswamy and awarded a sum of Rs. 5,130. Finally the case
came to the High Court of Karnataka where the decision of the first
instance Court was upheld. The Court held that the plaintiff having
established the breach of contract fails to establish that he has taken
up reasonable steps to mitigate the damages. Therefore, he will be
debarred from claiming damages from the defendant to the extent he
could have mitigated the damages by taking reasonable steps.
Therefore, the general principles, deducted from the various
judgements of the High Courts and Supreme Court are as follows:
(i) As far as possible the injured party, who has proved the breach of
contract is to be placed so far as money can do it, in a position as if the
contract had been performed;
(ii) It is the statutory duty of the plaintiff who has proved the breach of
contract to take reasonable steps to mitigate the loss before coming to
the Court;
(iii) If the plaintiff fails to prove that he took all reasonable steps to mitigate
the loss on the breach of contract, he will be debarred from claiming
damages to the extent he could have mitigated the same by taking
such steps.
REMEDIES FOR BREACH OF CONTRACT
When one of the parties fails to perform the terms of the contract, then
the Indian Contract Act, 1872 along with the Specific Relief Act, 1963
provides for some remedies for this breach of contract. Remedies are
as follows:
1. Damages
Section 73 of the Indian Contract Act, 1872 says that in case of breach
of contract, the injured party is entitled to compensation by the
breaching party for the loss suffered during the usual course of things.
It has been specifically mentioned that no compensation is provided
in case of remote or indirect loss.
Illustration: A contract to buy from B, at a stated price, 50 maunds of rice, no
time being fixed for delivery. A afterward informs B that he will not
accept the rice if tendered to him. B is entitled to receive from A by way
of compensation, the amount, if any, by which the contract price
exceeds that which B can obtain for the rice at the time when A informs
that he will not accept it.
146 LAW OF CONTRACT
The remoteness of damages- Damages are provided to the injured
party only in it relates to the usual course of things.
Measure of damages- The basis of calculating the damages is that the
injured party is to be put in the same position in which he would have
been if the contract had been performed.
Liquidated damages and penalty- Sometimes, the parties to the contract
fix the amount to be paid in case of the breach in advance. In the cases
where the damages fixed beforehand are genuine and pre-estimate of
the damages then these are called liquidated damages while when the
damages are fixed in order to prevent the breach of contract then
damages are called a penalty.
Compensation for breach of contract where penalty stipulated for-
According to Section 74 when the penalty is already mentioned in the
contract, the injured party is entitled to get compensation irrespective
of the fact that actual damages have occurred or not. The amount for
damages must be reasonable and should not exceed the amount stated
in the contract.
2. Quantum Meruit
The concept of Quantum Meruit can be understood from an example.
A and B have made a contract, and A has already performed a part of
the contract. After that B prevents him from performing the rest of his
obligation. In this case, A can recover from B reasonable remuneration
for whatever he has already done.
There are two essentials of this rule which are as follows:
(a) One of the parties makes a breach of contract or prevents the
performance of it by the other side.
(b) The party injured by the breach of the contract, which has already
performed a part of it, elects to be discharged from further performance
of the contract and brings an action to compensate for the value of the
work he has already done.
It should be taken into account that no compensation would be paid
in case the party has not suffered any loss or damage. Therefore, the
sufferance of damages is a precondition for the applicability of the
rule of quantum meruit.
In Kamit v. Central Dairy Farm [2008], there was a contract to supply
3000 live sheep and goats to the respondent at the rate of Rs. 786/- per
quintal. The plaintiff had deposited a sum of Rs. 2,60,000 as security
for the good performance of the contract but was not able to do his
obligations. The security was claimed to be forfeited. It was held that
since there was no sufferance of actual damages by the respondent,
he cannot forfeit the security amount.
3. Specific Performance
After the Specific Relief (Amendment) Act, 2018, the specific
performance of contracts has been made a rule rather than an exception.
Sections 9 to 25 of the Specific Relief Act contains provisions
regarding the specific performance of the contracts. Section 10 specifies
the cases in which specific performance of a contract can be enforced.
According to this provision, in two cases, specific performance of any
contract may, in the discretion of the court, be enforced-
(a) Firstly, when there is no standard for calculating the actual damages
in case of breach of contract by either party;
(b) Secondly, in the cases where compensation in the form of money
cannot provide adequate relief to the injured party. The example of
this is the breach of contract to transfer the immovable property or the
transfer of any property which is not ordinary article of commerce or
has special value or that product is not easily available in the market.
Further, Section 14 lays down the exhaustive provisions for the
contracts which are not specifically enforceable. Important examples
of such contracts are as follows:
(a) Contract where compensation in money is not an adequate relief.
(b) Contracts which are dependent on the personal qualifications or
volition of parties for example, contracts with a singer or dance to
perform on stage.
(c) Contract which involves the performance of continuous duty which
courts cannot supervise.
(d) Contracts which refer the differences to arbitration.
4. Injunction
Injunction refers to the orders of the court restraining a person from
doing an act. Sections 36 to 42 of the Specific Relief Act, 1963 have
the provisions regarding an injunction. It is generally categorized with
specific performance but in this, a party is restrained from doing some
act instead of performing some obligation. It is a prohibitive writ which
is issued by a court forbidding a party to do some act. An injunction
can be only for a specified time which is called a temporary injunction
and it can also be a mandatory or perpetual injunction.
In M. Gurudas and Ors. Case [2006], it was observed that before
considering the application of injunction, some factors are to be taken
into account. It should be decided whether it is the prima facie case
and whether there is an irreparable injury to the applicant party.
The provisions of contract implicit under the Indian Contract Act,
1872, make it easy to enforce these contracts and in case of a breach,
the injured party can opt any of the ways depending upon the
circumstances of the case. The main object behind providing these
remedies is to put the injured party in a position in which he was
before. Therefore, ensuring adequate relief by means of damages,
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quantum meruit, specific performance, and the injunction is the motive
behind laying down provisions for the remedy for breach of contract.
Q.25 What is Doctrine of “Quantum Meruit’’? Explain with case laws?
OR
Write a note on term, “Quantum Meruit”.
OR
Write a note on Quantum Meruit vs. Unjust Enrichment?
Ans. When parties enter into a contract there is a possibility for the breach
of the contract and breach of a contract can happen due to many
reasons. For any breach of a contract to happen, it is necessary that
the remedies should also be made or should be given by any Court.
Out of five remedies which are available to the aggrieved party, one is
a suit upon quantum meruit.
Applying this remedy in a suit requires a thorough understanding and
essence of quantum meruit. Also, one should be aware of the usage of
quantum meruit as to when and where can this be applied or when it
can be used by the aggrieved party.
Meaning of Quantum Meruit
Quantum Meruit is a Latin phrase and is related to the Indian Contract
Act, 1872. It means “what one has earned” or “as much as he has
earned”. In simpler terms, it refers to the actual value of the services
rendered or performed. Even if there is no specific contract this law
implies a promise to pay a reasonable amount for the labour and material
furnished.
The Black Law Dictionary states that quantum meruit means “as much
as one deserves”.
Theory of Quantum Meruit
Quantum Meruit involves cases where someone gets a benefit while
the other party gets nothing. In contracts, this refers to the benefit or
enrichment which one party receives as a result of the other party’s
actions.
In other words, it means that the other party who has received the
services is unjustly benefited and must return it to the party who
provided such benefit.
For example, ‘S’ is the daughter and ‘M’ is the father. They entered
into an agreement where ‘M’ asked ‘S’ to provide medical care for him
while he was sick. In return, ‘M’ agreed not to write a will and agreed
to give his estate to ‘S’ after he dies with an intent to give her a fair
portion for the services rendered. However, ‘M’ soon died, leaving all
of the estates for his brother and nothing for ‘S’. Here ‘M’ was unjustly
enriched as he received the services but in return ‘S’ received nothing.
In this example, ‘S’ seeks to recover a portion of “M’s” estate by
claiming the remedy of quantum meruit. This principle is based upon
the idea that recovery should be granted to one party where they have
not received the value for the services they rendered or when another
party was unfairly and unjustly enriched.
Suit upon quantum meruit
Quantum meruit is a claim under quasi-contract. The remedy to a party
in a breach of contract is the suit upon quantum meruit. The suit
upon quantum meruit arises where a part of a contract is performed by
one party and then there is a breach of contract or it is discovered that
the contract is void or becomes void.
The aggrieved party may file a suit upon quantum meruit and may
claim payment in proportion to work done or goods supplied in the
following cases:-
• Where work has been done by one party in the execution of a contract
but the other party refuses to perform his part. Or prevents the person
to perform the contract.
For example, Seema was the owner of a music publishing house and
she engaged in a contract with Veer to compose a music series which
will be published by the music publishing house. The first music album
was released but before the publication of the second music album the
music publication house was closed. Here Veer can claim quantum
meruit for the part already published. He is entitled to a claim because
he was somehow prevented by the other party to perform his part and
the other party has violated the terms of the contract by not paying
him the amount he deserves.
• Section 65 of the Indian Contract Act, 1872 talks about the
circumstance that where work has been done in the execution of the
contract but later it is discovered that the contract is void or it becomes
void.
• Where a person enjoys the benefit of a non-gratuitous act (given or
received without payment but where the party was obliged to pay)
despite the fact that there is no express agreement between the parties,
then the person who has enjoyed the benefit has to compensate the
other party or restore the thing so delivered.
For example, ‘D’ a vendor leaves his goods at “J’s” shop by mistake
and ‘J’ treats them as his own goods without paying anything. Here
‘J’ is bound to pay ‘D’ for the goods he left.
• When the contract is implied or expressed to render services but there
is no agreement with regard to remuneration – In such a case, a
reasonable remuneration is payable and what is a reasonable
150 LAW OF CONTRACT
remuneration will be determined by the Court and this reasonable
remuneration is the quantum meruit. This concept is explained
under Section 70 of the Indian Contract Act,1872.
• Where the contract is divisible, and a party to the contract has done
its part, he may sue other parties who have not performed for quantum
meruit.
This rule even applies to a person who is claiming quantum meruit and
himself is guilty of the breach of the contract, but the following two
conditions should be fulfilled for that:-
• The contract must be divisible
• The other party must have enjoyed the benefit of the part which has
been performed, although he had the option of declining it.
For example, Chena agreed to construct a house for David for ¹ 10,00,000
but in midway, she abandoned the contract after having done the
work worth ¹ 4,00,000. Afterwards, David somehow got the work
completed. Here, Chena could not recover anything for the work she
has done, as she was entitled to the payment only on completion of
the work which apparently she could not do.
Where the contract is indivisible and performed in a bad way- the
party at default can claim a lump sum amount and can reduce the
amount for the bad work done if the following conditions are fulfilled:-
• The contract should be indivisible,
• The contract should be for a lump sum,
• The contract should be completely performed and,
• The contract was performed badly.
For example, Raju agreed to construct a house for Pinku for a lump
sum of ¹ 5,00,000. Raju did complete the work but Pinku complained of
fault in the work done by him. It cost Pinku another ¹ 1,00,000 as a
remedy to the defect. In this example, Raju could only recover ¹ 4,00,000
from Pinku by reducing the amount of bad work done.
Quantum Meruit vs. Unjust Enrichment
It is very common for people to get confused between the two concepts.
Both the concepts discuss the aim of preventing one party to perform
the contract and the person preventing the other takes advantage of
the services received without even paying for their values.
The difference between the two concepts is that the unjust enrichment
deals with issues where there is a failure to pay for the services
and quantum meruit deals with such issues where the fair or reasonable
amount should be paid.
To be successful in a suit upon quantum meruit, the service provider
i.e. plaintiff must prove that the receiver of the services i.e. defendant
agreed to the provided services, knowing that he has to pay the plaintiff
for the services provided and that the defendant was unjustly enriched,
which means he received something for nothing. In simpler terms, it
means that he received for the services but did not pay in return,
which was not the agreement.
The amount given in a suit upon quantum meruit, especially where
there is no written contract specifying an amount, is generally based
on the fair market value for the services rendered.
Case Laws:
Sumpter v. Hedges [1898] 1 QB 673
Facts of the case:
The plaintiff was a builder. He entered into a contract to build two
houses and stables on the defendant’s land for approx £560. While
the buildings were still in an unfinished state he informed the defendant
that he is having no money. Hence, he refused to work and only
approx £300 work was completed. The plaintiff asked for the money of
half of the work done from the defendant. The defendant refused and
the plaintiff filed a case.
Judgement:
It was held that the defendant had no choice apart from accepting the
building like this and he couldn’t keep the building like this forever so
he completed the work. In this case, the contract stated that the money
had to be paid in lump sum after the completion of the work and so the
plaintiff could not be granted the payment after only doing part of the
work. And also as there was no fresh contract so the plaintiff cannot
recover on the basis of quantum meruit.
The relevance of this case was that a person can only recover a part of
his work when the contract is not a lump sum and the owner freely
accepts the work. Here it was not free, instead, he did not have any
choice.
Hoenig v. Isaacs [1952] 2 All ER 176
Facts of the case:
The plaintiff is an interior decorator who entered into a contract with
the defendant to perform the decorative and furnishing work. A lump
sum of £750 was to be paid for the work. On completion of the work,
the outstanding balance was £350 for the contractor’s work and labour.
The defendant refused to pay the balance amount on the grounds that
there were certain defects regarding the wardrobe and bookshelf and
152 LAW OF CONTRACT
the cost for the defects was £56. The plaintiff brought a suit for the
refusal.
Judgement:
The Court held that the plaintiff has completed most of the work which
was agreed between the two and was therefore entitled to the
remuneration which was agreed in between them by reducing the
price of the defects.
Q.26 What do you understand by ‘Liquidated Damages’ and ‘Penalty’?
What is difference between the two? Does Indian Law recognize this
distinction?
OR
“Section 74 of Indian Contract Act broadly cuts the most troublesome
knot in the Common Law, Doctrine of dama-ges.” Explain.
Ans. Sometime contracting parties may determine before hand the amount
of compensation payable in case of breach of contract. According to
English Law a sum so fixed may be either liquidated damages or penalty.
Liquidated Damages: When the amount of compensation fixed by
agreement between contracting parties, which is to be paid in case of
breach of contract, is not in the nature of fair, honest pre/estimation of
probable damages such amount is called liquidated damages.
Liquidated damages are, therefore, genuine, and pre-estimated
damages. It is the assessment of that amount which is known to the
contracting parties as equivalent to the probable toss which may occur
to case of breach of contract.
Liquidated damages are to be granted in full irrespective to the extent
of loss which were greater or less within the estimate of the parties. In
liquidated damages the Court has no power to reduce or increase the
amount.
Penalty: On the other hand when the amount which was named to the
contract at the time of the formation of the contract, is disproportionate
to toe loss likely to occur to the case of breach, it will be termed as
penalty- This penalty is not the actual loss or damage which occurs
due to breach. It is a sort of coercion that the party uses to prevent him
from breaking the contract. A sum is a penalty, if it is extravagant and
unreasonable, unconsci-onable to comparison with the greatest loss
which may occur from the breach.
In Dunlop Tyre Company Vs. New Garage & Motor Company Limited
[(1915), 1A.C. 79] The manufacturer of tyres supplied tyres to a dealer
on the condition that he will not sell them below the price list, and if he
does so, he would have to pay £ 5 for every tyre sold in breach of
contract. The dealer committed breach. The question before die Court
was whether the stipulation in toe contract was genuine compensation
for loss or penalty. The House of Lords held it to be liquidated damages
as toe amount to be paid in case of breach is reasonable and equivalent
to the loss which may be suffered by the injured party.
On the other hand, in Ford Motors Company Vs. Armstrong, [(1915)
31, T.C.R. 267] the defendant received from the plaintiff Cars and
parts and agreed not sell any item below listed price, and if there was
breach of contract, toe sum of £ 250 was to be paid by toe defaulting
party. When breach occurred the Court of appeal held that the amount
stipulated was a penalty as it might happen that toe parts sold to
breach were of the lesser price than the damages payable.
Distinction between Liquidated Damages and Penalty:
(i) (a) If toe amount stipulated to toe terms of contract, is extravagant,
unreasonable and unconscionable in comparison to the greatest loss
that can conceivably be proved to have resulted, from the breach, it
will be called penalty.
(b) If the sum is reasonable, genuine, equivalent to the probable loss
that can conceivably be proved to have been resulted from the breach,
it shall be called liqui-dated damages.
(ii) (a) If the Court comes to this conclusion that the stipulated amount is
liquidated damages, the Court will award the whole of the amount. The
Court can neither increase nor decrease this amount.
(b) If the named sum is held as penalty, the Court will not award the
whole of the amount though discretion lies with the Court, it may
decrease it to the extent of the real losses.
Indian Law: The Indian Contract Act does not make any difference
between liquidated damages and penalty. Section 74 of the act lays
down, “When a contract has been broken, if a sum is named in the
contract the amount to be paid in case of 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.”
Thus the rules is that where a sum is stipulated in the contract as the
amount to be paid in case of breach regardless whether it is a penalty
or not the party suffering from the breach is entitled to receive
reasonable compensation not exceeding form the breach is entitled to
receive reasonable compensation not exceeding the amount so
occurred. It is immaterial if the amount so named is in the nature of
liquidated damages or penalty. The Indian Contract Act does not make
154 LAW OF CONTRACT
any difference between penalty and liquidated damages nor the Courts
are required to decide the nature of the amount of compensation agreed
upon to be paid on the breach of contract between the parties.
In Fateh Chand Vs. Balkishan Das [A.I.R. (1963), S.C. 1405] the
Supreme Court observed, “Section 74 is clearly an attempt to eliminate,
elaborate & refinements made under the English Common Law in
distinguishing between stipulations proving for payment of liquidated
damages and a stipulation in the nature of penalty. The Indian
legislature has sought to cut across the web of rules and resumptions
under the English Common Law by enacting a uniform principle
applicable to all stipulations naming amounts to be paid in case of
breach an stipulation by way of penalty.” In this case the agreement
for sale of land and a bungalow for Rs. 1.12,500 provided that the
buyer was to pay Rs. 1.000 as the earnest money and Rs. 24,000 on
delivery of possession and the rest of the amount to be paid at the
time of registration. The buyer paid Rs. 25,000 and was given the
possession. The agreement also provided that if the buyer shall be
unable to pay rest of the amount in a certain period the seller has right
to forfeit Rs. 25,000, and the buyer will have to give up possession.
The buyer defaulted and the seller forfeit the amount. When the case
came to the Supreme Court, it was held that the forfeiture of Rs. 25,000
was a penalty and unreasonable. The Court allowed the seller to forfeit
only Rs. 1,000 being earnest money and to retain the sum of Rs, 24,000
also not by virtue of his right to forfeit but as the rent of land and the
bunglow.
Similarly, in Mulla Bux Vs. Union of India [A.I.R. (1970), S.C. 1955]
the plaintiff contracted to supply to Military, potatoes, poultry, eggs
and fish for one year and deposited Rs. 1,850 for due performance. By
the provision of the contract if the supplier defaulted, the buyer would
have the right to forfeit the deposit. The plaintiff defaulted in making
regular supplies. The government rescinded the contract and forfeited
the amount deposited. The Court observed that Section 74 does not
apply to forfeiture of earnest money but forfeiture of a deposit, made
amount to a penalty. Referring to the arguments that Rs. 1,850 was a
genuine pre-estimated damage, the Chief Justice said that the
government has proved no loss as the government obtained another
contract on the similar rates, if no loss is proved, the provisions of Act
under Section 73 and 74 relating to damages for breach are not
attracted. Since there was no attempt by the government to prove
whether the price paid to the other supplier was more than the contract
price, the government was not entitled to any compensation.
Q.27 What provisions have been made in the specific Relief Act, 1963
regarding filling the suit by a person who has been dispossessed
from immovable property?
OR
What remedies are available in specific relief act to a person who has
been dispossessed from immovable property?
Ans. According to section 5 of specific relief act 1963, “A person entitled to
a possession of specific immovable property the first type of provision
is based on the title or right and described in section 5 of the act.
In Prabha manufacturing Industrial co-operative society Vs.
Banwarilal A.I.R. 1989 S.C. 1101. The suit had been filled to recover
possession of the land from the tenant. The concurrent finding of the
two courts on facts was that only a plot of land had been allotted to
the society. The Supreme Court held that ordinarily it does not interfere
with revaluated evidence but as a special case it is doing in this case
because if the decision goes in fever of the respondent, several members
of the society who are in possession of the said property will be
thrown out. The Supreme Court, therefore, re-evaluated evidence. After
evaluating the evidence the Supreme Court to the conclusion that the
finding of the courts below on facts was correct thus the plot of land
had been allotted in the name of the society which was only a tenant.
Therefore the respondent was justified in filing the suit to attempt to
recover the possession of the property.
Section 5 of specific relief act states that a suit for possession must be
filled having regard to the provision of civil procedure code. Since the
statute provides for the applicability of the code of civil procedure,
there cannot be any doubt whatsoever that all the provisions there of
shall apply.
Sec. 6 of the specific relief act 1963 provides:
(1) If any person is disposed of without his consent of immovable property
otherwise than in due course of law, he or any other person claiming
through him may by suit, recover possession thereof notwithstanding
any other title that may be setup in each suit.
(2) No suit under the section shall be brought:
(i) After the expiry of six months from the date of possession or.
(ii) Against the government.
(3) No appeal shall lie from any order of decree passed in any suit instituted
under this sec. nor shall any review of any such order or decree be
allowed.
(4) Nothing in this s. shall bar any person from suing to establish his title
to such property and to recover possession thereof. Sec. 6 of the
present act corresponds to Sec.9 on the repealed specific relief act
1877.
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Sec.6 propounds two important principles:
(i) That disputes rights ought to be decided in due course of law and not
otherwise.
(ii) If a person is in possession of some property, then in existing
possession ought to be protected notwithstanding any other title that
may be set up in the suit. In other words, the object of the section is
that a person in possession of a specific immovable property can be
disposed of only by the process of the law. Thus is sec. discourages
people to take law in their own hands. This sec. greatly emphasis and
protect present or existing possession notwithstanding every title
that may be set up in the suit against such possession. If a person
claims any title against the person who is in possession of the property
then he can recover possession of property only by providing his title
by filing a regular civil suit. However, it may be noted that under s. 6,
only that person is entitled to recover possession of specific immovable
property whose possession is valid. For e.g. if a trespasser is disposed
of specific immovable property, then he cannot recover possession
under this sec. A trespasser can be prevented from taking possession
but once it is established he can be disposed only by due process of
law.
Essential elements of Sec .6:
(a) At the time dispossession the possession of the plaintiff must be
valid
(b) The plaintiff must have been dispossessed of immovable property
without his consent.
(c) The dispossession must not have been made in due course of law.
(d) If at the time of dispossession the plaintiff’s possession was valid and
he was dispossessed without resort to due course of law, he may
recover possession of specific immovable property notwithstanding
any title that may be set up in the suit against him.
(e) In order to recover possession the suit must have been filed within six
months of the date of dispossession.
(f) Under Sec.6, suit to recover possession cannot be filed against the
government.
The procedure for recovering possession of specific immovable
property is the same provided in civil procedure code. However, Sec.
6 contemplates summary and expeditions procedure. Both Sec.5 and 6
provide for alternative and separate remedies but where a suit is filed
under Sec.6, the question of title cannot be raised.
Q.28 Explain the recovery of possession of movable property in specific
relief act ?
Ans. Section 7 and 8 of the specific relief act 1963 deal with the recovery of
the possession of movable property. This section provides the
following:
Recovery of specific movable property:
Section 7 provides as follows :
A person is entitled to the possession of specific movable property
may recover it in the manner provided by the CPC.
Explanation 1:
A trusty may sue under this section for the possession of movable
property to the beneficial interest in which the person for whom he is
trusty is entitled.
Explanation 2:
A special or temporary right to the present possession of movable
property is sufficient to support a suit under this section.
Section 7 of the specific relief act 1963 as noted about corresponds to
section 10 of the repealed specific relief act 1877 they are :
(i) A receive a letter addressed to him by B. B gets back the letter with the
consent of A. A has such a property therein as entitle him to recover it
from B.
(ii) A deposit books and papers for safe custody with B. B losses them
and C finds them but refuses to deliver them to B when demanded. B
may recover from C.subject to C’s right if any under s. 168 of the
Indian Contract Act 1872.
(ii) A a warehouse keeper is charged with the delivery of certain goods to
Z, which B takes out of A’s possession. A may sue B for the goods.
Section 7 of the specific relief act 1963 is similar to section 5 of the
same act which deals with recovery of possession of immovable
property. Section 7 has the following special features:
(a) The section can be attracted only when the plaintiff is entitled to the
possession of movable property.
(b) The property must be specific.
(c) The recovery of the possession can be made same manner as is
provided in CPC.
Liability of person in possession not as owner to deliver to person
entitled to immediate possession.
According to section 8 -
Any person having the possession or control of a particular article of
movable property of which he is not the owner may be compelled
specially to deliver it to the person entitled to its immediate possession
in any of the following cases -
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(i) When the thing is claimed by the defendant as the agent or trusty of
the plaintiff,
(ii) When compensation in money would not afford the plaintiff adequate
relief for loss of thing claimed,
(iii) When it would be extremely difficult to ascertain the actual damage
caused by its loss,
(iv) When the possession of the thing claimed has been wrongfully
transferred from the plaintiff.
An explanation is appended to section 8 which runs as follows :
Explanation - unless and until the contrary is proved the court shall in
respect of any article of movable property claimed under clause (b) or
clause (c) of this sec. Presumes:
(a) that the compensation in money would not afford the plaintiff adequate
relief for the loss of the loss of the thing claimed or as the case may be,
(b) that it would be extremely difficult to ascertain the actual dam age
caused by its loss,Sec.8 of the present act which has been noted
above corresponds with sec. 11 of the repealed specific relief act 1877.
Sec.11 of the repealed act contained the following illustration:
(a) A, proceeding to Europe leaves his furniture in charge of B, as his
agent during his absence B, without A’s authority pledges the furniture
to C and C knowing that B had no right to pledge the furniture,
advertises for sale c may be compelled to deliver the furniture to A, for
he holds it as A’s trustee.
(b) Z has got possession of an idol belonging to A’s family and of which
A is the proper custodian Z may be compelled to deliver the idol to A.
(c) A is entitled to a picture by a dead painter and a pair of rare china
vases. B has possession of them the articles are of too special a
character to bear an ascertainable market value. B may be compelled to
deliver the idol to A.
It may be noted here that sec. 8 of the specific relief act 1963 attaches
more importance to title than possession under sec.8 (a) when the
thing claimed is held by the defendant as the agent or trustee of the
plaintiff, he may be compelled specially to deliver it to the person
entitled to its immediate possession similarly under sec. 8 (d) when the
possession of the thing claimed has been wrongfully transferred from
the plaintiff the defendant may be compelled specially to deliver it to
the person entitled to its immediate possession.
Q.29 What are the conditions in which the contracts can be specifically
enforced under Specific Relief Act, 1963 ? Also discuss the conditions
under which contracts cannot be specifically enforced.
OR
What contracts can be specifically enforced? Explain?
OR
Explain those contracts which can be specifically enforced under the
specific relief Act, 1963?
Ans. Conditions where contracts can be specifically enforced: The
circumstances in which specific performance may be granted are
enumerated in Section 10 of the Specific Relief Act and before the
Court may exercise its power, it must be shown that the contract is
valid in law and provable at the Court of law.
Conditions in which specific performance of contract is enforceable
(Section 10): Section 10 of the Specific Relief Act, 1963 deals with
circumstances in which specific performance of a contract can be
granted.
After the enactment of Specific Relief (Amendment) Act, 2018,
substituted Section 10 of the Specific Relief Act, 1963 says, “The
specific performance of a contract shall be enforced by the Court
subject to the provisions contained in sub-section (2) of Section 11,
Section 14 and Section 16”.
Therefore, after the perusal of substituted Section 10 of the Act, now
enforceability of specific performance of contract no longer remains a
discretionary remedy. It became a legal remedy governed by specific
principles of law.
Cases in which specific performance of contracts connected with
trusts are enforceable (Section 11): Section 11 of the Specific Relief
Act deals with the circumstances in which specific performance of a
contract connected with trusts are enforceable. According to Section
11 of the Act, specific performance of a contract shall be enforced
when the act agreed to be done is in the performance wholly or partly
of trust. [As amended by the Specific Relief (Amendment) Act, 2018].
But, a contract made by a trustee in excess of his powers or in breach
of his trust cannot be specifically enforced.
Conditions under which contracts cannot be specifically enforceable:
Substituted Section 14 [By the Specific Relief (Amendment) Act, 2018]
provides for the conditions under which a contract cannot be
specifically enforced. The conditions are as follows:
(a) Where a party to the contract has obtained substituted performance
of contract in accordance with the provisions of Section 20;
(b) A contract, the performance of which involves the performance of a
continuous duty which the Court cannot supervise;
(c) a contract which is so dependent on the personal qualifications the
parties that the Court cannot enforce specific performance of material
terms; and
(d) a contract which is in its nature determinable.
160 LAW OF CONTRACT
Personal bars to relief: Section 16 of the Act provides for personal
bars to specific performance of a contract. As per amended Section 10
IAS amended by the Specific Relief (Amendment) Act, 2018] specific
performance of a contract cannot be enforced in favour of a person:
(a) Who has obtained substituted performance of contract under Section
20; or
(b) Who has become incapable of performing, or violates an essential
term of, the contract that on his part remains to be performed, or acts
in fraud of the contract, or wilfully acts at variance with, or in subversion
of, the relation intended to be established by the contract; or
(c) Who fails to prove that he has performed or has always been ready
and willing to perform the essential terms of the contract which are to
be performed by him, other than terms the performance of which has
been prevented or waived by the defendant.
Explanation: For the purposes of clause (c),
(i) where a contract involves the payment of money, it is not essential for
the plaintiff to actually tender to the defendant or to deposit in Court
any money except when so directed by the Court;
(ii) the plaintiff must prove performance of, or readiness and willingness
to perform, the contract according to its true construction.
Leading Cases: In Juraj Singh v. Labh Singh, AIR 1995 SC 945, the
Apex Court observed that in a suit for specific performance the plaintiff
must prove that from the date of agreement to the date of hearing he
has been ready and willing to perform his part of the contract.
In Kulwant Singh v. Makhan Singh, AIR 2003 P&H 142, it was held
that a retired partner can sell his share after retirement. Specific
performance of agreement to sell the share of the retired partner in
machinery installed in the factory of partnership firm can be enforced.
Q.30 What are the defences available in a suit for Specific Performance of
the Contract?
OR
State with examples, the defence which are available against the
Specific Performance of Contract?
Ans. Defences against the suit for Specific Performa General Defences
(Section 9): Section 9 of the Specific Relief Act, provides for general
principles relating to defences respecting suits for relief based on
contract. Section 9 provides the following:
“Except as otherwise provided herein, where any relief is claimed under
this Chapter (i.e. Chapter II) in respect of a contract the person against
whom the relief is claimed may plead by way of defence any ground
which is available to him under any law relating to contracts.”
Section 9 makes it clear that in a case relating to specific enforcement
of contract, the defendant may take all those defences which are
available to him under any law relating to contracts. For example, the
defendant can take the defences provided under the Indian Contract
Act, 1872 such as incapacity of the parties, fraud, mistake, undue
influence, coercion etc.
Illustrative Cases: Smt. Mayavati v. Smt. Kaushalya Devi, [(1990) JJT
205 (SC)]: Held, The defendant can resist the suit on the ground that
there was no consensus ad idem between the parties or that the parties
did not agree on the same thing in the same sense.
Municipal Council, Udaipur v. Mahendra Kumar, [(2008) 12 SCC 771]:
Held, Where there is no subsisting agreement, specific performance
cannot be granted. The plaintiff will not be successful in maintaining
a suit for specific performance after the contract is determined.
The defendant may set up the following defences in a suit for specific
performance
1. Non-performance of Contract [Section 12]: That the plaintiff has not
left performed the whole of his part of the contract and that the part
unperformed forms a considerable portion of the whole which does
not admit of compensation in money.
2. Substituted performance under [Section 20]: That the party to the
contract has obtained substituted performance in accordance with
Section 20.
Compensation in money [Section 14 (a)]: That the compensation in
money would be an adequate relief to the plaintiff.
3. Contract dependent on personal qualification of the parties [(Section
14 (c)]: That the contract is dependent on personal qualifications of
the parties or is of such a nature that specific performance of it should
not be granted to the plaintiff.
4. Determinable Contract [Section 14 (d)]: That the contract is in its nature
determinable.
5. Breach of Trust or excess of its powers: That it is a contract by the
plaintiffs (if they are trustees) in breach of their trust or is in excess of
its powers.
6. Contract by corporation or public company. - That the contract was
made by the corporation or public company in excess of its powers.
7. Contract involves a continuous Duty [Section 14 (b)]: That the
performance of the contract involves a continuous duty which the
Court cannot supervise.
8. Non-existence of Material Part of Contract: That the material part of
the contract has ceased to exist.
162 LAW OF CONTRACT
9. Plaintiff gets an unfair advantage over the defendant: That the contract
when made gave the plaintiff an unfair advantage over the defendant.
10. Involving hardship: That the performance of the contract would
involve hardship on the defendant whereas its non-performance would
involve no such hardship on the plaintiff.
11. Choosing of remedy: That the plaintiff has chosen his remedy and
obtained satisfaction for the alleged breach of contract.
12. Settlement made previous to Contract notice: That the plaintiff has
previously to the contract notice that a settlement of the subject-
matter had been made and was then in force.
13. Reasonable doubt as to title: That the plaintiff cannot give a title free
from reasonable doubt.
14. Contracts varied due to fraud or mistake of fact [Section-18]: That the
plaintiff could not obtain specific performance except on variation
because by fraud or mistake of fact the contract is different from that
which the defendant is supposed to be or because the object of the
parties was to produce a certain legal result which they cannot as
framed was not calculated to produce.
15. Consideration inadequately paid: That the consideration paid by the
plaintiff is so grossly inadequate as to amount to fraud or undue
advantage taken by the plaintiff.
16. Consent obtained illegally: That the consent of the defendant was
obtained by the plaintiff by misrepresentation, concealment,
circumvention or unfair practices.
17. Consent given under influence of mistake etc: That the consent of the
defendant was given under the influence of mistake of fact,
misapprehension or surprise practised by the plaintiff.
18. Lack of mutuality: That the contract is wanting in mutuality.
19. Inability to make good title to property: That the plaintiff cannot make
a good title to the property in accordance with the contract.
20. Absence of Consideration: That the contract is without consideration.
Q.31 What contracts cannot be specifically enforced? Explain?
OR
Discuss those contracts which cannot be specifically enforced under
the Specific Relief Act, 1963?
Ans. According to section 14 of the Specific Relief Act, which corresponds
to section 21 of the old act, the following contracts cannot be
specifically enforced:
1. Contract in which compensation in money adequate relief: A contract
for the non-performance of which compensation in money is an
adequate relief. [Section 14 (1) (a)].
Illustration:
A contract to sell, and B contracts to buy 40 chests of indigo at Rs.
1,000 per chest. This contract cannot specifically be enforced, for
both A and B would be reimbursed by compensation in money.
Thus the contract being in respect of a property which is ordinarily
and easily available and saleable in the market will not be enforced
(specifically) because A or B may each be adequately cor.ipensated
for by being awarded such damages which may be caused to them by
selling to or purchasing from another the subject-matter of the contract.
In the case of Prakash Chandra v. Angad Lal, AIR 1979 SC 1241, the
court held that specific performance ought to be denied only when
equitable considerations point to its refusal and the circumstances
show that damages would constitute an adequate relief.
2.(a) Contract running into minute and numerous details: A contract which
runs into such minute and numerous details that the court cannot
enforce specific performance on its material terms.
Illustration:
The Court cannot order the specific performance of a contract to build
or repair a house or building because it involves minute and numerous
details requiring prolonged watching over and supervision.
(b) Contract dependent on personal qualification: A contract which is so
dependent upon the personal qualification or volition of the parties.
Illustration:
A contract for painting or writing a book or singing a song in a theatre.
A contract with B in consideration of Rs.1000, to be paid to him by B,
he will sing a song in the B’s theatre. This contract can’t be specifically
enforced by the court
(c) Contract where specific performance not possible: Where the contract
from its nature is such that the court cannot enforce Specific
performance. [Section 14 (1) (b)].
Illustration:
A court will not enforce an agreement to form and carry on a partnership
3. Determinable Contract: A contract which in its nature is determinable.
[Section 14 (1)(C)].
Illustration:
A and B contract to become partners in a certain business, the contract
not specifying the duration of the proposed partnership. It cannot be
specifically enforced because, if performed, either A or B might at once
dissolve the partnership.
164 LAW OF CONTRACT
4. Contract involving performance of continuous duty: A contract the
performance of which involves performance of continuous duty
extending over a longer period than years from its date [Section 14 (1)
(d)].
Illustration:
A contracts to let for 21 years to B the right to use such carriage for
certain railway made by A as was upon B’s land and that B should
have a right of running carriages over the whole line on certain terms
and might require A to supply the necessary engine power, and that A
should during the term keep the whole railway in good repair. Specific
performance of this conii act must be refused to B.
5. Contract to refer to arbitrations: Same as provided by the Arbitration
Act, 1940, no contract to refer (present or future differences) to
arbitration shall be enforced but if, any person who has made such a
contract and refused to perform it sues in respect of any difference
which he has contracted to refer, the existence of such contract shall
bar the suit. [Sec.14 (2)].
Exception: It may be noted that Section 14 (3) of Specific Relief Act,
1963, lays down the exception where the court may enforce the specific
performance in the following cases:
(a) Where the suit is for the enforcement of a contract:
(i) To execute a mortgage or furnish any other security for securing the
payment of any loan which the borrower is not willing to repay at
once.
Provided that where only a part of the loan has been advanced the
lender is willing to advance the remaining part of the loan in terms of
the contract; or
(ii) To take up and pay for any debentures of a company
(b) Where the suit is for:
(i) The execution of a formal deed of partnership, the parties having
commenced to carry on the business of the partnership; or
(ii) The purchase of a share of a partner in a firm;
(c) Where the suit is for the enforcement of a contract for construction of
any building or the execution of any other work on land.
Provided that the following conditions are fulfilled, namely
(i) Precise description of terms of contract: The building or other work
is described in the contract in terms sufficiently precise to enable the
court to determine the exact nature of the building or work;
(ii) Compensation not an adequate relief: The plaintiff has a substantial
interest in the performance of the contract and the interest is of such
a nature that compensation in money for non-performance of the
contract is not an adequate relief; and
(iii) Whole or partial possession: The defendant has in performance of
the contract obtained possession of the whole or any part of the land
on which the building is to be constructed or other work is to be
executed.
Q.32 Explain the followings:
(1) Rescission of contracts
(2) Rectification of Instruments
(3) Cancellation of Instruments
(4) Doctrine of Mutuality
Ans.(1) Rescission of contracts: It is an equitable remedy converse to of
specific performance and seeks to relieve that parties from the
obligations of a contract which is inoperative or becomes so at the
option of one of the parties to it. It means the putting an end to a
contract and making it null and void ab initio. It is not applicable to
void contracts but contracts which are voidable.
According to Banerjee: “Rescission of contract is the relief, reverse
of specific performance, the one grants relief by enforcing the
performance of a contract which binds the party, the other by
discharging him when it is not just to bind him.”
Adjudging the Rescission: In the following circumstances the
rescission of contract may be adjudged:
(i) Rescission clause in the contract: It may expressly contain a rescission
clause. Then in pursuance of that clause it may be rescinded.
(ii) Contract, voidable or terminable: Where the contract is voidable or
terminable by the plaintiff, the court may adjudge it rescinded.
[Sec. 27 (1) (a)]
A contract is voidable if it is vitiated by fraud, misrepresentation
coercion, undue influence or mistake.
(iii) Unlawful contract: When the contract is unlawful for cause not
apparent on its face, and the defendant is more to blame than the
plaintiff, it may be rescinded. [sec. 27 (1) (b)]
(iv) Default by purchaser or lessee: When a decree for specific performance
of a contract of Sale or of a contract to take lease has been made, the
purchaser or lessee make default in payment of the purchase money or
other sum which the court has ordered him to pay, the contract may be
rescinded at the instance of the seller or lessor.
[Sec. 28]
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(v) Alternative Relief: Rescission may be asked for in the alternative. In a
suit for specific performance, the court if it refuses to enforce the
contract specifically, may direct it to be rescinded and delivered up
accordingly. [Sec. 29]
Circumstances under while relief of rescission may not be granted
by a court: According to Sec. 27 of the Specific Relief Act the relief of
rescission may be restricted in the following cases:
(i) Where the plaintiff has expressly or impliedly ratified the contract;
(ii) Where, owing, to the change of circumstances which has take place
since the making of the contract (not being-due to any act of the
defendant himself) the parties can not be substantially restored to the
position in which they stood when the contract was made; or
(iii) Where third parties have, during the subsistence of the contract
acquired rights in good faith without notice and for value; or
(iv) Where only a part of the contract is sought to be rescinded and such
part is not severable from the rest of the contract. [Sec. 27 (2 )(a)-(d)]
Ans.(2) Rectification of Instruments: The correction of an error in an
instrument in order to give effect to the real intention of the parties is
called rectification of instrument. When a contract has been reduced
into writing in pursuance of a previous engagement and the writing
owing to fraud or mutual mistake, fails to express the real intention of
the parties the court will rectify the writing instrument in accordance
with their true intent.
According to Collect, “Here the fundamental assumption is that there
exists, in between the parties a complete and perfectly unobjectionable
contract but the writing designed to embody it, either from fraud or
mutual mistake is incorrect or imperfect and the relief sought is to
rectify the writing so as to bring it in to conformity with the true intent.
In such a case to enforce the instrument as it stands must be to injure
at least one party to it, to rescind it altogether must be to injure both,
but to rectify it and then enforce it to injure neither but to carry out the
intention of both. In cases of rectification the court does not put into
the other party to submit to the variation alleged but makes the
instrument conformable to the intention of the parties without any
such offer or submission.”
Essentials of Rectification: The essential conditions necessary for
obtaining rectification are:
(1) There should have been a complete agreement reached prior to the
written instrument which sought to be rectified. There must be two
distinct stages; (i) an agreement, verbal or written, which clearly
expresses the final intention of the parties; and (ii) an instrument which
purports to embody that intention.
(2) Both the parties must have intended that the exact terms of the prior
contract should be reduced to writing.
(3) Clear evidence of mistake common to both parties or fraud.
When instrument can be rectified : According to Sec. 26 (1) of the
Specific Relief Act, “when through fraud or a mutual mistake of the
parties contract or the other instrument in writing (not being the articles
of association of a company to which the Companies Act, 1956, applies)
does not express their real intention the instrument may be rectified.”
Ans.(3) Cancellation of Instruments: The relief of cancellation of an instrument
is also based on the equitable doctrine, “one who seeks equity, must
do equity”. To cancel a document means the removal of written
character of a record.
In the matter of voidable contracts in writing, the powers of juridical
rescission are co-extensive with those of directing the cancellation
and surrender of instrument:
Under Specific Relief Act, 1963^ the present law relating to cancellation
of instruments is contained in Sections 31 to 33.
The relief of cancellation of instrument is founded upon the
administration of protective justice for fear technically known as ‘qua
tinict’.
When cancellation may be ordered [Section 31 (1)]: According to
Section 31 (1), grounds for cancellation of an instrument are as follows:
1. There must be reasonable apprehension of serious injury: Any person
against whom a written instrument is void or voidable, and who has
reasonable apprehension that such instrument, if left outstanding,
may cause him serious injury, may sue to have it adjudged void or
voidable; and the Court may, in its discretion, so adjudge it and order
it to be delivered and cancelled.
2. In case of registered instrument the Court shall send cancellation
order to the registration officer: If the instrument has been registered
under the Indian Registration Act, 1908, the Court shall also send a
copy, of its decree to the officer in whose office the instrument has
been so registered, and such officer shall note on the copy of the
instrument contained in his books the fact of the cancellation.
Conditions for the relief under Section 31
Before a person can claim relief for cancellation, he must prove the
following facts beyond doubt—
(i) That the written instrument is either void or voidable against him;
(ii) That he has reasonable apprehension of injury from the instrument if
it is left outstanding;
(iii) That the threatened injury is serious;
168 LAW OF CONTRACT
(iv) That in view of all the circumstances of the, case, the Court considers
it reasonable and proper to administer protective and preventive justice
asked for and that the Court ought, in the exercise of its discretion—
(a) Adjudge the instrument void or voidable in his favour, and
(b) Order it to be delivered up and cancelled.
Illustrations:
(i) A, the owner of a ship by fraudulently representing her to be seaworthy
induces B. an underwriter, to insure her, B may obtain the cancellation
of the policy.
(ii) A conveys land to B who bequeaths it to C and dies. Thereupon D
gets possession of the land and produces a forged instrument stating
that the conveyance was made to B in trust for him (D). C may obtain
the cancellation of the forged instrument.
(iii) A deed of settlement purporting to convey property may be cancelled
if the marriage in contemplation of which it had executed cannot be
performed on account of the death of either party.
Leading Cases: Khema v. Sri Bhagyvan, [AIR 1995 Raj 94, 97]: Held,
under Section 31, the relief can be obtained not only by a party to the
contract but also by anyone against whom the written instrument is
void or voidable. Thus, a creditor, in his own behalf as well as on
behalf of other creditor, may file the suit andpray for cancellation of
the written instrument which had been executed by the debtor to
defraud the creditors.
Chacko v. Mahadevam, [AIR 2007 SC 2967]: The execution of the sale
deed of land is made by the transferor when he is under the influence
of wine which is proved by medical certificate. The valuable land is
sold for less prove.
Held:Such a sale is made by a person who is not of sound mind, so it
is liable to be cancelled:
What instruments may be partially cancelled [Section 32]: Section
32 of the Specific Relief Act deals with circumstances in which
instrument may be partially cancelled. Section 32 of the Act provides:
“Where an instrument is evidence of different rights or different
obligations, the Court ifiay in a proper case, cancel it in part and allow
it to stand for the residue.”
For applicability of Section 32, the written instrument must be evidence
of the different rights and obligations which can be separate from
each other.
Illustration: ‘A.’ executes mortgage deed in favour of ‘B’. ‘A’ is able
to procure the deed from B by fraud and makes therein an endorsement
of receipt of Rs. 1,200 appearing to have been signed by B. Thus B’s
signature is forged. B is entitled to have the endorsement cancelled,
leaving the deed to stand in other respects. [Based on Ramchandra v.
Ganga Saran, (1917) 39 All 103)].
Restoration of benefits or compensation on cancellation [Section 33]:
Section 33 of the Act empowers the court to require benefit to be
restored or compensation to be made when instrument is cancelled or
is successfully resisted as being void or voidable.
According to Section 33 (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.
Similarly, under Section 33 (2) such order of restoration or compensation
may also made where a defendant successfully resists any suit on the
ground that the instrument sought to be enforced against him in the
suit is:
(a) voidable; or
(b) void, by reason of his not having been competent to contract under
Section 11 of the Indian Contract Act, 1872. Section 33 (b) is based on
the view expressed by Sir Shadi Lal, C.J. in Khan Gul v. Lakhan Singh,
1LR (1928) 9 Uh. 701.
Ans.(4) Doctrine of Mutuality: The doctrine of mutuality though a technical
one is founded on common sense. According to this doctrine a party
to the contract should not be bound to that contract when he could
not enforce it against the other. Specific performance of a contract
may be refused on the ground of lack of mutuality.
The doctrine of mutuality in relation to specific performance of
contracts may be stated as follows:
“Specific performance of a contract cannot be granted unless it can be
claimed by or granted to both the parties to the Contract.”’
This doctrine can be illustrated by a contract by or on behalf of minor
which cannot be specifically enforced for him since it cannot be
enforced against him or a contract for personal service to be rendered
by A to B which cannot be specifically enforced at instance of B.
Thus the doctrine of mutuality presupposes a bilateral contract. It
means that the contract must be mutually enforceable by last party
against the other.
This doctrine has given rise to dispute. The doctrine supposed to
have been invented by Lord Redesdale and formulated by Fry.
In Lawerenson v. Butiler, (1802) 1 S.Ch. and Lef. 13, Lord Redesdale
affirms that, “this would not be equity that a party not bound by the
agreement itself, should be permitted, at his option, and when he finds
it to his advantage to do so, to compel the other party to perform,
170 LAW OF CONTRACT
when if the advantages were the other party, he could not himself be
coerced to perform on his part.”
But Prof. Ashburner refuses to recognise “want of mutuality” a place
among the defence to a suit for specific performance. Halsbury stears
clear the controversy and remarks: “If we follow (he line of leaf
resistance, we shall treat it as an established rule that equity insists on
mutuality, though it admits important exceptions to this rule.
Position of the Doctrine of Mutuality under Specific Relief Act, 1963:
Whether the doctrine as developed under the English law is applicable
in India or not. The judicial opinion on the point was divided. The
Calcutta High Court applied the doctrine and refused specific
performance to a minor while the Madras High Court held contrary
view. The doctrine .was referred to with approval by the Privy Council
in Sarwarjan v. Fakruddin Mohemmed, (1912) 9 AU 26—”This case
was field for specific performance of a contract at the instance of a
minor after attaining majority for the purchase by the guardian. The
Court held that it is not within the competence of a guardian of a minor
to bind the minor or his estate by a contract for the purchase of
immovable property. The minor is not bound by such contract and
there is no mutuality and it is not open to the minor, on attaining
majority to enforce specific performance of the contract.
The Specific Relief Act, 1963 is against the applicability of the doctrine
of mutuality in India. ‘
Section 20 (4) clearly provides—The Court shall not refuse to any
party specific performance of a contract merely on the ground that the
contract is not enforceable at the instance of the other party.
Exceptions to the doctrine of mutuality: The doctrine of mutuality
does not apply to
(1) unilateral contracts,
(2) a contract for performance of which is optional with both parties,
(3) negative classes of a contract,
(4) cases where mutuality is waived,
(5) the contract of purchase in a decree of the court,
(6) a bilateral contract between a fiduciary and his principal,
(7) Cases falling under Sections 12(2), 12(3), and 12(4) of the specific relief
Act, 1963.
(8) Contingent Contracts.
Q.33 What is meant by ‘Declaratory decree’? What are its essential
ingredients? Who can file suit for declaratory decree?
OR
What do you understand by “Declaratory Decree’’? Discuss essential
elements of “Declaratory Decree’’?
Ans. Sec. 34 of specific relief act lays down that any person entitled to any
legal character or to any right as to any property may institute a suit
against any person denying or interested to deny his title such
character or right and die court may in his discretion make therein a
declaration that he is so entitled and file plaintiff need not in such suit
ask for any further relief provided that no court shall make any such
declaration where the plaintiff being able to seek further relief than the
mere declaration of title omits to do so.
Example:
(i) A is lawfully in possession of certain land. The inhabitants of a
neighbouring village claim a right of way across the land a may sue for
a declaration that they are not entitled to the right so claimed.
(Verareddy Ramaraghava Reddy Vs. Konduru Seshu Reddy A.I.R.
1967 S.C. 436)
(ii) A alienates to B in which A had merely a life interest. The alienation
is invalid as against C, who is entitled as reversioner. The court may in
suit by C against A and B declares that C is so entitled.
Before specific Relief Act, 1877 the court had no separate and
independent power apart from Sec.15, of CPC to issued declaratory
de-crees. After the enactment of Sec.42 specific relief Act 1877, it was
thought that the entire power to issue declaratory decree was contained
in Sec.42 of the Act. But in some case a different view has been
expressed.
Sec.42 of the specific Relief Act is not exhaustive of the cases in
which a declaratory decree may be made and the court have power to
grant such a decree independently of the requirements of that sec.
In this case the appellants filed a petition in the district court under
Sec.84(2) of Madras Hindu Religious Endowments Act,1927 for setting
aside an order of the Endowments Board that the temple in question is
a public temple. In this case the respondents were Commissioner of
the Endowments Board and a priest. Later on during die pendency of
the case the said act was repealed and a new act namely Hindu Religious
and Charitable Endowments Act 1951 was enacted.
Consequently the original petition was the amended and an additional
prayer was made that the disputed property was the personal property
of the family of the appellant.
Thereafter a decree was passed on the basis of compromise be-tween
the commission and the appellant. Accordingly to this decree the
temple was the public temple and the properties were the personal
prop-erty of the appellant but it was provided that the appellant was
bound to make an annual payment for the maintenance of the temple.
The priest who was not a party to Ute said decree, had field this appeal
for the declaration that the said decree was not binding on the temple.
172 LAW OF CONTRACT
The Supreme Court held that the section 42 of the specific relief act
1877 (i.e. present section 34 of the specific relief act 1963) is not
exhaustive in case where the court can pass declaratory decree
indepen-dently of this section thus the present suit was held to be
beyond the purview of section 42 and will be governed by general
provisions of CPC. This appeal will be maintainable though the priest
did not have any right of legal character not he had any right in respect
of the property. The claim maintainable because it is beyond the purview
of said section 42. Therefore the Supreme Court declared the
compromise decree as void and set it aside because the deity of the
temple had not been a party.
Thus the correct view is that section 34 of specific relief act 1963 is not
exhaustive in respect of declaratory decree.
Any person entitled to any legal character or to any right as to any
property may institute suit against any person denying or interested
to deny his title to such character or right, where the court may in its
discretion make a declaration that he so entitled. The object and scope
of the section is to perpetuate and strengthen testimony regarding
title and to protect to same from adverse attack that is to prevent to
future litigation by removing existing cause of controversy not only
to secure the plaintiff possession of the property wrongfully taken
away from him or her but also to see that he or she is allowed to enjoy
that property peacefully.
In other words if a cloud is cast upon the title of the plaintiff by denial
of his legal character or right or by execution by any document which
if left out standing would militate against such legal character or right
and if some steps are not taken at once to remove the doubts and
difficulties it may at a later time create difficulties for the plaintiff to
prove his legal character or right as the evidence that is available now
may not be forth coming hereinafter.
Where the court passes the declaratory decree the executing court
cannot make any change in it.
Example: In state of Punjab Vs. Krishnadayal Shanna AIR 1990 SC
2177 a government employ instituted the suit for a declaration that he
is entitled to promotion and its ancillary benefits rights and principle.
The court decreed his suit. The plaintiff had not claimed interest or
damage or amount to be paid as a result of the said decree but the
executing court allowed interest of the same amount. The Supreme
Court held it was illegal to award interest on the decretal amount.
There can be no doubt that the court has the power to award interest
but these powers cannot be exercised by the executing court. The
executing court is bound by the terms of the decree. He cannot add
anything in the decree not reduce anything there from. The right of die
decree holder to obtain relief is determined by tire terms of the decree.
Q.34 What do you understand by Injunction? How many kinds of Injunction
are there? When they can be granted?
OR
What is temporary injunction? Distinguish between Prohibitory
Injunction and Mandatory Injunction.
OR
What are the differences between perpetual and temporary
injunctions?
Ans. Preventive relief of injunction
Definition of Injunction: An injunction is a specific order of the Court
forbidding the commissions of a wrong threatened or the continuance
of a wrongful course of action already started, or in some cases, when’it
is called mandatory injunction, commanding active restitution of the
former state of things.
In Barney’s Encyclopaedia of the Laws of England, it is defined as “a
judicial process by which one who has invaded or is threatening to
invade the rights (legal or equitable) of another is restrained from
continuing or commencing such wrongful act.”
Lord Halsbury is most explicit when he says: “An injunction is a
judicial process whereby a party is ordered to refrain from doing or to
do a particular act or thing,” Thus, if A threatens to cut the crop of B
then B may ask for injunction to restrain A from cutting the crop.
Preventive Relief under Specific Relief Act, 1963: Part III, Chapters
VII and VIII (Sections 36 to 42) deals with preventive reliefs. Chapter
VII (Sections 36 and 37) deals with “injunctions generally’’ while
Chapter VIII (Sections 38 to 42) deals with “perpetual injunctions
Preventive Relief How Granted [Section 36]: Specific Relief Act, 1963
provides two methods of granting preventive reliefs. It provides:
“Preventive relief is granted at its discretion of the Court by injunction,
temporary or perpetual.”
Classification: In respect of nature of act enjoined, injunction, may be
divided into (i) Prohibitory, and (ii) Mandatory.
As regards the time of their operation, they may be divided into (i)
temporary; and (ii) permanent.
1. Prohibitory Injunction: A prohibitory injunction forbids a defendant
to do a wrongful act and thus put a stop to something in progress.
Prohibitory injunction says, “Let the defendant be restrained from
building any wall to the injury of the plaintiffs’ right of light”.
174 LAW OF CONTRACT
2. Mandatory Injunction: A mandatory injunction prohibits the defendant
to permit the continuance of a wrongful state of things by ordering to
undo that which has been done or to do a particular act to restore
things to their former condition. A mandatory injunction says, “Let
the defendant be restrained from permitting the continuance of any
wall to the injury of the plaintiff’s right of light”.
3. Permanent (Perpetual) injunctions: A perpetual injunction is a final
decree (in part or full) granted after the trial, restraining the defendant
from committing or continuing the act complained of for all time.
According to Section 37 of Specific Relief Act ‘a perpetual injunction’
can only be granted by the decree made at the hearing and upon the
merits of the suit; the defendant is thereby perpetually enjoined from
the assertion of a right or from the commission of an act which would
be contrary to the rights of plaintiff.
“The real meaning of the phrase ‘perpetual injunction’ is that the order
is meant finally to settle the mutual relations of the parties, being made
as the result of an ordinary action, tried in due time and in ordinary
course of events, at which the Court had heard in the ordinary way the
arguments on both sides.”
4. Temporary injunction: A perpetual injunction may be obtained only
after a full trial or hearing of the case which usually takes a long time
?nd plaintiff may not always be able to wait for such a long time; he
may feel that irreparable damage will be done to him if the defendant
be not prevented at once from doing the act which he finds
objectionable. In such case he will apply for a temporary injunction to
preserve the status quo pending the trial and judgment.
Thus, as Section 37 of the Specific Relief Act lays down temporary
injunctions are such as to continue until a further order of the Court.
They may be granted at any period of a suit and regulated by the Code
of Civil Procedure, (it is also called interlocutory injunction).
Temporary injunction is an injunction granted to preserve starts quo
pending trial and judgment. Perpetual injunction is one granted after
the trial and forms part of the decree holding good without any limit of
time.
In M/s. Anand Association v. Nagpur Improvement Trust, AIR 2000
SC 3350 the trial Court while taking up the application for temporary
injunction not only dismissed the said application but also dismissed
the suit. The Supreme Court held that the dismissal of the whole suit is
erroneous.
M/s. Triveni Structurals Ltd. vs. M/s. Newage Enterprises, AIR 1993
All 79: Held—Where permanent injunction cannot be granted, as such
temporary injunction can also not be granted under Order 39, Rule 2 of
the Civil Procedure Code.
Distinction between Prohibitory and Mandatory Injunctions
Mandatory Injunctions Prohibitory Injunctions
A Mandatory injunction While the prohibitory
calls upon a person to dq injunction is restrictive
some positive act. in nature.
A mandatory injunction A prohibitory injunction
forbids for defendant to forbids a defendant from
permit the continuance of doing a wrongful act which
a wrong state of things / acts. would be an infringement
of some right of plaintiff ,
legal or equitable.
In this injunction order made While in prohibitory
to particular act to restore injunction such restoration
things to their former condition. is not necessary.
Distinction between Permanent (Perpetual) and Temporary Injunctions
Perpetual Injunctions Temporary Injunctions

A perpetual injunction can be A temporary injunction is granted
granted only after the plaintiff at any time after the commencement
has established his right to it at of the suit.
the trial.
A perpetual injunction can only A temporary injunction is passed
be granted by a decree. by an order.
Perpetual injunction is a final Temporary injunction is in effect
determination of the rights of a decree and concludes a right.
the parties and restrains the
defendant even from doing the
act complained of .
A perpetual injunction is to The effect and object of temporary
give ' effect to and protect the injunction is to preserve the property
plaintiffs right. in dispute instatus quo.
Perpetual injunctions are Temporary injunctions are regulated
regulated by Sections 38 to by the Code of Civil Procedure.
42 of the Specific Relief
Act, 1963.
Q.35 When does a Court grant perpetual injunction? Examine.

OR
When perpetual injunction can be granted?
Ans. When Perpetual Injunction may be granted: A perpetual injunction
may, at the discretion of the Court, be granted under Section 38 to
176 LAW OF CONTRACT
prevent the breach of an obligation existing in favour of the applicant,
whether expressly or by implication. Such an obligation may either
arise out of a contract or otherwise. In case such an obligation arises
out of contract, the Court shall be guided by the rules and provisions
contained in the Specific Relief Act. (A perpetual injunction may be
obtained only after a full trial or hearing of the case which usually
takes a long time). .
Section 38 of the Specific Relief Act, 1963 deals with the situations
when perpetual injunctions may be granted.
Cases when the Court may grant a perpetual injunction [Section (3)]:
When the defendant invades or threatens to invade the plaintiffs it to
or enjoyment of, property, the Court may grant a perpetual action in
the following cases:
1. When defendant is trustee: Where the defendant is a trustee of the
property for the plaintiff.
Illustration: A, a trustee for B is about to make an immediate sale of a
small part of the trust property. B may sue for an injunction to restrain
the sale, even though compensation in money have afforded him
adequate relief. .
2. No standard for ascertaining actual damage: Where there exists no
standard for ascertaining the actual damage caused or likely to be
caused by the invasion.
Illustration: A pollutes the air with smoke so as to interfere materially
with the physical comfort of B and C who carry on business in a
neighbouring house. B and C may sue for injunction to restrain the
pollution.
3. Invasion cannot be compensated: Where the invasion is such that
pecuniary compensation would not afford adequate relief.
Illustration: The inhabitants of a village claim a right of way over A’s
land. In a suit against several of them A obtains a declaratory decree
that this land is subject to no such right. Afterwards each of the other
villagers sues A for obstructing the alleged right of way-over land. A
may sue for injunction to restrain them because even if he is awarded
damages in every unnecessary suit against him, those damages will
be inadequate.
4. Pecuniary compensation cannot be awarded: When it is probable that
pecuniary compensation cannot be awarded for the invasion.
Illustration: An injunction was granted to restrain a pauper defendant
from committing acts of trespass on the ground that a right of action
for damages against a pauper cannot be available,
5. Where injunction necessary to prevent multiplicity of judicial
proceeding: Where the injunction is necessary to prevent a multiplicity
of judicial proceeding.
Illustration: A, the owner of two adjoining houses, lets one to B, and
z afterwards lets the other to C. A and C begin to make such alterations
in the / house let to C as will prevent the comfortable enjoyment of the
houses let to B. B may sue for an injunction to restrain them from
doing so.
Q.36 What do you understand by “Standard form of contract” . Explain in
the light of decided case laws.
Ans. Standard form of contract: Standard form of contract in lay-man term
means ‘take it or leave it’ kind of contract, in this type of contract the
other party is not in position to negotiate with the terms and condition
laid down in the contract, party just have the option of either enter
into the contract or forget about the contract. Thus, the fundamental
right to negotiate is affected by this type of arrangement popularly
these type of contract are known as adhesion or a boilerplate kind of
contract. Most common type of standard form of contracts are
insurance company contract, on purchasing a washing machine,
signing up for your e-mail, social networking sites etc.
For example: you have no choice but to sign on the standard form
contract if you want to advertise in, say, newspaper or TV station
even though if you don’t agree with some of the terms.
Why people accept standard form of contract:
1. First reason why people accept SFC, they don’t read the contract
clauses thoroughly as even after reading they don’t find it worthy of
giving so much time in writing down the clauses.
2. In certain contracts, there are clauses like if you accept the given
terms and condition then they will tell the full terms and condition of
the contract.
3. SFC kind of contract the party generally focus on the price mentioned
in the contract; he doesn’t really care about other different clauses
which might be exploitative in nature.
4. Manufactured pressure on the party is created by another party to
sign SFC, earlier all the negotiation and the terms had been discussed
orally and explained to them. So it becomes a kind of bounding on the
party to sign the contract.
178 LAW OF CONTRACT
5. The major point SFC’s are that they are take it or leave basis, so they
don’t have any choice but to accept the contract.
Benefits of Standard form contracting: Standard form contracting
has a host of benefits:
· It reduces the cost of contracting by eliminating the need for custom
contracts for individual tenders.
· There is a substantial cost reduction in case of “New Engineering
Contracts”, wherein standardized clauses are combined to create
suitable contracts for different employers.
· It eliminates the scope for negotiation, and thus, speeds up the bidding
process.
· It uses the same terms every time a contract is formed. This makes it
easy for people to become familiar with the terms of standard contracts
of their industry. As time passes, people’s confidence also grows in
the terms of the contract.
· Consistency in contracts means less room for deviation from the terms
set out in the contract. It prevents employers from making any changes
to the contract without informing their clients.
· Over time, standard form contracts establish a body of case laws that
can be referred by parties in case of disagreement over any issues.
This benefits the whole industry.
Case regarding standard form of contract: In M/s Prakash Road
Lines (P) Ltd vs. HMT Bearings Ltd., it has been held that the carrier
is bound to deliver the goods consigned at the appointed destination
or else he will be liable to pay compensation for the same. Merely
printing on the lorry receipt that the goods are transported at the
owner’s risk will not absolve the transporter from his duty unless it is
proved that such terms were brought to the notice of the plaintiff.
Mere printing on the lorry receipt cannot be deemed to be the term of
contract unless the plaintiff’s knowledge and the consent about the
same.
Ways to limit exploitation from Standard form of contract:- It is easy
to exploit the party entering into standard form of contract, there are
certain rules made to protect the interest of the weaker party. Specific
procedure has been mention in order to protect the weaker party in
SFC contract.
Q.37 Distinguish between Fraud and Misrepresentation. Refer the relevant
sections and case laws.
OR
Define Fraud & Misrepresentation. Mention the key difference
between them with Relevant Case Laws.
Ans. Fraud :- According to section 17 of the Indian Contract Act , 1872
“Fraud” means and includes any of t he following acts committed by
a party to a contract , or by his agent , with intent to deceive another
party thereto or his agent, or to induce him to enter into the contract.
“Fraud” means a wilful misrepresentation of a material fact. Here the
mean of material fact is a fact that would be important to a reasonable
person in deciding whether to engage or not to engage in a particular
transaction; an important fact as distinguished from some unimportant
or trivial detail.
Example: A purchased goods of Rs. 5000 from a shopkeeper B, with
the intent of not paying the money to B, this type of act amounts to
Fraud.
Essentials of Fraud: According to section 17 , following are essentials
of Fraud:
· There should be false statement of fact by a person who himself does
not believe the statement to be true.
· The statement should be made with a wrongful intention of deceiving
another party thereto and inducing him to enter into the contract on
that basis.
False statement of fact [ Section 17 (1)]:
· In order to constitute fraud, it is necessary that there should be a
statement of fact which is not true. Mere expression of opinion is not
enough to constitute fraud.
For example: A person, A person who is aged over 60 years and thus
beyond insurable age , deliberately makes a false statement that his
age is 48 years in order to take out on insurance policy , it amounts to
fraud , and the insurer is entitled to avoid the policy.
In Edington vs. Fitzmaurice [1], a company was in great financial
difficulties and needed funds to pay some pressing liabilities. The
company raised the amount by issue of debentures. While raising the
loan, the directors stated that the amount was needed by the company
for its development, purchasing assets and completing buildings. It
was held that directors had committed fraud.
Mere silence is no fraud:
It has been noted above that to constitute fraud; there should be a
180 LAW OF CONTRACT
representation as to be certain untrue facts. Active concealment has
also been considered to be equivalent to a statement because in that
case, there is a positive effort to conceal the truth and create an untrue
impression on the mind of other. Mere silence, however, as to facts in
no fraud. Explanation to “Section 17”, in this connection, incorporates
the following provision:
“Mere silence as to facts likely to affect the willingness of a person to
enter into a contract is not fraud, unless the circumstances of the case
are such that, regard being had to them, it is the duty of the person
keeping silence to speak, or unless his silence is, in itself, equivalent
to speech.”
In Keatesvs. Lord Cadogan: A let his house to B which he knows was
in ruinous condition. He also knew that the house is going to be
occupied by B immediately. A didn’t disclose the condition of the
house to B. It was held that he had committed no fraud.
In Shri Krishan vs. Kurukshetra University: Shri Krishan, a candidate
for the L.L.B part 1 exam, who was short of attendance, did not mention
that fact himself in the admission form for the examination. Neither the
head of the law department nor the university authorities made proper
scrutiny to discover the truth. It was held by SC that there was no
fraud by the candidate and the university had no power to withdraw
the candidate on that account.
Exceptions:
1. When there is a duty to speak, keeping silence is fraud.
2. When silence is, in itself, equivalent to speech, such silent is fraud.
Duty to speak:
When the circumtances of the case are such that, regard being had to
them, it is the duty of the person keeping silenc to speak , keeping
silence in such case amounts to fraud . When there is a duty to disclose
facts, one should do so rather than to remain silent.
In LIFE INSURANCE CORP. OF INDIA Vs. ASHA GOEL: The apex
court explained, The contracts of insurance including the contract of
life insurance “uberrima fides” and every facet of material must be
disclosed, otherwise , there is good ground for rescission of the
contract. The duty to disclose material facts continues right up to the
conclusion of the contract and also implies any material alternation in
the character of risk which may take place between proposal and
acceptance. If there are any misstatements of material facts , the policy
can be called into question. For determination of the question whether
the suppression relates to a fact which is in the exclusive knowledge
of the person intending to take the policy and it could not be
ascertained by a reasonable inquiry by a prudent person.
Marital status non disclosure: Non disclosure of material facts relating
to the parties to the marriage has been held to constitute fraud within
the meaning of section 17 of the Indian contract act, 1872.
In KIRAN BALA Vs. BHAIRE PRASAD SRIVASTAV: first marriage
of appellant, Kiran Bala , had been annulled on the ground that she
was of unsound mind at the time of that marriage. She was married to
the respondent, Bhaire Prasad Srivastav , the second time. The fact of
the annulment of the first marriage on the ground that she was an idiot
was not disclosed to the bridegroom either by the girl or her parents.
It was held that, it was not the duty of bridegroom to find out these
facts, but it was the duty of the girl and her parents not to conceal
these facts. Consent of the bridegroom was held to have been obtained
by fraud , and the second marriage of the appellant with respondent
was, therefore , annulled by a decree under section 12(1) (c) of the
Hindu Marriage Act.
SILENCE BEING EQUIVALENT TO SPEECH
Sometimes keeping silent as to certain facts may be capable of creating
impressions as to the existence of a certain situation. In such a case,
silence amounts to fraud.
Example: B says to A “If you do not deny it, I shall assume that the
horse is sound.
Misrepresentation: In layman language the term misrepresentation
mean the action or offence of giving a false or misleading account of
the nature of something. A misrepresentation is a false statement of a
material fact made by one party which affects the other party’s decision
in agreeing to a contract. If the misrepresentation is discovered, the
contract can be declared void and depending on the situation, the
adversely impacted party may seek damages. In such a contract dispute,
the party that made the misrepresentation becomes the defendant,
and the aggrieved party is the plaintiff. There are three types of
misrepresentation: innocent misrepresentation, negligent
misrepresentation, and fraudulent misrepresentation.
Example: A says to B to purchase his car which is in a good condition,
B purchased it in good faith but after a few days, the car did not
function properly and B has to suffer a loss to repair the car. So the act
amounts to misrepresentation as A believes that the car works properly
but this is not so.
182 LAW OF CONTRACT
Basis for Fraud Misrepresentation
Comparsion
Meaning A willful misrepresentation The representation of a
of a material fact misstatement, made
innocently, which
persuades other party to
enter into the
contract, is known as
misrepresentation.
Defined in Section 2 17  of the Indian Section 2 18  of the
Contract Act, 1872 Indian Contract Act
Purpose to Yes No
deceive the
other party
Variation in In a Fraud, the party In misrepresentation,
extent of truth making the representations the party making the
knows that representation believes
the statement is not true the statement made by
him is true, which
subsequently turned
out as false.
Claim The aggrieved party, has The aggrieved party has
the right to claim for no right to sue the other
damages. party for damages.
Voidable The contract is voidable The contract is not
even if the truth can be voidable if the truth
discovered in normal can be discovered in
diligence. normal diligence.
Key differences between fraud and misrepresentation
1. Fraud is a conscious and wilful misrepresentation of facts, while
deception is an actual representation which is false.
2. Fraud is related to lying and deceiving others to enter the contract,
but misrepresentation is the statement of fact complete by one party,
believing it to be true.
3. The will makes fraud of deceiving and manipulating others, whereas
misrepresentation is made by purely ignorance or neglect.
4. When a false statement is made knowing that it is inaccurate, it is
called as a fraud, while when a false statement is made by not knowing
that it is wrong, then it is called as misrepresentation.
5. In fraud, the party communicating information knows the truth;
however, in misrepresentation, the party making representation does
not even know the fact.
6. In fraud, the suffered party can claim for the damage or loss sustained,
on the flip side, in misrepresentation, the aggrieved party cannot claim
damages for any harm or loss sustained.
7. There is a firm intention of lying to others and concealment of facts in
fraud, whereas there is no intentional or wilful ambition of deceiving
or harming others.
8. Fraud person is punished according to the law, while the misrepresented
person is not punished as he has no intention to deceive anyone.
9. Fraud is an act of dishonesty, while misrepresentation is an act of
mistake and negligence.
Q.38 Explain the doctrine of unjust enrichment with its exceptions.
Ans. Unjust Enrichment: Unjust enrichment is a term used to describe a
situation where in one party benefits at the other party’s expenses, in
situation the law considers to be unjust. Unjust enrichment is usually
used to describe benefits that are received either accidentally or in
error, but which have not been earned, and ethically should not be
kept. Unjust enrichment is typically considered to be unfair, and those
who are declared unjustly enriched are required by law to pay the
other party restitution. To explore this concept, consider the following
unjust enrichment definition.
Doctrine of unjust enrichment: In laws of equity, unjust enrichment
occurs when one person is enriched at the expenses of another in
circumstances that the law sees as unjust. When a person has been
unfairly benefitted at the expenses of the other person is called unjust
enrichment. The doctrine of unjust enrichment was based on English
Law. In the case related to unjust enrichment , the court directs the
unfairly benefitted person to give back all the benefits which h/she
acquired unfairly or to give compensation. The defendant is obliged
by natural justice and equity to pay back the money.
Unjust enrichment commonly occurs in situation involving a breach
of contract. It commonly occurs when one party begins providing
goods or services with the expectation of being paid, only to discover
later on that the other party refuses to pay for the goods or services.
Remedies of Doctrine Of Unjust Enrichment
Section 68 of the Indian Contact Act, 1872: According to Section 68,
reimbursement can be possible only if the following conditions are
satisfied:
1. Necessaries are supplied,
184 LAW OF CONTRACT
2. to a person who is incapable of entering into a contract
3. to a person who is dependent upon the person who is incapable of
entering into a contract
4. Appropriate for the conditions of a person. Necessaries does not
mean mere necessities of life like food, shelter, cloth but it includes
necessary things which are required to maintain a person i.e. his status
and requirements. Necessaries may differ from person to person. Mere
luxurious items cannot be considered necessaries. Eg: Funeral
expenses of the husband by the infant widow is considered as
necessary for her .
Judicial Pronouncement
In the case of Jai Indra Bahadur Singh v. Dilraj Kaur[3], a minor being
bound to support his sister, money advanced to a minor for marriage
of his sister has been considered as necessaries under this section
and also recoverable from the property.
Section 69 of thre Indain Contrat Act, 1872
Payment by an interested person: A person who is interested in paying
the money which another person is bound to pay that money by law
then the person who has paid the money is entitled to get the money
back from that person, Liability arises only if:
1. The plaintiff is interested in paying the money.
2. It is not necessary that the plaintiff should have any legal obligation
of paying the money.
3. Defendant should be bound by the law to pay.
4. Payment should be by one person to another person.
Illustration:Company X agreed to buy certain mills from Y, he was
allowed to recover the amount from Y which he paid as municipal taxes
in order to the property from being sold in execution. X was interested
in paying the money in order to safeguard his property and he was not
legally obliged to pay the amount. Y was under legal obligation to pay
the money back to X as he paid the tax on behalf of Y.
Judicial Pronouncement: In the case of Dakshina Mohun Roy v
Saroda Mohun Roy Chowdhry, it was held that money paid by a
person while in possession of an estate under the decree of the court
for preventing the sale of the estate for covering the arrears of
government revenue may be recovered by him under this section
because Daksina Mohun Roy paid on behalp of Saroda Mohun Roy
Chowdhry.
Section 70 of the Indian Contract Act, 1872
Liability to pay for non-gratuitous act: Where a person lawfully does
anything for another person, or delivers anything to him, not intending
to do so gratuitously, and such other person enjoys the benefit thereof,
the latter is bound to make compensation to the former in respect of, or
to restore, the thing so done or delivered.
Illustration:A leaves his goods by mistake in B’s house . B treats the
goods as his own. He is bound to pay A for them. B is unjustly enriched
at A’s expenses.
Judicial Pronouncements
In the case of Modi Sugar Mills Limited v Union of India[5], X had a
contract with Union of India for the manufacture of biscuits for the
Union, and component material was to be supplied by the union which
it did in containers. Later, X failed to return the containers, despite
demand from the union. The union deducted the amount of value of
containers from the security deposit and other sums due to X. X
bought a suit for the recovery of amounts deducted. It was held that
the material and containers were always the property of union and it
never passed to X. The union did not intend to pass the containers
gratuitously and respondent had received benefit, in that it did not
have to supply in its own containers. Section 70 was applied in this
case and X was liable to pay compensation.
Section 71 of the Indian Contract Act, 1872:
Responsibility of finder of goods: A person who finds goods belonging
to someone else and takes them into his custody has to take the same
responsibility as a bailee. He has to take care of goods as a prudent
man would have taken care of it. He must try to find out the actual
owner of the goods and should not use the property.
Illustration:X went to a party and found a diamond ring lying on the
floor. He picks it up and it comes into his custody. He is bound to take
care of it as a prudent man. He is supposed to find its actual owner and
he cannot consider it as his own.
Judicial Pronouncement:
In the case of Newman v. Bourne and Hollingsworth[6], X, a customer,
has left a brooch with her coat in Y’s shop. Y’s assistant put the
brooch in a drawer in the shop. But later it was found missing, Y was
liable to X as he was unable to take care of the brooch as a prudent
man would have taken care of.
186 LAW OF CONTRACT
Section 72 of the Indian Contract Act, 1872
Liability of person to whom money is paid, or thing delivered, by
mistake or under coercion- A person to whom money has been paid or
anything delivered, by mistake or under coercion, must repay or
return it.
Illustration:X and Y combinedly purchased goods from shop Z. They
owe Rs 2000/- to Z. X paid money to Z but Y is not aware of it and he
even paid money to Z. Z is bound to return Rs 2000/- which is paid by
Y.
Judicial Pronouncement:
In the case of Associated Cement Company limited v. Union of India,
the railway authorities by mistake considered that the goods will be
carried by longer route so they charged extra money. They were
instructed to return the extra money which was charged.
Exceptions in Doctrine of Unjust Enrichment
(i) Drawback of duty payable under sections 74 and 75;
(ii) export duty as specified in section 26
(iii) the duty and interest, if any, paid on such duty paid by the importer or
the exporter, as the case may be, if he had not passed on the incidence
of such duty and interest to any other person;
(iv) the duty and interest on imports made by an individual for his personal
use;
(v) the duty and interest borne by the buyer, if he had not passed on the
incidence of such duty and interest to any other person;
(vi) the duty and interest borne by any other such class of applicants as
the Central Government may, by notification in the Official Gazette,
specify. However, no notification under clause (vi) shall be issued
unless in the opinion of the Central Government the incidence of duty
and interest has not been passed on by the persons concerned to
any other person.

Leading Case 1
Mohori Bibee & anr. Vs. Dharmodas Ghose, (1903) 30
I.A. 114
Leading Case 2
Carlill v. Carbolic Smoke Ball Co. [1893] 1 QB 256;
[1892] EWCA Civ 1
Leading Case 3
Bhagwandas Goverdhandas Kedia vs. Girdharilal
Parshottamdas & Co. & Ors. [AIR 1966 SC 543]
Leading Case 4
M/s Motilal Padampat Sugar Mills v. State of Uttar Pradesh
& Ors. [AIR 1979 SC 621]
Leading Case 5
Satyabrata Ghose v/s Mugneeram Bangur [1954 AIR 44,
1954 SCR 310]
Mohori Bibee & anr. Vs. Dharmodas Ghose, (1903) 30 I.A. 114
Background:
According to section 11 of the Indian Contract Act (1872), a minor is
not competent to contract. However, there are no provisions that
explicitly deal with the legal status of a contract entered into by a
minor. This gave rise to a debate whether a contract entered into by a
minor would be voidable at his option or void ab initio. In this case,
the debate regarding the legal status of a contract entered into by a
minor was put to rest by declaring that a contract entered into by a
minor would be void ab initio.
188 LAW OF CONTRACT
Facts:
On 20th July, 1895 the respondent Dharmodas Ghose executed a
mortgage in favour of Brahmo Dutt to secure the repayment of Rs.
20,000 at 12 per cent interest with respect to some houses belonging
to the respondent. At the time, the respondent was a minor and attained
21 years of age only in the month of September of the same year. In
the absence of Brahmo Dutt from Calcutta, the whole transaction was
carried out by his attorney Kedar Nath Mitter and the money was
advanced by his manager, Dedraj. It was claimed that while the
transaction was being considered, the respondent’s mother and
guardian, Smt. Jogendranundinee Dasi, had sent a letter through her
attorney, Mr. Bhupendra Nath Bose, revealing the minority of the
respondent and intimated to Mr. Kedar Nath Mitter that any money
lent to the respondent would be at the lender’s own peril. The deed of
mortgage contained a declaration by the respondent that he had
attained majority and the mortgagee’s assent to lend him money was
obtained upon assurance of the same. Mr. Kedar Nath Mitter was
aware of the respondent’s status as a minor. On 10th September 1895,
the respondent and his mother initiated an action for the declaration
of the mortgage as void and sought cancellation of the same. The
Court of First Instance granted the relief sought by the respondent
and the Appellate Court dismissed the appeal of the appellants. After
the institution of this appeal, Mr. Brahmo Dutt died and this appeal
was prosecuted by his executors.
Arguments Advanced
Contentions by appellants:
• The respondent was a major when he executed the mortgage.
• Neither the appellant nor his agent had any notice that the respondent
was a minor.
• The respondent made a fraudulent declaration regarding his age and
is hence disentitled from seeking any relief.
• The knowledge of the respondent’s actual age which Mr. Kedar Nath
Mitter possessed should not be imputed to the appellants as Mr.
Dedraj acted as the agent of Brahmo Dutt in this transaction.
• The respondent is estopped by section 115 of the Indian Evidence
Act, 1872 from claiming that he was a minor at the time of executing
the mortgage.
• The respondent must repay the amount advanced according to
section 64 and 38 of the Indian Contract Act (1872); and section 41 of
the Specific Relief Act (1877).
• The Indian Contract Act (1872) does not deal with contract by minors.
Contentions by respondent:
• Brahmo Dutt and his agents, Mr. Kedar Nath Mitter and Mr. Dedraj,
possessed knowledge of the respondent’s actual age.
• Since the respondent was a minor at the time of executing the mortgage,
the contract is void.
Judgment:
Though Mr. Brahmo Dutt was not personally present at the time of
the transaction, Mr. Mitter acted as his authorised agent in the
transaction and Mr. Dedraj too acted under his instructions in good
faith believing Mr. Mitter to be Mr. Dutt’s authorised agent. Hence,
their Lordships held that the knowledge of the respondent’s minority
possessed by Mr. Mitter was rightly imputed to Mr. Dutt.
Section 115 of the Indian Evidence Act,1872 was held to be not
applicable in the instant case as both the parties were aware of the
truth. Further, such provision was held to be not applicable in the
case of minority as held in Nelson v. Stocker 4 De G. and J. 458 (1859).
Their Lordships also relied on section 19 of the Indian Contract Act
(1872) which says that a fraud or misrepresentation which does not
cause the consent to a contract of the party on whom such fraud is
practised, or to whom such misrepresentation is made, does not render
the contract voidable.
According to section 64 of Indian Contract Act (1872), when a person
at whose option a contract is voidable rescinds the contract, he must
restore to the other party any benefits that he might have received
from that party. Their Lordships found the same to be applicable only
in the case of persons competent to contract and not in the case of
minors who are incompetent to contract. The decision of the lower
courts to decree in the respondent’s favour without ordering him to
return the money advanced was upheld by the Privy Council.
The impugned mortgage in the instant case was executed under the
Transfer of Property Act (1882). Section 7 of the aforementioned Act
says that a person must be competent to contract in order to be
competent to transfer property. Section 4 of that Act provides that
the chapters and sections of that Act which relate to contracts are to
be considered part of the Indian Contract Act, 1872. Hence, the instant
case was considered to fall under the Transfer of Property Act (1882).
Their Lordships, taking into consideration sections 2, 10 and 11 of
the Indian Contract Act (1872), held that the Act makes it essential
that all contracting parties should be “competent to contract,” and
expressly provides that a person who by reason of minority is
190 LAW OF CONTRACT
incompetent to contract cannot make a contract within the meaning
of the Act. Their Lordships also considered various other provisions
of the same Act to point out the void nature of a contract by a minor.
Sec. 68 states that 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. It is clear from the Act that a
minor is not liable even for necessaries, and that no demand with
respect to the same is enforceable against him by law, though a
statutory claim is created against his property. Under sections 183
and 184 no person under the age of majority can employ or be an
agent. Again, under sections 247 and 248, although a person under
majority may be admitted to the benefits of a partnership, he cannot
be made personally liable for any of its obligations; although he may
on attaining majority accept those obligations if he thinks fit to do so.
Their Lordships held that when there was no question of creation of
a contract on account of one of the parties being a minor, the question
whether such a contract is void or voidable does not arise at all as the
contract itself is void ab initio. The Indian Contract Act (1872) is
exhaustive and imperative and clearly provides that a minor is not
capable of entering into a contract. Their Lordships further found no
merit in interfering with the decisions of the lower courts not to order
the respondent to return the money advanced. They relied on the
decision in Thurston v. Nottingham Permanent Benefit Building
Society [L. R. (1902)1 Ch. 1 (1901); on appeal, L. R. (1903) App. Cas. 6]
wherein it was held that a Court of Equity cannot say that it is equitable
to compel a person to pay any moneys in respect of a transaction
which as against that person the Legislature has declared to be void
and rejected the appellants’ claim for an equitable remedy. The appeal
was dismissed.
Case comment:
The Indian Contract Act (1872) expressly provides that a minor is not
competent to contract. However, prior to the enactment of the Act,
the Courts held contracts by minors to be voidable according to
English authorities. Even after the enactment of this Act, there existed
a controversy regarding the nature of a contract by a minor. In this
case, the Privy Council with the aid of the various provisions of the
Act itself held that any contracts made by a minor would be void ab
initio and such minor would not be liable for any legal rights that
might accrue to the other party in the contract.
Carlill v. Carbolic Smoke Ball Co. [1893] 1 QB 256;

[1892] EWCA Civ 1
Introduction:
The English Contract Law has evolved in different dimensions leading
to various landmark cases have shaped its concepts by placing
scenarios that put the judicial minds under thought. Carlill v. Carbolic
Smoke Ball Company is one such landmark case that has earned a
name and a necessary reference for law students. Its decision was
given by the English Court of Appeals. Most importantly it became a
landmark judgment due to its notable and curious subject matter. The
presiding Coram was also very influential and well-founded when the
bench interpreted the legal concepts involved in the case. The concept
of unilateral contracts will be briefly dealt with in order to facilitate a
wholesome understanding of this case.
Facts of the case:
The Carbolic Smoke Ball Company came up with a new advertising
strategy that would require the company to advertise that their
Carbolic Smoke Ball was a definite panacea for influenza, hay-fever,
coughs and colds, headaches, bronchitis, laryngitis, whooping cough
and any other sore throat related troubles.
The company was, in fact, very confident of the usefulness of their
product. They also claimed that the carbolic smoke ball not only
possesses the ability to cure influenza but also prevent users from
192 LAW OF CONTRACT
getting any type of common flu. However, the main crux of their
advertisement was that the company stated that any person who
catches a cold or gets affected by influenza even after using their
product (carbolic smoke ball); such a person will be entitled to claim
£100 from the company provided that the product has been used for
a certain specified period of time.
The company also stated that it had also gone as far as to deposit
£1000 in a certain Alliance Bank. This deposit was made by the
company in the event of any claims that could be made in lieu of their
advertisement. The plaintiff Carllil followed all the procedures of using
the carbolic smoke ball. Even after following the procedure she still
caught the flu. Consequently, she filed a suit against the Carbolic
Smoke Ball Company. Her claim was £100 from the company as the
company advertised their product as such. The Court ruled in her
favour. The defendants, however, appealed.
Issues raised:
There were 4 main issues raised:
1. Whether there was any binding effect of the contract between the
parties?
2. Whether the contract in question required a formal notification of
acceptance?
3. Whether Mrs Carlill was required to communicate her acceptance of
the offer to the Carbolic Smoke Ball Company?
4. Whether Mrs Carlill provided any consideration in exchange for the
reward of 100 pounds offered by the company?
Concept of Unilateral Contracts:
A simple way of describing Unilateral Contracts or Single-sided
Contracts is that they consist of an offer to the world at large and
formal communication of its acceptance is not required.
There are a few implications of the way these types of contracts
function. After a thorough analysis of this concept of Single-sided
Contracts, a common conclusion is that its implementation is
problematic due to the doctrine of consideration.
Most contracts have consideration as an essential part without which
an agreement is not considered as a valid contract under law. Anything
of value is a consideration. For example, a benefit or a detriment.
When such a benefit or detriment is promised in return for the
promisor’s promise then only an agreement becomes a valid contract.
The consideration also needs to be valid and lawful. Unlawful
consideration renders a contract void.
Only promises (from both sides) which are backed by a valid
consideration are enforceable. The problem with Unilateral contracts
is that both sides don’t hold a definite obligation towards each other.
If the offer made is beneficial then also under such contracts there is
no seeming obligation for the other party (at the receiving end of the
benefit) to provide any consideration in return. According to the
essentials of a valid contract, a unilateral contract should be invalid
due to the lack of consideration, however, in daily scenarios, it very
well exists and thrives in market places.
Defendant’s arguments:
The Carbolic Smoke Ball Company argued that their offer didn’t have
a binding impact in order to form a valid contract. Their reasoning
was that words used in the advertisement did not really amount to a
proper promise because the advertisement was too vague in its terms
to form a contract.
Secondly, they argued that there was no specified limit as to time and
there was no means of checking as to how the smoke ball (product)
was being utilised by the consumers. For example, an unscrupulous
consumer may have not used the product properly at all and then
alleges the company into depositing the money according to the
offer.
Thirdly, there was no contract because in order to form a valid contract
requires communication of intention to accept. In this case, Carlill
didn’t really send any acceptance with regard to the offer either
expressly or impliedly or through any performance of an overt act.
Thus, it is clear that the advertisement was just a marketing strategy
and the company didn’t have any intention to form any form of a
contract while making an offer to the world at large.
Plaintiff’s arguments:
The plaintiff, on the other hand, argued that the promise was not
vague and also the construction of the offer was such that it was
clear that in case the product wasn’t effective the company would
reward a certain amount. Also in order to facilitate the same, the
company had deposited a large amount in the Alliance bank account.
Thus, their act of depositing the amount is proof of their intention to
actually form an agreement from one side. The plaintiffs also proved
that there was a consideration in the form of the money paid to buy
the carbolic smoke ball.
The advertisement was not an empty boast. In fact, it characterised
most of the essentials that attribute a contract and more precisely a
Unilateral Contract. Thus, the company has to fulfil its part of the
bargain.
194 LAW OF CONTRACT
Court’s stance:
The English Court of Appeals held that the contract was a binding
one. Carlill was successful. The reasoning provided by the judges are
as follows:
In a nutshell, Justice Lindley stated that the advertisement shall be
treated as an express promise. According to this promise, anyone
who contracts the flu despite the preventive capacity of the smoke
ball as claimed by the company will be paid 100 pounds provided that
the ball is utilised as per the directions (three times daily for 2 weeks).
Elaborating his reasoning as follows:
1. Justice Lindley said that the advertisement was not an empty boast
or a mere puff because of the use of a particular statement that is ”1000
is deposited with the Alliance Bank, showing our sincerity in the
matter”. This statement makes it evident that the company was
sincere enough while offering the reward in the first place.
2. The promise made by the company is binding enough even though
there was no specific at the receiving end of this conditional benefit.
This is a unilateral offer which doesn’t require acceptance as it is
made to the world at large. It shall be treated as an offer to anyone
who performs the conditions and anyone who performs the specific
condition (in this case using the smoke ball 3 times for 2 weeks)
accepts the offer.
3. Justice Lindley also concluded that the advertisement is not vague.
The words used to construct the language of the advertisement can
be construed as a promise. The words are reasonably constructed to
lead any potential consumer to believe that if they contracted the flu
even after using the smoke ball, they are entitled to 100 pounds.
4. With regard to the notification of acceptance Lindley observed that
the notification of the acceptance need not precede the performance.
It was a continuing offer. For example, if an express acceptance was
required, then the person making the offer gets the notice of
acceptance along with a promise of performance of the condition laid
down in the advertisement”. In other words, if the specific conditions
are performed then it implies the communication of acceptance of the
offer.
5. Lastly, Justice Lindley concluded that consideration did exist in this
case mainly for 2 reasons. Firstly, the company received a benefit in
the form of sales. Secondly, there is a detriment involved that is the
direct inconvenience caused to the consumer who uses the smoke
ball as per the conditions laid down in the advertisement. Thus, the
performance of the specified conditions constitutes consideration
for the promise.
Justice Bowen also offered his reasoning. Bowen also agreed with
Justice Lindley. His reasoning can be summed up into 3 points.
1. An offer made to the public at large can also ripen into a contract if
anyone fulfils the conditions of the contract. Their performance implies
their acceptance and also establishes the consideration.
2. A specific Notification of acceptance is not required in such situations.
3. There exists a valid consideration. Firstly, the company will profit
from the sale of the product. Secondly, the fact that the company
deposited 1000 pounds in the bank for the purpose of the offer made
by them implies their sincerity to fulfil their part of the bargain in case
their product fails to prevent the flu.
Finally, Justice Smith went with the reasoning of Justice Bowen and
Lindley and dismissed the appeal unanimously. The plaintiff received
compensation of £100.
Bhagwandas Goverdhandas Kedia vs. Girdharilal

Parshottamdas & Co. & Ors. [AIR 1966 SC 543]
Background:
For the formation of a contract, an offer must be made and accepted.
The contract is deemed to be complete only when the acceptance of
such offer is expressly or impliedly communicated to the offeror. The
earlier laws regarding contracts did not envisage the formation of
contracts through instantaneous modes of communication such as
telephone which facilitate formation of contract between parties in
different territories instantaneously. Therein, the question of the place
of formation of contract arises which was decided in this case.
Facts:
On July 22nd 1959, Kedia Ginning Factory and Oil Mills (appellant) of
Khamgaon entered into a contract over telephone to supply cotton
seed cakes to M/s. Girdharilal Parshottamdas and Co. (respondents)
of Ahmedabad. The respondents commenced an action against the
appellant in the City Civil Court of Ahmedabad for failing to supply
cotton seed cakes as per the aforementioned agreement. The
respondents contended that the cause of action for the suit arose at
Ahmedabad as the appellant’s offer to sell was accepted at
Ahmedabad and the appellant was to be paid for the goods through
a bank in Ahmedabad. The appellant contended that the respondents’
offer to purchase was accepted at Khamgaon; the delivery and
payment of the goods were also agreed to be made in Khamgaon and
196 LAW OF CONTRACT
the City Civil Court of Ahmedabad did not have jurisdiction to try the
suit. The City Civil Court of Ahmedabad held that it had jurisdiction
as the acceptance of the offer was intimated to the offerree at
Ahmedabad and that is where the contract was made. The appellants
filed a revision application in the High Court of Gujarat which was
rejected. Then, the appellants preferred an appeal to the Supreme
Court with special leave.
Arguments:
Contentions of appellant:
• In the case of a contract by telephone, only the court within whose
territorial jurisdiction the acceptance of offer is spoken into telephone
has jurisdiction to try any suit regarding the contract.
• Sections 3 and 4 of the Indian Contract Act (1872) are applicable in
determining the place where a contract is made and not the decisions
of UK courts.
Contentions of respondents:
• The making of an offer is a part of cause of action in a suit for damages
for breach of contract. Hence, the court in whose territorial jurisdiction
such offer was made can try such suit.
• The contract is formed where the acceptance of offer is intimated to
the offerree. Hence, the court in whose territorial jurisdiction such
acceptance of offer was intimated can try such suit.
Judgment:
Majority judgment:
A contract comes into existence when an offer is accepted and the
acceptance of the offer is intimated through anexternal manifestation
by speech, writing or other act recognised by law. However, an
exception to this rule has been made in the interest of commercial
expediency.When a contract is negotiated through post, the
communication of acceptance is deemed to be complete when the
acceptance of offer is put into a course of transmission to the offerer.
The same rule is applicable in case of a contract by telegram. Mere
making of an offer does not form part of the cause of action for
damages for breach of contract which has resulted from acceptance
of the offer (Baroda Oil Cakes Traders v. Purshottam Narayandas
Bagulia and Anr. AIR1954Bom491).Though sections 3 and 4 of the
Contract Act speak about the communication, acceptance and
revocation of a proposal and acceptance respectively, the Act does
not expressly deal with the place where a contract is made and in
determining the same, the interpretation clauses in section 2 of the
Act must be taken into consideration.
In the case of a telephone conservation, the contract is only complete
when the answer accepting the offer is made[ Denning LJ in Entores
Ltd. v. Mills Far East Corporation, (1955) 2 Q.B.D. 327]. In the majority
of European countries and the US, the generally accepted rule based
on the theory of consensus ad idem is that the contract is made in the
district where the acceptance is spoken. The Indian Contract Act
(1872) did not envisage the formation of contracts through an
instantaneous mode of communication such as telephone. The
exception of commercial expediency applicable to contracts formed
via post is not applicable to contracts made through telephone. Hence,
the Hon’ble Court held that the trial Court was right in taking that a
part of the cause of action arose within the jurisdiction of the Civil
City Court. Ahmedabad, where acceptance was communicated by
telephone to the respondents. The appeal was dismissed with costs.
Dissenting Opinion by Justice Hidayatullah:
Though the Contract Act is applicable in India, it was drafted in
England and English common law permeates it. In Entores Ltd. v.
Mills Far East Corporation, it was held that a contract made by
telephone is complete only where the acceptance is heard by the
proposer [offeror in English common law] because generally an
acceptance must be notified to the proposer to make a binding contract
and the contract emerges at the place where the acceptance is received
and not at the place where it is spoken into the telephone. In cases of
contracts by correspondent or telegram, a different rule prevails and
acceptance is complete as soon as a letter of acceptance is posted or
a telegram is handed in for dispatch.
In Carrow Towing Co. v. The Ed Mc William, (46 D.L.R. 506), it was
held: “Where a contract is proposed and accepted over the telephone,
the place where the acceptance takes place constitutes the place
where the contract is made. Acceptance over the telephone is of the
same effect as if the person accepting it had done so by posting a
letter, or by sending off a telegram from that place”. In an old English
case Newcomb v. De Roos [(1859) 2 E & E 271], Hill J. observed:
“Suppose the two parties stood on different sides of the boundary
line of the district: and that the order was then verbally given and
accepted. The contract would be made in the district in which the
order was accepted.”
Where the speech is fully heard and understood there is a binding
contract and in such a case the only question is as to the place where
the contract can be said to be completed. The acceptance was put in
the course of transmission at Khamgaon and under the words of the
Contract Act, it is difficult to say that the contract was made at
198 LAW OF CONTRACT
Ahmedabad where the acceptance was heard and not at Khamgaon
where it was spoken. Section 4 of the Act covers in its language a
contract through telephone. The decision in Entores case was based
on interpretation of common law whereas in the instant case, the
interpretation of statutory law is in question. Hence, the contract was
completed at Khamgaon where the acceptance was spoken.
M/s Motilal Padampat Sugar Mills v. State of Uttar Pradesh

& Ors. [AIR 1979 SC 621]
Facts of the case
In the instant case, the appealing party was a restricted organization.
He was mainly in business of manufacturing and selling of sugars.
On October 10th, 1968, a piece of news showed up expressing that the
respondent-State of Uttar Pradesh had chosen to give exception from
deals charge for a time of three years under Section 4-A, Uttar Pradesh
Sales Tax Act, 1948 to all new modern units in the State of Uttar
Pradesh.
On October 11th, 1968 the appealing party kept in touch with the
Director of Industries expressing that taking into account the business
charge occasion reported by the administration, the litigant wanted
to set up a plant for the production of vanaspati and looked for
affirmation of the exception. The Director of Industries affirmed the
position. An affirmation to a similar impact was given by the Chief
Secretary, Government of Uttar Pradesh.
Taking into account these confirmations, the appealing party
proceeded with the setting up of the processing plant. In May 1969,
the State administration of Uttar Pradesh reconsidered on the topic of
exclusion and mentioned the litigant to go to a gathering. At the
gathering, the appealing party’s agent said that on the affirmation
and assurance of the respondent (the legislature of Uttar Pradesh)
the litigant had continued setting up the manufacturing plant. In this
belief that the Government has exempted him from tax, he took a huge
loan and started to work on it.
However, after sometime, the Government gave a second thought to
its tax exemption policy. It called for a meeting regarding this issue
and called the petitioner to attend the meeting. Petitioner sent his
representative to attend the meeting. The State Government of Uttar
Pradesh, in any case, on January 20th, 1970, took a strategy choice
that new vanaspati units which went into business creation by
September 30th, 1970, would be given a fractional concession of deals
charge.
The litigant’s factor went into creation on July 2nd, 1970, yet the State
Government indeed changed its arrangement, and on August 12th,
1970 suggested its choice to cancel the concessions.
Articles, Acts and Rules which were the issues in this case
• Doctrine of Waiver
• Promissory Estoppel
• Article 32 of the Indian Constitution
• Article 226 of the Indian Constitution
• Section 4 A of the Uttar Pradesh Sales Tax Act, 1948
Cases which were referred to in this case
• Earl of Darnley v. London, Chatham and Dover Rly. Co (1900) (002
H.L.Cas 0043)
In this case the Lord Chemslford explained the concept of the doctrine
of waiver saying that a person can wave no right unless the person
who waived it has all information and knowledge about his right and
waiver of the same.
• Hughes v. Metropolitan Railway Co. (1876-77) LR 2 App Cas 439
In this case, the Court was of the view that doctrine of promissory
estoppels would be applicable with a limited scope and it can be
applied only on those cases where the contractual obligation exists.
• Century Spinning and Manufacturing Co. Ltd. and Anr. v. The
Ulhasuagar Municipal Council and Anr. (1971 AIR 1021)
The Court through this case held that promissory estoppels are
applicable against a public authority such as a Municipal Corporation.
• Grundt v. The Great Boulder Pty. Gold Mines Ltd.[ (1937) HCA 58]
It was an Australian case in which the classical exposition of detriment
is found.
Issues
1. Whether the plaintiff waived his right to have a cause of action by
accepting partial exemption?
2. Whether the plaintiff can have a cause of action on the grounds of
promissory estoppel?
3. Whether any such action against the Government acting in
governmental, sovereign or administrative capacity can lie?
4. Whether in the present case, the doctrine would be applicable because
the plaintiff did not suffer any detriment?
200 LAW OF CONTRACT
Analysis
1. Whether the plaintiff waived his right to have a cause of action by
accepting partial exemption?
Judgment:
The High Court was of the view that the Government would be liable
if the petitioner did not accept the concessional rates of tax. But, he
did waive his right to have a cause of action by accepting the partial
exemption.
However, the Hon’ble Supreme Court did not agree with this view
saying that any party cannot demand plea of the waiver unless it is
properly pleaded and proved because the waiver is a question of fact.
It was raised for the first time at the hearing of the writ petition. The
parties did not even mention them in affidavits, not even vaguely. It
also said that the High Court was not right in allowing the plea of
waiver to be raised against the appellant.
Analysis: The decision given by the Supreme Court is justifiable.
There can be no waiver of the rights unless the person who waived it
has all information and knowledge about his right and waiver of the
same. The Court has also said that waiver should be an intentional
act with knowledge. There was no reason to believe that appellant
was aware that his right would be waived due to partial exemption.
Lord Atkin also supported this view, saying that there is not and
never has been a presumption that everyone knows the law.
2. Whether the plaintiff can have a cause of action on the grounds of
promissory estoppel?
Judgment:
The Court analyzed the English cases as well as cases of USA. It has
found that in olden times, the presence of a contractual relationship
was a mandate to bring the case. But in recent judgments, the Courts
did not adopt this narrower view and adopted a wider view. The
Supreme Court also adopted the modern view and held that there is
no need for any contractual obligations before bringing a cause of
action on the grounds of promissory estoppels. The Court also held
that action could be brought in those cases where no contractual
obligation exists, but the same is intended for the future.
Analysis: The approach adopted by the Supreme Court appears to
be correct because it is supporting the principle of equity. It is also a
soft approach to the doctrine of promissory estoppels. Many of the
jurists do not support this view that without any contractual
obligation, the plaintiff can bring a case on the ground of promissory
estoppels. The main reason behind this thought is that if the same is
done, it would affect the doctrine of consideration.
3. Whether any such action against the Government acting in
governmental, sovereign or administrative capacity can lie?
Judgment:
The Court said that as a general rule, action against the Government
could not be brought against the Government acting in governmental,
sovereign or administrative capacity. However, the Court also held
that this doctrine would be applied against the Government, where it
is necessary to prevent fraud and manifest justice. The Court also
held that where the Government owes a duty to the public to act
differently, promissory estoppel cannot be invoked to prevent the
Government from doing so.
Analysis: The Court’s approach seems to be correct because if action
cannot be brought against the Government for the same, it would
cause injustice to society. It would also encourage corruption because
the person acting for the Government will get immunity from further
actions.
4. Whether in the present case, the doctrine would be applicable because
the plaintiff did not suffer any detriment?
Judgment:
The Court held that in order to invoke the doctrine of promissory
estoppels, it is not necessary for the promise to show that he suffered
detriment as a result of acting in accordance with promise.
Analysis: The Court was of the view that the detriment in such a
case will not be some prejudice suffered by the promisee by acting on
the promise, but the prejudice which would be caused to the promisee,
if the promisor were allowed to go back on the promise.
Judgment :
The High Court of Uttar Pradesh excused the writ and dismissed the
supplication of promissory estoppel against the legislature of Uttar
Pradesh.
The Supreme Court of India held that where one gathering made an
unequivocal guarantee by his words or action (which is expected to
make lawful relations or influence a legitimate relationship to emerge
later on) and the other party on that belief changed their situation,
and then the first party will be liable to any loss occurred. The
necessity for summoning the rule must be available, in particular that
the verifiable circumstance ought to be to such an extent that
“shamefulness can stay away from just by the requirement of the
guarantee”.
The convention of promissory estoppel isn’t generally founded on
the standard of estoppels. However, it is a regulation developed by
202 LAW OF CONTRACT
value to forestall shamefulness. There is no motivation behind why it
ought to be given just a restricted application by the method of
safeguard. It very well may be the premise of the reason for the activity.
Significance of the case
The case proved to be of significant importance in further cases. In
this case, the Court tried to explain the concept of promissory
estoppels. This case well explained that promissory estoppel could
be used as a shield. However, to be applied as a sword, it must be
applied with the doctrine of consideration. This case proved very
helpful in society to prevent fraud and injustice.
Satyabrata Ghose v/s Mugneeram Bangur [1954 AIR 44,

1954 SCR 310]
This case is related to sale of land and the question before the court
was certain supervening events which affected the material part of it
and would those events lead to its discharge. The doctrine of
frustration of contracts when an act becomes impossible to perform
or unlawful comes under the purview of Section 56 of Indian Contract
Act, 1872. By Satyabrata v Mugneeram, the Supreme Court established
the scope of Section 56 of ICA that impossibility as mentioned in the
said Section is used in a practical and not in literal sense. It also held
that it is not permissible to import English law to the statutory
provisions of ICA.
Facts:
The Respondent’s company owned a large tract of land in Calcutta. It
started a scheme for the development of the land for residential
purposes and divided land into different plots. The company entered
into agreements with purchasers for the sale of the different plots
and accepted a small amount of earnest money at the time of sale of
land. The company undertook the job of constructing roads and
drains, necessary for the residential purposes. The plots would be
given after the construction and payment of balance amount by the
buyers.
Bejoy Krishna Roy entered into the agreement with the company and
paid the earnest money deposit of Rs. 101 on 5th August, 1941. On
30th November 1941, the appellant was made the nominee of the
above land. It so happened that subsequently the land was
requisitioned by the Collector, 24 - Paragnas under Defence of India
rules for military purposes. As a consequence, in November 1943, the
company decided to treat the agreement cancelled but gave the
appellant the option of either taking the earnest money back or paying
the balance money and the company would continue its work after
the termination of war.
The appellant refused both the options. He filed a suit on 18th January
1946 and claimed that the company was bound to the terms of
agreement.
Issues:
Did the plaintiff have a locus standi for instituting the suit?
Did the contract become frustrated under the Section 56 of ICA?
Does English law of frustration apply in India?
Judicial History:
The trial court passed its judgement in the favour of Appellant (then
plaintiff). The respondents filed for an appeal in the District court
which was dismissed. A second appeal was filed in the High Court
which gave its judgment in the favour of the respondent. The appellant
therefore filed for an appeal in the Supreme Court of India under
Article 133 of the Indian Constitution.
Judgment: The Supreme Court stated that English principles of
Frustration of Contract on basis of which the judgement of the High
Court was passed is not applicable in the statutory provisions of
Indian Contract Act. It also said that the performance of the contract
has not become impossible. The Court pointed out, the company had
not commenced its work when the land was requisitioned, therefore,
there was no interruption of work. Secondly, there was no time limit
implied in the contract for the completion of construction of the roads
and drains.
It was laid by the trial court as well as the lower appellate court that
the appellant was a real assignee of Bejoy Krishna Roy on the issue
of latter’s rights on filing the suit.
Appeal allowed.
Critical Analysis:
The doctrine of frustration was first dealt in modern times in Taylor v.
Caldwell. A music hall was burnt down in which concerts were
supposed to be performed by the plaintiff on certain specific days.
The court held that the defendant (the music hall co.) was excused as
its performance became impossible.
Over the time, English law has pronounced many theories and
principles relating to the law of frustration. However, it was made
204 LAW OF CONTRACT
clear by this case that in India we have statutory provisions to be
followed under Section 56 of Indian Contract Act.
It has 3 provisions. First says, An agreement to do an act impossible
in itself is void. Second says contracts to do an act which afterwards
become impossible or unlawful are void. So when do contracts become
impossible? First, impossibility does not apply to the cases where the
contract contains an implied term which discharges them from the
performance of contract.
In Smt. Sushila Devi v. Hari Singh the Supreme Court said, Section 56
lays down a positive law and doesn’t leave the matter determined
according to the intention of parties.
Section 56 [2] is dealt with when matter is not determined to the
intention of parties. It is applied when parties did not have an intention
regarding the supervening event and when there is no implied term in
the contract. Another important aspect to check for the application of
impossibility is that the foundation of the contract gets upset.
In this case of Satyabrat Ghose v. Mugneeram Bangur, though the
land gets requisitioned by the government, impossibility does not
apply because:
They did not start their work when the land got requisitioned.
Therefore, there was no interruption in the work.
As the defendant pleads there would be an indefinite delay in
performance of the contract so the impossibility should be applied.
But there was no time limit described in the contract and the requisition
was only temporary. So there was no indefinite delay.
Third provision of Section 56 says when a person while signing the
contract has reasonable diligence which the other party didn’t know
must compensate for the loss faced by the other party.
Conclusion:
It can be concluded stating that though theories of law of frustration
of England are not applicable in India, the matter is always determined
to the court which analyzes the contract as presented by the parties
and considers the circumstances around the contract.


LAW OF CONTRACT

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LAW OF CONTRACT

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According to syllabus of Dr.

Bhimrao Ambedkar Law University, Jaipur 1

Q.4 Define Promise.

Q.29 When is a person said to be in dominating position as per Sec 16 of

Q.51 How to differentiate between Liquidated Damages and Penalty?

BASIS FOR AGREEMENT CONTRACT

BASIS FOR VOID AGREEMENT ILLEGAL AGREEMENT

Q.4 Define a ‘Proposal’. Distinguish between a ‘Proposal’ and an ‘Invitation

Q.11 What is lawful consideration and object? When is the consideration

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Q.35 When does a Court grant perpetual injunction? Examine.

Carlill v. Carbolic Smoke Ball Co. [1893] 1 QB 256;

Bhagwandas Goverdhandas Kedia vs. Girdharilal

M/s Motilal Padampat Sugar Mills v. State of Uttar Pradesh

Satyabrata Ghose v/s Mugneeram Bangur [1954 AIR 44,

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