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LAW OF CONTRACTS-I (TA1C) LECTURE NOTES

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UNIT I
BASIS AND NATURE OF CONTRACTS
Contracts are the one which is not only applicable to the business but they are seen in day
to day life as well. A contract forms the very basis of each and every transaction that is being
made in day to day lives. A contract is made out of the simple act of purchasing a newspaper,
using a credit card to buy a dress or paying a parking free. Other contracts such as the sale and
purchase of property are more complex, requiring formal written documents.
The nature of contract is that it’s the branch of law which determines the circumstances
in which promises made by the parties to a contract shall be legally binding on them. It does not
lay down the duties and responsibilities which the law will enforce but it consists a number of
limiting principles, subject to which; the parties may create rights & duties for themselves which
the law will upload.
THE INDIAN CONTRACT ACT, 1872
The law relating to contracts are dealt under the Indian contract Act 1872. This Act is
applicable to whole of India except the state of Jammu & Kashmir. It came into force on the First
day of September 1872. Prior to this, English law of contract was followed in India. The Indian
Contract Act consists of the following two parts: (a) General principals of the Law of Contract.
(b) Special kinds of contracts. The general principals of the Law of Contract are contained in
Sections 1 to 75 of the Indian Contract Act. These principles apply to all kinds of contracts
irrespective of their nature. Special contracts are contained in Sections 124 to 238 of the Indian
Contract Act. These special contracts are Indemnity, Guarantee, Bailment, pledge and Agency.
DEFINITON OF A CONTRACT
Section 2(h) of Contract Act, 1872 states that an agreement enforceable by law is a
contract. The strongest contract, in terms of enforceability, has an offer, acceptance,
consideration for the exchange, clearly sets out the terms of the agreement without ambiguity
and is signed by the involved parties with proper capacity to enter into the contract.

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Hence, a contract can be defined as: An agreement enforceable by the law between two
or more parties to do or to abstain from doing some act/acts, their intention being a create legal
relation and not merely to exchange mutual both having given something or having promised to
give something of value as consideration for any benefit derived from the agreement.
Contract is formed in 3 steps given below: –
1. Offer + acceptance = Promise
2. Promise + consideration = Agreement
3. Agreement + enforceable by law = Contract

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UNIT II

DOCTRINE OF PRIVITY OF CONTRACT

Introduction

According to Section 2(h) of the Indian contract act 1872, a contract is an agreement between
two parties enforceable by law backed by some consideration. The essence of the law of contract
lies in the promise which both parties have made towards each other for fulfilling their part of
the contract.

Privity of contract Meaning and scope

The doctrine of privity of a contract is a common law principle which implies that only parties to
a contract are allowed to sue each other to enforce their rights and liabilities and no stranger is
allowed to confer obligations upon any person who is not a party to contract even though
contract the contract have been entered into for his benefit. The rule of privity is basically based
on the ‘interest theory’ which implies that the only person having an interest in the contract is
entitled as per law to protect his rights.

Illustration:
If Ramesh makes a promise to deliver goods to Arun. Then in this case, if Ramesh
breaches the contract then only Arun has a right to prosecute him and no other person can
prosecute him.

Essentials of Privity of contract:

1. A contract has been entered into between two parties:- The most important essential is
that there has been a contract between 2 or more parties.

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2. Parties must be competent and there should be a valid consideration:- Competency of

parties and the existence of consideration are pre-requisites for application of this
doctrine.

3. There has been a breach of contract by one party:- Breach of contract by one Party is
the essential requirement for the application of the doctrine of privity of contract.

4. Only parties to contract can sue each other:- Now after the breach, only Parties to a
contract are entitled to sue against each other for non-performance Of contract.

English law v Indian Law

As a general rule, both Indian and English law are similar to each other that only parties to
contract can sue each other. In a leading English case of Tweddle v. Atkinson, it was held that
the plaintiff cannot sue as he was both a stranger to the contract as well stranger to consideration.

This concept of privity of contract was again analyzed in the case of Dunlop Pneumatic Tyre
Co.Ltd v. Selfridge & Co. Ltd. and the House of Lords decided that Dunlop could not bring an
action against Selfridge because there was no consideration between two parties.

In the Indian context also this concept of privity of contract is similar; the only difference being
that in India a person who is beneficiary to the contract can sue whereas in England he cannot
under certain circumstances.

Role of consideration in Privity of contract

Consideration is the most important element of any contract existing between the parties unless
there is consideration a contract is considered to be void. It is defined in section 2(d) of the
Indian contract act 1872. Consideration is considered as the foundation of every contract and it
forms the basis of it.

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Privity of Contract in India:

The rule that “privity of contract” is needed and a stranger to the contract cannot bring an action
is equally applicable in India as England.

In jamna das v. Ram Avtar: A had mortgaged some property to X and then sold the same
properties to B, here B had agreed with A to pay off the mortgage money. The privy council
decided that there was no contract between X and B so X cannot sue B for the recovery of
money.

Exceptions to the Doctrine of Privity of contract in India:

As a general rule only parties to contract are entitled to sue each other, but now with the passage
of time exceptions to this general rule have come, allowing even strangers to contract to
prosecute. These exceptions are

1. A beneficiary under a contract:- If a contract has been entered into between 2

persons for the benefit of a third person not being a party, then in the event of failure
by any party to perform his part, the third party can enforce his right against the
others. For eg. In a contract between Alex and James, beneficial right in respect of
some property may be created in favour of Robin and in that case, Robin can enforce
his claim on the basis of this right. This concept of a beneficiary under a contract has
been highlighted in the case of Muhammad Khan v. Husaini Begum.

2. Conduct, Acknowledgement or Admission:- There can also be situation in which

although there may be no privity of contract between the two parties, but if one of
them by his conduct or acknowledgment recognizes the right of the other, he may be
liable on the basis of law of estoppel Narayani Devi v. Tagore Commercial
Corporation Ltd.

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For eg., If A enters into a contract with B that A will pay Rs 5000 every month to B
during his lifetime and after that to his Son C. A also acknowledges this transaction in
the presence of C. Now if A defaults C can sue to him, although not being directly a
party to contract.

3. Provision for maintenance or marriage under family arrangement:- These type of

provisions is treated as an exception to the doctrine of privity of contract for
protecting the rights of family members who not likely to get a specific share and also
to give maximum effect to the will of the testator. In SunsarajaAiyangar v.
Lakshmiammalit was held that even though the plaintiff was not a party to the
contract, yet the contract constituted a situation like trust in her favour and therefore
she was entitled to the amount.

For eg., If A gives his Property in equal portions to his 3 sons with a condition that
after his death all 3 of them will give Rs 10,000 each to C, the daughter of A. Now C
can prosecute if any one of them fails to obey this.
From the above discussion, we have seen that although only parties to contract can sue each
other and no stranger is allowed to enter between the parties to sue. But with the development of
time, the law has also developed and now even a stranger is permitted to sue to safeguard his
interest under exceptional circumstances.

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UNIT III
TYPES OF CONTRACT

Types of contract

There are various types of contracts that are formed voluntarily via civil obligations. They are as
follows:

(I) Adhesion Contracts – These types of contracts are those which are formed by the stronger
party. It is a sort of, “Opt for it or do not” contract. The stronger party or the one that has the
bargaining power leaves the other party with a choice whether to accept or reject the contract.

(II) Aleatory Contracts – This type of contract involves a mutual agreement that comes into
being after an unexpected occurrence, accident, or a natural calamity. In this type of contract
both the parties have an element of risk. Fire or Car insurances are this type of contract.

(III) Bilateral and Unilateral Contracts – Bilateral contracts involve two parties. Both parties are
obliged to one another for performing or abstaining to perform any act. It is also called a two-
sided contract as it involves two way promises. Meanwhile, unilateral contracts are those in
which the promise is made by only one party. They consist of an offeror and offeree. The offeror
makes a promise to perform an action and is bound by the law to do so. The offeree is not bound
to the court even if he fails to execute the requested action because he does not promise anything
at all.

(IV) Express Contracts – These contracts are those wherein the terms of the contracts are
expressed clearly whether in written documents or orally.

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(V) Implied Contracts – There are no oral or written terms in this type of contract. The contracts
are assumed owing to the facts of the parties. If an individual visits a medical professional, he
expects to be diagnosed for a disease or illness and be advised a cure. This is an implied contract
and a patient is capable of suing a medical practitioner for malpractice.

(VI) Void and Voidable Contracts – Void contracts are illegal from the very beginning and hold
no validity under law. They are thereby un-enforceable. Voidable contracts are unlike void
contracts in the sense that one party is bound by the contract and the unbound party is capable of
terminating the contract as they are unbound to it.

Void Contract: Sec 2(j) - A contract which ceases to be enforceable by law becomes void when
it ceases to be enforceable.
A quasi-contract:

A quasi-contract is a retroactive agreement between two parties who have no prior

contractual commitments. A judge develops it to rectify a situation in which one side
acquires something at the detriment of the other.
Eg: Let's say you pay for a pizza to be delivered. If that pizza is delivered to another house, and
someone else enjoys your three-topping special, a quasi contract could be initiated. Now, the
pizzeria could be court ordered to reimburse you for the amount you paid for that pie.
Consensus ad idem
Meaning: Meeting of Mind or Mutual Agreement
Explanation:
Consensus ad idem means meeting of minds, mostly used in contract law, which refers to the fact
that there is an agreement among the parties to contract. It simply means that there exists a
mutual agreement among all parties to a contract. The agreement is one of the essential
ingredients that constitute a contract. If the parties do not reach a stage of mutual assent then a
valid contract cannot be formed. The phrase is commonly used to refer to a situation of mutual

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understanding in the formation of a contract over the same thing. The formation of a valid
contract consists of certain essential characteristic features, the agreement being one of them.
Therefore, it can be understood in a way that in the absence of meeting of minds, a contract so
farmed is void ab initio (Le null and void from the very beginning). Meeting of minds is very
essential to avoid any kind of misunderstanding and confusion in the later stages of a contract
and to ensure proper execution of the purpose of entering into a contract. Thus, an agreement is a
key feature that can make or break a contract or a legal relation, it is therefore very necessary
that the parties are on the same page as to material facts, and contingencies involved in a contract

ESSENTIAL ELEMENTS OF A VALID CONTRACT

We know that there are two elements of a contract : (1) an agreement; (2) legal obligation.
Section 10 of the Act provides for some more elements which are essential in order to constitute
a valid contract. It reads as follows :
“All agreements are contracts if they are made by free consent of parties, competent to contract,
for a lawful consideration and with a lawful object and are not hereby expressly declared to be
void.” Thus the essential elements of a valid contract can be explained as follows :
Agreement : As already mentioned, to constitute a contract there must be an agreement. An
agreement is composed of two elements – offer and acceptance. The party making the offer is
known as the offeror, the party to whom the offer is made is known as the offeree. Thus, there
are essentially to be two parties to an agreement. They both must be thinking of the same thing in
the same sense. In other words, there must be consensus-ad-idem.
An offer to be valid must fulfill certain conditions, such as it must intend to create legal relations,
its terms must be certain and unambiguous, it must be communicated to the person to whom it
made, etc. An acceptance to be valid must fulfill certain conditions, such as it must be absolute
and unqualified, it must be made in the prescribed manner, it must be communicated by an
authorised person before the offer lapses.

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Thus, where ‘A’ who owns 2 cars ‘X’ and ‘Y’ wishes to sell car ‘X’ for Rs.30,000. ‘B’, an
acquaintance of ‘A’ does not know that ‘A’ owns car ‘X’ also. He thinks that ‘A’ owns only car
‘Y’ and is offering to sell the same for the stated price. He gives his acceptance to buy the same.
There is no contract because the contracting parties have not agreed on the same thing at the
same time, ‘A’ offering to sell his car ‘X’ and ‘B’ agreeing to buy car ‘Y’. There is no
consensus-ad-idem.
Intention to create legal relationship : As already mentioned there should be an intention on the
part of the parties to the agreement to create a legal relationship. An agreement of a purely social
or domestic nature is not a contract.
However, even in the case of agreements of purely social or domestic nature, there may be
intention of the parties to create legal obligations. In that case, the social agreement is intended to
have legal consequences and, therefore, becomes a contract. Whether or not such an agreement is
intended to have legal consequences will be determined with reference to the facts of the case. In
commercial and business agreements the law will presume that the parties entering into
agreement intend those agreements to have legal consequences. However, this presumption may
be negatived by express terms to the contrary. Similarly, in the case of agreements of purely
domestic and social nature, the presumption is that they do not give rise to legal consequences.
However, this presumption is rebuttable by giving evidence to the contrary, i.e., by showing that
the intention of the parties was to create legal obligations.
Example: There was an agreement between Rose Company and Crompton Company, whereof
the former were appointed selling agents in North America for the latter. One of the clauses
included in the agreement was : ‘This arrangement is not…. a formal or legal agreement and
shall not be subject to legal jurisdiction in the law courts.”
Held that : This agreement was not a legally binding contract as the parties intended not to have
legal consequences (Rose and Frank Co. v. J.R. Crompton and Bros. Ltd. (1925) A.C. 445).

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Competency of parties : The parties to the agreement must be competent to contract. If either of
the parties to the contract is not competent to contract, the contract is not valid. According to
Section 11 following are the persons who are competent to contract –
who are of the age of majority according to the law to which they are subject;
who are of sound mind;
who are not disqualified from contracting by any law to which they are subject.
Examples
A patient in a lunatic asylum who is at intervals of sound mind may make a contract during those
intervals.
A sane man, who is delirious from fever or who is so drunk that he cannot understand the terms
of a contract, or form a rational judgment as to its effect on his interests, cannot contract whilst
such delirium or drunkenness lasts.
Free Consent : An agreement must have been made by free consent of the parties. A consent may
not be free either on account of mistake in the minds of the parties or on account of the consent
being obtained by some unfair means like coercion, fraud, misrepresentation or undue influence.
In case of mutual mistakes, the contract would be void, while in case the consent is obtained by
unfair means, the contract would be voidable.
Examples
X has two scooters, one is blue and the other green. He wants to sell his blue scooter. Y who
knows of only X’s green scooter offers to purchase X’s scooter for Rs. 5,000. X accepts the offer
thinking it to be an offer for his blue scooter. Held, consent is not free since both the parties are
not understaning the same thing in the same sense.
An old man executed a sale deed thinking it to be a power of attorney and the deed before
execution was not ready over to him. Held, there was no free consent of the man and the contract
is not binding on him.

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Lawful consideration : All contracts must by supported by consideration. Gratuitous promises

are not enforceable at law. An agreement made for an unlawful consideration is void. Lawful
consideration requires both the presence of consideration and the lawfulness of consideration.
Example : A promises to obtain for B an employment in public service and B promises to pay
Rs. 1,000 to A. The agreement is void as the consideration for it is unlawful.
Lawful object : The object of an agreement must be lawful. Object has nothing to do with
consideration. It means the purpose or design of the contract. Thus, when one hires a house for
use as a gambling house, the object of the contract is to run a gambling house. According to
Section 23, the object is said to be unlawful if –
it is forbidden by law;
it is of such nature that if permitted it would defeat the provisions of any law;
it is fraudulent;
it involves an injury to the person or property of any other;
the court regards it is immoral or opposed to public policy.
Examples
A, B and C enter into an agreement for a division among them of gains acquired, or to be
acquired, by them by fraud. The agreement is void, as its object is unlawful (Illustration (e) to
Sec. 23).
A promises to obtain for B an employment in the public service, and B promises to pay Rs. 1,000
to A. The agreement is void as the consideration for it is unlawful (Illustration (f) to Sec. 23).
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
(Illustration (h) to Sec. 23).
Agreements not expressly declared void : The agreement must not have been declared to be
expressly void. Agreements mentioned in sections 24 to 30 have been expressly declared to be
void.

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Under these provisions, agreement in restraint of marriage, agreement in restraint of legal

proceedings, agreement in restraint of trade and agreement by way of wager have been expressly
declared void.
Examples
A makes a contract with B that he will marry nobody except B, and if he marries somebody else,
he will pay a certain sum of money to B, the contract is void; because there is no promise of
marriage on either side and the agreement is purely restrictive (Lowe v. Peers).
An agreement made by a married man that after the death of his wife, he will marry the plaintiff
is void ; because it interferes with the security of marriage.
Where X and Y enter into an agreement which provides that if England’s cricket team wins the
test match, X will pay Y Rs.200, and if it loses, Y will pay Rs.200 to X. Nothing can be
recovered by the winning party under the agreement as it is by the winning party under the
agreement as it is a wagering contract.
Where A and B enter into a wagering agreement and each deposits Rs.200 with C instructing
him to pay or give the total sum to the winner, no suit can be brought by the winner for
recovering the bet amount from C, the stake-holder. Further, if C had paid the sum to the winner,
the loser can not bring a suit, for recovering his Rs.200, either against the winner or against C,
the stake-holder, even if C had paid after the loser’s definite instructions not to pay.
Certainty and possibility of performance : The terms of the contract must be precise and certain.
It cannot be left vague. A contract may be void on the ground of uncertainty. Thus a purported
acceptance of an offer to buy a lorry ‘on-hire-purchase terms’ does not constitute a contract if the
hire-purchase terms are never agreed.(Scammell (G) and Nephew Ltd. v. Ouston (1941) A.C.
251). Similarly an agreement ‘subject to war clause’ is too vague to be enforceable. (Bishop and
Barber Ltd. v. Anglo-Eastern Trading and Industrial Co. Ltd. (1944) K.B. 12). The terms of the
agreementmust also be capable of performance. An agreement to do an impossible act cannot be
enforced.

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Legal formalities : An oral contract is a perfectly valid contract, except in those case where
writing, registration etc. is required by some statute. In India writing is required in cases of sale,
mortgage, lease and gift of immovable property, negotiable instrument; memorandum and
articles of association of a company, etc. Registration is required in cases of documents coming
within the scope of Section 17 of the Registration Act.

UNIT IV
FORMATION
OFFER AND ACCEPTANCE
OFFER

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A proposal or an offer is like the beginning of a contract. An Offer is usually understood

as a Proposal. Thus, according to Sec 2(a) of the Indian Contract Act “when one person signifies
to another his willingness to do or abstain from doing anything, with a view to obtaining the
assent of that other to such act or abstinence, he is said to make a proposal.
The person who makes the proposal is called the promisor or offeror, the person to whom
it is made is called the proposee or offeree and when he accepts it, he is called a promisee.
Section 2(c): “The person making the proposal is called the “promisor”, and the person
accepting the proposal is called the “promisee”.
The process of making a proposal is completed by the act of communicating it to the
other party.
Modes of Communication:
Section 3: Communication, Acceptance and Revocation of Proposals: The communication of
proposals, the acceptance of proposals, and the revocation of proposals and acceptances,
respectively, are deemed to be made by any act or omission of the party proposing, accepting or
revoking, by which he intends to communicate such proposal, acceptance or revocation or which
has the effect of communicating it.
Communication may be made by words, or by mouth, or even by conduct. An offer
which is expressed by conduct is called an “implied offer” and the one which is expressed by
words, written or spoken, is called an “express offer”. An acceptance may likewise be made
expressly or impliedly.
Upton-on-Severn RDC vs. Powell (1942)
In this case, a person who received services from a fire brigade under the impression that the area
was entitled to free service, had to pay the fire brigade when he found out that the area did not
service charge free. He had made an implied promise to pay for the service while availing of
benefits.
Communication when Complete

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Sec 4: The communication of a proposal is complete when it comes to the knowledge of a person
to whom it is made.
LalmanShukla vs. GauriDatt (1913)
In this case, the servant (petitioner) could not claim the reward for finding the
defendant’s nephew. The communication of an offer that a reward would be granted for finding
the nephew came to the knowledge of the servant after he had found the nephew.
GENERAL OFFERS
“An offer need not be made to an ascertained person but no contract can arise until it has
been accepted by an ascertained person”- Anson.
It was suggested in the old case of Weeks vs. Tybald (1605), that an offer must be made
to a definite person. In this case, the defendant affirms to the public that he would give 100
pounds if one marries his daughter with his consent. The plaintiff did so and in non-compliance
with the offer he sued the defendant. The court meant that if an offer of this kind addressed to
several persons could be accepted, the offeror would find him bound in innumerable contracts.
This ratio, however, was soon overruled.
Carlill vs. Carbolic Smoke Ball Co. (Smoke Ball case) (1893)
The Plaintiff, believing Defendant’s advertisement that its product would prevent influenza,
bought a Carbolic Smoke Ball and used it as directed from November 20, 1891 until January 17,
1892, when she caught the flu. Plaintiff brought suit to recover the 100£, which the Court found
her entitled to recover. Defendant appealed.
It was contended by the defendant that there was no intention to enter into legal relations as it
was simply a puffing advertisement; that the offer was not made to any one person in particular
and that the plaintiff had not communicated her intention to accept. The Court acknowledges that
in the case of vague advertisements, language regarding payment of a reward is generally a puff,
which carries no enforceability. In this case, however, Defendant noted the deposit of £1000 in
their advertisement, as a show of their sincerity. Because Defendant did this, the Court found
their offer to reward to be a promise, backed by their own sincerity.

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Bowen LJ pointed out that in cases like this communication of acceptance is not necessary.
OFFER AND INVITATION TO OFFER
An offer should be distinguished from an invitation to receive offers. When a man
advertises that he has got a stock of books to sell, or houses to let, there is no offer to be bound
by any contract. Such advertisements are offers to negotiate, offers to receive offers, offers to
chaffer.
The definition of “proposal” in Section 2(a) emphasizes that there should be the
expression of willingness to do or abstain with a view to obtaining the assent of the other. Where
a party without expressing his final willingness, proposes certain terms on which he is willing to
negotiate, he does not make an offer, but only invites the other party to make an offer on those
terms. This is the basic definition between an “offer” and an “invitation” to receive offers.
Harvey vs. Facey (1893)
The plaintiffs telegraphed to the defendants, writing: “Will you sell us Bumper Hall Pen?
Telegraph lowest cash price”. The defendants replied also by a telegram: “Lowest price for
Bumper Hall Pen, 900 pounds.” The plaintiffs immediately sent their last telegram stating: “We
agree to buy Bumper Hall Pen for 900 pounds asked by you”.
The defendants, however, refused to sell the plot of land at that price. It was held that there was
no contract concluded between Harvey and Facey.
This landmark case laid down the foundation of the concept “invitation to offer”. This
clearly express that it is only mere promulgation of information on the terms on which the person
may be willing to negotiate son.
A shopkeepers catalogue of prices is not an offer; it is only an invitation to the intending
customers to offer to buy at the intended prices.

ACCEPTANCE
Definition

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Section 2(b): When the person to whom the proposal is made signifies his assent thereto, the
proposal is said to be accepted. A proposal, when accepted, becomes a promise.
Communication of Acceptance
1. Acceptance by External Manifestation or Overt Act
Acceptance may be signified or expressed by an act or omission. The principle is that there
should be some external manifestation of acceptance. Such manifestation may be in the form of
express words, written or spoken or may be signified through conduct.
Brogden vs. Metropolitan Railway Co. (1877)
B had been supplying coal to a railway company without any formal agreement. B suggested that
a formal agreement should be drawn up. The agents of both the parties met and drew up a draft
agreement. It had some blanks when it was sent to B for his approval. He filled up the blanks
including the name of an arbitrator and then returned it to the company. The agent of the
company put the draft in his drawer and it remained there without final approval having been
signified. B kept up his supply of coals but on the new terms and also received payment on the
new terms. A dispute having arisen B refused to be bound by the agreement.
It was held that the subsequent conduct of the parties in supplying and accepting coal on the
basis of proposed agreement was a conduct that evidenced or manifested their intention.
Section 8 provides that “performance of the conditions of a proposal, or the acceptance of any
consideration for a reciprocal promise which may be offered with a proposal, is an acceptance of
the proposal”. Such proposals demand acceptance by performance.
The offeror had indicated a particular mode of acceptance and, therefore, by doing the
act, the offeree had accepted the offer and did not have to notify the offeror in advance of its
intention to accept. The position is same in India.

Hindustan Coop. Insurance Society vs. ShyamSundar (1952)

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After an oral understanding to insure and the completion of the medical examination, the
company informed the proposer that if he submitted the proposal form and deposited the half-
yearly premium, his proposal would be accepted. He accordingly submitted a cheque and the
proposal. The company encashed the cheque but had not yet replied to him their acceptance of
the proposal that the proposer died. The court held that the encashment of the cheque by the
company was an acceptance on their part and therefore, no communication was required for it.
This is an implied acceptance.
2. Communication to Offeror himself
A communication to any other person is as ineffectual as if no communication has been
made.
Felthouse vs. Bindley (1863)
In this case, Paul Felthouse, talked to nephew John Felthouse, about buying his horse.He then
sent a letter to John stating that if he doesn’t communicate anything about the horse further, it
would mean in the acceptance of the proposal and the horse would be Paul’s property thereafter.
The nephew didn’t reply to this letter and was busy in auction. But he specifically told Mr.
Bindley who was the auctioneer, to not to sell the horse. Mr. Bindley anyway sold the horse in
the auction and then was sued by Paul Felthouse. Mr. Bindley presented a defense that no
acceptance was given by John Felthouse and therefore there was no contract. The court held the
case in Mr. Bindley’s favor and said that mere silence does not amount to acceptance and just
mentally accepting it is not enough.
This case alsogives out two other propositions. Firstly, the communication of acceptance must be
with the offeror himself or the person he has authorized for the same. Secondly, an offeror
cannot impose upon the offeree the burden of refusal.
3. Communication by Acceptor himself
The communication of acceptance should be from a person who has the authority to accept.
Information received form an unauthorised person is insufficient.
Powell vs. Lee (1908)

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The plaintiff was an applicant for the headmastership of a school. The managers passed a
resolution appointing him, but the decision was not communicated to him. One of the members
however, in his individual capacity informed him. The managers cancelled their resolution and
the plaintiff sued for breach of contract. Rejecting the action, it was held that information by an
unauthorized person is as insufficient as overhearing from behind the door.
When Communication not Neccessay
The offeror may prescribe a particular mode of acceptance, then all that the acceptor has
to do is to follow that mode. Then, there may be an offer which impliedly indicated that acting
on its terms will be a sufficient capacity (Carlill vs. Carbolic Smoke Ball Co.)
Mode of Communication
Acceptance should be made in prescribed manner. An acceptance given in any other manner may
not be effective particularly where the offeror clearly insists that the acceptance shall be made in
the prescribed manner. This Anglo-American rule has not been strictly followed in the Indian
Contract Act. Section 7 deals with this matter.
Section 7: Acceptance must be absolute- In order to convert a proposal into a promise, the
acceptance must
1. be absolute and unqualified,
2. be expressed in some usual and reasonable manner, unless the proposal prescribes the
manner in which it is to be accepted. If the proposal prescribes a manner in which it is
to be accepted, and the acceptance is not made in such manner, the proposer may
within a reasonable time after the acceptance is communicated to him, insist that his
proposal shall be accepted in the prescribed manner, and not otherwise, but, if he fails
to do so, he accepts the acceptance.
Postal Communication
When the parties are at a distance and are contracting through post or by messengers, the
contract is concluded when the letter of acceptance is posted in due course.

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According to Section 4, the communication of an acceptance is complete, as against the

proposer, when it is put in a course of transmission to him, so as to be out of the power of the
acceptor; as against the acceptor, when it comes to the knowledge of the proposer.
The offeror becomes bound when a properly addressed and adequately stamped letter of
acceptance is posted. This aspect was emphasized by the Allahabad High Court in Ram Das
Chakrabarti vs. Cotton Ginning Co. Ltd. (1887).
Counter Proposal
An acceptance with a variation is no acceptance, it is simply a counter-proposal, which
must be accepted by the original promisor before a contract is made. A counter offer puts an end
to the original offer and it cannot be revived by subsequent acceptance.
Provisional Acceptance
An acceptance is sometimes made subject to final approval. A provisional acceptance of
this kind does not ordinarily bind either party until the final approval is given. Meanwhile the
offeror is at liberty to cancel his offer.
A tender is in the same category as a quotation of prices. When a tender is approved, it is
converted into a standing offer. A contract arises only when an order is placed on the basis of the
tender. These principles were laid down in Bengal Coal Co. Ltd. Vs. HomeeWadia& Co. (1899).

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UNIT-V
TERMS OF CONTRACT
Warranty
Warranty is the additional stipulation and a written guarantee that is collateral to the main
purpose of the contract. The effect of a breach of a warranty is that the aggrieved party cannot
repudiate the whole contract however, can claim for the damages. Unlike in the case of breach of
condition, in the breach of warranty, the buyer cannot treat the goods as repudiated.

TICKET CASE:

Parker v South Eastern Rly Co

FACTS:

Mr Parker left a bag in the cloakroom of Charing Cross railway station, run by the South Eastern
Railway Company. On depositing his bag and paying two pence he received a ticket. On the
front it said "see back". On its back, it stated that the railway was excluded from liability for
items worth £10 or more. Mr Parker failed to read the clause as he thought the ticket was only a
receipt of payment. However, he admitted that he knew the ticket contained writing. Mr Parker's
bag, which was worth more than £10, was lost. He sued the company. The question of law put to
the court was whether the clause applied to Mr Parker. At trial the jury found for Mr Parker as it
was reasonable for him not to read the ticket.

JUDGEMENT:

A. DIVISIONAL COURT:

Lord Coleridge CJ, Brett J and Lindley J decided in favour of Mr Parker, upholding the jury
award. Lindley J remarked,

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On the finding of the jury, I think we cannot say that the defendants did not accept the article, to
be taken care of by them, without any special terms. Henderson v Stevenson] therefore, is
undistinguishable from this case, except for the words “see back,” which did not appear on the
face of the ticket in that case. But the findings here make that distinction immaterial. After the
conclusions of fact which the jury have drawn, it is, upon the authority of that case, quite
immaterial whether the special terms relied on were on the front or on the back of the ticket.

B. COURT OF APPEAL:

The majority of the Court of Appeal held there should be a retrial. They said that if Mr Parker
knew of the conditions he would be bound. If he did not know, he would still be bound if he was
given the ticket in such a way as amounted to "reasonable notice". Mellish LJ said the following.

I am of opinion, therefore, that the proper direction to leave to the jury in these cases is, that if
the person receiving the ticket did not see or know that there was any writing on the ticket, he is
not bound by the conditions; that if he knew there was writing, and knew or believed that the
writing contained conditions, then he is bound by the conditions; that if he knew there was
writing on the ticket, but did not know or believe that the writing contained conditions,
nevertheless he would be bound, if the delivering of the ticket to him in such a manner that he
could see there was writing upon it, was, in the opinion of the jury, reasonable notice that the
writing contained conditions.

Baggallay LJ concurred, and predicted that the same result would be reached by the jury (in Mr
Parker's favour). Bramwell LJ dissented, holding that reasonable notice should be a question of
law, and that held have decided in favour of the railway company.

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UNIT VI
CONSIDERATION
CONSIDERATION is a quid pro quo i,e something in return it may be – MEANING (i) some
benefit right, interest, loss or profit that may accrue to one party or,
(ii) some forbearance, detriment, loss or responsibility suffered on undertaken by the other party
[Currie V Mussa] (b) According to Sir Frederick Pollock, “consideration is the price for which
the promise of the other is bought and the promise thus given for value is enforceable.
DEFINITION [SEC 2(d)]:- when at the desire of the Promisor, the promise or any other person.
(a) has done or abstained from doing, or [Past consideration]
(b) does or abstains from doing, or [Present consideration]
(c) promises to do or abstain from doing something [Future consideration]
such act or abstinence or promise is called a consideration for the promise.

WHY DO WE NEED CONSIDERATION?

Only the promises that are backed by consideration are enforceable because any promise made
without any obligation is usually very rash and without any sort of deliberation. The reason for
making consideration an essential part of a contract is because it levies a sort of burden on the
parties to fulfil the terms of the contract. For Example, if, A promises to give B a car without B
doing or abstaining to do anything for it, makes the promise by an unenforceable. This will be a
gift and not a contract per se.

LEGAL REQUIREMENTS AS TO CONSIDERATION

● Must move at the desire of the promisor- Section 2d of the Indian Contract Act,
1872, clearly mentions that the consideration should be at the desire of the promisor if
the consideration is made at the will of the third person or is not according to the
promisor then it is not a good consideration.

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● Can move from the promisee or another person- Unlike English law in which the
consideration must move at the desire of the promisor, in Indian law as long as there is
consideration it is immaterial as to who has furnished it. Moreover, in the case
of ChinnayavsRammyya the consideration can also move at the desire of the third
party but only in the condition where he is the beneficiary of the contract.

● Can be an act, abstinence or even a promise- If the promisee does something or

abstains from doing something for the promisor, at his desire, then it will be a good
consideration.
● Can be past, present or future:

PAST- When the consideration is given before the promise was made. For example- A saves B
at the latter’s desire. B after a month promises to pay A. the act of A will amount to past
consideration for the payment made by B.

PRESENT- When the consideration is given at simultaneously to the promise made, then this is
present consideration or executed consideration. For example- cash sales.

FUTURE- When the consideration of the promise made is to be passed at a future date then that
is called future or executory consideration. For example- A promises to pay B, when the latter
will fetch newspaper for him.

CONSIDERATION NEED NOT BE ADEQUATE- It is not necessary that the consideration

is equal or adequate for the promise made. However, it is mandatory that the consideration
should be something in which the law attaches some value. It is for the parties to decide the
value of the consideration and not a court of law. For example- A sells table to B and B gave him
rs 500. It will be difficult for the court to ascertain the value of the table, so if A is satisfied with
the amount given then the consideration is valid.

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● Should be real- although the consideration need not be adequate it should be real and
not illusory. The consideration should not be physically impossible, legally not
permissible or based on an uncertain event or condition.

● Should not be something which the promisor is already bound to do- a consideration
to do something which the promisor is already required to do is not a good
consideration. For example- the public duty done by a public servant.
● Should not immoral, or against the public policy of the state under Section 23 of the
Indian contract it is given that consideration should not be illegal, immoral or against
public policy. the court should decide the legality of the consideration and if found to
be illegal than no action on the agreement should be allowed.

STRANGER TO A CONTRACT

It is a general principle that the contract can be enforced only at the behest of the parties to the
contract. No third party could enforce it. It arises from the contractual relationship between the
two parties. However, Lord Dennings has criticised this rule a number of times as this rule has
never benefited the third party whose roots go deeper in the contract. This rule has two
consequences-

● No third party could enforce the contract.

● The contract between the parties cannot levy an obligation on any person other than
those party to a contract.

C. EXCEPTION

There are three exceptions to this rule:

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● Marriage settlements- When an agreement is made with regards to marriage, family

settlement or partition and is made in such a way that it benefits another person who is
not a party to the contract then he may sue for the enforcement of the contract.

● Covenants running with the land- in cases of the contract of property the purchaser
will be bound by all the conditions and covenants of the land, even though he was not
a party to the original contract.
● Acknowledgement of estoppels- in case the terms of the contract require that an
agreement has to be made with the third party, then this has to be acknowledged. This
acknowledgement could be expressed or implied. This exception covers the areas
where the promisor either expressly or by conduct has posed himself to be an agent.

PAST CONSIDERATION

It is the consideration which is made before the agreement. It is something which the promisee
has already done at the desire of the promisor.

For example- A rescues B. B promises to give him Rs. 1000 for the same. Here it is a past
consideration as the act of rescuing happened before any agreement.

In English law past consideration is no consideration. If A saves B and B promises him to pay
but later refuses to do so, then under English law, A cannot enforce it in a court of law. B can
give him the money, but that would not be considered as a past consideration but it would be by
way of gratitude. This, however, causes a lot of inconveniences, as if a person would pay for the
past act then he shall have to recognise the past consideration which is not valid under English
Law. the report of the law commission of England proposes to remove this rule.

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In India however, there is no compulsion to follow the English law and past consideration is
regarded to be valid.

PAST ACT AT REQUEST GOOD CONSIDERATION

The past act done for consideration would be a good consideration. In the case
of LampleighvsBrathwait, in which the defendant requested the plaintiff to help him get a pardon
from the king. The plaintiff put in efforts, travelled up to the king etc.his request was not
sanctioned. The defendant promised to pay him for the same. Later he refused to do so. Plaintiff
sued him in a court of law. The court held that the defendant must pay the plaintiff because he
has himself requested him to help him. Hence the act of the plaintiff, although done in the past,
would still be regarded as a valid consideration.

PAST VOLUNTARY SERVICE

If a person renders voluntary services without any request or promise from another and the
person receiving the services makes a promise to pay for the services, then such a promise is
enforceable in India under Section 25(2) of the Indian Contract Act, 1872 which states: ‘‘An
agreement made without consideration is void unless it’s a promise to compensate, wholly or in
part, a person who has already voluntarily done something for the promisor, or something which
the promisor was legally compellable to do; or unless.’’

For Example- Peter finds Noah’s wallet on the road. He returns it to him and Noah promises to
pay Peter Rs 500. This is a valid contract under the Indian Contracts Act, 1872.

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PAST SERVICE AT REQUEST PAST AND EXECUTED

An act done before the giving of a promise to make a payment or to confer some other benefit
can be a consideration for the promise. The act must have been done at the promisor’s request,
the parties must have understood that the act was to be remunerated either by a payment or the
conferment of some other benefit, and payment or the conferment of a benefit must have been
legally enforceable had it been promised in advance.

EXECUTORY CONSIDERATION

Consideration may be something which is done or in the process of being done. It also consists
of an act which is promised to be done in the future. There may be promises which form the
consideration for each other. Before the completion of a promise which forms a part of the
consideration of the other promise, then such consideration is called executory consideration.

For example- if A promises to pay B when he will sell the goods to him. Until time A does not
get the goods, the consideration is executory, when he got the goods and paid for the same, the
consideration is executed. If B does not sell the goods then A could also breach for the suit.

D. VALUE NEED NOT BE ADEQUATE

Consideration is defined as an act of abstinence from doing something, at the desire of the
promisor. The consideration should be of some value in the eyes of law, but the courts have been
very liberal in interpreting and anything of value by the parties is regarded as a valid
consideration.

The value need not be adequate for the promise made. The court will not enquire whether the
value of the consideration is equivalent to the promise that is made. If the parties agree to the

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value of the consideration then it is sufficient. This rule is applicable as per Indian and English
law.

E. INADEQUACY AS EVIDENCE OF IMPOSITION

The inadequacy of consideration is regarded to check whether the consent is freely given. For
example- A agrees to sell his property worth Rs 1 crore to B for Rs 10,000. denies that his
consent for the sale of the property was not freely given. A party seeking to set aside the
transaction based on the inadequacy of the consideration must show that he was unable to
understand it or was by way of some imposition. If the court is satisfied that the contract was
freely entered into then it would not matter whether the consideration was adequate or not.

Where the consideration is inadequate it could be because of fraud, coercion, mistake etc. the
same would be the case when the consideration is so low that it shows some serious inequality of
the bargaining power.

F. FORBEARANCE TO SUE

The most usual form of forbearance is the forbearance to sue within a reasonable time. This
promise to forebear can be expressed or implied from the circumstances. Sometimes it is very
difficult to construe from the fact whether it was an agreement to forbearance (which is not a
good consideration until not backed by the request of the promisor) or actual forbearance. Hence
to clarify in the case BittanBibivsKuntuLal, it was held that the promise of forbearance should
move at the desire of the promisor.

Forbearance to sue on a claim which is void is not a consideration. Moreover, abstaining to sue
could be valid consideration only when the person who is abstaining, has a valid right to sue.

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Also, it is not necessary to specify the time for such abstinence. A request for forbearance
without specifying the length is understood to be a forbearance for a reasonable time.

G. COMPROMISE GOOD IRRESPECTIVE OF MERITS

It is an important kind of forbearance which is undertaken by way of a compromise of a doubtful

claim. The important element here is to ascertain the limits of which the compromise will
function and will still be a good consideration. The difference between forbearance and
compromise is that in the latter claim is not admitted and the claimant promises to abandon the
claim.

The abandonment of a doubtful or disputed claim is a good consideration even if it later turns out
to be unsustainable. The test is to find whether the person thought in good faith and he has a case
which he was abandoning. A compromise of a claim arising out of an illegal contract is
insufficient as a consideration unless the compromise arises out of a dispute of fact as to whether
the contract is illegal.

PERFORMANCE OF EXISTING DUTIES

PERFORMANCE OF LEGAL OBLIGATIONS

The performance of what one is already bound to do, either by general law or by a specific
obligation to the other party, is not a good consideration for a promise, because such
performance is not a legal boundation a person. Moreover, on the performance of a legal
obligation, a reward from the private organisation is taken then it would be against the public
policy. It should be ensured that the legal duty actually exists. But if a man who already has a
legal obligation undertakes to do something or to do something in any of the admissible way i.e.
the person has forgotten the choice that the law allows him to take is a good consideration.

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Moreover, the actual performance of an existing duty may confer a factual benefit, because on
actual performance the promise is saved of pursuing a legal remedy for its breach.

PERFORMANCE OF CONTRACTUAL OBLIGATIONS

H. PRE-EXISTING CONTRACT WITH THE PROMISOR

Usually, the performance of a duty already owed under the contract to the promisor is not good
consideration. Even in terms of public policy, it is necessary to discourage a tendency to use
improper pressure or threatening to break one’s contract unless another party complies by paying
or promising to do so. The promisee must find it beneficial to perform the promise immediately
rather than paying for its breach which may not fully compensate the promisor.

I. PROMISE TO PAY LESS THAN THE AMOUNT DUE

A promise to pay less than what is due in the contract cannot be regarded as consideration. This
rule was given in Pinnel’s case. The court held that a smaller amount cannot in whole satisfy a
larger sum. However, a gift of the horse, robe etc can be considered as a good satisfaction
because under certain circumstances it is considered to be more beneficial than money,
otherwise, the person would not accept it.

This holding was criticised in a way wherein several cases the jurist held that if the party is
content to receive any amount be it less than the sum and he is satisfied by the same, then it
should be considered to be a valid consideration. However, in spite of all this criticism, the
Pinnel’s Case was applied unanimously in various circumstances.

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EXCEPTIONS TO THE RULE IN PINNEL CASE

J. PART-PAYMENT BY THE THIRD PARTY

The part payment by the third party may be a good consideration for the whole debt.

K. COMPOSITION

Payment of a lesser amount would be a good consideration for the larger sum where this is done
for some already entered compromise.

L. PAYMENT BEFORE TIME

Payment of a lesser sum before the time or in a different mode, a different place than agreed by
the parties or the gift of a horse or robe etc is a valid satisfaction of the goods.

M. PROMISSORY ESTOPPEL

The doctrine of promissory estoppel is considered to be a departure from the doctrine of

consideration. A promise that was made in future is estoppel. If the promise is made with the
intention that it would be acted upon and it was in actuality acted on, then the promisor cannot be
allowed to back out and it could be enforced in a court of law as well.

Promissory estoppels differ from traditional contract theory. It protects reliance. This doctrine
was developed to prevent injustice if the promisee suffers from any injustice due to the reliance
on the promise of the promisor, even though it was not required a consideration. However, in
English law, the doctrine of promissory estoppel is used only as passive equity and is invoked
only in the cases of defence.

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POSITION UNDER THE INDIAN CONTRACT ACT IS DIFFERENT THAN UNDER

ENGLISH LAW

N. UNDER ENGLISH LAW

It is an established rule under English law that the third party cannot sue a contract made for his
own benefit. Apart from special circumstances. A person who is not a part of the contract cannot
enforce or rely for protection on its provisions. Such right can be conferred to a property by way
of trust but it cannot be on a stranger to a contract as a right to enforce the contract.

O. UNDER INDIAN LAW

It is established that the consideration can move from a third party but it cannot sue for its own
agreement. However, there was lots of confusion on this point. Although the definition of
“consideration” is wider in the Indian than in the English law since common law is applicable,
therefore it is generally applied that the third party cannot enforce the contract.

Law Commission of India in one of its reports mentioned that the contract must be enforceable
by a third party if it expressly for his benefit but the defences of the party to the contract must
also be considered. It is also proposed that the parties cannot alter the terms of the contract once
the third party takes over the contract.

PRE-EXISTING CONTRACT WITH THE THIRD PARTY

A promise to perform a pre-existing contractual obligation with a third party can be a valid
consideration for another contract. The point of conflict in these kinds of arrangements is
regarding the presence of consideration for the promisor. This conflict was settled in the case

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of Shadwell vs Shadwell, where the plaintiff got engaged and his uncle wrote him a letter
promising him to pay 150 pounds throughout his lifetime.

The jurists in the above case held that there was adequate consideration for the contract as it
could be construed from the fact that it was made because of the engagement of his nephew.
Moreover, marriage is of great interest to the near relatives. Also, the contract is binding on the
uncle as it is possible that the plaintiff has undertaken many liabilities on account of the promise
given by the uncle and if the payment is withheld then the plaintiff could face a lot of
embarrassment.

Under these provisions, the person should be safeguarded from any further payment which is not
enforceable as per the contract. Like in the case of Syros Shipping vsElaghil Trading co. a vessel
which was prepaid had to deliver tractors to Yemen. The charters defaulted their payment to the
shipowner because of the congestion in the ports. During this period the shipowner asked for
extra payment, the consignees agreed to pay but later refused. The court held that since there was
no consideration for the promise, moreover no estoppel was created hence the contract is not
enforceable.

CONSIDERATION AND MOTIVE

Consideration is not the same thing as motive or a mere desire. The requirement of consideration
is vital and the contract could not be satisfied with just a moral obligation. Consideration for a
promise is always a motive for the promise, unless it is nominal or invented, while a motive for a
promise may not always be a consideration for it. Motive induces a promise to be given. Similar
holding was given in the case of DwarampudiNagarathnammavsKurukuRamayya, where the
Karta of a Hindu Undivided Family gifted his concubine a portion of the property beyond the

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cohabitation was a motive and not a consideration, and it should be considered as invalid because
it was motivated by the desire to compensate for his past services.

ABSENCE OF CONSIDERATION

If the promissory note is neither genuine nor fraud then it is recoverable under the provision of
this code, with interest. The court said that mere denial of the passing of consideration does not
make any defence. Something which is probable has to be brought on record.

EXCEPTIONS UNDER SECTION 25, INDIAN CONTRACT ACT

In English law, a contract which is under the seal is enforceable without consideration. In Indian
law, there are no such provisions but still, The general rule is the ex nudopacto non-oritur action,
which means that no right of action arises from the contract which is entered into without any
consideration. Still, under Section 25 of the Indian Contract Act,1872. It provides certain
exceptions under Section 25 of the Indian Contract Act.

FIDUCIARY RELATION

In case of a contract entered into between the relatives or on account of natural love and
affection is enforceable without consideration. The meaning of love and affection is not
judicially construed but parties who are nearly related would have instinctive love and affection.
However, this could be overruled with regards to some external circumstances, like between the
wife and husband who are compelled to live separately because of quarrelling. But a settlement
to be given to a man by the wife by way of maintenance could be enforced without any
consideration because it will result in peace and family harmony.

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The term “family” (in this context) should be understood as a group of people living together and
possessing a right of succession, inheritance etc., but the family could be construed as a people
who are bonded by natural love and affection.

PAST VOLUNTARY SERVICES

A promise to compensate the person who has done something voluntary in the past for the
promisor is enforceable. This exception is attracted in the cases when the services are rendered
voluntarily. Thus where a service is rendered on behalf of a company which is not in existence, a
subsequent promise to pay would not attract this provision. Even where the promisee has done
something for the promisor, which he had to do legally, then it will also be covered under this
exception.

IN CASE OF A MINOR

In Karam Chand vsBasantKaur, the court held that even where the promisor after attaining
majority, promises to pay for the goods attained in minority will also fall under this provision.
The court said that although the promise made by a minority is void but is the promise is made
by a person of full age to the promiseewho has done something for him voluntarily when the
promisor was a minor, then it will also attract this exception.

TIME BARRED DEBT

A promise to pay a time-barred debt is enforceable and it should be signed by the person or his
agent. It could be to pay for the whole debt or in part. The debt to be enforced could be paid
except for the law of limitation. However, the person who is under no obligation to pay to
another person is under no obligation under this clause.

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The promise to pay the debt must be expressed, it is not sufficient if the intention to pay could
not be gathered from the circumstances.

Acknowledgement of the debt is different from the promise to pay the debt. The
acknowledgement of the person should be done before the period of limitation. Promise to pay a
time-barred debt is a new contract. It is not just merely an acknowledgement of the existing
liability.

GIFT ACTUALLY MADE

The provisions of “Consideration” do not affect the gift actually made. Under this Section, gift is
defined as:

● The gift is of movables then it should be accompanied by its delivery.

● The gift is of immovables then should be along with registration.

If the above conditions of gifts are fulfilled then lack of consideration would not affect the
validity of these gifts. However, apart from the consideration, they could be questioned
otherwise.

Where the gift of the property was made by a registered deed and is attested by two witnesses, it
was not allowed to be questioned on the ground that she was the victim of fraud, moreover, she
was not able to establish it.

INADEQUACY OF CONSIDERATION

Adequacy of the consideration means that the consideration which is paid is equal in
value to the value for which it is paid. Consideration can be terms of money, property etc.

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inadequate consideration is not void but it renders the contract unenforceable because of the
improper bargaining or by itself.

Inadequate consideration must be distinguished from nominal consideration. Nominal

consideration is deliberately given to make the contract effective but inadequate consideration is
less than the amount promised. Although the act does not make any distinction between the
nominal and inadequate consideration but it was made in the case of Midland Bank trust vs
Green.

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UNIT-VII
INTENTION TO CREATE LEGAL OBLIGATION
Intention to create legal relations is one of the major part of elements in contract. It means an
intention to enter into legally binding contract or agreement. This can be considered as one of the
necessary elements in the formation of a contract. It shows the readiness of parties involved to
accept the legal consequences of having entered into such agreement. It should be the motion of
each contracting party to enter into a lawfully binding contract.
The following points can be considered as few concepts of intention to create legal relations:
(a) The contracting parties must have the obvious mind to enter in a serious contract.
(b) To make a contract enforceable, legal and binding, there must be an intention to
create legal relations.
(c) In the absence of intention, the parties cannot sue each other.
(d) The contract may lack the binding effect in the absence of the intention to create legal
relations.

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UNIT-VIII
CAPACITY TO CONTRACT

INTRODUCTION

A contract is basically an agreement i.e. enforceable by law. In order to be enforceable, the

agreement must satisfy the requirements given under SECTION 10 of the Indian Contract Act,
1872. Section 10 of Act states that all agreements are contracts if they are made

● By competent parties (S. 11, 12)

● For a lawful object and lawful consideration (S. 23)
● By the free consent of the parties (S. 14)
● Are not expressly declared to be void.

SECTION 11 of the Act states that 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 SECTION 11 of the act, it becomes clear that every person is competent to contract who is
major, and who is of sound mind and is not disqualified by law. if we examine the section 11, so
we can see that only three types of persons are not competent to contract i.e.

● minors;
● Persons of unsound mind(S. 12);
● Persons Disqualified from contracting by any law;

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MINORS

In India, a minor is an Indian citizen who has not completed the age of eighteen years. A minor
is incapable of understanding the nature of the liabilities arising out of an agreement. Hence a
contract with a minor is void ab initio (void from the beginning) and cannot be enforced in a
court of law. The result is that a party cannot compel the minor to perform his part of obligations
as enumerated in the agreement (plead specific performance of an agreement/rule against
estoppel).

MohoriBibee vs. DharmodasGhose

The respondent, DharmodasGhose, a minor, had mortgaged his property in favor of the
moneylender, BrahmoDutt for securing a loan amounting to INR 20,000/-.

Mr.BrahmoDutt had authorized KedarNath to enter into the transaction through a power of
attorney. Mr.KedarNath was informed of the fact that DharmodasGhose was a minor through a
letter sent by his mother.

However, the deed of mortgage contained a declaration that DharmodasGhose was of the age of
majority.

The respondent’s mother brought a suit on the ground that the mortgage executed by his son is
void on the ground that her son is a minor.

The relief sought by the respondent was granted and an appeal was preferred by the executors of
BrahmoDutt before the Calcutta high court. The same was dismissed.

An appeal was then made to the Privy council. The Privy council held that-

A contract with a minor is void-ab-initio.

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Can a minor be a partner?

The way of a contract creates a partnership, and the essential of a contract is that the both the
parties should be of the age of majority. However, as an exception as per Section 30 of the
Partnership Act is that with the due consent of all the partners, the minor can be admitted to the
benefit of partnership for the time being. But he will not be liable for any of his acts.

Liability of a minor under the Negotiable Instrument Act

As per Section 26 of the Act, a minor can draw, endorse, and negotiate and he can bind
everybody except himself. Every person who is capable of contracting according to the law to
which he is subject may bind himself and be bound by the making, drawing, accepting, delivery
and negotiation of a promissory note, cheque or a bill of exchange.

Can a minor be an agent or principal?

A minor can never be a principal because Section 183 of the Indian Contract Act for anybody to
become a principal should be of the age of majority and be of sound mind and since a minor is
not competent to contract, he also cannot employ an agent. But, a minor can become an agent as
per the provisions of section 184 but the principal shall be bound by the acts of the minor and he
would not be personally liable in that case.

PERSONS OF UNSOUND MIND

SECTION 12 of the Indian Contract Act, 1872, defines the term soundness of mind as follows:

A person is said to be of sound mind if he is capable of understanding the contract and effect of
that contract on his interests. Besides, who is usually of sound mind, but occasionally of unsound
mind, may not make a contract when he is unsound mind. Likewise, a person who is usually of

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unsound mind, but occasionally of sound mind, he may make a contract when he is of sound
mind.

Illustration: A person in a lunatic asylum, who at intervals is of sound mind may contract
during those intervals.

Comparison between English law and Indian law: In England, mere unsoundness of mind is
no defense; the contract of a lunatic is binding upon him, unless he can show that at the time of
making the same, he was utterly incapable of understanding what he was doing and that the other
party knew of his lunacy. In India, a contract by a person of unsound mind is void.

PERSONS DISQUALIFIED BY LAW

1. ALIEN ENEMY: A person who is an Indian citizen is called an alien or non-citizen

of the Republic of India. An alien enemy is a person whose country is at war with
India. In India, a contract with an alien enemy is void but a contract with an alien
friend is valid under the Indian Contract Act. No contract can be made with an alien
enemy during the subsistence of war, except with the prior approval of the Indian
Government.
2. CONVICTS: A convict is a person, who is sentenced by a competent court to the
death sentence or imprisonment. A convicted person cannot enter into a contract while
undergoing sentence. When the period of his sentence is over or he is pardoned, then
his incompetency is also over.
3. INSOLVENT: There is no prohibition against a contract by an insolvent after the
insolvency proceedings have commenced but before adjudication. In simple words,
the insolvent is disqualified from entering into a contract until he is discharged by the
court of law.

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For example, A executed a sale-deed, but before he could get it registered of the deed took place
during the pendency of the insolvency proceedings. Under these circumstances, the sale-deed
valid and binding on the parties.

4. FOREIGN SOVEREIGNS AND DIPLOMATS: Foreign sovereigns have some

special privileges. Generally, they cannot be sued unless they, themselves surrender
under the jurisdiction of the Indian court of law. They cannot enter into a contract
unless an Indian citizen obtained a prior sanction of the Government of India, in order
to sue them in the Indian court of law.
5. CORPORATIONS: The power of a corporation to make a contract vary according to
the character of the corporation. A company is an artificial person created by law and
is competent to contract. But its power of contract is subject to the limitation which
may be either necessary or express.
6. be either necessary or express.

INFANT RELIEF ACT OF 1874 (1874 CHAPTER 62 37 and 38 Vict)

1 CONTRACTS BY INFANTS, EXCEPT FOR NECESSARIES, TO BE VOID.

All contracts, whether by specialty or by simple contract, henceforth entered into by infants for
the repayment of money lent or to be lent, or for goods supplied or to be supplied (other than
contracts for necessaries), and all accounts stated with infants, shall be absolutely void: Provided
always, that this enactment shall not invalidate any contract into which an infant may, by any
existing or future statute, or by the rules of common law or equity, enter, except such as now by
law are voidable.

2 NO ACTION TO BE BROUGHT ON RATIFICATION OF INFANT’S CONTRACT.

No action shall be brought whereby to charge any person upon any promise made after full age
to pay any debt contracted during infancy, or upon any ratification made after full age of any

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promise or contract made during infancy, whether there shall or shall not be any new
consideration for such promise or ratification after full age.

3 SHORT TITLE.

This Act may be cited as “The Infants Relief Act 1874.”

MEANING OF RESTITUTION

Restitution in normal sense means to restore the benefit which a person has obtained and its main
purpose is First to restore the position of victim .i.e‘ Plaintiff ‘ in case of a contract to the
original position which he enjoyed before entering into contract and secondly to prevent the
unjust enrichment of the defendant i.e. to stop him from making wrongful gains which he is not
entitled as per law to make.

ILLUSTRATION

Mr.Deepak entered into a contract with M/S ABZ Pvt Ltd Delhi for a purchase of 20 tonnes of
wheat. Deepak paid an advance of Rs 50,000 which was 10% of the total value of the contract.
Later at a future date, ABZ Pvt ltd rescinded the contract due to some financial loss after which
they were declared as insolvent and decided to wind up their business. Now, in this case, the
contract becomes void and ABZ ltd must return the Rs. 50,000 to Mr.Deepak.

THE DOCTRINE OF RESTITUTION IN INDIAN CONTRACT ACT

SECTION 65 OF THE INDIAN CONTRACT ACT 1872 mainly deals with the doctrine of
restitution and it relates to the obligation of the person who has received some advantage under
void agreement or contract. This section starts from the very basis that there being an agreement
or contract and if there was no agreement or contract then the doctrine of restitution cannot come

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into play. This doctrine is based on a very common rule of consideration which means that a
person pays consideration only when he gets something in return.

Provisions of Section 65 apply only when an agreement at a subsequent stage is discovered to be

void or when a contract becomes void later on by one person or the other. But Section 65 will
never come into play if the contract was void-ab-initio.i.e void from the very beginning.
Supreme Court of India in the case of Kujiu Collieries limited v/s Jharkhand mines ltd held that
an agreement which was discovered to be void at a later stage will invite Section 65 into the
picture and in such a case an advantageous person is bound to restore the disadvantaged party.

DOCTRINE OF RESTITUTION INCLUDES THE KEY POINTS AS FOLLOWS

1. One party has entered into a contract with another for consideration.
2. There was some consideration involved in the said contract.
3. Both parties were competent to enter into a contract
4. Thereafter one party failed to perform his part of the contract or the contract became
void due to any unforeseen condition.
5. Now the party which has paid any consideration as the advance is entitled to recover
the same from the other party and other party is not entitled to receive an unfair
advantage over it.

APPLICABILITY OF SECTION 65

Section 65 is applicable only when an agreement was valid when it was entered into and became
void only at a future date. Moreover if the agreement was entered into between a major person
being the plaintiff and the minor defendant in this case then doctrine of restitution will not be
applied, this was held in the case of MohiriBibi v/s DharmodassGhosh but the scenario will be

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different if minor has misrepresented his age and then he can be enforced by the court to return
the benefit.

In another case Bank of Rajasthan Ltd v/s Sh Pala Ram Gupta it was held that an agreement or
contract which was void and illegal from the very beginning can never apply the provisions of
this doctrine.
DELICTUAL LIABILTY
Delictual liability is concerned with damages suffered by a person resulting from a wrongful
act, or omission of another, for which that person is entitled to compensation in terms of our
common law.
For example, if Adam, while driving his car, knocks Ben down, Ben will have a delict claim
against Adam for damages for the injuries he has suffered, but Adam will also be facing
prosecution under the Road Traffic legislation for his poor driving.

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UNIT-IX
FLAW IN CONSENT

INTRODUCTION

A mistake refers to an incorrect belief that is innocent in nature which leads one party to
misunderstand the other. It usually takes place when the parties to the contract are not completely
aware of the terms of the agreement and understands the terms in a different sense. Therefore
there is no consensus ad–idem i.e meeting of minds between the parties and thus do not
understand the same thing in the same sense.

THE INDIAN CONTRACT ACT,1872 STATES TWO KINDS OF MISTAKES

1) Mistake of Law(Section 21)

2) Mistake of Fact(Section 20 &22)

MISTAKE OF LAW

The Latin maxim ignorantiajuris non excusat means that ignorance of the law is no excuse.
Therefore under SECTION 21 of the Indian Contract Act, 1872, a contract cannot be said to be
voidable due to the mistake of the parties in understanding any laws that are in force in India.
Hence the parties to the contract cannot claim relief on the grounds that they were unaware of the
Indian law.

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For Example, A man was caught by a ticket conductor for traveling on a train without a ticket.
The man cannot claim that he was not aware that a ticket is required while traveling and shall be
punished under SECTION 138 of The Indian Railways Act, 1989.

EXCEPTIONS

P. 1) MISTAKE WITH REGARD TO A FOREIGN LAW

Section 21 also specifies that a mistake regarding a foreign law shall be treated as a mistake of
fact. This is because the parties to the contract are not expected to know all the provisions of the
foreign law and their meaning. Therefore in case of a mistake of the foreign law by both the
parties, the contract will be considered void.

For Example, An Indian Company agrees to sell an American Company 200 cans of a certain
mixture containing 45% Sulphuric acid. The law of the country had banned the purchase and sale
of mixtures containing more than 30% Sulphuric acid. This is considered to be a mistake of
foreign law and therefore the contract is said to void.

Q. 2) MISTAKE WITH REGARD TO A PRIVATE RIGHT

The existence of any private right is a matter of fact although depending on the rules of law
because it is not possible for a party to fully know the private rights of another party.

In the case of Cooper v Phibbs(1867), The plaintiff took a lease of fishery right from the
defendant unaware of the fact that he already had a life interest in the fishery right. The plaintiff,
therefore, brought a suit for the cancellation of the lease and the defendant argued that this was a
mistake of law. It was held that a mistake as to the general ownership or right stands on the
same footing as a mistake of law and therefore was declared void.

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MISTAKE OF FACT

The maxim IgnorantiaFactiExcusat which means that the Ignorance of fact excuses. Therefore,
under SECTION 20 of the Indian Contract Act, 1872, a contract is said to be void when both the
parties to the agreement are under a mistake as to a matter of fact.

A MISTAKE OF FACT CAN BE OF 2 KINDS-

1) BILATERAL MISTAKE – SECTION 20

SECTION 20 will only apply when the following three conditions are fulfilled:

1)The mistake must be committed by both the parties i.e must be mutual.
2)The mistake must be regarding some fact.
3) It must relate to a fact which is essential to the contract.

Therefore, if the mistake is made regarding the existence of the subject matter or a fact essential
to the contract, it would be a void contract since there is no consensus ad idem.

But an incorrect opinion regarding the value of the thing which forms the subject matter of the
agreement is not said to be a mistake of fact and is considered inconsequential to the agreement.

R. TYPES OF BILATERAL MISTAKES

1) MISTAKE REGARDING THE EXISTENCE OF THE SUBJECT

MATTER

Sometimes the existence of the subject matter of the contract ceases to exist before the
agreement was made and the parties to the contract may not be aware of this fact. If the subject

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matter on which the contract exists is not present, it is considered that the contract has perished
and hence the agreement would be considered void.

In the case of Galloway vs. Galloway(1914), A man and woman believed that they were married
and therefore made a separation agreement but it was later discovered that the man’s first wife
was alive. It was held that the separation agreement was void as it had been entered into on
the basis of the common assumption that the parties were married to each other.

2) MISTAKE REGARDING THE QUALITY OF THE SUBJECT MATTER

If the parties to the contract are not mistaken regarding the subject matter of the contract but
regarding its quality, the contract would be said to be valid.

In the case of Smith vsHughes(1870), The plaintiff agreed to buy certain Oats from the defendant
believing that they were old when in reality they were new. It was held that the defendant
cannot avoid the contract on the ground that he was mistaken as to the oldness of the oats.

3) MISTAKE REGARDING THE QUANTITY OF THE SUBJECT MATTER

If both the parties to the contract are under a mistake as to the quantity of the subject matter, the
agreement is said to be void.

For Example, Ankita agreed to buy a car from Prankur based on his letter in which the price
mentioned was 50000 instead of 5 lakhs due to a typing error. The said agreement is considered
void due to a mistake as to the quantity of the subject matter.

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4) MISTAKE REGARDING THE TITLE OF THE SUBJECT MATTER

Sometimes the buyer of said property or good may already be the owner of what the seller
wishes to sell. Both the parties here might be under a mutual mistake as to the title of the said
good or property. Since in such a case there is nothing that the seller can transfer, there is no
contract which subsequently becomes void. This can be explained in the case of Cooper v
Phibbs(1867).

2) UNILATERAL MISTAKE -SECTION 21

SECTION 21 of the act says that a contract cannot be said to be voidable just because one of the
parties to the contract was under a mistake as to a matter of fact concerned to the contract.
Therefore a unilateral mistake does not affect the validity of the contract and cannot be a ground
for setting aside the contract in the court of law.

In the case of TaplineVsJainee(1880), The buyer at an auction brought a property described with
reference to a plan. The buyer was under the assumption that he was well versed with the
property and therefore did not refer to the plan. Later he discovered that a garden plot which he
thought was a part of the property was not in fact included in the plan. It was held that the buyer
cannot revoke the contract on the grounds of the unilateral mistake made by him and was bound
by the contract.

S. EXCEPTIONS TO A UNILATERAL MISTAKE

In case of a unilateral mistake, the contract can only be avoided if it is proved that the contract
was caused due to fraud or misrepresentation on the part of one of the parties to the contract.

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1) MISTAKE BY ONE PARTY AS TO THE NATURE OF THE CONTRACT

When a mistake is made by one of the parties regarding the very nature of the contract being
entered into and such a mistake is known to the other party, such a contract is said to be void.

This may happen because while executing a contract, a party may not understand the nature of
the contract he is entering into either due to fraud or misrepresentation by the other party or due
to the old age or ill health of the person consenting to such a contract.

In the case of Dularia Devi v. JanardanSingh(1990), An illiterate woman put her thumb
impression on two documents thinking that both of them were to gift some property to her
daughters. Later she discovered that the second document was to defraud her out of more of her
property. Although this was a unilateral mistake on the part of the illiterate woman yet since the
consent for the said agreement was gained by fraud and the woman was not aware of the nature
of the transaction, the contract was held void by the courts.

2) MISTAKE BY ONE PARTY REGARDING THE IDENTITY OF THE

PARTIES TO THE AGREEMENT

Generally, the identity of the parties entering into an agreement is not essential to a contract. But
in certain cases, when a unilateral mistake is made regarding the identity of the parties to the
agreement due to misrepresentation by one party who claims himself to be someone who he
really is not, In such cases the agreement is said to be void

In the case of Cundy v Lindsay (1878), Lindsay & Co were manufacturers of linen handkerchiefs
amongst other things who received an order of 250 Dozen handkerchiefs from a man named
Blenkarn, who imitated the signatures of “Blenkiron& Co.” a reputed firm located at “123,
Wood Street”.The man further mentioned his address to be at 37, Wood Street, Cheapside.
Lindsay and Co assumed that the order was from the reputed firm located at Wood-street and

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thus delivered the order. Later the man sold the goods to an innocent party, Cundy. When
Blenkarn failed to pay for the said order Lindsay & Co sued Cundy for the goods. Lindsay and
Co claimed that since they sold the goods to Blenkarn under the mistaken assumption that they
were selling it to Blenkiron& Co, there was no real consent to the contract of sale.

It was held that there was a unilateral mistake by the claimants regarding the identity of
the other party making the contract void and hence the title of the goods did not pass to
Blenkarn, and therefore could not have passed to Cundy who was liable to return the goods
back to Lindsay and Co.

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UNIT X
MISREPRESENTATION
“Fraud”
“Fraud” means and includes any of the following acts committed by a party to contract or with
his connivance, or by his agent, with intent to deceive another party thereto of his agent, or to
induce him to enter into the contract:
(1) the suggestion, as to fact, of that which is not true, by one who does not to 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 without any intention of performing it;
(4) any other act fited to deceive;
(5) any such act or commission as the law specially declares to be
fraudulent.
Explanation
Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not
fraud, unless the circumstances of the case are such that, regard being had to them it is the duty
of the person keeping silence to speak, or unless his silence is in itself, equivalent to speech.
1. Sir Samuel Romilly argued in HurgaminVs. Raseley (1807) Ves. 285;Mulla on the Indian
Contract Act 10th Ed. P. 53.
Examples
(a) A sells, by auction to B, a horse which A knows to be unsound. A says nothing to B about the
horse’s unsoundness. This is not fraud by A.
(b) B says to A “If you do not deny it, I shall assume that the horse is sound”. Here, A’s silence
is equivalent to speech. Here, the relation between the parties would make it A’s duty to tell B if
the horse is unsound.
(c) B is A’s daughter and has just come of age. Here the relation between the parties would make
it A’s duty to tell B if the horse is unsound.

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(d) A and B, being traders, enter upon a contract. A has private information of a chnage in prices
which would after B’s willingness to proceed with the contract. A is not bound to inform B.
Characteristics
From the above definition we can state the following characteristics of Fraud:
(1) The act done by the party is done with an intention to device.
(2) The act may be done by the party himself or with his connivance by some one else or by
his agent.
(3) The act amounting to fraud may be a suggestion of fact (suggestion false) i.e., the
statement being made is without belief to its truth.
(4) The act may amount to an active concealment of a fact (suppressioveri) i.e. the party has
concealed a fact which was duty bound to disclose.
(5) The act amounting to fraud is in the form of a false promise.
(6) The act or mission is declared fraudulent by the Court or regarded by the Court as a deceit.
(7) The act committed must have deceived the other party and the party has suffered the
damage on account of it. If the party does not suffer a damage on account of the fraudulent act
committed by the other party, it shall not amount to fraud.
Is silence a Fraud?
Explanation to S.17, states in clear terms that mere silence is not fraud. Where silence amounts
to active concealment, it shall amount to fraud. Thus generally silence does not amount to fraud.
However where a party chooses to speak, he must do so clearly and fully. He should not make a
partial and fragmentary statements of fact, so that the other party is misled. The court has
decided in BimlaBaivsShankarlal (AIR 1959 M.P. 8) that a partial statement verbally accurate
may be as false a statement as if it has been misstated fully. A father called his illegitimate son, a
‘son’ at the time of fixing his marriage. It was held that the statement was false and thereby
fraudulent.
Effects of Fraud
Fraud gives the following rights to the aggrieved party.

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(1) He can avoid the contract and file a suit on the other party for damages; or
(2) He can revoke the contract, or
(3) He can refuse to fulfill his part of the promise and defend the suit filed by the other party
for the breach of contract for damages or specific performance, or
(4) He can treat the contract as a valid one and ask for the specific performance, or for
damages in addition to the substitution of the original contract.
Misrepresentation (S.18)
Misrepresentation has been defined by the Act as follows: “Misrepresentation” means and
includes:-
(a) 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;
(b) any breach of duty which without an intent to deceive, gains an advantage to the person
committing it, or any one claiming under him, by misleading another to his prejudice or to the
prejudice of anyone claiming under him.
(c) 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.
Characteristics
The ingreditients of a contract vitiated by misrepresentation are:
(a) There must be a misstatement of a material fact.
(b) The statement must not be a mere opinion, or hearsay, or commendation, because praise
carries no obligation.
(c) The mis-statement must be made with the intention that the other party shall act upon he
contract.
(d) The other party must have been induced by the mis-statement.
(e) The statement being made is a wrong one, although the party making it has not known it
to be false.
(f) The statement has been made by the party to the contract or his agent and not by a stranger.

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Kinds
The term misrepresentation as defined by S.18 is quite exhaustive as can be seen by the words
“Means and Includes”. Misrepresentations may be of any of the three kinds:-
(1) It may take the form of an unwarranted positives statement which is not true, but the
party believes it to be true; or
(2) It may take form of breach of duty on the part of one party which misleads the other party
to his prejudice or to the prejudice of anyone claiming title under him. This kind of
misrepresentation includes such cases which are named as ‘Constructive Fraud’ by the Courts of
equity. The party getting a benefit under the Act even under an obligation is not making full
disclosure of facts but his non-disclosure misleads the other party.
(3) It may take the form of causing a party to the contract to make a mistake as to the subject
matter of the contract. For example, if erroneous statement is made as to the tonnage of a ship,

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the contract can be avoided on the basis of misrepresentation. This decision was given in
Oceanic Steam Navigation Co., vsSoonderdas (1890, 14 Bomb.92).
Effect of Misrepresentation
The party being affected by misrepresentation has got the following rights:
(1) He can avoid or revoke the contract; or
(2) He can affirm the contract and insist on the misrepresentation to be made good, if it is
possible to do so; or
(3) He can rely upon the misrepresentation as a defence to an action of the contract.
When the aggrieved party loses his rights?
The aggrieved party shall not be able to exercise any of the above rights in the following
cases:-
(a) If he comes to know of mis-representation and even then takes the benefit of the
contract or approves the contract; or
(b) If the parties can not be brought back to their original position. Such situation arises
where the subject matter of the contract has already been consumed or destroyed.
(c) If the contract cannot be rescinded in full, then it can not be rescinded at all. Such
decision has already been given in Sheffield Nickel Co. vsDawin (1872, 2 Q.B.D. 215).
(d) If the aggrieved party has transferred the rights under the contract ot the third party
and the has acquired these rights in good faith and for consideration. (Phillips VsBrroks,
1919, K.B. 243)
Distinction between Fraud and Misrepresentation
Fraud and Misrepresentation can be distinguished on the following basis:
(a) Intention: In Fraud the party’s intention is to deceive the other party and got the
benefit from him, while in Misrepresentation the party does not have any intention to
deceive. It makes a careless misstatement of facts of only.
(b) Rights: Faurd gives two rights to the aggrieved party, a right to action for damages
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and also to avoid the contract, i.e. while misrepresentation give only one right, i.e. to
avoid the contract. It does not allow any damages.
(c) Plea: Fraud does not allow the defendant to take the place that the plaintiff had means
to discover the truth but defendant is allowed to take this plea in case of
misrepresentation.
(d) Penalty: The party defrauding the other can be prosecuted for cheating under I.P.C.
also but such is not the case in misrepresentation.

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UNIT-XII
COERCION
INTRODUCTION

SECTION 15 defines coercion as committing any act forbidden by The Indian Penal Code,
1860 or unlawful detaining of property, or threatening to commit these acts. Coercion
invalidating a contract need not proceed from a party to the contract or be immediately
directed against a person whom it is intended to cause to enter into the contract. It includes
unlawful detention of property.

Coercion under this Act is much wider than what was duress in the English law. It includes
unlawful detention of property, may be committed by any person not necessarily a party to
the contract, and may be directed against any person, even a stranger, and unlike duress,
causing of immediate violence or unnerving a person of ordinary firmness of mind are not
necessary under the Indian law.

ACT FORBIDDEN BY THE PENAL CODE

The words act forbidden by the Indian Penal Code, make it necessary for the court to decide
in a civil action, whether the alleged act of coercion is such as to amount to an offense.
In Ammiraju v Seshamma,

a question arose as to whether a release executes by a wife and son in consequence of a threat
of committing suicide had been obtained by coercion within the meaning of this Section.
Wallis CJ and SeshagiriAiyar J answered the question in the affirmative, holding that the
word forbidden was wider than the term punishable, and that though a threat to commit
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suicide was not punishable under The Indian Penal Code, 1860 it must be deemed to be
forbidden, as an attempt to commit suicide was punishable under the Penal code (s 309).

THREAT OF BRINGING CRIMINAL CHARGES

The mere threat of bringing a criminal charge does not amount to coercion, as it is not per se
forbidden by the Penal Code. But the threat of bringing a false charge with the object of
making another do a thing was coercion, for although threatening another with criminal
prosecution was not per se forbidden by it when the threat related to a false.
In KishanLalKalra v NDMC, the plaintiff had claimed that he had surrendered the possession
of the disputed site not voluntarily but under a threat that if he did not so, then he would be
arrested and detained under The Maintenance of Internal Security Act, 1971. It was held that
the receipt obtained by the defendants was by exercising pressure, duress and coercion.

Under the language of the Section as it stands, a threat to commit an offense under any law
other than The Indian Penal Code 1860, may not amount to coercion. Recognizing this, the
Law Commission of India had recommended a wider expression to include penal laws other
than the Indian Penal Code 1860. It has been held that an agreement to refer matters in
dispute to arbitration entered into during the pendency and in fear of criminal proceedings
could not be avoided on the ground of coercion, though the agreement may be void as
opposed to public policy within the meaning of s 23. Refusal to withdraw a prosecution,
unless a bond was executed for the amount due, was not covered by this Section, nor a threat
of a strike.

A deed of retirement from partnership was challenged on the ground that it was obtained
under threat/coercion and it was signed in a police station. It was held that this could only be
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regarded as a voidable contract, but since it was not avoided immediately and the retiring
partner had also accepted the benefit as such, so the same was valid.

UNLAWFUL DETAINING OF PROPERTY

Consent can be said to be caused by coercion if it is caused as a result of unlawful detainment

of property, or threat to do so. A refusal on the part of a mortgagee to convey the equity of
redemption except on certain terms is not an unlawful detaining or threatening to detain any
property within the meaning of this Section. Where an agent, whose services were
terminated, detained accounts to obtain his release, the release was induced by coercion.
Where in order to realize fine due from a son, the government attached the property
belonging both to him and his father, payment then made by the father in order to save the
property from being sold was held to have been made under coercion.

To the Prejudice of any other Person- In Ammiraju v Seshamma, where the threat by a
husband to commit suicide caused the wife to release the property, it was held that the wife
was prejudiced. The possibility of the husband leaving the wife and the child uncared for was
sufficient in the eye of law to furnish a ground of prejudice.

PROOF OF COERCION AND BURDEN OF PROOF

The defendant relying on the defense of coercion should set out all the facts constituting
these invalidating circumstances. A suspicion or mere probability is not sufficient to support
a plea of coercion. In a contract made between parties where duress was not the sole reason
for entering into a contract, there is no burden on the party threatened to show that but for
threat, no agreement would have been made. Such an agreement was void (under the English
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law) unless the party who made the threats could show that the threats contributed nothing to
the other party’s decisions to enter into a promise.

The burden of proof does not lie on the innocent party to show that but for the threats, no
contracts would have been signed. It is for the party using the alleged threats to establish that
the acts of alleged threats or unlawful pressure contributed nothing to the consent of the other
party to the contract.

POWER OF THE COURT UNDER THE SPECIFIC RELIEF ACT 1963

Where the terms of the contract or the conduct of the parties at the time of the making of the
contract, though not rendering the contract voidable, gave the plaintiff an unfair advantage
over the defendant had entered into the contract under circumstances which make it
inequitable to enforce specific performance.

COERCION UNDER SECTION 72

The definition contained in this section is for the purpose of considering whether the consent
to a contract was free under S 14. It does not govern the meaning of the term as used in s 72
of the Contract Act, where every kind of compulsion would be covered, even if it did not
measure up to the definition under S 15.
COMPULSION OF LAW
The compulsion of law is not coercion under this Section, and the contract is, in the eyes of
the law, freely made. In Andhra Sugars v State of Andhra Pradesh is a case of the eligibility
of the sales tax on ‘sale’ of sugar, the cane growers were not bound to accept it under the
Andhra Pradesh Sugar Act 1961. This was held to be an agreement not caused by coercion,

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undue influence, fraud, misrepresentation or mistake. The contract was neither void nor
voidable but was valid under s 10.

In Vishnu Agencies v Commercial Tax Officer, a question arose whether cement supplied
under the orders of the Cement Control Act of West Bengal was a sale, and the court held
that it was no less a contract because it lacked volition, or was made under compulsion. So
long as mutual assent was not totally absent, it was a contract.

Under statutory regulations relating to the supply of sugarcane, sugar factories are compelled
to enter into an agreement with the cane growers on various terms and conditions including
the price fixed by the state known as State Advised Price. Although the price may not be to
the liking of the sugar factory, yet S 15 is wholly inapplicable. It is well settled that even a
compulsory sale does not lose the character of a sale. The state has regulatory power under
the statute to fix the price of sugarcane. Such sales do not attract the element of coercion as
defined under S 15.

The mere fact that the contract has to be entered into in conformity with and subject to
restrictions imposed by law does not per se conformity with and subject to restrictions
imposed by law does not per se impinge on the consensual elements in the contract. The
compulsion of law is not coercion and despite such compulsion, in the eye of the law, the
agreement is freely made.

DURESS

Under the English law, actual or threatened violence to the victim’s person has long been
recognized to amount to duress, but duress may consist of actual or threatened imprisonment
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as in Cumming v Ice, now also includes wrongful threats to property or threats to seize goods,
and wrongful or illegitimate threats to his economic interests, where the victim has no
practical alternative but to submit. In Lynch v DPP, Northern Ireland all five members of the
House of Lords rejected the notion that duress deprives a person of his free choice, or makes
his act non-voluntary.

Duress does not deprive the victim of all choice; it leaves him with a choice of evils. A
person acting under it intends to do what he does but does so unwillingly. Duress deflects
without destroying the will of one of the contracting parties. Though earlier cases have
required that the duress must negate true consent and render the victim’s actions non-
voluntary, later cases have applied the test of whether the victim had a practical choice.

EFFECT ON CONTRACT

A contract obtained by means of duress exercised by one party over the other is at very least
voidable and not void, but if it is voluntarily acted upon by the party entitled to avoid, it will
become binding on him.

CAUSATION

It is sufficient that a threat to the victim’s person was a reason for the victim entering into the
contract, and it was not necessary for him to show that he would not have entered into the
contract without the threat, and the other party could show that the threat had not influenced
the victim. In Barton v Armstrong, there was a struggle for power between A and B over L
Ltd. and A had threatened B on various occasions with death if L Ltd did not agree to pay a
sum of money and purchase his shares. The evidence showed that B was frightened by those
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threats, but they had not influenced him in executing a deed on behalf of L Ltd. B sought a
declaration that the deed was secured under duress and was void.

The Privy council held that if a person threatens another with unpleasant consequences and if
the other does not act in a particular manner, he must take the risk that the impact of his
threat may be accentuated by extraneous circumstances for which he is not, in fact,
responsible. They further held that A’s threats may have been unnecessary, but it would be
unrealistic to hold that they played no part in making B decide to execute the documents even
if A had made no threats and exerted no unlawful pressure to induce him to do so, the threats
and unlawful pressure, in fact, contributed to b’s decision to sign the documents and
recommend their execution. The Privy Council made the declaration that the deeds in
question were executed by B under duress and were void so far as the rights or obligations
inter se of the parties to the deed were concerned.

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NATURE OF THREATS

Not all threats are improper or illegitimate. A threat to commit a crime or tort is
improper. A threat to break a contract may not amount to duress on the ground
simply that the victim was influenced by the threatened action. Something more
than commercial pressure is required. A threat to prosecute would be lawful if the
charge is known to be false, and the false, and the threat is for an improper motive,
but a threat to institute civil proceedings cannot amount to duress. A threat to carry
out something within one’s rights is not duress unless coupled with unreasonable
demands. It has been observed in CTN Cash & Carry Ltd v Gallaher Ltd, that though
in certain circumstances, a threat to perform a lawful act coupled with a demand
for payment may amount to economic duress, extending such duress in commercial
context would have far-reaching implications, and would introduce a substantial
and undesirable element of uncertainty in the commercial bargaining process, in the
sense that it would enable bona fide settled accounts to be reopened when parties to
commercial dealings fell out

Coercion and Duress distinguished

(a) Coercion is the term applied under the Indian law of Contracts while Duress is the term
applied under the English law of Contracts.(b) Coercion has a wide scope than Duress,
Coercion includes threat to property also while Duress includes actual act of violence over
the person and not of property. (c) Coercion can be applied by even a stranger, while Duress
must be applied by a party to the Contract upon the other party or to his wife or patent or
child.
Undue Influence (S.16)
Definition as per S.16: (1) A contract is said to be induced by “undue influence” where the

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relations subsisting between the parties are such that one of the parties is in a position to
dominate the will of the other and uses that position to obtain an unfair advantage over the
other.
(2) In particular and without prejudice to the generality of the foregoing principle, a person is
deemed to be in a position to dominate the will of another.
(a) where he holds a real or apparent authority over the other, or where he stands in a
fiduciary relation to the other; or
(b) when he makes a contract with a person whose mental capacity is temporarily or
permanently affected by reason of age, illness, or mental or bodily distress.
(3) Where a person who is in a position to dominate the will of another, enters into a contract
with him, and the transaction appears, on the fact of it or on the evidence adduced, to be
unconscionable, he burden of proving that such contract was not induced by undue influence
shall lie upon the person in a position to dominate the will of the other.
Nothing in this sub-section shall affect the provision of section III of the Indian Evidence Act
1872.
Illustrations
(a) A, a man enfeebled by desease or age, is induced, by B’s influence over him as his
medical attendant, to agree to pay B an unreasonable sum for his profession services. B
employs undue influence.
(b) A being in debt to B, the money-lender of his village, contracts a fresh loan on terms
which appear to be unconscionable. It lies on B to prove that the contract was not induced by
indue influence.
Salient Features
The above definition has got the following salient features:-
(1) One of the two parties to the contract is in a position to dominate the will and mind of the
other party. This is presumed when the parties to the contract have a real or apparent
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authority over the other or one of the parties has got a fiduciary relationship which puts him
in a position to win over the mind of the other party. Such position or relationship exists in
the cases of minor and guardian; trustee and beneficiary; son and father, wife and husband or
vice-versa.
The positon is also presumed where the party is disabled or infirm and has to depend upon
the other party to the contract. Mentally deficient and physically disabled people can take the
plea of undue influence in avoiding the contract.
(2) The dominating party should have obtained an unfair advantage from the weaker party:
and
(3) The transaction between the contracting parties is unconscionable. The bargain is called
‘unconscionable’ where the two parties are not on equal footing and one of them is making
an exhorbitant profit of the other’s distress.
Unless all the three above stated conditions exist, the contract can not be avoided on the
pretext of Undue Influence. In the words of Sir Samuel Romilly undue influences is
presumed in “all the variety of relations in which dominion may be exercised by one person
over another”.
Effect of Undue Influence (S.19-A)
A contract vitiated by undue influence is voidable at the option of weaker party. The court
can set aside such contract-
(i) either wholly: or
(ii) where the weaker party has enjoyed some benefit under the terms of the contract, then
upon just and equitable terms
Examples
(a) A’s son has forged B’s name to a promissory note. B under threat of prosecuting A’s son
obtains a bond from A for the amount of the forged note. If B sues on this bond, the court
may set the bond aside.
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(b) A, a money-lender, advances Rs. 100 to B, an agriculturist, and by undue influence

induces B to execute a bond for Rs. 200 with interest at 6 per cent per month. The Court may
set the bond aside, ordering B to repay Rs. 100 with such interest as may seem just.
Burden of Proof
The weaker party has a right to avoid the transaction on the plea of Undue Influence. It is the
other party who is to prove that he has not exercised any undue influence in getting the
consent of the weaker party. If the other party is unable to prove it, the court shall set aside
the transaction. (Refer to example (b) given after definition of Undue (Influence).
(a) Parties suffering with physical or mental distress e.g. a patient suffering with actue
pain entering into a contract with a doctor.
(b) Parties having confidential relations. Confidential relationship is presumed in
between parent and child; guardian and ward; solicitor and client; managing clerk of an
attorney and his client; trustee and cetstuique trust; doctor and patient Chela (disciple) and a
Guru (spiritual advise; fiance and fiancee. There is no undue influence in the relationship of
mother and daughter; husband and wife; grandfather and grandson and landlord and
tenant;credtior and debtor.
Rebuttal: all cases of prescribed Undue Influence can be rebutted on the following grounds:
(i) full disclosure of material facts was made to the weaker party;
(ii) adequate consideration existed; and
(iii) the weaker party received independent legal advice.
Transaction with Parda-nishin women: Who is a parada-nishinwomen? A woman who
observes complete seclusion due to the prevailing custom in her community is said to be
parda-nishin. She does not act independently but has to depend upon someone else for
performing her outward duties. A woman going to the Court to give her evidence, settling
gent with her tenant, collecting rents from them, dealing with other parties in matters of
business, falling to outsiders can not be regarded as a Parda- nishin woman. The training,
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habit and surrounding circumstances are the main elements to be considered to decide
whether a woman is a Parda-nishin or not Wearing a Burga does no make a woman a Parda-
nishin.
A Parda-nishin woman can be influenced by undue influence. Persons entering into contracts
with such a woman have to be very careful because they may be required to prove (1) that
such woman understood the contents of the contracts; (2) she had free and independent
advice and (3)she exercise her free will.
The Privy Council has stated in 1931 in Tara KumariVs Chandra Mauleshwar that the
principles to be applied to transactions with such women are not merely deductions from the
law as to undue influence but have to be founded upon wider basis of equity and good
conscience. A good number of cases have been decided not only by the privy Council but
also by the Indian High Courts over the point.
Distinction between Coercion and Undue Influence
We can distinguish between Coercion and Undue Influence. The distinction can be made on
the following basis:
(a) Definition, Coercion is an act punishable under the Indian Penal Code, while Influence is
not a penal act.
(b) Nature of force used, Coercion requires physical force exercised by one of the parties
to contract, while undue influence requires moral force.
(c) Parties Even a stranger’s act may account to coercion, but undue influence can be
exercised
only by one of the parties to the contract. Stranger has no place in undue influence.
(d) Effect. Coercion gives a right to the effected party to repudiate the contract in full but
under undue influence court may set aside the contract absolutely or modify the terms of the
contract on such terms which it feels just and equitable.

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UNIT-XIII
UNLAWFUL AGREEMENTS
UNLAWFUL AGREEMENT
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“The consideration or object of an agreement is lawful, unless it is forbidden by law; or is of

such a nature that, if permitted, would defeat the provisions of any law; or is fraudulent; or
involves or implies injury to the person or property of another; or the court regards it as
immoral, or opposed to public policy,” according to Section 23 of the Indian Contract Act.
LET'S LOOK AT THE PROVISIONS OF SECTION 23 THAT MAKE AN
AGREEMENT ILLEGAL.
1. FORBIDDEN BY LAW: An agreement is void if the goal of the agreement or the
consideration of the agreement is the performance of an act that is prohibited by law.
2. IF IT IS OF A NATURE THAT, IF PERMITTED, IT WOULD VIOLATE ANY
LAW: i.e., it would lead to a breach of the law indirectly.
3. IF THE AGREEMENT IS FRAUDULENT: Any agreement whose sole purpose is to
defraud others is null and void.
4. IF INJURY TO ANOTHER PERSON OR PROPERTY IS INVOLVED OR
IMPLIED:
5. IF THE COURT CONSIDERES IT TO BE IMMORAL
6. IF THE COURT CONSIDERES IT TO BE IN CONFLICT WITH PUBLIC
POLICY: The following agreements have been ruled unconstitutional by the courts:
a. Trading with an Opponent:
b. Agreements to stifle prosecution: An agreement to suppress criminal charges is null and
unlawful because public policy requires that a person who has committed a crime be
punished.
c. Agreements that Interfere with the Administration of Judicial: An arrangement entered into
with the intent of exerting inappropriate influence over judges or other officers of the justice
system is illegal and contrary to public policy.
d. Agreements that tend to abuse legal process: There are two sorts of agreements that fall
under this category: Maintenance and Champerty.
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e. Agreement to change the statute of limitations: It is against public policy to enter into an
agreement that reduces or increases the statute of limitations as set forth by the statute of
limitations.
f . Traffic in Public Offices: An agreement in which a public office appointment is obtained
for monetary consideration is against public policy since it would lead to corruption in state
administration.
g. An agreement that creates a conflict between duty and interest
h. Personal liberty restraint agreements
i. Agreements opposing parental rights and responsibilities: A father is intended to be the
guardian of his children, and in the absence of the father, his children's mother obtains this
right as well as obligation, which she cannot give up.
j. Marriage Brokerage Agreements: It is against public policy to pay a person a reward for
negotiating a marriage.
THE FOLLOWING AGREEMENTS ARE ALSO OPPOSED TO PUBLIC POLICY.
i. Agreements in restraint of marriage.
ii. Agreements in restraint of trade.
iii. Agreements in restraint of legal proceedings.

UNLAWFUL AGREEMENTS IN WHICH A PART OF THE CONSIDERATION OR

OBJECT IS

This is specified in the Act's SECTION 24. The main gist of this statement is that if
the consideration is unlawful in whole or in part, or if the agreement's end product is illegal,
the agreement is ruled void. However, the contract would be regarded valid after the illegal
elements were removed. For example, if A and B agree to swap pharmaceuticals and medical
herbs for $5,000, the agreement is null and void, even if the consideration is legitimate. This

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is due to the fact that the agreement's subject matter is prohibited. However, if we remove the
medications from the object in this situation, In this situation, however, the agreement would
be considered genuine if the medicines were removed from the object.

Furthermore, if a transaction arising from an unlawful act is such that if isolated from the
illegal element, it would count as a valid agreement, then those transactions have value in the
eyes of the law, regardless of the agreement's illegality.

AGREEMENTS WITHOUT CONSIDERATION

The Indian Contract Act, 1872, provides that consideration can be provided by "the promisee
or any other person" if it is "at the wish of the promisor." The court in Currie v. Misa defined
valuable consideration as “some right, interest, forbearance, disadvantage, loss, or
responsibility provided, endured, or undertaken by the other in the sense of the law.” All
agreements established without consideration are void unless they fit into one of the
following categories, according to SECTION 25 of the Act: •

If the agreement is formed out of natural love and affection

This is the first of the SECTION 25 exceptions (1). The Hon'ble court concluded in
RajlukhyDabee v BhootnathMookerjee that "a written and registered agreement based on
natural love and affection between kins is enforceable without consideration." A daughter
caring for her father, a brother donating property to his siblings, and so on are examples of
this.

ESSENTIALS OF AN AGREEMENT LIKE THIS INVOLVE

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1. The agreement made out of natural love and affection;

2. The agreement is registered;
3. The agreement is in writing;
4. Parties are in close relation to one another.

The person has already done something voluntarily for the promisor

This is mentioned in Section 25(2) of the Act. Under this, the promisor performs the
act in order to compensate the promisee either wholly or partially for some previously
performed voluntary act of the promisee. For example, if there’s a contract between A and B
where A’s expenses are taken care of by B for taking care of his son, then, it must be noted
that the service provided wasn’t voluntary as B was legally bound to support his infant son.
As per this exception, the promise must be to compensate a person who has himself done
something for the promisor and not to a person who has done nothing for the promisor.

RESTRAINT OF MARRIAGE
SECTION 26 of the Act mentions that all agreements in restraint, either partial or
full, of a marriage except that with a minor, would be void. For example, if Ria’s father
provides Amit with some incentives only to prevent him from marrying his daughter, then
such an agreement would stand void in the eyes of the law, provided the parties involved are
not minors. In the case of Shrawan Kumar v. Nirmala, the plaintiff held that the defendant
had promised to marry him and therefore her present marriage should be injuncted by the
court. This petition was dismissed by the Allahabad High Court on the grounds of restraint of
marriage. The philosophy behind this law is the fact that marriage is a sacred social
institution and nothing should be allowed to interfere with it or restrict it, until and unless it
involves minors. Therefore, an agreement in restraint of marriage of adults is void whereas

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the same in the case of the minor would not be held void. But this clause doesn’t apply in
case of remarriage. In the case of remarriage, any penalty imposed upon the widow wouldn’t
be counted as a restraint. This was held in the case of Rao Rani v. Gulab Rani, where it was
held that the widow will have to forego her property rights.
RESTRAINT OF TRADE
SECTION 27 of the Act addresses this issue. The freedom to engage in any sort of
commerce or occupation is a fundamental right guaranteed by the Indian Constitution under
ARTICLE 19 of the Constitution (1). As a result, any agreement restricting trade or
occupation would be void. Both partial and complete restraints are possible. This was
demonstrated in the case of MadhubChander v. Raj Coomar, in which the defendant offered
to pay the plaintiff a set amount of money provided he agreed to close his shop in a specific
location. The plaintiff, however, was denied payment by the defendant after closing his shop.
The court found that the defendant owed no money to the plaintiff
HOWEVER, THERE ARE TWO EXCEPTIONS TO THIS RULE:
The historical backdrop of conflict between free markets and the opportunity of
agreements provides the foundation for delegitimizing a trade restrictive pact. Guaranteeing
the agreement's freedom would imply legitimising trade agreements, which would result in
parties agreeing to limit competition. The current stance is based on the decision of
Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd, which was decided under
common law.
Thorsten Nordenfelt, the defendant in this case, was a Swedish and English guns
manufacturer. Thorsten sold his company to an organisation, which then transferred it to
Maxim Nordenfelt. Then Thorsten and Maxi came to an agreement.The foundation for
delegitimizing an agreement in restraint of trade lies the historical backdrop of contention
between free markets and the opportunity of agreements. Guaranteeing freedom to the
agreement would mean legitimizing agreements in limitation of trade, which would bring
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about parties consenting to check competition. Under the common law, the present position
is taken from the case of Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co Ltd. In
the said case, Thorsten Nordenfelt was a producer of firearms in Sweden and England.
Thorsten sold his business to an organization, which at that point moved the business to
Maxim Nordenfelt. Then, Thorsten went into a concurrence with Maxim that he would not
take part in the assembling of weapons for a period of 25 years, other than what he produces
for the benefit of the organization. Afterward, Thorsten broke his promise asserting that the
understanding was not enforceable as it was in restriction of trade. The decision of the court
was in support of Thorsten. In common law, a reasonability test is pursued. An agreement in
restriction of trade is legitimate, if:

● There is a substantial interest that the party forcing the restriction is attempting to
secure.
● The restriction is no more than what is important to secure this interest.
● Restriction isn’t in opposition to public interest.

GENERAL PRINCIPLE IN INDIA AND ENGLAND SIMILAR?

The general principles in India and England regarding void agreements is more or less the
same which is basically that all restraints on trade, whether partial or whole, are void. The
only point of difference arises in the fact that in England, the decision on validity of
restriction is taken on the basis of reasonableness while in India restrictions would be valid
only if they fall within the category of the already stated statutory or judicial exceptions.
Therefore, there aren’t any wide dissimilarities between the two laws. The English law tends
to be more flexible as the clause of “reasonableness” helps to constantly change its ambit. As
Lord Wilberforce remarked in Esso petroleum co ltd v. Harper’s garage (Stourport) ltd “the
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classification (of agreements in restraint of trade) must remain fluid and the categories can
never be closed”.

EXCEPTIONS TO SECTION 27

SECTION 27 is basically based on public policy and applies to various cases in varying
degrees. In the case of Brahmaputra tea co ltd v. Scarth, it was held by the court that any
restraint through which a person binds himself or herself won’t be void and would be
covered under the exceptions to SECTION 27. These statutory and judicial exceptions are
discussed below.

STATUTORY EXCEPTIONS

● Sale of Goodwill

According to this, a person who buys the business goodwill of another person is thereby
privileged to impose certain restrictions on the business activities of the latter. The
restrictions include preventing the seller from carrying out similar business within local
limits only. This is done to protect the rights of the purchaser. However, the restraint should
be reasonable according to the nature of the business under consideration. In the case
of Chandra v. Parsullah , the plaintiff and defendant both had the business of running buses
between Pune and Mahabaleswar. To avoid competition, the plaintiff bought the defendant’s
business along with its goodwill and made a contract whereby the defendant would not be
allowed to carry on business in the same locality. However, there was a breach of contract on
the part of the defendant. When brought to the court, the court ruled in favor of the plaintiff
since the agreement was valid under

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Section 27.

Partnership Act

There are three provisions of the partnership act that provide for restriction of business. They
are

1. Section 11, which states that none of the partners would carry on any business till
the continuity of the business.
2. Section 36, which provides the remaining partners to prevent the outgoing partner
from opening any business similar to theirs’ in the same locality subject to certain
restrictions.
3. Section 54, which prevents all the partners from engaging in any business of
similar kind after dissolution of the firm/business.

Firm Daulat Ram vs. Firm Dharm Chand, where two ice factory owners constituting a
partnership agreed that only one factory will be worked at a time and its profits distributed
among them. The restraint was held to be justified

UNDER JUDICIAL INTERPRETATION

T. TRADE COMBINATIONS

Trade Combination basically refers to the agreements that a set of homogenous traders come
up with to keep a check on the market. For example, if there is a group of sugar sellers in a
locality, then they might come up with specific agreements regarding fixed prices, quality of
goods, controlling dealers, etc. in the name of market regulation of the locality and to avoid
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unhealthy competition. Such agreements have been declared void by the courts since there is
a deprivation of trade liberty.

In the case of KoresMfg Co Ltd v. KulokMfg Ltd, the two sugar mill employees had come to
an agreement wherein either of them wouldn’t employ a person who had been working in the
other person’s factory in the past 5 years, to protect trade secrets and other confidential
information. The court had held this agreement to be void since the ban was applicable to all
employees irrespective of their skills and positions held.

The Allahabad High Court, in the case of SB Fraser & Co. v. Bombay Ice Manufacturing Co.
Ltd., observed the following, “The rules of an association of traders and weigh men provided
that members shall not deal with outsiders, the penalty for breach being fine and expulsion.
The legality of the association was attacked on the ground that its object and methods were
unlawful as it aimed at the creation of a monopoly by shutting out all competition and was a
defiance of the spirit of Section 23 and 27”.

Thus, any agreement placing restrictions upon a trader regarding his choice of mode of
business shall be held void.

U. SOLUS OR EXCLUSIVELY DEALING AGREEMENTS

This refers to trading agreements whereby the manufacturer strikes a deal with the consumer
that he/she would purchase items only from him for a fixed period of time. However, if the
manufacturer produces any surplus quantity, he/she is allowed to sell it to anybody. “As long
as the negative stipulation is nothing but an ordinary incident of or ancillary to the positive
covenant, there is hardly anything obnoxious to Section 27. But the court may not

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countenance the agreement particularly where the buyers intend to corner or monopolise the
commodity so that he may resell at his own price or where he binds the seller for an
unreasonable period of time. This was brought out in Sheikh KalluvsRamsaranBhagat.

The doctrine does not apply to ordinary commercial contracts for the regulation and
promotion of trade during the existence of the contract provided that any prevention of work
outside the contract viewed as a whole is directed towards absorption of the party’s services
and not their sterilisation. Sole agencies are a normal and necessary incident of commerce,
and those who desire the benefit of sole agency must themselves the opportunity of other
agencies.

Where a contract is reasonable and fair at the beginning, but circumstances have arisen which
show that it is being enforced by one party in a manner which is prejudicial to the interest of
others, the courts will hold the agreement to be unenforceable. Though not void or invalid.
This opinion has been expressed by the court of appeal in Shell UK Ltd v Lostock Garages
Ltd.

V. RESTRAINT ON EMPLOYEES

Restraint during employment: While an employee is engaged in a business, he/she is

not allowed to work for any other business which is in direct competition with his employer.
This is done for the protection of trade secrets, customer details, plans, etc. This was
established in Charlesworth v. Macdonald.

Restraint after termination of employment: An agreement to restrain a servant from

competing with his employer after the termination of employment may not be allowed by the

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courts. This was pronounced in Brahmaputra Tea Co v E. Scarth, where an attempt was
made to restrain a servant from competing for five years after the period of service.

WHAT IS A VOID AGREEMENT?

A void agreement means that the consensus between two parties isn't legally binding.
When an agreement becomes void, it can no longer be enforced by law and loses its legally
binding nature. In a void agreement, neither party has any legal rights or obligations or any
kind of legal status. However, any transactions linked to a void agreement are valid. When an
agreement is void, money that has been paid can be claimed back.

Certain types of agreements are considered void from the beginning according to the Indian
Contract Act, including:

● Agreement that restricts marriage

● Agreement that restricts legal proceeding
● Agreement that restricts trade
● Agreement that is considered illegal
● Wagering agreement
● Agreement with a minor

Connected agreements are not always void and can be valid in some situations.

WHAT IS AN ILLEGAL AGREEMENT?

An illegal agreement is any contract that is forbidden by law. This includes any
agreement that is against the law, is criminal, or that is against public policy. Illegal
agreements are invalid from their creation, meaning that agreements associated with the
original contract are also considered void. Because illegal agreements are against the law,
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joining an illegal agreement can also bring punishment. Both parties to the agreement receive
the same punishment according to the Indian Penal Code.

Illegal agreements include a contract with uncertain terms, an arrangement to hurt

someone, or perform any other illegal act. In an illegal agreement, all connected agreements
are void, and the money received cannot be claimed or recovered.

KEY DIFFERENCES BETWEEN VOID AND ILLEGAL AGREEMENT

The difference between void and illegal agreement can be drawn clearly on the following
grounds:

1. An agreement which loses its legal status is a void agreement. An illegal agreement is
one which is not permissible under law.
2. Certain void agreements are void ab initio while some agreements become void when
it loses its legal binding. On the other hand, an Illegal agreement is void since the
very beginning. A void agreement is not prohibited by Indian Penal Code (IPC), but
IPC strictly prohibits an illegal agreement.
3. The scope a void contract is comparatively wider than an illegal contract as all
agreements which are void may not necessarily be illegal, but all illegal agreements
are void from its inception.
4. A void agreement is not punishable under law whereas an illegal agreement is
considered as an offence, hence the parties to it are punishable and penalised under
Indian Penal Code (IPC).
5. Collateral agreements of a void agreement may or may not be void i.e. they may be
valid also. Conversely, collateral agreements of an illegal agreement cannot be
enforceable by law as they are void ab initio.

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UNIT XIV
LIMITS OF CONTRACTUAL OBLIGATION
CONTRACT OBLIGATIONS

Contract obligations are those duties that each party is legally responsible for in
a contract agreement. In a contract, each party exchanges something of value, whether it be a
product, services, money, etc. On both sides of the agreement, each party has various
obligations in connected with this exchange.

An example of contract obligations is with the sale of a product such as an automobile. One
party has the obligation to transfer ownership of the car, while the other has the obligation to
pay for it. The contract will specify the terms that regulate the obligations, such as the
method and amount of payment, and the time/place of delivery.

If either party fails to perform their contractual obligations according to the contract terms, it
will usually result in a breach of contract. This may result in a damages award to reimburse
the non-breaching party for their economic losses.
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PRIVITY OF CONTRACT

The doctrine of privity of contract states that only the parties to the contract can enforce the
contract or take action against it. A person who is not a party to the contract but perceives
some benefits from the contracts is not entitled to take any enforcement action.

“The doctrine of privity means that a contract cannot, as a general rule confer rights or
impose obligations arising under it on any person other than the parties to it.”

For example, if a party ‘A’ promised ‘B’ to pay Rs.100 to the third party ‘C’. Thus, ‘A’ and
‘B’ can sue each other in case of a breach of contract. However, ‘C’ cannot sue the parties.
This is known as the privity of contract.

Different courts in India have different views regarding the concept of privity of contract.
There have been cases where the third party is not able to sue in case of a default due to the
operation of the rule of privity of contract while there are some cases where the rule of
privity of contract is completely disregarded. Hence, the rule of privity of contract is a topic
of great debate amongst scholars.

Privity of consideration states that only a person who has provided consideration can enforce
the contract and take action against it. In the above case, ‘C’ cannot sue the parties as he has
not provided any consideration for the contract.

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EXCEPTIONS TO THE DOCTRINE OF PRIVITY OF CONTRACT

There are some exceptions to the doctrine of privity which makes the third party capable of
enforcing the contract. These are as follows:

W. 1. AGENCY

In case of a principal-agent relationship between the third party and the contracting party,
wherein the third party i.e. the principal party has expressly consented that the other has to
act on his behalf and the contracting party i.e. the agent consents to act in that manner, the
third party, being the principal party, can also enforce the contract.

X. 2. TRUST

In case one party ‘A’ promises the other party ‘B’ for the benefit of ‘C’, although being the
third party, ‘C’ can enforce the contract as ‘B’ is the trustee of ‘C’. ‘A’ person can become a
trustee of the other person if he fulfils the following criterion:

● The party should have the intention of creating trust.

● This intention should be to benefit a particular third party and not all the third
parties.

A landmark case for the defense of trust in the privity of contracts is Rana Uma NathBaksh
Singh v. Jang Bahadur. The facts of the case were that Rana Uma NathBaksh Singh was
given the possession of the entire estate by his father. In return, Rana Uma NathBaksh Singh
was required to pay a certain some of the money and a village to Jang Bahadur, the

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illegitimate child of his father. It was held in this case that a trust was created for the benefit
of Jang Bahadur and hence he is entitled to enforce the contract.

Y. 3. COLLATERAL CONTRACT

In case of a contract is accompanied by a collateral contract, then the party to the

collateral contract can enforce the contract. For example, when a party ‘A’ purchases goods
from ‘B’, there is a contract between A and the manufacturer of that good.

The doctrine of privity of contract is subject to various debates despite being accepted in
many jurisdiction. In the case DebnarayanDuttvsChunilalGhose “The Indian Contract Act is
unlike the English Contract Act and the limits with which the doctrine of privity of contracts
operates in English law cannot, with the same vigor be applicable to the Indian Contract
Act.” As given in the definition of consideration in SECTION 2(D), as long as there is a
consideration it does not matter who has furnished it.

THEORIES OF CONTRACTUAL OBLIGATIONS

There are certain theories which help in assessing the nature of contractual obligations. Out
of which the five most commonly used theories are will, reliance, efficiency, fairness and
bargain theories. These theories are generally used to explain which commitments warrant
enforcement and which do not. These theories of contractual obligation actually exemplify
three types of contract theories. Will and reliance theories are party-based. Efficiency and
fairness theories are standards-based. The bargain theory is process-based.

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However, there are existing lacunae for each of these theories. The party-based theories are
known for supporting one particular party to a transaction too much. The will theory gives
too much protection to promissory whereas the reliance theory is known for its too much
protection to promise. This undue emphasis which these theories place on one single party to
the transaction is identified as its main drawback and it undoubtedly creates insoluble
problems.

Standards-based theories are those which evaluate the substance of a contractual transaction
to see if it conforms to a standard of evaluation that the theory specifies as primary.
Economic efficiency and substantive fairness are two such standards that have received wide
attention. All the standard based theories usually suffer from a fundamental problem. This
fundamental problem is identifying and defending the appropriate standard by which
enforceable commitments can be distinguished from those that should be unenforceable.

Process-based theories shift the focus of the inquiry from the contract parties and from the
substance of the parties’ agreement to the manner in which the parties reached their
agreement. Such theories posit appropriate procedures for establishing enforceable
obligations and then assess any given transaction to see if these procedures were followed.
The single biggest problem associated with the process-based theories is that they place
insurmountable obstacles in the way of minimizing difficulties for enforcement.

UNIT XV
DISCHARGE OF CONTRACTS
Discharge of contract- meaning

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Discharge of contract is defined as the termination of the contract or agreement by the

contracting parties due to failure in the performance of the contractual obligations agreed
upon during the formation of the contract.
Modes of Discharge of Contract
Modes of Discharge of Contract are provided in the Contract Act. Discharge of a contract
means the end of the contract. The term discharge means coming out, so the discharge of a
contract means coming out from the contract.
Hence, the contractual obligations may be contractual or legal or operational or even by the
performance itself. So it is important to understand the various modes of discharge of a
contract.

Modes of Discharge of Contract

Modes and types of discharge of contract have been provided under sections 62 to 67of
the Indian Contract Act, 1872. There are 6 modes of discharge of contracts under the contract
Act, Let’s discuss them one by one in detail, a contract may be discharged by;

1. Discharge of contract by performance

2. Discharge by mutual agreement
3. Discharge of contract by impossibility of performance
4. Discharge of contract by operation of law
5. Discharge by lapse of time
6. Discharge by breach of contract

The discharge of contract by performance can be by;

1. Actual Performance
2. Attempted Performance
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1. Actual Performance
When the contracting parties refused to perform their contractual obligations then the
contract comes to an end. This is known as the contract discharge by a performance by actual
performance.

2. Attempted Performance

And, when the contracting parties complete their contractual obligations then automatically
the contract comes to end and there is no need for further performance. This is known as the
discharge of a contract by attempted performance.

2. Discharge by Mutual Agreement

Discharge by agreement has been provided under section 62 of the Indian Contract Act,
1872. The section says that “Effect of novation, rescission, and alteration of the contract if
the parties to a contract agree to substitute a new contract for it or to rescind it or alter it, the
original contract need not be performed.”

7 types of discharge by agreement have been provided under this section. These are;

1. Novation
2. Rescission
3. Alteration
4. Remission
5. Waiver
6. Merger
7. Accord and Satisfaction

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When the contracting parties mutually agree to cancel, alter, or modify, the contract then the
contract is discharged by the mutual agreement between the parties.

In other words, if both the contracting parties are not willing to perform the terms and
obligations of the contract then the parties to the contract mutually rescind the contract. This
is the discharge of a contract by mutual agreement.

Example – A promised to sell his house to B for a certain amount. Later, B and A mutual
cancelled this agreement. This is the discharge of a contract by mutual agreement.
These are the 7 types of discharge by mutual agreement. Let’s discuss them one by one in
detail;

1. Discharge of Contract by Performance

Discharge of contract by performance means when the contracting parties perform their
contractual obligations within the stipulated time, then the contract is discharged by
performance.

Also, when the contracting parties refused to perform their obligation then the contract is
discharged by the non-performance of the contract.

a) Novation

The novation took place where either a new contract is formed beside the existing contract
between the same parties to the contract or a contract between two parties is rescinded in the
consideration of the new contract being entered into on the same terms and conditions
between one of the parties and a third party who is not a party to the original contract.

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Here, the novation of contract means cancellation of the original contract and replacing the
original contract with the new contract between the same contracting parties.

In the case of Lata Construction v/s Dr RameshchandraRamniklal Shah, the court

explained the meaning and effect of novation as; “there should be a complete substitution of
a new contract replacing the original contract. It is the situation where there is no need to
perform the original contract.”

b) Rescission

Rescission of a contract is also provided under section 62 of the Contract Act, the section
permits the contracting parties to rescind (to cancel) their contract.

The parties are allowed to cancel the contract under this section. As per this section, the
parties are agreed to cancel the contract with mutual understanding.

c) Alteration

Alteration is provided under section 62 of the Contract Act, as “When one or more terms and
conditions of the contract are altered by the contracting parties with mutual consent between
the same contracting parties, then the old contract is replaced with the new one.”

The contracting parties to the contract can alter the terms and conditions of the contract either
wholly or partly with the consent of another contracting party.

Example – The alteration can be made in the amount of money, rate of interest, or date and
time of delivery of goods, etc.

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In the case of United India Insurance Co. Ltd v/s M.K.J. Corpn, The Court held that the
good faith of the contracting parties continues after entering into the contract, and the one
party cannot be made an alteration in the terms and conditions of the contract without the
consent of another contracting party.

d) Remission

As per section 63, remission means, every promise may dispense with or remit, wholly or in
part, the performance of the promise made to him, or may extend the time for such
performance, or may accept instead of it any satisfaction which he thinks fit.

Example – A promises B to paint a picture for B. Later, B forbids A to do so. A is no longer

bound to perform the promise.

e) Waiver

A waiver is nothing until it amounts to a release. It signifies nothing more than an intention
not to insist upon the right. The meaning of waiver is defined in JagadBandhuChatterjee v/s
Nilima Rani, 1969.

In other words, waiver means “Surrendering” the rights. When one party to the agreement
postpones his rights, the agreement is released.

f) Merger

Here, the merger means coinciding and meeting inferior rights and superior rights in one and
the same person. In such a case, the inferior right available to a party under the contract will
automatically vanish.

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g) Accord and Satisfaction

The accord refers to the agreement where there is a breach of contract and the other party
accepts some valuable consideration instead of the right of action against the other
contracting party.

Whereas, satisfaction refers to the discharge of the obligation that is formed under the newly
formed contract after the breach of contract.

Therefore, discharge by the accord and satisfaction means discharge of the original contract
due to a newly agreed obligation between the contracting parties.

3. Discharge of Contract by Impossibility of Performance

The contract comes to an end when there is an impossibility for the contracting parties to
perform the obligations agreed upon in the contract. Therefore, the impossibility to perform
the contractual obligations by the parties leads to the discharge of a contract by the
impossibility of performance.

The impossibility to perform the contractual obligations may arise due to;

1. Destruction of Subject Matter

When the subject matter of the contract is destructed then the contract becomes impossible
for the contractual parties to perform it.

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2. Change of Law

The parties are unable to perform the contractual obligations when there is a change of law
and that change might affect the performance of the contractual obligations agreed in the
contract.

3. Non-existence of Circumstances

The contract is coming to an end when the essential thing relating to the contract is not in
existence. Therefore, it becomes impossible for the contractual parties to perform the
contractual obligations.

4. Incompetent Person

The contract comes to an end when one of the parties to the contract is incompetent to
perform the contractual obligations. Therefore, it becomes impossible for the other party to
perform the contractual obligation in the contract.

5. Declaration of War

The contract becomes impossible to perform when there is a declaration of war between the
two countries and due to this the other party from that country could perform his obligations.
Hence, the contract is impossible to perform.

4. Discharge of Contract by Operation of Law

Discharge of contract by operation of law. A contract can be discharged by the operation of

law that includes the death of the contracting party or insolvent party, or the original contract
merges into a new contract, or there is an alteration in the original contract. Let’s discuss;

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1. Death

When the contractual obligations of the parties are based on personal talent or skills then by
the death of one of the parties, the contract is discharged as it becomes impossible to perform
the obligations of the contract.

But, when the contractual obligations of the parties are not based on the personal talent or
skills of the party, then by the death of the party the obligation may lie on the legal
representatives of the dead person.

2. Insolvency

When one of the parties to the contract becomes insolvent. Therefore, the party could not
perform the contractual obligations and hence the contract becomes impossible to perform.

3. Merger

Here, the merger means coinciding and meeting of inferior rights and superior rights in one
and the same person. In such a case, the inferior right available to a party under the contract
will automatically vanish.

4. Alteration

When the terms and conditions of the contract are altered by one of the contracting parties
without the consent of the other contracting party, then the contract becomes impossible to
perform and the contract is discharged.

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5. Discharge by Lapse of Time

When the contract is to be performed within the stipulated time as agreed by the contracting
parties during the formation of the contract. And, if one of the parties could not perform the
contractual obligations within the prescribed time then the contract is discharged.

This is known as the discharge of a contract by the lapse of time.

6. Discharge by Breach of Contract

Discharge by breach of contract means termination of the original contract or the contract
comes to an end because of the failure of the performance of the contractual obligations in
the contract. This breach of contract may be an actual or anticipatory breach of contract.

1. Actual Breach of Contract

If the contracting party fails to perform his contractual obligations according to the time and
place specified in the contract, then he is said to have committed an actual breach of
contract.

2. Anticipatory Breach of Contract

Also, if the contracting party discards a contract before the agreed time of performance of a
contract, then he is said to have committed an anticipatory breach of contract.

Conclusion

Modes of discharge of contract have been provided under the Indian Contract Act,
1872. The best way the discharge a contract is based on the performance of the contractual

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obligations agreed by the contracting parties during the formation of a contract. In this way,
both the parties follow all the terms of the contract and afterwards go for its discharge.

On the other side, discharge of a contract by the breach is the most unpleasant way to release
the contracting parties from their duties and obligations. Therefore, discharge by breach
results in damages too.

Doctrine of Frustration

As general rule parties to contract are having an intention towards the fulfillment of their part
and in case of breach, party breaching is liable to compensate for the same. But an exception
to this rule is laid down in Section 56 of the Indian contract act 1872. Section 56 deals with
the doctrine of frustration as being acts which cannot be performed. Under this doctrine a
promisor is relieved of any liability under a contract in the event of the breach of contract and
contract will be deemed to be void.

Section 56 is based on the maxim “les non cogit ad impossibilia” which means that the
law will not compel a man to do what he cannot possibly perform.

The basis of the doctrine of frustration was explained by Supreme Court in the case
of SatyabrataGhose v. Mugneeram in which Justice Mukherjee held that the basic idea upon
which doctrine of frustration is based is that of the impossibility of performance of the
contract and the expression frustration and impossibility can also be used as synonyms.

The doctrine of frustration is however applicable only in 2 cases

● If the object of the contract has become impossible to perform

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Or

● An event has occurred making the performance of the contract to be

impossible beyond the Control of promisor.
Illustration

A, a resident of India entered into a contract with B, a resident of China for the export of 550
heavy Trucks. Initially, 100 Trucks were delivered, later war was announced between India
and China and the government of India suspended all the business transactions with China.
Now after this contract has become void.

1. A and B contract to marry each other. Before the time fixed for marriage A dies
and therefore the said contract between A and B will become void as one party to
a contract has died.

The condition necessary for the application of Section 56

● There exist a valid and subsisting contract between the parties:- Existence of a
valid contract is the foremost condition for the application of Section 56. The valid
contract includes a contract entered in between competent persons and which is
followed by some consideration.

● There must be some part of the contract which is yet to be performed:- Section 56
will have applicability only if there is some part of the contract which is yet to be
performed and without performing it the ultimate purpose of the contract is not
fulfilled.

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● The contract after it is entered into becomes impossible of performance:- Another

important condition for the application of section 56 is that the contract after it has
been entered into has become impossible to perform and cannot be performed and
therefore contract stands void.
Generally, frustration of contract can be in the following cases

1. Death or incapacity of a party:- Where a party to the contract has died after
entering into contract or the party is incapable of performing the contract, in such
a situation the contract will be void ( Robinson v Davison).

2. Frustration by virtue of legislation:- Where, a law promulgated after the

contract is made, makes the performance of the agreement impossible and thereby
the agreement becomes void ( RozanMian v Tahera Begum).

3. Frustration due to change of circumstances:- This particular situation deals

with those cases where there was no physical impossibility of performance of the
contract, but because of the change in circumstances, the main purpose for which
the contract was entered has been defeated.

Initial vs Subsequent Impossibility

Initial impossibility:- The object of making any contract is that the parties to contract would
perform their respective promises, and where the contract is impossible to perform the parties
would never enter into it. Initial impossibility deals with those cases where the contract was
impossible to perform from the very beginning. For example, If a married man knowing that
he cannot marry again promises to do so, then he is bound to compensate the other party.

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Subsequent impossibility:- It deals with cases where the contract was possible to perform
when it was entered but because of some event, the performance has become impossible or
unlawful and therefore it discharges the party from performing it. For example, If A
purchased Tickets from B for watching a cricket match and he pays 50% as an advance. If
the match is cancelled then A can not recover from B as the cancellation of match was
beyond the control of A.

Doctrine of frustration is applicable only in cases of Subsequent impossibility and where the
contract was impossible to perform from the very beginning, where this doctrine has no
application, Moreover this doctrine will also not be applicable in cases where there was a
mere delay in performance and contract can still be performed.

Position in of India

In India, impossibility not mean physical impossibility to perform Contract, it includes

situations, Where contract performance not literally be impossible because of changed
circumstances performance would not fulfil the object which parties in mind.

Case ArtiSukhdevKashyap ORS V/ s DayakishoreArora A.I.R.. 1994 NOC 279( Delhi) it

was held in this Case was that the performance has been delayed, contract of frustration does
not mean. Before the expiry of ten years permission for sale could not be granted, in this
Case there was allotment of plot by development Authority. No exceptional circumstances
and permission for sale was requested was refused. Then afterwards there was possibility of
sale after ten years, contract not frustrated.

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UNIT XVI
REMEDIES

What is a Breach of Contract?

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It is a legal cause of action and a type of civil wrong, in which a binding agreement or
bargained-for exchange is not honored by one or more of the parties to the contract by non-
performance or interference with the other party’s performance.

Types of breach of contract

● Actual breach of contract

● Anticipatory breach of contract

● Minor breach of contract

● A material breach

Anticipatory breach of Contract

In an example, where Mr. Sherlock contracts with Mr. Watson on 25th August 2018 to
supply 15 kilos of Rice for a specified sum on 25th September 2018 and on 12th September
2018 informs Mr. Watson, that he will not be able to supply the said cotton on 25th
September 2018, there is an express rejection of the contract.

In another example, where Mr.Darko agrees to sell his white horse to Mr.Elric for ` 50,000/-
on 14th January 2018, but he sells this horse to Mr. Armstrong on 9th January 2018, the
anticipatory breach has occurred by the conduct of the promisor.

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An anticipatory breach of contract is a breach of contract that occurs before the time fixed for
performance has arrived. When the promisor completely refuses to fulfill his promise and
signifies his unwillingness even before the time for performance has arrived, it is called
Anticipatory Breach. Anticipatory breach of a contract may take either of the following two
ways:

● Expressly by words are spoken or written, and

● Impliedly by the conduct of one of the parties.

Is Anticipatory breach of Contract protected under Law?

Section 39 of the Indian Contract Act deals with anticipatory breach of contract and provides
as follows: “When a party to a contract has refused to perform or disable himself from
performing, his promise in its entirety, the promisee may put an end to the contract, unless he
has signified, but words or conduct, his acquiescence in its continuance.”

What are the effects of Anticipatory breach of Contract?

Effect of anticipatory breach: The promisee is excused from the performance or from
further performance. Further, he gets an option

● To either treat the contract as “rescinded and sue the other party for damages from
breach of the contract immediately without waiting until the due date of
performance; or

● He may elect not to rescind but to treat the contract as still operative, and wait for
the time of performance and then hold the other party responsible for the
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consequences of non-performance. But in this case, he will keep the contract alive
for the benet of the other party as well as his own, and the guilty party, if he so
decides on re-consideration, may still perform his part of the contract and can also
take advantage of any supervening impossibility which may have the effect of
discharging the contract.

Actual breach of Contract

Unlike the anticipatory breach, it is a case of refusal to fulfill the promise on the scheduled
date. The parties to a lawful contract are bound to fulfill their respective promises. But when
one of the parties breaks the contract by refusing to fulfill his promise, a breach is said to
have been committed. In that case, the other party to the contract obtains the right of action
against the one who has refused to fulfill his promise.

Actual Breach of Contract under Law

Section 37 of the Indian Contract Act,1872 provides that the parties to the contract are under
obligation to perform or offer to perform, their respective promises under the contract, unless
such performance is dispensed with or excused under the provisions of the Indian Contract
Act or of any other law.

When is an Actual breach of contract committed?

At the time when the performance of the contract is due

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For example, Mr. Vader agrees to deliver 130 bags of wheat to Mr. Yoda on March 21, 2018.
He failed to supply Mr. Yoda with 130 bags of wheat on the said day. This is an actual
breach of contract. Mr. Vader committed the breach at the time the performance is due.

During the performance of the contract

Actual breach of contract also occurs when one party fails or refuses to fulfill its obligation
under it by an express or implied act during the performance of the contract.

Minor breach
A minor breach is when one party received the product which was deliverable but the other
party was failed to fulfil the part of their obligation. For example: if you order me to fix your
house window by changing it with a new wind-resistant window, but I just fix a new simple
window, this will come under a minor breach. But if there is no difference in the price of
both windows, then you cannot claim it.

Material breach of contract

It occurs when there is serious failure to perform the part of the contract that allows the other
party to ask for the damages because the breach has occurred. For example, if, it is written in
the contract that this window should be used in the house, but I use the simple window, but
the window break, then you can ask me for the damages to replace this window with a wind-
resistant window.

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Remedies for Breach of Contract

When a promise or agreement is broken by any of the parties we call it a breach of contract.
So when either of the parties does not keep their end of the agreement or does not fulfil their
obligation as per the terms of the contract, it is a breach of contract. There are a few remedies
for breach of contract available to the wronged party. Let us take a look.

1] Recession of Contract

When one of the parties to a contract does not fulfil his obligations, then the other party can
rescind the contract and refuse the performance of his obligations.

As per section 65 of the Indian Contract Act, the party that rescinds the contract must restore
any benefits he got under the said agreement. And section 75 states that the party that
rescinds the contract is entitled to receive damages and/or compensation for such a recession.

2] Sue for Damages

Section 73 clearly states that the party who has suffered, since the other party has broken
promises, can claim compensation for loss or damages caused to them in the normal course
of business.

Such damages will not be payable if the loss is abnormal in nature, i.e. not in the ordinary
course of business. There are two types of damages according to the Act,

● Liquidated Damages: Sometimes the parties to a contract will agree to the amount
payable in case of a breach. This is known as liquidated damages.
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● Unliquidated Damages: Here the amount payable due to the breach of contract is
assessed by the courts or any appropriate authorities.
3] Sue for Specific Performance

This means the party in breach will actually have to carry out his duties according to the
contract. In certain cases, the courts may insist that the party carry out the agreement.

So if any of the parties fails to perform the contract, the court may order them to do so. This
is a decree of specific performance and is granted instead of damages.
For example, A decided to buy a parcel of land from B. B then refuses to sell. The courts can
order B to perform his duties under the contract and sell the land to A.

4] Injunction

An injunction is basically like a decree for specific performance but for a negative contract.
An injunction is a court order restraining a person from doing a particular act.

So a court may grant an injunction to stop a party of a contract from doing something he
promised not to do. In a prohibitory injunction, the court stops the commission of an act and
in a mandatory injunction, it will stop the continuance of an act that is unlawful.

5] Quantum Meruit

Quantum meruit literally translates to “as much is earned”. At times when one party of the
contract is prevented from finishing his performance of the contract by the other party, he can
claim quantum meruit.

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So he must be paid a reasonable remuneration for the part of the contract he has already
performed. This could be the remuneration of the services he has provided or the value of the
work he has already done.

Damages

In Contract where two or more than two parties can come to enter into a contract to perform
certain object when one party cannot perform his obligation then its create breach of contract
and another party can suffer loss from this injury, damages or losses are either in monetary
form or specific performance that injured party can claim damages from another party.

Kinds of Damages

● Compensatory Damages
Compensatory Damages are damages in breach of contract in the form of monetary form,
whose party suffers can get monetary damages in compensatory damages.

● Expectation Damages
This means that whatever injured party expected to obtain from the contract on the terms and
conditions of the contract.

● Consequential Damages
Consequential damages remuneration an injured party for any indirect damages outside of
what was covered in the contract.

● Liquidated Damages

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Liquidated Damages are damages that the state specifically put into a contract when damages
are difficult to and estimate are necessary to breach of damage.

● Punitive Damages
Punitive damages are damages based to punish a breaching party and parties from
committing a breach of contract.

● Nominal Damages
Nominal Damages are a very small amount when the injured party did not suffer heavy
monetary loss.

● Ordinary or General Damages

These damages are ordinary and general types of damages which damages are very normal or
general.

● Equitable Remedies
In some cases the injured party’s face losses are not fully filled by in the terms of monetary
damages, monetary damages are unable to compensate the aggrieved party in this case,
Equitable remedy is awarded by the court to ordering a party or parties to act or not act in a
certain way.

● Special performance
This Specific Performance remedy is used in the contract when the monetary damages are
not adequate to compensate the plaintiff, this remedy is used when in the case which involves
giving a piece of land or a valuable item to the plaintiff.

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● Contract rescission
The old contract was cancelled and a new one is drawn up.

● Contract reformation
The new contract was rewritten to reflect the true and factual intent of parties.

Section 75 of the Indian Contract Act, 1872

According to this section, if a party rightfully rescinds a contract, then he can claim
compensation for any losses or damages sustained due to non-performance of the contract.

Example: Peter is a drummer and enters into a contract with John, a nightclub owner.
According to the contract, Peter agrees to play at John’s club every Friday and Saturday
night. The agreement is for the next two months against a payment of Rs 5,000 per night. On
the fourth night, Peter wilfully absents himself from the club and John rescinds the contract.

Since he does so rightfully, John can claim compensation for the damages sustained due to
Peter’s non-fulfillment of his promise.

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UNIT XVII
QUASI CONTRACT
Quasi Contracts under the Indian Contract Act, 1872
Updated: Sep 14, 2021
The concept of Quasi-contracts is inspired by the theory of Unjust Enrichment. These
agreements resembling relations similar to a contract are based on the principle of
Nemodebetlocupletari ex alienajactura,which basically implies that one person should not
get rich or gain, at the expense of someone else's loss.
In various circumstances discussed below, 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 other party, who is bound to compensate.
MEANING OF QUASI-CONTRACT
Quasi-contracts are certain relations “resembling those created by contract.” It is covered in
Chapter V (Section 68-72) of the Indian Contract Act, 1872.
In this circumstance, an individual is obliged to compensate another although the basis of this
obligation isn't an agreement between the parties.
The basis of this obligation is that one should have an unjust benefit at the cost of another.
The following are the essentials of Quasi-Contract:-
1. The benefit has been received by the defendant.

2. The benefit is at the expense of the plaintiff.

3. The benefit received is unjust.

DIFFERENT TYPES OF QUASI-CONTRACTUAL OBLIGATIONS-

The Chapter V of the Indian Contract Act, 1872 discusses 5 categories or types of such
obligations. These obligations are not originated in the proposal or acceptance of any

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agreement, but rather are based on the principles of justice, equity, and good conscience, and
natural justice, viewed through the perspective of the Theory of Unjust Enrichment.
1. Claim for necessaries supplied to a person incompetent to contract under Section 68:
When one person supplies necessaries to another person who is incompetent to contract, or to
anyone whom such incompetent person is legally bound to support, and the person furnishing
such supplies is entitled to reimbursement from the property of such incompetent.
It is already known, that any contract with a minor, lunatic or incompetent person is void ab
initio. The person who is legally required to be reimbursed cannot bring a suit against such
an incompetent person.
However, reimbursement can be claimed only through the property of such a person.
For instance- a minor or lunatic or to anyone whom such incompetent person is bound to
support (for example- a lunatic, wife or children) the person furnishing the supplies is
entitled to reimbursement from such incompetent person’s property.
Illustration:
(a) A supplies B, a lunatic with necessities suitable to his condition in life. A is entitled to be
reimbursed from B’s property.
(b) A supplies the wife and children of B, with necessaries suitable to their condition in life.
A is entitled to be reimbursed from B’s property.
2. Reimbursement of Money paid, due to another under Section 69 :
An individual who is interested in the payment of money, which another is limited by law to
pay and who consequently pays it, is qualified for reimbursement by the other.
For the application of this Section, the following two essentials need to be satisfied:
(i) One person is interested in the payment of money therefore he pays it-
In Brook’s Wharf v. Goodman Brother’s, the defendant’s warehoused certain goods, which
they had imported from Russia, with the plaintiffs. The goods were stolen. Under the

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(circumstance) law of customs, duty on the goods could either be recovered, from the owners
of the goods from the warehouseman.
The warehouseman i.e. plaintiffs were called upon to pay the customs duty which the owners
of the goods i.e. defendants were bound to pay. The plaintiffs claimed the amount of duty
paid by them from the defendants. It was held that they were entitled to recover the same.
(ii) Another person is bound by law to pay the same, but he fails to pay-
In Port Trust, Madras v. Bombay Company, an employee of the Port Trust was injured and
was compensated under the Workmen's Compensation Act. After the payment of
compensation, the plaintiffs brought an action against the defendants, due to whose fault the
injury was caused. This action could have been maintained under the tort of negligence by
the defendant.
But the Courts dismissed the claim for reimbursement under Section 69 of the Contract Act
because of the following reasons-
● The plaintiff was not merely interested in the payment, as the injured worker had
already been compensated.

● During the payment by the plaintiff, the defendant was not bound by law, as the
defendant's liability to pay under the law of torts had yet not been determined.

3. Obligation of person enjoying Non-Gratuitous Act under Section 70 :

At the point when an individual legitimately works on something for someone else, or
conveys anything to him, not intending to do so gratuitously and such other person enjoys the
benefit were of the latter is bound to make the compensation to the former in respect of or to
restore the thing so done or delivered.
For the application, this Section, the following essentials must be satisfied-
(i) A individual ought to legally work on something for someone else or ought to convey
something to him;

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(ii) The individual making the payment or conveying the thing should not do as such
needlessly i.e. he should expect payment for the same.
(iii) The other person enjoys, the benefit of this payment or delivery of the thing.
Thus, if A, a tradesman leaves some goods at B’s house by mistake and B treats the goods as
his own, B is bound to pay A for them.
Case law:
In Aries Advertising Bureau v. C.T. Devraj, the offended party advertiser made
advertisements for a circus at the instance of the circus owner. The advertiser was not
involved with the agreement between the financer and the circus owner.
The sponsor brought an activity against the financer to recuperate promotion costs from the
financer. In this case, it was held that the financer did not enjoy any benefit from the
advertisements and hence the finance could not be made liable to pay under Section 70.
4. Responsibility of finder’s Goods under Section 71 :
A finder of goods is a person who finds goods belonging to another and takes the goods into
his custody. Although, it must be mentioned that there is no pre-existing contract between the
finder of goods and the original owner of goods. This has responsibility has been fixed by
Section 71 on the finder of goods.
The Finder of Goods is also endowed with certain responsibilities, such as-
(1)The finder of goods is to take such care of goods as a man of ordinary prudence would,
under similar circumstances, take care of his goods of the same bulk, quality, and value as
found by him.
(2) He should not mix the goods found with his goods.
(3)He is bound to return the goods to his true owner if he can after a reasonable search is
found.

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(4)If because of the finder's default, 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.
But Section 169 of the Contract Act, also provides that the finder of goods has the power to
sell the goods if the following conditions are met-
(1) The owner of the goods cannot with reasonable diligence be found.
(2)If he refuses, upon demand, to pay the lawful charges of the finder of goods; and
(3) Either the thing found is in danger of perishing or of losing the greater part of its value.
(4)In case the goods are not of perishable nature, but the lawful charges of the finder, in
respect of the thing found, amount to two-thirds of its value.
It also must be noted that a Finder of Goods is only considered a Bailee against the true
owner of such lost goods, as was held in Armory v. Delamorie.
5. Liability of a person getting benefit under Mistake or Coercion under Section 72 :
When money has been paid or anything has been delivered by one person to another, either
by mistake or under coercion, the money so received or the thing delivered, must be repaid or
returned.
Illustration:
A railway company won't convey up specific products to the recipient besides upon the
payment of an illegal charge for carriage. The representative pays the total charged to get the
products. He is qualified to recuperate such a large amount of the charge as was unlawfully
unnecessary.

UNJUST BENEFIT UNDER MISTAKE-

In Sales Tax Officer, Banaras v. KanhaiyaLal, the respondent had paid sales tax on the
respondent forwarding transactions in silver bullion under UP Sales-Tax Act. The levy of
sales tax on such transactions was held to be ultra vires by the High Court of Allahabad.
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Then the respondent claimed the refund of the tax already paid. It was held that Section 72
does not make any distinction between a mistake of law and a mistake of fact, and refund of
payment made under a mistake of law, in this case, was allowed.
UNJUST BENEFIT UNDER COERCION-
In T.G.M. Asadi v. Coffee Board, the plaintiff purchased some coffee from the coffee board,
and made necessary payment of the price and sales tax thereon.
Thereafter, the Coffee Board demanded further taxes from the plaintiff firm, and informed
them if the payment was not made, the Coffee Board would adust such taxes from an amount
from the firm's deposit to the Board would be utilized for the same purpose.
But such demand had no basis under the Madras General Sales Tax Act. The plaintiff firm
repudiated the demand, but paid the amount to the Board, under protest reserving the right to
recover the amount by filing the suit.
On an action by the plaintiff firm, it was held that the firm was made to pay additional taxes
under compulsion and duress and the Coffee Board was directed to return the amount.

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UNIT XVIII
MISCELLANEOUS
Wager and a Contingent Contract

Before we distinguish a wager and a contingent contract, we must know what a contingent
may be said a conditional contract. The performance of the Contract is dependent upon the
happening or not happening of some event. Thus certain contracts are dependent upon the
occurence of an event, while others are dependent upon the non-occurence of the event.

Section 31 of the Indian Contract Act has defined a Contingent Contract, as a contract to do
or not to do something if some event, collateral to such contract, does or does not happen.

Characteristics
A contingent contract has got the following characteristics:

a. A contingent contract is to be performed upon the happening or not happening of

some event in future. On the basis of this characteristics this contract is distinguished from
other types of contracts.
b. The future event is uncertain. Where the event is bound to happen, the contract is to
be fulfilled and therefore, there does not remain any contingency.
c. The future event upon which the performance of the contract depends is incidental or
collateral to the contract. It is not the main part of the Contract.

Examples of Contingent contracts can be found in the Contracts of Insurance, Indemnity and
Guarantee.
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Contingent Contracts are of two types: 1 those depending upon happenings of an event; and 2
those depending upon the non-happening of an event. Examples of such contracts are as
follows:

A contracts to pay B Rs. 10,000 if B’s house is burnt. This is a contingent contract, here if
B’s is burnt A shall be liable to pay B Rs. 10,000. If B’s house is not burnt, A is discharged
from his liability.

We may take another example. A promises to pay B Rs. 2,000 if B does not marry C. If B
marries C, A discharged from his liability. But if B does not marry C but marries D, A is
liable to pay Rs.2,000.

Rules regarding Continent Contracts are given in sections 32 to 36 of the Indian Contract
Act.

Section 32 states about the enforcement of contracts contingent on an event happening e.g. A
makes a contract with B to buy B’s horse if A survives C. This contract cannot be enforced in
law unless and until C dies in life time.

Section 33 states about the enforcement of contract contingent on an event not happening e.g.
A agrees to pay B a sum of money if a certain ship does not return. The ship is sunk. The
contract can be enforced when the ship sinks.

Section 35 states about the performance of a contingent contract within a fixed period,
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otherwise it shall become void. This section states about both the types of the contracts.
Example being.

(a) A promises to pay B a sum of money if a certain ship returns within a year. The
contract may be enforced if the ship returns within the year, and becomes void if the ship is
burnt, within the year.
(b) A promises to pay B a sum of money if a certain ship does not return within a year.
The contract may be enforced if the ship does not return within the year or is burnt within the
year. Sec. 36 states that the agreement contingent on impossible events are void. Example
relating to this are:
(i) A agrees to pay B 1,000 rupees if two straight lines should enclose a space. The
agreement is void.
(ii) A agrees to pay B 1,000 ruppes if B will marry A’s daughter.
(iiii) C was dead at the time of the agreement. The agrrement is void.
Distinction between a Wagering and a Contingent Contract

After knowing about a wager and a contingent contract we can easily distinguish between
these two. The distinction can be made on the following basis.

1. Definition: The Indian Contract Act does not define a wager. Sec.30 of the act states
the effect only i.e. wagering agreement is void. But the Act by Sec. 31 defines a Contingent
Contract as the very name suggests is a contract.
2. Nature: A wager is an agreement only but a contingent contract as the very name
suggests is a contract.
3. Promise: In a wagering agreement both the parties of the agreement promise to each
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other i.e. A shall pay B if the event favours B and B shall pay A if the event favours A. But
in a contingent contract the promisor only makes a promise and not the promisee.

4. Result: In wagering agreement the loss of one is gain for the other party and vice-
versa. But in a contingent contract it is not necessary that one party must lose and the other
must gain.
5. Enforceability: A wagering agreement is void. It is not enforceable by law. But a
contingent contract is valid and can be enforced on the happening or not happening of a
future uncertain event collateral to the contract.

So far, You have read that the Indian Contract Act has specifically declared certain
agreements void. Till now you have known about the following void agreements

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UNIT XIX
SPECIFIC RELIEF ACT

Introduction

As the main objectives of the Act have been vested in the very title of this statute i.e. Specific
Relief, due to which we can have a basic understanding that the Specific Relief Act is a legal
statute dealing with reliefs or recovery of the damages of the injured person. This Act was
enacted in 1963 following the approach that when a person has withdrawn himself from the
performance of a particular promise or a contract with respect to another person, the other
person so aggrieved is entitled to a relief under Specific Relief Act, 1963. This Act is
considered to be in one of the branches of the Indian Contracts Act, 1872.

Important definitions

Section 2 of the Specific Relief Act, 1963 deals with some important definitions which are
as follows:

1. Section 2(a) deals with obligations which are duties imposed on a person by the
law or the legal body.

2. Section 2(b) deals with the settlement that means delivery of the movable or
immovable property to their successive interests when it is agreed to be disposed
of.

3. Section 2(c) deals with the word “trust” which has the same meaning as defined
in section 3 of the Indian Trusts Act, 1882.

4. Section 2(d) deals with the word “trustee” which means the person holding trust
in the property.
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5. All other definitions which have not been explained herein are the same as
referred to the definitions of the Indian Contracts Act, 1872.

Specific relief

Section 4 of this act explains that this Act grants special relief for the enforcement of
individual rights and not for imposing penal laws. The enforcement under this Act only bases
itself on the individual civil right and the substantive nature must be established for that fact.
To be understood in a simpler way specific relief is related to providing relief for the
infringed civil rights of the individual. Its main objective is to focus on the rights and if there
is any penal nature of the case, it may have to be established for proving the same.

Recovering the possession

The recovery of possession of this Act is provided under two heads: recovery of the
immovable property and recovery of the movable property. The law of Specific Relief
Act,1963 works on a basic principle that “Possession is itself a prima facie evidence of the
ownership”.

Z. Recovery of the possession of immovable property

Section 5 explains the remedies available to a person when he is disposed from his property.
If a person has been removed through the line of possession or wants to recover what
lawfully is his property, then that person can do so through the recovery procedure provided
by the Code of Civil Procedure, 1908 and in which the person will prove that the title belongs
to him.

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Section 6 of this Act details that if a person has been dispossessed or divested from the
property against the nature of law, then that person can file a suit for recovery of possession.
This section is not only a mere legal rule but also has a wide practical approach. There are
certain essential requirements for fulfilment of recovery under this section that are as
follows:

● The person suing for dispossession must be in possession of that property.

● The person must be dispossessed from the property and such divest from the
property must be unlawfully done or must be carried out against the nature of law.

● The dispossession must be without the consent of the person suing.

● Section 6 sub-clause (2) explains that no suit can be bought by a person after the
expiry of 6 months from the date of dispossession.

● Section 6 sub-clause (2) also explains that no suit by a person can be brought
against the government.
If the person has not filed any suit in the prescribed time period (section 6) then the only
relief open to him is that of section 5 i.e to prove his title of the property in a better way.
Section 6 has certain limitations which explains that if any order or decree has been directed
by the court in regards to section 6 then, no appeal or review shall lie against such order or
decree but such order is open to revision.

AA. Recovery of the possession of movable property

Section 7 explains that when a person wants to recover the possession of the movable
property, they can follow the procedure expressed by the Code of Civil Procedure,1908.
section 7 has further two sub-clauses which further details that a trustee may file suit against
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the beneficial interest he was entitled to and the other sub-clause explains that the ownership
of the property can also be expressed with the presence of a special right given to the person
suing; which would be enough as an essential to file a suit.

Essentials of section 7 are as follows:

1. There must be a presence of movable property which is capable of being delivered

or disposed of.

2. The person suing must have the possession of the property in question.

3. There may be an existence of a special or temporary right on the property.

Section 8 of the Specific Relief Act,1963 explains that when a person is in the possession of
the article to which is he is not the owner, shall be compelled to deliver such article to the
person who will have its immediate possession in following cases:

● When the article is held by the defendant as the trustee of a person who has the
immediate possession.

● When compensation in money is not an adequate relief.

● When it is difficult to ascertain actual damage caused to the person.

● When the possession of the article has been wrongfully transferred from the
person so entitled.

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Specific Performance of contracts

Section 10 includes in what condition-specific performance of the contract may be

enforceable, specific performance usually depends upon the discretion of the court but there
are certain conditions for performance which are mentioned as follows:

1. When the damages or loss occurred due to the non-performance of the contract
cannot be ascertained.

2. When money as compensation is not an adequate relief due to the non-

performance of the contact.
Until the contrary is proved it is presumed by the court that (i) that the breach of contract of
immovable property cannot be adequately fulfilled by money (ii) the breach of contract of
movable property can be relieved except in the cases of a) where the property is not an
ordinary article of commerce, b) where the property is kept by the defendant as a trustee for
the property.

Contracts that cannot be specifically enforced

Section 14 mentions certain contracts which cannot be specifically enforced which are as
follows:

1. When there is a non-performance for the act, and money is adequate

compensation.

2. .A contract that is full of many details and its nature is personal to the parties,
these can not be specifically enforced.
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3. The contract requires continuous work for which the court cannot supervise.

4. The court whose nature is determinable.

Persons against whom the contracts can be specifically enforced

Section 15 deals with the person against whom the contracts can be specifically enforced:

● Any party to contract or any party to suit.

● Representative in interest or principal, which holds certain important ingredients-

1. Any special skill, or any qualification.

2. The principal in interest shall be not be entitled to specific performance.

● Where the contract is for settling a marriage or to compromise the situation

between the family members.

● When a contract has been entered into by a tenant over a property for life.

Enforcement of awards

Section 21 deals with the power to award compensation; in various cases, compensation can
be done through the court to the aggrieved person. There are certain cases which are as
follows:

1. When there is a suit filed for specific performance of the contract due to its breach
the aggrieved person may also demand compensation in addition.

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2. When according to the court the specific performance may not be granted but
there has been a breach of contract, the court accordingly will order for
compensation to be given to the aggrieved party.

3. When the court thinks that in this case specific performance of the court shall be
granted but it will not be an adequate relief so, compensation in money can be
ordered.

4. No compensation shall be awarded when the relief for money is not itself
mentioned in the plaint.

Rectification of instruments

Section 26 deals with the ways in which instrument can be rectified:

When through fraud or mutual mistake the parties do not show their real intention then:

● Either party or representative in interest may file a suit for rectification of the
instrument,

● The plaintiff in his plaint may plead for rectification of instrument,

● The defendant in his defence may claim for rectification of instrument.

The court can direct rectification of instruments in cases where the party through fraud does
not show their real intention to prevent violation of rights to the third party.

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Requirement for rectification

The party who wants to rectify the instrument firstly must give them in writing and then
mention them in their pleading. No relief shall be granted when the rectification is not
specifically mentioned.

Recession of Contracts

Section 27 deals with the recession of the contract, in law, recession means withdrawing of
the contract or in simpler terms: cancellation of the contract. It brings the party in a situation
as if the contract did not happeni.e status quo ante meaning in its original state.

Recession when cancelled

A contract can go through the recession by the pleading of any party except there are some
cases in which recession may be cancelled. Recession can be cancelled in certain ways: a)
where the contract has been terminated or “has been deemed” voidable by the plaintiff, b)
when the contract is unlawful.

Cancelling the contracts through recession

A contract may be cancelled through the recession in cases:

a) where the plaintiff has himself given consent to the contract,

b) where the third party has gained interest in the contract and where their rights come into
question,

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c) where only a portion of the contract is to be cancelled but it is in such a position that the
faulty portion cannot get separated from the contract.

Cancellation of the contracts

Cancellation is one of the remedies which is available to parties against injuries in a contract;
section 31 to 33 deals with cancellation of instruments through the court.

Section 31 explains that when an instrument is void or voidable against a person then he can
get that instrument if it may cause damage to it.

Section 32 deals when a contract can be partially cancelled; for example in cases where there
are certain rights and obligations connected with some parties through that contract, then the
court accordingly may cancel the faulty portion and let the other in motion.

Section 33 has two heads in it i.e powers to aggrieved party after cancellation and orders to
the defendant after cancellation.

Power of aggrieved party

When the contract has been successfully cancelled, the aggrieved party may receive all the
restoration of benefit and compensation to ensure justice.

Orders to the defendant after cancellation

When the suit has been proven voidable against the defendant, he is required to restore every
benefit to the plaintiff which the defendant may have received during the contract.
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Declaratory decrees

Section 34 and 35 deal with declaratory decrees which are declared through the courts to the
parties to suit or contract.

Section 34 deals with that when any person has a certain right or obligation over the property
and he has been denied that right by any party, then the aggrieved party may file a suit for the
enforcement of the right over the property which has been denied to him. The Court will give
a declaration after looking over the case that the aggrieved party has a right over the title of
such property and so a declaratory decree will be passed. Such declaratory decree will not be
passed by the court when the plaintiff demands something more than the title over that
property.

Section 35 deals with the effect of the declaration which explains that this decree will be
binding to only to those which are the parties to suit, the decree will be binding to only the
parties to suit and the trustees at the time of suit if any.

Preventive relief

Preventive relief is considered to be any relief which abstains a party from doing any act; a
relief from the court which details that the party should not perform certain acts for which the
relief shall be prescribed. Such reliefs can be imposed in the form of injunctions.

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Injunctions

Injunctions are a specific order under which a party must abstain from performing any act.
Injunctions under the Specific Relief Act,1963 may be divided into different types namely
temporary, perpetual and mandatory. Injunction is mentioned from section 36 to 44.

Perpetual injunctions

Perpetual injunctions are known as permanent injunctions. They can only be imposed after
hearing the parties on the merits of the case in which the defendant has enjoyed an assertion
of the right and by affecting the plaintiff on the contrary. The perpetual injunction may be
granted to the plaintiff to prevent the breach of an obligation and imposing rights in his
favour. When the defendants invade the plaintiff’s right to enjoyment, a perpetual injunction
may be applied in certain cases where:

1. The defendant is the trustee of the property.

2. Actual damage cannot be ascertained.

3. Money as compensation would not be adequate relief.

4. Injunctions are necessary to prevent multiplicity of judgments.

Landmark Judgments

Geeta Rani Paul v. DibyenduKundu

It was held by the Hon’ble Supreme Court that when the plaintiff files suit regarding the
dispossession, it is enough if he proves that he is entitled over the title of that property. Once
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the title is proved other details like being divested from the property or other things are not
required to be proved.

N.P. Thirugnanamv.Dr. R.J. Mohan Rao

It is held by the Court that when in a case it is observed that the plaintiff itself did not
perform his portion in the contract or neither does he want to perform, so the decision
regarding specific performance act will be issued under this favour.

Prem Singh vs. Birbal

The Court, in this case, held that when a contract is valid no doubt of it being cancelled arises
and when it is void ab initio (meaning no existence in the law from the starting ) then no also
no option of cancelling it arises as it is not present in the eyes of law. When a contract has no
existence no action is enforced on it.

Conclusion

The Specific Relief Act, 1963 has a set of reliefs given to the parties to suit. They have
different reliefs and enforcing rules which focus on providing enough compensation to all.
This legal statute’s main aim is that no person shall live with the damages and losses and
those who have caused such a situation must be in a position to restore all unlawful benefits
received by them. This act focuses on providing justice to all and not inequitable favouring a
single party.

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