Contracts

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‘All agreements are not contracts, but all contracts are agreements.’ Discuss.

[10]

‘The law of contracts is not the whole law of agreements, nor is it the whole

law of obligations’. Discuss [10]

Describe the essentials of a valid contract. [10]

Introduction: A contract consists of an actionable promise or promises. Every such

promise involves a minimum of two parties, a promisor and a promisee, and an

expression of a common intention and of expectation as to the act or forbearance

promised.

A short but exhaustive definition of a contract may be found under Section 2(h) of the

Indian Contract Act, 1872. Section 2(h) provides: “An agreement enforceable by law is a

contract.”

Therefore to fully comprehend the meaning of a contract one must first know the

meaning of an agreement. Section 2(e) of the Indian Contract Act, 1872 defines an

agreement as: “Every promise or set of promises forming the consideration for each other

is an agreement.”

A promise, as defined by Section 2(b) of the Act is: “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 is a result of an offer by one person and its acceptance by the other. In an

agreement there is a promise from both sides. For example, A promises to deliver his

watch to B and in return B promises to pay a sum of Rs 2000 to A. Thus, both A and B

make promises and there is said to be an agreement between them.

All agreements are not enforceable by law and therefore, all agreements are not contracts.

Some agreements may be enforceable by law while others are not. For example, an

agreement to sell a radio set may be a contract i.e. enforceable by law, but an agreement

to go so a movie is a mere agreement and not enforceable by law. Thus only those

agreements, which satisfy the essential ingredients of a contract given under Section 10

of the Indian Contract Act, 1872 become contracts. It can therefore be said that all

agreements are not contracts, but all contract are agreements.

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Essentials of a Valid Contract

The essentials needed in order for a valid contract are given under Section 10 of the Act.

They include

1. An agreement is the result of a proposal or an offer by one party followed by its

acceptance by another. It is impossible for a person to enter into a contract with

himself. Therefore for a valid contract there must be a minimum of two parties to

the contract.

2. The agreement should be between parties who are competent to contract. The

capacity to contract is explained in Sec 11 and 12 of the Indian Contract Act,

1872.

3. There should be lawful consideration and lawful object in respect of that

agreement. ‘Lawful’ means that the object and consideration promised to be

delivered should not be violative of any law and should abide by the rules laid

down in the Indian Contract Act, 1872. For a contract to be valid there has to be

some form of consideration, however it is immaterial whether the consideration is

considered adequate.

4. There should be free consent of the parties when they enter into the agreement.

Free consent, as indicated by the Act means that there must not have been any

• Coercion

• Undue influence

• Fraud

• Misrepresentation

• Mistake

taking place during the signing of the agreement.

5. The agreement must not be one, which has been expressly declared to be void.

In addition to these essential requirements, the agreement must be written and registered

as per Sec 16 and 17 of the Indian Registration Act.

Should all the conditions under Sec 10 of the Indian Contract Act, 1872 be fulfilled, then

the agreement is said to be legally enforceable by law and therefore it may be called a

contract.

Conclusion: All agreement legally enforceable by law are contracts, however though all

contracts are agreements, all agreements are not contracts. In order for an agreement to

also be a contract it must satisfy the essential requirements of a contract as laid down

under Sec 10 of the Indian Contract Act, 1872. If all the conditions under this section are

fulfilled the agreement is legally enforceable by law and is thus a contract.

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Explain the classifications of contract. [6]

State the distinction between void and voidable contract. [6]

Distinguish between [16]

• Illegal and Void agreements

• Voidable and Void agreements

• Agreement and Contract

Introduction: A contract consists of an actionable promise or promises. Every such

promise involves a minimum of two parties, a promisor and a promisee, and an

expression of a common intention and of expectation as to the act or forbearance

promised.

A short but exhaustive definition of a contract may be found under Section 2(h) of the

Indian Contract Act, 1872. Section 2(h) provides: “An agreement enforceable by law is a

contract.”

Therefore to fully comprehend the meaning of a contract one must first know the

meaning of an agreement. Section 2(e) of the Indian Contract Act, 1872 defines an

agreement as: “Every promise or set of promises forming the consideration for each other

is an agreement.”




A promise is a result of an offer by one person and its acceptance by the other. In an

agreement there is a promise from both sides. For example, A promises to deliver his

watch to B and in return B promises to pay a sum of Rs 2000 to A. Thus, both A and B

make promises and there is said to be an agreement between them.

When an agreement satisfies all the conditions laid down under Section 10 of the Indian

Contract Act, 1872 it is considered to be legally enforceable and thus it may also be

called a contract.

Contracts can be classified on four different criteria

• On the basis of validity

• On the basis of legality

• On the basis of formation

• On the basis of performance

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Classification of Contracts

On the basis of validity

On the basis of validity, contracts can be classified into

• Valid contracts

• Voidable contracts

• Void contracts

• Unenforceable contracts

Valid Contracts

An agreement that satisfies all the conditions under Section 10 of the Indian Contract

Act, 1872 is considered as a valid contract.

Voidable Contracts

According to Section 2(i), an agreement, which is enforceable by law at the option of one

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

Thus a voidable contract is one, which can be avoided by one of the parties to the

contract at his option. If such a party does not avoid the contract, the contract remains

valid, but if the party prefers to avoid the contract, then the contract becomes void. For

instance, when the consent of a party to a contract has been obtained by fraud or

coercion, the contract is voidable at the option of the party whose consent has been so

obtained.

Void Agreement

According to Sec 2(g), an agreement not enforceable by law is said to be void. For

instance an agreement by a minor is considered void. Sections 24 – 30 of the Indian

Contract Act, 1872 make a specific mention of which contracts are considered void.

Void agreement and Voidable contract distinguished

A void agreement is a nullity from its inception and no rights will accrue to any party

thereto. A voidable contract, on the other hand, is a contract, which can be avoided at the

option of one of the parties. Such a contract remains valid until it has been avoided but

becomes void only if and when it is avoided. Until such a contract has been avoided,

rights may accrue in favour of the parties to the contract.

Unenforceable Contracts

Unenforceable contracts are those that satisfy the criteria laid down by Sec 10 of the Act

but are unenforceable due to some technical difficulties like absence in writing, absence

of registration or time barred by limitation.

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On the basis of legality

Contracts are differentiated, on the basis of legality, into

• Legal / Lawful contracts

• Illegal agreement

Illegal Agreement

There are certain agreements, which are illegal in the sense that the law forbids the very

act, the doing of which is contemplated by the agreement. For example, an agreement to

commit a crime or a tort is illegal. Such an agreement is patently opposed to public policy

and the law forbids the making of such agreements.

Void Agreements and Illegal Agreements Distinguished

An illegal agreement may be distinguished from a void agreement, which may not be

opposed to public policy. The law does not forbid the making of such void agreements,

though if they are made they are not enforceable in a court of law. Whether an agreement

may be termed as illegal or not depends on the degree to which it opposes public policy.

For example, an agreement to restrain trade is void but may not be termed as an illegal

agreement.

On the basis of formation

On the basis of formation, contracts are classified as

• Express contracts

• Implied contracts

Express Contracts

When the form of offer made is express i.e. through words or written document and the

same if accepted, then it is an express contract

Implied Contracts

When parties don’t expressly agree through words or writing but by their acts and

behaviour, then the contract is said to be an implied contract.

On the basis of performance

Contracts are classified into

• Executed contract

• Executory contract

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Executed contract

When both parties have fulfilled their obligations under the contract and the contract is

discharged by performance it is said to be an executed contract

Executory contract

When the contract is not yet discharged and the parties are yet to fulfill their obligations,

the contract is said to be an executory contract.

Conclusion: All agreements legally enforceable by law are contracts. Contracts may be

classified on the different criteria as explained above.

Define ‘Proposal’. Distinguish between an offer and an invitation to offer.

[10]

Define ‘offer’. State the various rules of a valid offer. [10]

Balfour v. Balfour [10]

Carill v. Carbolic Smoke Ball Co. [10]

Introduction: Section 2(e) of the Indian Contract Act, 1872 defines an agreement as:

“Every promise or set of promises forming the consideration for each other is an

agreement.”




Therefore, in order to fully comprehend the meaning of an agreement, one must first

know the meaning of a proposal. The term ‘proposal’ has been defined by section 2(a) as:

“When one person signifies his willingness to do or to abstain from doing anything, with

a view to obtaining the assent of the other to such act or abstinence, he is said to make a

proposal.”

The term proposal used in the Indian Contract Act is synonymous with the term ‘offer’

used in English law. The willingness to do or to abstain from doing something i.e. the

proposal or the offer must be made with the view to obtaining the assent of the other

party thereto. For example, A’s willingness to sell his radio set to B for Rs 500, if B

accepts the purchase of the same, amounts to a proposal by A for the sale of the radio.

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Offer and Invitation to Offer Distinguished

A proposal, or an offer, has to be distinguished from an invitation to offer. Sometimes a

person may not offer to sell his goods, but may make some statement or give some

information with a view to inviting others to make offers on that basis. For example, a

bookseller sends a catalogue of books indicating prices of various books to many persons.

This catalogue is not an offer to sell those books at prices indicated against the books;

rather it is an invitation to offer. Any person interested in purchasing the books may make

an offer and the person circulating the catalogue has the discretion to accept or not to

accept the offer.

An offer can be withdrawn before it is accepted. For example, a bid at an auction can be

retracted before the same is accepted. Nobody is bound to accept an offer. An auctioneer,

therefore, may not even accept the highest bid. An auctioneer is also free to cancel an

auction of sale announced by him.

The best example used to differentiate between offer and invitation to offer is the case of

Harvey v. Facey. In this case the defendants were owners of a plot of land known as

Bumper Hall Pen. The plaintiffs were interested in purchasing the same and sent a

telegram to defendants saying, “Will you sell us Bumper Hall Pen? Telegraph lowest

cash price.”

In reply the defendants wrote, “Lowest price for Bumper Hall Pen 900 pounds”. The

plaintiffs sent another telegram saying, “We agree to buy Bumper Hall Pen for 900

pounds asked by you. Please send us the title deeds.”

When the defendants refused to sell, the plaintiffs sued them for breach of contract. The

plaintiffs contended that the second telegram from the defendants quoting the lowest

price was an offer and the same had been accepted by the plaintiffs, and thus the contract

was complete. The defendants, on the other hand, contended that quoting the price was

not an offer, which could be accepted.

The Privy Council held that the exchange had not resulted in a contract. It was observed

that in the first telegram two questions had been asked – one regarding willingness to sell

and the other regarding the lowest price. In reply only the lowest price was quoted and

this quoting of price was not an offer, the third telegram by the defendants was only an

offer and not acceptance of an offer. Since there was no acceptance, there was no binding

contract between the parties.

Essentials of an Offer

In order for there to be a valid offer, certain criteria have to be fulfilled.

Intention to create legal obligation

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In order that an offer, after acceptance, results in a valid contract, it is necessary that the

offer should be made with the intention to create a legal relationship. Promise in the case

of social engagements is generally without an intention to create a legal obligation. Such

an agreement, therefore, cannot be considered a contract. For example, an agreement to

go for a walk or to watch a movie cannot be enforced in a court of law. Sometimes the

parties may expressly mention that it is not a formal or legal agreement whereas in some

other cases such an intention could be presumed from their agreement.

An intention not to create legal relationship was implied in the case of Balfour v. Balfour.

In this case the defendant, who was employed on a government job in Ceylon, went to

England with his wife on leave. For health reasons the wife was unable to accompany the

husband again to Ceylon. The husband promised to pay 30 pounds per month to his wife

as maintenance for the period they had to live apart. After a while the husband stopped

paying the amount every month, because of which the wife sued him. It was held in this

case that there being no intention to create legal relationship, the husband was not liable.

In the case of other close relationships as well, the same rules apply. The case of Jones v.

Padavatton is an illustration of the agreement between a mother and a daughter. Mrs

Jones lived in Trinidad. Her daughter, who was divorced and had a young son, lived in

Washington and served the Indian Embassy there. Mrs Jones persuaded her daughter to

leave her job and study for the bar in England. She offered to pay her daughter a monthly

allowance during her studies. Her daughter reluctantly agreed to the suggestion and went

to England in 1962. In 1964, Mrs Jones bought a house and allowed her daughter to stay

in one portion of it, while the rest was let out. The rent received was given to the daughter

to cover her expenses. In 1967 differences arose between Mrs Jones and her daughter and

Mrs Jones brought an action to evict her daughter. Till that time the daughter had not

completed her studies and she contended that in view of the promise made by her mother

she was legally bound to maintain her until she completed her studies. It was held that

there was nothing to indicate that there was an intention to create a legal relationship

between the parties, as is evident from the fact that neither party was reduced to writing

nor was the duration mentioned. The mother’s action against the daughter for eviction

succeeded.

Communication of offer necessary

An offer when accepted results in a contract. An offer can be accepted only after the

same has come to the knowledge of the offeree. It means that the offer has to be

communicated to the offeree in order that the offeree can accept it. According to section

4, “The communication of a proposal is complete, when it comes to the knowledge of the

person to whom it is made.”

If an offer has not yet been communicated, even if somebody acts according to the terms

of the offer, he cannot be deemed to be the acceptor of that offer. Acting in ignorance of

an offer does not amount to the acceptance of the same. This point is explained using the

case of Lalman Shukla v. Gauri Dutt as an illustration.

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In this case the defendant’s nephew absconded from home. The plaintiff, who was the

defendant’s servant, was sent to search for the missing boy. After the plaintiff had left in

search of the boy, the defendant issued handbills announcing a reward of Rs 501 to

anyone who can find the boy. The plaintiff, ignorant of this reward, was successful in

finding the boy. When he came to know of the reward he brought an action against the

defendant to claim the reward. It was held that since the plaintiff was ignorant of the offer

of reward, his act of bringing the lost boy did not amount to acceptance of the offer, and

therefore, he was not entitled to claim the reward.

Cross Offer

When the offers made by two persons to each other containing similar terms of bargain

cross each other in post, they are known as cross offers. In cross offer, even though both

parties intend to enter into the same bargain, there arises no contract. In Tinn v.

Hoffmann, A wrote to B indicting his willingness to sell 800 tons of Iron at 69 sh per ton.

On the same day, B also wrote to A offering to buy 800 tons of Iron at the same rate of 69

sh per ton. The two letters crossed each other in the post. B brought an action against A

for the supply contending that a valid contract had been created between the two parties.

It was held in this case that there were only two cross offers and the offer of neither of the

parties having been actually accepted by the other, there was no contract which could be

enforced.

Specific and General Offers

When the offer is made to a specific or an ascertained person, it is known as a specific

offer, but when the same is not made to any particular person but to the public at large, it

is known as a general offer. For instance an offer to give a reward to anybody who finds a

lost dog is a general offer. This general offer will be deemed to be accepted by anyone

who actually finds the lost dog. The person, who accepts the offer, generally by

performing the conditions of the proposal, can bind the person making the contract.

The case of Carlill v. Carbolic Smoke Ball Co. is an illustration of a contract arising out

of general offer. The defendants advertised their product ‘Carbolic Smoke Ball’, a

preventive remedy against influenza. In the advertisement they offered to pay a sum of

100 pounds as reward to anyone who contracted influenza, cold or any disease caused by

a cold after using Smoke Ball three times a day for two weeks in accordance with the

printed directions. They deposited the same amount with Alliance Bank to show their

sincerity in this matter. The plaintiff (Mrs Carlill) relying on the advertisement,

purchased Smoke Ball from a chemist and used the same according to the directions, but

still caught influenza. She sued the defendants to claim the reward. It was held that this,

being a general offer addressed to all, had ripened into a contract with the plaintiff by her

act of performance of the required conditions which constituted accepting the offer. She

was therefore entitled to claim the reward.

Apart from these the other general essential ingredients must also be fulfilled

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• The offer must be lawful. It should not be for an act prohibited by law.

• Performance of the offer must be possible. An offer for an impossible act is not a

valid offer. For example, an offer to pay 500 dollars to anybody who comes back

from the dead is not a valid offer as the performance of it is impossible.

• It must be made in order to obtain assent from the other party. For example, a

statement like “I may sell my motorcycle if I can get Rs. 40,000 for it” is not a

valid offer.

• The offer must be express or implied.

• The offer must be certain, definite and clear. It should not be ambiguous or vague.

For example, A offers to sell B his pen for either Rs 5 or Rs 10. Such an indefinite

offer is not valid.

Conclusion: The term ‘proposal’ has been defined by section 2(a) of the Indian Contract

Act, 1872 and is synonymous to the term ‘offer’. An offer is different from an invitation

to offer. There are certain criteria that must be fulfilled in order for it to be a valid offer.

These rules have been discussed above.

Define Acceptance. Discuss the rules regarding a valid acceptance. [10]

Acceptance [10]

Felthouse v. Bindley [10]

Introduction: A proposal, when accepted, results in an agreement. It is only after the

acceptance of the proposal that a contract between the two parties can arise.

According to Section 2(b) of the Indian Contract Act, 1872: “When the person to whom

the proposal is made signifies his assent thereto, the proposal is said to be accepted. A


The person making the proposal does not become bound thereby until acceptance. As

soon as his proposal is accepted it becomes a promise whereby both parties become

bound.

Essentials of a Valid Acceptance

In order that acceptance of an offer results in a contract, the acceptance must satisfy the

following requirements

• Acceptance should be communicated by the offeree to the offeror

• Acceptance should be absolute and unqualified

• Acceptance should be made in some usual and reasonable manner, unless the

proposal prescribes the manner of acceptance.

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• Acceptance should be made while the offer is still subsisting.

Acceptance should be communicated by the offeree to the offeror.

‘When the person to whom the proposal is made signifies his assent thereto, the proposal

is said to be accepted.’ This means that the offeree must signify his assent or

communicate his acceptance for the agreement to become valid. The communication of

acceptance is deemed to be made by any act or omission of the party accepting, by which

he intends to communicate such acceptance or which has the effect of communicating it.

When the parties are face-to-face communication could be oral. When they are at a

distant place, communication could be made by post, by telegram, by telephone, through

a messenger or in any other reasonable manner. Sometimes the conduct of a person may

signify his assent. For example, when a passenger boards a bus and travels, he impliedly

assents to pay the necessary fare.

For a valid contract, not only must acceptance be communicated by the offeree, but such

communication should be made to the offeror or his authorized agent. This point may be

explained by referring to the case of Felthouse v. Bindley. Felthouse wrote a letter to his

nephew offering to buy his horse for 30 dollars 15 shillings. In the letter containing the

offer is was also mentioned “If I hear no more about the horse I shall consider the same to

be mine for 30-15 shillings.” The nephew did not reply to this letter. He, however, told

his auctioneer Bindley, that he wanted to reserve the horse for his uncle and therefore

desired that the horse not be sold during the auction. Bindley disposed of the horse by

mistake. Felthouse sued Bindley for the tort of conversion on the plea that Felthouse had

become the owner of the horse, which Bindley had disposed of. It was held that since the

nephew had not communicated the acceptance to Felthouse, no contract had arisen in this

case, and therefore Felthouse had not become the owner of the horse. Thus, Felthouse’s

action for conversion failed.

Another point explained by this case is that the offeror cannot impose upon the offeree a

duty to reply and therefore an offeror cannot say that failure to reply will be deemed to be

acceptance of the offer. The offeree has the right to make the offer lapse by not being

accepted within the prescribed time. Mere silence cannot be regarded as acceptance of the

offer.

Acceptance should be absolute and unqualified

For a valid acceptance it is also essential that the acceptance should be absolute and

unqualified. Acceptance or rejection of tender offer must also be made within reasonable

time. When the letter of acceptance contemplates future negotiations for finalization of

the terms of contract, there arises no contract. Conditional or qualified acceptance is not

proper acceptance for the creation of a valid contract.

Counter offer

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If in response to an offer, the offeree makes another offer then it is called a counter offer.

For example, if A offers to sell his radio for Rs 500 and B conveys that he is willing to

pay Rs 400 for the same, there is no acceptance for A’s offer, but a counter offer by B. A

contract can arise if B unconditionally accepts A’s offer. By conditional acceptance or the

counter offer, the original offer is deemed to be rejected. Once the original offer is

destroyed by the counter offer it is a dead offer and cannot be accepted unless renewed.

This point is illustrated in the case of Hyde v. Wrench. An offer was made by A to B for

the sale of a farm for 1000 pounds. B rejected this offer and said that he will pay only 950

pounds to which A did not agree. Thereupon B said that he was willing to pay 1000

pounds to which also A did not agree. B sued A and contended that there was a contract

by which A was bound. It was held that B had once rejected A’s contract by his counter

offer to pay 950 pounds and this made the original offer lapse, and therefore no contract

has resulted in this case.

Acceptance should be expressed in usual/prescribed manner

According to Sec 7(2), the acceptance must be “expressed in some usual and reasonable

manner, unless the proposal prescribes the manner in which it is to be accepted.” It means

that if the manner of acceptance has been prescribed by the proposal, the acceptance has

to be in the prescribed manner, otherwise the same may be made in some usual or

reasonable manner.

Acceptance should be made while the offer is still subsisting

As noted, the offeror is free to withdraw the offer or the offer might be revoked. After the

offer has been withdrawn or has lapsed, there is nothing left to be accepted. It is therefore

necessary that the acceptance should be made while the offer is still alive and subsisting.

Acceptance after lapse of the offer cannot give rise to a contract.

Conclusion: A proposal, when accepted, results in an agreement. It is only after the

acceptance of the proposal that a contract between the two parties can arise. In order that

acceptance of an offer results in a contract, the acceptance must satisfy the given criteria,

else it is not considered a valid agreement.

Define Acceptance. Describe the modes of communication of acceptance.

[10]

Introduction: A proposal, when accepted, results in an agreement. It is only after the

acceptance of the proposal that a contract between the two parties can arise.

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According to Section 2(b) of the Indian Contract Act, 1872: “When the person to whom

the proposal is made signifies his assent thereto, the proposal is said to be accepted. A


The person making the proposal does not become bound thereby until acceptance. As

soon as his proposal is accepted it becomes a promise whereby both parties become

bound.

In order that acceptance of an offer results in a contract, the acceptance must satisfy

certain criteria. One of the criteria necessary for valid acceptance is that the acceptance

should be communicated.

Acceptance should be communicated

‘When the person to whom the proposal is made signifies his assent thereto, the proposal

is said to be accepted.’ This means that the offeree must signify his assent or

communicate his acceptance for the agreement to become valid. The communication of

acceptance is deemed to be made by any act or omission of the party accepting, by which

he intends to communicate such acceptance or which has the effect of communicating it.

When the parties are face-to-face communication could be oral. When they are at a

distant place, communication could be made by post, by telegram, by telephone, through

a messenger or in any other reasonable manner. Sometimes the conduct of a person may

signify his assent. For example, when a passenger boards a bus and travels, he impliedly

assents to pay the necessary fare.

Modes of Communication of Acceptance

As already explained, when the parties are face-to-face communication of acceptance can

be oral. The problem arises when the parties are at distant locations. In such instances

alternative modes of communication need to be utilized.

Acceptance by Post

Section 4 of the Indian Contract Act, 1872 mentions the following rules for when

communication of acceptance is made by post

1. The communication of acceptance is complete as against the proposer, when it is

put in the course of transmission to him so as to be out of the power of the

acceptor.

2. The communication of acceptance is complete as against the acceptor, when it

comes to the knowledge of the proposer.

For example, B accepts A’s proposal by letter sent by post. The communication of the

acceptance is complete

• As against A, when the letter is posted.

• As against B, when the letter is received by A.

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Offeror bound when letter of acceptance is posted to him

It has been noted that the communication of acceptance is complete as against the

proposer when the letter is posted to him. Once the letter of acceptance is posted, the

offeror becomes bound immediately on the posting of the letter to him and it makes no

difference if the letter is delayed in transit or if it is lost and the offeror never receives it.

Communication of acceptance at the address given by the offeror amounts to acceptance,

even though the acceptance letter does not reach the offeror.

In Dunlop v. Higgins, Dunlop and Co. offered to sell 200 tons of pig iron at 65 shillings

per ton to Higgins and Co through letters dated 22nd

and 28th January 1945. Higgins and

Co. received the letters on 30th January and replied on the same day, indicating their

acceptance to purchase the same in accordance with the offer. Due to frosty weather there

was a disruption in the train services and the letter of acceptance instead of reaching on

31st January reached Dunlop and Co. on 1

st February. Dunlop and Co. refused to supply

the pig iron on the grounds that the receipt of letter of acceptance by them had been

delayed. It was held that Dunlop and Co. had become bound by the contract as soon as

the letter of acceptance was posted to them.

Acceptor bound when the letter reaches the offeror

It has been noted that though the offeror becomes bound when the letter of acceptance is

posted to him, the acceptor himself does not become bound thereby. In India an acceptor

becomes bound by his acceptance when his letter of acceptance comes to the knowledge

of the offeror. Thus, after posting the letter of acceptance, if the acceptor wants to revoke

the same, he may send his communication of revocation by a quicker mode. If

communication of revocation reaches earlier than communication of acceptance, the

acceptance stands revoked.

Acceptance by Telephone or Telex

The Supreme Court has held that in the case of telephonic conversations, the position is

the same as in the case where the parties are in the presence of each other, and the rule of

contracts through post does not apply to such contracts. In case of acceptance by phone,

the contract is deemed to be complete when the offeror hears the acceptance at his end

rather than when the acceptor speaks the words of acceptance.

Conclusion: In order that acceptance of an offer results in a contract, the acceptance must

be communicated by the offeree to the offeror or his authorized agent. There are various

modes of communicating this acceptance. When the parties are face-to-face

communication could be oral. When they are at a distant place, communication could be

made by post, by telegram, by telephone, through a messenger or in any other reasonable

manner. Each mode has it own set of rules defining when each party becomes bound to

the contract.

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Discuss the provisions relating to revocation of offers and acceptances.

[10]

Write a note on revocation of acceptance. [6]

Introduction: It is only after the acceptance of an offer that there arises a contract and

both parties become bound by their respective promises. Before the offer has been

accepted, it can be revoked.

Section 5 of the Indian Contract Act, 1872 states: “A proposal may be revoked at any

time, before the communication of its acceptance is complete against the proposer, but

not afterwards.”

Modes of Revocation of Offer

Sec. 6 mentions various modes of revocation of offer.

1. By the communication of notice of revocation by the proposer to the other party;

2. By the lapse of the time described in such proposal for its acceptance, or, if no

time is so prescribed, by the lapse of a reasonable time, without communication of

the acceptance

3. By the failure of the acceptor to fulfill a condition precedent to acceptance

4. By the death or insanity of the proposer, if the fact of his death or insanity comes

to the knowledge of the acceptor before acceptance.

By notice of revocation

An offer ripens into a contract after it is accepted. Before it has been accepted it creates

no legal obligation and, therefore, it may be revoked at any time before it is accepted.

A proposal may be revoked by the communication of notice of revocation by the

proposer to the other party. To be effective the notice of revocation has to be

communicated by the proposer (or his agent) and not by anybody else.

By lapse of time

A proposal 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. I

Sometimes the parties may expressly fix the time upto which the offer will remain open.

For example, it may be stated that the offer is open till 15th January, 5.00 P.M. Such an

offer lapses automatically if it remains unaccepted till the stipulated time and the same

cannot be accepted further thereafter.

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Even if no time has been prescribed within which the acceptance can be made, the offer

stands revoked on the lapse of a reasonable time. Non-acceptance within a reasonable

time means an implied refusal by the offeree to accept the offer.

By failure of fulfill a conditional precedent

When the offer is subject to some condition precedent, such a condition has got to be

fulfilled by acceptor before making the acceptance. If the acceptor fails to fulfill the

condition precedent to acceptance, the offer stands revoked. For example, if the offer

requires the deposit of some earnest money, or the execution of some document, etc.,

these conditions must be fulfilled. Similar would be the position when tenders are invited

subject to certain conditions.

By death or insanity of the offeror

An offer 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. It means that if the

fact of death or insanity has not come to the knowledge of the offeree while he accepts

the offer, it is valid acceptance giving rise to a contractual obligation.

Revocation of Acceptance

When the contract is created through post, according to sec. 4, by the posting of the letter

of acceptance:

1. The proposer becomes bound when the letter of acceptance is posted to him

2. But the acceptor becomes bound when the letter of acceptance reaches the

proposer.

Since the acceptor does not become bound immediately on posting his letter of

acceptance, he is free to revoke the acceptance by adopting a speedier mode of

communication, whereby his communication of revocation of acceptance may reach

earlier than his letter.

For example, ‘A’ proposes by letter sent through post, to sell his house to B. B accepts

the proposal by a letter sent through the post. B may revoke his acceptance at any time

before or at the moment when the letter communicating it reaches A, but not afterward.

Conclusion: Section 5 of the Indian Contract Act, 1872 states: “A proposal may be

revoked at any time, before the communication of its acceptance is complete against the

proposer, but not afterwards.” The modes of revocation of offer and acceptance have

been discussed.

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Problems [6]

1. X, a customer picks up an article in a self-service departmental store and takes it

to the cash counter. Y, a clerk at the cash counter declines to sell. X files a suit

against the shopkeeper. Decide.

2. ‘A’ tradesman, leaves goods at ‘B’s’ house by mistake. ‘B’ treats the goods as his

own. Is he bound to pay A for the goods? Decide.

3. Kumar says in conversation to Mohan that he will give Rs 10,000/- to any person

marrying his sister. Raju marries Kumar’s sister. Can Raju recover Rs. 10,000/-

from Kumar? Give reasons.

4. ‘A’ sends his offer to B asking him to send his acceptance ‘by return of post’. B

sends his acceptance by courier. Is it valid?

5. ‘H’ a husband promises to pay Rs. 3000 as a house hold allowance every month

to his wife ‘W’. Later H defaulted in his promise. W sued for allowance. Discuss.

6. ‘A’ offers a reward of Rs. 50,000/- to any one who brings him his missing son.

‘B’, who is ignorant of the offer, traces the boy and brings him to A. Can B claim

the reward? Does it make any difference in your decision if B is A’s servant?

7. At an auction sale ‘X’ makes the highest bid for Y’s goods. X withdraws the bid

before the fall of the hammer. Is there a contract?

8. A promises to pay B Rs. 1000 if B beats C. B beats C, but A refuses to pay. Can

B recover the amount?

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ConsiderationConsiderationConsiderationConsideration

Define ‘Consideration’? Discuss the essentials of a valid consideration. [10]

Introduction: Consideration means something in return for a promise. It may be either

some benefit conferred on one party or some detriment suffered by the other. Presence of

consideration is one of the essentials of a valid contract.

Section 2(d) of the Indian Contract Act, 1872 defines consideration as under, “When at

the desire of the promisor, the promisee or any other person has done or abstained from

doing, or does or abstains from doing, or promises to do or abstain from doing something,

such act or abstinence or promise is called a consideration for the promise.”

Thus, from the definition, we can clarify the essentials of valid consideration to be

• Consideration has to be given at the desire of the promisor.

• Consideration has to be given by the promisee or any other person.

• Consideration may be past, present or future.

• There should be some act, abstinence or promise by the promisee, which

constitutes consideration for the promise.

Essentials of a Valid Consideration

Consideration has to be given at the desire of the promisor

It is essential that the consideration must have been given at the desire of the promisor,

rather than merely voluntarily or at the instance of some third party.

In Durga Prasad v. Baldeo, the consideration for the promise had not moved at the desire

of the promisor, but some other person, and it was held that the same was not sufficient

consideration to support the promise. In the case, the plaintiff constructed certain shops in

a market at the instance of the Collector of that place. Subsequently, the defendants

occupied one of the shops in the market. Since the plaintiff had spent money for the

construction of the market, the defendants, in consideration thereof, made a promise to

pay to the plaintiff a commission on the articles sold through their agency in that market.

When the defendants failed to pay the promised commission, the plaintiff sued them to

recover the commission. It was observed that the consideration for the promise to pay the

commission was the construction of the market by the plaintiff. Such construction had not

been done at the desire of the defendants, but on the order of the Collector. It was

therefore held that since the consideration did not move at the desire of the defendants,

this did not constitute valid consideration and therefore the defendants were not liable.

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Consideration by Promisee or any other person

In India, there is a possibility that consideration for the promise may not move from the

promisee but a third person, who is not a party to the contract. For example, A promises

to give his watch to B and a consideration of Rs 2000 for the same is given by A to X and

not to B. Such a contract will be valid in India as per sec 2(d) of the Indian Contract Act,

1872.

The position in India may be further explained by referring to the case of Chinnaya v.

Ramaya. In that case ‘A’, an old lady, granted an estate to her daughter (the defendant)

with the direction that the daughter should pay an annuity of Rs 653 to A’s brothers (the

plaintiffs). On the same day the defendant made a promise to the plaintiffs that she would

pay the annuity as directed by A. The defendant failed to pay the stipulated sum. In an

action brought against her by the plaintiffs she contended that since the plaintiffs

themselves had furnished no consideration, they had no right of action. The Madras High

Court held that in this agreement the consideration had been furnished by the defendant’s

mother and that it is enough consideration to enforce the promise between the plaintiffs

and the defendant.

Consideration may be past, present or future

Indian Contract Act, 1872 recognizes three kinds of consideration – past, executed and

executory.

When, in return for the promise, the promisee or any other person

• Has done or abstains from doing, the consideration is Past

• Does or abstains from doing, the consideration is executed or present

• Promises to do or abstain from doing, the consideration is executory or future.

Past Consideration

When consideration for any promise has been given earlier and the promise made

thereafter, it is known as Past consideration. It is of course necessary that at the time the

consideration was given, it must have been done at the desire of the promisor. For

example, ‘I request you to find my dog. After you have done the same I promise to pay

you Rs 100 for that.’ This constitutes valid past consideration under the Act.

Executed or Present Consideration

When one of the parties to the contract has performed his part of the promise, which

constitutes the consideration for the promise by the other side, it is known as executed

consideration. Performance of the contract by the other side is the only thing left to be

done. For example, A makes an offer of a reward of Rs 100 to anyone who finds his lost

dog and brings the same to him. B finds the lost dog and brings the same to A. When B

does so, that amounts to both the acceptance of the offer and also simultaneously giving

consideration for the contract. The consideration in this case is ‘executed’.

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Executed consideration may be distinguished from past consideration. In case of executed

consideration, the consideration is provided simultaneously along with the making of the

contract, while in the case of past consideration, consideration is provided prior to the

making of the contract.

Executory or Future Consideration

When one person makes a promise in exchange for the promise by the other side, the

performance of the obligation by each side to be made subsequent to the making of the

contract, the consideration is known as executory. For example, A agrees to supply

certain goods to B and B agrees to pay for them on a future date, this is an executory

consideration.

There should be some act, abstinence or promise by the promisee, which constitutes

consideration for the promise.

According to the definition under Sec 2(d), some act, abstinence or promise must be done

at the desire of the promisor. This means that if nothing is done in exchange for the

promise i.e. there is no act, abstinence or promise, there is no consideration.

Conclusion: Consideration means something in return for a promise. It may be either

some benefit conferred on one party or some detriment suffered by the other.

Consideration is defined under Sec 2(d) of the Indian Contract Act, 1872 and it outlines

certain essentials that must be fulfilled for the consideration to be valid. These essentials

have been discussed above.

Write a note on Privity of Contract. [10]








Privity of Contract

The 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 the contract,

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even though the contract may have been entered into for his benefit. If in a contract

between A and B, some benefit has been conferred upon X, X cannot file a suit to enforce

the contract because A and B are the only parties to the contract whereas X is a stranger

to the contract.

In India, however, there is a possibility that consideration for the promise may not move

from the promisee but a third person, who is not a party to the contract. For example, A

promises to give his watch to B and a consideration of Rs 2000 for the same is given by

A to X and not to B. Such a contract will be valid in India as per sec 2(d) of the Indian

Contract Act, 1872. Thus, in Indian law, though a stranger to a contract cannot sue for

consideration, a stranger to consideration does have the capability to file a suit of action.

The rule that a stranger to contract cannot sue has been distinguished from the rule that a

stranger to consideration can sue. It is to be noted that a person may not may not have

himself given any consideration , but he can enforce the contract if he is party to the

contract, because according to Indian law, consideration may be given by the promisee or

a third party.

This may be further explained by referring to the case of Chinnaya v. Ramaya. In that

case ‘A’, an old lady, granted an estate to her daughter (the defendant) with the direction

that the daughter should pay an annuity of Rs 653 to A’s brothers (the plaintiffs). On the

same day the defendant made a promise to the plaintiffs that she would pay the annuity as

directed by A. The defendant failed to pay the stipulated sum. In an action brought

against her by the plaintiffs she contended that since the plaintiffs themselves had

furnished no consideration, they had no right of action. The Madras High Court held that

in this agreement the consideration had been furnished by the defendant’s mother and

that it is enough consideration to enforce the promise between the plaintiffs and the

defendant.

Thus it can be concluded that a stranger to consideration can sue on the contract, but a

stranger to the contract cannot. The fact that a stranger to consideration can sue does not

affect the rule of privity of contract.

There are several cases that highlight the statement that only parties to a contract can sue

each other. The cases of Tweddle v. Atkinson and Dunlop Pneumatic Tyre Co. Ltd v.

Selfridge & Co. Ltd. are prime examples.

In Tweddle v. Atkinson, the plaintiff A married a girl B. After their marriage there was a

contract in writing between A’s father and B’s father that each would pay a certain sum

of money to A. After the death of the two fathers, A brought an action against the

executors of B’s father to recover the promised amount. It was held that as A was a

stranger to the contract he could not sue for the same.

The rule of Privity of Contract was reaffirmed by the House of Lords in Dunlop

Pneumatic Tyre Co. Ltd. v. Selfridge & Co. Ltd. In Dunlop’s case, the appellants (Dunlop

Co.), who were manufacturers of motorcar tyres, sold some tyres to Dew and Co. with an

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agreement that these tyres will not be sold below the list price. Dew and Co. in their turn

sold some of these tyres to the respondent (Selfridge & Co.), with an agreement between

Dew and Co. and the respondents that the respondents shall also observe conditions as to

the price and the respondents promised that they would pay to the appellants a sum of 5

pounds for every tire sold below the list price. The respondents sold some tyres below the

list price, and the appellants brought an action against the respondents to recover the

damages for the same.

The House of Lords held that Dunlop Co. could not bring an action against Selfridge &

Co. because there was no contract between the two parties. It was further observed that

even if it is taken that Dew & Co. were acting as agents for Dunlop Co., the latter still

cannot maintain an action as there was no consideration between Dunlop Co. and

Selfridge & Co., since the whole of the purchase price was paid by Selfridge & Co. to

Dew & Co.

Exceptions to the Rule that a Stranger to Contract cannot Sue

Trust of contractual rights or beneficiary under a contract

One of the exceptions to the doctrine of privity of contract was recognized in Dunlop

Pneumatic Tyre Co. Ltd. v. Selfridge & Co. Ltd. While it was mentioned that only a party

to a contract can sue on it, no such right is conferred on a third party, it was also stated

that ‘such a right may be conferred by way of property, as, for example, under a trust.’

The basis of an action by the third party in such a case is actually not the enforcing of

contract but the right conferred by a particular contract in favour of a third party in the

form of a trust etc. For example, in a contract between A and B, beneficial right in respect

of some property may be created in favour of C. In such a case C can enforce his claim

on the basis of the right conferred upon him.

Conduct, Acknowledgment or Admission

Sometimes there may be no privity of contract between the two parties, but if one of them

by his conduct, acknowledgment or admission recognizes the right of the other to sue

him, he may be liable on the basis of the law of estoppel.

Provision for Marriage Expenses or Maintenance under Family Arrangement

Where, under a family arrangement, the contract is intended to secure a benefit to a third

party; he may sue in his own right as a beneficiary. Such an action has been allowed in

many cases where, on the partition of joint family property between the male members, a

provision is made for the maintenance of the female members of the family.

Conclusion: The 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 the

contract, even though the contract may have been entered into for his benefit. Thus it can

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be concluded that a stranger to consideration can sue on the contract, but a stranger to the

contract cannot.

Insufficiency of consideration is immaterial but an agreement without

consideration is void – Comment [10]








Consideration need not be adequate

A contract, which is supported by consideration, is valid irrespective of the fact that the

consideration is inadequate. Explanation 2 of section 25 attempted to clarify this by

explaining that an agreement to which the consent of the promisor was freely given was

not void merely because the consideration was inadequate. The parties are free to make

any contract of their choice. If, with their free consent, they strike a bargain where the

consideration is too high or too little, the Court will not question the inadequacy of

consideration. The adequacy of the consideration is for the parties to consider at the time

of making the agreement. For example, A agrees to sell a horse worth Rs 1000 for Rs 10.

A’s consent to the agreement was freely given. The agreement is a contract

notwithstanding the inadequacy of the consideration.

The inadequacy of consideration is only taken into account by the Court in determining

the question as to whether consent of the promisor was given freely. For example, A

agrees to sell a horse worth Rs 1000 for Rs 10. A denies that his agreement was freely

given. The inadequacy of the consideration is a fact which the Court should take into

account in considering whether or not A’s consent was freely given.

Although it is not necessary that the consideration should be adequate, it is however

necessary that it should be real and should not be unsubstantial.

Conclusion: If a party does not take an undue advantage in a transaction and there is no

undue influence, the agreement is not affected by the mere fact of inadequacy of

consideration. Inadequacy of consideration is only taken into account by the Court in

determining the question as to whether consent of the promisor was given freely.

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What is ‘consideration’? State the exceptions to the rule that agreement

without consideration is void. [10]

‘Agreement made without consideration is void”. Explain with exceptions.

[10]








As mentioned above, consideration is one of the essentials of a valid contract. Therefore,

Section 25 of the Act declared any agreement without consideration as void. However,

this section does mention three exceptions when there is no need for any consideration

for the validity of the contract.

• When the agreement is made on account of natural love and affection between

parties standing in a near relation to each other.

• When 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 compelled to do

• When it is a promise to pay wholly or in part a debt of which the creditor might

have enforced but for the law for the limitation of suits.

Exceptions when Agreement without Consideration is Valid

Promise due to Natural Love and Affection

When the promise is made in favour of a near relation on account of natural love and

affection, the same is valid even though there was no consideration for such a promise.

The following requirements have to be satisfied

1. The parties to the agreement must be standing in a near relationship to each other.

2. The promise should be made by one party out of natural love and affection for the

other.

3. The promise should be in writing and registered.

A ‘near relation’ has not been defined by the Act, but by various decided cases it appears

to cover blood relations or those related through marriage.

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‘Natural love and affection’ between the parties so nearly related is also needed. In the

case of Rajlucky Dabee v. Bhootnath Mookerjee, it has been held that near relation

between the two parties does not necessarily imply natural love and affection between

them. In this case after a lot of disagreements and quarrels between a Hindu husband and

wife they decided to live apart. At this stage the husband executed a registered document

in favour of his wife whereby he agreed to pay for her separate residence and

maintenance. In that agreement mention was also made about the quarrels and

disagreements between the two. It was apparent that the document had been executed not

because of natural love and affection between the parties but because of absence of it, and

therefore the wife was not entitled to recover the sums mentioned in the document.

Compensation for past voluntary services

The second exception of Sec 25 covers cases where a person without the knowledge of

the promisor or otherwise than at his request does the latter some service, and the

promisor undertakes to recompense him for it. The promise to compensate, though

without consideration, is binding because of this exception. The exception also covers a

situation where the promise is for doing something voluntarily, which the promisor was

legally compelled to do.

Thus when A finds B’s purse and gives it to him and then B promises to pay A Rs 50 or

A supports B’s infant son and B promises to pay A’s expenses in doing so, there is a

valid contract in such cases although A’s act was a voluntary one.

It is also necessary that the service must have been rendered to the promisor and nobody

else. This implies that the act must have been done for a person who is in existence at the

time of doing of the act, and, therefore, it does not cover expenses incurred by the

promoter of a company before the company came into existence.

It is further necessary that at the time of the doing of the act, the promisor must have been

competent to contract. Thus, if at the time of taking the loan a person is a minor, he is

incapable of ratifying that act by making a fresh promise to pay after attaining majority

for the same consideration and thereby binding himself.

Promise to pay time-barred debt

Another situation when an agreement is a valid contract even without any consideration

is a promisw to pay a time-barred debt. Sec 25(3) requires the following essentials to be

satisfied

1. The promise must be to pay wholly or in part a time-barred debt i.e. a debt of

which the creditor might have enforced payment but for the law of limitation of

suits.

2. The promise must be in writing and signed by the person to be charged

therewith, or his duly authorized agent.

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The debt must be one where the creditor might have enforced payment but for the law of

limitation of suits. It therefore does not cover such debts, which are unenforceable for

some other reasons.

Sec 25(3), it may be further noted, permits a promisee to pay wholly or in part a time-

barred debt. If a person promises to pay a portion of a time-barred debt, he can be sued

for that portion alone and not for the whole debt. If, however, the promise to pay the

whole debt is there, then the whole amount can be claimed.

The promise to pay the time-barred debt must be an express one and cannot be held to be

sufficient if the intention to pay is unexpressed and has to be gathered from a number of

circumstances.

Conclusion: Consideration means something in return for a promise. It may be either


consideration is one of the essentials of a valid contract. Therefore, any contract without

consideration is void. However, Sec 25 does mention three exceptions when agreement

without consideration is valid. These exceptions are discussed above.

Problems [6]

1. A promises to pay Rs 2 Lakhs for the construction of a hostel building. The

authorities on the faith of this promise incur liabilities. A fails to pay. Can the

authorities recover the amount from A?

2. X, being in need of money, sells his new wrist watch worth Rs 30.000 for just Rs

500. Afterwards, X seeks to set aside the contract on the grounds of inadequacy of

consideration. Will he succeed?

3. A agrees to sell his horse worth Rs 1000 for Rs 10. A says that his consent to the

agreement was freely given. Is it a valid contract?

4. A promises to pay B a sum of Rs 10,000 for temple renovations. But A refused to

perform his promise. Can B recover the amount from A? Give reasons.

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Capacity to Contract

Questions

1. Evaluate the law pertaining to the necessaries supplied to a minor. [10]

2. Mohiri Bibee v. Dharmadas Ghose [10]

3. ‘You can convert a contract into a tort to enable you to sue an infact.” – Elucidate.

[10]

4. Explain in brief the effects of a minor’s agreement. [10]

Introduction: One of the essentials of a valid contract, mentioned in Section 10 of the

Indian Contract Act, 1872, is that the parties to the contract should be competent to make

the contract.

Section 11 of the Act reads, “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.”

From this we understand that the following three persons are not competent to contract

• A person who has not attained the age of majority i.e. one who is a minor

• A person who is of unsound mind.

• A person who has been disqualified from contracting by some law.

Nature of a Minor’s Agreement

A person who has not attained the age of majority is a minor. As per the Indian Majority

Act, 1875 the age at which a person attains majority is 18. The question asked was

whether a contract entered into by a minor was void or voidable. This question was

answered by the Privy Council decision in the Mohori Bibee v. Dharmodas Ghose case.

The plaintiff, Dharmodas Ghose, while he was a minor, mortgaged his property in favour

of the defendant, Brahmo Dutt, who was a moneylender to secure a loan. At the time of

the transaction the attorney, who acted on behalf of the moneylender, had knowledge that

the plaintiff was a minor.

The minor brought an action against the moneylender stating that he was a minor when

the mortgage was executed by him and therefore the mortgage was void and inoperative

and the same should be cancelled. By the time of Appeal to the Privy Council, Brahmo

Dutt had passed away and was replaced by Mohori Bibee.

The defendant contended that

• The minor had fraudulently misrepresented his age and the law of estoppel

should be applied against him.

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• If the mortgage is cancelled as requested by the minor, the minor should be asked

to refund the loan.

The Privy Council rejected the defendant’s contentions and declared that agreements with

minors were void ab initio. It further explained its decision with regard to the contentions

made by the defendant

• The defendant’s contention that the minor had falsely misstated his age and the

law of estoppel should apply cannot be considered as the attorney, acting on his

behalf, had definite knowledge the plaintiff was a minor and the law of estoppel

only occurs when the real facts have been hidden and mislead by untrue

statements.

• The contention that if the mortgage is cancelled as requested by the minor, the

minor should be asked to refund the loan was made under Sec 64 and 65 of the

Indian Contract Act. These sections, however, are only applicable to voidable

contract and contract with a minor is not voidable, but void ab initio.

A minor’s agreement being void ab initio, it is incapable of being validated by the

subsequent ratification after the minor has attained the age of majority.

Minor’s liability for Necessaries

As noted, a minor’s contract is void ab initio. However, for the necessaries supplied to a

minor reimbursement is permitted to the person supplying such necessaries. This is not

on the basis of any contract between the parties, but because it is deemed to be a quasi-

contractual obligation.

‘Necessaries’ does not mean bare necessities of life, but means such things as may be

necessary to maintain a person according to his conditions in life.

The section permits reimbursement if

• Necessaries are supplied

• To a person who is incapable of making a contract Ex. A minor or a lunatic

• To a person who is dependant upon such person incapable of making a contract

• For reimbursement no personal action can lie against the minor etc, but

reimbursement is permitted from the property of such incapable person/

Minor’s liability when the same act results in a tort as well as breach of agreement

Though an agreement with a minor is void, and therefore if a minor makes a breach of an

agreement he cannot be made liable of the same, when the minor commits a tort he is

liable for that in the same way and to the same extent as an adult person. Sometimes an

act done by a minor may be both a breach of contract as well as the commission of a tort.

For example, a minor misrepresents his age and fraudulently stating that he is of age of

majority takes a loan from another person. Under the law of contract, the minor cannot be

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asked to repay the loan as the minor’s contract is void, but he has also committed fraud

for which the liability for the tort of deceit can possibly be there.

On this point, as to whether the minor can be made liable for a tort, the Courts have held

that where permitting an action in tort will result in an indirect enforcement of an

agreement, the law will not permit such an action against the minor. However, if the

nature of the act is such that the tort committed by the minor is totally independent of the

breach of obligation under the contract, the action for the same can lie.

Conclusion: A person who has not attained the age of majority is a minor. The question

as to whether a minor’s contract is void or voidable was answered by the Privy Council

decision in the Mohori Bibee v. Dharmodas Ghose case, where it stated that agreements

with minors are void ab initio and the minor is under no obligation to uphold the contract.

However, in case of necessaries, the minor has to compensate the other party. In certain

cases where the offence committed by a minor is a tort as well as a breach of agreement

the minor may be sued under a tort.

Problems [6]

1. K, a minor, falsely represents to B that he is a major and purchases some luxury

items on credit. B sues for recovery of the price. Advise B.

2. ‘M’, a minor aged 17 years broke his right arm in a game, he engaged a physician

to set it. Does the physician have a valid claim for his services?

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Free Consent

When is consent said to be free? Explain with illustrations. [10]

Introduction: One of the essentials of a valid contract, as mentioned in Sec 10 of the

Indian Contract Act, 1872, is that the parties should enter into the contract with their free

consent. According to Section 14, consent is said to be free when it is not caused by

1. Coercion

2. Undue Influence

3. Fraud

4. Misrepresentation

5. Mistake.

Consent is said to be so caused when it would not have been given but for the existence

of such coercion, undue influence, fraud, misrepresentation or mistake.

If the consent of one of the parties is not free consent i.e. it has been caused by one of the

above-mentioned factors, the contract is not a valid one. When consent to an agreement is

caused by coercion, undue influence, fraud or misrepresentation, the agreement is a

voidable contract at the option of the party whose consent was so caused. If, however, the

consent is caused by mistake, the agreement is void.

Coercion

According to Section 15, “Coercion is the committing, or threatening to commit, any act

forbidden by the 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.”

Thus, coercion is said to be there when consent of a person has been obtained either by

• Committing or threatening to commit any act forbidden by the Indian Penal Code.

For example, A threatens to shoot B if B does not agree to sell his property to A at

a stated price, B’s consent in this case has been obtained by coercion.

• Unlawful detaining, or threatening to detain any property. For example, if an

outgoing agent refuses to hand over the account books to the new agent until the

principal executes releases in his favour, it is coercion.

Such an act should be to the prejudice of any person whatever. This means that the act

causing coercion need not necessarily be directed against the contracting party, it is

enough that the act is to the prejudice of any person whatever, with the intention of

causing any person to enter into an agreement. If, for example, A unlawfully detains B’s

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son C, in order to coerce B to enter into an agreement, the case would be covered under

this section.

Undue Influence

If the consent of a party of the contract has been obtained by undue influence, the consent

is not free consent, which is needed for the validity of a contract.

Section 16 defines undue influence. As per the section, a contract is said to be induced by

‘undue influence’ where the relation subsisting between the parties are such that one of

the a parties is in a position to dominate the will of the other and uses this position to

obtain an unfair advantage over the other.

A person is deemed to be in a position to dominate the will of the other where

• He holds a real or apparent authority over the other, for example an employer may

be deemed to be having authority over his employee, an income tax authority over

the assessee, a police or a judicial officer over the accused. Or where he stands in

a fiduciary relation to the other, examples of fiduciary relationships are solicitor

and client, spiritual adviser and devotee, medical attendant and patient, parent and

child etc. For example, A, having advanced money to his son B, during his

minority, upon B’s coming of age obtains, by misuse of parental influence, a bond

from B for a greater amount than the sum due in respect of the advance. A

employs undue influence.

• 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. For

example, A, a man enfeebled by disease or age, is induced, by B’s influence over

him as his medical attendant, to agree to pay B an unreasonable sum for his

professional services. B employs undue influence.

Where a person who is in a position to dominate the will of another, enters into a contract

with him, the burden of proving that such contract was not induced by undue influence

shall lie upon the person in a position to dominate the will of the other.

Fraud

When the consent of a party to the contract had been obtained by fraud, the consent is not

free consent, which is necessary for the formation of a valid contract. Fraud or deceit is

also a tort, for which an action for damages can also lie.

Section 17 of the Indian Contract Act, 1872 explains the meaning of fraud. ‘Fraud’ means

and includes any of the following acts committed by a party to a contract, or with his

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connivance, or his agent, with the intent to deceive another party thereto or his agent, or

to induce him to enter into a contract.

1. the suggestion, as to the fact, of that which is not true by one who does not

believe it to be true;

2. the active concealment of a fact by one having knowledge or belief of the fact;

3. a promise made with any intention of performing it;

4. any other act fitted to deceive;

5. any other act or omission as the law specifically declares to be fraudulent.

Mere silence as to facts likely to affect the willingness of a person to enter into the

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 silent to speak, or unless his silence is, in

itself, equivalent to speech.

Misrepresentation

When a false statement is made with the knowledge that it is false and also with the

intention to deceive the other party and make him enter into a contract on that basis, it is

known as fraud. But when the person making a false statement believes the statement to

be true and does not intend to mislead the other party to the contract, it is known as

‘Misrepresentation’. When the consent of the party to the contract has been obtained by

misrepresentation, it is not free consent and the contract is voidable at his option.

Section 18 defines misrepresentation. Misrepresentation means and includes

1. the positive assertion, in a manner not warranted by the information of the person

making it, of that which is not true, though he believes it to be true;

2. any breach of duty which, without an intent to deceive, gains an advantage to the

person committing it, or anyone claiming under him, by misleading another to his

prejudice or to the prejudice to anyone claiming under him;

3. causing, however innocently, a party to an agreement, to make a mistake as to the

substance of the thing which is the subject of the agreement.”

Positive assertion i.e. an explicit statement of fact by a person of that which is not true,

though he believes it to be true amounts to misrepresentation. There should be a false

statement made innocently i.e. without any intention to deceive.

Some instances when Misrepresentation occurs is when

• There is a breach of duty whereby the person making a false statement

gains some advantage at the cost of the other party, and the statement

though false is made without an intention to deceive.

• One party, acting innocently, causes another party to make a mistake as to

the substance of the thing, which is the subject of the agreement.

Mistake

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When the consent of the parties to the contract is caused by mistake, it is not free consent,

which is needed for the validity of a contract. One, or both, of the parties may be working

under some misunderstanding or misapprehension of some fact relating to the agreement.

If such a misunderstanding or misapprehension had not been there, they probably would

not have entered into the agreement. Such contracts are said to have been caused by

‘mistake’.

Mistake may work in two ways

1. Mistake in the mind of the parties in such that there is no genuine agreement

at all. There may be no consensus ad idem i.e. the meeting of the two minds

and therefore there is absence of consent as defined by section 13. the offer

and acceptance do not coincide and thus no genuine agreement is constituted

between the parties.

2. There may be a genuine agreement, but there may be a mistake as to the

matter of fact relating to that agreement.

Conclusion: One of the essentials of a valid contract, as mentioned in Sec 10 of the


consent. If the consent of one of the parties is not free consent i.e. it has been caused by

coercion, undue influence, fraud, misrepresentation or mistake; the contract is not a valid

one as it lacks free consent.

Distinguish between ‘Coercion’ and ‘Undue Influence’. [6]




1. Coercion

2. Undue Influence

3. Fraud


5. Mistake.



Coercion

According to Section 15, “Coercion is the committing, or threatening to commit, any act


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person to enter into an agreement.”

Thus, coercion is said to be there when consent of a person has been obtained either by

• Committing or threatening to commit any act forbidden by the Indian Penal

Code.

• Unlawful detaining, or threatening to detain any property.

Such an act should be to the prejudice of any person whatever.

Act forbidden by the Indian Penal Code

As noted if a person commits or threatens to commit any act forbidden by the Indian

Penal Code with the intention of causing any person to enter into an agreement, the

consent in such a case is deemed to have been obtained by coercion. For example, A

threatens to shoot B if B does not agree to sell his property to A at a stated price, B’s

consent in this case has been obtained by coercion.

For coercion, it is not necessary that the Indian Penal Code should be applicable at the

place where the consent has been caused.

Unlawful detaining, or threatening to detain any property

According to Sec 15, coercion could also be caused by the unlawful detaining, or

threatening to detain any property with the intention of causing any person to enter into

an agreement. For example, if an outgoing agent refuses to hand over the account books

to the new agent until the principal executes releases in his favour, it is coercion. If the

detention of property is not unlawful, then there is no coercion. Thus, if a mortgagee

refuses to convey the equity of redemption except on the terms dictated to him, there is

nothing unlawful in it, and therefore in this case there is no coercion.

To the prejudice of any person whatever

Section 15 requires that there should be committing, or threatening to commit, any act



person to enter into an agreement.

It means that the act causing coercion should not necessarily be directed against the

contracting party, it is enough that the act is to the prejudice of any person whatever, with

the intention of causing any person to enter into an agreement. If, for example, A

unlawfully detains B’s son C, in order to coerce B to enter into an agreement, the case

would be covered under this section.

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An agreement that has been entered into due to coercion is a voidable agreement at the

option of the party so coerced.

Undue Influence


is not free consent, which is needed for the validity of a contract. If the consent has been

caused by undue influence, the contract is voidable at the option of the party whose

consent has been so obtained.






• He holds a real or apparent authority over the other, for example an employer may

be deemed to be having authority over his employee, an income tax authority over

the assessee, a police or a judicial officer over the accused. Or where he stands in

a fiduciary relation to the other, examples of fiduciary relationships are solicitor

and client, spiritual adviser and devotee, medical attendant and patient, parent and

child etc. For example, A, having advanced money to his son B, during his

minority, upon B’s coming of age obtains, by misuse of parental influence, a bond

from B for a greater amount than the sum due in respect of the advance. A

employs undue influence.


permanently affected by reason of age, illness or mental or bodily distress. For

example, A, a man enfeebled by disease or age, is induced, by B’s influence over

him as his medical attendant, to agree to pay B an unreasonable sum for his

professional services. B employs undue influence.






consent. If coercion or undue influence is used in order to get one of the parties to enter

into a contract, then the contract is not considered valid, as there was an absence of free

consent. From the above explanations of coercion and undue influence, one may be able

to differentiate between them.

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Discuss ‘Undue Influence’ with the help of illustrations. [10]




1. Coercion

2. Undue Influence

3. Fraud


5. Mistake.



Undue Influence


is not free consent, which is needed for the validity of a contract. If the consent has been

caused by undue influence, the contract is voidable at the option of the party whose

consent has been so obtained.






• He holds a real or apparent authority over the other or where he stands in a

fiduciary relation to the other.


permanently affected by reason of age, illness or mental or bodily distress.




Essentials of Undue Influence

In order to constitute undue influence, it is necessary to prove that

1. the relation subsisting between the parties are such that one of the parties is in a

position to dominate the will of the other, and

2. such a person uses his dominant position to obtain an unfair advantage over the

other.

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Person in dominant position and obtaining of unfair advantage

In the following cases, a person is deemed to be in a position to dominate the will of

another

1. Where he holds a real or apparent authority over the other

2. Where he stands in a fiduciary relation to the other

3. Where he makes contract with a person whose mental capacity is temporarily or

permanently affected by reason of age, illness or mental or bodily distress.

Real or Apparent Authority

If a person has an authority over the contracting party, it is expected that he would not

abuse that authority to gain an undue advantage from the other. An employer may be

deemed to be having authority over his employee, an income tax authority over the

assessee, a police or a judicial officer over the accused.

Fiduciary Relation

Fiduciary relation means a relationship of confidence and trust. When a person reposes

confidence in the other, it is expected that he will not be betrayed. If a person betrays the

confidence and trust reposed in him and gains an unfair advantage over the other party in

any contract, the suffering party has an option to avoid the contract.

Examples of fiduciary relationships are solicitor and client, spiritual adviser and devotee,

medical attendant and patient, parent and child etc. Any relationship in which one party

enjoys the ‘active confidence’ of another party who is to lean on him and is inclined to

repose implicit confidence in him is enough to approximate to the kind of relationship.

For example, A, having advanced money to his son B, during his minority, upon B’s

coming of age obtains, by misuse of parental influence, a bond from B for a greater

amount than the sum due in respect of the advance. A employs undue influence.

Person in mental or bodily distress

A person’s mental capacity may have been affected on account of his old age, illness or

mental or bodily distress and there is every possibility that such a person’s position may

be exploited and unfair advantage taken in such a situation. The law tries to afford

protection to such persons also. If a contract is made to the prejudice of such a person,

there is deemed to be undue influence in such a case. For example, A, a man enfeebled by

disease or age, is induced, by B’s influence over him as his medical attendant, to agree to

pay B an unreasonable sum for his professional services. B employs undue influence.



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consent. If the consent of a party of the contract has been obtained by undue influence,

the consent is not free consent, which is needed for the validity of a contract.





Define ‘Fraud’. How does it affect the validity of an agreement? [10]

Define free consent. What are the elements of fraud? Cite leading cases.

[10]

Derry v. Peak [10]




1. Coercion

2. Undue Influence

3. Fraud


5. Mistake.



Fraud


free consent, which is necessary for the formation of a valid contract. In such a case the

contract is voidable at the option of the party whose consent has been so obtained. Fraud

or deceit is also a tort, for which an action for damages can also lie.









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Essentials of Fraud

The essentials of fraud are

1. There should be a false statement of fact by the person who himself does not

believe the statement to be true.

2. The statement should be made with the wrongful intention of deceiving another

party thereto and inducing him to enter into the contract on that basis.

False Statement of Fact

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. Thus, for

example, if while taking a policy of marine insurance, the insured communicates to the

insurers a letter from the master of the vessel mentioning that in the master’s opinion the

anchorage of the place of destination of the vessel is safe and good, there is only an

expression of opinion and not a statement of fact, which could constitute fraud. On the

other hand, if a person, 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 an insurance policy, it

amount to fraud.

Active Concealment [Sec 17(2)]

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 the other. However, mere silence as to facts is no fraud.

Mere Silence is not Fraud

A contracting party is not obliged to disclose each and everything to the other party. If a

person is to sell his goods, he is under no duty to disclose the defects in his goods. If he

makes false statements as to the quality of his goods, it would be fraud, but if he merely

keeps silent as regards the defects in them, there is no fraud.

For example, if A sells, by auction, to B, a horse which A knows to be unsound and A

says nothing to B about the horse’s unsoundness. This is not fraud in A.

Promise made without the intention to perform it

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When a person makes a promise, there is deemed to be an undertaking by him to perform

it. If there is no such intention when the contract is being made, it amounts to fraud.

Thus, if a man takes a loan without any intention to repay, there is fraud.

Wrongful Intention

In order to constitute fraud, it is necessary that a person should intentionally make a false

statement with an intent to deceive another party thereto to induce him to enter into the

contract. If the intention to deceive the other party is absent, there is no fraud. It may, in

such a case, be a mere misrepresentation.

This can be illustrated by the case of Derry v. Peek. In the case, the directors of a

company issued a prospectus stating that they had got the authority to run tramways with

steam or mechanical power instead of animal power. In fact, a plan had been submitted

for the same and the directors honestly believed that the Board of Trade, who had to

accord its sanction for the same, would do so in a matter of course. The Board of Trade

refused the sanction and the company had to wind up. The respondents, who had taken

shares in the company on the faith of the representation by the directors in the prospectus,

brought an action for the tort of deceit. It was held by the House of Lords that since the

statement had not been made with the intention to deceive, there was no fraud.

It is necessary that the false statements must have been made to induce the other party to

enter into the contract. if a person’s mind has not been influenced by the false statements

when he enters into the contract, there is no fraud. In case it appears from the facts that

even though there were false statements, the other party had the means of knowing the

correct position and ought to have known the truth, then there is no fraud.

Conclusion: When the consent of a party to the contract had been obtained by fraud, the

consent is not free consent, which is necessary for the formation of a valid contract.

Section 17 of the Indian Contract Act, 1872 defines fraud, as explained above.

Does silence amount to fraud? [6]

Introduction: When the consent of a party to the contract had been obtained by fraud,

the consent is not free consent, which is necessary for the formation of a valid contract as

per Section 10 of the Indian Contract Act, 1872. In such a case the contract is voidable at

the option of the party whose consent has been so obtained. Fraud or deceit is also a tort,

for which an action for damages can also lie.



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Mere Silence is No Fraud

As noted above, to constitute fraud there should be representation as to 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 the other. However, mere silence as to facts is no fraud.

A contracting party is not obliged to disclose each and everything to the other party. If a

person is to sell his goods, he is under no duty to disclose the defects in his goods. If he

makes false statements as to the quality of his goods, it would be fraud, but if he merely

keeps silent as regards the defects in them, there is no fraud.

For example, if A sells, by auction, to B, a horse which A knows to be unsound and A

says nothing to B about the horse’s unsoundness. This is not fraud in A.

Exceptions

Although as a general rule mere silence or non-disclosure of facts does not amount to

fraud, but in some exceptional cases keeping silent may be deemed to be an act of

deception. Section 17 mentions two exceptions

• When there is a duty to speak, keeping silent is fraud.

• When silence is, in itself, equivalent to speech, such silence is a fraud.

Duty to Speak

When the circumstances of the case are such that, regard being to them, it is the duty of

the person keeping silent to speak, keeping silent in such cases amounts to fraud. When

there is a duty to disclose facts, one should do so rather than remain silent. Be remaining

silent, one may be responsible for creating a false impression in the mind of the other.

Certain contracts are contracts uberrima fides i.e. contracts of utmost good faith.

Contracts of insurance are contracts uberrima fides. In such a case, it is supposed that the

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party in whom good faith is reposed would make full disclosures and not keep silent.

Suppression of truth in such cases is equivalent to suggestion of falsehood.

Speaking half-truths may also amount to misrepresentation as regards those facts, which

have not been disclosed. Withholding a part of the information may be enough to convey

a false impression and it amounts to fraud.

If a statement is true when made, but subsequently becomes false by the change of

circumstances, there is a duty to disclose the change, before the other party acts upon it.

If the change is not notified to the other party, it would amount to fraud.

Silence being Equivalent to Speech

Sometimes keeping silent as to certain facts may be capable of creating an impression as

to the existence of a certain situation. In such a case, silence amounts to fraud. For

example, B says to A “If you do not deny it, I shall assume the horse is sound.” A says

nothing. Here A’s silence is equivalent to speech. In this case, the relation between the

parties would make it A’s duty to tell B if the horse is unsound.

Even if, in any case, the silence is fraudulent, but the other party could have discovered

the truth by ordinary diligence, he cannot avoid the contract.

Conclusion: When the consent of a party to the contract had been obtained by fraud, the

consent is not free consent, which is necessary for the formation of a valid contract. Mere

silence as to facts likely to affect the willingness of a person to enter into the 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 silent to speak, or unless his silence is, in itself,

equivalent to speech.

Define ‘Misrepresentation’? Distinguish between ‘Misrepresentation’ and

‘Fraud’. [10]




1. Coercion

2. Undue Influence

3. Fraud


5. Mistake.



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Misrepresentation



















• There is a breach of duty whereby the person making a false statement gains some

advantage at the cost of the other party, and the statement though false is made

without an intention to deceive.

• One party, acting innocently, causes another party to make a mistake as to the

substance of the thing, which is the subject of the agreement.

Fraud













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Fraud and Misrepresentation Distinguished

1. Both in fraud and misrepresentation the statement is false, but in fraud the false

statement is made by a person, who knows that it is false or does not believe it is

true, whereas in misrepresentation the person making the statement believes the

same to be true.

2. In fraud, the intention of the person making a false statement is to deceive the

other party and induce him to enter into the contract on that basis. There is no

such wrongful intention in case of misrepresentation.

3. In either case the contract is voidable i.e. the contractual remedy for both is the

same. However, in case of fraud there is an additional remedy available to the

victim, an action of damages under the law of torts, because fraud is also a tort.

4. When there is misrepresentation by one party, the contract is voidable at the

option of the other party, but no such remedy is available if the party seeking to

avoid the contract had means of discovering the truth with ordinary diligence.

However, except in case of fraudulent silence, a person obtaining the consent of

the other party by fraud cannot be allowed to say that the other party could have

discovered the truth with ordinary diligence.

Conclusion: When a false statement is made with the knowledge that it is false and also

with the intention to deceive the other party and make him enter into a contract on that

basis, it is known as ‘Fraud’. But when the person making a false statement believes the

statement to be true and does not intend to mislead the other party to the contract, it is

known as ‘Misrepresentation’. This is the main difference between Fraud and

Misrepresentation. The other differences are listed above.

Explain with illustrations the effect of mistake of fact on agreement with

reference to mistake relating to the identity of parties. [10]

What is the effect of mistake on a contract? [10]

Define mistake. Discuss mistake as to identity. [10]




1. Coercion

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2. Undue Influence

3. Fraud


5. Mistake.



Mistake






‘mistake’.


3. Mistake in the mind of the parties in such that there is no genuine agreement

at all. There may be no consensus ad idem i.e. the meeting of the two minds

and therefore there is absence of consent as defined by section 13. the offer

and acceptance do not coincide and thus no genuine agreement is constituted


4. There may be a genuine agreement, but there may be a mistake as to the

matter of fact relating to that agreement.

Mistake, when there is no consensus ad idem or there is absence of consent

For a valid consent both parties should have given their consent and the consent should

also be free. According to section 13, if two or more parties do not agree to the same

thing in the same sense, there is deemed to be no consent on their part. In other words,

there may be an absence of meeting of minds of the parties, or there may be no consensus

ad idem. In such cases there arises no contract, which can be enforced.

Mistake, as to matter of fact essential to the agreement

Section 20 deals with such a mistake and states that where both parties to an agreement

are under a mistake as to the matter of fact essential to the agreement, the agreement is

void. For example, A agrees to buy from B a certain horse. It turns out that the horse is

dead at the time of the bargain, though neither party was aware of the fact. The agreement

here is void.

When the type of mistake contemplated in Sec 20 is present in an agreement, the

agreement is void. Section 20 required that

• Both parties to the contract should be under a mistake

• Mistake should be as regards a matter of fact

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• The fact regarding which the mistake is made should be essential to the

agreement.

Mistake as to matter of fact essential to the agreement

Mistake of both the parties

Sec 20 makes the agreement void if there is mistake on the part of both the parties. For

example, A agrees to buy from B a certain horse. It turns out that the horse is dead at the

time of the bargain, though neither party was aware of the fact. The agreement here is

void. However, as per Sec 22, if the mistake is a unilateral one i.e. only one of the parties

is having some mis-impression, the validity of the agreement is not affected thereby.

Mistake of fact

There should be mistake of fact and not of law. As explained by Sec 21, the validity of

the contract is not affected by mistake of law. Ignorance of law is no excuse. For

example, A and B make a contract on the erroneous belief that a particular debt is barred

by the Indian Law of Limitation, the contract is not voidable.

Mistake essential to the agreement

It is also necessary that the fact regarding which the mistake is made should be essential

to the agreement. Whether the mistake is regarding a fact essential to the agreement or

not depends on a particular contract.

Mistake essential to the Agreement

The effect of mistake in various situations is discussed below.

Mistake as to the existence of the subject matter

If both the parties to the contract believe in the existence of the subject matter, which in

fact does not exist, the agreement would be void. The reason is that if the subject matter

of the contract has already perished there is nothing regarding which the contract is being

made. For example, in a contract for sale for specific cargo, if the ship carrying the same

has been cast away and the goods lost, the agreement is void if neither of the parties was

aware of the actual facts.

Such an agreement is also void because performance of the agreement is impossible.

If the parties to the contract are not mistaken as to the subject matter, but only regarding

its quality i.e when the subject matter has been clearly identified although its quality has

not been, the agreement would be valid.

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Mistake as to the possibility of performance of the contract

If, contrary to the belief of the parties, the performance of the contract is not legally

possible, the agreement is void. For example, A agrees to take a lease of a fishery from B.

if it turns out that A is himself already a tenant for life, and B has no interest which could

be transferred to A, it is not legally possible for B to perform the contract. the agreement

having being entered into under a mistake, is void.

Mistake as to title

Sometimes the parties may be labouring under a mutual mistake as to the title to the good

sold. The buyer may already be the owner of what the seller purports to sell. In fact, there

is nothing which the seller has to transfer. The transfer of ownership is intended but the

same is impossible as the buyer is already the owner. Such an agreement is void due to

the mutual mistake.

Mistake as to promise

If there is a mistake because of which the promise does not reflect the real intention,

which was there in the proposed agreement, such an agreement would be void.

Mistake as to the identity of the parties

If I enter into a contract with A for the purchase of goods from him and I place the order

accordingly, B cannot accept this offer, and if B supplies me with the goods, I have no

obligation to pay him because I never wanted to make a contract with him.

Similarly, if it is clearly indicated that A does not want to enter into a contract with B, but

B, acting through an agent, makes A enter into a transaction being under the wrong

impression that the other party is B, in such a case B cannot take advantage of such a

contract and cannot sue A for its breach.

When the parties negotiate in each other’s presence, the decision about the validity of the

contract on the ground of mistake in the identity of the parties is quite a difficult one.

If the mistake is regarding a fact essential to the agreement, the agreement is void. But if

the mistake does not relate to the existence of a material fact concerning the subject

matter of the contract, the validity of the contract may not be affected thereby.

Conclusion: When the consent of the parties to the contract is caused by mistake, it is not

free consent, which is needed for the validity of a contract. One, or both, of the parties

may be working under some misunderstanding or misapprehension of some fact relating

to the agreement. If such a misunderstanding or misapprehension had not been there, they

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probably would not have entered into the agreement. Such contracts are said to have been

caused by ‘mistake’. The types of mistakes that might occur are discussed above.

Define Misrepresentation, Fraud and Mistake. Distinguish them from each

other. [10]




1. Coercion

2. Undue Influence

3. Fraud


5. Mistake.



Fraud


















Misrepresentation

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• There is a breach of duty whereby the person making a false statement gains some

advantage at the cost of the other party, and the statement though false is made

without an intention to deceive.

• One party, acting innocently, causes another party to make a mistake as to the

substance of the thing, which is the subject of the agreement.

Mistake






‘mistake’.


1. Mistake in the mind of the parties in such that there is no genuine agreement at

all. There may be no consensus ad idem i.e. the meeting of the two minds and

therefore there is absence of consent as defined by section 13. the offer and

acceptance do not coincide and thus no genuine agreement is constituted


2. There may be a genuine agreement, but there may be a mistake as to the matter

of fact relating to that agreement.

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consent. If fraud, misrepresentation or mistake is used in order to get one of the parties to

enter into a contract, then the contract is not considered valid, as there was an absence of

free consent. From the above explanations of fraud, misrepresentation and mistake, one

may be able to differentiate between them.

Problems [6]

1. H, the master of a ship sold wheat at Bombay without the knowledge of the owner

of the cargo D. The owner agreed to sell the same wheat to C. Is this contract

binding on the owner D?

2. X asks his wife Y to transfer her property to him. When she refuses to transfer X

threatens to murder her. Y transfers her property and later wants to set aside the

transfer. Advise Y.

3. ‘A’ owns two cars, M and F. He sells M to X. X thinks he is purchasing F. Is it a

valid contract?

4. A man named Wallis adopted the name ‘Hallam and Co.’, a non-existent firm and

by letters placed an order for some goods with X, who compiled with the order.

Wallis sold the goods to Y, who acted in good faith. X sued Y for the value of the

goods. Decide.

5. ‘A’ applies to a Banker for a loan at a time when there was stringency in the

money market. The Banker declines to make the loan except at an unusually high

rate of interest. A accepts the loan on these terms. Decide if the contract is vitiated

by undue influence.

6. ‘C’ is an art critic. He knew that he would not be allowed to attend a play in a

theatre. He sent his friend to buy the ticket. He tried to enter the theatre with the

ticket. ‘C’ was refused admission. ‘C’ sues for breach of contract. Decide.

7. B says to A: “If you do not deny it, I shall assume the horse is sound.” A says

nothing. B buys the horse. Advise B, if the horse is unsound.

8. A man by name of Sham called at a jeweler’s shop and chose a costly ring. He

tendered in payment a cheque, which was signed in the name of Ramnath, a

person of credit. He took the ring and pledged it to Bholnath who had no

knowledge of the fraud. Can the jeweler recover the ring from Bholnath?

9. A was employed to sell B’s cargo, which was on a voyage. after the sale of cargo

at an intermediate port to C it was discovered that the cargo had been damaged by

bad weather. Decide.

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Legality of Object and Consideration

‘The contract must be for a lawful object.” Elucidate. [10]

Introduction: One of the essentials of a valid contract is that the consideration and the

object should be lawful. Section 23 mentions the circumstances when the consideration

or object of an agreement is not lawful.

Section 23 reads, “The consideration or object of an agreement is lawful, unless

• It is forbidden by law; or

• Is of such a nature that, if permitted, it would defeat the provision of law; or

• Is fraudulent; or

• Involves or implies injury to the person or property of another; or

• The Court regards it as immoral or opposed to public policy.

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

Every agreement of which the object or consideration is unlawful is void.

Unlawful Consideration or Object

Forbidden by Law

When something is forbidden by law, an agreement to do that is unlawful. An agreement

to do what has been prohibited by the Indian Penal Code or by some other law cannot be

enforced. A contract to pay some money if a crime or a tort is committed is not

enforceable. If the contract stipulates indemnifying a person against liability for an

intentional wrong like deceit, it is unlawful.

Defeat the provisions of any law

If the object or consideration of an agreement is of such a nature that, if it is permitted, it

would defeat the provisions of any law, such an agreement is void. Certain acts may not

be expressly forbidden by law, but if they result in circumventing any law, they cannot be

encouraged.

Fraudulent purpose

If the consideration or object of an agreement is to commit fraud, the agreement is void.

For example, A being an agent for a land proprietor, agrees for money, without the

knowledge of his principal, to obtain for B a lease of land belonging to his principal. The

agreement between A and B is void, as it implies fraud by concealment by A, on his

principal.

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An agreement to avoid competition with one another cannot be considered to be either

fraudulent or opposed to public policy.

Agreement injurious to the person or property of another

If the consideration or the object of an agreement is to cause an injury to the person or

property of another, the agreement is unlawful and therefore void. Injury here means

harm, which is unlawful. For example, if the borrower of money is made to execute a

bond requiring him to do manual labour until repayment, and it imposes a heavy penalty

on default in the form of exorbitant rate of interest, agreement contained in the bond

virtually amounts to slavery and therefore such an agreement is opposed to public policy

and thus void.

If the real object of the agreement between the parties is to promote their own interests

rather than the cause harm to another, the agreement is lawful.

Immoral

If the consideration or object of an agreement is regarded by the Court to be immoral or

opposed to public policy, the agreement is unlawful and the same has also been declared

void by section 23. For example, A agrees to let her daughter for hire to B for

concubinage. The agreement is void, because it is immoral.

What is immoral has not been defined by the Indian Contract Act. Immorality depends on

the norms accepted by the society at a particular point of time. Generally, the concept of

immorality has been given a restricted meaning and it has been confined only to sexual

immortality.

Opposed to public policy

If the court regards an agreement as opposed to public policy, the agreement is void.

Public policy is not capable of any precise definition. Public policy means the policy of

the law at a stated time. An act, which is injurious to the interest of society, is against

public policy.

If an agreement is prejudicial to social or economic interest of the community, it will be

against public policy to enforce such an agreement. On one hand, a person’s right of

contractual freedom should be maintained. On the other hand, if the contract is against

public policy, the law must not allow it to be enforced. The courts play a great role in

interpreting whether the agreement is in consonance with the recognized public policy or

not. The decision of the court would depend upon the recognized notions of interest of

the community at a particular time.

The following agreements have been held to be opposed to public policy

1. Agreement to stifle prosecution;

2. Agreement of maintenance and champerty;

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3. Trading agreement with an enemy;

4. Marriage brokerage contract;

5. Agreement tending to injure the public service.

Conclusion: One of the essentials of a valid contract is that the consideration and the


or object of an agreement is not lawful. Each circumstance has been discussed in detail.

Explain the various agreements opposed to public policy? [10]

Introduction: One of the essentials of a valid contract is that the consideration and the


or object of an agreement is not lawful.

Section 23 reads, “The consideration or object of an agreement is lawful, unless

• It is forbidden by law; or

• Is of such a nature that, if permitted, it would defeat the provision of law; or

• Is fraudulent; or

• Involves or implies injury to the person or property of another; or

• The Court regards it as immoral or opposed to public policy.

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

Every agreement of which the object or consideration is unlawful is void.

Agreement Opposed to Public Policy

If the court regards an agreement as opposed to public policy, the agreement is void.

Public policy is not capable of any precise definition. Public policy means the policy of

the law at a stated time. An act, which is injurious to the interest of society, is against

public policy.

If an agreement is prejudicial to social or economic interest of the community, it will be

against public policy to enforce such an agreement. On one hand, a person’s right of

contractual freedom should be maintained. On the other hand, if the contract is against

public policy, the law must not allow it to be enforced. The courts play a great role in


not. The decision of the court would depend upon the recognized notions of interest of

the community at a particular time.

The following agreements have been held to be opposed to public policy

1. Agreement to stifle prosecution;

2. Agreement of maintenance and champerty;

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3. Trading agreement with an enemy;

4. Marriage brokerage contract;

5. Agreement tending to injure the public service.

Agreement to stifle prosecution

An agreement to stifle prosecution has been regarded as opposed to public policy. The

purpose of criminal law is to punish a guilty person and a compromise with a view to

save a guilty person from liability would frustrate this object. Some minor offences have

been recognized as compoundable offences, which permit a compromise. In all other

cases any compromise to frustrate an action against a criminal, would be deemed to be

unlawful. For example, if A promises B to drop a prosecution which he has instituted

against b for robbery and B promises to restore the value of the things taken, the

agreement is void, as its object is unlawful.

Agreement of maintenance and champerty

Maintenance consists in aiding a party in civil proceedings by providing financial or

other assistance without lawful justification. When a person intermeddles in the litigation

between others by providing assistance to one of the parties, and he has no interest of his

own in the litigation, such intermeddling is unlawful. Maintenance has been considered to

be both a crime and a tort.

Champerty is a kind of maintenance in which the person assisting in the proceedings is to

receive a share in the gain made in the proceedings maintained by him. Champerty,

therefore, is a bargain whereby the one party is to assist the other in recovering property,

and is to share in the proceeds of the action. When the assistance is without justification,

it is unlawful. If the person assisting and the person assisted have a common interest in

the proceedings maintained, it is not unlawful.

Trading agreement with an enemy

When there is a war between two countries, it is unlawful and against public policy that a

person should trade with a subject of the enemy country. During the war it is unlawful

either to enter into such a contract, or to perform a contract entered into before the war

broke out. If agreements with the enemy country are not made unlawful, then the

commercial transactions between the two countries may have the effect of promoting

economic interest of the enemy country and prejudicing the interest of one’s own. If

some rights have already accrued, the outbreak of the war does not put an end to those

rights but their enforcement is suspended until the hostilities are over.

Marriage brokerage contract

Marriage brokerage contracts mean such contracts under which a person agrees to

procure a marriage between two persons on some consideration. Such agreements are

opposed to public policy and are void. Public policy is that suitable matrimonial unions

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should be made by a free and deliberate decision of the parties themselves, and the same

may not be possible if the marriage is arranged through intermediaries, who may procure

marriages for the sake of themselves gaining some financial advantage.

Agreement tending to injure the public service

An agreement to buy, sell or procure a public office is against public policy. When there

is sale of a public office, or assignment of the salary of an office, it is unlawful. Such

agreements tend to corrupt public life as they are likely to interfere in the selection of

properly qualified persons for an office, and are, therefore, void. For example, A

promises to obtain for B an employment in the public service, and B promises to pay Rs

1000 to A. The agreement is void, as the consideration for it is unlawful.

Conclusion: One of the essentials of a valid contract is that the consideration and the

object should be lawful. An agreement opposed to public policy, is a void agreement, as

the consideration or object is considered unlawful. The courts play a great role in


not. The Courts have recognized five instances when the agreement is always considered

against public policy. These five instances have been discussed above.

Problems [6]

1. ‘A’ a married woman was given money by B, the landlord to enable her to obtain

a divorce from her husband and remarry the landlord. ‘A’ refused to return the

money. Is she right?

2. ‘A’ agrees to pay ‘B’ a sum of money if a certain ship does not return. This ship is

sunk. ‘A’ refuses to pay. Advise B.

3. ‘X’ promises to secure employment for ‘Y’, Y promises to pay Rs. 50,000. X

succeeds in obtaining employment for Y, but Y fails to pay X. Advise X.

4. ‘A’ paid Rs 2 lakhs to B to secure her son a seat in a Medical college. B fails to

secure a seat for A’s son. A sues B to recover Rs. 2 lakhs. Decide.

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Void Agreements

Give an account of void agreements provided under the Indian Contract Act,

1872. [10]

Introduction: There are some agreements that have been specifically declared as void by

the Indian Contract Act. Even if such agreements satisfy the conditions of a valid

contract, they are not enforceable. The agreements which have been declared void by the

Act are as follows:

1. Agreement of which the consideration or the object is not lawful. (Sections 23 and

24)

2. Agreement without consideration. (Section 25)

3. Agreement in restraint of marriage. (Section 26)

4. Agreement in restraint of trade. (Section 27)

5. Agreement in restraint of legal proceedings. (Section 28)

6. Agreement which is ambiguous and uncertain. (Section 29)

7. Agreement by way of wager. (Section 30)

8. Agreement to do an impossible act (Section 56).

Agreement of which the consideration or the object is not lawful

There should be lawful consideration and lawful object in respect of that agreement.

‘Lawful’ means that the object and consideration promised to be delivered should not be

violative of any law and should abide by the rules laid down in the Indian Contract Act,

1872. For a contract to be valid there has to be some form of consideration, however it is

immaterial whether the consideration is considered adequate.

Agreement without Consideration

Consideration is one of the essentials of a valid contract, as mentioned in Sec 10.

Therefore, Section 25 of the Act declared any agreement without consideration as void.

However, this section does mention three exceptions when there is no need for any

consideration for the validity of the contract.

• When the agreement is made on account of natural love and affection between

parties standing in a near relation to each other.

• When 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 compelled to do

• When it is a promise to pay wholly or in part a debt of which the creditor might

have enforced but for the law for the limitation of suits.

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Agreement in Restraint of Marriage

According to section 26, every agreement in restraint of the marriage of any person, other

than a minor, is void. An agreement which restricts person's freedom to marry, or to

marry any person of his choice is against public policy and is void. Whether the

agreement puts a total restraint on the right to marry, or only a partial restraint imposing a

restriction on marrying for a certain period, or marrying a certain person, the agreement is

void. An agreement containing a condition in a wakf that a widow would lose her right

for maintenance on re-marriage is not an agreement in restraint of marriage. Similarly,

agreement between two co-widows that anyone of them would lose her right to the

deceased husband's estate on re-marriage, is not a restraint on the right of re-marriage.

Agreement in Restraint of Trade

According to section 27 “every agreement by which anyone is restrained from exercising

a lawful profession, trade or business of any kind, is to that extent void.” An agreement,

which unnecessarily curtails the freedom of a person to trade, is against public policy.

Restraining a person from carrying on a trade generally aims at avoiding competition and

bas monopolistic tendency and this is both against an individual's interest as well as the

interest of the society and on that ground such restraints are discouraged by law.

Section 27, which declares an agreement in restraint of trade as void, does not allow any

distinction between a total restraint or a partial restraint. Thus, whether the agreement

imposes a total restraint, e.g., it says that A shall not carry on a trade anywhere in the

country during his lifetime, or it imposes only a partial restraint requiring A not to trade

within a certain area or for a certain duration, the agreement is void.

Agreement in restraint of legal proceedings

Sec. 28 states that an agreement absolutely restraining a party from enforcing rights

through a court of law, or an agreement which places a limit as on the time within which

a right can be enforced, is void. The section reads, “Every agreement,

1. By which any party thereto is restricted absolutely from enforcing his rights under

or in respect of any contract, by the usual legal proceedings in the ordinary

tribunals, or which limits the time within which he may thus enforce his rights or

2. Which extinguishes the rights of any party thereto, or discharges any party

thereto, from any liability, under or respect of any contract on the expiry of a

specified period as to restrict any party from enforcing his rights, is void to that

extent.”

This section makes two kinds of agreements void

• Agreement, by one party is absolutely debarred from enforcing his rights

through usual legal proceedings.

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• Agreement, which places a time limit for enforcing a right through legal

proceedings.

Agreement, which is ambiguous and uncertain

According to section 29, agreements the meaning of which is not certain or capable of

being made certain, are void. It is necessary that there should be no ambiguity about what

the parties intend. If the meaning of an agreement is neither certain, nor capable of being

made certain, the agreement is void. For example, A agrees to sell to B a ‘hundred tons of

oil’. There is nothing whatever to show what kind of oil was intended. The agreement is

void for uncertainty.

Agreement by way of wager

Section 30 declares wagering agreements as void. The section states that 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.

Agreement to do an impossible act

If the performance of the contract itself is impossible, then obviously the contract is

considered void.

Sec 56 mentions 2 kinds of impossibility.

• Impossibility existing at the time of the making of the contract

• A contract, which is possible and lawful when made, but becomes impossible and

unlawful thereafter due to some supervening event.

Conclusion: There are some agreements that have been specifically declared as void by


contract, they are not enforceable. The agreements, which have been declared void by the

Act, have been discussed above.

“An agreement in restrain of lawful trade or occupation is void.” Explain the

exceptions, if any. [10]




Act are as follows:

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24)








Agreement in Restraint of Trade

According to section 27 “every agreement by which anyone is restrained from exercising

a lawful profession, trade or business of any kind, is to that extent void.” An agreement,

which unnecessarily curtails the freedom of a person to trade, is against public policy.

Restraining a person from carrying on a trade generally aims at avoiding competition and

bas monopolistic tendency and this is both against an individual's interest as well as the

interest of the society and on that ground such restraints are discouraged by law.

Section 27, which declares an agreement in restraint of trade as void, does not allow any

distinction between a total restraint or a partial restraint. Thus, whether the agreement

imposes a total restraint, e.g., it says that A shall not carry on a trade anywhere in the

country during his lifetime, or it imposes only a partial restraint requiring A not to trade

within a certain area or for a certain duration, the agreement is void.

Exceptions to an Agreement in Restraint of Trade

Sale of Goodwill

When there is sale of business by a person along with its goodwill the seller of the

business may make an agreement with the buyer not to carry on the business in

competition with the buyer. Such an agreement, even if imposing a reasonable restriction

on the seller's right to carry on the business, is valid, both in India and England.

Exceptions 1 to Sec. 27 of the Indian Contract Act, which permits such an agreement on

the sale of goodwill, reads, “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, carried on a like

business therein, provided that such limits appear to the Court reasonable, regard being

had to the nature of the business.

Thus, an agreement by a person, who sells the goodwill of his business not to carry on a

similar business within specified local limits, so long as the buyer carries on a similar

business, is valid, provided that the restrictions are reasonable. When a person purchases

the goodwill of the business, he pays for the right to carry on a certain type of business, in

exchange for an express or an implied promise by the seller not to carry on that type of

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business. It will be contrary to the spirit of the contract of sale of goodwill, if the seller of

the goodwill, who has received money for the same, starts that business in competition

with the buyer again. If theobject of the agreement is to protect the right of the buyer of

the goodwill, the restraint is valid. If, on the other hand, the restraint merely aims at

avoiding competition, the covenant would be invalid.

Exceptions under the Indian Partnership Act

Notwithstanding the rule contained in section 27, Indian Contract Act that an agreement

in restraint of trade is void, such an agreement can be validly made by the partners in four

situations

1. Section 11(2), Indian Partnership Act permits the partners of a partnership firm to

make a contract which provides that a partner shall not carry on any business

other than that of the firm while he is a partner. The purpose of such an agreement

is that the partners will not carry on their own business ignoring the partnership

business. Such an agreement is valid and is not hit by the rule contained in section

27, Indian Contract Act.

2. Another exception is contained in section 36(2), India Partnership Act. According

to this provision, such an agreement may be made between the outgoing partner

and the remaining Partners who continue the business of the firm. Generally, an

outgoing partner is paid his share of the goodwill of the firm, and it is reasonable

that he agrees that he not carry on a business similar to that of the firm. Such an

agreement is valid if the restrictions as regards time for which, and the area within

which a similar business is not to be carried on, are reasonable.

3. Section 54, Indian Partnership Act, contains another exception to the rule and

permits such an agreement to be made upon or in anticipation of the dissolution of

the firm. The provision is as follows: “Partners may, upon or in anticipation of the

dissolution of the firm, 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 notwithstanding anything contained in section 27 of the

Indian Contract Act, 1872, such agreement shall be valid if the restrictions

imposed are reasonable.”

4. Section 55(3), Indian partnership Act, contains still another exception to the rule.

The section reads as under: “Any partner may, upon the sale of the goodwill of a

firm, make an agreement with the buyer that such partner will not carry on any

business similar to that of the firm within a specified period or within specified

local limits, and notwithstanding anything contained in section 27 of the Indian

Contract Act, 1872, such agreement shall be valid if the restrictions imposed are

reasonable.”

Restraint by a Contract of Service

An agreement of service under which an employee agrees that he will serve a particular

employer for a certain duration, and that he will not serve anybody else during that

period, is a valid agreement. During the period of employment, the employer has an

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exclusive right to avail the services of his employee and, therefore, a restraint on the

employee to serve somebody else at the same time is reasonable. Such an agreement is

not hit by the doctrine of restraint of trade.

Trade Combinations

Sometimes, the traders or manufacturers combine together to eliminate competition as

between themselves and make agreements fixing minimum price, regulating the supply of

goods and putting profits in a common pool and the dividing the same amongst

themselves. Such agreements are neither void on then ground of being opposed to public

policy, nor are they deemed to be in restraint of trade.

Solus Agreement

Sometimes the seller or the manufacturer of a certain product may agree that he will

supply the whole of his product to a particular single buyer only, or, similarly, a buyer

may agree that he will purchase all his requirements of a certain commodity from a

particular seller or manufacturer only and none else. Such agreements are called 'solus

agreements'. In such a case, one party agrees to deal only with the other party and none

else. They are also known as 'exclusive dealing agreement'. So long as the object of the

agreement is the benefit of the parties to the contract rather than monopolizing the trade,

there is nothing unreasonable in it and the agreement is not considered to be in restraint

of trade.

In the following exceptional cases solus agreements are not valid:

• When the buyer does not agree to purchase the whole quantity, he cannot restrain

the seller from selling his surplus to others.

• When the object of the agreement is to corner goods or to monopolise trade, or the

restraint is for an unduly long time.

Conclusion: According to section 27 “every agreement by which anyone is restrained

from exercising a lawful profession, trade or business of any kind, is to that extent void.”

However, the section does mention certain exceptions where, even with restraint of trade,

the agreement is valid.

Write a note on wagering agreements [6]




Act are as follows:

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24)








Agreement by way of Wager

Section 30 declares wagering agreements as void. The section states that 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.

The term ‘wagering agreement’ has been defined in Carlill v. Carbolic Smoke Ball Co. It

states that a contract is one by which two persons, professing to hold opposite views

touching the issue of a future uncertain event, mutually agree that, dependent 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 other stake; neither of the contracting parties having any

other interest in that contract than 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.

Essentials of a Wagering Agreement

The essentials of a wagering agreement are:

• The parties have opposite views regarding an uncertain event.

• There are chances of gain or loss to the parties on the determination of the event

one-way or the other.

• The parties have no other interest except winning or losing of bet.

Conclusion: Wagering agreements have been declared void by the Act. Though the Act

itself has not defined what a wagering agreement is, it’s meaning has been derived from

the Carlill v. Carbolic Smoke Ball Co. case. A wagering agreement has three essential

agreements as discussed above.

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Problem [6]

‘A’ promised to pay ‘B’ a sum of Rs 5000 in consideration of procuring a second wife for

him. B procured a wife and the marriage took place but a refused to pay the money. Can

B recover the money?

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Contingent Contract

Contingent Contract [10]

Define Contingent Contract. Explain the different contingent contracts, with

illustrations for each contingent contract. [10]

Explain the meaning of contingent contract. What are the rules relating to

enforcement of contingent contract? [10]

Introduction: According to section 31, a contingent contract is a contract to do or not to

do something, if some event, collateral to such contract, does not happen, when the

contract is dependent or conditional upon the happening or non-happening of a certain

future event, the contract is contingent. For example, A contracts to pay B Rs. 10,000 if

B's house is burnt, this is a contingent contract. The payment of the amount is contingent

on the happening of a collateral event i.e., the burning of the house. All contracts of

insurance or indemnity aim at payment of money only after a certain event happens, or

the loss is caused, and, therefore, they are contingent contracts. A wagering agreement is

also a contingent contract, but that type of contingent contract has been specifically

declared to be void by section 30.

A distinction is to be drawn between a contract under which a present obligation is

created but performance is postponed to a future date and a contract under which there is

no present obligation at all and the obligation is to arise by reason of some condition

being complied with or some contingency arising in future. When the performance of the

contract is not dependent on the happening of some event collateral to the contract, it is

an absolute contract and it must be performed unconditionally.

In a contingent contract, there should be some event collateral to the contract. If the event

consists in performance of the contract itself by one party, it is not a contingent contract.

For instance, A announces a reward of Rs. 100 to be paid to anyone who finds his lost

dog. B finds the dog. B's act of finding the dog is acceptance of the offer as well as the

performance of the contract. This contract is not a contingent contract.

Enforcement of Contingent Contract

The following are the rules governing the enforcement of the various kinds of contingent

contracts:

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1. Contracts contingent on an event happening - Contingent contracts to do or not to

do anything if an uncertain future event happens cannot be enforced by law unless

and until that event has happened. If the event becomes impossible, such contracts

become void. For example, A makes a contract with B to buy B's house if A

survives C. This contract cannot be enforced by law unless and until C dies in A's

life-time.

2. Contracts contingent on the event not happening - Contingent contracts to do or

not to do anything if an uncertain future event does not happen, can be enforced

when the happening of that event becomes impossible, and not before. For

example, A agrees to pay B a sum of money if a certain ship does not return. This

ship is sunk. The contract can be enforced when the ship sinks.

3. Contract contingent on the future conduct of a living person - If the future event

on which a contract is contingent is the way in which a person will act at an

unspecified time, the event shall be considered to become impossible when such

person does anything which renders impossible that he should so act within any

definite time, or otherwise than under future contingencies. For example, A agrees

to pay B a sum of money if B marries C. C marries D. The marriage of B to C

must now be considered impossible, although it is possible that D may die, and

that C may afterwards marry B.

4. Contracts contingent on happening of specified event within fixed time –

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

happens within a fixed time, becomes void if, at the expiration of the time fixed

such event bas not happened, or if, before the time fixed, such event becomes

impossible. For example, A promises to pay B a sum of money if a ship return

within a year. The contract may be enforced if the ship returns within the year,

and becomes void if the ship is burnt within the year.

5. Contingent contract on not happening of specified event within a fixed time -

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

does not happen within a fixed time may be enforced by law when the time fixed

has expired and such event has not happened, or, before the time fixed has expired

if it becomes certain that such even, will not happen. For example, A promises to

pay B a sum of money if a certain ship does not return within a year. The

contract may be enforced if the ship does not return within the year, or is burnt

within the year.

6. Agreements contingent on impossible event - Contingent agreements to do or not

to do anything, if an impossible event happens, are void, whether the

impossibility of the event is known or not to the parties to the agreement at the

time when it is made. For example, A agrees to pay B Rs. 1000 if two straight

lines should enclose a space. The agreement is void.

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Conclusion: According to section 31, a contingent contract is a contract to do or not to



future event, the contract is contingent. The six instances when the contract can be

enforced have been discussed.

Distinguish between wagering contract and contingent contract. [10]

Introduction: According to section 31, a contingent contract is a contract to do or not to



future event, the contract is contingent. For example, A contracts to pay B Rs. 10,000 if

B's house is burnt, this is a contingent contract. The payment of the amount is contingent

on the happening of a collateral event i.e., the burning of the house. All contracts of

insurance or indemnity aim at payment of money only after a certain event happens, or

the loss is caused, and, therefore, they are contingent contracts. A wagering agreement is

also a contingent contract, but that type of contingent contract has been specifically

declared to be void by section 30.

Contingent Contract

As explained, a contingent contract is a contract to do or not to do something, if some

event, collateral to such contract, does not happen, when the contract is dependent or

conditional upon the happening or non-happening of a certain future event, the contract is

contingent.

A distinction is to be drawn between a contract under which a present obligation is

created but performance is postponed to a future date and a contract under which there is

no present obligation at all and the obligation is to arise by reason of some condition

being complied with or some contingency arising in future. When the performance of the

contract is not dependent on the happening of some event collateral to the contract, it is

an absolute contract and it must be performed unconditionally.

In a contingent contract, there should be some event collateral to the contract. If the event

consists in performance of the contract itself by one party, it is not a contingent contract.

For instance, A announces a reward of Rs. 100 to be paid to anyone who finds his lost

dog. B finds the dog. B's act of finding the dog is acceptance of the offer as well as the

performance of the contract. This contract is not a contingent contract.

Wagering Contract

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A wagering agreement is also a contingent contract, but that type of contingent contract

has been specifically declared to be void by section 30. The section states that 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.

The term ‘wagering agreement’ has been defined in Carlill v. Carbolic Smoke Ball Co. It

states that a contract is one by which two persons, professing to hold opposite views

touching the issue of a future uncertain event, mutually agree that, dependent 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 other stake; neither of the contracting parties having any

other interest in that contract than 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.

Conclusion: Thus a contingent contract has been explained above. A wagering contract

is a form of contingent contract, however it had been expressly declared as void under

Section 30 of the Indian Contract Act, 1872.

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Performance of Contract

Whether ‘time is the essence of a contract?’ [6]

Introduction: Every contract consists of reciprocal promises. Each party to a contract is

bound to perform the promise made by him. According to section 37: "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 this Act, or of any

other law."

The parties to the contract have a duty to:

• Perform, or

• Offer to perform their respective promises.

When time is the essence of a contract

When time is the essence of the contract, non performance of the contract in time would

frustrate the purpose which the parties have in mind and therefore, if in such a case, there

is delay in the performance by either party, the other party has a right to avoid the

contract.

Determining whether Time is of the Essence of Contract

Whether the time is the essence of the contract or not depends on the intention of the

parties. If the parties have not expressed their intention then it depends on the nature of

the contract. In a contract of sale of goods unless a different intention appears from the

terms of the contract, stipulations as to time of payment are not deemed to be the essence

of a contract of sale. Whether any other stipulation as to time is the essence of the

contract or not depends on the terms of the contract. When the time of performance is the

essence of the contract and the same is extended, the extended date is also the essence of

the contract. When the prices of the goods are subject to rapid fluctuations, the time of

delivery is deemed to be the essence of the contract. In case of sale of immovable

property time is generally not the essence of the contract.

When time is not the essence of the contract

It has been noted above that when time is of the essence of the contract, the delay in

performance by one party entitles the other to avoid the contract. When the time is not the

essence of the contract, it must be performed within a reasonable time. The delay in the

performance of such a contract does not make the contract voidable, but the remedy

available to the aggrieved party in such a case is to claim compensation. The relevant

provision in this regard, which is contained in section 55 stating “If it was not the

intention of the parties that time should be the essence of the contract, the contract does

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not become voidable by the failure to do such thing at or before the specified time, but

the promisee is entitled to compensation from the promisor for any loss occasioned to

him by such failure.”

Time whether essence of Contract

Where in the agreement it was stipulated that building was to be constructed within four

months. Extensions were granted several times for completion of work. Held, that mere

fact that on previous occasion time was extended would not prevent party from

stipulating time for completion of constructions. Even if time was not essence of contract,

contract had to be performed within a reasonable time. If, it was not performed, other

party was entitled to put an end to such a contract.

Where agreement in clear terms had specified that it was to be performed within six

months else earnest money would stand forfeited. Held, that time could be said to be

essence of contract.

Where advance was paid for agreement to sell immovable property and vendee had

agreed to pay balance consideration by stipulated date and on failure advance was to be

forfeited and agreement cancelled. Vendee had made part payment after expiry of

stipulated date. Vendor accepted it on oral assurance by vendee to make full payment

shortly. Held, that terms of agreement clearly indicated intention of parties that time was

essence of contract.

Conclusion: Every contract consists of reciprocal promises. Each party to a contract is

bound to perform the promise made by him. Whether the time is the essence of the

contract or not depends on the intention of the parties. If the parties have not expressed

their intention then it depends on the nature of the contract.

Give, with illustrations, the provisions of the Indian Contract Act relating to

the performance of reciprocal promises. [10]

Reciprocal promise. [10]

Introduction: Every contract consists of reciprocal promises. Each party to a contract is

bound to perform the promise made by him. According to section 37: "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 this Act, or of any

other law."

The parties to the contract have a duty to:

• Perform, or

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• Offer to perform their respective promises.

Performance of Reciprocal Promises

Section 51 to 54 deal with performance of reciprocal promises. The rules contained have

been explained below.

Contracts requiring Simultaneous Performance

According to section 51, “when a contract consists of reciprocal promises to be

simultaneously performed, no promisor need perform his promise unless the promisee is

ready and willing to perform his reciprocal promise.”

When the parties agree that the performance of the contract by each party is to be

simultaneous, it is necessary that in exchange for the performance of the contract by one

party, the other party should also be in a position to give simultaneous performance, i.e.,

he should be ready and willing to perform his reciprocal promise.

It is, of course, necessary that the person should have the ability to perform the contract. If

a person is merely mentally prepared or willing to perform the contract but does not have

the ability to do so, the other party need not perform the contract. Thus, if a person is

insolvent and does not have the means of payment in exchange for the goods, he is deemed

to be not ready and willing to perform the

contract.

When the order of performance expressly fixed by the contract

When the order in which reciprocal promises are to be performed is expressly fixed by

the contract, they shall be performed in that order; and where the order is not expressly

fixed by the contract, they shall be performed in that order which the nature of the

transaction requires. For example, A and B contract that A shall build a house for B at a

fixed price. A's promise to build the house must be performed before B's promise to pay

for it.

One party preventing the other from performing his reciprocal promise

According to section 53 “When a contract contains reciprocal promises, and one party to

the contract prevents the other from performing his promise, the contract becomes

voidable at the option of the party so prevented; and he is entitled to compensation from

the other party for any loss which he may sustain in consequence of the non-performance

of the contract.”

The party, who has been prevented from performing the contract has two remedies

• He may avoid the contract

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• He may claim compensation for the loss suffered by him due to the non-

performance of the contract.

For example, A agrees to remove the waste rock lying at B's mine, and B agrees to supply

a crusher to do the job. If B provides a crusher of an inadequate capacity due to which the

work has to be stopped, A would be entitled to sue B to recover compensation for the

expenses incurred by him and also for the loss of profits.

Non-performance of a reciprocal promise by the party who is to perform first

When the parties have decided about the order of performance, and one of the parties is

to perform his promise first, and the other thereafter, then the non-performance by one

who is to perform it first disentitles him from claiming performance from the other, and

also renders him liable to pay compensation to the other party for any loss arising out of

the non-performance of the contract. Section 54 contains the following provision in this

regard

For example, A hires B's ship to take in and convey, from Calcutta to the Mauritius, a

cargo to be provided by A, B receiving a certain freight for conveyance. A does not

provide any cargo for the ship. A cannot claim the performance of B's promise, and must

make compensation to B for the loss which B sustains by the non-performance of the

contract.

Conclusion: Every contract consists of reciprocal promises. Each party to a contract is

bound to perform the promise made by him. Section 51 to 54 deal with performance of

reciprocal promises. The rules contained have been explained.

Explain the rules relating to the appropriation of payment between Debtor

and a Creditor. [10]

Write a note on appropriation of payments [6]

Introduction: When the debtor owes several distinct debts to a creditor, and he makes

some payment which is not enough to cover the payment of all the debts, the question

which, in such a case, arises is as to which particular debt the payment is to be

appropriated. The payment is to be appropriated according to the following rules,

contained in sections 59 to 61.

Appropriation as desired by the debtor

Where a debtor, owing several distinct debts to one person, makes a payment to him, with

express intimation, or under circumstances, implying that the payment is to be applied to

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the discharge of some particular debt, the payment, if accepted, must be applied

accordingly. The application of payment of debt is left entirely to the discretion of the

debtor. If, however, the debtor fails to give any instructions, the creditor can apply the

amount to any of the debts including a time barred debt. When the debtor indicates that

particular payment is to be applied for the discharge of a particular debt, the creditor has

to apply the same accordingly. If the creditor does not want to do that he must not accept

the payment. The debtor may either expressly mention about his intention regarding

appropriation, or it could be implied also, for example, payment being made is of a

certain sum which corresponds with one particular debt, or it is made on a certain day on

which a particular debt falls due, or is made in compliance with a demand made by the

creditor as to particular debt. For example, A owes B among other debts, 1,000 rupees

upon a promissory note, which falls due on the first June. He owes B no other debt of that

amount. On the first June, A pays to B 1,000 rupees. The payment is to be applied to the

discharge of the promissory note.

The rules mentioned in sections 59 to 61, although are meant for being applied to several

distinct debts, the same principles are applicable when there is a single debt and also

interest thereon. Thus, if the decretal dues, include both the principal and interest, the

deposit of exact amount as that of the principal amount would point to the payment of the

principal amount and not the interest. When principal and interest are due on a single debt

and the debtor

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Discharge of Contract

What are the various ways in which a contract may be discharged? [10]

Introduction: A contract is an agreement enforceable by law. When an agreement, which

was binding to the parties, ceases to bind them, the contract is said to be discharged.

There are 4 ways in which the contract may be discharged

• By performance of the contract

• By breach of the contract

• By impossibility of performance

• By agreement and novation.

Discharge by Performance

Parties to a contract are bound by certain obligations. Once these obligations have been

fulfilled and the parties have made due performance of the contract, their liability under

the contract comes to an end and the contract is said to be discharged by performance.

Discharge by Breach of Contract

Each party to the contract has certain obligations. When a party having a duty to perform

a contract fails to do that or does an act whereby the performance of the contract by him

becomes impossible or refuses to perform the contract then there is said to be a breach of

contract on his part. In such a case the other party is discharged from his obligations and

also gets a right to sue the party making the breach of contract.

A breach of contract may be an actual breach i.e. the non-performance of the contract on

the due date of performance or an anticipatory breach i.e. before the due date of

performance has come. For example: A has to supply B certain goods by 1st January. On

1st Jan if A does not supply the goods, then he has made an actual breach of contract. On

the other hand, if A informs B on 1st Dec, that he will not perform the contract on 1

st Jan,

then A has made an anticipatory breach of contract.

Discharge by Impossibility of Performance


considered void.



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Initial Impossibility

The object of making any contract is that the parties to it would perform their respective

promises. If a contract is impossible to perform, the parties to it will never be able to

fulfil their objective, and hence the agreement is void. For example, Harry and Ron

decide to use magic to enter the Tri Wizard Tournament. The performance of such an

agreement is impossible, and therefore the agreement is considered void. Another

example could be trying to bring a dead man to life.

Subsequent Impossibility

Every contract is based on the assumption that the parties to the contract will be able to

perform the same when the due date of performance arrives. If because of some event,

the performance has either become impossible or unlawful, the contract becomes void.

Sec 56 makes the following provision: ‘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.’

For example, A agrees to marry B, but before the time is fixed for the marriage, B goes

mad. The contract thus becomes void.

Discharge by Agreement and Novation

Novation means substitution of an existing contract with a new one. When, by agreement

between the parties to a contract, a new contract replaces an existing one, the already

existing contract is considered discharged and in its place the obligation of the parties in

respect of the new contract comes into existence. This is dealt with by Sec 62 of the ICA,

which explains 2 kinds of Novation

• Novation by change in terms of contract

• Novation by change in the parties to the contract

Conclusion: When an agreement, which was binding to the parties, ceases to bind them,

the contract is said to be discharged. There are 4 ways in which the contract may be

discharged





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Distinguish between ‘actual breach of contract’ and ‘anticipatory breach of

contract.’ [10]

What is meant by anticipatory breach? [10]








Discharge by Breach of Contract

Each party to the contract has certain obligations. When a party having a duty to perform

a contract fails to do that or does an act whereby the performance of the contract by him

becomes impossible or refuses to perform the contract then there is said to be a breach of

contract on his part. In such a case the other party is discharged from his obligations and

also gets a right to sue the party making the breach of contract.

A breach of contract may be an actual breach i.e. the non-performance of the contract on

the due date of performance or an anticipatory breach i.e. before the due date of

performance has come. For example: A has to supply B certain goods by 1st January. On

1st Jan if A does not supply the goods, then he has made an actual breach of contract. On

the other hand, if A informs B on 1st Dec, that he will not perform the contract on 1

st Jan,

then A has made an anticipatory breach of contract.

Anticipatory breach of contract

Anticipatory breach of contract is dealt with by Sec 39, which reads, ‘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.’

The words in its entirety are significant here, because when the refusal to perform the

contract in its entirety is not there, it’s not considered a case of anticipatory breach of

contract within the meaning of Sec 39.

The case of West Bengal Financial Corporation v. Gluco Serires must be considered

here.

Facts: A granted a loan to B amounting to Rs. 4,38,000 and also agreed to grant a further

loan of Rs 1,62,000 at its discretion provided that B made the repayment of the loan in

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accordance with the agreement at the rate of Rs 60,000 every year. B failed to make the

repayment as agreed, but insisted that A grant the further loan of Rs. 1,62,000. A refused.

B’s contention was that A has failed to perform the contract by not advancing the further

loan, and that this was to be considered as a breach of contract.

Judgment: It was held that A had already advanced some loan, which B had accepted,

and thus it cannot be said to be a refusal on A’s part to the performance of the contract in

its entirety. B was therefore not entitled to put an end to the contract on the ground of

breach of contract on part of A.

As per Sec 39 when the promisor has made anticipatory breach of contract ‘the promisee

may put an end to the contract, unless he has signified by words or conduct his

acquiescence in its continuance’

This means that on the anticipatory breach of contract by one party, the other party has 2

alternatives open to him

• He may rescind the contract immediately i.e. he may treat the contract at an end

and may bring an action for breach of contract without waiting for the appointed

date of performance of the contract.

• He may not put an end to the contract, but treat it as still subsisting and alive and

wait for the performance of the contract on the appointed date.

Election to rescind the contract

In the first case, when the promisee accepts the repudiation of the contract even before

the due date of performance and elects to treat the contract at an end, he is discharged

from his obligations to perform the contract and also gets the rights to bring an action for

breach of contract even before the due date of performance has arrived.

Case: Hochster v. De La Tour

Facts: Defendant engaged the plaintiff on 12th April, 1852, as a courier, to accompany

him on a tour of Europe, which was to begin on 1st June 1852. The plaintiff was to be

paid 10 pounds per month for his services. On 11th May 1852, the defendant wrote to the

plaintiff informing him that he had changed his mind and declined to take the services of

the plaintiff. On 22nd

May 1852 the defendant brought an action against the defendant for

breach of contract. The defendant contended that there could be no breach of contract

before 1st June.

Judgment: It was held that a party to an executory contract may make a breach of contract

before the actual date of performance, and the plaintiff in such a case is entitled to put an

end to the contract and he can bring an action even before the actual date of performance

has arrived. The plaintiff’s action, therefore, succeeded.

Case: Frost v. Knight

Facts: The defendant promised to marry the plaintiff on his father’s death. While the

defendant’s father was still alive, he broke off the engagement. The plaintiff did not wait

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till the defendant’s father’s death and she immediately sued him for breach of contract.

Judgement: She was successful in her action.

Election to keep the contract alive

In the 2nd

case, when the contract is kept alive by the promisee, the promisor may

perform the same inspite of the fact that he had earlier repudiated it. If the promisor still

fails to perform the contract on the due date, the promisee will be entitled to claim

compensation on the basis of breach of contract on the agreed date of performance.

There might be some instances when after the promisee has elected to keep the contract

alive and subsisting some events occur before the due date of performance, because of

which the promisor gets excused from the performance of the contract.

The case of Avery v. Bowden illustrates the point where the promisee elects to keep the

contract alive, and the promisor, inspite of earlier repudiation of the contract, is

discharged from liability because of supervening circumstances before the due date of

performance.

Case: Avery v. Bowden

Facts: A chartered B’s ship at Odessa, a Russian port, and undertook to load the ship with

cargo within 45 days. Before this period had elapsed, A failed to supply the cargo and

declined to supply the same. The master of the ship continued to insist that the cargo be

supplied, but A continued to refuse to load. Before the period of 45 days was over the

Crimean war broke out between England and Russia, whereby it became illegal to load

cargo at a hostile port. The question to be answered in the case was whether by the

declaration of war, A had been discharged from his liability to load the cargo.

Judgement: In the present case, on A’s refusal to load the cargo, B could have rescinded

the contract and brought an action against A. But by insisting the cargo be delivered, B

kept the contract alive. By the declaration of war, the performance of the contract, having

become unlawful, it was held that A had been discharged from his duty to supply cargo

and therefore could not be made liable for the non-performance of the contract.


the contract is said to be discharged. Each party to the contract has certain obligations.

When a party having a duty to perform a contract fails to do that or does an act whereby

the performance of the contract by him becomes impossible or refuses to perform the

contract then there is said to be a breach of contract on his part. A breach of contract may

be an actual breach i.e. the non-performance of the contract on the due date of

performance or an anticipatory breach i.e. before the due date of performance has come.

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Critically examine discharge of contract by impossibility of performance.

[10]










considered void.





Initial Impossibility

The object of making any contract is that the parties to it would perform their respective

promises. If a contract is impossible to perform, the parties to it will never be able to

fulfil their objective, and hence the agreement is void. For example, Harry and Ron

decide to use magic to enter the Tri Wizard Tournament. The performance of such an

agreement is impossible, and therefore the agreement is considered void. Another

example could be trying to bring a dead man to life.

Impossibility does not mean only physical impossibility, but also legal impossibility. If

there is no possibility of the performance of the contract because it would be unlawful to

do that, the agreement is void. Such cases also fall under Sec 23, which declares that

every agreement for which the object or consideration is unlawful is void. For example,

Mr and Mrs Smith enter into a contract to kidnap Seth Cohen. Since kidnapping is

forbidden by law, the contract is void.

In cases where the promisor is aware that the performance of the contract is impossible or

unlawful, but the promisee has no knowledge of the same, in such a situation the

promisor must compensate the promisee for the loss sustained by the promisee resulting

from the non-performance of the contract. For example, if a married man knowing he

cannot marry again promises to do so, he is bound to compensate the other party for the

breach of promise.

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Subsequent Impossibility

Every contract is based on the assumption that the parties to the contract will be able to

perform the same when the due date of performance arrives. If because of some event,

the performance has either become impossible or unlawful, the contract becomes void.

Sec 56 makes the following provision:

‘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.’

For example, A agrees to marry B, but before the time is fixed for the marriage, B goes

mad. The contract thus becomes void.

Doctrine of Frustration

When the performance of a contract becomes impossible, the purpose, which the parties

have in mind becomes frustrated. If the performance becomes impossible, because of a

supervening event, the promisor is excused from the performance of the contract. This is

known as the doctrine of frustration under English law and is covered by Sec 56 if the

Indian Contract Act.

Death or Incapacity of a Party

When the nature of the contract requires the personal performance of a contract by a

particular person, the contract is deemed to be conditional upon the continued life or

good health of the person so that it is possible for him to perform the contract. In such

cases the death of a party puts an end to the contract. The representatives cannot be made

liable.

Case: Robinson v. Davison

Facts: The defendant’s wife, an eminent piano player, promised to play the piano at a

concert on a particular day. She was unable to give her performance due to an illness.

Judgment: It was held that the performance of the contract depended on the continued

good health of the defendant’s wife and the contract was discharged due to her illness.

The defendant could not be made liable for non-performance.


the contract is said to be discharged. If the performance of the contract itself is

impossible, then obviously the contract is considered void.

Sec 56 mentions 2 kinds of impossibility – initial impossibility and when a contract,

which is possible and lawful when made, but becomes impossible and unlawful thereafter

due to some supervening event.

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Write a note on ‘novation’. [6]








Discharge by Agreement and Novation

Novation means substitution of an existing contract with a new one. When, by agreement

between the parties to a contract, a new contract replaces an existing one, the already

existing contract is considered discharged and in its place the obligation of the parties in

respect of the new contract comes into existence. This is dealt with by Sec 62 of the ICA,

which explains 2 kinds of Novation

• Novation by change in terms of contract

• Novation by change in the parties to the contract

Change in terms of the contract

The parties to the contract are free to alter the contract, which they have originally

entered into. But for novation to be valid both parties must agree to the changes.

Case: Salima Jabeen v. National Insurance Co.Ltd.

Facts: The appellant entered into a contract of insurance of her property against fire with

the respondent company. The insured sum was Rs. 23 lakh. Her property was set on fire

by militants causing substantial damage to the property. The assessment of damages was

made by 2 surveyors and the appellant accepted a compensation for a lesser amount by

way of full and final satisfaction of her claim.

Judgement: It was held that by accepting the said amount of compensation and agreeing

not to make any further claim, the appellant has released the insurance company from

contractual obligations and is therefore not entitled to further compensation.

Change in the parties to the contract

If under an existing contract, A is bound to perform the contract in favour of B, the

responsibility of A could be taken over by C. So instead of A being liable towards B, by

novation C becomes liable towards B. For example, A owes money to B under a contract.

It is agreed between A, B and C that B shall henceforth accept C as his debtor, instead of

A. the old debt of A to B is at an end and a new debt from C to B has been contracted.

In such cases there should be the consent of all 3 persons.

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Conclusion: Novation means substitution of an existing contract with a new one. When,

by agreement between the parties to a contract, a new contract replaces an existing one,

the already existing contract is considered discharged and in its place the obligation of the

parties in respect of the new contract comes into existence.

Explain the ‘Doctrine of Frustration’ with decided cases. [10]

Explain the doctrine of frustration and state the effects of frustration.

[10]










considered void.





Doctrine of Frustration

When the performance of the contract becomes impossible, the purpose which the

parties have in mind is frustrated. If the performance becomes impossible, because of

a supervening event, the promisor is excused from the performance of the contract.

This is known as doctrine of frustration under English law, and is covered by section

56 of the Indian Contract Act.

The essential idea upon which the doctrine of frustration is based is that of impossibility

of performance of the contract, in fact impossibility and frustration are often used as

interchangeable expressions. The changed circumstances make the performance of the

contract impossible and the parties are absolved from the further performance of it as

they did not promise to perform an impossibility The doctrine of frustration is really

an aspect or part of the law of discharge of contract by reason of supervening

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impossibility of illegality of the act agreed to be done and hence comes within the

purview of section 56 of the Contract Act.

In Taylor v. Caldwell, it was held that when the contract is not positive and absolute, but

subject to an express or implied condition. e.g., a particular thing shall continue to exist,

then in such a case if the thing ceases to exist, the performance of the contract is deemed

to be impossible and the parties are excused from performing the contract. In this case, A

agreed with B to give him the use of music hall and gardens for holding concerts on four

different dates. B agreed to pay a rent of £ 100 for each of the four days. Before the date

of performance arrived the music hall was destroyed by fire. B sued A for the breach of

the contract. It was held that the contract had become void because of the perishing of the

hall without any fault on the part of A. The performance of the contract had become

impossible and, therefore, A was not liable for the non-performance of the contract.

Conclusion: A contract is an agreement enforceable by law. When an agreement, which


When the performance of the contract becomes impossible, the purpose which the parties

have in mind is frustrated. If the performance becomes impossible, because of a

supervening event, the promisor is excused from the performance of the contract. This is

known as doctrine of frustration under English law, and is covered by section 56 of the

Indian Contract Act.

Problems [6]

1. B hires a marriage hall from C. the hall was accidentally burnt down even before

the marriage took place. B files a suit against C. Advise C.

2. ‘A’ agrees to jump up and touch the sky and b agrees to pay Rs 5000 to A for the

act. Decide the validity of the agreement.

3. X receives some money from Y to be paid over to P. X admits to this receipt to P.

can P recover the due amount from X?

4. ‘A’ promises to marry b on the death of his father. While the father was still alive

he marries C. Decide.

5. A contracted with B to use half of the mill’s working capacity for ginning A’s

cotton. But he repudiated the contract before any cotton was supplied or ginned.

Decide.

6. A and B contract to marry each other. Before the time fixed for the marriage A

becomes insane. Is this contract enforceable?

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Quasi Contract

“No one shall enrich himself unjustly at the expense of another.” Discuss

[10]

Quasi contracts. [10]

Explain the different kinds of quasi contracts. [10]

What is a quasi-contract? When does quasi-contractual liability arise? [6]

Introduction: A person is obliged to compensate another although the basis of this

obligation is neither a contract between the parties nor any tort on the part of the person

who is bound to compensate. The basis of the obligation is that no one should have unjust

benefit at the cost of another. If A gets unjust enrichment at the cost of B, A has an

obligation to compensate B for the same. For instance, A and B jointly owe 100 rupees to

C. A alone pays the amount to C and B, not knowing this fact, pays 100 rupees over again

to C. C is bound to repay the amount to B.

In an action for unjust enrichment, the following essentials have to be proved

• The defendant has been ‘enriched’ by the receipt of a ‘benefit’

• The enrichment is at the expense of the plaintiff.

• The retention of the enrichment is unjust.

An action for a quasi-contract resembles a contractual action in so far as such an action

is against a certain person or certain persons, who have got the unjust benefit. Such an

action, it may be further noted, is for a liquidated sum of money.

The Indian Contract Act deals with the following quasi-contractual obligations

1. Claim for necessaries supplied to a person incompetent to contract (Sec. 68).

2. Reimbursement of money paid, due by another (Sec. 69).

3. Obligation of person enjoying benefit of non-gratuitous act (Sec. 70).

4. Responsibility of finder of goods (Sec. 71).

5. Liability of a person getting benefit under mistake or coercion (Sec. 72).

Claim for necessaries supplied to a person incompetent to contract

Where one person supplies necessaries suited to the condition in life of a person, who is

incompetent to contract (for example, minor or lunatic), or to anyone whom such

incompetent person is legally bound to support (for example, to a lunatic's wife or

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children), the person furnishing such supplies is entitled to a reimbursement from the

property of such incompetent person. Section 68 contains the provisions in this regard.

For example, A supplies B, a lunatic, with necessaries suitable to his condition in, life. A

is entitled to be reimbursed from B's property.

Reimbursement of money paid, due by another

Section 69 contains the following provision in this regard: A person who is interested in

the payment of money which another is bound by law to pay, and who therefore pays it,

is entitled to be reimbursed by the other. For example, B holds lands 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 annulment of B's lease. B, to prevent the sale and the

consequent annulment of his own lease, pays to the Government the sum due from A. A is

to make good to B the amount so paid.

For the application of this section, the following two essentials are to be there

• One person is interested in the payment of money, and therefore, he pays it, while,

• Another person is bound by law to pay the same, but he fails to pay.

The person so making the payment is entitled to be reimbursed by the person who was

bound to pay.

The general purport of the section is to afford to a person who pays money in furtherance

of some existing interest an indemnity in respect of the payment against any other person

who, rather than he, could have been made liable at law to make the payment.

Obligation of person enjoying benefit of non-gratuitous act

According to section 70: ‘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.’

For the application of this section, the following conditions are to be satisfied:

• A person should lawfully do something for another person, or should deliver

something to him;

• The person making the payment or delivering the thing must not do so

gratuitously, i.e., he should expect payment for the same; and

• The other person should enjoy the benefit of this payment or the delivery of the

thing.

When all the above conditions are satisfied, the person receiving the benefit becomes

bound to pay compensation to the person conferring the benefit.

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Responsibility of finder of goods

Section 71 contemplates another quasi-contractual situation, i.e., when a person is a

finder of goods. Although as between the finder and the owner of the goods, there is no

contract, yet the following responsibility has been fixed by section 71, on the finder of

goods. The section reads as follows: ‘A person who finds goods belonging to another,

and takes them into his custody, is subject to the same responsibility as a bailee.’

The position of the finder of goods is similar to that of a bailee. For instance, like a bailee

of goods, the finder is bound to take as much care of the goods as a man of ordinary

prudence would, under similar circumstances, take of his own goods of the same bulk,

quality and value as the goods found by him. Similarly, he should not mix the goods

found by him with his own goods. He, like a bailee, is bound to return the goods to the

true owner, if he can, after a reasonable search be found. If, because of his default, the

goods are not returned to the true owner, or there is any loss, destruction or deterioration

of the goods, the finder must compensate the owner for the same

Liability of a person getting benefit under mistake or coercion

Section 72 covers a situation where money has been paid, or anything delivered, by one

person to another either by mistake or under coercion. According to this section, ‘A

person to whom money has been paid, or anything delivered, by mistake or under

coercion, must repay or return it.’

Unjust benefit under mistake

For example, A and B jointly owe 190 rupees to C. A alone pays the amount to C. and B,

not knowing this fact pays 100 rupees over again to C. C is bound to repay the amount to

B.

Unjust benefit under coercion

The term ‘coercion’ in this section includes every kind of compulsion even if it does not

measure up to ‘coercion’ as defined by section 15. For example, A railway refuses to

deliver up certain goods to the consignee, except upon the payment of illegal charge for

carriage. The consignee pays the sum charged (under coercion) in order to obtain the

goods. He is entitled to recover so much of the charge as was illegally excessive.

Conclusion: A person is obliged to compensate another although the basis of this



benefit at the cost of another. Five instances have been given when a quasi contract is

formed. These instances have been explained.

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Write a note on necessaries. [6]





















Claim for necessaries supplied to a person incompetent to contract

Where one person supplies necessaries suited to the condition in life of a person, who is

incompetent to contract (for example, minor or lunatic), or to anyone whom such

incompetent person is legally bound to support (for example, to a lunatic's wife or

children), the person furnishing such supplies is entitled to a reimbursement from the

property of such incompetent person. Section 68 contains the provisions in this regard.

For example, A supplies B, a lunatic, with necessaries suitable to his condition in, life. A

is entitled to be reimbursed from B's property.

An agreement by a minor, or any person incompetent to contract is void ab initio. No

action under a contract can be brought against a person for a claim for necessaries

supplied to such incompetent person or his dependants. The claim cannot be enforced

against such incompetent person, but reimbursement can be claimed only from the

property of such a person.

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Conclusion: Where one person supplies necessaries suited to the condition in life of a

person, who is incompetent to contract (for example, minor or lunatic), or to anyone

whom such incompetent person is legally bound to support (for example, to a lunatic's

wife or children), the person furnishing such supplies is entitled to a reimbursement from

the property of such incompetent person. Section 68 contains the provisions in this

regard.

Explain the liability to pay for non-gratuitous acts. [10]





















Obligation of person enjoying benefit of non-gratuitous act

According to section 70: ‘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.’

For the application of this section, the following conditions are to be satisfied:

• A person should lawfully do something for another person, or should deliver

something to him;

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• The person making the payment or delivering the thing must not do so

gratuitously, i.e., he should expect payment for the same; and

• The other person should enjoy the benefit of this payment or the delivery of the

thing.

When all the above conditions are satisfied, the person receiving the benefit becomes

bound to pay compensation to the person conferring the benefit.

Doing of something or delivering anything to another person

When a person does something for another person or delivers anything to him not

intending to do so gratuitously, he is entitled to claim compensation for the same from

such other person. Thus, if A, a tradesman, leaves goods at B's house by mistake and B

treats the goods as his own, B is bound to pay A for them.

It must be doing of something positive.

When there is nothing positive done by the plaintiff but he merely refrains from doing

something, that is not sufficient to entitle him to make a claim under section 70.

No intention to d the act gratuitously

When the person doing the act does not intend to do it gratuitously but expects payment

for the same on doing such act, he can ask for compensation under section 70. If a tenant

of a property makes improvements and additions in the property and the landlord accepts

the same, the presumption is that the tenant did not intend to do so gratuitously and he

can recover compensation for the same from the landlord.

If the intention is to do the act gratuitously, nothing can be recovered for the same. For

instance, A saves B's property from fire. If the circumstances show that A intended to do

it gratuitously (without any payment), A is not entitled to compensation from B

Enjoyment of benefit by the defendant is necessary

For an action under section 70, one of the essentials which has got to be proved is that the

defendant enjoyed the benefit of the work done or the thing delivered to him by the

plaintiff. The voluntary acceptance of the benefit of the work done or the thing delivered

is the foundation of the claim under section 70. If a person accepts the benefit of the work

done, it can raise a presumption that the work was not intended to be done gratuitously.

To make a person liable for enjoying the benefit, it has to be proved that the defendant

had a choice of accepting or rejecting the benefit and he preferred to accept the same.

Unjust benefit to the defendant necessary

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Section 70 is founded on the principle that one should not gain unjust enrichment at the

cost of the other. If there is no unjust gain obtained in any transaction, Section 70 has no

application.

If the plaintiff does an act for his own benefit, although incidentally his neighbours

happen to be benefited thereby, the plaintiff cannot claim share of such expenses from his

neighbours.

Conclusion: Section 70 explains when there is an obligation on a person to recompense

another for enjoying benefit of non-gratuitous act. The section also explains the essentials

that have to be fulfilled for the action to fall under this category.

Discuss the various rights and obligations of a finder of goods. [10]





















Responsibility of finder of goods

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Section 71 contemplates another quasi-contractual situation, i.e., when a person is a

finder of goods. Although as between the finder and the owner of the goods, there is no

contract, yet the following responsibility has been fixed by section 71, on the finder of

goods. The section reads as follows: ‘A person who finds goods belonging to another,

and takes them into his custody, is subject to the same responsibility as a bailee.’

The position of the finder of goods is similar to that of a bailee. For instance, like a bailee

of goods, the finder is bound to take as much care of the goods as a man of ordinary

prudence would, under similar circumstances, take of his own goods of the same bulk,

quality and value as the goods found by him. Similarly, he should not mix the goods

found by him with his own goods. He, like a bailee, is bound to return the goods to the

true owner, if he can, after a reasonable search be found. If, because of his default, the

goods are not returned to the true owner, or there is any loss, destruction or deterioration

of the goods, the finder must compensate the owner for the same.

When a thing which is commonly the subject of sale is lost; if the owner cannot with

reasonable diligence be found or if he refuses, upon demand, to pay the lawful charges of

the finder, the finder, may sell it in certain circumstances.

• When the thing is in danger of perishing or of losing the greater part of its value

• When the lawful charges of the finder, in respect of the thing found, amount to

two-thirds of its value.

Finder's right of lien and compensation

The finder of the goods has no right to sue the owner for compensation for the trouble

and expense voluntarily incurred by him to preserve the goods and to find out the owner;

but he may retain the goods against the owner until he receives such compensation; and

where the owner has offered a specific reward for the return of goods lost, the finder may

sue for such reward, and may retain the goods until he receives it. Even if no specific

reward has been offered, but, if after the goods are found, the owner promises to pay

something to the finder for his services, the finder can enforce this promise under section

25 (2). For example, A finds B's purse and gives it to him. B promises to pay A's

expenses in so doing. It is a valid contract and A can recover the amount from B.

Finder is bailee only against the true owner

It may be noted that the position of the finder of goods is that of a bailee only against the

true owner of the goods and he is bound to return the goods to the owner as owner's title

is better than his. Finder's title is better than everybody except the true owner. Thus if the

finder of a jewel gives the jewel to a jeweller for being valued, he has a right to recover

its value from the jeweller if the latter refuses to return the same.

Conclusion: A person who finds goods belonging to another, and takes them into his

custody, is subject to the same responsibility as a bailee. The finder is bound to take as

much care of the goods as a man of ordinary prudence would, under similar

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circumstances, take of his own goods of the same bulk, quality and value as the goods

found by him.

Problems [6]

1. B left his carriage on D’s premises. D’s landlord seized the carriage, as D had not

cleared arrears of rent. B cleared the amount due by D and got back his carriage.

Can B recover from D the amount cleared by him?

2. Irrigation facility from a tank was utilized by both those villages coming under

state tendency and others under Zamindars. The government carried out repairs to

the tank. Are the Zamindars liable to contribute for repairs?

3. ‘A’ a dealer in fruits leaves a bag containing fruits at B’s house by mistake. B

consumes those fruits. Can a recover the price of the fruits from B?

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Remedies for Breach of Contract

Explain the principles governing the assessment of damages for breach of

contract. [10]

The law governing damages is incorporated provisions of the Indian Contract

Act, 1872. Discuss the law. [10]

Introduction: When one of the parties makes a breach of contract, the following

remedies are available to the other party:

1. Damages: Remedy by way of damages is the most common remedy available to

the injured party. This entitles the injured party to recover compensation for the

loss suffered by him due to the breach of contract, from the party who causes the

breach. Sections 73 to 75 incorporate the provisions in this regard.

2. Quantum Meruit: When the injured party has performed a part of his obligation

under the contract before the breach of contract has occurred, he is entitled to

recover the value of what he has done, under this remedy.

3. Specific Performance and injunction: Sometimes a party to the contract instead of

recovering damages for the breach of contract may have recourse to the

alternative remedy of specific performance of the contract, or an injunction

restraining the other party from making a breach of the contract. Provisions

regarding these remedies are contained in the Specific Relief Act, 1963.

Damages

Section 73 makes the following provision regarding the right of the injured party to

recover compensation for the loss or damage, which is caused to him by the breach of

contract. It states, ‘When a contract has been broken, the party who suffered by such

breach is entitled to receive, from the party who has broken the contract, compensation

for any loss or damage caused to him thereby, which naturally arose in the usual course

of things from such breach, or which the parties knew, when they made the contract, to

be likely to result from the breach of it.

In action for damages for the breach of contract there arises two kinds of problems.

1. Firstly, it has to be determined whether the loss suffered by the plaintiff is

proximate consequence of the breach of contract by the defendant. The person

making the breach of contract is liable only for the proximate consequences of the

breach of contract. He is not liable for the damage, which is remotely connected

with the breach of contract. In other words, the first problem is the problem of

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‘Remoteness of Damage’

2. If it is found that a particular damage is the proximate result of the breach of

contract rather than too remote, the next question which arises is how much

compensation is to be paid for the same? This involves determining the quantum

of compensation. This, in other words, is the problem ‘Measure of Damages’.

Remoteness of Damage

The following statement of Alderson B, in the case of Hadley v. Baxendale is considered

to be the basis of the law to determine whether the damage is the proximate or the remote

consequence of the breach of contract: “Where two parties have made a contract which

one of them has broken, the damages which the other party ought to receive in respect of

such breach of contract should be such as may fairly and reasonably be considered either

arising naturally, i.e., according to the usual course of things, from such breach of

contract itself, or such as may reasonably be supposed to have been in the contemplation

of both parties, at the time they made the contract, as the probable result of the breach of

it.”

The provision contained in section 73 (para 1) is similar to rule contained in the above

stated judgment in Hadley v. Baxendale. The rule in Hadley v. Baxendale consists of two

parts. On the breach of a contract such damages can be recovered:

• as may fairly and reasonably be considered arising naturally, i.e., according to the

usual course of things from such breach; or

• as may reasonably be supposed to have been in the contemplation of both parties

at the time they made the contract.

In either case, it is necessary that the resulting damage is the probable result of the breach

of contract.

The principle stated in the two branches of the rule is virtually the rule of ‘reasonable

foresight’. The liability of the party making the breach of contract depends on the

knowledge, imputed or actual, of the loss likely to arise in case of breach of contract. The

first branch of the rule allows damages for the loss arising naturally, i.e., in the usual

course of things from the breach. The parties are deemed to know about the likelihood of

such loss. The second branch of the rule deals with the recovery of more loss, which

results from the special circumstances of the case. Such loss is recoverable, if the

possibility of the same was actually within the knowledge of the parties, particularly who

makes a breach of the contract, at the time of making of the contract.

Measure of Damages

After it has been established that a certain consequence of the breach of contract is

proximate and not remote and the plaintiff deserves to be compensated for the same, the

next problem is of assessment of compensation for the breach of contract.

Damages are compensatory in nature. The object of awarding damages to the aggrieved

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party is to put him in the same position in which he would have been if the contract had

been performed. Damages are, therefore, assessed on that basis. If a party takes security

deposit from the other for the due performance of the contract, he is not entitled to forfeit

the deposit on the grounds of default, when no harm is caused to him on account of such

default.

Conclusion: Section 73 makes the following provision regarding the right of the injured

party to recover compensation for the loss or damage, which is caused to him by the

breach of contract. In action for damages for the breach of contract there arises two kinds

of problems – the Remoteness of Damage and the Measure of Damage.

What is Hadley v. Baxendale rule? How far is it applicable in India?

Distinguish between general damages and special damages. [10]

Discuss the scope of the rule laid down in Hadley v. Baxendale. [10]

Introduction: Section 73 makes the provision regarding the right of the injured party to

recover compensation for the loss or damage, which is caused to him by the breach of

contract. It states, ‘When a contract has been broken, the party who suffered by such

breach is entitled to receive, from the party who has broken the contract, compensation

for any loss or damage caused to him thereby, which naturally arose in the usual course

of things from such breach, or which the parties knew, when they made the contract, to

be likely to result from the breach of it.

In action for damages for the breach of contract there arises two kinds of problems.

1. Firstly, it has to be determined whether the loss suffered by the plaintiff is

proximate consequence of the breach of contract by the defendant. The person

making the breach of contract is liable only for the proximate consequences of the

breach of contract. He is not liable for the damage, which is remotely connected

with the breach of contract. In other words, the first problem is the problem of

‘Remoteness of Damage’

2. If it is found that a particular damage is the proximate result of the breach of

contract rather than too remote, the next question which arises is how much

compensation is to be paid for the same? This involves determining the quantum

of compensation. This, in other words, is the problem ‘Measure of Damages’.

Remoteness of Damage

The following statement of Alderson B, in the case of Hadley v. Baxendale is considered

to be the basis of the law to determine whether the damage is the proximate or the remote

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consequence of the breach of contract: “Where two parties have made a contract which

one of them has broken, the damages which the other party ought to receive in respect of

such breach of contract should be such as may fairly and reasonably be considered either

arising naturally, i.e., according to the usual course of things, from such breach of

contract itself, or such as may reasonably be supposed to have been in the contemplation

of both parties, at the time they made the contract, as the probable result of the breach of

it.”

The provision contained in section 73 (para 1) is similar to rule contained in the above

stated judgment in Hadley v. Baxendale. The rule in Hadley v. Baxendale consists of two

parts. On the breach of a contract such damages can be recovered:

• as may fairly and reasonably be considered arising naturally, i.e., according to the

usual course of things from such breach; or

• as may reasonably be supposed to have been in the contemplation of both parties

at the time they made the contract.

In either case, it is necessary that the resulting damage is the probable result of the breach

of contract.

The principle stated in the two branches of the rule is virtually the rule of ‘reasonable

foresight’. The liability of the party making the breach of contract depends on the

knowledge, imputed or actual, of the loss likely to arise in case of breach of contract. The

first branch of the rule allows damages for the loss arising naturally, i.e., in the usual

course of things from the breach. The parties are deemed to know about the likelihood of

such loss. The second branch of the rule deals with the recovery of more loss, which

results from the special circumstances of the case. Such loss is recoverable, if the

possibility of the same was actually within the knowledge of the parties, particularly who

makes a breach of the contract, at the time of making of the contract.

Hadley v. Baxendale

The plaintiff's mill had been stopped due to the breakage of a crankshaft. The broken

shaft had to be sent to the makers at Greenwich as a pattern for preparing the new one.

The defendants, who were common carriers, agreed to carry the broken shaft to

Greenwich. The only information given to the carriers was that the article to be carried

was the broken shaft of a mill and the plaintiffs were the millers of that mill. Owing to

the defendants' negligence, the delivery of the shaft was delayed. Due to this delay, the

mill remained stopped for a longer time than it would have been, had the shaft been

delivered at Greenwich without any delay. The plaintiffs brought an action to recover

damages for the loss of profits arising out of the delay.

It was held that it could not be contemplated that the mill would be stopped in the usual

course of things, by sending the shaft, as the millers might have another shaft in reserve.

Moreover, the special circumstances were not communicated by the plaintiffs to the

defendants. The plaintiffs were, therefore, not entitled to recover the loss.

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First branch of the rule in Hadley v. Baxendale: Damage arising in the usual course of

things

Under this branch of the rule, compensation can be claimed for any loss or damage that

arose in usual course of things from the breach of contract. If the loss is one that does not

arise in the usual course of things but is special loss arising out of special circumstances,

then the situation would be covered by the second branch of the rule. In that case the loss

can be claimed if the same was in the contemplation of both the parties at the time of

making of the contract.

Second branch of the rule in Hadley v. Baxendale: More loss arising from the

special circumstances

If the loss on the breach of a contract does not arise naturally i.e. according to the usual

course of things but arises due to some special circumstances, the person making the

breach of contract can be made liable for some provided that those special circumstances

were brought to his knowledge at the time of making the contract. if he had no

knowledge of the special circumstances which resulted in the particular loss, he cannot be

made liable for the same.

Conclusion: Thus the case of Hadley v. Baxendale was a landmark case that laid down

the principle of how to determine remoteness of damage. It laid down two principles that

have been explained above which are followed to determine the remoteness of damage in

subsequent cases.

Liquidated damages. [10]















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Liquidated Damages

Sometimes, the parties to a contract, at the time of making the contract agree to the

amount of compensation payable in the event of a breach of contract. The amount of

compensation payable, which has been agreed beforehand, may be either liquidated

damages or penalty. If the compensation to be paid on the breach of contract is the

genuine pre-estimate of the prospective damages, it is known as liquidated damages. If

the compensation agreed to be paid in the event of breach of contract is excessive and

highly disproportionate to the likely loss, viz, the amount is fixed in terrorem, with a view

to discouraging breach of contract, it is known as penalty. Whether a stipulation was

penalty or liquidated damages depended on the construction of contract to be judged as at

the time it was made, and mere description as penalty or liquidated damages though

relevant was not decisive.

The distinction between penalty and liquidated damages was thus explained by Lopes, J.

in Law v. Redditch Local Board: “The distinction between penalties and liquidated

damages depends on the intention of the parties to be gathered from the whole air the

contract. If the intention is to secure performance of the contract by the imposition of a

fine or penalty, then the sum specified is penalty; but if, on the other hand, the intention is

to assess the damages for breach of the contract, it is liquidated damages.”

According to English law, if the amount of compensation agreed to by the parties is by

way of liquidated damages, the plaintiff will be entitled to recover the agreed amount of

compensation, neither more nor less than that, without the plaintiff having to prove the

exact amount of loss suffered by him by the breach of contract. On the other hand, if the

compensation agreed upon is in the nature of penalty, the plaintiff will be indemnified to

the extent of the actual loss suffered by him. The amount fixed by of penalty is the

maximum limit of damages, rather than making a pre-estimate of the same.

In Dunlop Pneumatic Tyre Co. v. New Garage and Motor Co. Ltd., the plaintiffs, Dunlop

Pneumatic Tyre Co., who were the manufacturers of motorcar tyres and tubes, etc. sold

some of these goods to the defendants. The defendants agreed not to sell those goods

further below the manufacturer's list price. They also agreed to pay £ 5 by way of

liquidated damages for every tyre, tube, etc. sold below the list price. It was held by the

House of Lords that the sum of compensation payable on the breach of the agreement

was the genuine pre-estimate of damages, and therefore, liquidated damages.

If the 'agreed damages' are highly excessive, and that high sum is agreed to be paid

whether the breach results in a small or a heavy loss, the sum so fixed would be

considered to be in terrorem and will be deemed to be penalty rather than liquidated

damages.

Conclusion: Sometimes, the parties to a contract, at the time of making the contract agree

to the amount of compensation payable in the event of a breach of contract. If the

compensation to be paid on the breach of contract is the genuine pre-estimate of the

prospective damages, it is known as liquidated damages. The distinction between

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penalties and liquidated damages depends on the intention of the parties to be gathered

from the whole air the contract.

Write a note on ‘Quantum merrut’. [6]















Ordinarily, if a person, having agreed to do some work or render some services, has done

only a part of what he was required to do, he cannot claim anything for what he has done.

When a person agrees to complete some work for a lump sum, non-completion of the

work does not entitle him to any remuneration even for the part of the work done. But the

law recognizes an important exception to this rule by way of an action for 'Quantum

Meruit'. Under this action, if A and B have entered into a contract, and A, who has

already performed a part of the contract, is then prevented by B from performing the rest

of his obligation under the contract, A can recover from B reasonable remuneration for

whatever he has already done.

It may be noted that this action is not an action for compensation for the breach of

contract by the other side. It is an action, which is alternative to an action for the breach

of contract. This action in essence is one of restitution, putting the party injured by the

breach of contract in a position in which he would have been, had the contract not been

entered into. It merely entitles the injured party to be compensated for whatever work he

may have already done, or whatever expense he may have incurred. In the words of

Alderson, B: “Where one party has absolutely refused to perform, or has rendered

himself incapable of performing his part of the contract, he puts it in the power of the

other party either to sue for the breach of it or to rescind the contract and sue on quantum

meruit for the work actually done."

It may be noted that this remedy is available only for the part of the work done by the

party other than the one making a breach of contract. If the party making a breach of the

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contract has done a part of the work in connection with it, he cannot claim anything in

respect thereof this remedy.

The essentials of an action of quantum meruit are as follows:

• One of the parties makes a breach of contract, or prevents performance of it by the

other side.

• The party injured by the breach of the contract, who has performed a part of it,

elects to be discharged from performance of the contract and brings an action for

recompense for the value of the work he has already done.

Conclusion: When the injured party has performed a part of his obligation under the

contract before the breach of contract has occurred, he is entitled to recover the value of

what he has done, under this remedy.

Problems [6]

1. ‘X’ agreed to pay Rs 10,000 to Y on a certain day. X failed to pay and as a result

Y wants to claim damages for becoming insolvent due to X’s failure to fulfill his

promise. Will Y succeed? Give reasons.

2. ‘A’ contracts to buy certain goods from ‘B’ for Rs. 2000. The contract further

provides that if A refuses to accept the goods, he would pay Rs. 5000 to B as

damages. How would you decide? [6]

3. ‘A’ enters into a contract with ‘B’, in which ‘A’ agrees to sing for three

consecutive nights in B’s theatre and B agrees to pay Rs 1000 per night. After

performing for two nights, A falls sick and hence becomes unable to sing for the

third night. Can B file a suit against A for damages? Give reasons.

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Specific Relief Act

Specific Performance of Contracts

Examine the principles on which the doctrine of specific performance of contracts is

based. [10]

What is ‘specific relief’? [10]

Explain specific performance of contract. [6]

Against whom may the court refuse to enforce specific performance of contract? [8]

Against whom may the Courts specifically enforce contracts? [8]

‘The Jurisdiction of the Court to decree specific performance is discretionary.” [10]

Introduction: Specific performance of a contract means performing the contract as per

the terms and conditions agreed to between the parties to it, rather than payment of

damages or compensation for the non-performance of the contract. According to

Halsbury, “it is an equitable relief, given by the Court in cases of breach of contract, in

the form of judgment that the defendant do actually perform the contract according to its

terms and stipulations.”

Cases in which Specific performance of Contract Enforceable

Except as otherwise provided, the specific performance of any contract may, in the

discretion of the court, be enforced

• when there exists no standard for ascertaining actual damage caused by the non-

performance of the act agreed to be done; or

• when the act agreed to be done is such that compensation in money for its non-

performance would not afford adequate relief.

When there exists no standard for ascertaining actual damage

Specific performance of a contract is permitted when there exists no standard of

ascertaining actual damage caused by the breach of contract. If the damage caused by the

breach of contract is ascertainable, the remedy available is a claim for damages rather

than specific performance of contract.

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For instance, if the article sold is such that it is available in market, the loss is

ascertainable on the basis of the difference between contract price and the market price

on the date of breach of contract. In such a situation specific performance is not

permitted. On the other hand, for example, A agrees to buy and B agrees to sell, a picture

by a dead painter and two rare China vases. A may compel B specifically to perform this

contract, for, there is no standard for ascertaining the actual damage which would be

caused by its non-performance.

When money compensation would not provide adequate relief

Specific performance of a contract is also permitted when the act agreed to be done is

such that compensation in money for non-performance would not afford adequate relief.

Compensation in money would not provide adequate relief is presumed in the following

cases:

1. When the breach of contract relates to transfer of immovable property;

2. When it is movable property and the article transacted is not an ordinary article of

commerce, or is of special value or interest to the plaintiff, or consists of goods

which are not easily available in the market; and

Where the property is held by the defendant as agent or trustee of the plaintiff.

Contracts not specifically enforceable

The following contracts cannot be specifically enforced, namely:

• a contract for the non-performance of which compensation in money is an

adequate relief;

• a contract which runs into such minute or numerous details or which is so

dependent on the personal qualifications or volition of the parties, or otherwise

from its nature is such, that the court cannot enforce specific performance of its

material terms;

• a contract which is in its nature determinable;

• a contract, the performance of which involves the performance of a continuous

duty which the court cannot supervise.

Save as provided by the Arbitration Act, 1940 (10 of 1940), no contract to refer present

or future differences to arbitration shall be specifically enforced; but if any person who

has made such a contract (other than an arbitration agreement to which the provisions of

the said Act apply) and has refused to perform it, sues in respect of any subject which he

has contracted to refer, the existence of such contract shall bar the suit.

Who may obtain specific performance (Section 15)

According to Section 15 specific performance of a contract may be claimed by the

following persons:

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1. Any party to the contract may obtain specific performance of that contract. A

contract is an agreement enforceable by law. Obviously, it is the parties to the

contract who can enforce the contract against each other. Rather, the general rule

under the law of contract is that only parties to the contract can sue and the

stranger to the contract cannot sue. Therefore, primarily the parties to the contract

may obtain specific performance of the same.

2. A representative in interest may also obtain specific performance of a contract,

Representative in interest includes any assignee or transferee of interest or a legal

representative, viz., executor or administrator after the death of the principal.

A legal representative may sue provided that the contract is not dependent on the

personal skill or quality of the promisee. If the contract depends on the personal

skill of the parties, for instance, a contract to paint a picture, or write a book, the

duty under the contract ends by the death, and legal representatives cannot claim

specific performance.

3. A beneficiary under the contract may obtain specific performance of the contract,

where the contract is a settlement on marriage, or a compromise of doubtful rights

between the members of the same family.

Persons who cannot claim specific performance (Section 16)

According to Section 16, specific performance of a contract cannot be claimed in favour

of the following persons

1. A person who could not be entitled to recover compensation for the breach of a

contract, he cannot specifically enforce the contract. For example, when a person

has entered into a contract on behalf of a principal, he cannot personally enforce

the same.

2. Specific performance cannot be claimed in favour of a person in the following

situations

• Who becomes incapable of performing the contract that remains to be

performed by him

• who violates any essential term of the contract that remains to be

performed by him;

• who acts in fraud of the contract;

• who willfully acts in variance with, or in subversion of, the relation

intended to be established by the contract.

For example, A contracts to sell B a house and garden in which there are ornamental

trees, a material element in the value of the property as a residence. A, without B's

consent, fells the trees. A cannot enforce specific performance of the contract.

3. A person cannot be granted specific performance if he fails to aver and 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. This does not cover such

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terms the performance of which has been either prevented or waived by the

defendant.

Discretion of the court

The jurisdiction of the court to grant injunctions, whether temporary or perpetual, is

discretionary. It is the discretion of the court to grant or refuse such relief. The discretion

does not mean that court can act arbitrarily. The court is to be guided by the principles of

justice, equity and good conscience. The court has to weigh the amount of mischief done

or threatened to be done to the plaintiff and harm likely, to be caused to the defendant by

the issue of injunction.

Court's discretion to grant specific performance (Section 20)

Section 20 specifically provides that the jurisdiction to decree specific performance is

discretionary, and the court is not bound to grant such relief merely because it is lawful to

do so.

Section 20 reads as under, ‘The jurisdiction to decree specific performance is

discretionary, and the court is not bound to grant such relief merely because it is lawful to

do so; but the discretion of the court is not arbitrary but sound and reasonable, guided by

judicial principles and capable of correction by a court of appeal.

When the court has discretion to refuse specific performance

The following are cases in which the court may properly exercise discretion not to decree

specific performance

• where the terms of the contract or the conduct of the parties at the time of entering

into the contract or the other circumstances under which the contract was entered

into are such that the contract, though not voidable, gives the plaintiff an unfair

advantage over the defendant; or

• where the performance of the contract would involve some hardship on the

defendant which he did not foresee, whereas its non-performance would involve

no such hardship on the plaintiff;

• where the defendant entered into the contract under circumstances which though

not rendering the contract voidable, makes it inequitable to enforce specific

performance.

Unfair advantage to the plaintiff over the defendant

It has been noted above that specific performance may be refused when the contract

involves unfair advantage to the plaintiff over the defendant. This may be explained

through the following illustration: A contracts to sell, and B contracts to buy, certain land.

To protect that land from floods, it is necessary for its owner to maintain an expensive

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embankment. B does not know of this circumstance, and A conceals it from him. Specific

performance of the contract should be refused to A.

When specific performance would involve hardship to the defendant

The following illustration explain the situation where the specific performance of the

contract would involve unforeseeable hardships to the defendant, but no hardship would

be caused to the plaintiff: A contracts to buy certain land from B. The contract is silent as

to access to the land. No right of way to it can be shown to exist. Specific performance of

the contract should be refused to B.

When it is inequitable to enforce a contract

The court may also properly refuse specific performance where the defendant entered

into the contract under the circumstances which makes it inequitable to enforce specific

performance, even though the contract is not rendered voidable.

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RECTIFICATION OF INSTRUMENTS

Questions

Explain the jurisdiction of the court to grant relief by way of rectification of instruments.

[10]

What are the essentials of rectification of instruments? [10]

When instruments may be rectified

When an instrument does not express the real intention of the parties the same may be

rectified as envisaged by Section 26. Section 26 reads as under

Section 26. When instruments may be rectified

(1) When through fraud or a mutual mistake of the parties, a contract or instrument

in writing [not being the articles of association of a 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 under the instrument is in

issue, claim in his pleading that instrument be rectified; or

(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 instruments is sought to be rectified

under sub-section (1), the court finds that the instrument, through fraud or

mistake, does not express the 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 court thinks fit, may be

specifically enforced.

(4) No relief for the rectification of an instrument shall be to any party under this

section unless it has been specifically claimed

Who may claim rectification [Section 26(1)]

(1) The suit for rectification of instruments may be brought either by the parties

thereto or by their representatives in interest; or

(2) 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

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(3) The defendant to any such suit in which the right arising under the instrument is

in issue may, in addition to any other defence open to him, ask for the

rectification of the instrument.

The normal rule is that only parties to the instrument or their representatives in interest

may file a suit for rectification. However, if in any suit the right arising under the

instrument itself is in issue. The plaintiff may in his pleading claim the rectification of the

instrument. Again, if the right arising under the instrument is in issue, the defendant may

ask not only for any defence open to him, but also for the rectification of the instrument.

Discretion of the Court in granting rectification [Section 26(2)]

If, in any suit in which contract or other suit is sought to be rectified 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 the

intention, so far as this can be done without prejudice to rights acquired by third persons

in good faith and for value.

If certain rights have accrued in favour of a third party in the original instrument, and the

third party has acted in good faith and has paid value or consideration in the transaction,

the Court may refuse rectification. Thus, rectification cannot affect the rights accrued in

favour of, or acquired by bona fide purchasers, for value, without notice. If a purchaser

having knowledge of the mistake fails to make proper enquiries about the vender’s title,

he is not deemed to be a bona fide purchaser without notice.

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CANCELLATION OF INSTRUMENTS

Cancellation of instruments [10]

When cancellation may be ordered (Section 31)

Section 31 contains the following provision to explain when the court may order the

cancellation of an instrument:

(i) any person against whom a written instrument is void or voidable; and

(ii) who has reasonable apprehension that such instrument if left outstanding may cause

him serious injury;

(iii) he may sue to have the instrument adjudged by the Court as void or voidable;

(iv) the court in such a suit may, in its discretion adjudge the instrument as void or

voidable, and order it to be delivered up and cancelled.

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 instrument contained in his books

the fact of cancellation.

The above-mentioned provision may be explained through the following illustration: A,

the owner of a ship, by fraudulently representing her to be sea-worthy, induces B, an

underwriter, to insure her, B may obtain the cancellation of the policy.

What instruments may be partially cancelled (Section 32)

Where an instrument is evidence of different rights or different obligations, the court may

in a proper case, cancel it in part and allow it to stand for the residue.

Section 32 deals with an instrument, the rights and the obligations contained wherein are

separable. In such a case the Court may, in its discretion, allow a part of the instrument to

be cancelled, and allow the remaining to stand. Where, however, the rights and

obligations under an instrument are not separable, i.e., the good part cannot be separated

from the bad part, there cannot be partial cancellation of the instrument. The whole of the

instrument has to be cancelled by the Court.

The point may be explained through the following illustration: A draws a bill on B, who

endorses it to C by whom it appears to be endorsed to D, who endorses it to E. C's

endorsement is forged. C is entitled to have such endorsement cancelled, leaving the bill

to stand in other respects.

Power of the Court to restore benefit or allow compensation on cancellation of an

instrument (Section 33)

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When an instrument is cancelled, the Court may require the party getting the relief to

restore the benefit received by him from the other party and to make compensation to him

which justice may require. Section 33, which contains this provision is as under:

1. ‘On adjudging the cancellation of an instrument, the court may require the party

to whom such relief is granted, to restore, so far as may be any benefit which he

may have received from the other party and to make any compensation to him

which justice may require.

2. Where a defendant successfully resists any suit on the ground

(a) that the instrument sought to be enforced against him in the suit is

voidable, the court may if the defendant has received any benefit

under the instrument from the other party, require him to restore, so

far as may be, such benefit to that party or to make compensation

for it;

(b) that the agreement sought to be enforced against him in the suit is

void by reason of his not having been competent to contract under

Section 11 of the Indian Contract Act, 1872 (9 of 1872), the Court

may, if the defendant has received any benefit under the agreement

from the other party, require him to restore, so far as may be, such

benefit to that party, to the extent to which he or his estate has

benefited thereby.’

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INJUNCTIONS

Write a note on preventive relief under the Specific Relief Act. [16]

Write a note on ‘preventive relief’. [6]

Injunction. [10]

Mandatory Injunction. [10]

Temporary Injunction. [10]

Perpetual Injunction. [10]

Distinguish between perpetual and temporary injunctions. [6]

Explain the nature of temporary injunctions and perpetual injunctions. When are such

injunctions granted by the Court? [6]

Define and classify injunctions. Distinguish between Mandatory and Prohibitory

Injunction. [16]

Introduction: According to Section 36, preventive relief is granted at the discretion of

the court by injunction temporary or perpetual.

A preventive relief is an order or command of the Court preventing a party from doing

something, which he is under a legal duty not to do. For instance, every person is legally

bound not to commit trespass or not to defame a person, and, therefore, the court may

issue an injunction preventing a party from committing a trespass or defaming someone.

Discretion of the court

The jurisdiction of the court to grant injunctions, whether temporary or perpetual, is

discretionary. It is the discretion of the court to grant or refuse such relief. The discretion

does not mean that court can act arbitrarily. The court is to be guided by the principles of

justice, equity and good conscience. The court has to weigh the amount of mischief done

or threatened to be done to the plaintiff and harm likely, to be caused to the defendant by

the issue of injunction.

When an injunction can be refused [Section 41 and 42]

Section 41 mentions the following circumstances when an injunction cannot be granted.

It means that in the following circumstances the injunction has to be refused.

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Stay of pending judicial proceedings

An injunction cannot be granted to restrain any person from prosecuting a judicial

proceeding pending at the institution of the suit on which an injunction is sought, unless

such restraint is necessary to prevent a multiplicity of proceedings.

Stay of proceedings in a Court not subordinate

An Injunction cannot be granted to restrain any person either from instituting, or from

prosecuting, any proceeding in a court not subordinate to that from which the injunction

is sought. It means that an injunction can only be granted to stay proceedings in courts

which are subordinate to the Court from which the injunction is sought Therefore, no

injunction can be granted to stay proceedings before the same court from which the

injunction is sought.

Restraining any person from applying to legislative body

An injunction cannot be granted to restrain any person from applying to any legislative

body. It is a matter of public policy that no person should be restrained from applying to

any legislative body, if he so likes.

Stay of proceedings in a criminal matter

An injunction cannot be granted to restrain any person from either instituting, or

prosecuting any proceeding in a criminal matter. As a matter of policy the Courts cannot

issue an injunction to stay proceedings in any criminal matter. The High Court, however,

has a power to stay criminal proceedings in the court of a Magistrate until the disposal of

civil proceedings in which the issue of criminal proceedings is to be decided.

No issue of injunction to prevent a breach of contract

According to Section 41(e) an injunction cannot be granted to prevent the breach of a

contract the performance of which would not be specifically enforced. It means that if the

contract is of such a nature that the same cannot be specifically enforced, a court will not

grant an injunction to prevent the breach of such a contract.

It has been noted above that a contract of personal service cannot be specifically

enforced, either by the master or the servant. Therefore, a person dismissed from service

cannot obtain an injunction alleging that the dismissal is wrongful, and the employer

should be restrained from dismissing him

No injunction to prevent doubtful case of nuisance

An injunction cannot be granted to prevent, on the ground of nuisance, an act of which it

is not reasonably clear that it will be a nuisance. An injunction may be granted to prevent

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an act which is proved to be nuisance. If it is doubtful whether a certain act amounts to

nuisance or not, the court will not grant an injunction to prevent the same.

No injunction to prevent continuing breach when the plaintiff has acquiesced

An injunction cannot be granted to prevent a continuing breach in which the plaintiff has

acquiesced. If the plaintiff has assented to the continuous breach of an obligation he

cannot be allowed to complain about be same and obtain an injunction to now restrain the

defendant. For instance, if A’s right of way is obstructed by B and he knowingly raises no

objection to the same for seven years and allows the obstruction to continue. In this case

A will be deemed to have acquiesced in the obstruction affecting A's right of way, and he

cannot obtain an injunction to prevent that obstruction.

No injunction when equally efficacious relief is otherwise available

An injunction cannot be granted when equally efficacious relief can certainly be obtained

by any other usual mode of proceeding except in case of breach of trust.

Plaintiff's conduct may disentitle him to an injunction

An injunction cannot be granted when the conduct of the plaintiffs or his agents has been

such as to disentitle him to the assistance of the court. It is expected that when the

plaintiff comes to the court for some relief he should come with clean hands. If he wants

equity he himself should do equity. For instance, if the plaintiff has been guilty of fraud

or misrepresentation against the defendant, he loses his right to obtain an injunction,

against the defendant.

When the plaintiff has no personal interest in the matter.

An injunction cannot be granted when the plaintiff has no personal interest in the matter.

A plaintiff cannot obtain injunction to protect the interest of someone else. Thus, if the

municipality is guilty of an ultra vires act the plaintiff cannot obtain an injunction to

restrain the same unless he proves some damage or likely damage to him or his property.

Temporary Injunction

Temporary Injunctions [Section 37(1)]

Temporary injunctions are such as are to continue until a specified time, or until the

further order of the court, and they may be granted at any stage of a suit, and are

regulated by the Code of Civil Procedure.

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Temporary or interlocutory injunctions are to continue temporarily either until a

specified time, or until further order of the court. It is only provisional in nature and does

not conclude a right or finally settle the matter. For instance, these may be an order to

preserve the property until the final hearing of the case. The object may be to maintain

status quo, so that the alleged harm is avoided, which could otherwise occur until the

case is finally disposed of by the Court, on merits

To obtain temporary injunction the plaintiff has to prove that there is a prima facie case

in his favour indicating existence of a legal right asserted by him. It has to be shown by

him that the balance of convenience is in his favour so that mischief likely to be caused

by the act of the defendant is prevented.

Cases in which temporary injunction may be granted.

Where in any suit it is proved by affidavit or otherwise

1. that any property in dispute in a suit is in danger of being wasted, damaged or

alienated by any party to the suit, or wrongfully sold in execution of a decree, or

2. that the defendant threatens, or intends, to remove or dispose of his property with

a view to defrauding his creditors.

3. that the defendant threatens to dispossess the plaintiff or otherwise cause injury to

the plaintiff in relation to any property in dispute in the suit,

the Court may by order grant a temporary injunction to restrain such act, or make such

order for the purpose of staying and preventing the wasting, damaging, alienation, sale,

removal or disposition of the property or dispossession of the plaintiff, or otherwise

causing injury to the plaintiff in relation to any property in dispute in the suit as the Court

thinks fit, until the disposal of the suit or until further orders.

Perpetual Injunction

Perpetual injunction [Sections 37(2) and 38]

A perpetual injunction can only be granted by the decree made at the bearing 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 right of the

plaintiff.

Section 37(2) is a general provision stating that a perpetual injunction can only be granted

by a decree made at the hearing and upon merits of the case.

Circumstances for granting of perpetual injunction (Section 38)

Section 38 contains the following rules for the grant of perpetual injunction

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1. Subject to the other provisions contained and referred to in Chapter VIII, Specific

Relief Act, 1963, a perpetual injunction may be granted to the plaintiff to prevent

the breach of an obligation existing in his favour, whether expressly or by

implication.

2. When any such obligation arises from contract, the Court shall be guided by the

rules and provisions for specific performance of contracts, contained in Chapter II

(i.e., Sections 9 to 25) of the Act

3. When the defendant invades or threatens to invade the plaintiff's right to, or

enjoyment of, property, the Court may grant a perpetual injunction in the

following cases, namely

• where the defendant is trustee of the property for the plaintiff;

• where there exists no standard for ascertaining the actual damage caused

or likely to be caused, by the invasion;

• where the invasion is such that compensation in money would not afford

adequate relief;

• where the injunction is necessary to prevent a multiplicity of judicial

proceedings.

The provision contained in Section 38 may be explained through the following

illustrations: A lets certain land to B, and B contracts not to dig sand or gravel

thereout. A may sue for an injunction to restrain B from digging in violation of his

contract.

Prohibitory Injunction

Prohibitory Injunction (Section 38)

A prohibitory injunction prohibits or forbids the doing of some act and is governed by

Section 38. Such injunction may be granted to the plaintiff to prevent the breach of an

obligation existing in his favour. For instance, A, B and C are members of an undivided

Hindu family. A cuts timber growing on the family property, and threatens to destroy part

of the family house and to sell some of the family utensils. B and C may sue for an

injunction to restrain A from doing the threatened act.

According to Section 38 an injunction may be issued to prevent breach of 'obligation'

existing in plaintiff's favour. Obligation may be of any kind, e.g., it may arise out of

contractual relations, or it may be under law of torts, or under a trust, i.e., it may arise out

of fiduciary relationship between the parties, or it may be even a statutory obligation.

Threatened breach of any kind of legal obligation may invite an injunction to prevent the

same.

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Mandatory Injunction

Mandatory Injunction (Section 39)

According to Section 39, when to prevent a breach of an obligation, it is necessary to

compel the performance of certain acts which the court is capable of enforcing; the Court

may in its discretion grant an injunction to prevent the breach complained of, and also to

compel the performance of the requisite acts. Thus, in case of a mandatory injunction the

Court requires the performance of the requisite act. When the injunction compels doing

of some act it is mandatory injunction, but when the direction is not to do something, the

injunction is prohibitory. For instance, some one illegally constructs and threatens to

illegally construct structure on my land. The Court may order, 'demolish the illegal

structure', or may also order 'do not construct any further structure', the former is a

mandatory injunction, whereas the latter is a prohibitory injunction.

To obtain mandatory injunction the burden of proof is on the plaintiff to prove his own

case. If he fails to prove his case he will not be entitled to grant of injunction in his

favour.

An illustration would of a mandatory injunction is: A builds a house with eaves projecting

over B's land. B may sue for an injunction to pull down so much of the eaves as so project

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OTHER QUESTIONS

‘Award for damages is the rule, but specific relief is an exception.” Explain [16]

State the remedy available in Specific Relief Act to a person disposed of his immovable

property. [6]

Rescission of contract [10]

Problem

A enters into an agreement with B to sing a program organized by B, but fails to do so.

Can this agreement be enforced specifically? Explain.

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CASES

Case: Harvey v. Facey

Principle: Distinguishing between Offer and Invitation to Offer

Facts: The defendants were owners of a plot of land known as Bumper Hall Pen. The

plaintiffs were interested in purchasing the same and sent a telegram to defendants

saying, “Will you sell us Bumper Hall Pen? Telegraph lowest cash price.”

In reply the defendants wrote, “Lowest price for Bumper Hall Pen 900 pounds”. The

plaintiffs sent another telegram saying, “We agree to buy Bumper Hall Pen for 900

pounds asked by you. Please send us the title deeds.”

However, the defendants refused to sell. Plaintiffs then sued them for breach of contract.

The plaintiffs contended that the second telegram from the defendants quoting the lowest

price was an offer and the same had been accepted by the plaintiffs, and thus the contract

was complete. The defendants, on the other hand, contended that quoting the price was

not an offer, which could be accepted.

Judgment: The Privy Council held that the exchange had not resulted in a contract. It

was observed that in the first telegram two questions had been asked – one regarding

willingness to sell and the other regarding the lowest price. In reply only the lowest price

was quoted and this quoting of price was not an offer, the third telegram by the

defendants was only an offer and not acceptance of an offer. Since there was no

acceptance, there was no binding contract between the parties.

Case: Balfour v. Balfour

Principle: Intention not to create legal relationship.

Facts: The defendant, who was employed on a government job in Ceylon, went to

England with his wife on leave. For health reasons the wife was unable to accompany the

husband again to Ceylon. The husband promised to pay 30 pounds per month to his wife,

as maintenance, for the period they had to live apart. After a while the husband stopped

paying the amount every month, because of which the wife sued him.

Judgment: It was held, in this case, that there being no intention to create legal

relationship, the husband was not liable.

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Case: Jones v. Padavatton

Principle: Intention not to create legal relationship

Facts: Mrs Jones lived in Trinidad. Her daughter, who was divorced and had a young

son, lived in Washington and served the Indian Embassy there. Mrs Jones persuaded her

daughter to leave her job and study for the bar in England. She offered to pay her

daughter a monthly allowance during her studies. Her daughter reluctantly agreed to the

suggestion and went to England in 1962. In 1964, Mrs Jones bought a house and allowed

her daughter to stay in one portion of it, while the rest was let out. The rent received was

given to the daughter to cover her expenses. In 1967 differences arose between Mrs Jones

and her daughter and Mrs Jones brought an action to evict her daughter. Till that time the

daughter had not completed her studies and she contended that in view of the promise

made by her mother she was legally bound to maintain her until she completed her

studies.

Judgment: It was held that there was nothing to indicate that there was an intention to

create a legal relationship between the parties, as is evident from the fact that neither

party was reduced to writing nor was the duration mentioned. The mother’s action against

the daughter for eviction succeeded.

Case: Lalman Shukla v. Gauri Dutt

Principle: Acting in ignorance of an offer does not amount to the acceptance of the same.

Facts: In this case the defendant’s nephew absconded from home. The plaintiff, who was

the defendant’s servant, was sent to search for the missing boy. After the plaintiff had left

in search of the boy, the defendant issued handbills announcing a reward of Rs 501 to

anyone who can find the boy. The plaintiff, ignorant of this reward, was successful in

finding the boy. When he came to know of the reward he brought an action against the

defendant to claim the reward.

Judgment: It was held that since the plaintiff was ignorant of the offer of reward, his act

of bringing the lost boy did not amount to acceptance of the offer, and therefore, he was

not entitled to claim the reward.

Case: Tinn v. Hoffmann

Principle: Cross Offer

Facts: A wrote to B indicting his willingness to sell 800 tons of Iron at 69 sh per ton. On

the same day, B also wrote to A offering to buy 800 tons of Iron at the same rate of 69 sh

per ton. The two letters crossed each other in the post. B brought an action against A for

the supply contending that a valid contract had been created between the two parties.

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Judgment: It was held in this case that there were only two cross offers and the offer of

neither of the parties having been actually accepted by the other, there was no contract

which could be enforced.

Case: Carlill v. Carbolic Smoke Ball Co.

Principle: General offer

: Wagering Agreement

Facts: The defendants advertised their product ‘Carbolic Smoke Ball’, a preventive

remedy against influenza. In the advertisement they offered to pay a sum of 100 pounds

as reward to anyone who contracted influenza, cold or any disease caused by a cold after

using Smoke Ball three times a day for two weeks in accordance with the printed

directions. They deposited the same amount with Alliance Bank to show their sincerity in

this matter. The plaintiff (Mrs Carlill) relying on the advertisement, purchased Smoke

Ball from a chemist and used the same according to the directions, but still caught

influenza. She sued the defendants to claim the reward.

Judgment: It was held that this, being a general offer addressed to all, had ripened into a

contract with the plaintiff by her act of performance of the required conditions which

constituted accepting the offer. She was therefore entitled to claim the reward.

Case: Felthouse v. Bindley

Principle: Acceptance should be made to the offeror or his authorized agent; Mere

silence on part of the offeree cannot be regarded as acceptance of the offer.

Facts: Felthouse wrote a letter to his nephew offering to buy his horse for 30 dollars 15

shillings. In the letter containing the offer is was also mentioned “If I hear no more about

the horse I shall consider the same to be mine for 30-15 shillings.” The nephew did not

reply to this letter. He, however, told his auctioneer Bindley, that he wanted to reserve the

horse for his uncle and therefore desired that the horse not be sold during the auction.

Bindley disposed of the horse by mistake. Felthouse sued Bindley for the tort of

conversion on the plea that Felthouse had become the owner of the horse, which Bindley

had disposed of.

Judgment: It was held that since the nephew had not communicated the acceptance to

Felthouse, no contract had arisen in this case, and therefore Felthouse had not become the

owner of the horse. Thus, Felthouse’s action for conversion failed.

Also, the offeror cannot impose upon the offeree a duty to reply and therefore an offeror

cannot say that failure to reply will be deemed to be acceptance of the offer. The offeree

has the right to make the offer lapse by not being accepted within the prescribed time.

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Case: Dunlop v. Higgins

Principle: Offeror bound when letter of acceptance is posted to him

Facts: Dunlop and Co. offered to sell 200 tons of pig iron at 65 shillings per ton to

Higgins and Co through letters dated 22nd

and 28th January 1945. Higgins and Co.

received the letters on 30th January and replied on the same day, indicating their

acceptance to purchase the same in accordance with the offer. Due to frosty weather there

was a disruption in the train services and the letter of acceptance instead of reaching on

31st January reached Dunlop and Co. on 1

st February. Dunlop and Co. refused to supply

the pig iron on the grounds that the receipt of letter of acceptance by them had been

delayed.

Judgment: It was held that Dunlop and Co. had become bound by the contract as soon as

the letter of acceptance was posted to them.

Case: Hyde v. Wrench

Principle: Counter offer destroys original offer.

Facts: An offer was made by A to B for the sale of a farm for 1000 pounds. B rejected

this offer and said that he will pay only 950 pounds to which A did not agree. Thereupon

B said that he was willing to pay 1000 pounds to which also A did not agree. B sued A

and contended that there was a contract by which A was bound.

Judgment: It was held that B had once rejected A’s contract by his counter offer to pay

950 pounds and this made the original offer lapse, and therefore no contract has resulted

in this case.

Case: Durga Prasad v. Baldeo

Principle: The consideration must be given at the desire of the promisor, rather than

merely voluntarily or at the instance of some third party

Facts: The plaintiff constructed certain shops in a market at the instance of the Collector

of that place. Subsequently, the defendants occupied one of the shops in the market.

Since the plaintiff had spent money for the construction of the market, the defendants, in

consideration thereof, made a promise to pay to the plaintiff a commission on the articles

sold through their agency in that market. When the defendants failed to pay the promised

commission, the plaintiff sued them to recover the commission.

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Judgment: It was observed that the consideration for the promise to pay the commission

was the construction of the market by the plaintiff. Such construction had not been done

at the desire of the defendants, but on the order of the Collector. It was therefore held that

since the consideration did not move at the desire of the defendants, this did not

constitute valid consideration and therefore the defendants were not liable.

Case: Chinnaya v. Ramaya

Principle: Consideration for the promise may not move from the promisee but a third

person, who is not a party to the contract

Facts: ‘A’, an old lady, granted an estate to her daughter (the defendant) with the

direction that the daughter should pay an annuity of Rs 653 to A’s brothers (the

plaintiffs). On the same day the defendant made a promise to the plaintiffs that she would

pay the annuity as directed by A. The defendant failed to pay the stipulated sum. In an

action brought against her by the plaintiffs she contended that since the plaintiffs

themselves had furnished no consideration, they had no right of action.

Judgment: The Madras High Court held that in this agreement the consideration had

been furnished by the defendant’s mother and that it is enough consideration to enforce

the promise between the plaintiffs and the defendant.

Case: Tweddle v. Atkinson

Principle: Only parties to the contract can sue for consideration.

Facts: The plaintiff A married a girl B. After their marriage there was a contract in

writing between A’s father and B’s father that each would pay a certain sum of money to

A. After the death of the two fathers, A brought an action against the executors of B’s

father to recover the promised amount.

Judgment: It was held that as A was a stranger to the contract he could not sue for the

same.

Case: Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge & Co. Ltd

Principle: Only parties to the contract can sue for consideration.

Facts: The appellants (Dunlop Co.), who were manufacturers of motorcar tyres, sold

some tyres to Dew and Co. with an agreement that these tyres will not be sold below the

list price. Dew and Co. in their turn sold some of these tyres to the respondent (Selfridge

& Co.), with an agreement between Dew and Co. and the respondents that the

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respondents shall also observe conditions as to the price and the respondents promised

that they would pay to the appellants a sum of 5 pounds for every tire sold below the list

price. The respondents sold some tyres below the list price, and the appellants brought an

action against the respondents to recover the damages for the same.

Judgment: The House of Lords held that Dunlop Co. could not bring an action against

Selfridge & Co. because there was no contract between the two parties. It was further

observed that even if it is taken that Dew & Co. were acting as agents for Dunlop Co., the

latter still cannot maintain an action as there was no consideration between Dunlop Co.

and Selfridge & Co., since the whole of the purchase price was paid by Selfridge & Co.

to Dew & Co.

Case: Rajlucky Dabee v. Bhootnath Mookerjee

Principle: Near relation between the two parties does not necessarily imply natural love

and affection between them.

Facts: In this case after a lot of disagreements and quarrels between a Hindu husband and

wife they decided to live apart. At this stage the husband executed a registered document

in favour of his wife whereby he agreed to pay for her separate residence and

maintenance. In that agreement mention was also made about the quarrels and

disagreements between the two. When the husband did not pay, the wife sued him for the

same.

Judgment: It was apparent that the document had been executed not because of natural

love and affection between the parties but because of absence of it, and therefore the wife

was not entitled to recover the sums mentioned in the document.

Case: Kedar Nath v. Gorie Mahomed

Principle: Although a promise to contribute for a charitable purpose is not as such,

enforceable, but if something is done on the faith of the promise or some obligation is

incurred, that constitutes consideration for the promise and then it can be enforced.

Facts: There was a proposal to construct a Town Hall at Howrah provided sufficient

funds would be available by way of subscription. The defendant was one of the

subscribers, having promised to pay Rs. 100 by signing his name in the subscription book

for the purpose. On the faith of the promised subscriptions the plaintiffs engaged a

contractor for the purpose of the construction and started the construction work of the

proposed Town Hall. The defendant refused to pay his subscription on the ground that he

was not legally bound by his promise because there was no consideration for the same.

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Judgment: It was held that engaging a contractor and starting the construction on the

faith of the promise was sufficient consideration to enforce the promise and, therefore,

the defendant was bound to pay the amount promised by him.

Case: Mohori Bibee v. Dharmodas Ghose

Principle: Contract entered into with a minor is void and not voidable.

Facts: The plaintiff, Dharmodas Ghose, while he was a minor, mortgaged his property in

favour of the defendant, Brahmo Dutt, who was a moneylender to secure a loan. At the

time of the transaction the attorney, who acted on behalf of the moneylender, had

knowledge that the plaintiff was a minor.

The minor brought an action against the moneylender stating that he was a minor when

the mortgage was executed by him and therefore the mortgage was void and inoperative

and the same should be cancelled. By the time of Appeal to the Privy Council, Brahmo

Dutt had passed away and was replaced by Mohori Bibee.

The defendant contended that

• The minor had fraudulently misrepresented his age and the law of estoppel

should be applied against him.

If the mortgage is cancelled as requested by the minor, the minor should be asked to

refund the loan.

Judgment: The Privy Council rejected the defendant’s contentions and declared that

agreements with minors were void ab initio. It further explained its decision with regard

to the contentions made by the defendant

• The defendant’s contention that the minor had falsely misstated his age and the

law of estoppel should apply cannot be considered as the attorney, acting on his

behalf, had definite knowledge the plaintiff was a minor and the law of estoppel

only occurs when the real facts have been hidden and mislead by untrue

statements.

• The contention that if the mortgage is cancelled as requested by the minor, the

minor should be asked to refund the loan was made under Sec 64 and 65 of the

Indian Contract Act. These sections, however, are only applicable to voidable

contract and contract with a minor is not voidable, but void ab initio.

Case: Nash v. Inman

Principle: Necessities for minors

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Facts: A minor, who already had sufficient supply of clothing suitable to his position,

was supplied further clothing by a tailor.

Judgment: It was held that the price of the clothes so supplied could not be recovered.

Case: Derry v. Peek

Principle: Intention to deceive another party necessary for fraud.

Facts: In the case, the directors of a company issued a prospectus stating that they had

got the authority to run tramways with steam or mechanical power instead of animal

power. In fact, a plan had been submitted for the same and the directors honestly believed

that the Board of Trade, who had to accord its sanction for the same, would do so in a

matter of course. The Board of Trade refused the sanction and the company had to wind

up. The respondents, who had taken shares in the company on the faith of the

representation by the directors in the prospectus, brought an action for the tort of deceit.

Judgment: It was held by the House of Lords that since the statement had not been made

with the intention to deceive, there was no fraud.

Case: Cundy v. Lindsay

Principle: Mistake as to identity of the parties

Facts: A person named Blenkarn placed an order for the supply of goods, to the

plaintiffs, fraudulently imitating signatures of another well-known firm as Blenkiron &

Co. The order was to supply goods at an address, which happened to be in the same street

in which Blenkiron & Co. was located. The plaintiff believed that this was an order from

the reputed firm Blenkiron & Co. and supplied the goods to Blenkarn. After receiving the

goods, Blenkarn sold these goods to the defendants, who were acting innocently in good

faith. The plaintiffs brought an action against the defendants contending that since there

was a mistake as to the identity of the party when the plaintiff accepted the offer, there

was no contract and Blenkarn did not get the good title to the goods, and therefore the

defendants also did not get any title and were bound to return the goods to the plaintiffs.

Judgment: It was held that because of the mistake Blenkarn did not get any title to the

goods and the transferee from Blenkarn i.e. the defendants also did not get any title and

they were bound to return the goods to the plaintiff.

Case: West Bengal Financial Corporation v. Gluco Serires

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Principle: There must be refusal to perform the contract in its entirety for it to be

considered an anticipatory breach of contract.

Facts: A granted a loan to B amounting to Rs. 4,38,000 and also agreed to grant a further

loan of Rs 1,62,000 at its discretion provided that B made the repayment of the loan in

accordance with the agreement at the rate of Rs 60,000 every year. B failed to make the

repayment as agreed, but insisted that A grant the further loan of Rs. 1,62,000. A refused.

B’s contention was that A has failed to perform the contract by not advancing the further

loan, and that this was to be considered as a breach of contract.

Judgment: It was held that A had already advanced some loan, which B had accepted,

and thus it cannot be said to be a refusal on A’s part to the performance of the contract in

its entirety. B was therefore not entitled to put an end to the contract on the ground of

breach of contract on part of A.

Case: Hochster v. De La Tour

Principle: Election to rescind the contract on anticipatory breach.

Facts: Defendant engaged the plaintiff on 12th April, 1852, as a courier, to accompany

him on a tour of Europe, which was to begin on 1st June 1852. The plaintiff was to be

paid 10 pounds per month for his services. On 11th May 1852, the defendant wrote to the

plaintiff informing him that he had changed his mind and declined to take the services of

the plaintiff. On 22nd

May 1852 the defendant brought an action against the defendant for

breach of contract. The defendant contended that there could be no breach of contract

before 1st June.

Judgment: It was held that a party to an executory contract may make a breach of

contract before the actual date of performance, and the plaintiff in such a case is entitled

to put an end to the contract and he can bring an action even before the actual date of

performance has arrived. The plaintiff’s action, therefore, succeeded.

Case: Frost v. Knight

Principle: Election to rescind the contract on anticipatory breach.

Facts: The defendant promised to marry the plaintiff on his father’s death. While the

defendant’s father was still alive, he broke off the engagement. The plaintiff did not wait

till the defendant’s father’s death and she immediately sued him for breach of contract.

Judgment: She was successful in her action.

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Case: Avery v. Bowden

Principle: Election to keep the contract alive on anticipatory breach of contract.

Facts: A chartered B’s ship at Odessa, a Russian port, and undertook to load the ship

with cargo within 45 days. Before this period had elapsed, A failed to supply the cargo

and declined to supply the same. The master of the ship continued to insist that the cargo

be supplied, but A continued to refuse to load. Before the period of 45 days was over the

Crimean war broke out between England and Russia, whereby it became illegal to load

cargo at a hostile port. The question to be answered in the case was whether by the

declaration of war, A had been discharged from his liability to load the cargo.

Judgment: In the present case, on A’s refusal to load the cargo, B could have rescinded

the contract and brought an action against A. But by insisting the cargo be delivered, B

kept the contract alive. By the declaration of war, the performance of the contract, having

become unlawful, it was held that A had been discharged from his duty to supply cargo

and therefore could not be made liable for the non-performance of the contract.

Case: Robinson v. Davison

Principle: Discharge of contract by death of one of the parties.

Facts: The defendant’s wife, an eminent piano player, promised to play the piano at a

concert on a particular day. She was unable to give her performance due to an illness.

Judgment: It was held that the performance of the contract depended on the continued

good health of the defendant’s wife and the contract was discharged due to her illness.

The defendant could not be made liable for non-performance.

Case: Salima Jabeen v. National Insurance Co.Ltd.

Principle: Discharge of contract by novation when there is a change in the terms of the

contract.

Facts: The appellant entered into a contract of insurance of her property against fire with

the respondent company. The insured sum was Rs. 23 lakh. Her property was set on fire

by militants causing substantial damage to the property. The assessment of damages was

made by 2 surveyors and the appellant accepted a compensation for a lesser amount by

way of full and final satisfaction of her claim.

Judgment: It was held that by accepting the said amount of compensation and agreeing

not to make any further claim, the appellant has released the insurance company from

contractual obligations and is therefore not entitled to further compensation

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Case: Taylor v. Caldwell

Principle: Doctrine of frustration. When the contract is not positive and absolute, but

subject to an express or implied condition. e.g., a particular thing shall continue to exist,

then in such a case if the thing ceases to exist, the performance of the contract is deemed

to be impossible and the parties are excused from performing the contract.

Facts: A agreed with B to give him the use of music hall and gardens for holding

concerts on four different dates. B agreed to pay a rent of £ 100 for each of the four days.

Before the date of performance arrived the music hall was destroyed by fire. B sued A for

the breach of the contract.

Judgment: It was held that the contract had become void because of the perishing of the

hall without any fault on the part of A. The performance of the contract had become

impossible and, therefore, A was not liable for the non-performance of the contract

Case: Satyabrata Ghose v. Mugneeram

Principle: Doctrine of Frustration

Facts: The defendant company was the owner of a large tract of land. It started a scheme

for the development of this land for residential purposes. Under the scheme, the

purchaser of a plot of land was to pay some earnest money at the time of the agreement.

The defendant undertook to construct the roads and drains necessary for making the land

suitable for building and residential purposes and as soon as they were completed, the

purchaser was to complete the conveyance by payment of the balance of the

consideration money. The plaintiff agreed to purchase one such plot and paid an earnest

money of Rs. 101. Before the defendant could make the above stated development,

considerable portion of the land was requisitioned by the Government during the Second

World War, for military purposes. The defendant thereupon wanted to cancel the contract

mainly on the ground that the contract stood discharged by frustration as the performance

had become impossible because of supervening events.

Judgment: It was observed that the worth noting thing in this case was that there was

absolutely no time limit fixed within which the roads and drains were to be made. This

was left entirely to the convenience of the defendant company and the purchaser did not

feel concerned about it. It was held that under these circumstances, and also because of

the fact that the requisition of land was only of a

temporary character, the contract was not frustrated.

Case: Dunlop Pneumatic Tyre Co. v. New Garage and Motor Co. Ltd

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Principle: Liquidated damages.

Facts: The plaintiffs, Dunlop Pneumatic Tyre Co., who were the manufacturers of

motorcar tyres and tubes, etc. sold some of these goods to the defendants. The defendants

agreed not to sell those goods further below the manufacturer's list price. They also

agreed to pay £ 5 by way of liquidated damages for every tyre, tube, etc. sold below the

list price.

Judgment: It was held by the House of Lords that the sum of compensation payable on

the breach of the agreement was the genuine pre-estimate of damages, and therefore,

liquidated damages.

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