SPECIAL ASSIGNMENT OF CRITICAL THINKING ESSAYS (SACE)

Merged Mid Term & End Term Examination, December-2020

SUBJECT: Law of Contract- I

Submitted by:

Shivani Shrivas
Semester- I
Section C
Roll no. 141
Enrollment ID: 20/2020/2351

Hidayatullah National Law University

Raipur, Chhattisgarh

Date of Submission
7 February, 2021
Question:
Analysis of Voidable contracts and Agreements with Decided Cases.

Answer:

Contracts and agreements are made to enter a relationship that requires fulfillment of certain
duties and liabilities in the interests of both the parties. The Indian Contract Act, 1872 is
responsible for governing the laws regarding forming such types of legal relationships in
India. Legal relationships such as contracts and agreements require several formalities and
general procedures to be followed. They also require transparency and trust between the
parties to maintain clarity of the contract.

The process of forming a contract starts from an offer from one party to another. Proposal is
followed by acceptance to form a promise. Every promise or set of promises that forms
consideration for each party is called an agreement. Thus, an agreement, in essence, is an
accepted proposal that provides each party with some kind of consideration. When the
agreement is legally enforceable, it becomes a contract. Section 10 of Indian Contract Act
states the conditions for an agreement to be enforceable by law and become a contract. The
conditions are:

 The agreement should be made by free consent of the parties;

 Parties to the agreement should be competent to contract;
 The agreement should be made with a lawful consideration;
 The agreement should have a lawful object;
 The agreement should not be expressly declared void in the Indian Contract Act.

If any single one of the above conditions are not fulfilled, the agreement would not be
enforceable by law. Section 2(g) defines such agreements as ‘void agreements’. It is to be
noted that only agreements can be void. Contracts are already legally enforceable and hence
cannot be void, instead they are ‘voidable’ in applicable cases. However, contracts can be
declared void ab initio by courts in case of mistakes and legal inaccuracies.
Void Agreements

The various conditions and cases under which agreements are declared void in the Indian
contract Act are discussed in detail below:

1. Agreements with unlawful considerations/unlawful object

Section 24 states that if any part of a consideration made for an object or more than
one objects in an agreement, or the object of the agreement in itself is unlawful, the
agreement is void. The point worth noting here is that according to the Doctrine of
Severability, if the concerned consideration/object is not crucial to the agreement or is
separable to the contract, only that part of the agreement shall be regarded void,
keeping intact the validity of the rest of the agreement.
In the case of Alice Mary Hill v William Clarke1, the plaintiff is offered money to
commit adultery and also to look after the defendant’s house. The court declared the
whole agreement void as the distinction between the lawful and unlawful (adultery)
object was not clear.
Now the question arises that which kind of considerations and objects would be
deemed unlawful. Section 23 governs the criteria of legality of considerations and
object. If any consideration/object; is forbidden by law, would defeat the provisions of
law, is fraudulent, involves inflicting injury to a person or property of others, is
regarded as immoral by the court of law or opposes public policy, it would be
regarded as unlawful.

2. Agreement without consideration

Section 25 states that “Agreement without consideration, void, unless it is in writing
and registered or is a promise to compensate for something done or is a promise to
pay a debt barred by limitation law.” This section is quite self-explanatory.
This section opens space for various exceptions under which the agreement won’t be
rendered void.
 “The agreement is made out of natural love and affection between parties
of near relation.”
For example, when a daughter takes care of her father, nurtures him and in
return, if he presents her a gift, it would come under this exception2.

1
ILR (1905) 27 All 266
2
R. Saraj v. Gyanada, 36 CWN 555
 However, mere existence near relations does not guarantee the presence of
love and affection. Agreements to fall into this exception need to be in writing
and registered, out of natural love and affection of near relatives. The
agreement would be declared void if the there is no natural love and affection
found even between near relatives3.
 “Agreement to compensate a person who has done something for the
promisor voluntary, or was legally compelled to do.”
There is no need of consideration in these agreements as the previous act
(voluntary or legally compelled to do) of the person stands as a testimony and
works like a good consideration to base the current agreement4 on. Thus, the
current agreement does not need a substantial consideration.
However, the promisor must be legally competent to contract while he was
subjected to the service.

3. Agreements in restraint of marriage

According to Section 26, agreements that limit or completely ends the freedom of
marriage are considered void. The restraint may be partial, meaning it could concern
with nor marrying for a particular period of time or with a particular person, or a
category of people or complete, denying any freedom of marriage whatsoever.
However, if an agreement imposes a penalty or disadvantage to a person on the option
of marriage, it is not considered restraint. For example, an agreement between a
husband and wife, stating that the wife would divorce him if he marries a second wife,
is completely valid under the law5. Here, the divorce is a consequence of a marriage at
the choice of the husband, hence, not really hampering with his freedom of marriage.

4. Agreements in restraint of trade

Section 27 states that, “Any agreement by which any one is restrained from exercising
a lawful profession, trade or business of any kind, is to that extent void.” The essence
of this section is that no individual shall be deprived of their freedom of trade of
commerce, which is a fundamental right provided under Article 19 of the Indian

3
Rajlukhy Dabee v. Bhootnath Mookherjee, (1900) 4 CWN 488
4
Suraj v. Suku ILR 51 All 164
5
Badu v. Badarnessa, (1919) 29 CLJ 230
 Constitution. Thus, any agreement that deprives a person to ‘exercise a lawful
profession, trade or business’, is rendered void. Agreements under this section are
also subject to the principle of severability, as specified by ‘to that extent’.
The applied restraint may not be complete or absolute restraint. In the case of Madhub
Chander v Raj Coomar6, the plaintiff was promised a sum of money on the condition
that he closed his business in the specified locality. The defendant refused to pay, and
hence, sued by the plaintiff. However, the judgement held the agreement void,
justifying that restraint mentioned is not only absolute, but also partial restriction,
including restriction limited to a place.
There is one exception in this section, related to the sale of goodwill. If a person sells
the goodwill of his business to another person, the seller can be restricted from
exercising similar business within specified local limits. The only catch is that the
agreements and limits should appear reasonable to the Court in accordance with the
nature of the business to be completely valid.

5. Agreements in restraint of legal proceedings

Section 28 renders the agreements that absolutely restrict a person from enforcing
their rights of legal proceedings and remedies, void. If an agreement limits the time of
enforcing his rights, they are also considered void. Also, agreements that extinguish
the rights of any party or discharges any party from their liabilities under any contract
after a limited time, so as to restrict any party from enforcing their rights, are void to
that extent. It has a few exceptions
 This section won’t render any agreement as void if it has a clause by which
both the parties come to the conclusion that any future disputes shall be
resolved by referring the case to the arbitration and any amount awarded shall
be recovered from the contesting party.
 If an agreement has any clause which says that any existing question shall be
decided by arbitration, then such clauses have been held valid under this
section.

6. Agreements void for uncertainty

Section 29 states that those agreements that have uncertain meaning, or whose
meaning is not capable of being made certain are declared void. For example, in the
6
(1847) 14 beng LR 76
 case of Guthing v Lynn7, a horse brought for a certain price and a promise of paying 5
euros more if the horse was lucky was made. It was held that the agreement is void as
the court cannot determine the luck of the horse was, hence the basis of the agreement
was uncertain.

7. Agreement by way of wager

Section 30 renders wagering agreements void. The essential conditions, for any act to
be classified as a ‘wager’ are listed below:
 The agreement should be based on the outcome of an uncertain event;
 There should be mutual chances of gain and loss, i.e., each party has a chance
at winning and losing;
 Neither party should influence or have control over the outcome of the event;
 Instead of winning or losing, parties should not be interested in the event for
any other motive. (This differentiates insurance agreements from wagering
agreements)

This section gives an exception to horse races, stating the conditions that, “This section shall
not be deemed to render unlawful a subscription or contribution, or agreement to subscribe or
contribute, made or entered into for or toward any plate, prize or sum of money, of the value
or amount of five hundred rupees or upwards, to be rewarded to the winner or winners of any
horse-race”

8. Agreement to do impossible act

Section 56 declares that any agreement to do an impossible task is void. This section
clarifies that an agreement whose objective becomes impossible to perform after the
agreement has been formed, becomes void and need not be completed.8
This section also states that if the promisor promises to perform an act that he knew or
could have known with reasonable diligence, to be an impossible act, he must make
due compensation to the loss sustained by the promisee due to its non-performance.
The promisee, however, should be unaware of the impossibility of the act for this to
be applicable.

7
(1831) 2 B & Ad 232
8
Krell v. Henry (1903) 2 KB 740(CA)
Voidable Contracts

Section 19 and 19(A) specifies the conditions of voidability of contracts.

Under section 19, if the consent of a party to an agreement is caused by coercion, fraud or
misrepresentation, then that party can declare the contract so formed, void. Thus, this makes
the contract voidable at the option of the concerned party.

Section 15 defines coercion as obtaining the consent of a party to enter the agreement by
pressurizing them with either committing or threatening to commit acts forbidden by the
Indian IPC or by unlawfully detaining or threatening to detain property. In the case of
Chikham Amiraju v. Chikham Seshamma9, the wife and the son were induced to enter an
agreement in favor of the husband’s brother, threatening suicide. The agreement was held
voidable under coercion.

Section 17 defines fraud to be acts done by one party of the contract to deceive another party
and induce them to enter into a contract. These acts include making a promise without the
intention of performing it, active concealment of facts, to state facts known to be false, any
act or omission that the law expressly declares fraudulent and other acts that are fitted to
deceive. Also, keeping silence about facts that will affect the willingness of a party to enter
the agreement when it is the duty of the party to speak unless his silence is equivalent to
speech also amounts to fraud.

Section 18 defines misrepresentation as committing the following acts:

i. To present facts that are not true, however the party making them believes them to be
true.
ii. However innocently, causing the other party to be mistaken about the subject of an
agreement.
iii. Any breach of duty that is advantageous to the person committing it by misleading the
other to his prejudice, without the intent to deceive.

Fraud and misrepresentation have a major difference, where fraud is an intentional act of
deceive, misrepresentation is not intentional as such.

9
ILR (1918) 41 Mad 33,36
It is to be noted that section 19 clarifies that if the party whose consent was received through
fraud or misrepresentation wants the contract to be performed, the contract would not be void
and the deceived party would have to comply with the terms of the contract. Whereas, if a
contract is declared void by the party concerned, section 64 relieves the promisor from his
duties within the contract, and requires restitution of any advantage that he/she may have
obtained within the contract. If a person has received advantages under a rescinded voidable
contract or void agreement, section 65, makes the person obligated to restore it or compensate
the person from whom he received the said advantage.

The exception under section 19 states that the provisions of the section would not be
applicable if the party, whose consent were caused by misrepresentation or silence to facts of
the case, had the means of discovering the truth by ordinary diligence, hence, rendering the
contract fully valid and not voidable.

Section 19(A) states that if a party’s consent to an agreement is caused by undue influence,
the contract is voidable at the option of that party. It also states that, “any such contract may
be set aside either absolutely or, if the party who was entitled to avoid it has received any
benefit thereunder, upon such terms and conditions as to the Court may seem just.”

Section 16 defines consent to a contract induced ‘undue influence’ as when the relation
between the parties is such that one of the parties’ position would dominate the will of the
other, and that party uses the position for an unfair advantage over the other. For example, in
the case of Mannu Singh v. Umadat Pandey 10, a spiritual advisor induced the plaintiff, one of
his devotees, to present him his entire property to secure benefits for his soul in the next
world. The case was declared voidable as the consent was held to be caused by undue
influence.

Aside from the provisions of Section 19 and 19(A), if the both the parties are mistaken as to
the matter of fact of the contract, Section 20 renders the contract void ab initio as the consent
was not given for the subject basis of the contract. However, Section 22 clarifies that a
contract is not voidable merely because one of the parties was mistaken about the matter of
fact. In this case, the contract would be voidable if the court deems it fit according to its facts.

10
ILR (1888-90) 12 All 523
References

 Primary reference: The Indian Contact Act

 Secondary references:
 Book- Contract and Specific Relief by Avatar Singh
 Sarkar, S. (2020, October 18). Void Agreements: Concept and Important Case
Laws. Legal Bites - Law And Beyond. https://www.legalbites.in/void-
agreements-concept.
 SPECIAL ASSIGNMENT OF CRITICAL THINKING ESSAYS

(SACE)- II

Merged Mid Term & End Term Examination, December-2020

SUBJECT: Law of Contract- I

Submitted by:

Shivani Shrivas
B. A. LL. B.
Semester- I Section C
Roll no. 141
Enrollment ID: 20/2020/2351

Hidayatullah National Law University

Raipur, Chhattisgarh

Date of Submission
10 February, 2021
Question 1(a)

To what extent would you describe the reasoning in Satyabrata Ghose vs Mugneeram
Bangur & Co 1954 SCR 310 and Sushila Devi And Anr vs Hari Singh And Ors 1971 SCR
671 as either compatible or incompatible?

Answer

Case 1: Satyabrata Ghose vs. Mugneeram Bangur & Co11

Facts: The defendant’s company planned a scheme of development for the large tract of land
that they owned into a residential colony in Calcutta. Thus, the land was divided into smaller
plots of land for sale. The plaintiff entered into an agreement for the sale of one such plots, in
the exchange of some earnest money deposit at the time of sale. The company to construct
necessary amenities such as roads and drains to make the land suitable for residential
purposes, aiming to build a housing society. Once the construction was to be finished, the
company was to hand over the plots of land to their respective purchasers after the
completion of balance payment. However, the land was requisitioned by the State for military
and defense purposes during World War II before the company could start the construction
for development. The company treated the agreement as canceled under such circumstances
and offered the appellant two options: either to refund the earnest money he provided or to
make the balance payment and the company would continue the construction after the
termination of war. The plaintiff refused both the options and hence, filed a suit, pleading that
the company was still bound to the agreement.

Issues raised: Whether or not the agreement was rendered void due to the performance of it
being impossible. Thus, what were the liabilities of the defendant under the presented
circumstances.

Judgement: It was held by the court that the agreement was still stood valid. The Supreme
Court observed that the performance of the contract is not, or, has not become ‘impossible’.
The requisitioning of the land was done before the construction started, hence, there was also
no interruption of work as well. The Court also noted that there was no time limit mentioned
in the contract so as correspond to the completion of the said development and construction.
Hence, making the company bound to the terms of their contract.

11
1954 SCR 310
Case 2: Sushila Devi And Anr vs Hari Singh And Ors12

Facts: The owner of the village invited tenders for lease of the property for a time period of
three years. The tender proposed by the respondents got accepted. The respondent also
deposited earnest money and security for the rent payment. The tender required the lessee to
register the lease by himself and he was also responsible of taking possession of the land on
his own. However, the village became a part of Pakistan after the partition and the lessee
migrated to India. Because of the riots and communal violence surrounding the village even
before partition, the respondent was unable to take possession of the land, nor was he able to
use the land according to his interests. Thus, no lease deed was executed, nor registered.
Thus, the respondent filed a suit to claim refund and damages from the appellant (the
defendant in this case were the legal representatives of the owner of the village). The lower
courts held that the performance of the contract had become impossible. The appellants filed
an appeal to the Supreme Court.

Issues raised: Whether or not the respondent was eligible for claiming damages under void
agreements due to impossibility.

Judgement: It was held by the Supreme Court that the respondent was entitled to refund and
damages. It was observed y the Supreme Court that the provisions of Section 56 of the Indian
Contract Act were applicable on agreements of leases and leases. This case involved the
agreement of lease and not an actual lease as there was no registration of the lease for the
three year time period. Thus, the case came under the ambit of section 56, rendering the
agreement void and the respondent eligible for damages.

Both the cases are related to the doctrine of frustration of contracts, which derives primarily
from the English Law. This doctrine “acts as a device to set aside contracts where an
unforeseen event either renders contractual obligations impossible, or radically changes the
party's principal purpose for entering into the contract.” In India, Section 56 of the Indian
Contract Law deals with the agreements whose object is to perform an impossible act,
declaring such agreements void.

However, in the case of Satyabrata Ghose vs Mugneeram Bangur & Co, the Supreme Court
established that the English Law of frustration only has a persuasive value in Indian law, as

12
1971 SCR 671
the Supreme Court stated that, “the word ‘impossible’ has not been used here (section 56) in
the sense of physical or literal impossibility. The performance of an act may not be literally
impossible but it may be impractical and useless from the point of view of the object and
purpose which the parties had in view; and if and untoward event or change in circumstances
totally upset the very foundation upon which the parties rested their bargain, it can very well
be said that the promisor finds it impossible to do the act which he promised to do”.

These principles were upheld in the case of Sushila Devi And Anr vs Hari Singh And Ors as
the whole basis of the tender and lease agreement was that the lessee able to enjoy his
authority, rights and possession over the property. When the village became a part a of
Pakistan, the very foundation of the agreement was no longer viable. Hence, the agreement
was rendered void, as it was ‘impossible’ for the respondent to take up the possession of his
land to exercise his lease. It is also to be noted that since the lease was not registered, it was
an agreement to lease, hence coming under the provisions of Section 56. This was reflected in
the case of Raja Dhruv Dev Chand v. Raja Harmohinder Singh 13, where complete
transactions were regarded to e outside the scopr of Section 56.

In the case of Satyabrata Ghose vs. Mugneeram Bangur & Co, the performance of the
agreement was not impossible. Additionally, since there was no mention of any time limit of
the contract, the contract was still fully valid. The requisition of the land was temporary;
hence, the development could very well continue after the termination of war. The foundation
of the contract was still in place, and hence, the contract was fully valid, binding the company
to fulfill its part of the contract.

Both of the given cases stick to the primary concept of what qualifies for impossible act and
have been judged according to their respective circumstances. Hence, the reasoning behind
the judgements of the cases is fairly compatible.

Question 1(b)

13
(1968) 3 SCR 339
Critical discussion about how the provisions of Indian Contract Act 1872 and the case law of
the Supreme court of India ensures balancing of rights of parties to the contract in case of
breach of a contract?

Answer

“A breach of contract occurs when a party thereto renounces his liabilities under it, or by his
own act makes it impossible that he should perform his obligations under it totally or partially
fails to perform such obligations.”Thus, in simple words, when a party fails to perform their
promise or consideration in the contract, they perform a breach of the contract. The Indian
Contract Law, 1872 provides several provisions under its Sections 73, 74 and 75, to ensure
balancing of rights of parties in case of breach of contract. Additionally, the Indian Contract
Act also provides certain remedies for anticipatory breach of contract that might affect a party
to the contract, under its sections of 39 and 55. These are discussed in detail below:

The section 73 states that any party that suffers a loss or damage due to a breach of contract,
is entitled for a compensation for the same from the party who has broken the contract. The
recovery may be asked for damages that “naturally arose in the usual course of the things
from breach” or the loss “which the parties knew to be likely to result from the breach of the
contract.” Hence, this section covers a various of cases of damages due to breach of contracts.
However, the section also states that compensation is only eligible in case of loss caused
directly by the breach of contract, not for any indirect or remote lass due caused by the
breach.

A case law regarding breach of a sale contract is of Murlidhar Chiranjilal v Harishchandra

Dwarkadas14. In this case, the contract was between a buyer and seller regarding the supply of
canvas, consigned to Calcutta free on rail Kanpur. The buyer was ro bear the transport and
labor charges. The seller breached the contract as he failed to supply the goods at Kanpur.
The issue was raised that weather the seller’s compensation included his profits that he would
make by the resale of the canvas. That is, it was to be decided that whether the damages were
based on the market prices of Kanpur or Calcutta. In this case, it was held by the Supreme
court that the damages were to be assessed according to the difference of contract price and
market price of Kanpur, the actual place of sale. Also, the compensation does not include the
buyer’s possible profits, as that would be an indirect loss incurred due to the course of events
related to the breach.

14
AIR 1962 SC 366
Section 74 tackles the contracts which have a stipulated penalty for breach in the contract
itself. The section states that when a contract is breached in which the penalty for such breach
is a stipulated, the injured party has the right to receive the said penalty. Also, this section
specifies that the party need not prove any loss or damage caused by the breach. The mere act
of breach itself entitles the party to compensation stipulated in the contract. Additionally, the
court cannot order a compensation exceeding the given amount in the contract, however can
reduce the amount if it seems reasonable.

In the case of Shree Hanuman Cotton Mills v Tata Aircraft ltd.15, the plaintiff and defendants
made a contract where the former was to buy aero scrap from the latter. The cost of the aero
scrap was set at ten lakh rupees and the plaintiff paid 25% of it. it was mentioned in the terms
of the contract that if the plaintiff failed the balance payment as mentioned in the contract, the
contract would be cancelled and the deposited would be forfeited. The plaintiff failed to make
the rest of the payment, breaching the contract, and the defendant forfeited the deposit as
mentioned. The plaintiff filed a suit to recover his payment. The Supreme Court held that the
deposit in question was treated as earnest money. The contract specified that the deposit
would be settled in the final bills and not carry any interest. Hence, the seller was entitled to
forfeit the deposit as it was the part of the price. Thus, since the penalty was already justified
in the terms of the contract, the suit failed and the deposits were left with the defendant.

The section 39 deals with what is called anticipatory breach of contract. It states that, “When
a party to a contract refused to perform, or disabled himself from performing, his promise in
its entirety, the promisee may put an end to the contract, unless he has signified, by words or
conduct, his acquiescence in its continuance.” It is to be noted that the promise should not be
performed in its entirety for the promisee to rightfully rescind the contract. Additionally, the
promisee loses his right to rescind the contract if he accepts the turn of events., either by
words or by conduct.

When such cases of anticipatory breach come forward, the Indian Contract Act has the
provisions of restitution and compensation under sections 65 and 75 respectively. According
to section 65, when a contract is rendered void, even through recession, any person or party
who received advantages through that contract is bound to restore it, or provide compensation
to the person from whom he received the said advantage. This works for the restitution of the
parties to the contract. On the other hand, section 75 states that any party that rightfully

15
(1969) 3 SCC 522
rescinds a contract, is entitled to receive compensation for the damages that the party had to
bear by it due to the unfulfillment of the contract. This section deals with the compensation of
the losses incurred by the injured party.

There is another course of action that the injured party can take under the provisions of
Section 55. If the time was essential to the contract, the injured party can wait for the time
period for the performance of the contract to be over, and then if the promisor still fails to
fulfill the performance of the contract, then declare the other party can declare the contract
void and access the provisions of section 75. If the time was not essential in the contract,
according to Section 55, though the contract is not voidable, however, the promisee id still
entitled to compensation from the promisor for the damages incurred due to the promisor’s
failure.

The only method provided by the India Contract Act to the relief of the party suffering losses
from a breach of contract is either restitution or paying compensation, mostly which is done
in the form of money. There are other possible remedies that are mentioned in the Specific
Relief Act, 1963, for example, “an injunction to prevent breach of the contract”.

Hence, through the provisions of the sections 73, 74, 75 of the Indian Contract Act, 1872
ensures the balancing of rights of the parties to a contract in case of breach of the contract.
References

 Primary reference: The Indian Contact Act

 Secondary references:
 Book- Contract and Specific Relief by Avatar Singh
 http://www.manupatrafast.in.elibraryhnlu.remotexs.in/pers/Personalized.aspx
 http://www.scconline.com.elibraryhnlu.remotexs.in