MODEL ANSWERS

5 YEARS B.A., LL.B 4th SEMESTER

SUB: Contract I- Law of Contract2021

Q. No.1. (a) Define Contract and discuss the object and scope of Indian Contract Act.

Introduction

The law relating to contracts in India is contained in the Indian Contract Act,
1872. The Act was passed by British India and is based on the principles of English common
law. It is applicable to all the states of India except the state of Jammu & Kashmir. It
determines the circumstance in which promise made by the parties to a contract shall be
legally binding on them. All of us enter into a number of contracts everyday knowingly or
unknowingly. Each contract creates some rights and duties on the contracting parties. Hence
this legislation, the Indian Contract Act 1872, being of skeletal nature, deals with the
enforcement of these rights and duties on the parties in India.

History of Indian Contract Act

It was enacted mainly with a view to ensure reasonable fulfilment of expectation

created by the promises of the parties and also enforcement of obligations prescribed by an
agreement between the parties. The Third law commission of British India formed in 1861
under the stewardship of chairman Sir John Romilly, with initial members as Sir Edward
Ryan, R. Lowe, J.M. Macleod, Sir W. Erle Succeeded by Sir, W .M. James and justice Wills
succeeded by J. Henderson , had presented the report on contract law for India as Draft
Contract law 1866. The Draft Law was enacted as The Act 9 of Indian Contract Act, 1872 on
25 April 1872 and the Indian Contract Act, 1872 came into force with effect from 1
September 1872.

Role of East India Company

Before the enactment of the Indian Contract Act, 1872, there was no codified law
governing contracts in India. In the Presidency Towns of Madras, Bombay and Calcutta law
relating to the contract was dealt with the Charter granted in 1726 by King George I to
the East India Company. Thereafter in 1781, in the Presidency Town, Act of Settlement
passed by the British Government came into force.

Act of settlement required the Supreme court of India that questions of inheritance and
succession and all matters of contract and dealing between party and party should be
determined in case of Hindu as per Hindu law and in case of Muslim as per Muslim law and
when parties to a suit belonged to different persuasions, then the law of the defendant was to
apply. In outside Presidency Towns matters with regard to the contract was mainly dealt with
through English Contract Laws: the principle of justice, equity and good conscience was
followed.
Nature of Contract

What is Contract?

According to section 2 (h) of the India Contract Act,’’ An agreement enforceable by law is a
contract ‘.

Thus for the formation of a contract, there must be –

An agreement, and

The agreement should be enforceable by law.

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

For example- An agreements to sell a radio set any be a contract, but an agreement to go to
see a movie may be a mere agreement not enforceable by law.

Illustration – if the agreement between the farmer and the tractor owner is given force under
the law, then it becomes a contract.

Agreement

According to section 2 (e) defines agreement as, “Every promise and every set of promise,
forming the consideration for each other, is an agreement.” In agreement, there is a promise
from both sides. For example, A promises to deliver his watch to B and in return B promises
to pay a sum of Rs. 2000 to A, there is said to be an agreement between A and B.

A promise is a result of an offer proposal by one person and its acceptance by the other. For
example – when A makes a proposal to sell his watch to B for Rs. 2,000 and B accept his
proposal, it results from a promise between the two persons.

Illustration – Such a promise between the tractor owner and the farmer which involves a
consideration of an Rs. 1000 is called an agreement.

The promise in the Indian Contract Act

According to section 2 (b) defines a promise as, 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, when there is a proposal from one side and the acceptance of that proposal by the other
side, it results in a promise. This promise from the two parties to one another is known as an
agreement. The person who makes the proposal is called the promisor. The person who
accepts such a promise is called the promise.

“All contracts are agreements but all agreements are not contracts” because agreements of
moral, religious or social nature e.g.., a promise to lunch together at a friend’s house or to
take a walk together is not contracted because they are not likely to create a duty enforceable
by law for the simple reason that the parties never intended that they should be attended by
legal consequences.

In business agreements the presumption is usually that the parties intend to create legal
relation for e.g. An agreement to buy certain specific goods at an agreed price e.g., 10 bags of
wheat at Rs. 500 per bag is a contract because it gives rise to a duty enforceable by law, and
in case of default on the part of either party action for breach of contract could be enforced
through a court provided other essential elements of a valid contract as laid down in Section
10 are present, namely, if the contract was made by the free consent of the parties competent
to contract, for a lawful consideration and with a lawful object.

The various agreements may be classified into two categories :

Agreement not enforceable by law:Any essential of a valid contract is not available

An agreement enforceable by law:All essentials of a valid contract are available

Thus we see that an agreement may be or may not be enforceable by law, and so all
agreement does not contract. Only those agreements are contracts, which are enforceable by
law, In short.

Contracts = Agreement = Enforceability by law

Hence, we can conclude “All contracts are agreement, but all agreements are not contracts .”

ESSENTIALS OF VALID CONTRACT

According to of section 10, as All agreement 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. Nothing herein contained shall affect any
law in force in India, and not hereby expressly repealed, by which any contract is required to
be made in writing or in the presence of witnesses, or any law relating to the registration of
documents.

Offer+Acceptance = Promise + Consideration = Agreement +Enforceability by law Contract

The essential elements of a valid contract are as follows :

Lawful offer and Acceptance

These must be a ‘ lawful offer ‘ and a ‘ lawful acceptance ‘ of the offer, thus resulting in an
agreement. The adjective ‘ lawful ‘ implies that the offer and acceptance must satisfy the
requirements of the Indian Contract Act in relation thereto.

Intention to create legal relation

There must be intention among the parties that the agreement should be attached by legal
consequences and create legal obligations. Agreements of social or domestic nature do not
contemplate legal relations, and as such, they do not give rise to a
contract.

For example:

An agreement to dine at a friend’s house is not an agreement intended to create legal relations
and therefore is not a contract.

An agreement between husband and wife also lack the intention to create a legal relationship
and thus do not result in a contract.

Suraj promises his wife Megha to get her jewellery if she will make a special dish. Megha
made a dish but Suraj did not bring the jewellery for her. Megha cannot bring an action in a
court to enforce the agreement as it lacked the intention to create legal relation.

CASE LAW: BALFOUR V/S BALFOUR

Where the defendant was a civil servant stationed in Ceylon. He and his wife were enjoying
leave in England. When the defendant was due to return to Ceylon, his wife could not
accompany him because if her health. The defendant agreed to send her Rs. 300 a month as
maintenance expenses during the time they were thus forced to live apart. She sued for breach
of this agreement. Her action was dismissed on the ground that no legal relation had been
contemplated and therefore, there was no contract.

Lawful consideration

The third essential element of a valid contract is the presence of consideration. Consideration
has been defined as “the price paid by one party for the promise of the other.” An agreement
is legally enforceable only when each of the parties to it gives something and gets something.
The something given or obtained is the price for the promise and is called ‘consideration’.
But only those considerations are valid which ‘lawful’.

According to Section 23, the consideration is unlawful if:

Law forbids it;

It is fraudulent;
Involves or implies injury to the person or property of another;

It is of such a nature that, if permitted it would defeat the provision of any law;

Is immoral or is opposed to public policy.

Capacity of parties

The parties to an agreement must be competent to contract; otherwise, it cannot be enforced

by a court of law. In order to be competent to contract according to section 11 the parties
must be :

Of the age of majority;

Of sound mind:

Must not be disqualified from contracting by any law to which they are subject.

Thus, if any of the parties to the agreement suffers from minority, lunacy, idiocy,
drunkenness, etc.

Free consent

Consent’ means that the parties must have agreed upon the same thing in the same sense
section 13

. Free consent of all the parties to an agreement is another essential element of a valid
contract.

There is an absence of ‘free consent’. If the agreement is induced by any of the following
factors:

Coercion

Undue influence,

Fraud

Misrepresentation, or

Mistake

If the agreement is vitiation by any of the first four factors, the contract would be voidable
and cannot be enforced by the party guilty of coercion, under influence, etc. The other party (
i.e., the aggrieved party) can either reject the contract or accept it, subject to the rules laid
down in the act. But, if the agreement were induced by mutual mistake that is material to the
agreement, it would be void.
Lawful object

For the formation of a valid contract, it is also necessary that the parties to an agreement must
agree for a lawful object. The object for which the agreement has been entered into must be
fraudulent or illegal or immoral or opposed to public policy or must not imply injury to the
person or property of another section 23. If the object is unlawful for one or the other of the
reason mentioned above the agreement is void.

For example – When a landlord knowingly lets a house to a prostitute to carry on prostitution,
he cannot recover the rent through a court of law.

Oral, Writing and Registration

According to the Indian contract act, a contract may be oral or in writing. But in certain
special cases, it lays down that the agreement, to be valid, must be in writing or/ and
registered.

For example – under section 25 of the act – It requires that an agreement to pay a time-barred
debt must be in writing and an agreement to make a gift for natural love and affection must
be in writing and registered.

Similarly, certain other cats also require writing or/and registration to make the agreement
enforceable by law, which must be observed.

Illustration – The agreement for a sale of immovable property must be in writing and
registered under the Transfer of Property Act, 1882 before they can be legally enforced.

Certainty

Section 29 of the contract act provided that, ‘Agreement’, whose meaning is not certain, or
capable of being made certain, are void.’’

In order to give rise to a valid contract, the terms of the agreement must not be vague or
uncertain. It must be possible to ascertain the meaning of the agreement, for otherwise, it
cannot be enforced.

Illustration- 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 for uncertainty.

Possibility of performance

Another essentials feature of a valid contract is that must be capable of performing. Section
56 lays down that, “An agreement to do an act impossible in itself is void.” If the act is
impossible in itself, physically or legally, the agreement cannot be enforced at law.

Illustration- Ajay agrees with Vijay to discover treasure by magic. The agreement is not
enforceable because it is physically impossible to perform.

Not expressly declared a void agreement

The agreement must not have expressly declared to be void under the Indian Contract Act.
Section 24 – 30 specify certain types of agreements, that will have expressly declared to be
void.

For example-

An agreement in restraint of marriage, ( section 26)

The agreement in restraint of trade, and ( section 27)

An agreement by way of the wager (section 30)

It is expressly declared as void agreement. We shall discuss each of the void agreements in
detail in the next chapter.

2. What do you mean by “An Invitation to offer”. Explain

Introduction

A contract is an agreement between the contractor and the client which is binding in law.
Clients define the project objectives, schedule and the budget. Contractors are hired by the
client and are responsible to carry out the work, under the terms and subject to the deadlines,
quality of the work and stay within the budget. Offer and acceptance must be present for a
contract to be formed. Both parties are intended to create a legal relations and the negotiation
between both parties are generally take place before an agreement becomes binding and a
contract is formed.

When tenders have been submitted by the contractors, the winning tender is selected and a
contract to a project is entered between the client and the contractor. The selection of tender
is an example of invitation to treat. Contractors are all welcomed to estimate the tender
amount a quotation for completing the works, but only one contractor will be selected to do
the work.

II. Offer and Acceptance

What is an offer?

An offer is a statement of the terms which the client (the offeror) is prepared to be
contractually bound. The offer must be complete, specific and capable of being accepted. It
must include the fundamental terms of the agreement with the intention that no further
negotiations are to take place. Client offer contractor the work and therefore the contractor
must carry out the work under the client’s terms and conditions. It is possible to make a
conditional offer. The effect of this is that an offer cannot be accepted if the condition has not
been satisfied. For example the client requires the contractor to have a specific tool or
machine before an offer can be made.

Termination of offer
An offer may be terminated or revoked if:

The offer is withdrawn or revoked at any time prior to acceptance provided there has been
communication between the client and the contractor;

The client making the offer dies;

Failure of a condition;

A reasonable period of time has elapsed – a time limit is specific on the offer made.

Acceptance

A fully binding contract is only formed if an offer is accepted. Acceptance is a final and
unqualified acceptance of all the terms of the offer. The offer must be accepted without
introducing any new terms. Acceptance does not take place until communicated to the client
making the offer. Communication of acceptance is the moment when the contract is formed
and the acceptance must be in the form of designated by the client.

Invitation to treat

What is invitation to treat

An invitation to treat is different to an offer as it only invites the party to make an offer and it
is not intended to be binding. The contractors are invited to bid on the job, by calculating the
total work cost and to have the tenders submitted in a specified time. The main difference
between this situation and an auction is that person submitted the tender, does so in ignorance
of other’s bids because the final decision is up to the client.

Types of tender

There may be 2 different types of tender:

Requirement contracts – the client wants someone to tender for the construction of a house
“as required”. The contractors put in a price for the work to be done. If the client says OK, it
is still not a contract as the client can still ask for other contractor. So it is not a contract, but
the putting in place of a “standing offer”.

A specific contract – a client wants to build a new house – invites contractors to tender in
accordance with specification – the advertisements may be seen as invitation to treat, the
tender is then an offer which the client may accept or not.

Difference between offer and invitation to treat

An invitation to treat is when a client invites contractors to make him/her an offer. For
example, when the client advertises a job on internet or newspaper, it is usually an invitation
to treat rather than an offer. The offer only comes into existence after the client reviews the
tenders handed in by the contractors and accept the offer.
An offer on the other hand is when the client offers the job to one contractor without
advertising the job or having contractors to submit in the tender.Making an invitation to treat,
rather than an offer, protects the client from finding him/her self agreed into a contract he/she
cannot fulfil. Instead the client can refuse the contractor’s offer for many different reasons.

This can be a very important protection for the client making the offer if the advertisement
for the job offers at long distance: for example, through the internet or newspaper. Always
ensure that any website, advertisement etc make it clear that it is only an invitation to treat,
not an offer.

Failure to meet contract specifications

5.1 Contractor’s failure

A contractor can commit fraud and claim to have met the contract specifications. For
example in a road construction project, the contractor did not use the standard materials, or
used the old equipments or materials instead of new one. There are three types of fraud that a
contractor can commit:

Actual knowledge of falsity;

Deliberate ignorance of truth or falsity;

Reckless disregard of truth or falsity.

A contractor is considered to be failure to meet the contract specifications when:

Differences between contract specifications, inspection and test results, and the contractor’s
claims for payment;

Complaints from users;Accelerated or increased product failures or repair costs;

Failed inspections or test;

Absent, alternate or inadequate documentations submitted by the contractor.

Indications from the contractor’s expenses, payroll or any other records can indicate that the
contractor did or did not purchase materials required in the contract, own or lease required
equipment/plant to do work or have the necessary labour on site.

How to detect possible failure to meet contract specifications

Interview with contractor or complainer to obtain further detail; Obtain the appropriate
documents and examine them – proposals, purchase orders, invoices, supporting documents,
test and inspection reports etc ; Closely inspect delivered product and works for indications of
failure; Use independent consultants to conduct unannounced tests and inspections;Compare
test and inspection results.
Consequences

If there is any prove that the contractor has breach the contract, the client can refer the matter
to the appropriate authorities for further investigation. Before doing so, the client should sort
out the problem with the contractor as it does not involve the time and expenses of going to
court.If the problem cannot be sorted out privately by negotiation, depending on the situation,
the client will have to consider suing the contractor. The contractor will have to show the
documentations and evidences to support him/her self.

In Western Australia, Magistrates Courts can hear matters where the amount in dispute or the
damaged being claimed does not exceed $75,000. If the amount of dispute is more than
$750,000, the case may be held in District Court. There are also specialist courts to deal with
land problems and debt problems.

The judge will then look at the evidences provided by the client and the contractor. If the
contractor is found guilty, then the he/she will have to pay the client, depending on the
amount of damages, quality of the work, time wasted and so on. The client will then decide
whether to continue with the contract or to terminate the contract.

6.0 Case Law

Case law is made by the decisions in court cases following the doctrine of precedent which
provides decisions as authority for other judges to follow to ensure uniformity, fairness and
certainty.The case laws that are relevant to the offer and acceptance law include:

Harvela Investments Ltd v Royal Trust Company of Canada (CI) Ltd [1986] – 2 parties are
invited to make a sealed competitive bids for shares, with the promised to accept the highest
offer. This is an example of tender offer with the promised to accept the most competitive
bid.

Dickinson v Dodds [1876] – the offeror doesn’t have to give notice of revocation and the
offeree must communicate with the offeror to accept the offer. However if both parties have
dealt with each other previously and have establish arrangements whereby offer is taken to be
accepted if not promptly rejected, silence may not amount to a rejection.

Pharmaceutical Society (GB) v Boots Cash Chemists (Southern) Ltd [1952] – This is a
classic example of invitation to treat, with the customers “offered to buy” and it is up to the
store whether to accept their offers or not. Client can choose to accept or decline the offer,
even to the lowest tender.

7.0 Conclusion

Clients and contractors should have a clear understanding of the rules of offer and acceptance
and the invitation to treat in order to have a contract. Offer and acceptance are the essential of
a contract because without them there would not be a contract. The building contractor can
negotiate with the client through the use of quoting and tendering and the client can choose
the contractor based on the tender pricing, experiences, reputations, available of resources
and so on. The client can decline the contractor for any reason because of the invitation to
treat. The contractors are invited to bid for the work and the final decision is up to the client.

or

1. ‘All contracts are agreements but all agreements are not contracts”. Explain.

I.Introduction

A statutory contract means a contract of the contents of which some portion is filled under a
statue. And Agreement is the meeting of minds or a mutual understanding between two or
more persons about their reciprocal rights and duties regarding past or future performances.
An agreement is the basis of a contract and contract is the structure constructed on these
bases. An agreement starts from an offer and ends on consideration while a contract has to
achieve another milestone that is enforceability. Later in the article, we will understand the
relation and bifurcation of contract and agreement.

II.Agreement

An agreement is defined as “Every promise and set of promises, forming the consideration
for each other, is an agreement” in section 2(e) of the Indian Contract ac Act, 1872. When a
proposal is made by one party and the same is accepted by another party, it becomes a
promise and when this promise is with some consideration by any of the parties is an
agreement.

Elements of Agreement

There are four elements necessary for forming an agreement:

Presence of Parties: There should be always two or more parties for the formation of an
agreement. An agreement cannot be made by one party or person, two parties are required as
a promise cannot be made by one party only.

Promise: When a proposal made by one party is accepted by another party it becomes a
promise. Section 2(b) of the Indian Contract Act, 1872, defines the term “promise”. It
provides: “when one 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”.

Consideration: “Consideration” is definable as the “inducement to a contract,” or the “cause,

motive, price, or impelling influence which induces a contracting party to enter into a
contract.” (2)

Consensus Parties: The free consent of parties is necessary for forming a valid agreement.

Types of Agreement
There are many types of Agreement, on the grounds of enforceability agreement

has two types which are as follows:

(i) Valid Agreement:

All agreements are valid agreements that are enforceable by a court of law. The agreements
that can be enforced legally are valid agreements.

(ii) Void Agreement:

According to Section 2(g) of the Indian Contract Act, 1872 and agreement is not enforceable
by law is said to be void. Section 24 to 31 and 56 of the Indian Contract Act, 1872 lay down
the provisions relating to the agreements which are declared void are as follows:

If consideration and objects are unlawful in part. ( Section 24)

Agreement without consideration(Section 25)

Agreement in restraint of marriage (Section 26)

Agreement in restraint of trade (Section 27)

Agreement in restraint of legal proceedings (Section 28)

Uncertain Agreements (Section 29)

Wagering Agreement (Section 30)

Agreement contingent on an impossible event (Section 31)

Agreement to do impossible acts (Section 56)

Agreement to minor

When both parties are under the mistake of law.

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

III. Contract

A contract is defined as “an agreement enforceable by law” in Section 2 (h) of The Indian
Contract Act, 1872. An agreement between private parties creating mutual obligations
enforceable by law. The basic elements required for the agreement to be a legally enforceable
contract are mutual assent, expressed by a valid offer and acceptance; adequate consideration;
capacity; and legality.

Elements of Contract

The necessary elements for forming a legally enforceable contract are:

Offer: An offer is a proposal made by one party to the other party which expresses the
willingness of the party to be bound on terms.

Acceptance: Acceptance means the offer has been accepted with the terms of the offer by the
party to whom an offer was made.

Consideration: A Consideration is to be made by the parties after acceptance of the offer.

Intention: There must be a clear intention of both parties that the agreement is a legally
binding contract.

Certainty: The terms or conditions of the contract must be clear and may be discussed
between the parties and may be understood in the same manner by both parties. The terms or
conditions should not be unlawful or unenforceable.

IV.All Contracts are Agreements

All Contracts are agreements as for the formation of a contract, an agreement is always
necessary. There cannot be a contract where there is no agreement. Without an agreement, a
contract cannot be formed. Therefore, All Contracts are Agreements.

All Agreements are not Contracts

Only those agreements become contract which gives rise to a legal obligation. If no legal duty
is enforceable by an agreement, it can never be a contract. And hence agreement is a broader
term than Contract.

When Agreement becomes Contract

An agreement is regarded as a contract when it is enforceable by law. The conditions of

enforceability are stated in S. 10 of the Indian contract act 1872. According to this section, an
agreement becomes a contract when the agreement is made for some consideration between
the parties which are competent to contract and are entering into Contract with their free
consent and has a lawful objective. A lease agreement between two bodies corporate was
held legal where it was signed by one only, representing both sides because he was a director
in both the legal entities.

V. What Agreements are Contracts?

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 expressly declared to
be void. An agreement becomes a contract when the following conditions are satisfied:-

(i) There is some consideration for it. (S. 2(d) and S. 25)
In return for accepting an offer and making a promise, consideration has to be made to make
a valid agreement that could be enforceable by law and thus can become a valid contract. An
agreement without consideration is void and it cannot form a valid Contract as a void
agreement is not enforceable by law and every valid Contract is enforceable by law.

For example, if a promises to give to B Rupees 10,000 without any consideration, it will be a
void agreement. And in another example where A supports B’s infant son and B promises to
pay A’s expenses in doing so will be a contract.

(ii) The parties are competent to contract. (S. 11 and S. 12)

Every person is competent to contract who has attained the age of majority, is of sound mind
and is not disqualified by any law from contracting.

(iii) Their consent is free. (S. 13-22)

The parties should enter into a contract by their free consent. There should not be any kind of
pressure on the parties to enter into a contract

(iv) Their object is lawful. (S. 23-30)

The object and consideration need to be lawful. Any unlawful or impractical thing cannot be
made an object or consideration in a contract. Every agreement of which object or
consideration is unlawful is a void agreement. In B. Rajamani v. Azhar Sultana AIR 2005 AP
260: 2005 2 An LD 862, the contract was enforceable where an agreement to sell the property
was reduced to writing but it was not signed by the parties. The contract came into existence
when both parties agreed and the fact of non-signing did not mean there was no contract.

For example, A, B, and C enter into an agreement for division among them of the gains
acquired by them by fraud will form a void agreement as the object is unlawful.

Conclusion

OR

2. B) What do you mean by ‘Proposal’ or ‘Offer’? Explain its various

characteristics (6 marks)

Introduction

In this modern era, almost every transaction between two or more parties is often looked
upon with suspicion and concern. The parties remain uncomfortable during the long
negotiations and enumeration of conditions in the fear of becoming a victim of any fraudulent
activities by the opposite party. The easily accessible high-techs and cooking the books a
little are an easy way for the swindlers to satisfy their avarice for power and status. Therefore,
legal contractual relationships, which can hold such deceits accountable were the need of the
hour. These sophisticated contractual agreements may be concluded after extensive debate
and a lot of paperwork yet only these complex negotiations provide insurance to the
possibility of framing all the details of the possible future agreement.

Every contract has a different time period. Contracts such as mergers, acquisitions or selling
of companies can be concluded within months; while some contracts, like the large-scale
construction of an amusement park, can extend for years. This has a more lasting effect on
the financial and social conditions of both parties.

But even before the formation of a satisfactory legal contract there exists a “pre-contractual
period” — the time period between the start of the negotiations and the conclusion— which
can last for weeks and even several weeks. Parties exchange their terms and conditions; their
expectations from the relationship; in case of any conflict, the agreeable dispute resolution
method and everything else which is enough to satisfy the prerequisites of both the parties
and finally conceive a concrete commitment.

In order to serve and secure the Indian society with definite legal terms for forming a
contract, the INDIAN CONTRACTS ACT was enacted on 25th April 1872 [Act 9 of 1872]
and subsequently came into force on the first day of September 1872.

What is a contract?

Section 10 of the Act, 1872 lays down the essentials needed for a valid contract-

An agreement should be the result of the proposal or an offer made by one party followed by
its acceptance by the opposite party.

The agreement must be made within parties which are competent to contract

There must be a lawful consideration and lawful object in the respect of the agreement.

All the parties should have entered into the contract with their free consent.

The agreement into question must not be the one who’s nature has already been declared
void.

This article shall dwell on the number one ingredient for making a lawful contract which
deals with the concept of “proposal” or “offer”.

What is Proposal or Offer

The term “proposal” is defined in Section 2(a) of the Indian Contracts Act, 1872 as follows-
“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”“This term is often used interchangeably with the term “offer” used in the
English Law. The willingness and abstinence talked about in the definition are often made
with a view to obtaining the assent of the opposite party. The party (can also be called a
company) which makes the offer is referred as “The Offeror” and the party to whom such
offer is made is known as “The Offeree”.

Some very relaxed examples of offer can be:

A agrees to give B Rs.1000 if he delivers her bracelet to her aunt.

A is willing to sell her radio set for Rs.500 if B is willing to buy.

A is willing to give his car to B if he quits drinking within a month.

A is willing to pay for B’s school fee, if he babysits her daughter.

In all these situations, A is offering something to B hence will be called The Offeror, while B
acts as The Offeree, who can either accept or decline such an offer from A.

Superficially, these situations appear like a child’s play where one proposes while the other
either accepts or disposes of but actually, it is entangled with a myriad of complexities and
restrictions which when juxtaposition constituted the characteristics of an “Offer”.

III. Characteristics of an offer or Proposal

1. INTENTION

For an offer, after its acceptance, to take the shape of a contract it is essential that such offer
had been made with a genuine intent for forming a legal contract. This criterion often fails
during social engagements, during which promises are generally made without an intention of
creating a legal contract, an unfulfillment of which can take one to court.

Sometimes the parties mention it not being a contract while most of the time during these
casual colloquies either of the parties avoids discussing this. To understand the actual
intention is an objective test. The problem arises when a person contends that there was no
intention on his side to create a legal obligation, which cannot emancipate him from the
liability but also cannot render him liable for damages.

Illustrations:

Balfour v. Balfour

The husband (respondent) was a government employee and had to leave the country for a
vacation along with his wife but due to health issues she was unable to accompany her and
the husband had to leave alone. The husband however promised to send 30 pounds per month
to his wife for her expenditure. The husband, having failed to deliver his promise, was sued
by his wife for the same. The court held that there existed no intention to create a legal
contract on the husband’s side when he made that offer, it was a mere social promise,
therefore the husband cannot be held liable.

Jones v. Padavatton
The suit began when Mrs Ruby Padavatton filed a suit against her mother alleging that she
had failed to dispose of her legal obligation which was to provide Mrs Ruby with a house to
live in if she completes her Law study from England. Mrs Violet Jones (the mother/
respondent) took the defence of ‘no legal intention’ and cited Balfour v Balfour to bolster her
argument. She argues that there existed no intention from her side to create a legal contract
with her daughter but was rather an arrangement between the family members, a mere
domestic promise. However, Mrs ruby was adamant to declare it a legal obligation and
therefore demanded the possession of a house.

The court upheld Mrs. Jones’s contention and emancipated her from any liability. Court
further added that neither the daughter nor the mother had anticipated the legal issues or legal
relations before also.

2. COMMUNICATION

The aspect asks the reader to look beyond the commitment of the offeror on his offer. No
matter how strong and valid his intentions are to create a legal obligation, it is extremely
necessary that the same offer is communicated and put into the knowledge of the offeree
otherwise nothing will be gained from the transaction.

Section 4 of the Indian Contract Act 1872: deals with the completion of a proposal,
acceptance and revocation enumerates that the communication of the offer is completed when
it has come to the knowledge of the person that it was supposed to have been made to. When
the offeree (specific offer) or any member of the public (general offer) becomes aware/knows
of the offer, the communication of the offer is said to be complete. When two people are
talking, face-to-face or via telephone, etc., the communication will be complete as soon as the
offer is made.

Section 2(h) of the Indian Contracts Act, 1872 explains that a person Is said to make a
contract when he “signifies” his willingness to do……something. emphasis is put on the
term “signifies” which means “to communicate” or “to make known”.

Section 3 of that same act explains how we can test if the offer is communicated. It states that
an offer may be communicated by the offeror, by any act or omission, by which the offeror:

intends to communicate such offer; or

which has the effect of communicating an offer.Section 9 states that:

“In so far as the proposal or acceptance of any promise is made in words, the promise is said
to be expressed. In so far as such proposal or acceptance is made otherwise than in words, the
promise is said to be implied”

When A offers to sell his motorbike to B in exchange of Rs.25,000, it is an express offer.

When A enters the tram, without speaking a word, of B knowing that the tram only runs
through a particular route, it is an implied offer that A wants to use the services of B and is
making an agreement. Failure to make the offer heard and acknowledged by the offeree will
render the contract void.

Illustration: John was offering to sell his farmhouse to Alex for $5bn. John wrote an email
explaining all the terms and conditions of his offer and hit the sent button but unfortunately,
his laptop had no internet connection which John failed to notice and his email was sent to
Alex 6 hours later. Meanwhile, Alex decided to buy Mark’s farmhouse for the same price
thinking that John is not interested in selling his farmhouse anymore. John later sued Alex.
Court held that there was no communication of the offer to Alex as even though John had
sent his email earlier than Mark but John’s email was delivered later than Mark’s therefore
Alex got to know about John’s offer later than Mark’s and hence is completely justified in
accepting his offer over John’s.

Lalman Shukla v. Gauri Dutt,

The defendant’s nephew had eloped from his house. Defendant sent out a search party to look
for the child. Defendant’s house servant also went to the lookout. Meanwhile, the defendant
announced a reward to anyone who brings back his nephew. This announcement was made
after the departure of the servant therefore, the servant had absolutely no knowledge about
this offer. Interestingly, the servant was able to track the nephew and bring him back. It was
only after coming back that he got aware of this reward, when he demanded his
compensation, the defendant refused.

The court held that because the plaintiff did not know of the reward offer, his act of finding
the boy who was lost did not mean he accepted the offer as he only came to know after
finding the boy. Thus, he was not entitled to claim the reward. An offer can be accepted only
after the same has come to the knowledge of the offeree, as per contract law. It means that the
offer has to be proposed by the offeror so that there is acceptance by the other party, the
offeree. This case law shows how communication of offer is essential.

3. DEFINITE TERMS

The terms of the offer must be absolute and definite. Any discrepancies in the offeror in the
communication of such offer can render the contract void. However, silence does not mean
fraud. The offeror is liable to answer every query of the offeree about the offer in
question, but the concealment of facts about the offer will not amount to fraud until and
unless the offeror provides wrongful information to the offeree in a view to obtain his
assent. The terms of the offer must be formed in such a way that a reasonable man is able to
understand them and the court must be able to interpret and enforce them. Nothing should be
hidden between the lines.

Illustration: John was offering to sell his farmhouse to Alex for $5bn. Alex was being
driven to the airport. The moment John mentioned his offer an airplane flew over Alex’s car
creating a lot of vibration and disturbance due to which Alex was unable to understand John’s
offer clearly. Nevertheless, Alex accepted John’s offer thinking that he was offering to sell
his pool house. Court held that the contract was void as there was no clear communication
from the offeror.

Conclusion:

The difficulties to make a contract by applying offer and acceptance rules are clearly linked
to safeguarding the legal interests of the parties. The multitude of sections, characteristics,
rules, regulations etc., all bolster the parties’ intentions to make a lawful and definite
contract. In this article, an attempt was made to make the reader aware of what a contract is,
what an offer is, how offers are formed and communicated, situations when an offer can be
held invalid etc., through various illustrations and case laws.

The article allowed the reader to draw attention to the characteristics of an offer which
explains how a person wishing to form a legal contract must take the first step. Firstly, there
must be an intention of the offeror to present such an offer that if accepted will form a legal
obligation. Hollow promises and social/domestic promises cannot morph into any legal
contract.Secondly, communication is the key, until and unless the offer is not communicated
to the offeree there is no acceptance and hence no contract.

The communication must be done via a reasonable source.caveat vendor, the offeror must be
beware that whether the offeree understands the terms and conditions of his offer absolutely
or not. Any discrepancies or mismatch in the offer and acceptance can render the contract
void. after going through the extensive offer and acceptance negotiations, the parties are
bound in a contract and are now obliged to perform their respective duties.

Unit 2

1. Who are competent and not competent to contract under Indian Contract Act, 1872

I. INTRODUCTION

1872.Almost every transaction around us is a result of a contract. When you buy

vegetables from the seller, you promise to pay him money in exchange for vegetables. If you
own a shop, you enter into two contracts; one with the manufacturer of the goods and second
with the customer who will buy the goods from your shop.

While buying vegetables we might not pay attention as to whether the seller is competent
enough to enter into a contract. However, if you are a shopkeeper, you need to check and be
sure that the manufacturer is legally capable of doing so. This becomes important for you to
hold the manufacturer legally liable for any defaults committed by him during the terms of
the agreement.
This article deals with the legal prerequisites of a party before entering into a contract.

Legal requirements for a person entering into a contract

Sec.11 of the Indian Contract Act, 1872 lists down the qualifications which enable a person
in India to enter into contracts-

A person should have attained the age of majority as per the law of the country of which he is
a citizen.

In India, the age of majority is governed by the Indian Majority Act, 1875. As per Sec. 3 of
the Indian Majority Act, 1875, an Indian citizen is said to have attained the age of majority
upon completion of eighteen years of age. In the USA (the majority of the states) and the UK,
the age of majority is 18 years as well.

However, if a person is below the age of 18 years and a guardian has been appointed for him,
he shall attain majority at the age of 21 years.

A person should be of sound mind at the time of entering into a contract.

As per Sec. 12 of the Act, a person can be said to be of sound mind when he can assess,
understand his actions and realize the consequences of obligations imposed on him at the
time of entering into a contract.

A person should not be disqualified under any law to which he is subject.

Disqualifications for entering into a contract

As per the Indian Contract Act, 1872 all persons who do not meet the criteria as per Sec. 11
of the act are incompetent to contract. Hence, we can deduce that the following category of
persons do not possess the legal capacity to enter into a contract-

Minor

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

Mohori Bibee vs. Dharmodas Ghose

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

Mr. Brahmo Dutt had authorized Kedar Nath to enter into the transaction through a power of
attorney. Mr. Kedar Nath was informed of the fact that Dharmodas Ghose was a minor
through a letter sent by his mother.
However, the deed of mortgage contained a declaration that Dharmodas Ghose was of the age
of majority.

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

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

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

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

Sec.7 of the Transfer of Property Act, 1882 states that a person competent to contract is
competent to transfer a property.

Hence, the mortgage executed by the respondent is void.

However, if a minor enters into a contract and performs his part of obligations, the other party
can be compelled to perform and fulfill its obligations, and, in such instances, the contract
becomes legally enforceable.

A.T Raghava Chariar vs. O.A. Srinivasa Raghava Chariar

A minor entered into a contract for mortgage with a person of the age of majority.

The minor extended the monetary amount and performed his part of the obligations.

The other party refused to honor the agreement.

The full bench of the Madras High court had to decide “whether a mortgage executed in
favour of a minor who has advanced the whole of the mortgage money is enforceable by him
or by any other person on his behalf.”

The court ruled that-

The agreement sought to be enforced is the promise of the mortgagor who is of full age to
repay the money advanced to by the mortgagee.

The mortgagee (the minor) has already advanced the money which was the consideration for
the promise of the mortgagor and performed his part of the obligations. There is nothing
pending from his side.

Hence, the contract is enforceable.

Additionally, a minor cannot enter into a contract and provide his consent when he attains
majority. This is because a minor’s agreement is void from the beginning. A void agreement
cannot be made legally valid by ratification

Suraj Narain Dube vs. Sukhu Ahir

Suraj Narain lent money to Sukhu Ahir who was a minor. The minor executed a promissory
note against the money borrowed.

After four years, when the minor attained majority, he and his mother executed a second
promissory note in favour of Suraj Narain in respect of the original loan plus the interest
accumulated over the years.

The court held-

The first agreement entered into by the parties is void as a minor is incompetent to contract.
The minor had no liability to pay under this agreement. However, the minor made a promise
and provided the promissory note, amounting to consideration.

A minor has no power to ratify the contracts entered into by him upon attaining the age of
majority.

In the second agreement executed by the parties, there was no consideration from the
Plaintiff. The original advance was no consideration for a second agreement. The second
agreement is void due to want of consideration.

In certain instances, a contract entered into by the minor or by the minor’s guardian for his
benefit is valid in the eyes of law-

A contract for marriage entered into by a minor/his guardian.

A partnership contract entered into with a minor admitting him to the benefits of a
partnership. However, the minor cannot be held personally liable for the losses incurred.

A contract relating to the minor’s property entered into by his guardian if it is for the benefit
of the minor.

A contract of apprenticeship with a minor.

A contract supplying the minors with goods and services necessary for life.

Websites such as YouTube expressly mention in their terms and conditions that any minor
while using its services represents that he has the permission of his parent/ guardian to do so.
Parents and guardians are held liable for the child’s activity on such websites.

Person of unsound mind

Idiots- An idiot, in medical terms, is a condition of mental retardation where a person has a
mental age of less than a 3-year-old child. Hence, idiots are incapable of understanding the
nature of the contract and it will be void since the very beginning.

Lunatic- A person who is of sound mind for certain duration of time and unsound for the
remaining duration is known as a lunatic. When a lunatic enters into a contract while he is of
sound mind, i.e. capable of understanding the nature of the contract, it is a valid contract.
Otherwise, it is void.
Illustration- A enters into a contract with B for sale of goods when he is of sound mind. A
later becomes of unsound mind. The contract is valid.

People under the influence of the drug- A contract signed under the influence of alcohol/drug
may or may not be valid. If a person is so drunk at the time of entering into a contract so that
he is not in a position to understand the nature and consequences, the contract is void.
However, if he is capable of understanding the nature of the contract, it will be enforceable.

Illustration- A enters into a contract with B under the influence of alcohol. The burden of
proof is on A to show that he was incapable of understanding the consequence at the time of
entering the contract and B was aware of his condition.

Persons disqualified by law

Alien enemy- An alien enemy is the citizen of a country India is at war with. Any contracts
made during the war period with an alien enemy are void. An Indian citizen residing in an
alien enemy’s territory shall be treated as an alien enemy under the contract law. Contracts
made before the war period either gets dissolved if they are against public policy or remain
suspended and are revived after the war is over, provided they are not barred by limitation.

Illustration- A, of country X, orders goods from B, of country Y. The goods are shipped and
before they could reach Y, country X declares a war with country Y. The contract between A
and B becomes void.

Convicts- A convict cannot enter into a contract while he is serving his sentence. However,
he regains his capacity to enter into a contract upon completion of his sentence.

Illustration- A, is serving his sentence in jail. Any contract signed by him during this period is
void.

Insolvent- An insolvent is a person who is declared bankrupt/ against whom insolvency

proceedings have been filed in court/resolution professional takes possession of his assets.
Since the person does not have any power over his assets, he cannot enter into contracts
concerning the property.

Illustration- A enters into a contract for sale of goods with B. Before the sale takes place, an
insolvency suit is filed against A. A sell the goods to B during pendency of insolvency
proceedings. The contract is valid.

Foreign sovereign- Diplomats and ambassadors of foreign countries enjoy contractual

immunity in India. One cannot sue them in Indian courts unless they submit themselves to the
jurisdiction of Indian courts. Additionally, sanction from the central government is also
required in such cases. However, the foreign sovereign has the authority to enforce contracts
against the third person in Indian courts.

Body corporate- A company is an artificial person. The capacity of a company to enter into a
contract is determined by its memorandum and articles of association.
Competency of Parties to enter into an e-contract

A party can enter into an e-contract if it satisfies the legal requirements as per Sec. 11 and
Sec. 12 of the Indian Contract Act, 1872.

Competency to contract on behalf of another

As per the Indian Contract Act, 1872 a person can employ another who shall enter into
contracts with the third person on his behalf. The person in this instance is known as the
principal and the other person so employed is known as the agent.

Any person may be employed as an agent. However, a minor or a person of unsound mind
cannot be held liable for their acts to the principal.

An agent’s authority may be either-

express, i.e. by word of mouth or documented in writing as in Power of Attorney

Implied, i.e. it might be deduced from the facts and circumstances of the case

Companies ensure competency of each other while entering into a contract

Most companies while entering into contracts with one another want to make sure that the
other party is competent enough to enter into a contract. This is required to avoid any legal
complications in the future. This is mostly done through the inclusion of a representation
clause in a contract stating that the company, as per its memorandum and articles of
association, is capable of entering into a contract through its authorized representatives.

A copy of the articles of association may be annexed by both parties to confirm the
representations made.

If the memorandum and articles provide otherwise, a condition precedent clause is

incorporated into the agreement stating that the company shall pass necessary board
resolutions to alter its articles of association. A stipulated date called a long stop date is given
to the other party to comply with the conditions precedent failing which the agreement shall
stand terminated.

A party might be asked to produce a copy of board resolution so passed/ changes made in the
articles of association to the other party to prove its compliance with the condition precedent.

It is expressly mentioned in the agreement that both the parties indemnify each other from
any suits, proceedings, or liabilities arising from breach of the representation clause.

Conclusion

Competency of parties to contract is one of the most important requirements to make an

agreement valid and enforceable in a court of law. A contract made by a person who does not
possess the mental capacity to understand the nature and consequences of the contract is void
ab initio. On the other hand, contracts with lunatics, people under the influence of the drug
may/may not be void depending upon the circumstances surrounding the situation.

A person regains the legal capacity to contract upon removal of any of the disqualifications.
Companies while entering into contracts with one another always try to safeguard their
interests. Representation and indemnification are the most commonly used clauses to ensure
that both the parties are competent to contract.

1. b) Discuss the concept of Fraud under Indian Contract Act 1872

Introduction

The element of fraud in a contract vitiates the contract and such a contract by fraud is
voidable at the option of the aggrieved party. Very often facts are misrepresented, that is, they
are declared in a distorted manner. When facts are intentionally misrepresented, it is known
as fraud , which is dealt with in Section 17 of the ICA. However, unintentional or innocent
misrepresentation is not fraud.

They are simply misrepresentation falling under Section 18 of the Act. Thus, where a false
statement is made intentionally, with the knowledge that it is false, with a view to deceive the
other party and thereby inducing him into entering the contract – it is known as fraud .But
when the person making the false statement believes the statement to be true and does not
intend to deceive the other party to enter into the contract – it is known as misrepresentation.
Thus it can be said that fraud is a willful misrepresentation or a fraudulent misrepresentation
and includes all the acts committed by a person to deceive the other .

Definition of Fraud

Fraud implies and involves any of the following acts committed by a contracting party or his
connivance or his agent with the intention of deceiving or inciting another party or his agent
to enter into the agreement.

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

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

A promise made without any intention of performing it.

Any other act fitted to deceive.

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 a contract is
not fraud, unless the circumstance of the case is such that, regard being had to them, it is the
duty of the person keeping silence to speak, or unless his silence, in itself is, equivalent to
speech. Illustration– 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 in A.
Section 17 describes fraud and lists the acts that amount to fraud, which are a false claim,
active concealment, promise without the intention of carrying it out, any other deceptive act,
or any act declared fraudulent. To constitute fraud, the contracting party, or any other
individual with his connivance, or his agent, or to induce him to enter into the agreement,
should have performed such acts. The parties have no duty to speak about facts likely to
affect the consent of the other party to the contract, and mere silence does not amount to
fraud unless the circumstance of the case shows that there is a duty to speak or silence
equivalent to speech.

Fraud and Misrepresentation

The main difference between fraud and misrepresentation is that in the first case the person
making the suggestion does not believe it is true and in the other case he believes it is true,
although in both cases it is a misrepresentation of fact that misleads the promisee. This was
held in Rattan Lal Ahluwalia v Jai Janider Parshad. Under common law, fraud will not only
render the contract voidable at the option of the party whose consent is so obtained but will
also give rise to an action for damages in respect of deceit.

If a decree is found to have been obtained by fraud, an application moved, even belatedly,
would be maintainable. The court has inherent jurisdiction to grant relief on such an
application and even principles or res judicata would not apply. Fraud is a conduct either by
letter or words, which includes the other person or authority to take a definite determinative
stand as a response to the conduct of the former either by words or letter. Indeed, innocent
misrepresentation may also give reason to claim relief against fraud.

Ingredients of Section 17

When analysed s 17(1) shows the following ingredients:

There should be a suggestion as to a fact;

The fact suggested should not be true;

The suggestion should have been made by a person who does not believe it to be true; and

The suggestion should be made with intent either to deceive or to induce the other party to
enter into the contract.

A representation is a statement of fact, past or present and is distinct from an opinion

statement, although a statement of opinion may be considered as a statement of fact in certain
circumstances. The fraudulent misrepresentation must be material in order to allow the
representative to prevent the agreement, i.e. such that it would have affected a reasonable
man in choosing whether to enter into the agreement or not. In Lillykutty v Scrutiny
Committee, a false certificate was obtained in order to take unfair advantage. It was held that
fraud vitiates every solemn act. Fraudulent acts are not encouraged by the courts. Any action
by the authorities or by the people claiming a right/privilege under the Constitution of India
which subverts the constitutional purpose must be treated as a fraud on the Constitution.
False Assertion without Belief in its Truth

To prove a case of fraud, it must be proved that representations made were false to the
knowledge of the party making them. The statement must be false in substance and in fact.
Positive knowledge of falsehood is not a criterion. In order to constitute fraud, it is necessary
that the statement was made by the person concerned with knowledge of its falsehood, or
without belief in its truth. Even mere ignorance as to the truth or falsehood of material
assertion, which, however, turns out to be untrue, is deemed equivalent to the knowledge of
its untruth, as also where the representor suspected that his statement might be inaccurate, or
that he neglected to inquire into its accuracy. In Jewson & Sons Ltd v Arcos Ltd, giving a
false impression and inducing a person to act upon it, was considered fraud, even if each fact
taken by itself would be literally true.

Reckless Statements

Proof of absence of actual and honest belief is all that is necessary to satisfy the existence of
fraud, whether the representation is made recklessly or deliberately; indifference or
recklessness on the part of the representor as to truth or falsity of the representation affords
merely an instance of absence of such belief. Statements made without belief in the truth
would include statements made recklessly. Misrepresentation as to title made by vendors
recklessly or with gross negligence cannot escape the charge of fraudulent misrepresentation.

Ambiguous Statements

Where the representer makes an ambiguous statement, the person to whom it is made must
prove that he understood that statement in the sense that it was in fact false. The representor
will be guilty of fraud if he intended the statement to be understood in that sense, and not if
he honestly believes it to be true, but the person relying on it understands it in a different
sense. Once it is held that the representation was fraudulent under this clause, the exception
in s 19 is of no avail, and the question whether the person alleging fraud had or had not the
means of discovering the truth with ordinary diligence, is immaterial.

Active Concealment

Mere non-disclosure of some immaterial fact s would not per se five a right to recission
unless it is further found that the consent has been secured by practicing some deception.
Where the seller sold property already sold by him to a third person, his conduct amounted to
active concealment and fraud, and the buyer could recover the price despite the agreement
that the seller could not be responsible for a defect in title.

Promise without Intention of performing it

Making a promise without the intention of performing it is fraud, though not so under the
English law. To bring the case within this clause, it must be shown that the promisor had no
intention of performing the promise at the time of making it, and any subsequent conduct or
representation is not considered for this purpose.
Silence as Fraud

Silence about fats is not fraud per se. Unless there is a obligation to talk or if it is equal to
expression, mere silence is not fraud. This rule has two skills. First, suppressing portion of
the known facts may mislead the assertion of the remainder, although literally true as far as it
goes. In such a case, the declaration is substantially incorrect, and fraudulent is the willing
rejection that makes it so. Secondly, commercial use may impose a obligation to disclose
specific flaws in products sold or the like. In such a situation, failure to mention such a defect
is equal to an statement that there is no such defect.

Duty to Speak

There is no general duty to disclose facts that are or might be equally within the means of
knowledge of both parties. In Bell v Lever Bros, the company agreed to pay large
compensation to two employees, the subsidiary company directors, whose services were
being dispensed with. After paying the money, the company discovered that the directors had
committed breaches of duty, which would have justified their dismissal without
compensation. The House of Lords held that the directors had not these breaches in mind, and
were under no duty to disclose them.

No Fraud

If the party alleging fraud had the facts before it or had the means to know them, it could not
be said to have been defrauded, even if a false statement has been made. Further, a contract
cannot be merely on a trivial and inconsequential mis-statement or non-disclosure.
In Janakiamma v Raveendra Menon, where the plaintiff was aware of the contents of the Will
of her father, the partition of property on the death of the father and mother was not set aside
on the ground of fraud of not disclosing the contents of the Will; and no fresh partition was
ordered.

Evidence and Burden of Proof

In a great majority of cases, fraud is not capable of being established by positive and tangible
proof. It is by its very nature secret in its movements. It is, therefore sufficient if the evidence
given is such as ay lead to interference that fraud must have been committed. In most cases,
circumstantial evidence is the only resource in dealing with questions of fraud. If this were
not allowed, the ends of justice would be constantly, if not invariably, defeated. At the same
time, the interference of fraud is to be drawn only upon an intentional wrongdoer. Being a
restitutionary remedy, all actual losses flowing from fraud are recoverable, even if they could
not have been reasonably foreseen; subject to the rule of mitigation by the defrauded party.
Nor would the damages be reduced on account of contributory negligence.

Effect of Fraud
A contract, consent to which is obtained by fraud, is voidable under s 19. The party deceived
has the option to affirm the contract and insist that he be put in the position in which he
would have been if the representations were true, or he may rescind the contract to the extent
it is not performed. Upon rescission, he is liable to restore the benefit received by him under s
64 and may recover damages. The measure of damages recoverable is essentially that
applicable to the tort deceit, ie, all the actual loss directly flowing from the transaction
included by the fraud, including the heads of consequential loss, and not merely the loss
which was reasonably foreseeable. Where a document, which was intended to be in favor of a
particular person but, as a result of fraud of the defendant, conveyed to someone else, the
transaction would be also voidable under s 19.

Damages for Fraud

Where a contract is induced by fraud, the representee is entitled to claim rescission, or

damages or both. He would have a remedy by way of such suit, even if restitutio in integrum
is not possible as in Indranath Banerjee v Rooke. In Firbank’s Executors v Humphreys, the
damages for fraudulent misrepresentation, under the general rule, were arrived at by
considering the difference in the position the plaintiff would have been in, had the
representation been true and in the position he is actually in, in consequence of it’s being true.

The principles applicable in asserting damages for fraudulent misrepresentation have been
stated by Lord Browne-Wilkinson in Smith New Court Ltd v Scrimgeour Vickers (Asset
Management) Ltd:

The defendant is bound to make reparation for all the damage directly flowing from the
transaction;

Although such damage not have been foreseeable it must have been directly caused by the
transaction;

In assessing search damage, the plaintiff is entitled to recover by way of damages the full
prize faced by him, but he must give credit for any benefits which he has received as a result
of the transaction;

As a general rule, the benefits received by him into the market value of the property acquired
at the date of the transaction, but the general rule is not to be inflexible applied where to do so
would prevent him from obtaining full compensation for the wrong suffered;

The plaintiff is entitled to recover consequential losses caused by the transaction;

The plaintiff must take all reasonable steps to mitigate the loss once he has discovered the
fraud.

OR
 1. What are the factors concerning consent not a free one? Discuss their effect on
validity of Contract. (6 marks)

INTRODUCTION

In the Indian Contract Act, the definition of consent is given in Section 14, which states that
“it is when two or more persons agree upon the same thing and in the same sense”.

Example

‘A’ agrees to sell his house to ‘B’. ‘A’ owns three houses and wants to sell his house in
Haridwar. ‘B’ thinks he is buying his Delhi house. Here ‘A’ and ‘B’ have not agreed upon the
same thing in the same sense. Therefore, there is no consent and no contract afterwards.

In the case of Raffles v. Wichelhaus, two parties, ‘A’ and ‘B’, entered into a contract for the
sale of 125 cotton bales by a ship named “peerless” from Bombay. There were two ships with
the same name, and while Party ‘A’ was thinking of one ship, Party ‘B’ was thinking of the
other ship. The court held that there was no meeting of minds by both parties. Hence the
contract was invalid.

II. Vitiating factors and their effect

1. Coercion (Section 15)

Section 15 of the Indian Contract Act,1872 states that coercion is committing or threatening
to commit, any act is forbidden by the Indian Penal Code (45 of 1860) 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.

Coercion means forcing an individual to enter into a contract. When intimidation or threats
are used under pressure to gain the party’s consent, i.e. it Coercion may involve the actual
infliction of physical and psychological harm in order to enhance the credibility of a threat.
Then the threat of further harm can lead to the threatened person’s cooperation or obedience.

Example

‘A’ went out for a walk, ‘B’ approaches ‘A’ with a stranger, pulls out his gun and asks ‘A’ to
give all his possessions. The consent of ‘A’ is obtained by coercion here.

Effect

Coercion has the effect of making the contract voidable. It implies that at the discretion of the
party whose consent was not free, the contract is voidable. The aggravated party will,
therefore, determine whether to enforce the contract or to cancel the contract.

Techniques for causing coercion

 Threatening to commit any act which is prohibited by the Indian penal Code.

Detaining not as per law or even threatening to detain any property, with the sole intention of
compelling a person to enter into a contract.

Acts forbidden by IPC

The word act prohibited by the Indian penal code makes it necessary in a civil action for the
court to decide whether the alleged act of coercion is amount to an offence. A threat of
bringing a false charm with the object of making another do a thing amount to blackmail or
coercion. In the case of Ranganayakamma v Alwar Sett, where the widow was prohibited
from removing the corpse of her husband until she consented for the adoption. The court said
that her consent was not free and it was coerced. It is clear that coercion is committing or
threatening to commit any act which is contrary to law.

Detention of property

Consent can be said to be caused by coercion if it is induced because of illegal confining of a

property, or a danger to do as such. With a specific goal of acknowledging the child’s due
fine, the legislature annexed the property both of him and his father having a place, the
instalment made by the father at that stage bearing in mind the ultimate goal of saving the
property from being sold was kept to be made under coercion. Refusal by the government to
discharge a temporary worker’s instalment unless he surrenders his demand for additional
rates adds up to intimidation under the land detention class.

Burden of proof

The burden of proof lies with the party defending the coercion. The burden of proof is
heavier on him. This is because pure probability or fear is not a threat. In order to create
coercion, a person must show that there was a risk that was prohibited by law and that forced
him to enter into a contract that he would not otherwise have.

Difference between Coercion and Duress

The term ‘duress’ corresponds to coercion in English law. However, Coercion under the
Indian Contract law has a wider amplitude than duress under the English law.

Coercion Duress

Duress can be employed only against the life or

Coercion can be employed against any
liability of the other party to the contract or members
person
of his family.

Immediate violence subsequent to

Duress must cause immediate violence.
coercion is not an essential element.
Unlawful detention of goods is a kind of Unlawful detention is not duress under the English
coercion. Law.

2. Undue Influence (Section 16)

According to Section 16 of the Indian Contract Act, 1872 an influence will be considered as
Undue Influence when:

One party to the contract is in a position of trust and controls the other party wrongfully.

Such a person uses his dominant position to gain an unfair advantage over the other.

There are two key elements of undue influence-

The relationship- trust, confidence, authority.

Unfair persuasion- careful examination of the terms of the contract.

Where one party is in a fiduciary relation to the other party

Fiduciary relationship means a relationship of trust and confidence. When a person imposes
faith and confidence on the other, he expects not to be betrayed. If the other party betrays the
confidence and trust reposed in him and gains an undue influence.

Examples of fiduciary relationship includes:

Solicitor and client;

Trustee and trust ;

Spiritual adviser and devotee;

Medical attendant and patient;

Parent and child;

Husband and wife;

Master and servant;

Guardian and ward.

In other words, we can say that Undue influence occurs when the decision of another party to
the transaction can be influenced by one party.

Example

‘A’ sold his gold ring to his teacher ‘B’ for Rs 200 after he had been offered good grades by
his teacher. Here, A’s permission is not given freely, he was influenced by his teacher.

Effect
 The effect of undue influence makes an agreement voidable at the option of the party whose
consent was caused. Any such contract can be set aside. Only a party to the contract can
avoid or rescind the contract. This right does not lie in the hands of the third party.

Burden of Proof

If the plaintiff wants to bring an action to stop a contract entered into on the grounds of undue
influence, two issues must be kept in mind. The law has been stated in the Indian Evidence
Act, 1872 and Indian Contract Act, 1872. The law states that in order for a plaintiff to prove
that he was under undue influence, two things must be established

Not only must the defendant has a dominant position but,

He must use it.

It states that it’s not enough for the plaintiff to show the possibility of undue influence that
may have been exercised by the dominant party. It must be certain that a person used his
position to influence the plaintiff. A possibility of the same is not enough for the plaintiff to
avoid a contract.

Difference between Coercion and Undue Influence

Basic Coercion Undue Influence

Through coercion, by
Nature of committing an offence or Under the undue influence, consent is gained by
Action threatening to commit an suppressing other party’s will.
offence, consent is gained.

Coercion is typically physical in

nature, in order to obtain Undue influence is immoral in nature, using mental
Carried by
consent, it requires a physical pressure to gain consent.
force of violent nature.

Coercion includes a criminal act

Undue Influence requires unlawful act and is not
and is punishable under the IPC
Criminal Action punishable under the IPC by a person who has done
by a person who commits
undue influence
coercion.

Coercion does not involve a Undue influence can only be exerted if there is a
Relationship
party’s relationship. relationship between two-party.

When coercion induces consent When consent to an agreement is caused by undue

to an agreement, the agreement influence, it becomes null and void at the discretion
Agreement
is null and void at the option of of the individual whose consent has been so
the party whose consent is affected.
 induced

3.Fraud (Section 17According to Section 17 of Indian Contract Act, Fraud includes any of the
following acts committed by a contracting party or its connivance or its agent in order to
deceive or induce a party or its agent to enter into the contract:

The effective concealment of a fact by one who is aware of the fact;

a promise made without any intention to carry it out;

any other act fitted to deceive;

any such act or omission as the law considers to be fraudulent.

Mere silence as to facts likely to affect a person’s willingness to enter into a contract is not
fraud unless the circumstances of the case are such that, having regard to them, it is the
obligation of the silent person to speak or unless his or her silence is, in itself, equivalent to
speech.

Example

‘A’ sells his horse to ‘B’ by auction, which ‘A’ knows to be unsound, ‘A’ tells ‘B’ nothing
about the unsoundness of the horse. This is a fraud on the part of ‘A’.

Effect

The contract arising from fraud is a null contract.

The misled party has the right to withdraw from the contract.

Due to the fraudulent agreement, the party is responsible for recovering the damages.

Evidence and Burden of proof

In a large majority of cases, fraud can not be proved by concrete and observable proof. It’s
hidden in its movement by its definition. If the evidence given is such as lead to wrongdoing,
it is, therefore, appropriate that fraud must have been committed. In most cases, the only tool
for dealing with fraud issues is circumstantial evidence. If this were not allowed, the ends of
justice would be constantly, if not invariably, defeated. Simultaneously, fraud involvement is
only to be blamed on a deliberate wrongdoer. As a remedy for restitution, any real damages
arising from fraud can be recovered, even if they could not have been reasonably foreseen
subject to the defrauded party’s mitigation law. Due to contributory negligence, the penalties
would not be diminished.

4. Misrepresentation (Section 18)

As per Section 18 of the Indian Contract:

Misrepresentation means the truth is misrepresented.

Misrepresentation is the release of deceiving details resulting in the presumption that the
other party will enter into a deal and then lose. Nevertheless, the information provided by the
guilty party is the result of a genuine belief in the matter. Misrepresentation is said to be
committed.

Firstly, when the deceiving person declares that no justified data is misleading a person is
some way.

Secondly, there is a breach of an obligation that has caused the bias of one or the other.
Lastly, a mistake was committed by a person because of the misrepresentation of the act or
information.

Example

‘A’ told ‘B’ that his radio is in good condition, because of the confidence he had in ‘A’, ‘B’
bought the radio from him. The radio did not work properly after some time, ‘B’ thought he
was misled by ‘A’, but ‘A’ believed his radio was in good condition and had no intention of
deceiving him. So, here misrepresentation is in the part of ‘A’, because he did not know that
the radio is not working properly.

Effect

If the party that has suffered as a result of the misrepresentation when entering into a contract
may choose to terminate the contract, rescind the contract within a reasonable time under the
Specific Relief Act 1963.

Kinds of Misrepresentation

There are two types of misrepresentation:

Negligent Misrepresentation

It is considered to be a negligent misrepresentation when the misrepresentation happens due

to lack of any reasonable ground and carelessness;

Negligent misrepresentation is only known when the representative owed a duty to

representee to handle carefully;

An individual would only be liable if, in particular, he had ignored the duty specified;

Even when there is no fiduciary relationship, responsibility exists between the two parties.

Innocent misrepresentation

If the portrayal is based on a good reason to believe and there is no error and malicious
motive, then it is said to be an innocent misrepresentation.
When a person enters into a contract with an innocent misrepresentation, he or she has the
right to withdraw from the contract but is not entitled to damages.

Unless there are reasonable grounds, a contract will not be void. It would be enough to prove
innocence in misrepresentation to prove the fact.

Burden of Proof

The burden of proof is on the defendant to show that the misrepresentation was not rendered
fraudulently by showing that “He had reasonable grounds to believe that the evidence
portrayed were valid during the time when the contract was made.” The party making the
misrepresentation carries a heavy burden of proof.

The distinction between fraud and misrepresentation

Basis Fraud Misrepresentation

A fraudulent act intentionally Misrepresentation is known

committed by one party to as the representation of an
Meaning induce the other party to innocent mistake, which
enter into the contract is persuades other parties to
referred to as fraud. enter into the contract.

Section 17 of the Indian Section 18 of the Indian

Section
Contract Act, 1872. Contract Act, 1872

In order to mislead the other party Yes No

Variation in extent of truth
In misrepresentation, the
party making the
In fraud, the party making the
representation considers the
representation knows that the
statement made by him to
declaration is not true.
be valid, which later turned
out to be false.

The aggrieved party has no

The aggrieved party is
Claim right to sue for damages to
entitled to claim damages.
the other party.

If the truth can be found

The contract is voidable even
with reasonable diligence,
Voidable if in usual diligence the truth
then the contract is not
can be found.
voidable.

4. Mistake (Section 20)

There are two forms of mistake under Indian Contract Law:

The mistake of Fact,

The Mistake of Law.

Mistake of Fact

A mistake of fact arises when one or both of the contracting parties have misunderstood a
term that is essential to the meaning of the contract;

Such a mistake may be done due to confusion, negligence or omission, etc;

A mistake is never intentional, it is an innocent overlooking.

Such mistakes can be either unilateral or bilateral

Bilateral Mistake (Section 21)

When both the parties to a contract are under a mistake of fact, essential to the agreement,
such a mistake is known as a bilateral mistake. Bilateral mistakes are also sometimes referred
to as mutual or common mistakes. All the parties do not agree to the same thing and in the
same way, which is the concept of consent. Since there is no consent, the contract is null and
void.

Example

‘A’, agrees to buy a cow from ‘B’, but it turns out that the cow was dead at the time of the
deal, although the fact was not known to any party. The arrangement is considered invalid.

Unilateral Mistake (Section 22)

A unilateral mistake occurs when only one party to the contract makes a mistake. The
contract will not be void in such a case. It is specified in Section 22 of the Act that the
contract will not be void just because one party made the mistake. So if only one party has
made a mistake the contract remains a valid contract.

Example

‘A’ enters into an agreement with ‘B’ for the purchase of horse which he assumes to be a
racing horse. ‘A’ do not confirm from ‘B’. In actual a horse is not a racing horse. ‘A’ cannot
rescind the contract.

Mistake of law

The mistake may be related to the mistake of Indian laws, or it may be a mistake of foreign
laws. If the mistake applies to Indian laws, the principle is that the law’s ignorance is not a
sufficiently good excuse. This means that either party cannot claim that it is not aware of the
law.
The Contract Act states that, on the grounds of ignorance of Indian law, no party can claim
any relief. This will also include an incorrect interpretation of any legal provisions.

However, similar treatment is not given to ignorance of foreign law. Ignorance of foreign law
provides some leeway, the parties are not expected to know foreign law and its meaning.
Therefore, under the Indian Contract Act, an error of foreign law is actually treated as a
mistake of fact.

Conclusion

Free Consent is absolutely important to make an agreement with a valid contract. The
importance of free consent cannot be stressed enough. The Party’s consent must be free and
voluntarily. It is necessary to give consent to the contract without any pressure or delusions.
It is essential that the parties consent is free, as this may affect the contract’s validity. If the
consent has been obtained or caused by coercion, undue influence, fraud, misrepresentation
or mistake, then the aggrieved person has the right to void the agreement.

1.a) Discuss A mistake means ‘believe in those things which do not exist in reality’.
Thus, the mistake is an erroneous belief. (6Marks)

Introduction

Word ‘Mistake’ is used interchangeably with ‘error’. In law, misunderstanding or

erroneous belief about a material fact may prevent the formation of a valid contract.
According to Section 10 of the Indian Contract Act 1872, Free consent of parties is an
essential element of any contract. Section 14 of the Indian Contract Act states that ‘Free
consent means consent not caused by coercion, undue influence, fraud, misrepresentation and
mistake’.

A mistake means ‘believe in those things which do not exist in reality’. Thus, the mistake is
an erroneous belief.

Definition of Mistake

‘Mistake’ is not defined in the Indian Contract Act. Section 20, 21 and 22 deals with the
concept related to mistake. ‘Mistake’ can be defined as any action, decision or judgement that
produced an unwanted and unintentional result. A Mistake is said to have occurred where
parties intending to do one thing by error do something else. Phillips v. Brooks Ltd is
an English contract law case concerning mistake. It was held in this case that a person is
deemed to contract with the person in front of them unless they can substantially prove that
they instead of them intended to deal with another person.

Types of Mistake

A mistake is of two types:

Mistake of Law,
Mistake of Fact.

Mistake of Law

Mistake of Law means any contract which is performed by parties without knowing the law
(or by ignoring the law), which is essential for that contract. Section 21 of the Indian Contract
Act deals with ‘effect of mistake as to law’.

Grant v. Borg

In this case, the person was not knowing the clauses of the Immigration Act 1971, for staying
beyond the time limit by the leave. Here, he cannot apply for defence under the mistake of
law.

Mistake of Law can be of two types:

Mistake of Indian Law: “Ignorantia Juris non excusat” is a Latin maxim which means
“Ignorance of the law is not excused”. If a person takes part in a contract without knowing
any specific provisions of Indian Law (which is essential for that contract), then Contract is
not voidable because everyone is supposed to know the law of his country. For example:
According to the provisions of Indian law, we have to recover the amount of loan within 3
months from the due date, after that time-barred debt is imposed. Now if we do not show any
interest in the recovery of loan amount during these 3 months because of not knowing the law
(mistake of law), then we can not take it up as an excuse or defence.

A and B make a contract grounded on the erroneous belief that a specific debt is barred by the
Indian Law of Limitation, then the contract is not voidable.

A murdered B, A cannot apply for the defence of mistake of law that is; he was not aware of
law related to the murder.

Mistake of Foreign Law:- If a person takes part in a Contract without knowing any specific
provisions of Foreign Law (which is essential for that contract), then that mistake is treated as
a mistake of fact i.e, the contract is void if both the parties under a mistake as to a foreign law
because one can not be expected to know the law of other foreign countries.

Mistake of Fact

Mistake of fact means any contract which is performed by parties without knowing any
material fact (or ignoring the fact), which is essential for that contract. Section 20 and 22 of
the Indian Contract Act deals with ‘Mistake of Fact’. Mistake of Fact is of three types:
Bilateral mistake, Unilateral mistake and Common mistake.

In the case of The State of Maharashtra vs Mayer Hans George, A is an officer of the court
and he is ordered to arrest Y. A arrests Z by mistake, as he believes Z is Y. Here, A can take
the base of bona fide intention as a defence in the mistake of fact.
Bilateral Mistake

According to Section 20, “Where both the parties to an agreement are under a mistake as to a
matter of fact essential to the agreement, the agreement is void”. In simple words, if parties
are involved in an agreement without knowing any essential facts related to the agreement,
then it is considered as a Bilateral Mistake and that agreement will be void. For example- A
agrees to sell to B any goods supposed to be on its way from America to Bombay. It is found
that before the day of the bargain, the ship containing goods had been cast away and the
goods were lost. But, neither party was aware of these facts. The agreement is void.

A, being entitled to an estate of the life of B, agrees to sell it to C, B was dead at the time of
the agreement, but both parties were ignorant of the fact. The agreement is void.

Essentials elements of Bilateral mistakes are:

(i) Both parties must be under a mistake.

(ii) The mistake must be of fact, not of law.

(iii) The mistake must be related to an essential fact.

What facts are essential in Bilateral Mistake?

Now, It is very important to know what are the essential facts which make an agreement void.
An agreement is a void where there is a bilateral mistake as to the subject matter. A bilateral
mistake as to the subject matter includes the following:

Mistake as to the existence of subject matter.

Mistake as to the identity of subject matter.

Mistake as to the quantity of subject matter.

Mistake as to the quality of subject matter.

Mistake as to the price of subject matter.

Mistake as to the performance of subject matter.

Mistake as to the existence of subject matter

‘A’ and ‘B’ are involved in a contract to sell a horse in a specific amount. But, horse dies
before the contract is performed and both the parties (A and B) are unaware of this fact that
the horse does not exist. In this case, the Contract is void.

Mistake as to the quantity of subject matter

‘A’ and ‘B’ made a contract in which a transaction of 200 pens in return of some amount
involves. But 100 pens are sold early by the brother of ‘A’ before the contract could be
performed and both the parties (A and B) were unaware of this fact that only 100 articles do
exist. In this case, the contract is void.

Mistake as to the quality of subject matter

‘A’ and ‘B’ made a contract together in which ‘A’ sold his car in return of some amount to
‘B’. They believed that the car is for racing purpose but the car was for tourism purpose. In
this case, the Contract is void.

Mistake as to the price of subject matter

‘A’ and ‘B’ made a contract to sell things in consideration for some money which was not a
valid amount and both the parties (A and B) are unaware of this fact. In this case, the
Contract is void.

Matter as to the identity of subject matter

‘A’ and ‘B’ made a contract in which ‘A’ promise to sell his car to ‘B’. ‘A’ has two different
types of car (one for racing and other for tourism purpose). Here, the real identity of the car is
not clear and both the parties are thinking about different types of car. In this case, the
Contract is void.

In the case of Cundy v Lindsay, it is held that contract as a mistake as a matter of identity will
be automatically void.

Matter as to the possibility of subject matter

Sometimes, a contract is made but during the performance of the same, we come to know that
it is impossible to fulfil the performance of the contract. The agreement is void where there is
a mistake as to the possibility of performance. Impossibility is an excuse for non-performance
of a contract. Impossibility can be of two types:

Physical impossibility: Any performance of the contract when physically impossible, can be
taken up as an excuse for non-performance of duties under a contract and contract will be
void. For example- a painter made a contract with a person to paint a house but before the
performance of duties, the house burns. Now, it is impossible for the painter to perform his
duties under the contract. Thus, it is considered as an excuse for non-performance of duties.

Legal impossibility: Any performance of the contract is when legally impossible, can be
taken as an excuse for non-performance of duties under a contract and contract will be void.
For example- any amendment made by legislation which makes it impossible to fulfil the
performance of duties under the contract.

Unilateral Mistake
According to Section 22, 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.

Such a mistake does not invalidate the agreement. For example, ‘A’ and ‘B’ made a contract
in which only ‘A’ was under a misbelief for any product which is in the transaction. Then, the
contract is not voidable for ‘A’ and will be classified as a valid contract.

void and voidable Cases in which Unilateral Mistake makes a contract

There are a few cases which make a contract void and voidable, merely by a mistake of the
fact of a one-party.

Unilateral Mistake makes a contract voidable

If any unilateral mistake is induced by fraud or misrepresentation, then the contract is

voidable for that party who has done the mistake in the contract. In simple words, if ‘A’
creates such types of situations and do such types of activities in order to deceive ‘B’ and ‘B’
has also done a mistake as a result of A’s action and made a contract with ‘A’. Then, Contract
will be voidable at the option of ‘B’.

Unilateral Mistake makes a contract void

Unilateral mistake makes a contract void in two cases:

Unilateral mistake about the nature of Contract: If a person wants to enter a contract but he
enters into an altogether different contract by mistake. For example- Suppose, any illiterate
person gives thumbprint on any papers by mistake, then that contract formed because of
thumbprint will be void.

Unilateral mistake about the identity of the person: If ‘A’ wants to enter into a contract with
‘C’ but enters into a contract with ‘B’ by mistake. Then, the contract will be void. For
example- If ‘A’ is a regular customer of ‘C’. He gives order to ‘C’ to deliver the goods. But
he was not aware of the fact that ‘B’ is the new owner of the shop and he makes a contract
with ‘B’ by mistake. In this case, the contract will be void.

Common Mistake

When both parties are mistaken for the facts related to the subject matter of the agreement.
The court can declare the entire agreement as void in such kind of mistake. If the contract
contains a small error relating to the subject matter, then there is a very less chance that the
court will rule that the contract is void. If any part of the contract that does not contain a
mistake is still valid.

Bell v Lever Brothers Ltd is an English contract law case decided by the House of Lords.
Within the field of mistake in English law, it holds that common mistake does not lead to a
void contract unless the mistake is fundamental to the identity of the contract.

Conclusion
According to Section 10 of the Indian Contract Act, 1872 ‘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’. According to Section 14 of the Indian Contract Act, ‘Consent is
said to be free when it is not caused by mistake subject to provision of Section 20, 21 and 22.
The mistake can be of two types: Mistake of law and mistake of fact. The mistake of fact is
an excuse under non-performance of duties under contract but the Mistake of law is not an
excuse under non-performance of duties under the contract.

Unit 3

1.a. Explain the various Modes of breach of Contract with reference to decided cases.
(10 Marks)

I. Introduction

Discharge of Contract: It means a contract ceases to operate. It also means the rights and
obligations created by the contract come to an end. The termination of the contractual
relationship between the parties.

When the performance of the contract becomes impossible the purpose which the parties
have in mind is frustrated. If the performance becomes impossible, because of a supervening
event, the promisor is excused from the performance of the contract.

II. Modes of Breach Of Contract

1. By performance (Sec 37-67)

2. By impossibility of performance (Sec 56)

3. By agreement (Sec 62-67)

4. By breach (Sec 39)

Annul, liability fulfillment, to cancel, to release, dismiss, to relieve obligation.

1. Discharge by performance or Doctrine of Frustration

Frustration: efforts made ineffective: discontented because unable to achieve one’s desire:
disappoint a hope;

When the performance of the contract becomes impossible the purpose which the parties
have in mind is frustrated. If the performance becomes impossible, because of a supervening
event, the promisor is excused from the performance of the contract. In English law, it is
called “Doctrine of Frustration”. In Indian Law, it is called as “Impossibility of
Performance”.

Sec 56 of the Indian Contract Act, 1872: this doctrine is applicable in two circumstances (i)
when the performance of the contract was physically cut off; and (ii) when the object was
failed.

Sec 56: Agreement to do impossible Act- an agreement to do impossible in itself is void.

Illustrations:

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

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

Rules: Sec 56 explains the circumstances in which the Doctrine of Frustration arises. The
ingredients of Sec 56 are as follows:

i. The agreement is to do an impossible act is in itself void

ii. A contract to do an act becomes impossible or unlawful by an event which the promisor
could not foresee.

iii. The promisor knew or might have known with reasonable diligence that the act he
promised is impossible or unlawful, but the promise did not know of it, in such
circumstances, the promisor is held liable to pay compensation to the promise for any loss
occurred by the promise for the non-performance of the promise.

iv. Illustrations appended to Sec 56 clarify and give propositions of this doctrine.

Effect of Frustration: it is well settled that if and when there is frustration the dissolution of
the contract occurs automatically.

1. The frustrations should not be self-induced: Frustration should arise without blame or fault
on either side. Reliance cannot be placed on a self induced frustration.

2. Frustration must operate automatically: Frustration operates automatically to discharge the

contract “irrespective of the individual’s concerned, their temperaments and failings, their
interest and circumstances”. The legal effects of frustration do not depend on their intention
or their opinions or even knowledge, as to the event. This is particularly true of Indian law as
Sec 56 of the Contract Act lays down a rule of positive law. There must not be anticipation,
knowledge or intention of the parties.

3. Adjustment of rights (Restitution): Sec 65, obligation of the person who has received
advantage under void agreement, or contract that becomes void- when an agreement is
discovered to be void, or when the 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 deceived it.

4. As a result of frustration, the contract becomes void.

5. The doctrine of Quantum Meruit is allowed in cases of frustrations, wherever possible.

Grounds of Frustration: Following are the well recognized grounds of frustration on which
the doctrine of frustration may be applied by the courts:

Destruction

Where the performance of the contract becomes impossible by the destruction of the specific
thing to that performance that contract is discharged. The destruction of the music hall Taylor
v/s Caldwell case is a good example.

2. Non-occurrence of a particular stage of the thing:

3. Death or incapacity of the party:

Where the performance of a contract depends upon the personal services of a party, the death
or incapacity of such a party may be treated to be a calid ground for frustration of the
contract. A leading case on the point is Robinson v/s Davinson. In this case, the defendant’s
wife was a famous pianist. She contracted for performing a concert but could not fulfill her
promise because for non-performance (breach) of contract. The court held that in this case the
continued health of the pianist was a condition attached to the agreement. Her serious illness
was a valid ground on the basis of which she was discharged from her obligation under the
contract. 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,
however, despite the change of circumstances the performance is still possible the contract
will not be deemed to have been discharged.

5. Building contracts:

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

6. Change in law:

iv. Conclusion
The performance of a contract may be also become legally impossible by the change in law.
If the performance is legally impossible, the contract will be discharged. But as pointed in
Anson’s Law of Contract, “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.Legislative or
government intervention Are the well-recognized grounds of frustration on which the
doctrine of frustration on which the doctrine of frustration may be applied by Courts.

(or)

2.b Write a Note on Impossibility of Contract. (6Marks)

I. Introduction.

The promisor is absolutely absolved from the contract. The promisor is not liable for the
non-performance of the contract. Because, by impossibility of performance The
performance of the contract had become void. Before the date of performance arrived, the
music hall was destroyed by fire. The contract was possible when the contract is entered into,
but because of fire, the performance, subsequently became impossible or unlawful.

Impossibility of Contract

Section 56 The performance is deemed to be impossible and the parties are excused from
performing the contract.

Discharge of contract:

In the following ways:

• By performance of the contract – Section 37 to 67.

• By breach of the contract – Section 39

• By impossibility of performance – Section 56

• By agreement and novation – Section to 67

• Discharge by impossibility of performance: an agreement to do an act impossible in itself, is

void, which becomes unenforceable.

➢ Initial impossibility: -

• ‘Les non cogit ad impossibilia’- the law does not compel a man to do what he cannot
possibly perform.

• Impossibility here means not only physical impossibility, but also legal impossibility
(Section 23)
➢ Subsequent impossibility: -

• The performance of the contract may be possible when the contract is entered into, but
because of some event, the performance may subsequently become impossible or unlawful

• So the purpose which the parties have in mind is frustrated. If the performance becomes
impossible, because of a supervening event, the promisor is excused from the performance of
the contract. This is known as ‘Doctrine of Frustration’ under the English Law.

(or)

b. X,Y, and Z, jointly promise to pay Rs.30,000/- to D. Y becomes insolvent. Discuss the
liability of X,Y, and Z. (6 Marks)

-Yes, X, Y, Z have the liability to pay Rs.30,000 to D.

-But Y becomes insolvent. So now X and Z are compelled to pay the amount to D, may have
performed the whole of the promise and they have right to claim the compensation from Y or
their representatives later on.

They are entitled to receive Rs.10,000/- from Y.

Section 42, 43 and 44 of the Contract Act deal with the question of liability of the joint
promisor. 33

The liability of Joint Promisor is joint and several: When two or more persons make a joint
promise, the promise may, in the absence of express agreement to the contrary, compel
anyone or more of such joint promisors to perform the whole of the promise. Their liability to
pay the money is joint and several under Section 43 of the Contract Act.

Contribution between joint promisors: Since the liability of the joint promisors is joint and
several, one of them may have performed the whole of the promise. He may have, for
instance, paid for the share of others also. If that is so, he has right to claim contribution from
the others (Section 43)

Effect of release of a joint promisor: Section 44 of the Indian Contract Act, 1872: “When two
or more persons have made a joint promise, a release of one such joint promisors by the
promisee, does not discharge the other joint promisors, neither does it free the joint promisor
so released from the responsibility to other joint promisors.

Effect of death of a joint promisor: Section 42: On the death of a joint promisor, his
representatives substitute him for the purpose of liability. The liability of the surviving joint
promisors is there, along with the representatives of the deceased one. When all joint
promisors die, the representatives of them all must jointly, fulfill the promise.
 UNIT –4

Q.1.a) Discuss the Kinds of Damages available to the injured party in case of breach of
Contract.
(10Marks)

Introduction

Remedies for the breach of contract remedy means course of action available to an
aggrieved party, when other party breaches the contract.

Remedies for Breach of Contract

1. Rescission of Contract – Section 39

2. Suit for Damages – Sections 73 to 75

3. Suit for Specific performance (The Specific Relief Act 1963)

4. Suit for Injunction – Sections 36 to 44 of Specific Relief Act, 1963

5. Quantum Meruit

Rescission of Contract – Section 39

It means right to party to cancel contract.

In case of breach of contract, other party may rescind contract.

Effect of Rescission of contract

Aggrieved party is not required to perform his part of obligations under contract Aggrieved
party claims compensation for any loss. Party is liable to restore benefit, if any.

When can Court Grant Rescind Contract?

Court can rescind the contract, in the following situations:

When contract is voidable

When contract is unlawful

Damages – Sections 73 to 75

The amount of money allowed by a court as compensation for the violation of a duty.

Kinds of Damages

1. Liquidated

2. Unliquidated
3. Ordinary/General/Usual course of things

4. Special

5. Vindictive/exemplary – no place of punishment (Promise to marry)

6. Nominal- absence of concrete material to show the extent of damage

7. Loss/reputation

8. Inconvenience /discomfort-equal to tortuous liability.

Duty to mitigate: To make less severe, to make calmer, less angry, reduction in
punishment/penalty, to reduce in amount or degree to mitigate the damage caused by a
wrongful act.

• Estimation of loss/damages arising from a breach of contract

• The party suffering from the breach of contract should take reasonable steps to mitigate the
extent of damage, if he fails to claim compensation for such loss.

Section 73 – Compensation for loss/damage caused by breach of contract

• Such damages which naturally arose in the usual course of things, from such breach.

• Such damages which the parties knew, when they made the contract

• But such compensation is not to be given for any remote or indirect loss or damage
sustained by reason of the breach

• Such compensation for damage arising from breach of a quasi contract.

Section 74 – Compensation for breach of contract where penalty stipulated for. 35

Section 75 – Rightfully rescinds contract, is entitled to compensation.

SUIT FOR DAMAGES

It means monetary compensation, in terms of money, allowed for loss.

Purpose- to compensate aggrieved party and not to punish party as fault

It is to put the injured party in the same position (Doctrine of Restitution).

In India, rules relating to damages are based on English judgment of Hadley vs Baxendale.

The facts of the case were – H’s mill was stopped due to the breakdown of the shaft. He
delivered the shaft to common carrier to repair it and agreed to pay certain sum of money for
doing this work. H has informed B that, delay would result into loss of profit. B delivered the
shaft after reasonable time after repair. H filed a suit for loss of profit. It was held that B is
not liable for loss of profit. The court laid down rule that damages can be recovered, if the
party has breach of contract.

In fact the mill was already stopped due to the breakage of the shaft, with which the
defendant has nothing to do. It was the fault of the plaintiff not informing the real
circumstance.

It was accrued in the nature and mechanical process. If the importance of arranging new one
was told to the defendant, he might have arranged the

substitute arrangements for quick transportation of the shaft.

KINDS OF DAMAGES

Section 73 - Compensation for loss or damages caused by breach of contract.

Compensation for failure to discharge rights and obligations, resembling those created by
contract.

Illustration: A contracts to repair B’s house in a certain manner and receives payment in
advance. A repairs the house, but not according to the contract. B is entitled to recover from
A, the cost of making the repairs, according to the contract.

➢ Remoteness of damage

1. Damage arising in the usual course of things

2. More loss arising from the special circumstances.

Section 74 - Compensation for breach of contract where penalty stipulated for.

The following are different kind of Damages:

1. Ordinary Damages:

These are the damages, which are payable for the loss arising naturally and directly, as a
result of breach of contract. It is also known as Proximate damage or Natural damage.

2. Special Damages:

These are damages, which are payable for loss arising due to some special circumstances. It
can be recovered only if special circumstances, which results in special loss, in case of breach
of contract and party have notice of such damage.

Example: A sends sample of his products for exhibition to an agent of a railway company for
carriage to “New Delhi”, for an exhibition. The consignment note stated: “Must be at New
Delhi, Monday Certain.” Due to negligence of the company, the goods reached only after the
exhibition was over. Held, the company was liable for the loss caused by late arrival of the
products, because the company’s agent was aware of the special circumstances.

3. Exemplary or Punitive or Vindictive Damages:

These damages are allowed not to compensate party, but as a means of punishment, to
defaulting party. The court may award these damages in the case of:

Breach of contract to marry – loss based on mental agony

Wrongful dishonour of cheque – smaller amount, larger the damage.

4. Nominal Damages

Where the party suffers no loss, the court may allow nominal damages simply to establish
that, that party has proved his case and won. Nominal damage is very small in amount.

5. Damages for inconvenience

If the party has suffered physical inconvenience, discomfort and mental agony, as a result of
breach of contract, the party can recover the damages for such inconvenience.

Example: A photographer agreed to take photographs at a wedding ceremony, but failed to do

so. The bride brought an action for the breach

of contract. Held, she was entitled to damages for her injured feelings.

6. Liquidated Damages and Penalty

Party may specify the amount at the time of entering into the contract. The amount so
specified may be (a) Liquidated Damage or (b) Penalty.

If specified sum represent, fair and genuine pre-estimate damages, likely to result due to
breach, it is called Liquidated Damages. 37

But if specified sum is disproportionate (Unequal) to the damages, it is called as Penalty.

As regard the payment of liquidated damages and penalty, court cannot increase the amount
of damages beyond the amount specified in the contract.

Example: A gives B, a bond for the repayment of Rs.1,000/- with interest at 12 percent, at the
end of six months; with a stipulation that, in case of default, the interest shall be payable at
the rate of 75 percent, from the date of default. This is a stipulation by way of penalty and B
is only entitled to recover from A, such compensation as the court considers reasonable.

Forfeiture of security deposit (Penalty Clause)

Any clause in contract entitling the aggrieved party to forfeit security

deposit by way of penalty and court may award reasonable compensation.

Payment of interest

It is permissible

If interest is in nature of penalty, court may grant relief.

If no rate of interest is specified in contract, the party shall be

liable to pay as per the law in force or as the custom or usage of

trade.

Cost of suit or decree

The court has also discretion to award cost of suit for damages in addition to the damages for
breach of contract.

Suit for Specific Performance

It means, demanding an order from court that the promise agreed in contract shall be carried
out. Recourse of alternative remedy instead of

recovering damages. It is contained in the Specific Relief Act, 1963.

When is specific performance allowed?

When actual damages arising from breach is not measurable.

Where performance of contract requires numbers of minute details and therefore not possible
for court to supervise:

Where the contract is of personal in nature

Where the contract is made by company beyond its power (Ultra vires)

Where one party to contract is minor 38

Where the contract is inequitable to either party.

Example: A agrees to sell B, an artist painting for Rs.30,000/-. Later on, he refused to sell.
Here B can file a suit against A for specific performance of the contract.

Suit for injunction

It means stay order granted by court. This order prohibits a person to do a particular act,
restraining the other party form making a breach of contract.

Where there is a breach of contract by one party an order of injunction may be granted for
specific performance by the court.

Example: Film actress agreed to act exclusively for W for a year and for no one else, during
the year, she contracted to act for Z.
Compensation - fixed by the court.

Penalty- fixed by the parties

Damages- compensation and other losses.

b. What is Quasi Contractua Obligation Explain different kinds of Quasi Contracts?

(10 Marks)

Section 68 – 72 of Indian contracts Act, 1872, deals with certain relations resembling
those created by contract. It incorporates those obligations which are known as quasi
contracts under English Law. The basis of the obligations is that no one should have unjust
benefit at the cost of the other. In an action for unjust enrichment, the following essentials
have to be proved:

1. The defendant has been enriched by the receipt of a benefit

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

3. The retention of the enrichment is unjust.

The Indian Contract Act deals with the following quasi-contractual obligations:

1. Claim for necessaries supplied to a person incompetent to contract (Section 68):

Where one person supplies necessaries suited for the condition in the life of a person, who is
incompetent to contract (For example, minor or lunatic) or to anyone whom such incompetent
person is legally bound to support (For example, to a lunatic’s wife or children), the person
furnishing such supplies is entitled to a reimbursement from the property of such incompetent
person. 39

Illustration: A supplies B, a lunatic, with necessaries suited to his condition in life. A is

entitled to be reimbursed from B’s property.

2. Reimbursement of money paid , due by another (Section 69):

Reimbursement of a person paying money due by another in payment of which he is

interested. A person, who is interested in payment of the money, which another is bound by
law, to pay and who therefore pays it, is entitled to be reimbursed by the other.

Two essentials:

i. One person is interested in payment of the money and therefore he pays it; while,

ii. Another person is bound by law to pay the same, but he fails to pay.

3. Obligation of person enjoying benefit of non-gratuitous Act

(Section 70): for applications of this section, the following conditions are to be satisfied.

a. A person lawfully do something for another person or should deliver something to him;

b. The person making the payment or delivering the thing must not do so gratuitously, that is,
he should expect payment for the same; and

c. The other person should enjoy the benefit of this payment or delivery of the thing.

When all the above conditions are satisfied, the person receiving the benefit becomes bound
to pay compensation to the person conferring.

• No intentions to do act gratuitously, when the person does not intend to do it gratuitously,
but expects payment for the same on doing such act, he can ask for compensation under
Section 70.

• Enjoyment of benefit by the defendant is necessary: the voluntary acceptance of the benefit
of the work done or the thing delivered is the foundation of the claim under section 70.

• Unjust benefit to the defendant necessary: Sec 70 is found on the principle that one should
not gain unjust enrichment at the cost of the other. If there is no unjust gain obtained in any
transaction, Sec 70 has no application.

Application of Sec 70 against government:

Sec 70 prevents unjust enrichment and it applies as much to individuals as to corporations

and government. If the services rendered or goods supplied to the government are under a
purported contract, which does not materialize because of non-fulfillment of the formalities
prescribed in 40

Art. 299 of the Constitution, the government can still be made liable to compensate for the
same under Sec 70 of the Contract Act, if it has enjoyed the benefit of what has been done
under the purported contract.

Sec 70 cannot be invoked against a Minor:

A minor’s agreement being void ab initio, he cannot be made liable under Sec 64 and 65 of
the Contract Act. But if necessaries are supplied to a minor, his estate can be made liable
under the Sec 68. It has been held that no action can be brought against a minor to recover
compensation from him under Sec 70. Sec 70 cannot be invoked against a minor. Firstly, the
Section covers every “Person” whether he is competent to contract or not. Secondly, there is
nothing in law which debars a minor from enjoying the benefit of the act done by another
person.

4. Responsibility of the finder of goods:

Sec 71 contemplates still another quasi contractual situation, i.e., when a person is a finder of
goods belonging to another and takes the goods to his custody and is in the position of a
bailee with all responsibility. Every bailee has a following duties:-

• Duty or reasonable care (Sec 151-152)

• Duty not to make unauthorized use (Sec154)

• Duty not to mix (Sec 155)

• Duty to return (Sec 156)

• Duty not to set jus tertli (right of third person) Sec 165-167

• Duty to return increase (Sec 163)

5. Liability of a person getting benefit under mistake or coercion (Sec 72)

• Unjust benefit under mistake: Section 72 covers a situation where money has been paid, or
anything delivered by one person to another either by mistake or under coercion.

• Money paid or anything delivered under mistake: According to Art.265 of the Constitution,
no tax shall be levied or collected except by the authority of law. Law here means only valid
law. Sec 72 and the same ought to be refunded by the government because the government
cannot be allowed to unjustly enrich itself by retaining the tax so received.

• Money not recoverable where there is no enrichment of the defendant. If the receiver of the
money has no longer the same with him, and has further paid it under a similar mistake, he
cannot be required to repay the same.

• Unjust benefit under coercion: Sec 72 permits the money paid or anything delivered, either
by mistake or under coercion, to be recovered back.

• Compulsion of law is not coercion.

Q.2 a. Write a Note on ” as much as earn”

(6Marks)

When the injured party has performed a part of its obligation under the contract before
the breach of contract has occurred, he is entitled to recover the value of what he has done,
under this remedy.
Where one party has absolutely refused to perform, or has rendered himself incapable of
performing his part of the contract, he puts it in the power of the other party either to sue for
the breach of it or to rescind the contract and sue the contract and sue on quantum meruit for
the work actually done.

Quantum Meruit = “as much as earned”, as much as merited/deserved.

When a person has done some work under a contract, and the other party repudiates the
contract, or some event happens which makes the further performance of the contract
impossible, then the party who has performed work can claim remuneration for the work he
has already done.

Illustration: A agrees to deliver B, 500 bags of wheat and when A has already delivered 100
bags, B refused to accept any further supply, and A can recover from B the value of wheat
which he has already delivered.

Section 65 of the act lays down that when an agreement is discovered to be void or becomes
void any person who has received any advantages under such agreement is bound to restore
it. Or to make compensation for it, to the person from he received it.

Illustration: A pays B Rs.1000/- in consideration with B’s promise to marry C, A‘s Daughter.
C is dead at time of the promise. The agreement is void, but B must repay A sum of
Rs.1000/-

Section 70: 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, in the following cases:

a. When there is an express or implied contract to render services that but there was no
agreement as to remuneration, in such circumstances reasonable remuneration is
payable i.e. Quantum Meruit.

b. When a contract is divisible and the party in default has enjoyed the benefit of the
part performance. (6 Marks)

c. When a contract is divisible and the party in default has enjoyed the benefit of the part
performance, the party who performed the contract may sue on Quantum Meriut. If the
contract is not divisible, the party who performed the contract cannot claim remuneration on
the ground of Quantum Meruit.

a. In case of void agreement or contract that becomes void

Any person who has received any advantage under such agreement or contract is bound to
restore or to make compensation for it, to the person from or who received it.

Ex: - 1)A gives B Rs.10000 to marry C (A’s daughter). C died at the time of/before the time
of performance of contract – B must repay A, Rs.10000/-.

Ex. 2) A agreed to deliver B 250 quince of rice before the 1st of May. A delivers 130 quintals
only, before that day and none after. B retains 130 quintals after the first of May. He is bound
to pay A for them.

Ex.3) B engages A, a singer to sing, two nights in every week, during the next two months
and agrees to pay her Rs.100 for each night’s performance, on the 6th night. A willfully was
absent. B must pay for the five nights on which she had sung.

b. In case of Act preventing the completing of contract: -

If a party does not complete the contract or prevents the other party to complete the contract,
the aggrieved party can sue or quantum meruit.

Ex: - Owner- P write a book to be published as series in his magazine. After a few series were
published the publication of the magazine was stopped. It was held that P could claim
payment on quantum meruit for the part already published.

c. In case of divisible contract: -

1. If the contract is divisible and

2. If the party not at default has enjoyed benefit of the point performance

3. The contract is partly performed. 43

If the above condition is satisfied, the party at fault may claim the payment on quantum
meruit for the part of contract performed by him. He can recover such proportion of the
contract price, as the work done by him/bears to the work under the contract.

d. In case of indivisible contract performed completely but badly.

Contract is indivisible

Lumpsum consideration

Completely performed

Performed badly

That party at fault may recover the contract price (Lumpsum price) less the deduction made
for the work done badly.
Ex: - X agreed to decorate Y’s flat for a lumpsum of Rs.20,000/-. X did the complete work
but Y complained of faulty work. Y stopped the work. It costs Y another Rs.3000/- to remedy
the defect. X could recover only Rs.17,000/- from Y.

e. In case of Non-gratuitous Act – Three conditions-

i. The thing must have been done or delivered lawfully

ii. The person who has done or delivered the things must not have intended

to do so gratuitously; and

iii. The person from whom the act is done, must have enjoyed the benefit of act.

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

b. Time for performance

Time, place and manner of performance (Sections 46 - 50)

The parties are free to decide as to when and where the performance of the contract is to be
made.

1. No time is specified for performance (Sec 46)

Time of performance is not specified + promisor agreed to perform without, a demand from
the promise the performance must be made within a reasonable time. Reasonable time – in
each particular case – a question of fact. Sec 36(2) the sale of goods act also contains a
similar provision:- when the seller is bound to deliver the goods, but no time for sending
them is fixed, the seller is bound to send them within a reasonable time.

2. Time specified but hour not mentioned (Sec 47)

Time of performance specified + promisor agreed to perform without application by the

promise. Performer must perform on the day fixed during the usual business hours and at
place at which the promise ought to be performed.

Time and place for performance of promise, where time is specified, and no application to be
made. (during business hours on such day/usual closing time)

A promise to deliver goods at B’s warehouse on 1st Jan. on that day, A brings the goods to
B’s warehouse, but after the usual hour for closing it, and they are not received. A has not
performed his promise.

3. Where time is fixed and application to be made (Sec 48)

• Proper place and within the usual hour of business.

• Promisee to apply for performance.

When the promise is to apply for performance, he must do so at proper time and place. (Usual
hours of business)

4. Performance of promise where no place is specified and no application is to be made by

the promise (Sec 49)

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

Place of performance of promise, where application to be made and no place fixed for
performance (Reasonable place)

A undertakes to deliver a thousand mounds of jute to B on a fixed day. A must apply to B to

appoint a reasonable place for the purpose of receiving it, and must deliver it to him at such
place.

5. Performance in manner or at the time prescribed or sanctioned by promise. (Sec 50)

• In such prescribe manner and

• Prescribed time

The performance of any promise may be in any manner, or at any time which the promise
prescribes or sanctions.

Ex. A desires B who owes him Rs.10,000/- to send him a promissory note for Rs.10,000/- by
post. The debt is discharged as soon as B puts into the post a letter containing the promissory
note duly addressed to A.

B owes A, Rs.2000/- A desires B to pay the amount to A’s account with C, a banker. B who
also banks with C, orders the amount to be transferred from his account to As credit, and this
is done by C. 45

Unit 5

Q.1 a. . Deals with the cancellation of instruments (10 Marks)

The Specific Relief Act provides for specific reliefs. Specific Relief means relief of a certain
species, i.e. an exact or particular, a named, fixed or determined relief. It is understood as
providing relief of a specific kind than the general relief of damages or compensation.

• Recovery of possession of property

• Specific performance of contracts

• Rectification of instruments

• Rescission of contracts
• Cancellation of instruments

• Declaratory decrees

• Preventive relief viz injunctions

Sec 31-33 deals with the cancellation of instruments.

Sec 31- Cancellation maybe ordered

• Any person against whom a written instrument is void or voidable.

• Who has reasonable apprehension that such instrument if left outstanding may cause him
serious injury.

• He may sue to have the instrument adjudged by the court as void or voidable.

• The court in such a suit may, in its discretion adjudged the instrument as void or voidable
and order it to be delivered up and cancelled.

Illustrations:

1. A, the owner of a ship, by fraudulently representing her to be sea-worthy induces B, an

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

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

Cancellation of sale deed proper due to fraudulently executed by defendant without consent
and knowledge of owner.

Statement contained in will admissible in suit for cancellation of sale deed. 46

Suit for cancellation of sale-deed, the civil court’s jurisdiction do not bar, by invoked Sec331
of U.P.Zamindari abolition and land reforms act 1950.

Maintainability of Suit for Declaration of Sale Deed, as null and void.

Dismissal of suit for declaring sale deed as void on ground of fraud and misrepresentation.

Suit filed after lapse of 13 years barred by limitation (Sale Deed as null and void is within 3
years from the date of accrual of cause of action)
Power of attorney- suit for declaration, injunction and cancellation of Sale Deed, suit
proceedings not bonafide proceedings.

What instruments maybe cancelled partially (Sec 32)

The rights and obligations contained wherein are separable. In such a case the court may, in
its discretion allow a part of the instrument to be cancelled and allow the remaining to stand.
Where the rights and obligations under an instrument are not separable, the good part cannot
be separable from the bad part; there cannot be partial cancellation of the instrument. The
whole of the instrument has to be cancelled by the court.

Illustrations: A draws a bill on B, who endorses it to C by whom it appears to be endorsed to

D, who endorses it to E. Cs endorsement is forged. C is entitled to have such endorsement
cancelled, leaving the bill to stand in other respects.

Power of the court to restore benefit or allow compensation on cancellation of an instrument

(Sec 33)

Where instrument is cancelled or is successfully resisted as being void or voidable Sec 33(1)
the court may require the plaintiff, the party whom the relief is granted-

1. To restore, so far as may be any benefit which he may have received from the other party,
and

2. To make any compensation to him which justice may require.

Sec 33(2): Requires the defendant to restore benefit received by him and to pay
compensation, when he resists the suit of enforcing an instrument against him.

Sec 39: any person against whom a written instrument is void or voidable, who has
reasonable apprehension that such instrument, if left outstanding, may cause him serious
injury, may sue to have it adjudged void/voidable and the court may, in its discretion so
adjudged it and order it to be delivered up and cancelled. 47

Sec 41: on adjudging the cancellation of an instrument, the court may require the party to
whom such relief is granted to make any compensation to the other which justice may
require.

Present position:-

1. If a minor goes to the court as plaintiff for the cancellation of an instrument, the court may,
on adjudging the cancellation require such a minor, to restore the benefit and to make such
compensation to the other party as justice may require. The object of the present provision is
to restore the parties to their original position, as far as possible.
2. When the minor is the defendant in a case and he resists the enforcement of the suit on
ground that he is incompetent to contract, the court may ask him to restore such benefit to the
other party, to the extent his estate has been benefited thereby. Through this provision the
parties are tried to be put to the pre-contract position. Moreover, compensation in terms of
money is also permitted. In other words, it means that the rule of English law laid in Leslie v.
Sheill is not applicable in India.

Sec 33 applies to both void as well as voidable instrument of which cancellation is sought.
Sec 33 of the specific relief Act 1963 has to be read with Sec65 of the Indian Constitution
Act, 1872;

Sec 65: 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 t make compensation for it, to the person from whom he received it.

(or)

b. Explains The Provisions About Contracts Which Can Be Specifically Enforced.

(10 Marks)

Sec 10-13 explains the provisions about contracts which can be specifically enforced.
Specific performance is an equitable relief. Sec 10 defines cases in which specific
performance of contract is enforceable.

Rules:

1. No standard of ascertaining damages: When there exists no standard for ascertaining the
actual damage caused by the non-performance of he act agreed to be done. A contract to
deliver specific goods will be enforced by way of performance if they are “articles of unusual
beauty, rarity and distinction” or of special value to the party suing by reason of personal or
family association or the like.

Illustration: A agrees to buy B agrees to sell a picture by a dead painter and 2 china vases. A
may compel B specifically to perform this contract for there is no standard for ascertaining
the actual damage which be caused by its non-performance.

Other examples of contracts which can be specifically enforced:

a. Agreement to retire.

b. Contract to convey a contingent interest.

c. Contract for the sale and purchase of life amenities.

d. A contract for the sale of patent.

e. An agreement for separation between husband and wife not containing any provision,
which is void.

2. Pecuniary compensation not adequate relief: When compensation is an adequate relief to

the plaintiff, a decree for the specific performance of the contract should not be made.

Illustration: A contracts to sell and B contracts to buy a certain number of railway shares of a
particular description. A refuses to complete the sale. B may compel A specifically to
perform this agreement, for the shares are limited in number and not always available in the
market, and their possessions carries with it the status of a share holder, which cannot
otherwise be procured.

Other examples of contracts of these kinds, which can be specifically enforced are:-

1. Shares of company;

2. Shares of property;

3. Chattels;

4. Building contract etc..

3. When pecuniary compensation is not recoverable: The insolvency of a defendant is

generally a ground for granting specific relief to the plaintiff under this head, where there is a
probability that pecuniary compensation, if awarded, cannot be recovered and specific
performance can be granted.

*ANY CONTRACT: These two words in Section 10 of this Act mean that, any contract
which can be enforceable by the law. An invalid, void, irregular, unlawful contract cannot
come under this Section. Section 2(h) of the Contract Act defines “an agreement enforceable
by law is a 4contract”. Patent rights, copyrights, choices in action, chattel of special value,
etc. can be specifically enforced.

*DISCRETION OF THE CONTRACT: The specific performance of the contract depends

upon the discretion of the court. Section 10 clearly mentions the words “…..any contract
may, in the discretion of the court be enforced.” Therefore, “The jurisdiction to decree
specific performance of a contract is discretionary. This discretion of the court is not arbitrary
but sound and reasonable”.

*MOVABLE PROPERTY: According to clause (ii) of explanation appended to Section 10,

Specific performance of a contract relating to movable property can be sought before the
court.

*PARTNERSHIP: It is the general principle that partnership firms are formed “by will of
parties”. The Courts generally do not interfere in the formation of partnership firms. However
in certain cases, viz, a contract for the purchase of a share in partnership business or an option
to enter into partnership may specifically be enforced by courts.
*BUILDING CONTRACT: There is no doubt that, as a general rule, the court will not
enforce specific performance of a building contract, but an exception from the rule has been
recognized.

*LEASE OF IMMOVABLE PROPERTY: A contract for the lease of immovable property is

specifically enforceable.

*SALE OF LEASEHOLD: A sale of leasehold property can be specifically enforceable.

*SALE OF IMMOVABLE PROPERTY: Explanation to Section 10 clarifies that an

agreement for the sale of immovable property can be specifically enforceable.

CONTRACTS PERTAINING TO TRUSTS: Section 11 provides that the contracts connected

with trusts may be ordered for the specific performance. Section 11 explains the cases, in
which specific performance of contracts connected with trusts are enforceable.

a. Contracts connected with trusts: When the contract is for the

performance of a trust, the court may allow specific performance.

b. Section 11 (2) provides that a contract made by a trustee in excess of his

powers or in breach of trust, cannot be specifically enforced.

c. The Indian Trusts Act, 1882 explains the provisions about the trust. A trust is an obligation
annexed to the ownership of property and arising out of a confidence reposed in and accepted
by the owner, or declared and accepted by him for the benefit of another, or of another and
owner. The person who declares the confidence and writes the trust deed is

called “Author of the Trust”. The person who accepts the confidence is called the “Trustee”.
The person for whose benefit the confidence is accepted is called the “Beneficiary”.

Trust includes endowments for religious and charitable purposes.

d. When the author of the trust confers huge and discretionary powers to the trustee in the
trust deed, the court cannot interfere with the discretionary power of the trustee.

Section 13 explains the PROVISIONS AND CLARIFIES THE RIGHTS of the person who
purchases from a seller, who has no title or has imperfect title.

Section 12 of the Specific Relief Act explains about “Specific performance of part of
contract”.
Section 12 (1) of the Specific Relief Act, which provides, “The court shall not direct the
specific performance of a part of contract, except in cases coming under one or other of the
three preceding sections. The exceptions are embodied in sections 12(2), (3), (4).

Essential ingredients of Section 12(2):

a. The part which must be left unperformed bears only a small proportion of the whole value.

b. The part which must be left unperformed admits of compensation in money.

The part unperformed is large, but compensation can be estimated or does not admit
compensation: Section 12(3) says that where a party to a contract is unable to perform the
whole of his part of it, and a part which must be left unperformed either: -

a. Forms a considerable part of the whole, through admitting of compensation in money; or

b. Does not admit compensation in money.

Principle of Section 12(3): Specific performance of a contract will not be enforceable against
the purchase, where a material or substantial part of the subject matter is wanting.

This section is enacted for the benefit of the purchaser and cannot operate to his detriment.

Principle of Section 12(4): Where a contract consists of several parts, which are separate
from and independent of one another and some of which cannot or ought not to be performed,
such part or parts, as can and ought to be performed may along be specifically enforced.

The Indian Contract Act, 1872, specifically mentions certain contracts are not enforceable
before the law. Some of the defences available according to law:-

a. Material alterations in agreement

b. Forgery, fraud, etc..

c. Limitations

d. Ultra vires contracts

e. Suit filed by the plaintiff before its maturity

f. Doctrine of Frustration

g. Unlawful agreements

h. Agreements induced by mistake

i. Voidable nature of contract

j. Absence of privity of contract

k. Contractual incapacity viz, minors, lunatics, etc..

l. Absence of consideration in discharge of contract

m. Inadequacy of considerations, etc..

Q.2a. Injunctions (6 Marks)

INJUNCTION - A command, a behest, a restraining writ.

Sections 36 -44 of The Specific Relief Act, 1963 – deals with PREVENTIVE RELIEF OR
INJUNCTION

A Preventive Relief (Injunction) is an order or command of the court preventing a party from
doing something, which he is under a legal duty not to do.

An injunction is a judicial process, by which one who has invaded or is threatening to invade
the rights, legal or equitable, of another, is restrained from continuing or commencing such
wrongful acts.

An injunction is an order framed according to the circumstances of the case commanding an

act, which the court regards as essential to justice or restraining an act, which it esteems
contrary to equity and good conscience.

• Preventive relief how granted: Section 36 lays down that preventive relief is granted at the
discretion of the court by injunction, temporary or perpetual.

• Object: The object to grant the injunction are:

1. Breach of Obligation to be prevented;

2. To restrain judicial proceedings

3. To restrain breach of contracts

4. To prevent tortuous acts.

Injunctions are granted to prevent mishappenings and injury to the aggrieved parties. The
relief granted by injunctions are preventive nature.

• Essential ingredients of injunctions:

1. It is a judicial process

2. The object attained thereby is to restraint or prevention

3. The thing restrained or prevented is a wrongful act

ESSENTIALS

• A person must have right or title over any property

• A person must deny such right or title

• Court at its discretion, can declare such right or title

Illustration: - In a trust property, A, a person claims to be a trustee and B, another person

denies his right, because, if A was not there, then B would have become the trustee. A suit
may be filed against a person who denies it.

The plaintiff in this case, can only claim or demand for declaration, no other reliefs can be
sought. After considering the circumstances of the case, the court arrived at a conclusion and
it is just to use its Discretion (Section 20 of Specific Relief Act, 1963- Discretion must be
sound and reasonable); to give relief by passing a Discretionary Decree.

Case Law – In Indian Navigation Company v/s Haryana State Industrial Development
Corporation, it was held that the expression – “Any right as to any property” was brought by
the court, but the right must be a present right (Past or future right is not sufficient). The right
must be in existence from the date of suit to the date of decree.

An agreement does not entitle a person to get a legal character or right over any property, so
the prospective purchasers cannot seek the remedy.

Kinds of injunction: Section 35 of PERPETUAL INJUNCTION

Specific Relief Act lays that, there are 2
kinds of injunctions. TEMPORARY 1. It can only be granted by a decree made
INJUNCTION at the hearing and upon the merits of the
suit.
1. It is to continue until a specified time or
until the further order of the court. It is
granted at any period of suit and is
regulated by C.P.C.

The liability of Joint Promisor is joint and several: When two or more persons make a joint
promise, the promise may, in the absence of express agreement to the contrary, compel
anyone or more of such joint promisors to perform the whole of the promise. Their liability to
pay the money is joint and several under Section 43 of the Contract Act.

Contribution between joint promisors