CONTRACT - 1

UNIT – I

Definition of Contract

Section 2 (e) of the Indian Contract Act 1872 defines “every promise and every
set of promises, forming the consideration for each other, is an agreement”. According to
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”.
Thus contract is a bilateral transaction between two or more than two parties. Unless the
acceptance is communicated, the contract cannot be said to be concluded.

Section 10 of the contract Act provides “all agreements are contracts if they are
made by the free consent of parties competent to contract, for a lawful consideration and
with a lawful object, and are not hereby expressly declared to be void. According to
section 10 says an agreement to be enforceable must fulfill the following conditions:

1. The parties must be competent to contract

2. The agreement must be made by the consent of the parties

3. The agreement must be made for some consideration

4. The object of the consideration must be lawful

5. The agreement must not have been expressly declared to be void under the contract
Act or any other Act

6. The agreement should be in writing or in the presence of witness or should be

registered.

Proposal or offer

Section 2 (a) of the Act provides when one person signifies to another his
willingness to do or to abstain from doing anything, with a view to obtaining the assent of
that other to such act or abstinence, he is said to make a proposal.

Essential elements of a valid proposal

1. Every proposal must be communicated

Communication need not always be express and need not be expressed in words,
in so far as the proposal or acceptance of any promise is made in words, the promise is
said to be express. In so far as such proposal or acceptance is made otherwise than in
words, the promise is said to be implied.
1
 A proposal can be accepted only when it comes to the knowledge of the person to
whom it is intended to be made. The communication of a proposal is complete when it
comes to the knowledge of the person to whom it is made.

In Lalman Shukul v/s Guari Dutt

In that case the defendant’s nephew having absconded from home, he sent his
servant to find out him. Later on, he offered a reward of Rs. 501 to any one who
discovered the boy. This offer came to the knowledge of the servant only after he had
already discovered the boy. In a suit filed by the servant to claim the reward, it was held
that he could successfully claim the reward only on the basis of contract and in this case
there was no communication of proposal to him. He came to know of it after he had
already discovered the boy which he was already under obligation to do by nature of his
calling.

2. The proposal must be made with a view to create legal relations

It is also essential that it must be made with a view to create relations.

Ex: If a father while going out of station promises to his daughter to bring a cameral for
her, it cannot be said to be valid proposal because he does not intend to bind himself
legally nor does he make it with a view to obtain the assent of his daughter.

When rejecting the claim

There are agreements between parties which do result in contracts within the
meaning of that term in our law. The ordinary example is where two parties agree to take
a walk together, or where there is an offer and acceptance of hospitability. They are not
contracts because parties did not intend that they shall be attended by legal consequences.

3. The proposal must be certain and definite

Its terms should not be so vague so as to prevent a contract being formed. It is the
function of the courts of law to interpret contract, to say whether a contract is or is not
reasonable, to say whether it is or is not void, but it is not the duty of courts to make
contracts between the parties.

Ex: A agrees to sell to B hundred tons of oil. There is nothing whatever to show what
kind of oil was intended. The agreement is void for uncertainty. Similarly, where, A
agrees to sell to B “my white horse for rupees one thousand”, the agreement will be void
because there is nothing to show which of the two prices was to be given.

Kinds of offer or proposal

1. General and Specific Offers

2
 An offer need not always be made to an ascertained person but it is necessary that
an ascertained person should accept it.

Ex: If a person offers a reward to anyone who finds his lost diamond ring, the finder can
successfully claim the reward. Where an offer is made to the whole world, acceptance of
the offer and performance of the contention will be sufficient for making it an
enforceable contract.

Carlill v/s Carbolic Smoke Ball Company

In this case, the defendants were proprietors and vendors of carbolic smoke ball.
They advertised a reward of 10,000 to any person who contracted influenza after using
the smoke ball for a certain period according to the printed directions. In order to show
their sincerity, they also deposited 1,00000 in a bank for the same purposes. The plaintiff,
a lady, used the smoke ball according to the printed directions yet she contracted
influenza. She brought an action to claim the reward. It was held that she was entitled to
claim the reward.

Finally the court held that in advertisement cases, an offer may be made to the
whole world but it becomes a promise only when it is accepted by an ascertained person.

Section 8 of the Indian Contract Act provides performance of the conditions of a

proposal, or acceptance of any consideration for a reciprocal promise which may be
offered with a proposal, is an acceptance of the proposal.

2. Offer and invitation to offer

An offer, capable of being converted into an agreement by acceptance, must

consist of a definite promise to be bound provided that certain specific terms are
accepted. The offer must have completed his share in the formation of a contract by
finally declaring his readiness to undertaken an obligation upon certain conditions
leaving to the offer the option of acceptance or refusal. He must not merely have been
feeling his way towards an agreement not merely initiating negotiations from which an
agreement might or might not result in time. He must be prepared to implement his
promise, if such is the wish of the other party.

A tender notice does not amount to an offer or proposal but merely an invitation
to the contractors for making an offer. An advertisement for tenders is not a proposal
which would bind the authority to sell to the person who makes the highest tender.

Distinction between offer and invitation to offer

1. In the offer, the offeror has intention or willingness to have the contract. But in the
invitation to offer, the party has no such intention or willingness to have the contract.

3
2. In the offer, the person making the proposal is called as the offeror or promisor or
proposer. But in the invitation to offer, the party, who has put or arranged the goods, or
advertised in any media, can not be termed as offeror or proposer or promisor.

3. An offer, when accepted, becomes a promise. But an invitation to offer may be

charged as offer, but can not become as a promise, it is only an equity.

4. In the offeror, the offeror must signify his intention or willingness. But in an invitation
to offer, the party need not signify his intention or willingness.

5. An offeror may be classified into general offer and specific offer. But there is no such
division among the invitation to offer.

6. An offeror contains legal requirements. But an invitation to offer does not contain legal
requirements.

In Pharmaceutical society of Great Britain v/s Boots cash chemists Ltd.

In this case the court had to decide as to at what time the sale took place in a shop
of the defendant adopting ‘self-service’ system. It was claimed by the plaintiffs that once
the customer picked up an article and put it into the basket, the contract of sale was
complete: the shop-keeper then could not refuse to sell it. The court rejected this
contention and held this was only an invitation to offer.

3. Standing offer

Invitation to make tenders is not an offer. A tender in response to such invitation

is an offer. After its acceptance, it sometimes becomes what is known as a standing offer
or continuing offer.

In Bengal co. Ltd. v/s Homee Wadia and Company

In this case the defendants entered into an agreement to supply a kind coal from
time to time required by the plaintiff for a period of twelve months. The plaintiff, in
pursuance of the said agreement, placed certain orders and the defendants supplied the
coal. But before the lapse of 12 months they withdrew their offer and refused to supply
the coal any more. The plaintiffs thereupon filed the suit against them for the breach of
contract.

The court dismissed the suit on the ground that there was no contract. The court
held that it was simply a continuing offer and the contract took place only when a certain
quality was ordered.

Revocation of proposal

According to section 5 a proposal may be revoked at any time before the

communication of its acceptance is complete as against the proposer but not afterwards.

4
Ex: A proposes, by a letter sent by post, to sell his house to B. B accepts the proposals by
a letter sent by post. A may revoke his proposal at any time before or at the moment
when B posts his letter of acceptance, but not afterwards.

Mode of Revocation

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

2. By the lapse of the time prescribed in such proposal for its acceptance or if no time is
so prescribed, by the lapse of a reasonable time, without communication of the
acceptance.

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

4. By the death or insanity of the proposer if the fact of his death or insanity comes to the
knowledge of the acceptor before acceptance.

Acceptance

According to section 2 (b) provides when the person to whom the proposal is
made signifies his assent thereto, the proposal is said to be accepted. A proposal, when
accepted, becomes a promise.

Conditions for valid acceptance

1. Acceptance must be communicated

An intention to accept or even a mental resolve to accept a proposal does not give
rise to a contract. There must be some overt or external manifestation of the intent by
speech, writing or other act. Even if the offeree has made up his mind to a final
acceptance, the agreement is yet not complete.

In Felthouse v/s Bindley

In this case the plaintiff wrote a letter to his nephew offering to buy his horse for
$30, 15s. He also wrote in his letter, ‘if I hear no more about him I shall consider the
horse mine at $30. 15s’. the nephew did not give any reply of his letter. However, he told
the defendant, an auctioneer, not to sell the horse. Thus, he intended to reserve the horse
for his uncle. But the defendant sold the horse by mistake. The plaintiff, thereupon, sued
the defendant, the auctioneer for conversion of property. Dismissing the action, the court
held that since the nephew did not communicate his acceptance, no contract took place
between the plaintiff and his nephew and consequently he had no right to complain of the
sale. The court held that the communication of acceptance must be made to offerer
himself or his agent. The communication of acceptance to stranger will not be a valid
communication.

2. Communication of acceptance must be by a person who has authority to accept

5
 A communication of acceptance to be valid must be either by the offeree himself
or by his authorized agent. A communication of acceptance by any other person will not
be valid.

In Powell v/s Lee

In this case the board of managers of a school passed a resolution selecting the
plaintiff for the post of headmastership but the decision about his selection was not
communicated to him. One of the managers, in his individual capacity, informed him of
the said resolution. Subsequently, the board of manager’s rescinded their decision and
consequently the plaintiff was not appointed as headmaster. The plaintiff, thereupon,
brought an action for the breach of contract.
The court held that no contract was c concluded because a communication of
acceptance to be valid must be made by the offeree himself or his authorized agent. A
communication of acceptance from an unauthorized person will not be valid.

3. Acceptance must also be inferred from the conduct of parties

Acceptance need not always be express; it may also be implied or inferred from
the conduct of the parties.

In Brogden v/s Metropolitan Railway Co.

In this case the respondents were being supplied coal and coke for their
locomotives by the appellants for sometime without any formal agreement for the same.
They decided to enter into a formal agreement for the same. The respondents sent a draft
agreement to the appellant leaving some blanks to be filled and signed by the appellant.
The appellant filled in the blanks, changed certain words in the agreement and after
signing and signifying his approval returned it to the respondents. The respondent’s agent
kept it in the drawer and thus no acceptance was communicated. The appellant, supplied
coal on the terms and conditions of the said agreement. Subsequently, there arose some
dispute between the appellants and the respondents. The court held that mere silence does
not constitute acceptance but it may be implied from the conduct of the parties.

3. Communication may be waived by the offerer

An acceptance of an offer made ought to be notified to the person who makes the
offer, in order that the two minds may come together. Unless this is done the two minds
may be apart, and there is not that consensus which is necessary to make a contract.

In Bhagwandas v/s Girdhari Lal and Co.

In this case the Supreme Court held that “acceptance must be communicated to
the offerer, unless he has waived such intimation, or the course of negotiations implies an
agreement to the contrary”.

6
4. Acceptance must be absolute and unqualified and must correspond to terms of
the offer.

According to section 7 (1) of the contract Act provides that in order to convert a
proposal into a promise, the acceptance must be absolute and unqualified. Acceptance
must correspond to the terms of the offer.

In Hyde v/s Wrench

In this case, the defendant offered to sell his farm to the plaintiff for $ 1, 000 but
the plaintiff said he would buy it for $950 only. Later on he agreed to buy the farm for $
1,000. But the defendant refused to sell the farm. The plaintiff sued the defendant for
specific performance of the contract for plaintiffs offer of $ 950 was in fact a counter-
offer which destroyed the original offer.

Mode of communication

1. Where no mode prescribed

Section 7 (2) of the Act provides where no manner is prescribed the acceptance
may be expressed in some usual and reasonable manner.

Ex: If an offer is made by post and no mode is prescribed the acceptance may also be
made by post. But if A in Lucknow sends a proposal to B in Calcutta and B send a man
with a letter of acceptance to walk down from Calcutta to Lucknow to communicate it to
A, it will not be usual and reasonable.

2. Where mode is prescribed

Where the offerer prescribes the mode or manner in which the offer is to be
accepted, the acceptance must be made in the manner prescribed. The acceptance will not
be valid if there is any departure or variance from the mode prescribed.

In Eliason v/s Henshaw

In this case, the plaintiff made an offer to the defendant to buy some flour. He
sent his offer through a wagon and requested the defendant to send the answer by the
same wagon. Instead of sending his acceptance by the said wagon, he sent the letter of
acceptance by mail thinking that it would reach earlier. But the letter reached after the
arrival of the wagon. The plaintiff refused to purchase the flour.

The Supreme Court held that it is an undeniable principle of the law of contract,
that an offer of a bargain by one person to another imposes no obligation upon the former
until it is accepted by the letter, according to the terms in which the offer was made. Any
qualification of or departure from, these terms, invalidates the offer unless the same be
agreed to by the person who made it.

7
A. Acceptance by post

In case of acceptance by post a difficult question arises as to when the acceptance

is complete and the contract is concluded.

Adams v/s Lindsell

In this case, the defendants made an offer to sell wool to the plaintiff by letter
dated September 2, 1817. This letter reached on September 5, 1817. The plaintiff posted
his letter of acceptance on the same day, i.e., on the 5 th September, which the defendants
received on September, 9, 1817. But the defendants had already sold the wool to some
other party having waited up to 8 th September. In an action brought against them by the
plaintiff for the breach of contract, the court held that defendants liable.

B. Acceptance by telephone or telex

When the parties are in each other’s presence or though separated in space yet are
in direct communication as by telephone, the contract is not complete until the offerer
comes to know of the fact of acceptance.

In Entores Ltd. v/s Mills Far East Corporation

In this case, the plaintiff made an offer from London by telex to the agents in
Holland of the defendants of purchase of certain goods, and the offer was accepted by a
communication received on the plaintiff’s telex machine in London. On the allegation
that breach of contract was communicated by the defendant corporation, the plaintiff
sought leave to serve notice of a writ on the defendant corporation claiming damages for
the breach of contract. The defendant corporation contended that the contract was made
in Holland.

Finally the Court held that the rule about instantaneous communications between
the parties is different from the rule about the post. The contract is only complete when
the acceptance is received by the offerer, and the contract is made at the place where the
acceptance is received.

Acceptance is valid only when made before the offer lapses

An acceptance can be validly made only before the offer lapses. An offer may
lapse in any of the following ways:

1. Failure of a condition subject to which the offer was made or not being accepted
in the mode prescribed

An offer, no less than an acceptance, may be conditional and not absolute, and if
the condition fails to be satisfied, the offer will not be satisfied, the offer will not be
capable of acceptance.

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

8
 The offer does not prescribe any method; the offeree is free to communicate the
acceptance in any usual and reasonable manner. In case the offerer suggests that the reply
should be sent by post, it is not essential that the reply should be sent by letter only. It
may be sent by telegram which may reach earlier.

2. by not being accepted within the time prescribed

An offer may also lapse if it is not accepted within the time prescribed for its
acceptance. By the lapse of the time prescribed in such proposal for its acceptance, or if
no time is so prescribed, by the lapse of a reasonable time, without communication of the
acceptance.

3. by rejection or counter-offer

An offer may also lapses if it has been rejected or if in its reply a counter-offer
has been made.

4. By the Death or Insanity of the offerer

An offer also lapses on the death or insanity of the offerer. The death of either
party before acceptance may cause an offer to lapse. It would seem that, in principle, an
offeree cannot accept after he is informed of the death of the offerer. An acceptance
communicated to the offer’s personal representatives will not bind them, unless the offer
is one which could not have been revoked by the offerer during his lifetime.

5. by revocation

A proposal is revoked by the communication of notice of revocation by the

proposer to the other party.
Time of revocation

An offer can be revoked at any time before the communication of acceptance is

posted but not afterwards. A proposal may be revoked at any time before the
communication of its acceptance is complete as against the proposer, but not afterwards.
An acceptance may be revoked at any time before the communication of the acceptance
is complete as against the acceptor, but not afterwards.

Notice of printed terms

1. The notice must be contemporaneous with the contract

A term of a contract can be binding only when it was brought to the notice of the
contracting party at the time when he entered into the contract, that is to say, it must be
contemporaneous with the contract. If the contacting party is informed or the term after
the time when contract was made, he will not be bound by it.

2. The terms of the contract should be communicated to the offeree.

9
 Unless and until he has been made aware with the nature and effects of the terms
of contract he will not be bound by them. In the nature and effects of the terms of
contract also, the principle relating to communication of terms applies but the principle
has been adopted and modified in view of the modern needs and requirements.

Important points

1. If the person receiving the ticket did not see or know that there was any writing on the
ticket, then he is not bound by the conditions.

2. If he knew there was writing, and knew or believed that the writing contained
conditions, and then he is bound by the conditions, even though he did not read them and
did not know what they were.

3. If he knew that there was writing on the ticket, but did not know or believe that the
writing contained conditions, nevertheless he will be bound if the parry delivering the
ticket has done that entire can reasonably be considered to give notice to the person of the
class to which he belongs.

3. The notice should be reasonably sufficient under the circumstances of the case

It involves the question whether the notice given was reasonably sufficient under
the circumstances of the case.

In Parker v/s S.E. Railway Co.

In this case, the plaintiff on depositing his bag at the cloak-room was given a
ticket which on its face contained the words “see back” and on its back number of
conditions was printed, one of which being that the company would not be liable for the
loss exceeding $ 10. A similar notice was hung in the cloak-room. The plaintiff’s bag
having been lost, he brought an action to recover the loss. He admitted that he knew that
something was written on the ticket but he did not know that it contained conditions. His
action failed because the court held that the notice given to him of the said terms was
reasonably sufficient.

4. Strict construction of the exemption clauses

This is based on the principle that where a person is under a legal liability and
wishes to exempt himself from that liability, he may do so only by using clear words to
effect.

Ex: where a person excludes his liability for a warranty in respect of a sale of particular
goods, he will nevertheless be liable if there is a breach of condition implied by law.

10
 Consideration

Under the law of contract consideration is necessary for all formation of contract,
because without the consideration the contract is void. Section 2 (d) of the Act defines
consideration. According to the section when, at the desire of the promiser, the promise
or any other person has done or abstained from doing, or does, or abstains from doing, or
promises to do or to abstain from doing, something, such act or abstinence or promise is
called a consideration for the promise.

Essential elements

1. at the desire of the promisor

An act or abstinence must be done at the desire of the promisor. An act done at
the desire of a third person will not constitute a good consideration.

In Durga Prasad v/s Baldeo

In this case the plaintiff built a market at the desire of the collector of the district.
The defendant who subsequently occupied one of the shops in market agreed to pay a
certain commission on all goods sold through him in the market. An action brought by
the plaintiff on the breach of the said promise was dismissed on the ground that the
plaintiff built the market at the desire of the collector and not that of the defendant and
hence the promise was without consideration and could not be enforced.

2. Promisee or any other person

The consideration may be given by the promise or any other person.

In Dutton v/s Poole

In this case, plaintiff’s father decided to cut the family tree for the marriage of his
daughter, the plaintiff. His son promised to pay $ 1,000 for plaintiff’s marriage and asked
his father not to cut the family tree. The plaintiff’s father did accordingly. Subsequently,
the father, the plaintiff, sued the defendant to recover the money. It was held that
although the plaintiff was not a party to the contract between the father and the son, yet
she was entitled to recover the promised sum from the defendant.

Doctrine of Privity of contract

A contract cannot confer any rights on one who is not a party to the contract, even
though the very object of the contract may have been to benefit him. As promise, he is
unable to sue because there is no privity of contract between him and the promisor. The
inability of one who is not a party to the contract to acquire rights under it follows from
the view which our law has adopted to the operation of contract generally; it has no
particular connection with the doctrine of consideration.

11
In Jamuna Das v/s Ram Autar

In this case, the purchaser of property contracted with the seller to pay off the
mortgage debt. In an action brought by the mortgagee against the purchaser to recover the
mortgage debt, it was held by the Privy Council that he was not entitled to force the
contract so as to compel the purchaser to pay off the debt because he was not a party to
the contract.

Exceptions to doctrine of privity of contract

1. Trust or Charge

A well-recognized exception to the doctrine of privity of contract is that of a trust

or charge created in some property in favour of third person.

Khwaja Mohammad v/s Hussaini Begum

In this case, the suit was brought by a Mohammedan lady against her father-in-
law to recover arrears of certain allowance called Kharcha-i-pandan under the terms of an
agreement executed by the father-in-law in consideration of her marriage with his son at
the time when she and her husband were minors. The defendant disclaimed liability on
the following two grounds:

1. That the plaintiff was not a party to the agreement in question and hence not entitled to
enforce it.

2. That she had forfeited her right to the allowance by her misconduct and refusal to live
with her husband.

2. Partition of Hindu Family, Marriage Settlement, Family Arrangement etc.

The courts in India have applied the same principle regarding the maintenance of
a female member of Hindu family in the partition of joint family property among the
female members. If on the partition of joint-family property among the male members a
provision is made for the marriage expenses of a female member then such a female
member can sue to enforce the agreement.

3. Acknowledgement

Where under a contract a party undertakes an obligation to make a payment to a

third party and he acknowledges it to the said third party, the third party, though not a
party to the contract can enforce the contract.

4. Covenants attached or running with the Land

A person buying land is bound by covenants or agreement affecting the land

although he may not be a party to the said covenants or agreements.

12
5. Law relating to Negotiable Instruments

It is also an exception to the doctrine of privity of contract.

Ex: A has an account in central bank. A draws a cheque of Rs. 1,000/- in favour of B. B
goes to bank to encash the cheque. Although there is no contract between the bank and B,
yet the bank will be liable to pay Rs. 1,000/- to B. B amy also endorse the cheque to C
and then C will be entitled to receive Rs. 1,000 /- from the bank although there is no
privity between bank and C. similarly the rule of privity of contract does not apply in
case of promissory note and bill of exchange.

3. Has done or abstained from doing something

A consideration may be executory, a promise given for the promise, or it may be

executed, an act or forbearance given for the promise: but it must not be past, for in that
case it is a mere sentiment or gratitude or honour prompting return for benefits received
in other words, it is no consideration at all.

4. Or does or abstains from doing something

When, at the desire of the promisor or any other person does or abstain from
doing something, it will constitute a good consideration within the meaning of section 2
(d) of the contract Act.. Where the consideration is a present performance and not a
promise… the determent may consists either in actually parting with something of value
or in understanding a legal responsibility or in foregoing the exercise of a legal right.

5. Or promise to do or to abstain doing something

If the promise or any other person, at the desire of the promisor, promises to do or
to abstain from doing something it will constitute a good consideration. It is called an
executory consideration.

6. Such act or abstinence or promise is called a consideration for the promise

A. Consideration need not be adequate

The word is qualified by the word adequate it makes consideration stronger so as

to make sufficient and valuable having regard to the fact, circumstances and necessities
of the case. An agreement to which the consent of the promisor is freely given is not void
merely because the consideration is inadequate, but the inadequately of consideration
may be taken into account by the court in determining the question whether the consent
of the promisor was freely given.

13
Ex: P agrees to sell his land worth Rs. 10,000/- for Rs. 1,000/- consent to the agreement
is freely given. Later on P denies selling the land to Q for Rs. 1,000/- on the ground that
the consideration is inadequate.

B. Consideration must be real

The consideration must be of some value in the eye of law. The court will not
denounce an agreement merely because it seems to be unfair. The promise must, indeed,
have been procured by the offer of some return capable of expression in terms of value.
The Indian Contract Act does not expressly say that the consideration must be of some
value in the eye of law but the courts have generally followed the English law on this
point. That is to say in India also, the consideration must be valuable in the eye of law
and not that must be real and not illusory.

C. Act, abstinence or promise to be good consideration, must be something more

than what the promisor is already bound to do.

To do something which a person is already bound to do, is no good consideration.

A person may be bound to do something in the following two different ways:

1. by law:

According to English law, performance of a legal duty is to consideration for a

promise. But when a person has done something more than what he was bound by law, to
do, then that would be a good consideration.

In Glassbrook Brothers Ltd. v/s Glamorgan country council

In this case due to strike in the colliery, a colliery manager requested for police
protection for his colliery. For proper and efficient protection he wanted quartering a
police force in the premises of the colliery. The police superintendent required the
colliery manager to pay for this. The police protection was provided only when the
colliery manager agreed to pay for the same. The court had to decide whether the
agreement was legal or not for the colliery manager contended that the police was already
bound to protect the life and property of the persons.

Finally the court held that the agreement in question was neither illegal nor void
for want of consideration. Although the police was bound to protect the life and property
of the people but if a person wanted any special type of protection which was usually not
provided by the police, the person concerned must pay for it.

2. by contract

A person may also be already bound to do something under a pre-existing

contract. This pre-existing contract may either be with a third party or with the promisor
himself.

14
Pre-existing with the third party

There was a controversy for a long time as to whether a promise for the
performance of an existing duty would constitute a good consideration.

Ex: A wife deserted her husband. He entered into an agreement by which he promised to
pay her Rs. 300/- per month if she would maintain herself and undertake not to pledge his
credit. He was sued by the wife when he fell into arrears with the payments, and pleaded
in defence that there was no consideration for the agreement at that time. Since she was
in desertion she was bound to maintain herself.

Pre-existing contract with the promisor himself

A promise to do a particular thing which the promise is already bound to do under

a pre-existing contract with the promisor will not constitute a good consideration.

In Ramchandra Chintaman v/s Kalu Raju

In this case, the defendant engaged the plaintiff as lawyer in a suit and signed the
vakalatnama which was accepted by the plaintiff. Later on the defendant promised to pay
a certain sum as reward to the plaintiff if he won the suit. The plaintiff was able to win
the suit for the defendants yet the defendant did not pay the promised reward. The
plaintiff, therefore, brought the suit to recover the sum promised as reward.

Finally the court held that the promise for the reward was without consideration
for the plaintiff as a lawyer of the defendant was already bound to do his best to win the
suit. There being no fresh consideration for the sum promised, the agreement was void

Exceptions to consideration

1. Natural love and affection

Section 25 (1) provides that an agreement without consideration is void. Unless it

is expressed in writing and registered under the law for the time being in force for the
registration of documents and is made on account of natural love and affection between
parties standing in a near relation to each other, the agreement will not be void for want
of consideration.

Ex: 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 will not be void for want of consideration
and will be a valid contract.

Essential elements

A. The agreement must be in writing.

B. It must be registered under the law for the time being in force for the registration of
documents.
15
C. It must be out of natural love and affection

D. The parties must be standing in a near relation to each other.

2. Promise to compensate for something done voluntarily

Section 25 (2) provides an agreement without consideration is void. Unless 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 will not be void for want of consideration.

Ex: A finds B’s purse and gives it ti him. B promises to pay A Rs. 50. This promise can
be enforced. Similarly, if A has supported B’s son and subsequently b promises to pay
A’s expenses in so doing A is entitled to sue and get the said promise enforced.

3. Promise to pay a time-barred debt

Section 25 (3) provides that agreement without consideration is void. Unless it is

a promise made in writing and signed by the person to be charged therewith, or by his
agent generally or specifically authorized in that behalf, to pay wholly or in part a debt
which the creditor might have enforced payment but for the law for the limitation of suits.

Ex: A owes B Rs. 1,000/- but the debt is barred by the limitation Act. A signs written
promises to pay B Rs. 500 on account of the debt. This will be a valid contract and shall
not be void for want of consideration.

Essential conditions

A. the promise to pay must be in writing and signed by the person concerned or his agent
generally or specifically authorized in that behalf.

B. The promise may be either for the whole of the debt or a part thereof.

C. The promise to pay must be in respect of the debt which the creditor might have
enforced payment but the law for the limitation of suits.

Legality of Object

Unlawful Agreements

Section 23 provides that the object of an agreement is lawful, unless

1. It is forbidden by law

Section 23 provides that any agreements, the object or consideration of which is

forbidden by law is unlawful and therefore void.

16
In Pearce v/s Brooks

In this case, plaintiff agreed to supply the defendant with a brougham on hire, till
the purchase money was paid by installments in a period which was not to exceed twelve
months. The plaintiff had the knowledge that the defendant was a prostitute and the
brougham was to be used by her as a prostitute and to assist her in carrying on her said
immoral vocation. The jury found that the carriage was used by the defendant as a part of
her display to attract men and the plaintiff knew that it was supplied for that purpose. In
this case, Pollock C.B., observed, it is a settled law that any person who contributes to the
performance of an illegal act by supplying a thing with the knowledge that it is going to
be used for that purpose, cannot recover the price of the thing so supplied.

Section 23 is founded on the principle that no one shall be allowed to trade on

felony. In case the accused person is innocent, the law will be abused for the extortion
and in case he is guilty, the law will be eluded by a corrupt compromise screening the
criminal for a consideration. The legislature did not lay down under section 23 the
conditions or qualifications as to what are forbidden by law or what would default the
provisions of any law. One has to go to law itself which is the subject matter of the
interpretation to see if the Act contained of is prohibited by law or it would defeat the
provisions of any law so as to pronounce it as void.

2. Agreements which defeat the provision of any law

Section 23 provides that if an agreement is of such a nature that if permitted, it

would defeat the provisions of any law, the consideration or object of such agreement is
said to be unlawful and every agreement the object or consideration of which is unlawful
is void.

Ex: A promise 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, for it defeats the provisions of criminal law. A person who is guilty of the
crime of robbery must be dealt with according to law.

3. Fraudulent

Section 23 of the Act provides the consideration is unlawful if it is fraudulent.

Ex: A, B and C enter into an agreement for the division among them of gains acquired, or
to be acquired by fraud. The agreement is void, as its object is unlawful.

Exceptions

1. Where the illegal purpose has not yet been substantially carried into effect before it is
sought to recover money paid or goods delivered in furtherance of it.

2. Where the plaintiff is not in pari delicto with the defendant

3. Where the plaintiff does not have to rely on the illegality to make out his claim.
17
4. Injury to person or property of another

Section 23 of the Act provides the consideration or object which involves or

implies injury to the person or property of another is unlawful and therefore void. If
parties enter into a sham transaction and their object is to deceive a third party, no legal
right or duties will follow or in other words the contract would be void. Thus an
agreement which involves injury to the properties of other persons is void under section
23 of the contract Act.

5. Immoral or Opposed to Public Policy

Section 23 of the Act says the object of an agreement is unlawful if the court
regards it is immoral or proposed to public policy.

Meaning of Public Policy

It means an agreement which is injurious to the public or is against the interest of

the society is said to be opposed to public policy.

Ex: A contract of marriage brokerage is void.

A contract enforcing bonded labour is void.

A waging contract is void.

Meaning of Immoral

What is immoral at a a material time depends on the fact and circumstances of the
case and the prevailing standards of morality in the society.

In Pearce v/s Brooks

In this case, a coach builder had let out a brougham on hire to a prostitute for the
purpose of enabling her “to make a display favorable to her immoral purposes.” The
coach builder subsequently sued the prostitute for moneys payable under the agreement.
It was held by the Court of Exchequer that he could not recover the moneys. The rule
which is applicable to the matter is, ex turpi causa non oritur action, and whether it is an
immoral or an illegal purpose in which the plaintiff has participated, it comes equally
with the terms of that maxim, and the effect is the same; no cause of action can arise out
of either in the one or the other.

Various Existing Heads of Public Policy

1. By tending to the prejudice of the state

18
 The head may further divide into the following two sub-heads.

A. Trading with the enemy

Since the bargains with the enemy help the enemy, they are clearly against the
public policy; they are clearly against the public policy. A very common illustration of
such contracts is the contracts with the alien enemy during the war.

B. Sale of public offices and appointments

Sale of public offices is also opposed to public policy.

Ex: If A agrees to pay some money to B, a public servant to include him to retire so as to
make way for A’s appointment. This is a void agreement for being opposed to public
policy.

2. By tending to the perversion of or interference with the administration of justice

A. An agreement the object of which is perversion of or interference with the

administration of justice is opposed to public policy and is therefore void.

Ex: P entered into a contract with Q whereby P undertook to perform “Pooja” for the
success of Q in litigation with the consideration that if Q won the case, he would give
one-tenth of the decree money to P. P cannot succeed against Q because the object of the
agreement was to interfere with the administration of justice.

Since the object of the agreement is interference with the administration of

justice, the agreement is opposed to public policy and comes under the existing and well
recognized head, “by tending to the perversion of or interference with the administration
of justice.” Such an agreement is therefore unlawful and void. It may take the following
forms:

1. Maintenance

it means providing money to another person to start litigation in which he has no

interest.

2. Champerty

It means rendering assistance to other in recovering some property and he may

have interest in it and is to share in the proceeds of the recovered property.

In a leading case

In this case, G an advocate entered into an agreement with his client. Under this
agreement the said advocate was engaged by the client for a sum of Rs. 9,400. The
19
agreement also provided that the advocate would get 50% of the amount recovered. This
agreement was held to be void as it was opposed to public policy and amounted to
professional misconduct.

B. Agreement to stifle prosecution

An agreement to stifle prosecution is clearly opposed to public policy and is

therefore void. It is in the interest of the public as a whole that criminals should not go
unpunished. The criminal law of this country makes a difference between various classes
of offences. With regard to some it allow the parties to come to an agreement and either
not to take proceedings or to drop the proceedings after institution in a few instances even
without the leave of the court.

In V. Narasimha Raju v/s Gurumurthi Raju

In this case, a non-compoundable criminal case was pending in the court. The
parties entered into an agreement to refer it to arbitration and for the withdrawal of the
case from the court. The Supreme Court held that the agreement was void as being hit by
section 23 of the Contract Act.

The Supreme Court observed in this case, if a person sets the machinery criminal
law into action that the opponent has committed a non-compoundable offence by the use
of this coercive criminal process he compels the opponents to enter into an agreement,
that agreement would be treated as invalid for the reason that its consideration is opposed
to public policy. Once the machinery of the criminal law is set into motion on the
allegation that the non-compoundable offence has been committed, it is for the criminal
court alone to deal with the allegation and to decide whether the offence alleged has in
fact been committed or not. The decision of the question cannot wither directly or
indirectly be taken out of the hands of the criminal courts and dealt with by private
individuals.

C. Interference with the cause of justice

An agreement, the object of which is to obstruct justice is void as it is opposed to

public policy.

Ex: If A is an accused in a criminal case filed against him by the state and B is a state
witness. If they enter into an agreement that B shall not state the facts correctly in the
court and in consideration of this A shall pay him some money. This agreement is void as
being opposed to public policy. Besides this, B may also be prosecuted for perjury if in
fact he gives the false evidence in pursuance of the said agreement.

3. Violation of Public Decency

There are two types of Agreements. Those are:

1. Marriage brokage agreement

20
2. Agreement against material relations.

Consequences of Illegality

1. Such a contract is void and the courts will not enforce it at the instance of either party.

2. Money paid or goods delivered in pursuance of an illegal contract cannot be recovered

except in the following cases:

a) Where one of the parties is innocent, it may recover back money or goods delivered
under the contract.

b) Where no more has been done that the payment of money and no part of illegal
purpose has been carried out, can be recovered.

Principle of Severability

Thus if the illegal consideration constituted a subsidiary or a minor part of the

total consideration and if the illegality did not involve a criminal act or one contra bonus
mores, the legal part of the consideration may be enforced and in such a case the
principle of severability is applied.

Section 57 of the Act provides that 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.

Ex: 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 promise,
namely, to sell the house and to pay 10,000 rupees for it is a contract. The second set is
for unlawful object, namely, that B may use the house as a gambling-house, and is void
agreement.

In the case of an alternative promise, one branch of which is legal and the other illegal,
the legal branch alone can be enforced.

Ex: If A and B agree that A shall pay B 1,000 rupees, for which B shall afterwards
deliver either rice or smuggled opium. That is valid contract to deliver rice, and void
agreement as to the opium.

21
 UNIT – II

Capacity to contract

Section 10 of the contract Act provides all agreements are contracts if they are
made by the free consent of parties competent to contract, for a lawful consideration and
with a lawful object, and are not hereby expressly declared to be void. Section 11 of the
Act provides 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. According to section 11,
the following persons are incompetent to contract:

1. Minors

In India it is generally 18 years, but if a guardian of a minor’s person or property

is appointed, then it is 21. according to section 11, a minor is incompetent to contract but
the Indian Contract Act is conspicuous by its silence about the nature of minor’s contract.

Mohari bibee v/s Dharmodas Ghosh

In this case, the Privy Council held that the minor’s contract is void and not
merely voidable on the basis of sections 10, 11,183,184. According to section 11 should
be literally construed and that only a person who is of the age of the majority is
competent to contract. A minor’s contract is ab initio and wholly void.

Following contracts entered into by a minor are absolutely void.

1. Contracts entered into by minor for the repayment of money lent or to be lent.

2. Contracts for goods supplied or to be supplied

3. Contracts for all accounts settled with infants.

Fraudulent misrepresentation by minor and its effects

Since a minor’s contract is void, a pertinent question arises as to what will happen
if a minor fraudulently misrepresents himself to be a major and induces a person to enter
into a contract with him or induces him to lend some money by mortgaging his property.

Mohori Bibee v/s dharmodas Ghose

In this case, the respondent, a minor executed a mortgage in favour of one

Brahmo Dutt, a money lender of Calcutta to secure a loan of Rs. 20,000 on some house
belonging to the respondent. While considering the proposed advance, Kedar Nath, the
attorney and agent of Brahmo Dutt,received information that the respondent was a minor,
yet he got the deed executed. Subsequently, the infant, by his mother and guardian as
next friend, commenced action against Brahmo Dutt, stating that he was a minor when he
22
executed the mortgage and prayed for the declaration that the said deed be cancelled.
Mer. Jenkins, who presided in the court of first instance granted the relief asked. The
appellate court also dismissed the appeal. Subsequently, an appeal was filed in the Privy
Council. By the time of the institution of the appeal, Brahmo Dutt died and was
substituted by Mohori Bibee. It was argued on behalf of the appellants that the court
ought not to have decreed in the respondent’s favour without ordering him to repay the
sum or Rs. 10,500 received by him as part of the consideration for the mortgage.

Thus in this case, the court was of the opinion that under its discretionary power
the court may order restitution by the minor but the court did not order it in the present
case because the appellant had advanced the loan to Dharmodas Ghose while knowing
that he was a minor.

Exceptions

A minor’s agreement is absolutely void. But there are following exceptions for
the benefit of the minor

1. Sales, mortgages, contracts etc., in favour of minors

A minor is incompetent to contract. Yet he may accept a benefit and be a

transferee. A duly executed transfer by way of sale or mortgage in favour of a minor, who
has paid the consideration, is valid. On behalf of the minor, his natural guardian or any
other de jure guardian can enter into contract to purchase any property on the name of the
minor.

2. Partnership

A minor may be admitted as a partner in a partner in a partnership firm to the

benefits of a partnership, without personal liabilities of such minor.

3. Specific Performance

A minor’s agreement being void cannot be specifically enforced. But a contract

may be entered into on behalf of a minor by his guardian or by his next friend or by a
legal manager of his estate, for the benefit of the minor and can specifically be enforced
in a court of law.

4. Payments of debt incurred during minority

It is permissible at law for a person after attaining majority to elect to pay the debt
incurred by him during his minority.

5. Necessaries

23
 Liability in respect of necessaries supplied to person incapable of entering into a
contract. A minor is an incapable person. Hence the provisions of Section 68 apply to a
minor. The liability is not personal. It pertains to the estate of minor. It resembles the
obligations of quasi-contractual nature.

Following are the necessaries

1. Costs incurred in defending a suit successfully as to the minor’s estate.

2. Loan to a minor to avert sale of his property in execution of a decree.

3. Purchase of bull and other agricultural appliances required for agricultural operations
on the minor’s estate.

4. Necessary repairs required to the minor’s house, and necessary clothes.

The followings are not necessaries

1. Expenses incurred in connection with minor’s marriage, which is against the

provisions of Child Marriage restraint Act, 1929.

2. Expenses towards pilgrimage.

3. Expenses for insurance premiums for a minor is not a necessary one.

Equitable doctrine of Restitution

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

be ordered to restore the property or goods thus obtained. This is called the equitable
doctrine.

In Leslie v/s Sheill

In this case, the defendant minor by fraudulently misrepresenting himself to be a

major induced the plaintiff to lend him two sums of $ 200 each. The plaintiff filed the suit
to recover $ 475 being amount of advances with interest. This action was resisted by the
defendant on the plea of infancy. The court dismissed the suit and pointed out that it was
necessary to safeguard the weakness of the infants at large, ‘even though here and there a
juvenile slipped through’, while dismissing the suit.

Important points

24
1. The basic principle of common law is that minors are protected by the common law in
their contractual dealings. A contract entered by a minor is treated as viodable at this
option.

2. Equality

The Doctrine of Equity intervened the basic principle of “Minors” protection. It

paved the way for the protection of parties to contracts, who were aggrieved by the fraud
of the infant, to certain extent. According to it, the minors should not be allowed to retain
the benefits obtained by their fraud. They are obliged to make restitution.

Ex: A minor plays ticks and misrepresents about his own age, and acts as a minor, and
obtains goods from the plaintiff, and the goods are still in the possession of the minor,
then the court can order the minor to restore the goods to the plaintiff. This is called
“Doctrine of Restitution”.

C. Only in case of goods

The doctrine of restitution is helpful to the aggrieved plaintiff only in case of the
goods, that too if the goods are not converted by the minor, but not in the case of cash
and particularly in case of loan.

D. Necessaries

The doctrine of restitution also extends to the cases of necessaries. Where the
plaintiff incurs certain amount for the necessaries of the minor, the plaintiff is entitled to
get back his amount.

Principle of Estoppel, whether applicable in case of a minor

Section 115 of the Indian Evidence Act provides that when one person has his
declaration, act or omission intentionally caused or permitted another person to believe a
thing to be true, and to act upon such belief, neither he nor his representatives shall be
allowed in any suit or proceeding between himself and such person of his representative
to deny the truth of that thing.

The question for consideration is that if a minor fraudulently misrepresents

himself to be of full age and induces another person to lend him some money or to enter
into a contract, can he be later on allowed to plead that such a contract is void because of
the reason that when he contracted he was a minor.

When the contract itself was void the plea of estoppel must fail. No estoppel can
be pleaded against a statute. If the Contract Act declares that the contract by a minor is
void nothing can prevent the minor from pleading that such a contract is void on the
ground of his minority.

Ratification

25
 Since minor’s contract is void, he cannot therefore validate it by ratification after
attaining majority for the obvious reason that ratification relates back to the making of the
contract.

In Suraj Narain v/s Sukhu Ahir

In this case, a minor borrowed some money by executing a bond. When he

became major he executed a second bond for the earlier borrowed money as well as
interest on it. The court held that the second bond was invalid because it was without
consideration. And a minor executed a promissory note after attaining majority for the
consideration he received during his minority. It was held that the promissory note was
invalid because it was without consideration. But there may be also be a situation in
which a minor may execute a deed for consideration received partly during his minority
and partly after attaining majority.

Persons of unsound mind

Section 12 of the Act provides that a person is said to be of sound mind for the
purpose of making a contract if, at the time when he makes it, he is capable of
understanding it and of forming a rational judgment as to its effect upon his interests.

1. A person who is usually of sound mind, but occasionally of sound mind, may not make
a contract when he is of sound mind.

2. A person who is usually of sound mind, but occasionally of unsound mind, may not
make a contract when he is of unsound mind.

Ex: A sane man, who is delirious from fever, or who is so drunk that he cannot
understand of a contract, of form a rational judgment as to its effect on his interest,
cannot contract whilst such delirium or drunkenness lasts.

Persons of drunkards

Section 12 of the Act provides that a drunken person is in the same category as a
person of unsound mind. A contract by a person in a state of drunkenness is absolutely
void. Such contract is incapable of ratification. It must be proved that the drunkenness
was excessive and created the impotence of mind at the time of so-called contract. Mere
drinking is not a hindrance to the contracting of just obligations.

Persons disqualified by law

A Persons may disqualify from contracting by any law to which he is subject. A

contract entered into with an alien enemy will be void.

26
Ex: A migrant from Bangladesh, Pakistan, etc., enter into the Indian Territory for live
hood or to cause terrorism without visas or on visiting visas. Such a person is disqualified
by law to enter into the contracts in India.

An insolvent is incompetent to contract according to insolvency laws. An

insolvent is rendered incompetent for the purpose of contracting only after he has been
adjudged as insolvent by the court.

Ex: an insolvent may contract after insolvency proceeding have been started and until he
has been adjudged as insolvent.

Free consent

Section 13 of the Act provides that “two or more persons are said to consent when
they agree upon the same thing in the same sense”. This is known as consent ad idem.
Unless and until the parties are at ad idem there is no contract. Section 14 of the Contract
Act says definition of free consent. The consent is said to be so caused when it would not
have been given but for the existence of such coercion, undue influence, fraud,
misrepresentation or mistake. Consent is said to be free when it is not caused by
followings:

1. Coercion

It defines section 15 of the Contract Act. According to Act coercion is the

committing, or threatening to commit, any act, forbidden by the Indian Penal Code or the
unlawful detaining, or threatening to detain, any property, to the prejudice of any person
whatever, with the intention of causing any person to enter into an agreement. And it is
whether the Indian Penal Code is or is not in force in the place where the coercion is
employed.

Ex: A, on board an English ship on the high seas, causes B to enter into an agreement by
an act amounting to criminal intimidation under the Indian Penal Code. A afterwards sues
B for breach of contract at Calcutta. Here A has employed coercion, although his act is
not an offence by the law of England, and although section 506 of the Indian penal Code
was not in force at the time when or place where the act was done.

Essential elements of Coercion

1. Communicating or threatening to commit any act forbidden by the India Penal Code.

2. The unlawful detaining or threatening to detain any property to the prejudice of any
person whatever.

3. With the intention of causing any person to enter into an agreement.

4. It is mainly of will is impaired

5. The burden of proof lies upon the plaintiff.

27
6. The agreement made by coercion is viodable at the option of the party whose consent
was so caused.
7. It is violent character.

In Keshavji v/s Harjivan

In this case, S- a son forged the signature of his father-F on certain promissory
notes. Basing on them, a bank gave loan. Later the bank found the forgery. They called F,
and threatened to institute criminal proceedings against S, and advised to prevent such
criminal proceedings, F ought to have settled with the bank and to pay the entire amount
of debt. Due to the threat, F was compelled to settle with the bank and paid the amount.
Later, F sued the bank for the recovery of the amount contending that he paid the amount
under the settlement due to coercion.

Finally the Privy Council set aside the settlement on the ground that the father
was not a free agent, and held that Father was entitled to revoke the settlement, and to
receive back the payment. It held that the bank authorities committed coercion against F
and compelled him to pay the amount.

Threat to commit suicide, whether coercion

According to section 15, an offence to constitute coercion should be an act

forbidden by the Indian Penal code. Under the Indian Penal Code, attempt to commit
suicide is punishable and not the threat to commit suicide.

In Ammiraju v/s Seshamma

In this case, a man gave a threat to his wife and son to commit suicide if they did
not execute a release bond regarding some properties which the wife and son claimed as
their own. But court held that the release deed was vitiated by coercion within the
meaning of section 15. the majority decision pointed that to threat to commit suicide must
be deemed to be forbidden since the attempt to commit suicide was punishable under
section 30 of the Indian penal Code. An act should be said to be forbidden by the Indian
Penal Code only when it was punishable under it. Since the threat to commit suicide was
not punishable, it could not be said to be forbidden.

2. Undue Influence

Section 16 of the Act provides

1. A contract is said to be induced by “undue Influence” where the relations subsisting

between the parties are such that one of the parties is in a position to dominate the will of
the other and uses that position to obtain and 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:-

28
A. Where he holds a real or apparent authority over the other, or when he stands in a
fiduciary relation to the other; or
B. Where he makes a contract with a person whose capacity is temporarily or
permanently affected by reason of age, illness or mental or bodily distress.

3. Where a person who is in position to dominate the will of another, enters into a
contract with him, and the transaction appears, on the face of it or on the evidence
adduced, to be unconscionable, the burden of proving that such contract was not induced
by undue influence, shall lie upon the person in a position to dominate the will of the
other.

Essentials of Undue Influence

1. Relationship between the parties being such that one of the parties is in a position to
dominate the will of the other.

2. He uses that position to obtain unfair advantages over the other.

3. Unfair advantage is in fact obtained.

Conditions of Undue Influence

1. Where he holds a real or apparent authority over the other, or where he stands in a
fiduciary relation to the other,

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

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

Ex: 1. A, having advanced money to his son B, during his minority, upon B’s coming of
age obtains, by misuses of parental influence a bond from B for a grater amount than the
sum due in respect of the advance. A employs under influence.

2. A applies to a banker for a loan at a time when there is stringency in the money
market. The banker declines to make the loan except at an unusually high rate of interest.
A accepts the loan on these terms. This is a transaction in the ordinary course of business,
and the contract is not induced by undue influence.
In Mst. Sethani v/s Bhama

In this case, the main question for consideration before the Supreme Court was
whether the Registered Sale Deed dated 1-4-1963 was obtained under undue influence
from a tribal woman, putlibai who was illiterate besides being old and blind. She was
under the total domination of the defendant-respondent Bhana. The Supreme Court
observed that it is true that the initial onus to prove undue influence was on the plaintiff-
appellant, but the onus, in the facts and circumstances of the case, was easily discharged.
It is the respondent who hold obtained the sale deed in his favour way back on 1-4-1963
by a registered sale deed, which was the light at a late stage of the trial. From the certified
copy thereof it is evident that no consideration passed at the time of the sale.

29
Presumption of Undue Influence

When a person in fiduciary relationship with the plaintiff who is in his care and
control, obtains advantages, a presumption of undue influence will arise that undue
influence was exercised.

In Rajamani Ammal v/s Bhoorasami Pandayachi and another

In this case, the plaintiff, the sister of the defendant remained under care and
control of the defendant during her minority and afterwards. Immediately after the
attained majority, the defendant obtained a release deed from her. The plaintiff was
unmarried and illiterate girl. She had no independent advice; she had executed the deed
without knowing its nature, contents and affect. It was held that the deed was vitiated by
exercise of undue influence because “the first defendant had obtained an advantage over
the plaintiff when he was in a fiduciary relation to the plaintiff. Neither the first defendant
nor the third defendant who claims under the first had attempted to rebut the presumption
of undue influence arising out of the defendant’s fiduciary relation.

Burden of proving Undue Influence

Section 16 provides that where a person who is in a position to dominate the will
of another, enters into a contract with him, and the transaction appears, on the face of it or
on the evidence adduced, to be unconscionable, the burden of proving that such a contract
was not induced by undue influence, shall lie upon the person who is in position to
dominate the will of the other.

Ex: A, being debt to b, the money-lender of his village, contracts a fresh loan on terms
which appear to be unconscionable. It lies on B to prove that the contract was not induced
by undue influence.

According to section 16 92) of the Act provides when a person is considered to be

in a position to dominate the will of the other. It gives three illustrations of such a
position, namely:

1. Whether the donee holds a real or apparent authority over the other,

2. Whether he stands in a fiduciary relation to the other,

3. Whether he makes a transaction with a person whose mental capacity is temporarily or

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

Effect of Undue Influence

Section 19-A of the Act deals with the consequences of agreements obtained by
undue influence. When consent to an agreement is caused by undue influence, the
agreement is a contract voidable at the option of the party whose consent was so caused.
Any such contract may be set aside either absolutely or, if the party who was entitled to

30
avoid it has received any benefit there under, upon such terms and conditions to the court
may seem just.

Ex: A;
A’s son has forged B’s name to a promissory note. B, under threat of prosecuting A’s
son, obtains bond from A, for the amount of the forged note. If B sues on this bond, the
court may set the bond aside.

3. Fraud

Section 17 of the Act provides that Fraud means and induces any of the following
acts committed by the party to a contract, or with the connivance or by his agent, with
intent to deceive another party thereto or his agent, to induce him to enter into the
contract-

1. The suggestion, as a fact, or that which is not true by one who does not believe it to be
true.

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

3. A promise made without any intention of performing it.

4. Any other act fitted to deceive.

5. Any such act or omission as the law specially declares to be fraudulent.

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

Ex: 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. but if 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.

Essential elements of Fraud

1. A suggestion; as to a fact with the knowledge that it is not true.

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

3. A promise made without intention to perform it.

4. Any other act fitted to deceive.

5. Any such act or omission as the law specially declares to be fraudulent.

Effect of Fraud
31
 When consent to an agreement is caused by coercion, fraud or misrepresentation
the agreement is a contract voidable at the option of the party whose consent was so
caused by fraud. A party to a contract was caused by fraud or misrepresentation may, if
he thinks fit insist that the contract shall be performed and that he shall be put in the
position in which he would have been if the representations made have been true. But a
fraud which did not cause their consent to a contract of the party, on whom such fraud
was practiced, does not render a contract voidable.

Ex: B, having discovered a vein of ore on the estate of A, adopts means to conceal and
does conceal, the existence of the ore from A’s ignorance B is enabled to but the estate at
an undervalue. The contract is voidable at the option of A.

4. Misrepresentation

Section 18 of the Act provides misrepresentation means and includes:

1. The positive assertion in a matter not warranted by the information of the person
making it, of that of which is not true, though he believes it to be true.

2. Any breach of duty which, without an intent to deceive, gains an advantage to the
person committing it, or any one claiming under him by misleading another to his
prejudice or to the prejudice of anyone claiming under him;

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

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

Essential elements of Misrepresentation

1. It is a false statement without any intention to deceive.

2. It may be innocent some times.

3. It does not involve dishonest intention.

4. The effect of agreement caused by misrepresentation is voidable, at the option of the

party whose consent has been so caused.

5. It must be made before the conclusion of the contract with a view to inducing the other
party to enter into the contract.

6. The aggrieved party has tow remedies:

A. He can avoid or rescind the contract.

B. He can accept the contract but insist that he shall be placed in the position in which he
would have been if the representation made had been true.

32
7. The aggrieved party loses the right to rescind or avoid the contract if he, after
becoming aware of the misrepresentation or fraud, takes a benefit under the contract or in
some other way affirms it.

8. The aggrieved party loses the right to rescind or avoid the contract, when the subject-
matter was destroyed or a third party has acquired right in it.

Effect of Misrepresentation

When the consent to an agreement is caused by misrepresentation, the agreement

is a contract voidable at the option of the party whose consent was so caused. A party
whose consent was so caused by misrepresentation, may, if he thinks fir, insists that the
contract shall be performed, and that he shall be put in the position in which he would
have been if the representation made had been true. A fraud or misrepresentation which
did not cause the consent to a contract of the party on whom such fraud was practiced or
to whom such misrepresentation was made does not render a contract voidable.

Distinction between Misrepresentation and Fraud

1. Misarepresentation is a false statement without any intention to deceive. It is also

called innocent.

But in case of Fraud is a statement deliberately or recklessly made to deceive

another. It is also called intention misrepresentation.

2. Misrepresentation may be innocent, i.e., there may not be deceit or any intention to
gain.

But in case of Fraud it shows that there must be in intention either to deceive or to
induce the other party to enter into a contract.

3. Misrepresentation does not involve dishonest intention; i. e. the element of moral

obligation is missing.

But in case of Fraud the dishonest intention is present.

4. Misrepresentation is only a vitiating element in a contract. It makes the contract

voidable at the option of the party injured.

But in case of Fraud being a vitiating element in a contract, it gives rise to an

independent action of tort.
5. Mistake

Classification of Mistake

Mistake may be classified into the following categories

1. Common Mistake
33
 In common mistake, both the parties make the same mistake. Each knows the
intention of the other and accepts it, but each is mistaken about some underlying and
fundamental fact.

Ex: The parties are unaware that the subject-matter of their contract has already perished.

2. Mutual Mistake

In mutual mistake, the parties misunderstand each other and are at cross purpose.

Ex: A intends to offer his 8 H.P car for sale but B believes that the offer relates to another
car for 10 H.P.

3. Unilateral Mistake

In unilateral mistake, only one of the parties is mistaken. The other knows or must
be taken to know, of his mistake.

4. Absence of Consent

Section 13 of the Act mistake of this category may relate to

A. Mistake as to the identity of the person

Section 13 of the Act says two or more persons are said to consent when they
agree upon the same thing in the same sense. that is to say there will be no contract if the
parties are not at ad idem.

Ex: If the offeree is mistaken about the identity of the offeror and if he contracts on such
mistaken assumption, parties cannot be said to be ad idem.

B. Mistake as to the existence of the subject-matter

If there is a mistake as to the nature of the transaction, the contract is void.

Ex: If a person signs the deed of gift being under the mistaken impression that he is
simply signing a power of attorney, the deed will be invalid on the ground of mistakes as
to the nature of transaction.

1. Mistake as to the existence of the subject-matter of the contract.

2. Mistake as to title.

3. Mistake as to the quality of the thing contracted for

34
4. A false and fundamental assumption going to the root of the contract.

C. Mistake as to the nature of transaction

If there is a mistake as to the nature of the transaction, the contract is void.

Ex: If a person signs the deed of gift being under the mistaken impression that he is
simply signing a power of attorney, the deed will be invalid on ground of mistake as to
the nature of transaction.

5. Mistaken by ignorance or Misconception of some matters

For brining a case of mistake under this category there should be following essential
elements:

A. Facts must be essential to the agreement

When both the parties to an agreement are under a mistake as to a matter of fact
essential to the agreement the agreement is void.

Ex: A agrees to sell B a specific cargo of goods supposed to be on the way from England
to Bombay. It turns out that before the day of bargain, the slip conveying the cargo had
been cast was, and the goods lost. Neither party was aware of these facts. The agreement
is void.

B. Mistaken must be of fact not of law

Section 21 of the Act provides a contract is not voidable because it was caused by
mistake as to any law in force in India, but a mistake as to a law not in force India has the
same effect as a mistake of fact.

Ex: A and B make a contract grounded on the erroneous belief that a particular debt is
barred by the Indian Law of Limitation; the contract will not be voidable.

C. Both the parties must have been under a mistake

Section 22 of the Act provides that 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.

In A. A Singh v/s Union of India

In this case, the plaintiff was the highest bidder in an auction by the government
for the right of fishery for a period of one year. He made the highest bid under the
mistaken impression that the rights of fishery was for a period of three years. He tried to
avoid the agreement on the ground of mistake of fact. But it was held that the mistake
was unilateral and therefore he could not avoid the agreement.

35
Rectification of Mistake

Where a contract has been reduced to writing or a deed owing to mutual mistake,
fails top express the concurrent intention of the parties at the time of its execution, the
court will rectify the written instrument in accordance with their true intent.

Conditions for Rectification

1. the parties must have been in final and full agreement prior to the execution of the
instrument which it is sought to rectify.

2. The party seeking to have the instrument rectified must adduced clear, unambiguous
evidence that its terms do not accurately record the true intention of the parties at the
time.

3. The intention of the parties as expressed in the prior agreement must have continued
unchanged up to the time of the execution of the written statement, and there must be a
literal disparity between the terms of the two transactions.

Agreements declared to be void

Section 2 (h) defines that an agreement enforceable by law is a contract. It means

every agreement must be lawful. All lawful agreements are valid and are enforceable by
law. There are some agreements which have been declared to be void under the Indian
Contract Act. Those are:

1. Unlawful Agreements

Section 23 provides that the object of an agreement is lawful, unless

1. It is forbidden by law

Section 23 provides that any agreements, the object or consideration of which is

forbidden by law is unlawful and therefore void.

In Pearce v/s Brooks

In this case, plaintiff agreed to supply the defendant with a brougham on hire, till
the purchase money was paid by installments in a period which was not to exceed twelve
months. The plaintiff had the knowledge that the defendant was a prostitute and the
brougham was to be used by her as a prostitute and to assist her in carrying on her said
immoral vocation. The jury found that the carriage was used by the defendant as a part of
her display to attract men and the plaintiff knew that it was supplied for that purpose. In
this case, Pollock C.B., observed, it is a settled law that any person who contributes to the
performance of an illegal act by supplying a thing with the knowledge that it is going to
be used for that purpose, cannot recover the price of the thing so supplied.
36
 Section 23 is founded on the principle that no one shall be allowed to trade on
felony. In case the accused person is innocent, the law will be abused for the extortion
and in case he is guilty, the law will be eluded by a corrupt compromise screening the
criminal for a consideration. The legislature did not lay down under section 23 the
conditions or qualifications as to what are forbidden by law or what would default the
provisions of any law. One has to go to law itself which is the subject matter of the
interpretation to see if the Act contained of is prohibited by law or it would defeat the
provisions of any law so as to pronounce it as void.

2. Agreements which defeat the provision of any law

Section 23 provides that if an agreement is of such a nature that if permitted, it

would defeat the provisions of any law, the consideration or object of such agreement is
said to be unlawful and every agreement the object or consideration of which is unlawful
is void.

Ex: A promise 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, for it defeats the provisions of criminal law. A person who is guilty of the
crime of robbery must be dealt with according to law.

3. Fraudulent

Section 23 of the Act provides the consideration is unlawful if it is fraudulent.

Ex: A, B and C enter into an agreement for the division among them of gains acquired, or
to be acquired by fraud. The agreement is void, as its object is unlawful.

Exceptions

1. Where the illegal purpose has not yet been substantially carried into effect before it is
sought to recover money paid or goods delivered in furtherance of it.

2. Where the plaintiff is not in pari delicto with the defendant

3. Where the plaintiff does not have to rely on the illegality to make out his claim.

4. Injury to person or property of another

Section 23 of the Act provides the consideration or object which involves or

implies injury to the person or property of another is unlawful and therefore void. If
parties enter into a sham transaction and their object is to deceive a third party, no legal
right or duties will follow or in other words the contract would be void. Thus an
agreement which involves injury to the properties of other persons is void under section
23 of the contract Act.

5. Immoral or Opposed to Public Policy

37
 Section 23 of the Act says the object of an agreement is unlawful if the court
regards it is immoral or proposed to public policy.

Meaning of Public Policy

It means an agreement which is injurious to the public or is against the interest of

the society is said to be opposed to public policy.

Ex: A contract of marriage brokerage is void.

A contract enforcing bonded labour is void.

A waging contract is void.

Meaning of Immoral

What is immoral at a a material time depends on the fact and circumstances of the
case and the prevailing standards of morality in the society.

In Pearce v/s Brooks

In this case, a coach builder had let out a brougham on hire to a prostitute for the
purpose of enabling her “to make a display favorable to her immoral purposes.” The
coach builder subsequently sued the prostitute for moneys payable under the agreement.
It was held by the Court of Exchequer that he could not recover the moneys. The rule
which is applicable to the matter is, ex turpi causa non oritur action, and whether it is an
immoral or an illegal purpose in which the plaintiff has participated, it comes equally
with the terms of that maxim, and the effect is the same; no cause of action can arise out
of either in the one or the other.

2. Agreements without consideration

Under the law of contract consideration is necessary for all formation of contract,
because without the consideration the contract is void. Section 2 (d) of the Act defines
consideration. According to the section when, at the desire of the promiser, the promise
or any other person has done or abstained from doing, or does, or abstains from doing, or
promises to do or to abstain from doing, something, such act or abstinence or promise is
called a consideration for the promise. If without the consideration making of contract is
declared to be void. So consideration is the utmost essential element of a valid contract or
agreement.

3. Agreement in Restraint of Marriage

Section 26 of the Act provides every agreement in restraint of the marriage of any
person other than a minor, is void. Thus the only exception recognized by Section 6 is
38
that of an agreement to restrain minor from marriage. Section 26 (2) of the Act declares
that an agreement in partial restraint of the marriage of any person, other than a minor, is
void if the court regards it as unreasonable in the circumstances of the case.

4. Agreement in Restraint of Trade

Section 27 of the Act provides that an agreement in restraint of trade is void.

Agreement in restraint of trade as one in which a party agrees with any other party to
restrict his liability to carry on trade with other persons not parties to the contract in such
manner as he choose. A contract in restraint may be described as one which unreasonably
restricts the right of a person to carry on his profession. Such contracts are of three kinds:

1. Those by which an employee agrees that after leaving his present employment he will
not complete against his employer, either by setting up business on his own account or by
entering the service of a rival trader.
2. Those by which the vendor of the goodwill of a business agrees that in future he will
not carry on a similar business in competition with the purchaser.

3. Those by which manufacturer or merchants form a combination for the purpose of

regulating their relations as for instance, agreeing to restraint the output or to fix the
selling price of a certain commodity.

According to section 27 of the Act every agreement by which anyone is restrained

from exercising a lawful profession, trade or business of any kind, is to that extent void.
One who sells the goodwill of a business, may agree with the buyer to restrain from
carrying on a similar business within specified limits so long as the buyer or any person
deriving title to the goodwill from him carries on a like business therein provided that
such limits appear to the court reasonable regard being had to the nature of the business.

In Madhub Chunder v/s Raj Coomar Dass

In this case, the defendant felt affected by the business of the plaintiff and agree to
pay some of money to the plaintiff if he stopped his business in that locality. The plaintiff
stopped business but the defendant did not pay him. The plaintiff therefore sued the
defendant to recover the said money which he claimed that he had advanced to his
workman. In this case, the Calcutta High Court held that the agreement was void and
therefore no part of it could be enforced.

Exceptions

1. Restraint during terms of service

An agreement whereby an employee covenants to bind himself not to complete

his employer during the term of his agreement is not a restraint of trade.

In Charlesworth v/s Mac-Donald

39
 In this case, the defendant agreed to serve for three years as an assistant to the
plaintiff, a physical and surgeon. The agreement contained a stipulation against practicing
by the defendant within the period of the agreement but he started practicing. The court
granted injunction restraining the defendant from practicing in Zanzibar during the period
of agreement. The court opined that such an agreement was not covered within the
meaning of section 27 of the Act.

2. Trade Combinations

Except in the cases where the contract is wholly one sided, normally the doctrine
of restraint or trade is not attracted in cases where the restriction is to operate during the
period the contract is subsisting and it applies in respect of a restriction which operates
after the termination of the contract.

In Bholanath shankardas v/s Lachminarain

In this case, the Allahabad High Court held that a combination formed by traders
of a p[particular locality to carry on business only among the members and to pay of their
profits to common fund and imposing fines upon members for violation of conditions laid
down by the combination was not invalid under section 27 of the contract Act even
though it might have indirectly damaged their trade rivals.

3. Solus Agreements

Section 27 declares void all agreements by which any one is restrained from
exercising a lawful profession, trade or business of any kind. It does not forbid contracts
which are necessary for carrying on of business.

Ex: A manufacturer may either into an agreement to sell his entire product to a particular
person and not to sell it to anyone else. Such agreements may be called solus agreements.

5. Agreements in restrain of Legal proceedings

Section 28 of the Indian Contract Act provides that every agreement by which any
party is restricted absolutely from enforcing his rights under or in respect of any contract,
by the ordinary tribunals, or which limits time within which he may thus enforce his
rights is void to that extent. According to Section 28 provides:

1. By which a party thereto is restricted absolutely from enforcing his right 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

2. Which extinguishes the rights of any party thereto, 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.

Exceptions

40
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 only the amount awarded in such arbitration
shall be recoverable in respect of the dispute so referred.

2. Saving of contract to refer questions that have already arisen

Nor this section shall render any illegal contract is writing by which two or more
persons agree to refer to arbitration any questions between them which has already arise
or affect any provision of law in force for the time being as to reference to arbitration.
6. Agreements void for Uncertainty

Section 29 of the Act provides that agreements, the meaning of which is not
certain, or capable of being made certain, are void.

Ex: 1. A agrees to sell B a hundred tons of oil. There is nothing whatever to show what
kind of oil was intended. The agreement is void fo0r uncertainty.
2. A agrees to sell to B all the grain in my granary at Ramanagar. There is no uncertainty
here to make the agreement void.

7. Agreement by way of Wager

Section 30 of the Act provides that agreements by way of wager are void but it
does not define the term wager. Wager means staking something of value upon the result
of some future uncertain event, such as, a horse race, or upon the ascertainment of the
truth concerning some past or present event, such as the population of London, with
regard to which the wagering parties express opposite views.

Elements of Wager

1. Gain or loss

There must be two sides and mutual chances of gain and loss.

2. Uncertain Event

The performance of the agreement must depend upon an uncertain event as the
sole condition of their contract. An event may be uncertain, not only because it is future
event, but because it is not yet ascertained, at any rate to the knowledge of the parties.

3. No other interest

The parties must contemplate the determination of the uncertain event as the sole
condition of their contract. The object of the wager is to make a gain purely as the
decision of an uncertain event.

41
4. Neither party should have a proprietary interest in the event.

The stake must be the only interest which the parties have in the contract. That is
to say, neither party must have a proprietary interest in the event.

Ex: If either party to a contract, under which money is payable upon the determination of
an uncertain event possesses an interest in the subject-matter of the contract that will be
affected in value according to the determination of the event, the contract is void as being
a wager.

Lotteries

Lotteries have been defined as games of chance in which the event of either gain
or loss of absolute right to a prize or prizes by the person concerned is made wholly
dependent upon the drawing or casting of lots, and the necessary effect of which is to get
a spirit of speculation and gaming that is often productive of serious evils.

The lotteries authorized by the state also has a sanction in law, a gambling may be
raised and may be authorized for a specific purpose, but if would not attain the status of
trade like other traders or becomes res commercium.

Effects of Wagering Contracts

Section 30 of the Contract Act provides

1. Agreements by way of wager-are void

2. No suit shall be brought for recovering anything to be won on any wager

3. Entrusted to any person to abide the result of any game or other uncertain event on
which any wager is made.

Exception

Section 30 of the Act says this section shall not be deemed to render unlawful
subscription or contribution, or agreement to subscribe or contribute made or entered into
for or towards any plate, prize or sum of money, of the value or amount of five hundred
rupees or upwards to be awarded to the winner or winners of any horse race.

Agreements to do impossible acts

Section 56 provides 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.

Contingent contracts

42
 Section 31of the Act provides contingent contract. It means 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.

Ex: A contract to pay B, Rs. 10,000 if B’s house is burnt. This is a contingent contract.

Elements of Contingent Contract

1. A contract to do or not to do something.

2. If some event does or does not happen.

3. The said event must be collateral to such contract.

When can a contingent contract be enforced?

1. On the happening of an event

Section 32 provides that 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.

Ex: If 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.

2. On the event not happening

Contingent contracts to do or not to do anything if an uncertain future event does

or does not happen can be enforced when the happing of that event becomes impossible,
and not before.

Ex: A agrees to pay B a sum of money, if a certain ship does not future. The ship is sunk.
The contract can be enforced when the ship sinks and not before. If the future event on
which a contract is contingent in the way in which a person will act at an unspecified
time, the event shall be considered to become impossible3, when such person does
anything which renders it impossible that he should so act within any definite time, or
otherwise than under future contingencies.

3. Contingent on specified event not happening within fixed time

Contingent contracts to do anything if a specified uncertain even does not

happened within a fixed time may be enforced by law when the time fixed has expired
and such event has not happened, or before the time fixed has expired if it becomes
certain that such event will not happen.

Ex: A promises to pay 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 a year, or is brunt within the
year.

43
When a contingent contract becomes void?

1. Event becoming impossible

Section 32 of the Act provides that if the event becomes impossible, contingent
contract to do or not to do anything if an uncertain future event happens become void.

Ex: A contracts to pay B a sum of money when b marries C, C dies without being
married to B. the contract becomes void.

2. On the happening of specified event within fixed time

Contingent contracts to do or not to do any thing if a specified uncertain event

happens within a fixed time, becomes void if at the expiration of the time fixed, such
event has not happened, or if, before the time fixed, such event becomes impossible.

Ex: 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 returns within the year, and becomes void if the
ship is burnt within the year.

3. Agreements contingent on impossible events

Section 36 provides that contingent agreements to do or not to do anything if an

impossible event happens, are void, whether the impossibility of the event is known to
the parties to the agreement at the time when it is made.

Ex: A agrees to pay B Rs. 1, 0000 if two straight lines should enclose a space. The
agreement is void.

44
 UNIT – III

Discharge of Contract

Discharge of contract means a contract ceases to operate. The rights and

obligations created by the contract come to an end and the termination of the contractual
relationship between the parties. A contract may be discharged in any of the following
ways:

1. Impossibility of Performance

In England, the law regarding the discharge of contract is based on what is

popularly known as the Doctrine of Frustration.

Grounds of Frustration

1. Destruction of the subject-matter of the contract

Where the performance of the contract becomes impossible by the destruction of

the specific thing essential to that performance that contract is discharged.

2. Non-occurrence of a particular state of thins

The doctrine of frustration has also been applied in cases of non-performance of a

particular event which is essential for the performance of the contract.

3. Death or Incapacity of the party

Where the performance of a contract depends upon the personal service of a party,
the death or incapacity of such a party may be treated to be a valid ground for frustration
of contract.

4. Change of circumstances

If the change of circumstances makes the performance of the contract impossible,

the contract will frustrate and parties will be discharged from their obligations under the
contract. If despite the change of circumstances, the performance is till possible, the
contract will not be deemed to have been discharged.

5. Building contracts

45
 Where the execution of the contract is delayed or otherwise becomes impossible
by the happing of an external event, the contract is discharged. But much will depend
upon the facts and circumstances and each case has to be judged on its own merits.

6. Change in Law

The performance of a contract may also become legally impossible by the change
in law. If the performance becomes legally impossible, the contract will be discharged.
The change in the law must be such as to strike at the root of the agreement, and not
merely to suspend or hinder its operation in part.

Theories of Frustration

Following are the main theories of Frustration

1. The Theory of Implied Term

According to this theory, the courts, after examining the circumstances under
which the contract was made find that it was made on the footing that a particular state of
things would continue to exist though it may not be expressly written in the contract, and
if such a state of things ceases to exist.

Criticism of the theory of implied term

1. If used in a subjective sense it is difficult to see how the parties can be taken.

2. The frustration may take place irrespective of individuals concerned, their

temperaments and failings, their interest and circumstances.

3. Disappearance of the foundation of the contract

Discharge of contract means a contract ceases to operate. It also means the rights
and obligations created by the contract come to an end and termination of the contractual
relationship between the parties. A contract may be discharged in any of the following
ways:

2. Discharge by Performance of Contract

If the foundation of the contract disappears, the contract is discharged. If the

foundation of contract goes, either by the destruction of the subject-matter or by reason of
such long interruption or delay that the performance is really in effect that of a different
contract, and the parties have not provided what in that event is to happen, the
performance of the contract is to be regarded as frustration.

3. Theory of just and reasonable solution

46
 Section 37 provides that the parties to a contract must perform or offer to perform,
their respective promises, unless such performance is dispensed with or excused under
the provisions of this Act or any other law.

4. Change in the obligation of the parties

Frustration occurs whenever the law recognizes that without default of either
party a contractual obligation has become incapable of being performed because the
circumstances in which the performance is called for would render it a thing radically
different from that which was undertaken by the contract.

Section 56 of the Act says that an agreement to do an act impossible in itself void.

Ex: A agrees with B to discover treasure by magic. The agreement is void.

A contract to do an act which, after the contract is made, become impossible, or

by reason of some event which the promisor could not prevent, unlawful, becomes void
when the act becomes impossible or unlawful.

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

Exception to the doctrine of Impossibility of Performance

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

In Satyabarata Ghose v/s Mugneeram Bangur and Company

In this case, the Supreme Court held that the doctrine of frustration makes the
promisor liable to pay compensation to the promise for non-performance of the promise.
Thus if the promisor knew or could know with ordinary diligence that he promised to do
something which was impossible or unlawful and the promise did not know, he must pay
compensation to the promise for the loss sustained by him for the non-performance of the
promise.

2. Discharge by Performance of Contract

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

The promises bind not only the promises but also their representatives if they die
before performing their promises. But the representatives of the promisors shall not be
bound by the promises if a contrary intention appears from the contract.

47
Ex: 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. But if A promises to paint a picture for B by a
certain day at a certain price and if he dies before that day the contract cannot be enforced
either by A’s representatives or by B, because in this case the intention of the contract is
that the picture is to be pained by A and A alone.

By whom contracts must be performed?

1. by promisor himself of his representatives

Section 40 of the Act provides that if it appears from the nature of the case that it
was intention of the parties to any contract that any promise contained should be
performed by the promisor himself, such promisor must be performed by the promisor. In
other cases the promisor for his representatives may employ a competent person to
perform it.

Ex: A promises to pay a sum of money. A may perform this promise, wither by
personally paying the money to B or by causing it to be paid to B by another; and, A dies
before the time appointed for payment, his representative must perform the promise, or
employ some proper person to do so.

2. Devolution of joint liabilities

Where the promise is made jointly by two or more than two persons, all the said
persons must fulfill the promise during their joint lives. In case any one of them dies then
the promise must be performed by his representative jointly with the survivors as the case
may be. In case all the promisors die before the performance, the promise must be
performed jointly by their representatives.

3. Any one of joint promisors may be compelled to perform

Section 43 of the Act says when two or more persons make a joint promise, the
promise 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.

Ex: 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. In case where one of the joint promisors has been compelled to
perform the whole of the promise, he may compel every other joint promisor to
contribute equally with himself to the performance of the promise.

Effect of release of one joint promisor

Section 44 provides that the where two or more persons have joint made a joint
promise, a release of one of such joint promisors does not discharge the other joint
promisor or joint promisors: neither does it free the joint promisor so released from
responsibility to the joint promisor or promisors.

48
Devolution of joint rights

Section 45 of the contract Act provides that 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 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.

Ex A, in consideration of 5,000 rupees, lent to him by B and C promises 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 representatives jointly with c during C’s life
and after the death of C with the representatives of B and C jointly.

3. Discharge of Contracts by Agreement

Section 62 of the Act provides that 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. If
parties substitute a new agreement for the old, revoke it or alter it the original contract iis
discharged.

Ex: A owes money to B under the contract. It is agreed between A, B and C that B shall
henceforth accept C as his debtor, instead of A. the old debt of A to B is at an end, and a
new debt from C to B has been contracted.

Novation

Novation may be of two types:

1. Novation Involving Changing of Parties

It contemplated in section 62 of the Contract Act involves an annulment of one

debt and the creation of another. In such cases the court has to consider not only whether
the new debtor has consented to assume liability but also whether the creditor has agreed
to accept the liability of the new debtor in substitution of the original debtor. Novation is
not consists with the original debtor remaining liable in any form, since the essential
element of novation is that the rights against the original contractor shall be
relinquishment and the liability of the new contracting party accepted in its place, under
law one of the requires to novation is the agreement of the parties of the new contract.

2. Novation Involving the Substitution of a new contract for old

Section 62 of the Act provides that novation may also involve the substitution of a
new contract for the old.

Ex: A owes B 10,000 rupees. A enters into an agreement with B, and gives B a mortgage
of his estate for 5,000 in place of the debt of 10,000 rupees. This is a new contract and
extinguishes the old.
49
In Indian Bank, Madras v/s S. Krishnaswamy and others

In this case, the respondent’s plaintiff gave certain securities in respect of certain
financial facilities given by the appellant bank to Sree Bharathy Mills ltd. Pondicherry.
Subsequently mill was taken over by government and fresh agreement was entered into
between government and Mill. Surety was not informed of this agreement. The Division
Bench of the madras High Court held that surety was discharged from liability.

Rescission and Alteration

A contract may also be discharged if the parties agree to alter or rescind the
contract. Alteration of rescission may also be implied. Much will depend upon the facts
and circumstances and the intention of the parties.

Promise may dispense with or remit performance of promise:

Section 63 of the Act provides that 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.

Important points

1. The promise may dispense with or remit the performance.

2. He may extend the time of performance

3. He may accept any satisfaction he thinks fit.

Ex: 1. A promise to paint a picture for B. B afterwards forbids him to do so. A is no

longer bound to perform the promise.

2. A owes B, 2,000 rupees, and is also intended to other creditors. A makes an agreement
with his creditors, including b to pay them a composition of eight annas in the rupees
upon their respective demands. A payment to B 1,000 rupees is a discharge of B’s
demand.

Consequences of Rescission of Viodable Contracts

Section 64 of the Act provides that when a person at whose option a contract is
voidable rescinds it, the other party thereto need to perform any promise therein
contained on which he is promisor. The party rescinding a voidable contract shall, if he
has received any benefit, so far as may be, to the person from whom it was received.
Section 39 of the Act provides that when a party to a contract has refused to
perform, or disabled himself from performing his promise in its entirety, the promise may
put an end to the contract.

Essential elements
50
1. When a person, at whose option a contract is voidable, rescinds

2. The other party to the contract need not perform it.

3. The party rescinding a voidable contract shall restore any benefits received under the
contract.

It is true that even if time was not originally of the essence, the appellants could
by notice served upon the respondent call upon him to take the conveyance within the
time fixed and intimate that in default of compliance with the requisition the contract will
be treated as cancelled.

In Koyana Suryanarayana Reddy v/s Chellayamma

In this case Andhra Pradesh High Court observed that once the condition is not
fulfilled as contemplated by the terms of the agreement when time is made the essence of
the contract originally or subsequent thereto, the failure to perform the contract within the
stipulated time gives a right to avoid the contract. That is the true effect of Section 55 of
the Act.

Obligation of person receiving advantage under void agreement or contract that

becomes void

Under section 65 says 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.

Ex: 1. A pays B 1,000 rupees in considerations 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
the 1,000 rupees.

2. A contracts with b to deliver to him 250 maunds of rice before the first day of May. A
delivers 130 maunds only before that day, and none after. B retains the 130 maunds after
the first May. He is bound to pay A for them.

Section 65 provides restitution or compensation in two cases:

1. Where an agreement is discovered to be void.

2. Where a contract becomes void.

The word when a contract becomes void would include the contract of following
categories:

1. Contracts that becomes void if consent of one party of them has been obtained by
coercion, fraud, misrepresentation or undue influence.
51
2. Where both parties are under mistake as to a matter of fact.

3. An agreement by which a person is restrained from exercising a lawful profession,

trade or business of any kind.

4. 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.

5. It may also include a contract that becomes void due to unauthorized alterations in the
deed of contract.

Mode of communicating or revoking, rescission of viodable contract

If any promise neglects or refuses to afford the promisor reasonable facilities for
the performance of his promise, the promisor is excused by such neglect or refusal as to
any non-performance caused thereby. Thus any non-performance of the promise caused
by the neglect or refusal of the promise to afford reasonable facilities to the peomisor
shall be excused or in other words to that extent he shall be discharged from his
obligations under the contract.

Ex: A contracts with B to repair B’s house. B neglects or refuses to point out to A the
places in which his house requires repair. A is executed for the non-performance of the
contract, if it is caused by such neglect or refusal.

4. Discharge of Contract by Breach

If one of the parties to a contract breaks an obligation which the contract imposes,
a new obligation will in every case arise a right of action conferred upon the party injured
by the breach. Besides this, there are circumstances in which the breach not only gives
rise to a cause of action but will also discharge the injured party from such performance
as may still be due from him.

Breach may be of two types

1. Anticipatory Breach

Anticipatory breach arises when one of the parties, to a contract repudiates the
contract before the time of performance.
In Hochester v/s Dela Tour

In this case, the plaintiff was engaged by the defendant to enter into his service as
a courier and go along with him on a tour. The service of the plaintiff was to start on 1 st
June. On 11th May he was informed by the defendant that his services were no longer
required. The plaintiff brought an action even before the time of performance has arrived.
It was held that plaintiff was entitled to bring action even before the time of performance

52
 When a party to a contract has refused to perform or disabled himself from
performing, his promise in its entirely the promise may put an end to contract, unless he
has signified by words or conduct, his acquiescence in its continuance.

2. During Performance

If one of the parties to a contract refuses to perform his part of the contract during
performance, the other party is discharged from any further performance of his
obligations under the contract and may also bring an action for the breach.

Ex: a, a singer, enters into a contract with b, the manager of the theatre, to sing at his
theatre two nights in every week during the next two months, and B engages to pay her
100 rupees for each night’s performance. On the sixth night A willfully absents herself
from the theatre. B is at liberty to put an end to the contract. But in case of acquiescence,
the promise cannot afterwards put an end to the contract although he may claim damages
for the loss sustained by his through the non-performance by the promisor. Thus in the
above case, if with the assent of b, A signs on the seventh night, b having signified his
acquiescence in the continuance of the contract, b cannot now put an end to or although
he is entitled to compensation for the damages sustained by him through A’s failure to
sing on the sixth night.

Discharge of Contract by Operation of Law

The instance of the discharge by operation of law are following:

1. Merger

If in the place of a lower security, a higher security is accepted, the lower security
will be deemed to be merged in the higher security and the party concerned shall be
discharged from its obligations in respect of the lower security.

2. Discharge by the Judgment of a Court

A contract may also be discharged by the judgment of a court of competent and

appropriate jurisdiction in favour of the plaintiff.

3. Alteration or cancellation of a written instrument

A contract may also be discharged by alteration or cancellation of a written

instrument. An alteration here is different than provided under section 62 of the Act. The
Act says the alteration is made with the consent of the parties so as to discharge them.
But alteration here is unauthorized alteration such as addition or ensure of the contract in
writing. If a party erases or alters the written instrument, the other party is discharged
from its obligations under the contract.

4. Bankruptcy
53
 When a person is adjudged a bankrupt by the court, he is thereby discharged from
his debts and other obligations. Thus bankruptcy may also operate to discharge the
obligations of a party to a contract.

Performance of Contracts

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

The promises bind not only the promises but also their representatives if they die
before performing their promises. But the representatives of the promisors shall not be
bound by the promises if a contrary intention appears from the contract.

Ex: 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. But if A promises to paint a picture for B by a
certain day at a certain price and if he dies before that day the contract cannot be enforced
either by A’s representatives or by B, because in this case the intention of the contract is
that the picture is to be pained by A and A alone.
By whom contracts must be performed?

1. by promisor himself of his representatives

Section 40 of the Act provides that if it appears from the nature of the case that it
was intention of the parties to any contract that any promise contained should be
performed by the promisor himself, such promisor must be performed by the promisor. In
other cases the promisor for his representatives may employ a competent person to
perform it.

Ex: A promises to pay a sum of money. A may perform this promise, wither by
personally paying the money to B or by causing it to be paid to B by another; and, A dies
before the time appointed for payment, his representative must perform the promise, or
employ some proper person to do so.

2. Devolution of joint liabilities

Where the promise is made jointly by two or more than two persons, all the said
persons must fulfill the promise during their joint lives. In case any one of them dies then
the promise must be performed by his representative jointly with the survivors as the case
may be. In case all the promisors die before the performance, the promise must be
performed jointly by their representatives.

3. Any one of joint promisors may be compelled to perform

54
 Section 43 of the Act says when two or more persons make a joint promise, the
promise 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.

Ex: 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. In case where one of the joint promisors has been compelled to
perform the whole of the promise, he may compel every other joint promisor to
contribute equally with himself to the performance of the promise.

Effect of release of one joint promisor

Section 44 provides that the where two or more persons have joint made a joint
promise, a release of one of such joint promisors does not discharge the other joint
promisor or joint promisors: neither does it free the joint promisor so released from
responsibility to the joint promisor or promisors.

Devolution of joint rights

Section 45 of the contract Act provides that 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 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.

Ex A, in consideration of 5,000 rupees, lent to him by B and C promises 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 representatives jointly with c during C’s life
and after the death of C with the representatives of B and C jointly.

Time and Place of Performance

1. where no time specified and no application is to be made

Where, by the contract, a promisor is to perform his promise without application

by the promise and no time for performance is specified the agreement must be
performed within a reasonable time.

2. Time and place of performance where time is specified but no application is to be

made

55
 Section 47 provides that when a prtomise is to be performed on a certain day, and
the promisor has undertaken to perform it without application by the promise, the
promisor may perform it at any time during the usual hors of business on such day and at
the place at which the promise ought to be performed.

4. When performance to be made on certain day at proper time and place

Section 48 of the Act provides that when a promise is to be performed on a certain

day, and the promisor has not undertaken to perform it without application by the
promise, it is the duty of the promisee to apply for performance at a proper place and
within the usual hours of business.

5. where no place fixed and no application to be made for performance

When a promise is to be performed without application by the promise and no

place is fixed for the performance of it, it is the duty of the promisor to apply to the
promise to appoint a reasonable place for the performance of the promise and to perform
it at such place.

Ex: A undertakes to deliver one thousand maunds of jute to B on 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.

6. Performance to be in manner or at time prescribed or sanctioned by the promise

Section 50 lays down the promisor is to perform the promise in any manner, or at
any time which the promise prescribes or sanctions.

Consequence of failure to perform at fixed time in a contract in which time is

essential

Section 55 of the Act provides that when a party to a contract promises to do a

certain thing at or before a specified time, or certain things at or before specified times,
and fails to do any such thing at or before the specified time, the contract, or so much of
it as has not been performed, becomes voidable at the option of the promise, if the
intention of the parties was that time should be the essence of the contract.

Bhudra Chand v/ Betts

In this case, related to the agreement wherein the defendant undertook the
responsibility to deliver an elephant to the plaintiff for capture of wild elephants. The
elephant was to be delivered on October 1, 1910. Later on, the defendant requested for
extension of date of delivery which was allowed to be till 6 th of October but he failed to
deliver even by that time. He ultimately offered to deliver the elephant on 11th October,
1910. But the buyer now rejected to accept. It was held the court that in this case time
was the essence of the contract and the plaintiff was therefore justified in refusing to
accept the delivery.

56
 The law is well settled that in transactions of sale of immovable properties, time is
not the essence of the contract. Even if it is not the essence the court may infer that it is
too be p[performed in a reasonable time if the conditions are:

1. from the express terms of contract

2. from the nature of the property

3. from the surrounding circumstances

Ex: The objection of making the contract.

Performance of Reciprocal Promises

Reciprocal means in return or inversely correspondent. A contract comprising of

reciprocal promises is a contract wherein there is an exchange of promise. Section 51
provides when a contract consists of reciprocal promises to be simultaneously performed
no promisor need perform his promise unless the promise is ready and willing to perform
his reciprocal promise.

Ex: A and B contract that A shall deliver goods to b to be paid for by B on delivery. A
not deliver the goods, unless B is ready and willing to pay for the goods on delivery. B
need not to pay for the goods, unless A is ready and willing to deliver them on payment.

Order of Performance of Reciprocal Promises

Section 52 of the Act provides that in the absence of any express provision in the
contract to that effect, they shall be performed in the order which the nature of the
transaction requires.

Section 54 of the Act provides that when a contract consists of reciprocal

promises, such as that one of them cannot be performed or that its performance cannot be
claimed till the other has been performed and the promisor of the promise last mentioned
fails to perform it, such promisor cannot claim the performance of the reciprocal promise
and must make compensation to the other party to the contract for any loss which such
other party may sustain by the non-performance of the contract.

Ex: A hires B’s ship to take in and convey, from Calcutta to the Mauritius, a cargo to be
pro vided by A, B receiving certain freight for its conveyance. A does not provide any
cargo for the ship. A cannot claim the performance of B’s promise, and must make
compensation to B for the loss which B sustains by the non-performance of the contract.

Reciprocal promise to do thins legal as well as illegal

Section 57 of the Act provides that 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.
57
Ex: A and B agree that A shall sell B a house for 1,000 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 contract and can be enforce but
the second set is for an unlawful object namely, that B may use the house as gambling
house and is a void agreement.

Contract shall be void to the extent of the performance of illegal branch

Ex: If in a contact A and B agree that A shall pay B 1,000 rupees, for which B shall
afterwards deliver to a either rice or smuggled opium the contract shall be valid and
enforceable so for as the delivery of rice is concerned but it will be void regarding the
delivery of opium.

Appropriation of payments

1. where a debtor, owing several distinct debts to one person, makes a payment to him,
either with express intimation, or under circumstances, implying to him, either with
express intimation, or under circumstances, implying that the payment is to be applied to
the discharge of some particular debt, the payment, if accepted must be applied
accordingly.

Essential Elements

1. Where the debtor owes several debts to one person.

2. The debts in question must be distinct.

3. The debtor must intimate the creditor expressly or impliedly that the payment be

applied to the discharge of some particular debt.

4. If the above conditions are satisfied, the creditor is bound to apply the payment for the
discharge of the debt as intimated to him by the debtor.

Ex: A owes to B, among other debts, 1,000 rupees upon a promissory note, which fall due
on the 1st June. He owes B on other debt of that amount. On the 1 st June a pays to B 1,00
rupees. The payment is to be applied to the discharge of the promissory note.

2. Application of payment where debt to be discharged is not indicated

In case of the debtor does not intimate the creditor either expressly or impliedly as
to which the payment is to be applied, the creditor gets the discretion to apply it to any
debt. He may even apply for the debts whose recovery has become barred by the law of
limitation in force for the time being.

In Syndicate Bank v/s M/s. West Bengal Cements Ltd.

58
 In this case, the plaintiff Syndicate Bank filed the suit for the recovery of rupees
33, 39,026.75p. During the pendency of the suit the defendants paid rupees 7, 40,000 to
the plaintiff Bank in the year 1983-84. While paying the said amount the defendants did
not give any special instructions to the plaintiff as it how the said amount was to be
adjusted. The High Court held that the defendants in law cannot insist that the amount is
liable to be adjusted against the principal amount in the absence of any such instructions.

3. Application of payment where neither party appropriates

A situation wherein the debtor makes the payment and does not indicate, either
expressly or impliedly as to its application to a particular debt and the creditor also does
not appropriate for discharge of any debt. In such a case, the payment is to be applied in
discharge of the debt in the order of time and where the debts are of equal standing, the
payment shall be applied in discharge of each proportionately.

Section 61 of the Act says essential elements

1. Where the debtor dose not indicate the application of the payment for the discharge of
particular debt.

2. The creditor does not appropriate it to discharge of any distinct debt due.

3. The payment shall be applied in discharge of the debts in order of time.

4. Irrespective of the fact as to whether they are or not barred by the law in force for the
time being as to the limitation of suits.

5. If the debts are of equal standing, the payment shall be applied in discharge of each
proportionately.

59
 UNIT - IV

Remedies for Breach of Contract

Contract may be classified under the following three heads

1. Damages

In order to establish a right to damages, the first thing the plaintiff must show is
that the loss which he has sustained was caused by the breach. But assuming this can be
proved, the law will nevertheless, not compel the defendant to assume liability for all the
loss which the plaintiff may conceivably have suffered as a consequence of the breach.

Remoteness of Damages

Even if it is proved that the plaintiff suffered loss because of the breach of
contract, the plaintiff, cannot claim all the loss which he might have suffered. In this
connection the general principle is that the law will not compel the defendant to pay
damages which are remote.

In Handley v/s Baxendale

60
 In this case, the plaintiff’s mill stopped due ti the breakage of the crankshaft, a
vital part of the mill. The plaintiff, wanted to send the shaft to a certain maker at
Greenwich as a pattern for a new one to be manufactured by them. The plaintiff delivered
the shaft to the defendant, a common carrier for the purpose of being delivered to the
makes at Greenwich. The only circumstances communicated by the plaintiffs to the
defendant at the time of the contract were that the article to be carried by them was the
broken shaft of a mill and that the plaintiffs were the millers of that mill. Delivery of the
shaft to the manufacturers at Greenwich was delayed due to some negligence of the
defendant. The plaintiff, could not receive the shaft for several dsys and consequently the
mill could not start in time resulting in the loss of profits to the plaintiffs which they
would have earned, had the shaft been received in time. The defendant resisted the claim
of the plaintiff on the ground that the damages were too remote.

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

The rule in Hardly v/s Baxendale

1. The first branch deals with damages “as may fairly and reasonably be considered either
arising naturally i.e. according to the usual courser of things.” For the sake of brevity we
may refer it as “general damages”.

2. The second branch deals with damages “as may reasonably be supposed to have been
in contemplation of both parties, at the time they made the contract, as the probable result
of the breach of it”. This may be referred as “special damages”.

General Damages

General damages depend on the knowledge which the parties are presumed to
possess.

Ex: The plaintiff delivered to the defendant to be shipped on defendant’s vessel certain
cases of machinery intended for the erection of a saw-mill at Ratlam. The defendant
failed to deliver one of the cases, but was unaware of the fact that it contained a material
part of the machinery without which the saw-mill could not be erected at all. The plaintiff
claimed as damages not only the cost of replacing the lost parts, but also the loss incurred
by the stoppage of their works during the time the rest of machinery remained unless
owing to the absence of the lost parts.

Special Damages
61
 Special damages may be successfully claimed only when they may reasonably be
supposed to have been in the contemplation of both parties, at the time they made the
contract, as the probable result of the breach of it.

In Simpson v/s London and North Railway Company

In this case, the plaintiff used to send specimens of his goods for exhibition to
agricultural shows. After having exhibited them at Bedford he gave his samples to an
agent of the defendant company to be carried to a show-ground at Nwecastle. His
consignment note contained the words: “Must be a t Bwecastle Monday certain”. Due to
negligence of the company, the sample reached late and could not be exhibited at
Newcastle show. The plaintiff brought an action to recover damages for his loss of profits
at Newcastle show. The plaintiff brought an action to recover damages for his loss of
profits at Newcastle show. In this case the company was held liable for its agent had the
knowledge about the goods to be exhibited at the Newcastle show and hence it was in the
contemplation of the company that delay in the delivery might lead to losses of such kind.

Section 73 of the Act provides that 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.

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 a person had
contracted to discharge it and had broken his contract.

Ex: 1. A contracts to sell and deliver 50 maunds of saltpeter 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 saltpeter of like quality at the time when the
saltpeter ought to have been delivered.

2. A contracts to buy of B, at stated price, 50 maunds of rice, no time being fixed for
delivery. A afterwards informs B that he will not accept the rice if tendered to hi. B is
entitled to receive from A by way of compensation the amount, if, any, by which the
contract price exceeds that which B can obtain for the rice at the time when a informs b
that he will not accept it.

Measure of Damages

After the extent of loss which the plaintiff can recover has been determined, it
will be necessary to evaluate it in terms of money.

Important points

62
1. Compensatory nature of damages

Damages for breach of contract are given by way of compensation for loss
suffered, and not by way of punishment for wrong inflicted. The measure of damage is
therefore not affected by the motive or manner of the breach. In fact, the object of
awarding damages for breach of contract is to put the injured party into the position in
which he would have been had the contract been performed.

. 2. Duty to mitigate damage suffered

Section 73 of the Act provides that in estimating the loss or damage arising from a
breach of contract, the means which existed or remedying the inconvenience caused by
the non-performance of the contract must be taken into account.

In Jamal A.K.A.S. v/s Moolla Dawood Sond and Company.

In this case, the Privy Council held that it is undoubted law that a plaintiff who
sues for damages owes the duty of taking all reasonable steps to mitigate the loss
consequent upon the breach and cannot claim as damages any sum which is due to his
own neglect. But the loss to be ascertained is the loss at the date of the breach. If at that
date the plaintiff could do something or did something which mitigated the damage, the
defendant is entitled to the benefit of it.

Liquidated Damages and Penalty

Section 74 provides that when a contract has been broken, if a sum is named in
the contract as the amount to be paid in case of such breach, or the contract contains any
other stipulation by way of penalty, the party complaining of the breach is entitled,
whether or not actual damage or loss is proved to have been caused thereby, to receive
from the party who has broken the contract reasonable compensation not exceeding the
amount so named or as the case may be, the penalty stipulated for.

Essential elements of section 74

1. When a contract has been broken.

2. If a sum is named in the contract payable on breach or any other stipulation by way of
penalty.

3. Whether or not the actual loss is proved to have been caused thereby.

4. The party complaining the breach is entitled to receive reasonable compensation from
the party who has broken the contract.

5. The compensation should not exceed the amount named or the penalty stipulation for.

Ex: A and Q agreed to play a wrestling match on the condition that the party who did not
appear on the day fixed for the match would give Rs. 500 to the opposite party. P did not
63
turn up on the fixed day. Q sued P for Rs. 500. Q will succeed in his suit but he will get
only reasonable compensation not exceeding Rs. 500. If the court deems firm, it may
allow Rs. 500i.e. the sum named in the contract. If the court does not deed fit to award
Rs. 500 in accordance of the facts and circumstances of the case, it may award any sum
below Rs. 500. The Court may award any sum not exceeding Rs. 500.

Section 74 further says that in case of bail-bond when any person enters into any
bail bond recognizance or any other instrument of the same nature, or under the orders of
the Central Government or of any state government, the person giving the bond for the
performance of any public duty or act in which the public are interested shall be liable
upon such breach of the condition of any such instrument, to pay the whole sum named
or mentioned therein.

A person who enters into a contract with the government does not necessarily
thereby undertake any public duty, or promise to do an act in which the public are
interested.

Ex: 1. A contracts with B to pay B rupees 1,000, if he fails to pay rupees 500 on a given
day. A fails to pay rupees 500 on that day. B is entitled to recover from A such
compensation, not exceeding rupees 1,000 as the Court considers reasonable.

2. A contracts with B that, if A practice as a surgeon within Calcutta, he will pay B

rupees 5,000. A practice as a surgeon in Calcutta. B is entitled to such compensation, not
exceeding rupees 5000 as the Court considers reasonable.

Exceptions to Essential elements

1. A bail-bond, recognizance or to other instrument is entered into with the government.

2. The contract is entered into under the provisions of any law or under the orders of the
Central or State Government.

3. The instrument is for the performance of any public duty or act in which public are
interested.

4. In case of breach of contract, the whole sum named or mentioned in the instrument
shall be payable.

Compensation of Rightful Rescission of the Contract

Section 75 provides a person who rightfully rescinds a contract is entitled to

compensation for any damage which he has sustained through the non-fulfillment of the
contract.

Ex: A, a singer, contracts with B, the manager of a theatre, to sing at his theatre for two
night in every week during the next two months, and B engages to pay her 100 rupees for
each night’s performance. On the sixth night A willfully absents herself from the theatre,

64
and B, in consequence, rescinds the contract. B is entitled to claim compensation for the
damage which he has sustained through the non-fulfillment of the contract.

2. Quantum Meruit

It means if the injured party, when the breach occurs, has already done, part,
though not all, of what he was bound to do under the contract, he may be entitled to claim
the value of what he has done. In that case he has to sue upon a Quantum Meruit, he adds,
Quantum Meruit is till a remedy which is alternative to rather than a form of damages.

Conditions

1. It is available only if the original contract has been discharged.

2. The claim must be brought by the party not in default.

Compensation quantum meruit is awarded for work done or services rendered

when the price thereof is not fixed by a contract. For work done or service rendered
pursuant to the contract compensation quantum meruit cannot be awarded where the
contract provides for consideration payable in that behalf.

In State of Rajasthan v/s Motiram

In this case, a clause in the contract provided that the contract shall not become
invalid if alterations in specifications and designs were provided on the basis of quantum
meruit. It was held that even if the work was materially changed outside the
contemplation of the parties due to alterations or subsequent change of circumstances, the
payment on the basis of quantum meruit cannot be claimed for the obvious reason that
the express terms of the contract cannot be ignored. Payment on the basis of quantum
meriut can be claimed only when the contract has been frustrated.

3. Specific Performance and Injunction

Discussed below

Quazi - Contracts

It means misnomer. It will not be like a formal contract with a promise,

acceptance and reduced to writing. A legal theory propounds that it is a relation
resembling those created by contract.

Features of Quazi- contracts

1. Right to sum of money

Such a right is always a right to money, and generally, though not always to a
liquidated sum of money.

65
2. Imposed by law and does not arise by agreement of parties

It does not arise from any agreement of the parties concerned, but is imposed by
the law, so that in this respect a quazi-contract resembles a tort.

3. Right available only against a particular person or persons

It is a right which is available not, like the rights protected by the law of torts,
against the entire world, but against a particular person, persons only, so that in this
respect, it resembles a contractual right.

Important points

1 .Necessaries supplied to a person incapable of contracting

Section 68 of the Indian Contract Act says that if a person, incapable of entering
into a contract, or any one whom he is legally bound to support, is supplied by another
person with necessaries suited to his condition in life, the person who has furnished such
supplies is entitled to be reimbursed from the property of such incapable person.

Ex: A supplies the wife and children of B, a lunatic, with necessaries suitable to their
condition in life. A is entitled to be reimbursed from B’s property.

Essential Elements

1. If a person supplies necessaries to a person who is incapable of contracting or to any

one whom he is legally bound to support.

2. The necessaries must be suited to his condition in life.

3. The person supplying the necessaries is entitled to be reimbursed

4. The liability of such person incapable of contracting is limited to his property or in

other words he incurs no personal liability for the obvious reason that he is incompetent
to contract.

2. Payment made on behalf of another

A person who is interested in the payment of money which another is bound by

law to pay, and therefore pays it is entitled to be reimbursed by the other.

Ex: B holds lands in Bengal, on a lease granted by A, the Zamindar. The revenue payable
by A to the Government being in arrear, his land is advertised for the sale by
Government. Under the revenue law, the consequence of such sale will be the annulment
of B’s lease. B, to prevent the sale and the consequent annulment of his own lease, pays
66
to the Government the sum due from A. a is bound to make good to B the amount so
paid.

3. Obligation of Person Enjoying benefit of Non-gratuitous act

Section 70 of the Act provides that where a person lawfully does anything for
another person, or delivers anything to him, not intending to do so gratuitously and such
other person enjoys the benefit thereof, the latter is bound to make compensation to the
former in respect of, or to restore, the thing so done or delivered.

Essential Elements

1. A person does lawfully anything for another person or delivers anything to him.

2. He does not intend to do so gratuitously.

3. Such other person enjoys the benefit thereof.

4. Such other person is bound to compensate the former.

Ex: A, a tradesman, leaves goods at B’s house by mistake. B treats the goods as his own.
He is bound to pay A for them.

4. Responsibility of Finder of Goods

Section 71 of the Act provides that a person who finds goods belonging to another
and takes them in his custody is subject to the same responsibility as a bailee.

Important Points

1. Duty to take reasonable care of goods.

2. Duty to return use of the goods bailed.

3. To take proper use of the goods bailed.

4. Duty not to mix his own goods with the goods of the bailor.

5. Duty not to question the title of bailor.

6. Duty of bailee to pay increase or profit from goods bailed.

When a thing which is commonly the subject of sale is lost, if the owner cannot
with reasonable diligence be found, or if he refuses upon demand, to pay the lawful
charges of the finder, the finder may sell it under the following situation.

1. When the thing is danger of perishing or of losing the greater part of its value.
67
2. When the lawful charges of the finder, in respect of the thing found, amount two-thirds
of its value.

5. Money paid or things delivered by mistake or under coercion

Section 72 of the Act provides that a person to whom money has been paid, or
anything delivered, by mistake or under coercion, must repay or return it.

Ex: A railway company refuses to deliver up certain goods to the consignee except upon
the payment of an illegal charge for carriage. The consignee pays the sum charged in
order to obtain the goods. He is entitled to recover so much of the charge as was illegally
excessive.

In state of Madhya Pradesh v/s Vyankatlal

In this case, the Supreme Court held that the burden of paying the amount in
question was transferred by the respondents to the purchasers and, therefore the
respondents were not entitled to get refund and only the persons on whom lay the
ultimate burden to pay the amount, would be entitled to get a refund of the same. In this
case under the Madhya Bharat sugar control Order, 1949, the supply price of sugar had
been fixed higher than its ex-factory price and the sugar factories were directed to credit
the difference to a fund called “Sugar Fund”. The validity of the said notification could
not be sustained in the Supreme Court but all the same no refund allowed on the finding
that the burden in question had been transferred to the purchasers.

68
 UNIT - V

Specific Relief Act, 1963

Recovery of Possession of Immovable Property

There are two types of provisions relating to recovery of specific immovable

property

1. Recovery of Specific Immovable Property

Section 5 of the Act provides that a person entitled to the possession of specific
immovable property may recover it in the manner provided by the Code of Procedure,
1908.

In Prabha Manufacturing Industrial Co-operative society v/s Banwari Lal

In this case, the suit had been filed to recover possession of the land from the
tenant. The concurrent finding of the two courts on facts was that only a plot of land had
been allotted to the society. The Supreme Court held that ordinarily it does not interfere
to re-evaluated evidence but as a specific case it is doing in this case because if the
decision goes in favour of the respondent, several members of the society who are in
possession of the said property will be thrown out.

2. Suit by person dispossessed of immovable property

Section 6 of the Act provides that

A. If any person is dispossessed without his consent of immovable property otherwise

than in due course of law, he or may other person claiming through him may, by suit,
recover possession thereof, notwithstanding any other title that may be set up in such suit.

B. No suit under this section shall be brought

a. after the expiry of six months from the date of possession

b. against the Government.

3. No appeal shall lie from any order or decree passed in any suit instituted under this
section, nor shall any review of any such order or decree be allowed.
69
4. Nothing in this section shall bar any person from suing to establish his title to such
property and to recover possession thereof.

Essential elements

1. At time of dispossession, the possession of the plaintiff must be valid.

2. The plaintiff must have been dispossessed of immovable property without his consent.

3. The dispossession must not have been made in due course of law.

4. If at the time of dispossession, the plaintiff’s possession was valid and he has been
dispossessed without restore to due course of law, he may recover possession of specific
immovable property notwithstanding any title that may be set up in the suit against him.

5. In order to recover possession the suit must have been filed within six months of the
date of dispossession.

6. Suit to recover possession cannot be filed against the government.

In M. S. Jagadambal v/s Southern Indian Education Trust

In this case, the suit had been instituted regarding recover possession of property.
it was contended by the appellant that the land had been purchased by her husband and
after his death she was in possession of the land. According to the appellant, the
respondent, who was the owner of the neighboring land, had dispossessed her by
trespassing over the land. On the basis iof the facts of the case, the trial court decided that
before dispossession, the suit land was in possession of the appellant on the other hand,
the respondent contended that the appellant had to title to the land. The respondent denies
that he had taken possession of the land by trespass. He claimed to have acquired
possession by adverse possession as the land was not in possession of the appellant for
twelve years before the suit. But the trail court held that respondent had not acquired the
land buy adverse possession. Thus trial court decided in favvour of the appellant. But the
High Court without considering the probabilities of the case, the matters which had been
emphasized had taken note of by the trial court reversed the decisions of the trial court.

Finally the Supreme Court while reversing the decision of the High court held that
the Division Bench of the High Court did not appreciate the important aspects of the case.
The decision of the trial court was based on the reliability of the witnesses. Consequently
there was no adverse possession as the possession was not continuous.

Recovery Specific Movable Property

Section 7 of the Act provides that a person is entitled to the possession of specific
movable property may recover it in the manner provided by the Code of Civil Procedure.
70
 A trustee may sue under this section for the possession of movable property to the
beneficial interest in which the person for whom he is trustee is entitled.

A special or temporary right to the present possession of movable property is

sufficient to support a suit under this section.

Ex: 1. A bequeaths land to B for his life, with remainder to C. a dies. B enters on the
land, but C, without B’s consent, obtains possession of the title deeds. B may recover
from C.

2. A receives a letter addressed to him by B. b gets back the letter with the consent of A.
A has such a property therein as entitles him to recover it from B.

Silent Features

1. This section can be attracted only when the plaintiff is entitled to the possession of
movable property.

2. The property must be specific.

3. The recovery of possession can be made in the same manner as is provided in Civil
Procedure Code.

Specific Enforcement

Under this Act can be divided into two categories

1. Contracts which can specifically enforced.

A. When there exists no standard for ascertaining the actual damage caused by the non-
performance of the act agreed to be done.

B. When the act agreed to be done is such that compensation in money for its non –
performance would not afford adequate relief.

Ex: A agrees to buy, and B agrees to sell, a picture by a dead painter and two rare china
vases. A may compel B specifically to perform this contract, for there is no standard for
ascertaining the actual damage which would be caused by its non-performance.

Section 10 of th Act provides that unless and until the contrary is proved, the
court shall presume that the breach of a contract to transfer immovable property cannot
be adequately relieved by compensation in money. But in respect of breach of contract to
transfer movable property there shall be no such presumption except in two cases,
namely:

1. Where the property is not an ordinary article of commerce, or is of special value or

interest to the plaintiff, or consists of goods which are not easily obtainable in the market.
71
2. Where the property is held by the defendant as the agent or trustee of the plaintiff.
Exceptions to this rule

1. Where an attempt has been made to secure a public service in violation of Article 311
of the Constitution.

2. Where an attempt has been made to remove a worker under industrial law.

3. Where a legal body acts in violation of mandatory provisions of a statute.

2. Specific Performance of Contracts Connected with Trusts Enforceable

According to Section 11 (1) provides Specific Performance of a contract may, in

the discretion of court, be enforced when the act agreed to be done is in the performance
wholly or partly of a trust.

Ex: 1. A is a trustee of land with power to lease it for seven years. He enters into a
contract with B to grant a lease of the land for seven years, with a covenant to renew the
lease at the expiry of the term. This contract cannot be specifically enforced.

2. The Directors of a company have power to sell the concern with the sanction of a
general meeting of the shareholders. They contracted to sell it without any such sanction.
This contract cannot be specifically enforced.

3. Specific Performance of Part of contract

1. Except as otherwise hereinafter provided in this section, the court shall not direct the
specific performance of a part of a contract.

2. Where a party to a contract is unable to perform the whole of his part of it, but the part
which must be left unperformed bears only a small proportion to the whole in value and
admits of compensation in money, the court may, at the suit of either party, direct the
specific performance of so much of the contract as can be performed, and award
compensation for the deficiency.

3. Where a party to a contract is unable4 to perform the whole of his part of it and the
part which must be left unperformed.

A. forms a considerable part of the whole, though admitting of compensation in money.

B. does not admit of compensation in money.

4. when a party to a contract which, taken by itself, can and ought to be specifically
enforced, stands on a separate and independent footing from another part of the same
contract which cannot or ought not to be specifically performed, the court may direct
specific performance of the former part.

72
Exceptions

There are two exceptions to the general principle propounded in Section 12 (1),
they are following:

1. where a party to contract is unable to the perform the whole of his part of it, but that
part which must be left unperformed bears only a small portion to the whole in value and
admits of compensation in money.

2. When a party of a contract which, taken by itself, can and ought to be specifically
performed, stands on a separate and independent footing from another part of the same
contract which cannot and ought not to be specifically performed.

Rights of purchaser or lessee against person with no title or imperfect title

Section 13 of the Act provides

1. Where a person contracts to sell or let certain immovable property having no title or
any an implied title, the purchaser or lessee, has the following rights, namely:

A. If the vendor or lessor has subsequently to the contract acquired any interest in the
property, the purchaser or lessee may compel him to make good the contract out of such
interest.

B. Where the concurrence of other persons is necessary for validating the title, and they
are bound to concur at the request of the vendor or lessor, the purchaser or lessee may
compel him to procure such concurrence and when a conveyance by other person is
necessary to validate the title and they are bound to convey at the request of vendor or
lessor, the purchaser or lessee may compel him to procure such conveyance.

C. where the vendor professes to sell unencumbered property, but the property is
mortgaged for an amount not exceeding the purchase money and the vendor has in fact
only a right to redeem it, the purchase may compel him to redeem the mortgage and to
obtain a valid discharge, and where necessary, also a conveyance from the mortgage.

D. Where the vendor or lessor sues for specific performance of the contract and the suit is
dismissed on the ground of his want of title or imperfect title, the defendant has a right to
return of his deposit, if any, with interest thereon, to his costs of the suit, and to a lien for
such deposit, interest and costs on the interest, if any, of the vendor or lessor in the
property which is the subject-matter of the contract.

2. Section (1) of the Act applies to contracts for the sale of hire of movable property.

Contracts which cannot be specifically enforced

According to section 14 of the Act

1. The following contracts cannot be specifically enforced, namely:

73
A. A contract for the non-performance of which compensation, in money is an adequate
relief.

B. A contract which runs into minute or numerous details or which is so dependent on the
personal qualifications or volition of the parties.

C. A contract which is in its nature determinable.

D. A contract the performance of which involves the performance of a continuous duty
which the court cannot supervise.

2. Save as provided by the Arbitration Act, 1940 no contract to refer present or future
differences to Arbitration shall be specifically enforced; but if any person, who has made
such a contract and has refused to perform it, sues in respect of any subject which he has
contracted to refer, the existence of such contract shall bar the suit.

3. The court may enforce specific performance in the following cases:

A. Where the suit is for enforcement of contract

1. To execute a mortgage or furnish any other security for securing the payment of any
loan which the borrower is not willing to repay at one: provided that where only a part of
the loan has been advanced the lender is willing to advance the remaining part of the
loans in terms of the contract.

2. To take up and any part for any debentures of a company.

B. Where the suit is for:

1. The execution of a formal deed of partnership, the parties having commenced to carry
on the business of the partnership.

2. The purchaser of a share of a partner in a firm.

C. Where the suit is for the enforcement of a contract for the construction of any building
or execution of any work on land.

Conditions

1. The building or other work is described in the contract in terms sufficiently precise to
enabler the court to determine the exact nature of the building or work.

2. The plaintiff has a substantial interest in the performance of the contract and the
interest is if such nature that compensation in money for non-performance of the contract
is not an adequate relief.
3. The defendant has, in pursuance of their contract, obtained possession of the whole or
any part of the land on which the building is to be constructed or other work is to be
executed.

74
Section 14 of the Act says following contracts cannot be specifically enforced:

1. Where Compensation in Money is an Adequate Relief

Section 14 (1) (a) provides, a contract for the non-performance of which

compensation in money is an adequate relief, cannot be specifically enforced.

Ex: If A agrees to supply to B within a month 1000 bags of Basmati rice and fails to
supply within the stipulated period, this contract cannot be specifically enforced because
for non-performance of this contract, compensation in money would be an adequate
relief.

2. Contracts dependent on minute or numerous details or volition of the parties

According to Section 14 (1) (b), contract dependent on minute or numerous

details or volition of the parties cannot be specifically enforced.

In Lumley v/s Wagner

In this case, the defendant agreed to sing or act at the theatre of the plaintiff for a
certain period and during this period, she will not sing or act at any other theatre. After
this but within the said period; the defendant entered into an agreement ot sing at some
other theatre and refused to sing at the theatre of the plaintiff. Thereupon the plaintiff
filed the suit for specific performance of the contra ct. the court rejected the prayer for
specific performance of the contract.

Exceptions

1. Where a public servant has been dismissed from service in violation of Article 311 of
the Constitution.

2. Where a worker has been dismissed from service under industrial law.

3. Where a legal body acts in violation of the provisions of a statute.

In Kayastha Pathshala, Allahabad v/s Rajendra Prasad

In this case, the respondent was a teacher in a private educational institution. He

worked for only one or two years and then he was suspended. There was litigation
between the parties several times which continued for 25 years and during this period the
respondent started practicing as a lawyer.

The Supreme Court held that in these circumstances the reinstatement of the
respondent would not be proper. The court awarded damages and the directed that he be
paid salary for three years.

Who may obtain specific performance?

75
Section 15 of the Act provides:

1. Any party thereto

2. The representative in interest or the principal, of any party thereto.

3. Where the contract is a settlement on marriage, or a compromise of doubtful rights

between the members of the family, any person beneficially entitled there under.

4. Where the contract has been entered into by a tenant for life in due exercise of a power,
the remainderman.

5. A reversioner in possession, where the agreement is a covenant entered into with his
predecessor in title and the reversioner is entitled to the benefit of such contract.

6. A reversioner in reminder, where the agreement is such a covenant, and the reversioner
is entitled to benefit thereof and will sustain material injury by reason of its breach.

7. When a company has entered into a contract subsequently becomes amalgamated with
another company, the new company arises out of the amalgamation.

8. When the promoters of a company have, before its incorporation, entered into a
contract for the purpose of the company and such contract is warranted by the terms of
the incorporation.

Personal bars to relief

According to Section 16 of the Act provides that specific performance of a

contract be enforced in favour of a person:

1. Who would not be entitled to recover compensation for its breach.

2. Who has become incapable of performing, or violates any essential term or, the
contract that on his part remains to be performed, or acts in fraud of the contract, or
willfully acts in variance with, or in subversion of, the relation intended to be established
by the contract.

3. Who fails to aver and prove that he has performed of has always been ready and
willing to perform the essential terms of the contract which are to be performed by him,
other than terms the performance of which has been prevented or waived by the
defendant.

Explanation

1. Where a contract involved the payment of money, it is not essential for the plaintiff to
actually tender to the defendant or to deposit in court any money except when so directed
by the court.

76
2. The plaintiff must aver performed of, or readiness and willingness top perform, the
contract according to its true c construction.

The word ready and willing means that the plaintiff is willing to perform those
parts of the contract which depend upon his performance. The terms of the contact which
are to be performed, may be of two types:

1. Which are to be performed after the fulfillment of the promise of the other party.

2. Which are to be performed after the fulfillment of the promise or performance of the
other party.

Contract to sell or let property by one who has no title not specifically

Section 17 of the Act provides that:

1. A contract to sell or let immovable property cannot be specifically enforced in favour

of a vendor or lessor.

A. Who, knowing himself not to have any title to the property, has contracted to sell or let
the property.

B. Who, though he entered into the contract believing that he had a good title to the
property, cannot at the time fixed by the parties or by the court for completion of the sale
or letting, give the purchaser or lessee a title free from reasonable doubt.

2. The provisions shall also apply, as far as may be, to contracts for the sale or hire of
movable property.

Ex: A, without C’s authority, contracts to sell to B an estate which A knows to belong to
C. A cannot enforce specific performance of this contract, even though C is willing to
confirm it.

Power to award compensation in certain cases

1. In a suit for specific performance of a contract, the plaintiff may also claim
compensation for its breach, either in addition to, or in substitution of, such performance.
2. If, in any such suit, the court decides that specific performance ought not to be granted
but that there is a contract between the parties which has been broken by the defendant
and that the plaintiff is entitled to compensation for that breach, it shall award him such
compensation according.

3. If any such suit, the court decides that specific performance ought to be granted but
that it is not sufficient to satisfy the justice of the case, and that some compensation for
breach of the contract should be made to the plaintiff, it shall award him such
compensation accordingly

77
4. In determining the amount of any compensation awarded, the court shall be guided by
the principles specified in section 73 of the Indian Contract Act.

5. No compensation shall be awarded under section unless the plaintiff has claimed such
compensation in his plaint.

Power to grant relief for possession, partition, refund or earnest money etc.

Section 22 of the Act provides that any person suing for specific performance of a
contract for the transfer or immovable property may, in an appropriate case:

1. Possession, or partition and separate possession, of the property, in addition to such

performance.

2. Any other relief to which he may be entitled, including the refund of any earnest
money or deposit paid or mad by him, in case his claims for specific performance is
refused. Section 21 (1) (b) of the Act says relief granted unless it has been specifically
claimed. But where the plaintiff has not claimed any such relief in the plaint, the court
shall at any stage of the proceeding, allow him to amend the plaint on such terms as may
be just for including a claim for such relief.

Rectification of Instruments

Section 26 of the Act provides that

1.When, through fraud or mutual mistake of the parties, a contract or other instrument in
writing dose not express their real intention, the:
A. Either party or his representative in interest may institute a suit to have the instrument
rectified.

B. The plaintiff may, in any suit in which any right arising under instrument is in issue,
claim in his pleading that the instrument be rectified.

C. A defendant in any such suit as is referred to in clause (b) may, in addition to any
other defense open to him, ask for rectification of the instrument.

2. If, in any suit in which a contract or other instrument, is sought to be rectified, the
court finds that the instrument, through fraud or mistake, does not express the real
intention of the parties, the court may, in its discretion, direct rectification of the
instrument so as to express that intention, so far as this can be done without prejudice to
rights acquired by third persons in good faith and for value.

3. A contract in writing may first be rectified, and then if the party claiming rectification
has so prayed in his pleading and the court thinks fit, may be specifically enforced.

4. No relief for the rectification of an instrument shall be granted to any party unless it
has been specifically claimed.

78
Ex: A intending to sell to B his house and one of the three godowns adjacent to it,
executes a conveyance prepared by B in which, through B’s fraud, all three godowns are
included. One of the two godowns which were fraudulently included, B gives one to C
and lets the other to D for a rent, neither C nor D having any knowledge of the fraud. The
conveyance may, as against B and C, be rectified so as to exclude from it the godown
given to C, but it cannot be rectified so as to affect D’s lease.

Rescission of Contracts

Section 27 of the Act provides that the situations wherein rescission of contracts
may be adjudged or refused.

When rescission may be adjudged or refused

1. Any person interested in a contract may sue to have it rescinded, and such rescission
may be adjudged by the court in any of the following cases, namely:

A. Where the contract is voidable or terminable by the plaintiff.

B. where the contract is unlawful for causes not apparent on its face and the defendant is
more to blame than the plaintiff.

2. The court may refuse to rescind the contract:

A. Where the plaintiff has expressly or impliedly ratified the contract.

B. Where, owing to the change of circumstances which has taken place since the making
of the contract, the parties cannot be substantially restored to the position in which they
stood when the contract was made.

C. Where third parties have, during the subsistence of the contract, acquired rights in
good faith without notice and for value.

D. Where only a part of the contract is sought to be rescinded and such part is not
severable from the rest of the contract.
Ex: A sells a field to b. there is a right of way over the field of which A has direct
personal knowledge, but which he conceals from B. B is entitled to have the contract
rescinded.

Cancellation of Instruments

Section 31 of the Specific Relief Act says

1. Any person against whom a written instrument is void or viodable, and who has
reasonable apprehension that such instrument, if left outstanding may cause him serious
injury, may sue to have it adjudged void or voidable.

2. If the instrument has been registered under the Registration Act, 1908, the court shall
send a copy of its decree to the officer in whose office the instrument has been so
79
registered; and such officer shall note on the copy of the instrument contained in his
books the fact of its cancellation.

Ex: 1. A, the owner of a ship, by fraudulently representing her to be seaworthy, induces

B, an underwriter, to insure her. B may obtain the cancellation of the policy.

2. A conveys land to B, who bequeaths it C and dies. Thereupon D gets possession of the
land and produces a forged instrument stating that the conveyance was made to B in trust
for him. C may obtain the cancellation of the forged instrument.

Power to require benefit to be restored or compensation to be made when

instrument is cancelled or is successfully resisted as being void or voidable

According to Section 33 of the Specific Relief Act provides:

1. On adjudging the cancellation of an instrument, the court may require the party to
whom such relief is granted, to restore, so far as may be any benefit which he may have
received from the other party and to make any compensation it him which justice may
require.

2. Where a defendant successfully resists any suit on the ground:

A. that the instrument sought to be enforced against him in the suit is voidable, the court
may if the defendant has received any benefit under the instrument from the other party
require him to restore as may b, such benefit to that party or to make compensation for it.

B. That the agreement sought to be enforced against him in the suit is void by reason of
his not having been competent to contract. The court may, if the defendant has received
any benefit under the agreement from the other party, require him to restore, so far as
may be, such benefit to that party, to the extent to which he or his estate has been
benefited thereby.

Declaratory Decree

Section 34 of the specific Relief Act provides that any person entitled to any legal
character, or to any right as to any property, may institute a suit against any person
denying, or interested to deny, his title to such character or right, and the court may in its
discretion make therein a declaration that he is so entitled, and the plaintiff need not in
such suit ask for any further relief.

A trustee of property is a ‘person interested to deny’ a title adverse to the title of

someone who is not in existence, and for whom, if in existence, he would be a trustee.

Ex: 1. A is lawfully in possession of certain land. The inhabitants of a neighboring

village claim a right of way across the land. A may sue for a declaration that they are not
entitled to the right so claimed.

80
2. A alienates to B property in which a had merely a life interest. The alienation is
invalid as against C, who is entitled as reversioner. The court may in a suit by C against
A and B declare that C is so entitled.

In Deepal Kumar Biswas v/s Director of Public Instruction

In this case, the appellant was a confirmed author in the office of the accountant-
general. He applied for the post of a lecturer in a girls college. He was selected and
appointed. But his appointment had been subject to the approval by the Director, public
instructions, Meghalaya. When the appellant sought clarification in this respect, he was
assured by the Principal that the approval of the Director was a mere formality and there
would be no hindrance in the matter of his appointment. On the faith of this assurance the
appellant resigned from his permanent post and joined as Lecturer in the college.
Thereafter, after five months he received a letter from the principal that his services are
being terminated because the approval of the director has not been received. The
appellant filed the suit for obtaining permanent injunction and declaration that he is still
in service and is entitled to all the benefits arising out of such declaration.

The Supreme Court held that non-approval by the director was erroneous yet this
act of the director was not against any Act, regulation or rules.

Effect of Declaration

Section 35 of the Act provides only on the parties to the suit, persons claiming
through them respectively, and where any of the parties are trustee, or the persons for
whom, if in existence at the date of declaration such parties would be trustee.

Ex: A, a Hindu, in a suit to which B, his alleged wife, and her mother, are defendants,
seeks a declaration that his marriage was duly solemnized and an order for the restitution
of his conjugal rights. The court makes the declaration and order. C, claiming that B is
his wife, there sues A for the recovery of B. the declaration made in the former suit is not
binding upon C.

Preventive Relief- Injunction

According to Section 36 says preventive relief is granted at the discretion of the

court by injunction, temporary or perpetual

Injunction is a specific order of the court whereby it prohibits a wrongful act or

enact in a wrongful course, which has already commence or cross it direct the things to
be restored in their prior state. Injunction is a very effective remedy because after passing
of the order of injunction, the matter becomes a matter between the court and the
defendant or the person against whom injection has been issued. Consequently the non-
compliance by the person against whom injection has been issued is regarded as
contempt of court and the court can punish him for such contempt. Ordinarily, injection is
issued in cases where compensation is not an adequate relief.

In Ececutive Committee of Vaishya Degree College, Shamli v/s Lakshmi Narain

81
 In this case, the relief of declaratory and injection under the provisions of the Act
is purely discretionary and plaintiff cannot claim it as of right. The relief has to be ranted
by the court according to sound legal principles and ex debito justitiae. The court has to
administer justice between the parties and cannot convert itself into an instrument of
injustice or an engine of oppression. While exercising its discretionary powers the court
must keep in mind the well settled principles of justice and fair play and should exercise
the discretion only if the ends of justice require, for justice is an object which cannot be
administered in vacuum.

Kinds of Injunction

There are two kinds of Injunctions

1. Temporary Injunction

According to Section 37 (1) of the Act provides a perpetual injunction can only be
granted by the decree made at the hearing and upon the merits of the suit. The defendant
is thereby enjoined from the assertion of a right, of from the commission of an act, which
would be contrary to the rights of the plaintiff.

Perpetual Injunction when Granted

Section 38 of the specific Relief Act provides that

1. Perpetual injunction may be grunted to the plaintiff to prevent the breach of an

obligation existing in his favour whether expressly or by implication.

2. When any such obligation arises from contract, the court shall be guided by the rules
and provisions of the Act.

3. When the defendant invades or threatens to invade the plaintiff’s right to, or enjoyment
or, property, the court may grant a perpetual injunction in the following cases:

a) Where the defendant is trustee of the property for the plaintiff.

b) Where there exists no standard for ascertaining the actual damage caused or likely to
be caused, by the invasion.

c) Where the invasion is such that compensation in money would not afford adequate
relief.

d) Where the injunction is necessary to prevent a multiplicity of judicial proceedings.

Ex: 1. A lets certain land to B, and B contracts not to dig sand or gravel thereout. A may
sue for injunction to restrain B from digging in violation of his contract.

82
2. A trustee threats a breach of trust. His c0-trustees, if any, should, and the beneficial
owners may, sue for an injunction to prevent the breach.

Mandatory Injunctions

According to section 39 when to prevent the breach of an obligation, it is

necessary to compel the performance of certain acts which the court is capable of
enforcing, the court may in its discretion grant an injunction to prevent the breach
complained of, and also to compel performance of the requisite acts.

Ex: 1. A, by new buildings obstructs lights to the access and use of which B has acquired
a right under the Indian Limitation Act. B may obtain an injunction, not only to restrain A
from going on with the buildings, but also to pull down so much of them as obstruct B’s
lights.

2. A builds a house with eaves projecting over B’s land. B may sue for an injunction to
pull down so much of the eaves as so project.

3. A is B’s medical adviser. He demands money of B which B declines to pay. A then

threatens to make known the effects of B’s communications to him as a patient. B may
sue for an injunction to restrain him from so doing. The court may also order A’s letter to
be destroyed.

Damages in lieu of, or in addition to injunction

According to section 40 of the Act says that:

1. The plaintiff in a suit for perpetual injunction under section 38, or mandatory
injunction under section 39, may claim damages either in addition to, or in substitution
for, such injunction and the court may, if it thinks fir, award such damages.

2. No relief for damages shall be granted under this section unless the plaintiff has
claimed such relief in his plant.

3. The dismissal of a suit to prevent the breach of an obligation existing in favour of the
plaintiff shall bar his right to sue for damages for such breach.

Injunction when refused

According to section 41 of the Act says that:

1. To restrain any person from prosecuting a judicial proceedings pending at the

institution of the suit in which injunction is sought, unless such restrain is necessary to
prevent a multiplicity of proceedings;

2. To restrain any person from instituting or prosecuting any proceeding in a court not
subordinate to that from which the injunction is sought.

83
3. To restrain any person from applying to any legislative body.

4. To restrain any person from instituting or prosecuting any proceeding in a criminal

matter.

5. To prevent the breach of a contract the performance of which would not be specifically
enforced.

6. To prevent, on the ground of nuisance, an act of which it is not reasonably clear that it
will be a nuisance.

7. To prevent a continuity breach in which the plaintiff has acquiesced.

8. When equally efficacious relief can certainly be obtained by any other usual mode of
proceeding except in case of breach trust.

A) When the conduct of the plaintiff or his agents has been such as to disentitle
him to the assistance of the court.

B) When the plaintiff has no personal interest in the matter.

Ex: A seeks an injunction to restrain his partner, b from receiving the partnership debts
and effects. It appears that a have improperly possessed himself of the books of the firm
and refused b to assess them. The court will refuse the injunction.

84