Notes on Mistake

S. 13. "Consent" defined.--Two or more persons are said to consent when they agree upon the same
thing in the same sense.

Oral Contract.--In a suit for specific performance tenant pleading oral agreement to sale of property in
his favour by the landlord and made payment of consideration at the rate of Rs. 1,000 per month for
about four years, but did not take any steps on his own accord, seeking performance of alleged oral
contract. He swung into action only after receipt of notice demanding vacant possession. Since existence
of consensus ad idem not proved, oral agreement cannot be enforced. P. Prabhakara Rao v. P. Krishna,
AIR 2007 AP 163.
S. 20. Agreement void where both parties are under mistake as to matter of fact.--Where both the
parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the
agreement is void.
Explanation.--An erroneous opinion as to the value of the think which forms the subject-matter of the
agreement, is not to be deemed a mistake to a matter of fact.
Illustrations

( a) A agrees to sell to B a specific cargo of goods supposed to be on its way from England to
Bombay. It turns out that, before the day of the bargain, the ship conveying the cargo had
been cast away and the goods lost. Neither party was aware of these facts. The agreement
is void.
( b) A agrees to buy from B a certain horse. It turns out that the horse was dead at the time of
bargain, though neither party was aware of the fact. The agreement in void.
( c) A, being entitled to an estate for the life of B, agrees to sell it to C. B was dead at the time of
the agreement, but both parties were ignorant of the fact. The agreement is void.

Don’t Forget!
Consensus ad idem and land Measurement Case: “Kanal” versus “Bighas”.
Tarsem Singh v. Sukhminder Singh, AIR 1998 SC 1400.

S. 21. Effect of mistakes as to law.--A contract is not voidable because it was caused by a mistake as to
any law in force in [India]; but a mistake as to a law not in force in 12[India] has the same effect as a
mistake of fact.
Illustration
A and B make a contract grounded on the erroneous behalf that a particular debt is barred by the Indian
Law of Limitation; the contract is not voidable.

Don’t Forget!
Mistake should be of fact and not of law.

Both the contracting parties should be at mistake. A contract is not voidable merely because it was
caused by one of the parties to it being under a mistake as to matter of fact.
S. 22. Contract caused by mistake of one party as to matter of fact.--A contract is not voidable merely
because it was caused by one of the parties to it being under a mistake as to a matter of fact.

Section 22--Notes
Proceeding--Bar against Sick Company.--The word 'suit' in the amended portion of Section 22cannot
include in its ambit execution or execution proceedings. On this interpretation infact even if the appeal is
pending so far as the execution proceeding are concerned excepting the properties of industrial company,
there cannot be any bar or no impediment in proceeding further with the same. [ Madalsa International
Ltd. v. Quality Fabricators, (1999) 1 BC (Bom) 334].

Don’t Forget !

MISTAKE AS TO IDENTITY.

 Cundy v Linsay “Handkerchiefs case” at page 57 of Book. {Allowed}

 Philips v. Brooks “Ring and Jewelers case” at page 58 of Book.{Disallowed}
 Ingram v. Little “Two sisters, a car and rogue customer” at page 58 Book {Allowed}

MISTAKE AS TO SUBJECT MATTER.

 Non existent subject matter. Couturier v Hastie. (Del Credere Agent)

 Mistake as to title. Cooper v Phibbs ( Uncle-Nephew Fishery Title)
 Different subject matter in mind. Raffles v. Wichelhaus (Peerless)

MISTAKE AS TO NATURE OF PROMISE.

 If the mistake is common to both the contracting parties as to the nature of the
promise, the contract would be declared as void.

S. 23. What considerations and objects are Lawful, and what not?--The consideration or object of an
agreement is lawful, unless--
It is forbidden by law; or
is of such a nature that, if permitted, it 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.
In each of these cases, the consideration or object of an agreement is said to be unlawful. Every
agreement of which the object or consideration is unlawful is void.
 Illustrations

( a) A agrees to sell his house to B for 10,000 rupees. Here, B's promise to pay the sum of
10,000 rupees is the consideration for A's promise to sell the house and A's promise to sell
the house is the consideration for B's promise to pay the 10,000 rupees. There are lawful
considerations.
( b) A promises to pay B 1,000 rupees at the end of six months, if C, who owes that sum to B,
fails to pay it, B promises to grant time to C accordingly. Here, the promise of each party is
the consideration for the promise of the other party and they are lawful considerations.
( c) A promises, for a certain sum paid to him by B, to make good to B the value of his ship if it is
wrecked on a certain voyage. Here, A's promise is the consideration for B's payment and
B's payment is the consideration for A's promise, and these are lawful considerations.
( d) A promises to maintain B's child, and B promises to pay A 1,000 rupees yearly for the
purpose. Here, the promise of each party is the consideration for the promise of the other
party. They are lawful considerations.
( e) A, B and C enter into an agreement for the division among them of gains acquired or to be
acquired, by them by fraud. The agreement is void, its object is unlawful.
( f) A promises to obtain for B an employment in the public service and B promises to pay 1,000
rupees to A. The agreement is void, as the consideration for it is unlawful.
( g) A, being agent for a landed proprietor, agrees for money, without the knowledge of his
principal, to obtain for B a lease of land belonging to his principal. The agreement between
A and B is void, as it implies a fraud by concealment, by A, on his principal.
( h) A promises B to drop a prosecution which he has instituted against B for robbery, and B
promises to restore the value of the things taken. The agreement is void, as its object is
unlawful.
( i) A's estate is sold for arrears of revenue under the provisions of an Act of the Legislature, by
which the defaulter is prohibited from purchasing the estate. B, upon an understanding with
A, becomes the purchaser, and agrees to convey the estate to A upon receiving from him
the price which B has paid. The agreement is void, as it renders the transaction, in effect, a
purchase by the defaulter, and would so defeat the object of the law.
( j) A, who is B's mukhtar, promises to exercise his influence, as such, with B in a favour of C,
and C promises to pay 1,000 rupees to A. The agreement is void, because it is immoral.
( k) A agrees to let her daughter to hire to B for concubinage. The agreement is void, because it
is immoral, though the letting may not be punishable under the Indian Penal Code (45 or
1860).

Section 23--Notes

Public Policy.--The term connotes some matter which concerns the public good and the public interest.
The courts have not shirked from extending it to new transactions and changed circumstances and have
at times not even flinched from inventing a new head of public policy. Central Inland Water Transport
Corporation Ltd. v. Brojonath Ganguly, AIR 1986 SC 1571.

Public Policy.--Allotment of plot by corporations, CIDCO, in favour of transferee of original allotee made
in accordance with regulations. Cancellation thereof, being contrary to public policy, or fresh cancellation
made by Inquiry Committee, merely by indicating that law declared by the Supreme Court was universally
binding under Article 141 of the Constitution was improper. Sunil Pannalal Banthia v. City and Industrial
Development Corporation of Maharashtra, AIR 2007 SC 1529: (2007) 10 SCC 674.

Collateral and void agreement.--An agreement is collateral to other agreement when it is an aid
facilitating the carrying out of the object of the other agreement. It is well established that the object of an
agreement cannot be said to be forbidden or unlawful merely because the agreement results in what is
known as a "void contract". Firm of Pratorpchand Nopainji v. Firm of Kotrike Venkata Setty & Sons, AIR
1975 SC 1223.
Refund of taxes.--No legal relationship could have arisen by operation of promissory estopple as it is
contrary both to the Constitution and the law. Realisation of taxes through State mechanism for sake of
paying it to private person, directly or indirectly, is impermissible under the constitutional scheme. The law
does not permit it nor equity can countenance it. The scheme of refund of sale tax was thus incapable of
being enforced in a court of law; Amrit Vanaspati Co. Ltd. v. State of Punjab, AIR 1992 SC 1075.

Stifling of prosecution.--The principle underlying this provision is that once the machinery of the
Criminal Law is set into motion on the allegation that non-compoundable offence has been committed, it
is for the criminal courts and criminal courts along to deal with that allegation and to decide whether the
offence alleged has in fact been committed or not. The decision of this question cannot either directly or
indirectly be taken out of the hands of criminal courts and dealt with by private individuals. V. Narasimha
Raju v. V.G. Raju, AIR 1963 SC 107; Ouseph Poulo v. Catholic Cyrian Bank, AIR 1965 SC 166.

Lawful object and consideration.--The execution of Hundis and agreement stand proved, the plain-tiff
cannot take advantage of same as consideration or object of the agreement would be unlawful and every
such agreement as per Section 23 of Indian Contract Act is to be held to be void. Held that as
consideration or object of agreement would be unlawful the agreement resulted to be void. [ Harbans
Kaur v. Manina Singh, (1999) 1 BC (P&H) 62.]

Jurisdiction of court.--Bank Guarantees were finalised and accepted only at Madras. The Bank
Guarantee were also admittedly given at Madras. So it cannot denied that the cause of action has arisen,
for filing the suit at Madras. [ Premium Industries India Ltd. v. Quality Fabrications, (1999) 1 BC (Mad)
143.]

IMPORTANT TO KNOW.
Consideration is the sine qua non for a valid contract under section 2 (d). Consideration may
be price of a promise, return, and a ‘quid pro quo’.

Void agreements

S. 24. Agreements void, if considerations and objects unlawful in part.--If any part of a single
consideration for one or more object, or any one or any part of any one of several considerations for a
single object, is unlawful, the agreement is void.
Illustration
A promises to superintend, on behalf of B, a legal manufacture of indigo, and an illegal traffic in other
articles. B promises to pay to A a salary of 10,000 rupees a year. The agreement is void, the object of A's
promise, and the consideration for B's promise, being in part unlawful.
Section 24--Notes
The essence of the doctrine of stifling of prosecution is that no private person should be allowed to take
the administration of Criminal Justice out of the hands of the Judge and place it in his own hands. Where
the Union of India settles the matter, the question of unlawful consideration does not arise. The
settlement of Bhopal Gas Disaster Case which provides that the criminal charges would be dropped and
criminal prosecution will not be started in consideration of payment of 407 million US dollar by Union
Carbide Corporation even though the offences involved are non-compoundable is valid and not hit by
Section 23 or 24. It was also not necessary to hear the victims before reaching the settlement. Union
Carbide Corporation v. Union of India, AIR 1992 SC 248.
S. 25. Agreement without consideration, void unless.--An agreement made without consideration is
void, unless--

(1) it is in writing and registered, it is expressed in writing and registered under the law for
the time being in force the registration of [documents], and is made on account of natural
love and affection between parties standing in a near relation to each other; or unless
(2) or is a promise to compensate for something done, it is a promise to compensate,
wholly or in part, a person who has already voluntarily done something for the promisor, or
something which the promisor was legally compellable to do; or unless
(3) or is a promise to pay a debt barred by limitation law.--It is a promise, made in writing
and signed by the person to be charged therewith, or by his agent generally or specially
authorized in that behalf, to pay wholly or in part a debt of which the creditor might have
enforced payment but for the law for the limitation of suits.
In any of these cases, which an agreement is a contract.
Explanation 1.--Nothing in this section shall affect the validity, as between the donor and
donee, of any gift actually made.
Explanation 2.--An agreement to which the consent of the promisor is freely given is not void
merely because the consideration is inadequate; but the inadequacy of the consideration
may be taken into account by the court in determining the question whether the consent of
the promisor was freely given.
Illustrations

( a) A promises, for no consideration, to give to B Rs. 1,000. This is void agreement.

( b) A, for natural love and affection, promises to give his son, B, Rs. 1,000. A puts his promise
to B into writing and registers it. This is a contract.
( c) A finds B's purse and gives it to him. B promises to give A Rs. 50. This is a contract.
( d) A supports B's infant son. B promises to pay A's expenses in so doing. This is a contract.
( e) A owes B Rs. 1,000, but the debt is barred by the Limitation Act. A signs a written promise
to pay B Rs. 500 on account of the debt. This is a contract.
( f) A agrees to sell a horse worth Rs. 1,000 for Rs. 10, A's consent to the agreement was freely
given. The agreement is a contract notwithstanding the inadequacy of the consideration.
( g) A agrees to sell a horse worth Rs. 1,000 for Rs. 10. A denies that his consent to the
agreement was freely given.
The inadequacy of the consideration is a fact which the Court should take into account in
considering whether or not A's consent was freely given.

IMPORTANT TO KNOW.
Consideration is the sine qua non for a valid contract under section 2 (d). Consideration may be
price of a promise, return, and a ‘quid pro quo’.
EXCEPTIONS:
1. Out of natural love and affection. Sec 25 (1)
2. Promise to compensate past voluntary service. Sec.25 (2)
3. Promise to pay time barred debt. Sec.25 (3)
4. Completed Gifts. Explanation I-Sec.25.
5. Agency. Sec 182. [Read at page 162 of Book]
6. Guarantee. Sec.127 [Read at page 127 of Book]
 Section 25'Notes

Agreement without consideration.--Past consideration is good consideration for a valid contract under
Section 25 of Act, hence suit is not barred by limitation. [ Central Bank of India v. Tarseema Compress
Wood Manufacturing Co., (1998) 1 BC 268 (Bom).]

Void Contract.--Contract without consideration is void. Vendor in his cross-examination said that he had
agreed to sell the property for Rs. 1.5 lakhs, but he had not received the monetary consideration. Sale
deed was cancelled. Pranlal v. Laldevi, AIR 2007 Raj 166.

S. 26. Agreement in restraint of marriage, void.-- Every agreement in restrain of the marriage of any
person, other than a minor, is void.
EXCEPT IN THE CASE OF A MINOR

S. 27. Agreement in restraint of trade, void.--Every agreement by which any one is restrained from
exercising a lawful profession, trade or business of any kind, is to that extent void.
Exception 1.--Saving of agreement not to carry on business of which good-will is sold.--One who sells the
good-will of a business may agree with the buyer to refrain from carrying on a similar business, within
specified local limits, so long as the buyer, or any person deriving title to the good-will from him, carries on
a like business therein, provided that such limits appear to the court reasonable, regard being had to the
nature of the business.

Service Contract.--Confidentiality and non-complete agreement where under respondent would not
disclose confidential information to any person after cessation of employment with applicant and shall not
take up any employment or involve himself with any other person or body corporate in similar field of
activity which is competitive in nature is contrary to provisions of S. 27of the Act. Injunction restraining the
respondent cannot be granted to enforce it at interim stage itself. Sanmar Speciality Chemicals Ltd. v. Dr.
Biswajit Roy, AIR 2007 Mad 237.

CASES.
Gujrat Bottling Co ltd v. M/s Coca cola Company AIR 1995 SC 2372.
Whether exclusive dealing agreements hit Section 27 of the Contract Act 1972.
Court: Not to apply where restrictions or negative stipulations, is for mutual benefit and is for a specific
period.
Niranjan Shanker Golikari v. Century Spinning &Manufacturing AIR 1967 SC 1098.
Court: Such stipulations should not be in terrorem.
Brahmaputra Tea Co Ltd v. Scarth (1885) ILR Cal 545

Check the cases at pages 68-70 of Book.

S. 28. Agreements in restraint of legal proceedings, void.-- ["Every agreement,--

(a) by which any party thereto is restricted absolutely from enforcing his rights under or in
respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which
limits the time within which he may thus enforce his rights; or
(b) which extinguishes the rights of any party, or discharges any party thereto from any liability,
under or in respect of any contract on the expiry of a specified period so as to restrict any
party from enforcing his rights, is void to that extent.]
Exception 1.-- Saving of contract to refer to arbitration dispute that may arise.--This section shall not
render illegal a contract, by which two or more persons agree that any dispute which may arise between
them in respect of any subject or class of subjects shall be referred to arbitration, and that only the
amount awarded in such arbitration shall be recoverable in respect of the dispute so referred.
Exception 2.-- Saving of contract to refer questions that have already arisen.--Nor shall this section
render illegal any contract in writing, by which two or more persons agree to refer to arbitration any
question between them which has already arisen, or affect any provision of any law in force for the time
being as to references to arbitration.

CASES.

Hakam Singh v. Gammon (India) Ltd AIR 1971 SC 740

In the above case the question of determination was the jurisdiction issue, whether Varanasi,
contended by Hakam Singh or Bombay as argued by Gammon India. It was decided that as per
CPC 20 (a) it must be decided by taking into consideration the place of business, that in the
present case being Bombay.

Section 28--Notes

Territorial jurisdiction.--Where two courts have jurisdiction to try the suit or proceeding, an agreement
between the parties that disputes between them shall be tried in one of such court is not contravene to
public policy nor does it contrivance Section 28 of Act. [ Geo. Miller & Co. Ltd. v. United Bank of India,
(1998) 1 BC 469 (Del).]

S. 29. Agreements void for uncertainty.--Agreement, the meaning of which is not certain, or capable of
being made certain, are void.
Illustrations

( a) A agrees to sell to B "a hundred tons of oil". There is nothing whatever to show what kind of
oil was intended. The agreement is void for uncertainty.
( b) A agrees to sell to B one hundred tons of oil of a specified description, known as an article
of commerce. There is no uncertainty here to make the agreement void.
( c) A, who is a dealer in coconut-oil only, agrees to sell to B "one hundred tonnes of oil". The
nature of A's trade affords an indication of the meaning of the words, and A has entered into
a contract for the sale of one hundred tonnes of coconut-oil.
( d) A agrees to sell to B "all the grain in my granary at Ramnagar". There is no uncertainty here
to make the agreement void.
 ( e) A agrees to sell to B "one thousand maunds of rice at a price to be fixed by C". As the price
is capable of being made certain, there is not uncertainty here to make the agreement void.
( f) A agrees to sell to B "my white horse for rupees five hundred or rupees one thousand".
There is nothing to show which of the two prices was to be given. The agreement is void.

CASE

D.D.A, New Delhi v. Joint Action Committee, AIR 2008 SC 1343.

This was the case of allots of SFS Flats.

S. 30. Agreements by way of wager, void.--Agreement by way of wager are void : and no suit shall be
brought for recovering anything alleged to be won on any wager, or entrusted to any person to abide the
result of any game or other uncertain event on which any wager is made.

Exception in favour of certain prizes for horse-racing.--This section shall not be deemed to render
unlawful a subscription or contribution, or agreement to subscribe or contribute, made or entered into for
or toward any plate, prize or sum of money, of the value or amount of five hundred rupees or upwards, to
be awarded to the winner or winners of any horse-race.

Section 29-4Aof the Indian Penal Code not affected.--Nothing in his section shall be deemed to
legalize any transaction connected with horseracing, to which the provisions of Section 294-A of the India
Penal Code (45 of 1860) apply.

ESSENTIALS OF AN WAGERING AGREEMENTS

 Uncertain Event.
 Equal Chances to win or lose.
 No control over event.
 Should have no interest in the result of the event.

IN A NUTSHELL
Following Agreements become void.

 Agreements unlawful in part; [Sec.24 at page 65]

 Agreements without consideration; [Sec.23,25 at page 60 and 65]
 Agreements in restraint of marriage; [Sec.26 at page 67]
 Agreements in restraint of trade; [Sec.27 at page 67]
 Agreements in restraint of legal proceedings. [Sec.27 at page 74]
 Unmeaning / Uncertain Agreements; [Sec.29 at page 77]
 Wagering Agreements. [Sec.30 at page 78]
 VOIDABLE AGREEMENTS

Sec 2 (i) : An agreement which is enforceable by law at the option of one or more of the
parties thereto, but not at the option of the other or others, is a voidable contract.
Mistake as to title will also make a contract Voidable.

Cooper v Phibbs (1867) LR 2 HL 149

An uncle told his nephew, not intending to misrepresent anything, but being in fact in error,
that he (the uncle) was entitled to a fishery. The nephew, after the uncle’s death, acting in the
belief of the truth of what the uncle had told him, entered into an agreement to rent the fishery
from the uncle’s daughters. However, the fishery actually belonged to the nephew himself.

House of Lords: Contract Voidable as parties under mutual mistakes.

NOTES ON PUBLIC POLICY.

Contract opposed to “Public Policy” is a defence under Section 23 of the Contract Act. Courts
while validating a contract have to consider:---

1. Pleadings in terms of Order 6 Rule 1 Of CPC.

2. Statute governing the case.
3. Provisions of Part III (FR) and Part IV (DPSP) of Constitution
4. Expert evidence, if any.
5. The materials brought on record of the case.
6. Other relevant factors, if any.
CASES.

Manna Lal Khetan v. Kedar Nath Khetan AIR 1977 SC 536.

BCPP Mazdoor Sangh v. N.T.P.C AIR 2008 SC 336.

Amrit Banaspati Co Ltd. v. State of Punjab AIR 1992 SC 1075.

 AGREMENTS OPPOSED TO PUBLIC POLICY

Case Study.

A insured his life under a life insurance policy. The policy provided that it should be void if the
assured committed suicide, whether sane or insane, within a year of the policy. A committed
suicide after 9 years of taking policy. He was perfectly sane at the time of committing suicide.
The question was can he recover the amount of the policy. It was held the sums assured could
not be recovered because, suicide was a crime. It was against public policy that a man or his
estate should benefit from his crime.

[Beresford v. Royal Insurance Co. (1938) AC 586]

NOTES ON DISCHARGE
Every contract is formed for achieving the object that the parties had in their minds while making the
contract.

When the object of the contract is fulfilled, then liability of either party comes to an end.

This is known as discharge of the contract as the parties get discharge from their respective liabilities
after performing their obligations under the contract.

But performance is not the only way by which a contract is discharged.

Modes of Discharge.

 By Performance.
 By Impossibility.
 By Agreement.
 By Breach of Contract
 Discharge of Contract by Performance.

 Section 37: the parties to a contract must either perform, or offer to perform, their
respective promises, unless such performance is dispensed with or excused under
the provisions of this Act, or of any other law.

 Promises bind the representative of the promisors in case of the death of such
promisors before performance, unless a contrary intention appears from the
contract.

S. 37. Obligation of parties to contracts.--The parties to a contract must either perform, or other to
perform, their respective promises, unless such performance is dispensed with or excused under the
provisions of this Act, or of any other law.
Promises bind the representatives of the promisors in case of the death of such promisors before
performance, unless a contrary intention appears from the contract.
Illustrations

( a) A promises to deliver goods to B on a certain day on payment of Rs. 1,000. A dies before
that day. A's representatives are bound to deliver the goods to B, and B is bound to pay the
Rs. 1,000 to A's representatives.
( b) A promises to paint a picture for B by a certain day at a certain price. A dies before the day.
The contract cannot be enforced either by A's representatives or by B.

Important to Remember !
S. 31. "Contingent contract" defined.--A "contingent contract" is a contract to do or not to do something
if some event, collateral to such contract, does or does not happen.
Illustration
A contracts to pay B Rs. 10,000 if B's house is burnt. This is a contigent contract.

S. 32. Enforcement of contracts contingent on an event happening.--Contingent contracts to do or

not to do anything if an uncertain future event happens, cannot be enforced by law unless and until that
event has happened.
If the event becomes impossible, such contracts become void.
Illustrations

( a) A makes a contract with B to buy B's horse if a survives C. This contract cannot be enforced
by law unless and until C dies in A's lifetime.
( b) A makes a contract with B to sell a horse to B at a specified price, if C, to whom the horse
has been offered, refuses to buy him. The contract cannot be enforced by law unless and
until C refuses to buy the horse.
( c) A contracts to pay B a sum of money when B marries C. C dies without being married to B.
The contract becomes void.
S. 38. Effect of refusal to accept offer of performance.--Where a promisor has made an offer of
performance to the promisee, and the offer has not been accepted, the promisor is not responsible for
non performance, nor does he thereby lose his rights under the contract.
Every such offer must fulfil the following condition:

(1) It must be unconditional;

(2) It must be made at a proper time and place, and under such circumstances that the person
to whom it is made may have a reasonable opportunity of ascertaining that the person by
whom it is made is able and willing there and then to do the whole of what he is bound by
his promise to do;
(3) if the offer is an offer to deliver anything to the promisee, the promisee must have a
reasonable opportunity of seeing that the thing offered is the thing which the promisor is
bound by his promise to deliver.
An offer to one of several joint promisees has the same legal consequences as an offer to all of them.
Illustration
A contracts to deliver to B at his warehouse, on the first March, 1873, 100 bales of cotton of a particular
quality. In order to make an offer of performance with the effect stated in this section. A must bring the
cotton to B's warehouse, on the appointed day, under such circumstances that B may have a reasonable
opportunity of satisfying himself that the thing offered is cotton of the quality contracted for, and that there
are 100 bales.

Offer of performance and effect of refusal to accept offer of performance.[Secs. 38 at Page 83]

1. Offer must be unconditional.

2. Offer must be made at a proper time and place.

3. Reasonable opportunity of ascertaining

PERSON BY WHOM PROMISE IS TO BE PERFORMED

S. 40. Person by whom promise is to be performed.--If it appears from the nature of the case that it
was the intention of the parties to any contract that any promise contained in it should be performed by
the promisor himself, such promise must be performed by the promisor, in other cases, the promisor or
his representatives may employ a competent person to perform it.
Illustrations

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

S. 41. Effect of accepting performance from third person.--When a promisee accepts performance of
the promise from a third person, he cannot afterwards enforce it against the promisor.
For Example, If a Contract involves personal performance by the promisor,
only he can perform. If he dies before performance his contract will come to
an end as it cannot be performed by his representatives.

PERFORMANCE OF JOINT PROMISES

S. 42. Devolution of joint liabilities.--When two or more persons have made a joint promise, then,
unless a contrary intention appears by the contract, all such persons, during their joint lives, and, after the
death of any of them, his representative jointly with the survivor or survivors, and, after the death of the
last survivor, the representatives of all jointly, must fulfil the promise.

Joint Venture.--If terms and conditions of joint venture not reduced to writing, conduct of parties, how
they dealt with affairs of business would be relevant. Gannmani Anasuya v. Parvatini Amarendra
Chowdhary, AIR 2007 SC 2380 : (2007) 10 SCC 296.

S. 43. Any one of joint promisors may be compelled to perform.--When two or more persons make a
joint promise, the promisee may, in the absence of express agreement to the contrary, compel any [one
or more] of such joint promisors to perform the whole of the promise.

Each promisor may compel contribution.--Each of two or more joint promisors may compel every other
joint promisor to contribute equally with himself to the performance of the promise, unless a contrary
intention appears from the contract.

Sharing of loss by default in contribution.--If any one of two or more joint promisors makes default in
such contribution, the remaining joint promisors must bear the loss arising from such default in equal
shares.
Explanation.--Nothing in this section shall prevent a surety from recovering, from his principal, payments
made by the surety on behalf of the principal, or entitle the principal to recover anything from the surety
on account of payments made by the principal.
Illustrations

( a) A, B and C jointly promise to pay D 3,000 rupees. D may compel either A or B or C to pay
him 3,000 rupees.
( b) A, B and C jointly promise to pay D the sum of 3,000 rupees. C is compelled to pay the
whole. A is insolvent, but his assets are sufficient to pay one-half of his debts. C is entitled
to receive 500 rupees from A's estate, and 1,250 rupees from B.
( c) A, B and C are under a joint promise to pay D 3,000 rupees. C is unable to pay anything,
and A is compelled to pay the whole. A is entitled to receive 1,500 rupees from B.
( d) A, B and C are under a joint promise to pay D 3,000 rupees, A and B being only sureties for
C. C fails to pay. A and B are compelled to pay the whole sum. They are entitled to recover
it from C.

Section 43--Notes
In case of joint promisors, the liability is joint and several. J.F. MRB & Sons v. State Bank of India, AIR
1971 SC 449.
 PERFORMANCE OF JOINT PROMISES
S. 44. Effect of release of one joint promisor.--Where two or more persons have made a joint promise,
a release of one of such joint promisors by the promisee does not discharge the other joint promisor or
joint promisors neither does it free the joint promisors so released from responsibility of the other joint
promisor or joint promisors.

S. 45. Devolution of joint rights.--When a person has made a promise to two or more persons jointly,
then, unless a contrary intention appears from the contract, the right to claim performance rests, as
between him and then, with them during their joint lives, and, after the death of any of them, with the
representative of such deceased person jointly with the survivor or survivors, and, after the death of the
last survivor, with the representatives of all jointly.
Illustration
A, in consideration of 5,000 rupees lent to him by B and C, promises B, and C jointly to repay them that
sum with interest on a day specified. B dies. The right to claim performance rests with B's representative
jointly with C during C's life, and, after the death of C, with the representatives of B and C jointly.

DISCHARGE OF CONTRACT BY PERFORMANCE

TIME AND PLACE OF PERFORMANCE.

 Section 46:”Time for performance of promise, when no application is to be made and no time
is specified. ( Within reasonable time)

 Section 47: Time and Place for performance of promise, where time is specified and no
application to be made.(Usual hours of the day)

 Section 48: Application for performance on certain day to be at proper time and place.( Duty
of the Promisee to apply for performance at proper place + within usual hours of the day)

 Section 49: Place of performance of promise, where no application to be made and no place
fixed for performance.( Promisor apply to Promisee to appoint reasonable place of
performance of promise)

 Section 50: Performance in manner or at time prescribed or sanctioned by promise. (Make in

the manner the Promisee prescribes or sanctions.)
 Time and place for performance

S. 46. Time for performance of promise, where no application is to be made and no time is
specified.--Where, by the contract, a promisor is to perform his promise without application by the
promisee, and no time for performance is specified, the engagement must be performed within a
reasonable time.
Explanation.--The question "what is a reasonable time" is, in each particular case, a question of fact.

S. 47. Time and place for performance of promise, where time is specified and no application to be
made.--When a promise is to be performed on a certain day, and the promisor has undertaken to perform
it without application by the promisee, the promisor may perform it at any time during the usual hours of
business on such day and at the place at which the promise ought to be performed.
Illustration
A promises to deliver goods at B's warehouse on the first January. On that day a brings the goods to B's
warehouse, but after the usual hour for closing it, and there are not received. A has not performed his
promise.

S. 48. Application for performance on certain day to be at proper time and place.--When a promise
is to be performed on a certain day, and the promisor has not undertaken to perform it without application
by the promisee, it is the duty of the promisee to apply for performance at a proper place and within the
usual hours of business.
Explanation.--The question "what is a proper time and place" is, in each particular case, a question of
fact.

S. 49. Place for performance of promise, where no application to be made and no place fixed for
performance.--When a promise is to be performed without application by the promisee, and no place is
fixed for the performance of it, it is the duty of the promisor to apply to the promisee to appoint a
reasonable place for the performance of the promise, and to perform it at such place.
Illustration
A undertakes to deliver a thousand maunds of jute to B on a fixed day. A must apply to B to appoint a
reasonable place for the purpose of receiving it, and must deliver it to him at such place.

S. 50. Performance in manner or at time prescribed or sanctioned by promiser.--The performance of

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

( a) B owes A 2,000 rupees. A desires B to pay the amount to A's account with C, a banker, B,
who also banks with C, orders the amount to be transferred from his account to A's credit,
and this is done by C. Afterwards, and before A knows of the transfer, C fails. There has
been a good payment by B.
( b) A and B are mutually indebted. A and B settle an account by setting off one item against
another, and B pays A the balance found to be due from him upon such settlement. This
amount to a payment by A and B respectively, of the sums which they owed to each other.
( c) A owes B 2,000 rupees. B accepts some of A's goods in reduction of the debt. The delivery
of the goods operates as a part payment.
( d) A desires B, who owes him Rs. 100, to send him a note for Rs. 100 by post. The debt is
discharged as soon as B puts into the post a letter containing the note duly addressed to A.
 PERFORMANCE OF RECIPROCAL PROMISES.

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

Section 52: Order of performance of reciprocal promises.(As mentioned in contract or nature of

transaction)

Section 53: Liability of party preventing event on which the contract is to take effect.(voidable at the
instance of the party prevented from performance+ compensation for loss)

Section 54: Effect of default as to promise which should be first performed, in contract consisting of
reciprocal promises. ( must make compensation to the party suffering loss)

Section 55: Effect of failure to perform at fixed time, in contract in which time is essential. (Becomes
voidable at the option of the promisee)

Section 53--Notes

Time essence of contract.--Whether time is of the essence of contract depends upon the intention of the
parties. It is a question of fact and the decision depends upon the entire relevant facts on record of the
case. Palanichami v. G. Pillai, AIR 1966 Mad 46; Gomathinayagam Pillai v. Palaniswami Nadar, AIR
1967 SC 868; Gobind Prasad v. Hari Dutt, AIR 1977 SC 1005. Generally in the context of immovable
properties time is not of the essence of the contract. But this general principle is subject to the exception
that might arise on the facts of a given case wherein the parties may make time of the essence of
contract even in cases relating to immovable properties. The intention to treat time as essence of the
contract may be evidenced by circumstances which are sufficiently strong to displace the normal
presumption that in a contract of sale of land stipulation as to time is not the essence of the contract.
Nanak Builders and Investors Pvt. Ltd. v. Vinod Kumar Alag, AIR 1991 Del 315.

TIME IS ESSENTIAL TO CONTRACT. Secs. 46-55.

 Where parties have expressly agreed to treat it as essence of contract;

 Where delay operates as an injury;

 Where the nature and necessity of the contract require it to be so construed.

Orissa textile Mills Ltd v. M/s Ganesh Das Ramkishun, AIR 1961 Pat 107.

In the above mentioned case, it was held that where time is the essence of the contract and it is
extended, the extended date is also of the essence of the contract and as such Section 55 of the Indian
Contract Act will apply.
 Section 55--Notes

Default in performing contract by Bank.--Where the contract was performed belatedly, and defendant
accepted benefit without reserving their right by issuing a notice showing intention to claim
compensation then they are precluded from raising any claim for compensation for alleged delayed
performance of agreement by plaintiff/Bank. [ Syndicate Bank v. A.V. Angadi, (1997) 2 BC 391 (Kant).]

Time essence of contract.--Vendor himself extended time for performance of contract, time stipulated
cannot be said to be the essence of contract. Mohammed Ibrahim (D) by LRs v. Mohammed Abdul
Razzak, AIR 2007 AP 294.

Performance of contract.--When the contract itself provides for extension of time, the same cannot be
termed to be essence of contract and default, then the court cannot fix a date on its own for
performance of contract. [ Arosan Enterprises Ltd. v. Union of India, AIR 1999 SC 3804.

DISCHARGE OF CONTRACT BY IMPOSSIBILITY

S. 56. Agreement to do impossible act.--An agreement to do an act impossible in itself is void.

Contract to do act afterwards becoming impossible or unlawful.--A contract to do an act which, after
the contract is made, becomes impossible, or, by reason of some event which the promisor could not
prevent, unlawful, becomes void when the act becomes impossible or unlawful. 26

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

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

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

( b) A and B contract to marry each other. Before the time fixed for the marriage, A goes mad.
The contract becomes void.
( c) A contracts to marry B, being already married to C, and being forbidden by the law to which
he is subject to practise polygamy, A must make compensation to B for the loss caused to
her by the non-performance of his promise.
( d) A contracts to take in cargo for B at a foreign port. A's Government afterwards declares war
against the contrary in which the port is situated. The contract becomes void when war is
declared.
( e) A contracts to act at a theatre for six months in consideration of a sum paid in advance by B.
On several occasions A is too ill to act. The contract to act on those occasions becomes
void.
Section 56: An agreement to do an act impossible in itself is void.

Contract to do act afterwards becoming impossible or unlawful: A contract to do an act which, after
the contract is made, becomes impossible, or, by reason of some event which the promisor could not
prevent, unlawful, becomes void when the act becomes impossible or unlawful.

Compensation for loss through non-performance of act known to be impossible or unlawful: when one
person has promised to do something which he knew, or, with reasonable diligence, might have known,
and which the promisee did not know, to be impossible or unlawful, so promisor must make
compensation to such promisee for any loss which such promisee sustains through the non performance
of the promise.
CASE
Satyabrata Ghosh v. Muneeram Bangur & Co, AIR 1954 SC 44.
(Commercial hardship is not frustration)

Section 56--Notes

Frustration.--To invoke the aid of this section, the party must establish: ( a) that the performance of the
contract has become impossible; ( b) the disability is on account of some event which the promissor could
not prevent or anticipate; and ( c) it is not self-induced by the promissor or not due to his negligence.
The court cannot absolve the party from the liability to perform a contract merely on the ground that it has
become onerous. A contract cannot be lightly brushed aside when it was well within the knowledge of the
promissor at the time of contract itself that in would not be possible for him to perform the agreement.
Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. v. Shri Andawar & Co., AIR 1991 Ker 134.

S. 57. Reciprocal promise to do things legal and also other thins illegal.--Where persons reciprocally
promise, firstly to do certain things which are legal and, secondly, under specified circumstances, to do
certain other things which are illegal, the first set of promises is a contract, but the second is a void
agreement.
Illustrations
A and B agree that a shall sell B a house for 10,000 rupees, but that, if B uses it as a gambling house, he
shall pay A 50,000 rupees for it.
The first set of reciprocal promises, namely, to sell the house and to pay 10,000 rupees for it, is a
contract.
The second set is for an unlawful object, namely, that B may use the house as a gambling house, and is
a void agreement.

Reciprocal contract.--Petitioners agreed to surrender a part of their leasehold property in consideration

of the promises made by the Municipal Corporation (KMC) regarding grant of lease of 2.75 acres more or
less adjacent to the land measuring about 3.95 acres of land more or less to be retained by the trustee
after surrender of 14.16 acres of land. That apart, the KMC also promised to refund a sum of Rupees
eight lakhs which the petitioners spent towards rehabilitation expenses of the encroachers of a portion of
land to be surrendered together with interest to be calculated on nationalised bank interest basis to the
Trust within 30 days from the date of execution of necessary documents. Considering the respective
promises made by the parties, court has no hesitation to hold that the contract was reciprocal. Indian
Craft Village Trust v. Calcutta Municipal Corporation, AIR 2007 (NOC) 2300 (Cal).
 DISCHARGE OF CONTRACT BY IMPOSSIBILITY: SPECIFIC GROUNDS

 Destruction of Subject matter. [Taylor v. Cadwell Case of Burnt Music Hall at page 94 of Book]
 Change of circumstances.
 Death or incapacity of party.
 Non-Occurrence of contemplated event. [Krell v. Henry. Case of Hired Room at page 94]
 Government or Legislative intervention.
 Intervention of war. [Muneeram Bangur & Co Case]

Effects of Frustration

Frustration operates automatically. It puts an end to the liability of the parties to perform the
contract. It discharges the contract irrespective of the intention or opinions of the parties.
However it does not exterminate the contract for all purposes.

Two important things are :--

1. Frustration should not be self-induced.

2. After frustration rights of the parties have to be adjusted under Section 65 of the Contract
Act.

DISCHARGE OF CONTRACT BY AGREEMENT

Contracts which need not be performed.

S. 62. Effect of novation, rescission and alteration of contract.--If the parties to a contract agree to
substitute a new contract for it, or to rescind or alter it, the original contract need not be performed.
Illustrations

( a) A owes money to B under a contract. It is agreed between A, B and C, that B shall

thenceforth accept C as his debtor, instead of A. The old debt of A to B is at an end, and a
new debt from C to B has been contracted.
( b) A owes B 10,000 rupees. A enters into an arrangement with B, and gives B a mortgage of
his (A's), estate for 5,000 rupees in place of the debt of 10,000 rupees. This is a new
contract and extinguishes the old.
( c) A owes B 1,000 rupees under a contract, B owes C 1,000 rupees, B orders A to credit C
with 1,000 rupees in his books, but C does not assent to the arrangement. B still owes C
1,000 rupees, and no new contract has been entered into.

Section 62-- Notes

Alteration is not material if it does not vary the legal effect of the documents but expresses that what was
implied by law or it carries out the intention of the parties provided the alteration does not otherwise
prejudice the party liable. Kalianna v. Palani Gounder, AIR 1970 SC 1942.
Revocation of gift.--Gift made under settlement for public purpose and there was no stipulation in the
settlement that on happening of specified event, namely that if the defendants fails to put up construction
of a school, said gift made could be revoked. Recision of contract gift had to be made on consensus
between parties. As there was no consensus between the donor and the donee rescinding the contract
gift could not be revoked. Kamaruddin Saheb v. K.T. Palaniappa, AIR 2007 (NOC) 1526 (Mad).

Please Remember!
SECTION 62: 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 or alter it, the
original contract need not be performed.

NOVATION : Where the contracting parties agree to substitute a new contract in place of the existing
contract, it is called novation.
 By change of parties,
 By substitution of new parties.

RESCISSION : It is going back to the beginning. This position means as if there was no contract at all. It is
different from termination, which occurs during the running of the contract. Therefore once a contract is
successfully rescinded it is impossible to sue for a breach of contract.

ALTERATION : In section 62, alteration does not mean simply any alteration. It would mean more in the
nature of “material alteration”, whereby the right of one of the contracting parties would be
extinguished or undermined substantially.

Case
Loonkaran Sethia v. Ivan E. John, AIR 1977 SC 336

VOID ALTERATIONS.

 Altering the date of the Instrument.

 Altering the amount payable on the Instrument.

 Altering the time or place of payment.

 Addition of new place of payment without the acceptors assent.

 PERMITTED ALTERATIONS.

 Completing an inchoate instrument.

 Converting blank endorsements into endorsements in full.

 Crossing of cheques.

 Alteration made with consent of parties.

 Made to carry out common intention, Expl: date with mutual consent.

 Note on the margins of the Instrument.

 If made before issue of instrument.

 Made for purpose of correcting mistake

DISCHARGE OF CONTRACT BY BREACH.

S. 73. Compensation for loss or damage caused by breach of contract.--When a contract has been
broken, the party who suffers by such breach is entitled to receive, from the party who has broken the
contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual
course of things from such breach, or which the parties knew, when they made the contract, to be likely to
result from the breach of it.
Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of
the breach.

Compensation of failure to discharge obligation resembling those created by contract.--When an

obligation resembling those created by contract has been incurred and has not been discharged, any
person injured by the failure to discharge it is entitled to receive the same compensation from the party in
default, as if such person had contracted to discharged it and had broken his contract.
Explanation.--In estimating the loss or damage arising from a breach of contract, the means which existed
of remedying the inconvenience caused by the non-performance of the contractor must be taken into
account.
Illustrations

( a) A contracts to sell and deliver 50 maunds of saltpetre to B, at a certain price to be paid on

delivery. A breaks his promise. B is entitled to receive from A, by way of compensation, the
sum, if any, by which the contract price falls short of the price for which B might have
obtained 50 maunds of saltpetre of like quality at the time when the saltpetre ought to have
been deliverd.
( b) A hires B's ship to go to Bombay, and there take on board, on the first of January, a cargo,
which A is to provide, and to bring it to Calcutta, the freight to be paid when earned. B's ship
does not go to Bombay, but A has opportunities of procuring suitable conveyance for the
cargo upon terms as advantageous as those on which he had chartered the ship. A avails
himself of those opportunities, but is put to trouble and expense in doing so. A is entitled to
receive compensation from B in respect of such trouble and expense.
 ( c) A contracts to buy of B, at a stated price, 50 maunds of rice, to time being fixed for delivery.
A afterwards informs B that he will not accept the rice if tendered to him. B is entitled to
receive from A, by way or compensation, the amount, if any, by which the contract price
exceeds that which B can obtain for the rice at the time when A informs B that he will not
accept it.
( d) A contracts to buy B's ship for 60,000 rupees, but breaks his promise. A must pay to B, by
way of compensation, the excess, if any, of the contract price over the price which B can
obtain for the ship at the time of the breach of promise.
( e) A, the owner of a boat, contracts with B to take a cargo of jute to Mirzapur, for sale at that
place, starting on a specified day. The boat, owing to some avoidable cause, does not start
at the time appointed, whereby the arrival of the cargo at Mirzapur is delayed beyond the
time when it would have arrived if the boat had sailed according to the contract. After that
date, and before the arrival of the cargo, the price of jute falls. The measure of the
compensation payable to B by A is the difference between the price which B could have
obtained for the cargo at Mirzapur at the time when it would have arrived if forwarded in due
course, and its market price at the time when it actually arrived.
Section 73--Notes

Claim for extra payment.--An agreement was entered into by a company and the government and under
the terms of the contract the work entrusted to be performed was required to be completed within a year.
The company was asked to spread-over the work in 3 years. The company agreed on condition that extra
payment will have to be made in view of the increased rates of either material or wages. To this proposal
no intimation was communicated to the company. The company completed the work within spread-over
period and submitted bills including the extra payment. The Supreme Court has held that both in equity
and in law the company was entitled to receive the extra payment for the work done as there was no
dispute that the rates of material, etc. has increased during the period. Hyderabad Municipal Corpn. v. M.
Krishnaswami Mudaliar, AIR 1985 SC 607.

Breach of contract.--When there is a contract between the parties of supply of goods and that contract is
breached, then a claim for damages is made, the relevant date for computing the amount of damages is
the date of the breach of contract and for the purpose for working out the amount of damages what is to
be seen is the prevailing market price of the goods on the date of breach, and that price is to be
compared with the price of the goods agreed in the contract and if the market price is higher than the
contractual price, damages are to be awarded. Goods purchased subsequently sold at profit will not be
relevant for the purpose of deciding entitlement of party two suffered because of breach of contract. V/o
Tvazhprom Export v. Mukund Ltd., (2006) 1 BC 504 (Bom).

Breach of contract.--When petitioner extended validity of its offer without any challenge to terms and
conditions maintained in contract form, cannot claim any right on account of enhanced rates when it
extended the validity of its offer with clear understanding that other terms and conditions were accepted
by him. Mukati Transformers Ltd. v. Jaipur Vidyut Vitran Nigam Ltd., (2006) 1 BC 455 (Raj).

Consequence for breach.--A student who has executed a bond in favour of the State Government for
prosecuting his studies in U.S.A at the expense provided by the government is liable to pay compensation
for breach of the terms of the bond. M. Sham Singh v. State of Mysore, AIR 1972 SC 2440.

Black listing of contractor.--Blacklisting of contractor without giving notice and informing reasons,
therefore, violative of principles of natural justices. Well Project Manpower Service v. Indian Council of
Agricultural Research, (2006) 1 BC 256 (Del).
When a contractor is black-listed by a department, he is debarred from obtaining a contract. If a person
raises a bona fide dispute in regard to a claim, so long as the dispute is not resolved, he may not be
declared to be a defaulter. B.S.N. Joshi & Sons Ltd. v. Nair Coal Services Ltd., (2006) 11 SCC 548.
A breach of contract occurs when a contracting party—
a) Renounces his liability under the contract, or
b) By his own act makes it impossible that he should perform his obligations under the
contract, or
c) Totally or partially fails to perform such obligations.
1. Anticipatory breach.
2. Present breach.
Damages for breach of contract can be:
1. General damages.
Special damages

A very Important Section to Remember !

S. 65. Obligation of person who has received advantage under void agreement or contract that
becomes void.--When an agreement is discovered to be void, or when a contract becomes void, any
person who has received any advantage under such agreement or contract is bound to restore it, or to
make compensation for it, to the person from whom he received it.
Illustrations

( a) A pays B 1,000 rupees, in consideration of B's promising to marry C, A's daughter. C is

dead at the time of the promise. The agreement is void, but B must repay A the 1,000
rupees.
( b) A contracts with B to deliver to him 250 maunds of rice before the first of May. A delivers
130 maunds only before that day, and none after. B retains the 130 maunds after the first of
May. He is bound to pay A for them.
( c) A, a signer, contracts with B, the Manager of a theatre, to sing at his theatre for two nights in
every week during the next two months, and B engages to pay her a hundred rupees for
each night's performance. On the sixth night, A wilfully absents herself from the theatre, and
B, in consequence, rescinds the contract. B must pay A for the five nights on which she had
sung.
( d) A contracts to sing for B at a concert for 1,000 rupees, which are paid in advance. A is too ill
to sing. A is not bound to make compensation to B for the loss of the profits which B would
have made if A had been able to sing, but must refund to B the 1,000 rupees paid in
advance.

Section 65--Notes
When a contract is or becomes void, the advantages gained by both the parties have to be restored and if
required compensation has to be paid. DLF United P. Ltd. v. Prem Raj, AIR 1981 SC 805; State of
Rajasthan v. Associated Stone Industries Ltd., AIR 1985 SC 466.
Pari delicto.--An agreement which is enforceable by law is a contract and agreement which is not
enforceable is void. The position may be that the parties or one of the parties to the agreement may not
have known that the same was in law unenforceable. Subsequently it may come to their knowledge about
the non-enforceability of the same. An agreement which was originally enforceable and was, therefore, a
contract, may become void due to subsequent happenings. In both these cases the person who has
received any advantage under such agreement or contract is bound to restore such advantage or to
make compensation for it to the person from whom he received it. But where at the time the agreement
was entered into both the parties knew that it was not lawful and, therefore, void, there was no contract
but only an agreement and it is not a case where it has discovered to be void subsequently. Nor is it a
case or contract becoming void due to subsequent happenings. This section will not be applicable.
Therefore, in a certain situation it enables a person not in pari delicto to claim restoration.
The party is only claiming to be restored to the status quo ante. Every agreement the performance of
which is attended with penal consequences fall within the scope of this section. At the same time, the
courts should not render assistance to persons who induce innocent parties to enter into contracts of that
nature by playing fraud upon them to retain the advantage which they secured by their wrong.
Sivaramakrishnaiah v. Narhari Rao, AIR 1960 AP 186; Budhulal v. Deccan Banking Co. Ltd., AIR 1955
Hyd 69 (FB); Kuju Collieries Ltd. v. Jharkhand Mines Ltd., AIR 1974 SC 1872; Ramayya Prasad Gupta
v. Murli Prasad, AIR 1974 SC 1320.

Void agreement.--Agreements which are void ab initio and their illegality is known to the parties at the
time of execution would not fall within the purview of s. 65 of the Act. Virender Singh v. Laxmi Narain,
AIR 2007 (NOC) 2039 : 2007 Cr LJ 2262 (Del).

Revocation of contract.--Wife of deceased assured claiming amount under Janata Personal Insurance
Policy. Claim was repudiated insurer on ground of cancellation of policy during life time of deceased.
Letter canceling policy handed over to post master is not an ordinary way of posting letters. Interpolations
in letter both as regards date of delivery to postmaster and the date addressed to assured clearly indicate
non-posting of letter canceling the policy to assured, revocation of contract was not complete. Fact that
the premium was retained by the insurer goes to establish that the insurer did not exercise its right to
avoid contract. Insurer held liable to pay sum assured. Madhumita Sarkar (Smt) v. Oriental Insurance
Company Ltd., AIR 2007 Cal 234.

Void transaction -- Refund of amount.--Land in dispute were assigned land and not alienable. Fact that
the land was in lienable was not within the knowledge of concerned party on date of transaction, order
directing refund of amount with reasonable interest held not improper. Tirumani Venkata Narasamma v.
Vodugu Mahalaxmi, AIR 2007 (NOC) 2199 (AP).

N.B: The cases given in the notes may be helpful in understanding judicial interpretations in addition
to the cases given in the REFERENCE BOOK.

Thanks