LAW OF CONTRACTS

MODULE 1:

AGREEMENT, CONTRACT AND PROPOSAL:

 Agreement- is nothing but a set of rights and obligations agreed upon mutually by
parties. The parties decide these rights and obligations. The parties won’t always have
both rights and obligations. This agreement is private.
 If an obligation rests on a party, a right arises in the other party.
 An offer + its acceptance = promise. Promise + Consideration= agreement. Agreement
+ enforceability= contracts.
 All contracts are agreements, but not all agreements are contracts.
 An agreement becomes a contract when the following conditions are satisfied:
o There is some consideration for it
o The parties are competent to contract
o Their consent if free
o Their object is lawful and justified
 The enforceability is governed by sec 10 of the Contract Act. An agreement is a
contract when it is enforceable. According to section 10- all agreements are contracts if
they are made by the free consent of parties competent to contracts, for a lawful
consideration and with a lawful object, and are not hereby by expressly void.
 Sections 23 to 30, 36 and 56 declare contracts expressly void.
 There can be three responses to an offer- acceptance, rejection and not doing anything.

PROPOSAL OR AN OFFER:

 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.
 The person who makes the proposal is called the promisor or the offeror and the
person to whom it is made is called the promisee or the offeree.
 The process of making a proposal is completed by the act of communicating it to the
party.
  The proposal can be communicated orally, by writing or by actions. Proposals made
orally and written proposals are express offers, while proposals communicated by
actions are implied offers. An acceptance can likewise be made expressly or impliedly.
 An implied contract requires meeting of minds. For example, eating at a restaurant
creates an implied promise to pay for the food consumed or ordered. The enjoyment of
a service is an implied promise to pay for the service.
 When the person to whom the proposal is made signifies his consent thereto, the
proposal is said to be accepted.
 Upton-on-Severn RDC v Powell- a person had a farmhouse—the farmhouse was
on fire—he called a fire brigade believing that his farmhouse lied in the free
service zone—brigade put out the fire—it then turned out that the defendant’s
farmhouse did not lie in the free service zone—the fire brigade claimed for
compensation
The court said: "The truth of the matter is that the defendant wanted the services
of Upton; he asked for the services of Upton and Upton, in response to that
request, provided the services. Hence the services were rendered on an implied
promise to pay for them."
 The seeking of a service is an implied offer that the seeker would pay for the service.
 How is an offer communicated? The communication of an offer is completed when it
comes to the knowledge of the person to whom it is made.
 Lalman Shukla v Gauri Datt- defendant’s nephew absconded from home—he
sent his servant in search of the boy—during the search—the defendant set out an
advertisement saying that whoever finds his nephew will get a reward of Rs. 501
—the servant found this out after finding the boy—he bought an action to recover
the award—but his action failed.
The court said that in order to constitute a contract there must be an acceptance of
an offer and there can be no acceptance unless there is knowledge of the offer.
 Law presumes things on the basis of what a reasonable man would want. Individual
eccentricities and resulting intentions do not matter to the law.

INTENTION TO CONTRACT

 There is no provision in the Indian contract that says that an offer or its acceptance
must be with an intention of creating a legal relationship. But in English Law it is a
 settled principle that "to create a contract there must be a common intention of the
parties to enter into legal obligations".
 Balfour v Balfour- couple in England—defendant i.e., the husband was in the
govt. services of the crown—he was to return to Ceylon where he was posted—
promised his wife out of love and affection that he would pay her a certain amount
per month as maintenance—he consequently stopped sending the amount—they
grew distant and the wife applied for recovering the arrears—her action failed.
The court held that the husband and wife while making the agreement did not
intend for it to be legally enforced in case of breach. Thus, the husband didn’t
have to pay the wife.
 There can be legally binding agreements in case of family and social matters. They are
usually not legally binding.
 McGregor v McGregor- couple who were at extremely strained terms—had filed
complaints against each other in court—during the trials they decided to take back
the cases and settle the disputes on their own—decided that the husband would
pay her an amount as maintenance—he subsequently stopped paying her—wife
filed a case for breach of agreement.
In this case there was an evident intention to enter into legal obligations. The court
held that the husband and wife were in strained terms and the agreement arose in
case of a necessity and realisation that his wife must have a right to get
maintenance. Therefore, the husband was liable to pay.
 There needs to be a test to decide the intention. This test of contractual intention is
objective, not subjective.
 The court will inquire whether a reasonable man in the position of the parties and the
circumstances in which they were, have intended to create a legal obligation in respect
to the agreement in question. This is the test of a reasonable man.
 Simpkins v Pays- a lady, her daughter and daughter’s aunt signed up in a
crossword competition—this competition had a certain amount of money that
would be paid to the winner—they won the competition—the lady kept the whole
amount with her—she says they were on cordial terms therefore there was no
intention to create legal obligations.
The court held that even though they were on cordial terms, the parties
collectively entered into the competition and won it due to the collective effort.
 Therefore, the parties were only seeking the money that emanated from their
individual efforts. According to the tests of a reasonable man there was an
intention to create legal obligations.
 Commission of wealth tax v. Abdul Hussain Mulla Mohammed Ali, 1988- two
partners—one partner gave the other 4 lakhs and did not expect him to return it—
account of the creditor partner had to be assessed—the question was whether the 4
lakhs would be considered as his wealth—the creditor said that he did not want
the money back from his partner and is wouldn’t have to considered as his wealth
—he said that there was no intention to enter into a contract and thus tax must not
be levied on the 4lakhs.
The Indian court held that the doctrine of intention to enter into a legal contract
was not applicable in India and that the court wouldn’t look into the intention of
the parties in this case. Therefore, tax had to be levied on the 4 lakhs.

GENERAL OFFERS

 An offer made generally to people.

 Weeks v. Tybald, 1605- defendant affirmed to the public that he would give an
amount to anyone who would marry his daughter—a boy did so and did not
receive the promised amount from the father—filed a suit against the father for
breach of an agreement.
The court in this case held that the offer by its very nature is made by one party to
another. This offer in the case was thrown out to the world at large. The court held
that this offer therefore cannot be enforceable and that the father didn’t have to
pay the man.
 This was, however, soon over ruled. The modern position is that an offer may be made
to the world at large. But the contract is not made with all the world.
 Contract is made only with that person who comes forward and performs the
conditions of the proposal.
 Carlil v Carbolic Smoke Ball Co- CSBC had brought in a product to treat
influenza which was an epidemic at that point—the product was called Carbolic
Smoke Ball—advertised that the use of the smoke ball would prevent them from
contracting influenza if they used the product as directed—claimed that if they did
contract influenza even after using the product they would give that customer an
amount of money—also announced that a certain amount of money was deposited
 for the same purpose—Carlil purchased the product—used it as directed—and still
contracted influenza—asked for the amount but was not paid—CBC claimed that
it wasn’t an offer but a mere puff—and that Carlil had not sent them a letter of
accepting the offer even if it was considered to be one.
The court responded saying that CSBC had published that they had deposited a
certain amount of money in the bank to pay this amount which implied that it was
not just a mere puff. The court also held that offers can be made to the world at
large and that this was a valid offer. Carlil by accepting the offer had thus
established an agreement with the company. Therefore, CSBC was held liable.
 Har Bhajan Lai v Har Charan Lal- a boy got lost—father advertised that
whoever would find the boy would be awarded 500—plaintiff overheard a
conversation of a boy and realised that he was indeed the missing boy—took him
to the railway station and sent a telegram to his father—the father refused to pay
the amount—the plaintiff filed a case.
The court held that the offer was valid and that by finding the son he had accepted
the offer in the handbill, made to the world at large, and entered into an agreement
with the father. Therefore, the father had to pay him the promised amount.
 There is a difference between the offers made in the two cases above- in the first case
everyone who uses the product and still catches influenza would be compensated with
the money. But, in the second case only the first person to enter into the agreement and
finding his son would receive the reward amount.
 Therefore, there are two types of offers: continuous and non-continuous.

OFFER AND INVITATION TO TREAT

 An offer should be distinguished from an invitation to receive offers.in some cases

parties do not make an offer, but throw out certain terms which would make an offer.
This is an invitation to offer.
 Invitation to offer is not as certain as an offer.
 Harvey v Facey- hall named ‘Bumper Hall Pen’—a party sent a letter to the
owner asking if they are willing to sell the hall and asking them to quote the
minimum price. The owner sent back a telegram saying that the minimum price
was 900 pounds and that the price was negotiable. Then the buyers sent out a third
letter stating that they would buy it for 900 pounds. But the owners replied that
 they were not ready to sell the Hall. The plaintiffs contended by saying that by
quoting their minimum price the defendants had made an offer to sell at that price.
The court held that the first telegram was only an inquiry. The second one sent by
the owners answered only the second question (minimum price) and did not talk
about whether they were willing to sell the Hall. The third telegram from the
buyers was an offer made to the owners which was never accepted, the minimum
price implied no contract to sell at that price to the person making the inquiry.

 Catalogues and display of goods: the display of good in a shop with price chits
attached in not an offer even if there is a “self-service” system in the shop.
 Pharmaceutical Society of Great Britain v. Boots Cash Chemists Southern Ltd.-
a person had a shop named BCC. The Drugs and Poisons Act of England said that
some goods had to be sold only under supervision of a pharmacist. BCC had a
display system and people could buy it off the shelves. PSGB filed a cased that
display of these drugs was a violation of the act and was making a direct offer.
BCC replied to the court’s question (if some drug was under the act could BCC
not let the customer buy the drug and say no?) by saying that they could refuse to
sell these drugs. The court back traced the case and said that picking up the drug
was not an acceptance of the offer and it would not conclude an offer.
The court said that presenting the products on the counter is an invitation to offer
and the shopkeeper can refuse to sell it to the buyers.
 Menus at restaurants are also mere invitation to offer. The customer asking for a dish
is making an offer. The waiter/ owner agreeing to serve the dish is an acceptance of the
offer.
 Auctions and tenders: an auction is a statement made to the world at large. An
auctioneer’s announcement that specified goods will be sold by auction on a certain
day is not an offer to hold the auction and he will not be liable to persons travelling up
to the place if he changes his mind and does not hold the auction.
 During an auction the bid (even the highest bid) is nothing more than an offer to buy
and it requires to be accepted by the auctioneer.
 Auction—maximum bids win
 Tender—buying/receiving a service at the lowest price.
 An auction/ a tender is only an invitation to offer.
ACCEPTANCE

 When the party to whom the offer is made signifies his assent to such an offer it is an
acceptance.
 Communication of an acceptance: assent is signified by external and overt
manifestation. It can either be expressed or implied. In both cases the act must be an
external one.
 Brogden v Metropolitan Railway Co.- Brogden was in a business of selling coal
to the railway company—no formal agreement was made—on suggestion of B
both parties met to draft an agreement—had some blanks when sent to B for his
approval—he filled blanks and returned to company—agent of the company put it
in the drawer—remained there without final approval of the company—B
supplied coal on new terms and received payments—a dispute arose and B refused
to be bound by the agreement.
The conduct of the company's agent in keeping the agreement in his drawer was
an evidence of the fact that he had mentally accepted it. But he had not expressed
his mental determination and retention of the agreement was not a sufficient
acceptance. But the subsequent conduct of the parties in supplying and accepting
coal on the basis of proposed agreement was a conduct that evidenced or
manifested their intention. Therefore, the court held that B was bound by the
agreement.

COMMUNICATION TO THE OFFEROR HIMSELF

 Acceptance is communicated by external and overt manifestation from the offeree to

the offeror only. A communication to any other person is ineffectual as if no
communication has been made.
 Felthouse v Bindley- a person wrote a letter to his nephew—saying he wants to
purchase his horse at 33 pounds—and if the nephew doesn’t say no to this offer—
he would consider it as a yes—nephew doesn’t reply to the letter—nephew tells
the defendant, his auctioneer not to sell the house since it was already sold to his
uncle—he by mistake put it up for auction and sold it—the plaintiff sued the
auctioneer on the ground that under the contract the horse had become his
property—defendant's unauthorised sale amounted to conversion. But the action
failed.
 An acceptance must be communicated to the offeror itself. As an offeror you
cannot impose the burden of rejection on the offeree. The court said that there is
no acceptance since the willingness to sell the horse was not an external and overt
manifestation to the uncle but it was communicated to a third party i.e., the
auctioneer. Silence cannot be construed as an acceptance.
 Powell v. Lee- plaintiff applied to the post of the Headmaster of a school—he got
though the selection process and the selection board decided to select him—before
the panel could communicate their decision to him, a member from the panel told
him that he was selected—later after further thinking the panel decided not to
consider him for the post—he filed a case for the breach of agreement.
The court held that the acceptance to his offer was not communicated to him on
official capacity (but by personal capacity). Due to this reason an agreement did
not exist between the person and the selection panel. The acceptance has to be
made by the selection panel (the offeree) to the person (the offeror) for an
agreement to exist.
 Agents can express the acceptance in behalf of their clients.

MODE OF ACCEPTANCE:

 Elaison v. Henshaw- offeror wanted to buy potatoes from offeree—he sent a

wagon and a letter with the wagon driver—letter said that if the offeree was
willing to sell potatoes he has to send it in the wagon—the offeree agreed to sell
the potatoes but didn’t send it with the wagon—he sent it through post—due to
this reason the potatoes reached the offeror late and he refused to accept them—
offeree filed a case for the breach of agreement.
The court said that the seller had accepted the offer and therefore had to express
his assent in the mode of acceptance that was offered. The purchaser of potatoes
was not bound by his acceptance since he did not comply with the mode that was
mentioned in his offer. Therefore, it was held that there was no agreement.
 Yates building Co. v. R.J. Pulleyn & sons- offer to sell building—acceptance had
to be made by registered post—offeree expressed his assent through ordinary post.
The court in this case held that acceptance was made and there was no loss or
delay to the offeror. Therefore, it was not a repudiation of a contract. Although,
the mode of acceptance was different, it did not harm the seller and the acceptance
reached the offeror in time. Thus, the building had to be sold to the offeree.
 If mode of acceptance had not caused any harm in the previous case the acceptance
would be valid.
 When and where does a contract get concluded/ completed: postal mode of
communication and instantaneous mode
 Adams v. Lindsell- offer to sell wool made on sept 2, 1817—offer reached offeree
on sept 5—responded by accepting it—dispatched the acceptance on the same day
—offeror sells the wool on sept 8 to someone else—acceptance reaches him on
sept 9—offeree held offeror in breach and took him to court—offeror says that the
agreement does not exist because he didn’t know the offeree had accepted it on
sept 5.
The court held that the contract is concluded at the place, date and time where the
offeree accepts the offer and not when the offeror receives it. So, it was held that
the contract was concluded on sept 5 when the offeree dispatched the letter of
acceptance.
The court’s reason in this judgement was that if one party is given an option of
knowledge/ information the other party must also be given the option to receive an
acknowledgement. If this is given it will go on ad infinitum. To stop this chain at
the first instance the court applied the above-mentioned logic.
 Household fire and accident insurance company v. Grant- grant asked for 100
shares of the company—letter was allotted to him—letter didn’t reach him—he
was still bound by acceptance.
Therefore, the court held that irrespective of whether Grant received the letter or
not, the contract becomes binding when the acceptor had sent the letter to the
offeror and had put it out of his control.
 Section 4 of Indian contract act adopts a modification—when a letter of acceptance is
posted and is out of the control of the acceptor the offeror is bound, the acceptor is
bound when the letter of acceptance reaches the offeror.
 The section 20 of the code of civil procedure is common law provisions, which
provides the rights to the plaintiff to institute suit proceedings at a place where the
defendant(s) are actually and voluntarily residing or carry on the business for gain
 Cause of action can be construed to have risen where the contract was formed:
 Entores Ltd. V. Miles Far East Corporation- a party which resided in London—
sent a letter of offer to another party in Amsterdam through telex—acceptance
 was also sent through telex—question was which court has jurisdiction in case of
a breach of contract London or Netherlands
The court inquired into the question if we should apply the same conclusion rules
as done for the postal mode of communication or not. The question was where the
contract was formed. Since, it was an instantaneous mode of communication, ad
infinitum would not be an issue and the court said that the agreement gets
concluded when the acceptance of the offeree reaches the offeror and, in this case,
the contract is concluded in London.
 Bhagwandas Goverdhandas Kedia v. Girdharilal Purushottamdas & Co.- offer
made by one party from Ahmedabad to another party in Khamgoan. Offer
accepted through an instantaneous mode of communication. Question was where
was the contract created.
A majority of the judges preferred to follow the English rule as laid down in the
Entores case and saw no reason for extending the post office communication rules
to telephonic communications. They did admit that there was a section that spoke
about the issue (section 4). But they also considered that the makers would not
have kept in mind the development which might have come in this area.
Therefore, due to changing times the Entores case was applied. Therefore, the
agreement was concluded in Ahmedabad where the acceptance was received.
The dissenting opinion of one judge in this case was that the section 4 of Indian
Contract act was flexible enough to include telephonic communication and that
when we had a statute, we didn’t have to use the Entores case.

ABSOLUTE AND UNQUALIFIED

 Section 7 provides that in order to convert a proposal into a promise, the acceptance
must be absolute and unqualified.
 An acceptance with a variation is no acceptance, it is simply a counter proposal which
must be accepted by the original offeror before a contract is made.
 Qualified acceptance is a counter offer. Once a counter offer is made, the original
offer cannot be accepted.
 Hyde v. Wrench- a person offered to sell off his land to another for 1000 pounds
—the other person agreed to purchase the land at 900 pounds—offeror not ready
to sell it for 900 and withdraws offer—offeree then says he wants to buy it for
 1000—offeror says he is not interested to sell—offeree says he breached the
original offer.
The court held that after the counter offer was made, the original offer had lapsed
since it was a qualified acceptance. Therefore, the offeror was not bound by the
original offer.
 A partial acceptance is also a counter offer.
 Inquiry into the terms of the offer- a mere inquiry into the terms of a proposal is not a
counter proposal.
 Acceptance made with a condition subsequent is not a counter offer.
 Stevenson Jacques & Co. v. Mc Lean, 1880- a person sent an offer to another to
sell a commodity for 40 cent/tonne—offeree replied by accepting the offer and
inquiring if the offeror is ready to take money in a course of two months or what
is the longest time he can give—offeror rejected this sold commodity to someone
else—offeree held him breach of contract.
the court held that the offeree’s letter was only an inquiry about the time and it
specified that he was interested in purchasing the commodity. Therefore, the offer
made by the offeror was still valid and the second letter formed a binding contract.
 Hargopal v. People’s Bank of Northern India- applied for 100 shares of the bank
—also asked for a position in the board of directors of the bank—bank offered
only shares—this was a counter offer—he accepted shares and then asked for
position—bank refused
The court said that when the bank sent a letter for allotment without membership
it was a counter offer. Hargopal’s act of acceptance with dividends was an implied
acceptance to the counter offer. Therefore, the original offer had lapsed and the
bank wasn’t liable.
 An offeree by offering all terms of the agreement and adding some terms to the same
agreement is accepting the original offer and proposing another offer to the original
offeror.

PROVISIONAL ACCEPTANCE

 An acceptance is sometimes made subject to final approval. A provisional acceptance

of this kind does not ordinarily bind either of the parties until the final approval is
given. Meanwhile, the offeror is at liberty to cancel his offer.
  Provisional acceptance has four stages:
o Provisional acceptance being given
o Provisional acceptance being considered
o Conversion into final acceptance
o Communication of final acceptance
 Idea of revocation of offer: refer to sections 5 and 6 of the Indian Contract act
 Union of India v. S. Narain Singh- provisional acceptance was given—final
acceptance was pending from chief commissioner—when the offeror withdrew
the offer
Court held that revocation was valid because final acceptance was not
communicated to the offeror.
 For postal mode of communication: a proposal can be revoked any time before the
letter of acceptance has been put into transmission by the offeree and it is out of his
control
 For instantaneous mode: the proposal can be revoked before the acceptance reaches
the offeror.

LAPSE OF OFFER

 Revocation is binding when it reaches the person to whom it is made. It is complete as

against the person who makes it, when it is put into the course of transmission against
the person to whom it is made.
 A proposal may be revoked at any time before the communication of its acceptance is
complete as against the proposer, but not afterwards.
O For postal mode, offer must be revoked before the acceptance has been put
into transmission. The letter of revocation has to reach the offeree before the
letter of acceptance is dispatched.
O For instantaneous mode, the revocation of offer must reach the offeree before
the acceptance of the offeree reached the offeror.
 An acceptance maybe revoked at any time before the communication of the
acceptance is complete as against the acceptor, but not afterwards. Communication of
acceptance is complete as against the acceptor when the letter of acceptance reaches
the offeror.
  Henthorn v. Fraser- a person was offered to sell off a particular building at 750
pounds, offeree sent a letter of acceptance at 3:50pm, acceptance reached the
offeror at 8pm on the same day, the building society then decided to revoke the
offer by posting the letter at 1pm on the same day, it reached the offeree at
5:30pm
The question was whether the acceptance bound the offeror and the offeree.
Revocation of offer must be complete before the letter of acceptance is put into
transmission. Letter of revocation must reach the offeree before the latter puts the
letter of acceptance into transmission.
In this case the contract was complete even before the letter of revocation was out
into transmission. Therefore, the parties were bound by the contract and the
revocation was invalid.
 Notice of revocation
 Alfred Schonlank v. Muthunyna Chetti- person offered to sell indigo to another
person, asked him to pay for it within 8 days, offeror revoked the offer on the 6 th
day, offeree said he cannot revoke the offer and he was bound by the 8 days
promise.
The court held that it can be revoked since the offer did not convert into a promise
and was not a consideration. It was only a term which did not have a
consideration. The seller could have sold indigo to someone who would’ve
accepted the offer before 8 days.
 Mountford v. Scott, 1975 CoA- a person offered to sell land for a certain amount
and he said that if he had to keep the offer exclusively open the offeree had to pay
one pound in advance, the offeree did so, but the seller revoked the offer after
taking the one pound.
In this case the payment of one pound was a consideration and it created a
promise. Therefore, the seller cannot revoke the offer. The payment of one pound
was a parallel promise.
 K Appa Rao v. Tungabhadra Steel Products Ltd., 2006- a person had applied for
a Voluntary Retirement Scheme (people who voluntarily apply for retirement
before the age of super admission), before it was processed by the employer, the
employee wanted to take it back. Employer said he cannot revoke and he should
retire. The person said that the VRS was only an invitation to offer. The employer
 might/ might not give him the VRS, therefore he does not consider the application
of VRS as an acceptance to the offer but as an offer itself.
The court said that the Voluntary Retirement Scheme is an invitation to offer, the
application of VRS is the offer and it can be revoked any time before the
employer offers to grant the VRS.
 Communication of revocation:
 Dickinson v. Dodds, 1876-a person offered to sell land at a particular price. He
said that the offeree had time till 9am, 12 th of June to accept it. If the offeree does
not accept the offer by then, he would sell it to someone else. Before 12 th June,
Berry, an acquaintance comes to claimant and says the owner wants to sell it to
someone else. Offeree sends his acceptance through Berry at 7am on the 12 th of
June. After sending the acceptance he finds out that the land was sold to someone
else as Berry had told him.
The court said that the date does not bind the offeror since there was no
consideration. The court also said that the offeror himself need not have to
communicate the revocation. The offeree did have the knowledge that the offer
was revoked, through Berry. And this revocation was done before he could send
his acceptance. Therefore, the revocation in this case was held valid under the
English Law.
 However, Indian Law says that the revocation of offer must be communicated by the
offeror and not anyone else. This is laid down in section 6 of the Indian Contract Act.
 Idea of Revocation of a general offer- general offer can be revoked through any media
or through the media which was used to make the offer.
 Superseding the proposal by fresh proposal- before acceptance, a proposal is renewed
in some parts of it i.e., superseding the original communication. In this case the
acceptance can only be of the renewed part.
 Section 6 (2)- a proposal is revoked by the lapse of the time prescribed in such
proposal for its acceptance or, if no time is prescribed, by the lapse of a reasonable
time, without communication of the acceptance.
 R Vinod Kumar v. Kilpauk Medical College- applications were invited to fill a
post. Application had to be made before a certain date by post or in person. Some
people had put the application in the course of transmission before the deadline,
 but it reached the college late. The college refused to accept the applications that
reached them after the deadline.
Court said application must have reached before the deadline. Even if it
considered as an acceptance, the Postal Company was not an agent of the college,
because the college had specified that they could send it by person as well. So, the
mode chosen by the people is their agent and not the college’s. Therefore, the act
of the college not accepting the offer is valid because it was automatically revoked
on the deadline and the acceptance hadn’t reached them before that.
 Section 6 (3)- if condition subsequent to offer is not fulfilled, the offer is
automatically revoked.
 Section 6 (4)- if the knowledge of the death/insanity of the offeror reaches the offeree
before the acceptance is made, the offer is automatically revoked.
 Revocation of acceptances- a communication of revocation of acceptance is complete
as against the person to whom it is made when it comes to the knowledge of that
person (section 4).
 If the acceptance is made by the acceptor finds a faster way to send the revocation and
the revocation reaches the person to whom it is made, it can be said that the
acceptance was revoked.
 If both the acceptance and revocation reach together, the revocation supersedes the
acceptance and the acceptance is said to have been revoked.
CONSIDERATION

 Section 25 of the Indian Contract Act states that an agreement made without
consideration is void.
 Consideration is the recompense given by the party contracting to the other, according
to Blackstone. Has been described by other people as the price of promise and stuff
like that. (many definitions, but not very important).
 Consideration is to convey that the parties wanted to enforce their agreements.
 The Indian Contract Act defines consideration in section 2(d)- When, at the desire of
the promisor, the promisee or any other person has done or abstained from doing, or
does or abstains from doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a consideration for the promise
For example- I promise to give you 5 apples if you do not play for a day. The
consideration for me giving you 5 apples is you not playing. And the consideration
for you not playing is me giving you 5 apples (idek if you like apples)
 Criticism of the doctrine of consideration- why do we need consideration when the
law of contracts is to enforce promises. Why both, legal intention to create an
obligation and consideration is required. (sir didn’t mention any reason but it is what
it is hehehe).
 English and Indian law have consideration.
 Going by section 2(d), the promise must be done at the desire of the promisor, ( like in
that example I can make the promise only if you desire to get 5 apples for not playing
BB).
o Durga Prasad v. Baldeo- the plaintiff on the order of Collector, built some
shops in a building at his own expense, shops occupied by defendants,
 shopkeepers told him that they would pay him some commission from the
articles that they sell because he had built the shops, they subsequently
stopped paying. He could not get them to pay because he had built these shops
at the collector’s desire and not the desire of the shopkeepers. They were not
liable to pay him.
 Acts done at the request of the promisor. An act done at the request of another,
express or implied, is sufficient consideration to support a promise.
o Kedarnath Bhattacharji v. Gorie Mahomed- plan to construct a townhall,
subscription raised, respondent agreed to pay 100, when work was in progress,
they started collecting this promised money from people, this guy didn’t want
to pay, case was filed. In this case there were definitive steps in furtherance of
the act (building the town hall). This act was indeed carried out by relying on
the promise that the defendant would pay 100. The act of entering the contract
was at the desire of the guy. Thus, the guy was liable to pay the cash.
 Like the previous case, a promise to pay a subscription becomes enforceable as soon
as any definite steps have been taken in furtherance of the object and on the faith of
the promised subscription.
o Doraswami Iyer v. Arunachala Ayyar- renovation of temple, defendant
promised to pay some amount for renovation, he promised while renovation
was going on, later refused to pay. Since, the renovation was going on when
he made the promise, it cannot be said that it was done at the desire of the
promisor. Therefore, there was no consideration and he is not liable to pay the
amount.
o Hudson Re.- if there is no consideration to pay a particular sum towards a
charity, a person cannot be held for non-payment.
 Unilateral promises- only one party makes the promise and there is no return promise.
The acceptance of the promise/ offer will be the consideration in such cases.
o Abdul Aziz v. Masum Ali- a plan to construct a mosque, people agreed to
donate money for the same, this guy had agreed to pay 500 rupees, the mosque
wasn’t constructed nor had they started to construct it, this guy was one of the
secretaries who was going to head the construction, he dies around this time, a
case was filed against his heir (mostly son but doesn’t really matter) to pay
that 500. The court held that a promise to pay subscription becomes
 enforceable as soon as definitive steps are taken in furtherance of the promise.
The construction had not begun in this case. Thus, Masum Ali was not liable
to pay.
 Revocation of unilateral promises- a promise cannot be revoked before after the
promisee has commenced performance relying on the promise. For example, I tell
you that I’ll pay 5 lakhs if you play BB for five hours, and you start playing and after
an hour I want to revoke, I can’t.
o Errington v. Errington and Woods- so this old man has a house, which he
pays EMI for, asks his granddaughter to live with him and pay the EMI, he
promises that once he dies the house will be hers, so she did, she started
paying Emi, this guy asked her to leave one day, so she filed a case. It was
held that the offer cannot be revoked since she had already started paying the
EMI relying on the promise that the house would be hers once the guy dies.
Offer cannot be revoked once the promisee has started the intended act.

[ we haven’t done estoppel under revocation in class. But what it means that in some cases a
suit cannot be filed if there is a revocation of offer even if it happens after an act is done
relying on the promise. Like say someone is given liquor license under certain conditions like
a price ceiling or something, and then government makes new price ceiling or something like
that, the license will be automatically revoked even if the person had started selling liquor at
the old price. Here estoppel applies and the person cannot file a suit. In cases similar to this,
unreasonableness and public interest must also be considered.]

PRIVITY OF CONTRACT AND CONSIDERATION

 Section 2(d) states “by the promisee or any other person”. Which implies that as long
as there is consideration for that promise, anyone can furnish it if the promisor has no
objection. For example, I say I want you to give me some chocolates in return of
certain amount of money. So, you being the promisee may give me the choco or you
might ask Miss. popturdypardies to give it to me, if I have no objection to this, then
pop can give it to me.
o Dutton v. Poole- father wanted to give daughter some property which was
worth 1000 pounds, son told him not to give her property, but he would give
her 1000 pounds instead, he didn’t pay 1000 pounds. Sister filed a case. In this
case even though the daughter was not a party to the promise and the contract
 was only between the father and the son, she was allowed to get the money,
since the contract had been made for her benefit. (yes, it’s not really fair as she

isn’t the party, wait for next case 😉)

o Twedle v. Atkinson- it was a similar situation (different context), where two

parties had entered into a contract for the benefit of the third party. But in this
case, the third -party beneficiary was not allowed to recover the amount. The
court said that she is not a party to the agreement and cannot enforce the
contract. This is where privity of contract came in. (this case happened 200
years later)
o Dunlop pneumatic tyre Co v. Selfridge & Co Ltd.- agreement between DPT
and another company to sell tyres manufactured by DPT only above a
minimum price. A company named Selfridge entered into a contract with the
second company (not DPT but the one that had promised to sell it at a
minimum price). This second company had told Selfridge not to sell it below
the min price, but Selfridge did. So DPT filed a case against Selfridge. Court
held that DPT cannot sue since contract was between DPT and the second
company and not DPT and Selfridge, thus there was privity of contract.

Privity of consideration

 In English law, consideration must move from the promisee ONLY. If it moves from
someone else, then promisee won’t be a party to the contract. A contract cannot be
enforced by a person who is not a party to it even though it is made for his benefit.
 The above principles are not applied in India because it says “promisee or any other
person”.
 Chinnaya v. Ramayya- old lady with a piece of land, gift deed was drafted in favour
of her daughter to give this land, under the condition, that the daughter would pay Rs.
653 to her aunt (mother’s sister) every year, the aunt was not paid this amount, so she
filed a suit against her niece. According to Indian Law, consideration can move from
one person to another. A part of the party also belonged to this aunt and she had
forgone it get the consideration of 653 from her niece which she was receiving from
her sister, the old lady. Thus, the aunt was entitled to the payment of Rs. 653.

Privity of contract
 Under the English law, the contract can be enforced only by the contracting parties.
This is a well-established rule.
 A slightly different approach was taken by Lord Denning in the case of Beswick v.
Beswick but the principle didn’t change. He tried to promote the concept of a
beneficiary being able to sue the party but it wasn’t accepted.
 Beswick v. Beswick- coal merchant had a person with him to help with business, he
told him that he would work under this person and transfer the business to hi if he
pays his wife an annual sum of 5 pounds, the contract was agreed upon. The guy died

☹ . This person paid her only one pound, so she sued him for it. So Denning tried to

steer away from that Dunlop case and said that since she is a beneficiary she must be
allowed to do so. But the House of Lords clearly recognised that there is a well -
established rule under the privity of contract in English law and this cannot be
changed. However, they decided in favour of the lady since the situation was
compelling and identified her as an administrator to her husband’s estate.
 Indian case, Jamna Das v. Pandit Ram Autar Pande- A borrowed 40,000 by
mortgaging her land in favour of B. subsequently, she sold it to C for 44,000 and took
only 4,000 from C asking C to pay 40,000 to B. C didn’t not give this to B so B filed a
case. Here it was held that B cannot recover the amount because he wasn’t a party to
the contract and the contract was only between A and C. somewhat like Twedle v.
Atkinson.
 But some Indian cases do allow the third party to sue because there is nothing in the
Indian Contract Act which prevents the recognition of a right of the third party nor is
there a provision to promote this right.
o Nawab Khwaja Muhammad Khan v. Nawab Hussaini Begum- Mr X, wanted
Mr. Y’s daughter to marry his son. He (Mr. X) promised that he would pay her
a monthly amount of Rs. 500, he said he’d given her this amount from the
money he makes out of a property. Dispute arose between this girl and the
husband; amount was not paid so she filed a case. Here, the court ultimately
allowed her to recover the amount because, a charge was landmarked for the
beneficiary and due to this she had to get the money. (charge is like a cloud
hovering over some property)
 But again, the SC upheld the privity of contract.
 o MC Chako v. State Bank of Travancore- MC was the manager of a bank, had
an old account here, his dad KC Chako acted as a guarantor for the amount
that Chako had borrowed, MC had not paid some money, KC divided the
property and said that the amount that MC owed to the bank would be paid
from this property, MC did not return the whole amount, and thus the bank
tried to sue him on the grounds of the gift deed between MC and KC. The
court held that no charge/ trust was created over this amount and the gift deed
was only between the father and the son, the bank being a third party cannot
sue MC for the same.

Exceptions to privity rule

1. Beneficiaries under trust or charge or other arrangements - privity does not apply hen a
charge has been created to perform the contract like in the case of Nawab Khwaja
Muhammad Khan v. Nawab Hussaini Begum.
2. Marriage settlement, partition or other family arrangements - if privity applies in
marriage contracts and all the parties will misuse and take advantage.
3. Acknowledgement or estoppel- according to the terms of the contract, a party is
required to make a payment to a third person, and he acknowledges it to the third
person, a binding obligation is thereby incurred towards him.
4. Covenants running with land- (sir didn’t do this in detail he just name dropped this
exception)

Tbh he didn’t do exceptions in detail except the first one because he covered one case ☹.

Past consideration

 Just to understand the concept- say you bring me some water when I’m about to die of
dehydration. And then you thus, save my life. so after you do this I tell you I’ll buy
you new shoes. So, for this promise of mine the consideration from you happened in
the past, so it’s a past consideration.
 McArdle, Re- certain improvements had to be done on property, Mr A did the
renovation, discussed the matter with the relevant parties, they made a subsequent
promise that they would pay him some amount, but later they refused to pay. The
court in this case said that it would not amount to consideration. It was wholly a past
 consideration which was a naked pact. Past consideration is no consideration in
English Law. it is “nudum pactum”.
 Exception- if the act is done at the desire of the promisor (if it is a request), the
subsequent promise is enforceable.
o Lampleigh v. Brathwait- person was imprisoned, he asked an acquaintance to
get him out of the prison, when this request was made, he had not promised to
give the acquaintance anything in return, his friend got him out, he then
promised to pay him a certain amount, but he didn’t pay, so friend filed a case.
The court held that the person is liable to pay since the act was done at his
request.
 In India there are two exceptions:
o If it is a promise to compensate something that is voluntarily done, it is
enforceable. Like say you’re sleeping in the hostel, and some random stranger
comes to your room and tries tot steal something. But I see this stranger and I
punch him in the face and stop him. So, this is a voluntary act done by me.
You wake and promise to pay me 1lakh (because he was going to steal your
lucky shoes). This becomes a contract under Indian law. and if you don’t pay
me, I can sue tf out of you.
o If act is done at the request of the person, then it can be enforceable. This is
like Lampleigh v. Brathwait.
 Past consideration is an act done without any promise. Like me punching that stranger
before you promised me. But an executed consideration is an act which has been done
in response to a positive promise. Like say you put up a poster at your hostel door that
says that you’ll reward the person who brings you breakfast in the morning, this is an
executed consideration. This consideration/ reward from you can be accepted only if
they bring you breakfast, i.e., execute the act.
 A consideration must be of some value in the eyes of English Law. [sir hasn’t done
this case in class but it helps in understanding, he didn’t do this in detail though]
o White v. Bluett- defendant owed money to his father, he always fought with
his dad that he had not been treated equally when property was distributed to
him and his siblings, so the father then promised to discharge the son from all
liability in terms of the money that the son owed, if the son stopped
complaining, which he did. The court in this case identified that it would be
 ridiculous to suppose that such promises could be binding. In reality there
wasn’t really a consideration.
o In India also a similar stance has been taken. A consideration must be valuable
in the eyes of law. but courts have been liberal in this case and tried to find a
value in which the parties attach value.
 But, again, both Indian Law and English Law consider that the adequacy of the
consideration is for the parties to consider at the time of making the agreement and
not for the court when the agreement is enforced. As long as the parties give their
consent to the consideration freely, the consideration is valid and adequate.
 Inadequacy of consideration is only taken into account in determining the question
whether the consent of the parties was given freely.
 Forbearance to sue has been regarded as a valuable consideration. For example, when
a wife is ready to sue her husband for maintenance allowance has forborne to sue on
husband’s agreeing to pay her monthly allowance by way of maintenance. Here the
wife’s forbearance to sue is a valid consideration. [sir didn’t really do this but its
there in AV Singh so why not]

Performance of existing duties

 Performance of a legal duty is no consideration to a promise.

o Sashanah Chetti v. P. Ramasamy Chetti- a person was asked to appear as a
witness by the court, this witness was going to be favourable to the respondent
so he requested him to appear and promised to pay some money for the same,
this guy appeared as a witness and all, but this respondent didn’t pay the
promised amount, so the guy sewed this respondent. The court in this case
held that the guy is not entitled to get the money from the respondent because
there was no consideration. This is because he was duty bound to appear as a
witness because of the court order and this cannot be considered as a
consideration for the payment of sum by the respondent.
o The same principle is followed under English law as well. Like a promise to
pay some money to pay a police officer for investigation is without a
consideration because the police officer is bound to do so by law.
 Complying with a legal obligation imposed by a contract with the promisor cannot be
a consideration for a promise.
o Stilk v. Meyrick- small ship was on a voyage, some sailors had left the ship,
captain requested other sailors not to leave and promised to pay them extra at
the end of the voyage of they didn’t leave, he failed to pay them at the end, so
a suit was filed. The court held that there is no consideration for this promise
to pay extra because the sailors were already duty bound to make sure the ship
sails at ease and to perform to the best of their ability. This condition for them
to stay and make sure the ship sails safely is a term of their employment and
their duty, thus there was no consideration offered by them to the extra
payment. Thus, they couldn’t recover the money.
o But if the sailors refused to complete the voyage because of war risks, not
originally contemplated, but remained on duty for the extra pay, they would be
allowed to recover it.
o Weston Foakes v. Julia Beer- WF owed money to JB (justin Bieber hehe jk,
it’s Julia Beer -.-) he was not able to pay this to her on time, so she filed case
to recover money, court fixed a certain amount of time for him to give her this
money, and if he wouldn’t do it within that time, there would be interest
charged on that sum. WF said that he would pay money in instalments. Only
after a year he managed to pay the whole amount. After getting this money JB
filed a suit for recovering the interest for the delay time. WF says she is not
entitled because she had agreed to receive it in instalments. The House of
Lords said that there was no consideration for taking the money without any
interest. She was entitled to the payment of the interest from Foakes according
to the previous judgement that was delivered so she could recover the interest.
o An existing obligation may amount to a valid consideration if there are
practical benefits.
o Williams v. Roffey Bros.- appellants were builders who had contracted to
renovate a building. Contract had a penalty clause for late completion (i.e., a
penalty would have to be paid by builders if they failed to complete renovation
on time). The appellants sub-contracted some work to Williams who was a
carpenter. He fell behind on completing the work, appellants offered to pay
him a bonus to finish it on time. He continued to work and finished the work
on time. But he wasn’t paid the bonus.
 In this case, the court said that there was indeed a consideration for the
carpenter working quickly to get the bonus. The consideration here was,
practical benefits (they wanted to rid themselves of paying the penalty to the
owner and due to this they promised to give a bonus. Thus, the contractors had
received practical benefits and practical benefits amount to consideration.
Therefore, they were supposed to give the carpenter his bonus.
 A promise to pay less than what is due under a contract cannot be a consideration.
o Penny v. Cole (Pinnel’s Case)- A person owed another person 8 pound 10
cents. He gave him 5 pounds 2 cents, and the plaintiff was satisfied with that
amount. There was an agreement between the parties that this amount was
good enough. Afterwards, the creditor sued the debtor for the rest. Contract for
the performance of contractual obligations is not valid. The court said that for
no reason would a reasonable man be willing to accept a lesser amount against
a higher amount he is entitled to. But a consideration in kind for a lesser value
is acceptable, because it may be that valuable to the other person.
o Pinnel’s case is not applicable in India. 63. Promisee may dispense with or
remit performance of promisee. Every promisee may dispense with or remit,
wholly or in part, the performance of the promisee made to him, or may
extend the time for such performance, or may accept instead of it any
satisfaction which he thinks fit.
 Exceptions to Pinnel’s rule-
o Part payment by third party- say a dad has owes some money to a person, but
he dies before he could pay the whole amount or due to some reason cannot do
so. So, here if the son offers less money to pay the full debt and the creditor
accepts it, an action cannot be maintained.
o Composition- payment of a lesser sum is a good satisfaction for a larger sum
where this is done in pursuance of an agreement of compromise entered into
by the debtor with his creditors.
o Payment before time- payment of a lesser sum before time. Or in a different
mode or at a different place than appointed in the original contract or the gift
of a horse, hawk or robe, etc., in satisfaction is good.
o Promissory estoppel- explained below
 If two parties who have contractual obligations against each other and they agree that
their rights will not be enforced for some particular time, it is a right consideration.
o Thomas Hughes v. Metropolitan Railway Co., 1877- A had given B, a
property on rent, during tenancy they entered into a negotiation whereby B
wanted to buy the property, A had asked B to repair the premises within 6
months or to leave the tenancy, tenant failed to carry out the repairs, the
negotiations failed to materialise and become a contract. After 6 months, the
tenant was asked to leave to property. It was held that the 6 months period had
to be suspended during the time of negotiations. The 6 months would run from
the failure of negotiations. The conduct of entering into negotiations was an
implied promise on the part of the landlord to suspend the notice and the
tenant acted on it by not carrying out the repairs.
o Central London Property Trust Ltd. v. High Trees House Ltd.- agreement
between two parties, property given from one party to another to rent it out,

agreement for almost 10 years, but WW2 broke out ☹ and the flats remained

unoccupied, they then renegotiated the contract and the amount was reduced to
half the amount that had be previously paid by the second party to the first
after renting the flats out, when war ended, when war ended the 1st party sent
a notice saying that thereafter the old amount will have to be paid and the half
amount that was not paid during the war due to that new agreement was also
to be paid. The defendant continued to pay only half, so the first party filed a
case to recover the whole amount (half during war and the money after war
that was unpaid). It was held that during the war because of the new
agreement the promissory estoppel will have a suspensory effect i.e., the
original contract was suspended during this time according to the negotiations.
The parties will be estopped from alleging that there was no consideration for
accepting only half rent during the war. But after the war, the notice was sent.
Therefore, the first part can only claim the amount that wasn’t paid after the
war.
o A promissory estoppel can only have a suspensory effect and cannot terminate
the contract. Change of mind about the contract is allowed and enforceable
 only for future transactions, but money cannot be recovered for the past when
there was no suspension.
o For a promissory estoppel to apply the promisor must change the position
which is detrimental to the promise or the promise has done an act relying on
the promise. For example, I promise that I’ll give you money if you talk to a
random stranger about poop. You, relying on my promise go to one stranger
and start one convo about poop. If I then refuse to give you money estoppel
will apply. I will have to give you that money.
o In English law, the formation of contract is must for promissory estoppel to
apply. That is, a pre - existing promise must exist. (because only then if there
is a change it can apply).
o Combe v. Combe- wife obtained a decree of divorce against husband, received
a letter from the husband saying that he would give her 100 pounds a year, but
he didn’t so she filed one case. The court of appeal held that there was no
existing contract between the two since there was no consideration in the first
place for the husband to give her that money. So there was no promissory
estoppel against the husband. The husband never asked her not to file for
maintenance since he was going to pay her, she abstained from paying as a
choice.
o For position under Indian law pleaseeee read illustration under section 63
of Contract Act!
Under Indian law only alteration of original position is required for
promissory estoppel to apply. There is no need for detriment.
o Motilal Padampath v. State of UP- state of UP had announced that they
would give any factory/ company a concession in tax if they opened their
factory in UP. Motilal relying on this opened sugar mill after that govt.
Changed their stance, previously promised concession for 3 years and now
they made it for one year. Court held that the principle of promissory estoppel
applies and the government was held liable.

Exceptions under section 25 of the Indian Contract Act

 If it is an agreement in writing and it is registered under Law, made an account of

natural love and affection between parties standing in near relation.
 o Raj Lakhi Devi v. Bhoothnath Mookherjee- agreement between husband and
wife, a house was to be given to wife due to some disputes. He didn’t give her
the house and said that there was no consideration. Not enforceable since the
contract was built on love and affection.
 Promise to compensate an act that has been voluntarily done. Promise to pay for a
past voluntary service is enforceable. Like when I punched the robber who was
coming out of your room in the face and you promised to gimme money. I can
enforce your promise.
 Promise to pay a debt barred by law of limitation

FREE CONSENT

 Section 10 specifies that free consent is an essential requirement of a contract.

 Section 14 of the contract act defines free consent.
 14. “Free consent” defined. Consent is said to be free when it is not caused by— (1)
coercion, as defined in section 15, or (2) undue influence, as defined in section 16, or
(3) fraud, as defined in section 17, or (4) misrepresentation, as defined in section 18,
or (5) mistake, subject to the provisions of sections 20, 21 and 22.
 When consent to an agreement is given by coercion, undue influence, fraud or
misrepresentation, the contract is voidable at the option of the party whose consent
was so caused. According to section 2(i), a voidable contract is one which is
 enforceable by law at the option of one or more of the parties thereto, but not at the
option of the other or others.
 If consent is caused by mistake the agreement is void and it cannot be enforced by
either of the parties.

Coercion

 An agreement caused by coercion is voidable at the option of the party whose consent
was so caused.
 Coercion defined under section 15. 15. “Coercion” defined. “Coercion” is the
committing, or threatening to commit, any act 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.
 Essentials:
o Committing or threatening to commit any act forbidden by the IPC.
o Unlawfully detaining or threatening to detain any property.
 Chikam Amiraju v. Chikam Sheshamma- this guy threatened his wife by saying that
he would commit suicide if she didn’t transfer property to his brother, because of the
threat she signed the contract and transferred it to the brother. The question was
whether the agreement was voidable on grounds of coercion. The majority held that
the threat of attempt to suicide amounted to coercion and the contract for transfer was
voidable.
 duress in English law is narrow. Duress to a stranger is not considered duress in
English Law but is duress in Indian Law. (coercion in Indian law is duress in English
Law)
 Ashley v. Reynolds- unlawful detention of someone’s property would fall under
duress. (this was changed later).
 Duress/ coercion is applying improper pressure on someone to do something. Agency
is not taken away.

Undue influence
 Section 16. Focuses on relationship between the parties. A person is in the position to
dominate the will of the other and uses that position to obtain an unfair advantage
over the other.
 Undue influence operates very subtly. The person who is influenced loses autonomy
and agency and is compelled to do what the dominant person is asking him to do.
 S. 16 (2)- clause a and b  when one is deemed to be in a dominant position, when
there is a fiduciary relationship (relationship of trust and confidence between the two).
When one makes a contract with someone who had lost mental capacity due to age,
illness or other reasons.
 S. 16 (3)- if A is in the position to dominate the will of B, then the agreement is
unconscionable, the burden of proving that it is not unconscionable (not right, sets a
high threshold for fault) lies on the person who is in a position to dominate i.e., A.
 Relations which involve domination
o Williams v. Bayley- son forged father’s signature on promissory notes, took
some money from the bank, when bank manager found out, the manager
threatened the guy with criminal prosecution, bank said they would sue the
son, to avoid this, the father mortgaged property in favour of the bank because
bank told his it’s the only way to save his son, this was done under the undue
influence of the bank manager, the father later wanted to get the agreement
cancelled. The House of Lords held the agreement to be voidable. There was
inequality between the parties and one of them took an unfair advantage and
used undue influence.
o Allacard v. Skinner- plaintiff was a woman who joined a religious
organisation, she donated some shares to the organisation, after a few years
she left the organisation, 6 years after leaving she instituted a suit against the
organisation for recovery of shares and claimed to have donated it under
undue influence. Here it was held that influence of one mind over the other is
very subtle. Religious influence is very dangerous and powerful. The court
said that she cannot recover the amount due to law of limitation. She had
claimed to recover the amount after a period of 6 years which is a delay and
limits her from claiming the share. The court did recognise that it is a case of
undue influence.
 Unconscionableness-
o Raghunath Prasad v. Sanju Prasad- rich guy borrowed money from a money
lender to win a criminal prosecution case against his father, there was a high
rate of compound interest, after 8 to 9 years it was realised the interest had
amounted to almost a lakh (money borrowed was only 1k, oopsie), when he
was forced to pay the amount he said that the bargain was unconscionable and
filed a case. The court held that unconscionable terms do not make a contract
entered into as a result of undue influence. One has to determine whether there
was an existence of a dominant relationship or if there was a contract entered
into when the person was not in a capacity to contract.
o First prove that there was a dominant relationship and the person was
influenced by the dominant person. And then unconscionableness will be a
ground for undue influence.
o Unconscionableness would be due to the party’s mistake. This is why
dominance needs to be proved.
o Dhanipal Das v. Raja Manesar Baksh Singh- this case was referred to in the
previous one. A landlord’s proprietor was under the control of a court order,
he borrowed a huge amount of money, later pleaded that the transaction was
tainted with undue influence and the court had accepted this plea. This guy
was very desperate for money, the lender knew the vulnerability of the person
and took an unfair advantage of his position. Moneylender was in a position to
dominate his will.
o Rani Annapurani Natchiar v. Swaminatha Chettiar- a widow did not have
proper means to sustain herself, in addition she was also fighting a court case,
she borrowed money at a very exorbitant rate of interest, she later wanted to
set this agreement aside on account of undue influence. The court in this case
stated that relations does not mean just personal relations, but the
circumstances in which the contract was entered into. Unconscionableness
raises the presumption of undue influence. And this unconscionableness is
raised only when there is a relationship of dominance. The circumstances of
the woman gave rise to a relationship of dominance and the contract was
declared voidable.
o Lloyd bank Ltd. v. Bundy- Mr. Bundy’s son ventured to establish a company.
His son took a loan from the bank and the father (a farmer with limited means)
 became the surety, the manager of the bank who had been working there for
several years had built a relationship of trust and confidence with Bundy.
Bundy had not yet repaid the loan and took another loan during this time since
his company was not doing too well. At this time the old manager was
transferred. The son had requested the dad to mortgage the house to get
another loan, the new bank manager met the father for granting the loan, the
house was mortgaged at a huge price, the son didn’t repay the loan again and
the bank said that the only way to repay was to sell the house. At this time
Bundy wanted to set the mortgage deal aside on grounds of undue influence.
The court of appeal said that undue influence was operational but not
sufficient. He was a long- standing customer of the bank and there was a trust
and confidence relationship between the person and the bank.
o Where there is a relation of trust and confidence, the guarantor needs to get
individual legal advice. There is a presumption of undue influence.
o In some cases, law presumes undue influence. In such cases only the
relationship of dominance needs to be proved.
o BCCI v. Aboody- wife was 20 years younger to the husband (idek why sir
mentioned age and all but yeah), she was regularly abused by the husband, he
mortgaged the matrimonial property and the wife was forced by him to sign it,
later she realised that she had signed the contract under undue influence and
wanted to set it aside. The court in this case accepted that it was a case of
undue influence. But the court didn’t let her set the contract aside because it
was not to her manifest disadvantage.
o This judgement is criticised because manifest disadvantage is not a
requirement under undue influence.
o Royal Bank of Scotland v. Etridge- this is the case that set aside the doctrine
of manifest disadvantage.
o Law presumes that a husband has undue influence over the wife, and the wife
thus needs to be given formal legal advice separately. She needs to tell this
advisor/ solicitor her husband’s economic status with his consent and the same
solicitor is allowed to give advice to both, the husband and the wife.
o Denning: English Law allows relief to one, who without independent advice,
enters into a contract on terms which are very unfair or transfers property for
 consideration which is grossly inadequate when his bargaining power is
grievously impaired.
o This was criticised later because, just the fact that a person was under undue
influence must be sufficient to set the contract aside.

Misrepresentation

 Misrepresentation is defined in section 18 of the Indian Contract Act.

 18. “Misrepresentation” defined.—“Misrepresentation” means and includes— (1) the
positive assertion, in a manner not warranted by the information of the person making
it, of that which is not true, though he believes it to be true; (2) any breach of duty
which, without an intent to deceive, gains an advantage to the person committing it, or
any one claiming under him; by misleading another to his prejudice, or to the
prejudice of any one claiming under him; (3) causing, however innocently, a party to
an agreement, to make a mistake as to the substance of the thing which is the subject
of the agreement.
 Misrepresentation does not require intention. Misrepresentation= fraud- intention to
deceive. It’s like a shopkeeper asking me to buy chocolate because he thinks it is the
best. But in reality, I find worms inside *puke face*. Here he didn’t have the intention
to deceive me into buying it, but he positively asserted that the information that he
was giving me was true.
 Unwarranted statements- when a person positively asserts his statement is true when
his information does not warrant it to be so, even though he believes it to be true.
o Oceanic Steam Navigation Co. v. Sooderdas Dharamsey- the defendants
chartered a ship from the plaintiffs, who made a misstatement with respect to
the capacity of a ship, false reasons were made, there was no proper reason to
substantiate what they were saying. The plaintiffs had said that her capacity is
2800 tonnes and not more. The plaintiffs had never seen the ship and never
wholly knew what the situation was. But the plaintiffs later found out that she
had a capacity of more than 3000 tonnes. It was held that the defendants were
entitled to avoid the charterparty as there was misrepresentation.
 Inducing mistake about subject matter- 18 (3)
o Dambarudha Behera v. State of Orissa- the government auctioned certain
forest coupes, part of land was occupied by tenants, forest department knew
 this fact but did not disclose it to the purchaser. The contract was held to be
vitiated by misrepresentation. Purchaser was allowed to recover damages for
the loss.
 Suppression of vital facts
o R v. Kylsant- the prospectus of a company stated that the company had
regularly paid dividends, which created the impression that the company was
making profits, whereas the truth was that the company had been running into
losses for the last several years and dividends could only be paid out of
wartime accumulated profits. The suppression of this fact was held to be a
misrepresentation
o Misrepresentation must be of facts and these facts must be material/ relevant.
The false statement must be something that induced the person to enter into
the contract.
o Bindu Sharma v Ram Prakash Sharma- In the matters of matrimony, it has
been held that qualifications of the spouse are a material fact. Where the girl
was in possession of high academic qualifications and agreed to matrimony
because she was told that her match was in an attractive job whereas he was
only an apprentice in a factory, the court ruled that it was a misrepresentation
and, therefore, annulment of the marriage would have to be decreed
 Expression of mere opinion will not amount to misrepresentation-
o Bisset v. Wilkinson (1927) – Seller gave opinion that land had capacity for
2000 sheep, but land turned out to be unsuitable for this number. Court found
no grounds to enable buyer to avoid agreement. It is necessary that there
should be a representation of a specific fact. Consideration of material facts
such as the seller had never put sheep there. Both were on the same level of
knowledge.
 If by being reasonable you could’ve avoided the case, then there is no
misrepresentation under Indian Law. exercising due diligence is necessary.
 Under the English Law, it is the other way around. But if there are other means to
discover the truth and the person had ventured to exercise this means he cannot say
there was misrepresentation.
Fraud

 Intentional misrepresentation of facts. Defined under section 17.

 5 situations where fraud operates
o Suggestion that a fact is true by one who knows it isn’t true.
o Active concealment of a fact by one who has the knowledge of the fact
o Promise made without intention of performing it
o An act fitted to deceive
o Any act or omission which the law specially declares to be fraudulent.
 Assertion of facts without belief in truth
o Derry v. Peek- company had a business of manufacturing trams, had taken
permission from parliamentary to start business and assumed it to be adequate
permission. Later found out that they did not take permission from other
authorities, a contractor alleged it to be fraud and took the case to court, the
fact that they did not have adequate permission was not mentioned in the
prospectus. The court held that it was not a case of fraud since there was no
intention to deceive.
 Active concealment of facts
o Ningawwa v Byrappa Shiddappa Hireknrabar- a husband persuaded his
illiterate wife to sign certain documents telling her that by them he was going
to mortgage her two lands to secure his indebtedness and in fact mortgaged
four lands belonging to her. This was an act done with the intention of
deceiving her.
 Mere silence cannot be considered as fraud
o Shri Krishnan v Kurukshetra University- a candidate, who had full
knowledge of the fact that he was short of attendance, did not mention this fact
in his examination form. This was held to be no fraud, it being the duty of the
University to scrutinise forms and to call for verification or information in
case of doubts. The University having failed to do so, was estopped from
cancelling the examination of the candidate.
 Silence is considered fraud when there is a duty to speak, where silence is deceptive,
when there is a change in circumstances and the truth is spoken partially.
 o With v. O'Flanagan- A medical practitioner represented to the plaintiff that
'his practice was worth £2000 a year’. The representation was true. But five
months later when the plaintiff actually bought the practice, it had
considerably gone down on account of the defendant's serious illness. It was
held that the change of circumstances ought to have been communicated.it was
a case of fraud.

Limits of recission

 section 19 and 19 (A) deal with voidable and void contracts at the option of the party.
 Sometimes restitution is not possible as a remedy. Law requires the act to be
reasonable to rescind a contract. If it is too late, a contract cannot be rescinded like in
the case of Allacard v. Skinner.
 The rights of recission will be lost when the party after becoming aware of the right to
rescind, affirms the contract, by lapse of time (recission must be claimed within a
reasonable amount of time) and by the intervention of rights of the third party.
 Car & Universal Finance Co Ltd v Caldwell- The plaintiff gave the possession of his
car to a buyer for his cheque. The cheque turned out to be worthless. The plaintiff
wanted to give notice to the buyer of his intention to avoid the contract and to take
back his car, but could not trace him. He thereupon informed the police and the
Automobile Association to trace his car. Sometime later the fraudulent buyer sold the
car to the defendant and the plaintiff sought to recover it. It was held that by
informing the police and the Association the plaintiff had done an overt act clearly
showing his intention to rescind and the sale of the car after rescission could not
convey to the defendant a good title.
 For a case of undue influence, the court can change the terms of the contract i.e., a
new contract can be created. The court cannot do this for private contracts though.
MISTAKE

 Mistake may operate upon a contract in two ways: when the consent is unreal and it
may mislead the parties to a purpose that wasn’t contemplated.
 Section 13 defines consent. 13. “Consent” defined. Two or more persons are said to
consent when they agree upon the same thing in the same sense.
o Raffles v. Wichelhaus- 2 parties contracted to ship a consignment vis “the
Peerless”, 2 ships were called Peerless, one was to depart in October but the
other in December. The two parties were referring to different ships. There
was a misunderstanding about when the consignment had to be delivered and
when it wasn’t delivered at the right time, a case was filed. It was held that the
contract between the complainant and defendant was not enforceable. When
the contract was being discussed, there was ambiguity in the Peerless and what
ship was being referred to, as well as no agreement on the terms on the sale.
There had been no consensus ad idem or meeting of the minds between the
parties to form a binding contract.
 When mistake doesn’t affect the consent of the parties but misleads them, section 20
will be applied.
20.Agreement void where both parties are under mistake as to matter of fact. Where
both the parties to an agreement are under a mistake as to a matter of fact essential to
the agreement, the agreement is void.
 An agreement formed due to a mistake of the parties is void.
 For section 20 to apply, both the parties must be mistaken. The mistake must be with
respect to the matter of fact related to the agreement.
 Section 20 will come into play when:
o Both parties to an agreement are mistaken
o The mistake is as to a matter of fact
o The fact about which they are mistaken is essential to an agreement.
 Mistake falls under 3 categories:
 o Common mistake- same mistake by both the parties. The contract will be void
o Unilateral mistake- only one party is mistaken. Will not render contract void.
Section 22.
o Mutual mistake- different mistakes by both the parties. The contract will be
void.

 The threshold to declare a contract void on the grounds of mistake is very high. The
test of a reasonable man is applied.
 Section 21- a mistake with regard to law cannot void a contract mistake of law is
never an excuse.

MISTAKE AS TO IDENTITY

 Mistake as to identity occurs when one of the parties represent himself to be some
person other than he really is.
 Jaggan Nath v. Secy of State for India- ^A person, called S, a brother of the plaintiff,
represented himself as plaintiff, and thereby induced a Government agent to contract
with him. The court, finding that the Government's agent was deceived by the con
duct of the plaintiff and his brother as to the person with whom he was dealing, held
that there was no valid contract. The defendant's agent intended to contract only with
S's brother and not with 5 and S knew this. In the above case, the Government's offer
was meant for S and his brother posing as S accepted it. This prevented real consent.
It means that an offer which is meant for one person cannot be accepted by another.
 Boulton v. Jones- Mr. X had a shop, borrowed some money from Y. X sold his
property to Z, Y places an order to shop, Y wasn’t aware that the shop was sold to Z,
when the good were delivered to Y with the invoice, he realised that he hadn’t ordered
from X and refused to pay for the goods. So, Z sued him. Here it was held that the
contract was made on the basis of identity of the parties. It was held that when anyone
makes a contract in which the personality, so to speak, of the particular party
contracted with is important, for any reason, whether because it is to write a book or
paint a picture or do any work of personal skill, or whether because there is a set-off
due from that party, no one else is at liberty to step in and maintain that he is the party
contracted with.
 James Cundy v. Lindsay- a person sent an order to a firm in writing asking to buy
handkerchiefs, the purchaser had written the address, order was delivered to some
other company with the same name, the company had sold the goods to someone else,
the delivering party traced the goods from this innocent party and sued the company
that had sold them. Here it was held that there existed no contract between the first
company and to which the delivery was made. Thus, no contract had arisen between
them, identity was important in this case and the contract was held to be void.
 Phillips v. Brooks- A man, called North, entered the plaintiff's shop and selected
some pearls and some rings worth £3000. He produced a cheque book and wrote out a
cheque for the amount. In signing it he said: 'You see who I am, I am Sir George
Bullough' and finding on reference to a directory that Sir George Bullough lived at the
address mentioned, the plaintiff let him have a ring. He promised to come for the
other articles after the cheque was cleared. Before the fraud was discovered he
pledged the ring with the defendants who advanced money bona fide, and without
notice. The plaintiff sued the defendants for the ring or its value. Held that the
plaintiff intended to contract with the person present before him. When a contract or
an order is in writing, it is difficult to make out who one is contracting with. But when
an agreement is made face to face, the parties know whom they are contracting with
and there cannot be a mistake as to identity.
 mistake of identity inter – presentee (when contract is made face to face) is not the
case of a mistake and the contract will not be void.
 Case where fraud does not amount to mistake of identity. When a person convinces
the other by usual tricks and ways that he is a particular person, it amounts to fraud
and even though the contract will be inter presentee, it will be voidable.
o Lewis v. Averay (1971)- A man sold the car to a rogue who represented
himself to be a film actor and produced a pass to an event, sufficient to
convince the plaintiff. The contract was just voidable and the subsequent sale
of the car to a third party was valid as the contract was voidable and had not
been avoided until that point of time. (not void ab initio.) Good title acquired
when car passed into hands of third party
 In some contracts, identity is specifically important.
o Said v. Butt - Theatre refused plaintiff to enter after he got one of his friends
to buy it for him as he knew the theatre wouldn’t let him enter. Plaintiff sued
 for breach of contract. No contract as the non-disclosure of the recipient of the
ticket prevented the sale to become a contract as the identity was a material
element

MISTAKE AS TO SUBJECT MATTER

 Non- existent subject matter- subject matter may have ceased to exist before the
contract was made.
o Gustavus Couturier v. Robert Hastie- The defendant was employed to sell the
plaintiff's cargo which was on voyage. After the defendant had sold the cargo
to a third person, it was discovered that the cargo, having been damaged by
bad weather, had been sold at an intermediate port. The buyer repudiated the
contract and the defendant, being a del credere agent was sued for the price. In
this contract, the subject matter i.e., the cargo was non-existent, thus it was
void.
 Mistake as to title of rights
o Bell v. Lever Bros- Lever Bros had subsidiary in Africa and appointed Bell as
MD for that subsidiary. Afterwards they told him about the duration of service
and the remuneration will be 8000 pounds but before the term’s expiration, the
office of MD had to be seized as the subsidiary got merged with another
company. So, the company asked him to resign and he agreed to do so at a
compensation for 30k pounds. Company agreed as they knew they couldn’t
end the service abruptly. After they paid him, they came to know that Mr. Bell
while performing services had incurred certain private profits which were in
breach of his duty and as per the agreement, they were entitled to terminate his
contract. Agreement between Mr. bell and Lever Bros was not for quality of
services. The substance was about the employment and he had to perform
certain duties. If before terminating, Lever Bros would have got to know that
Bell was in breach of duty and made secret profits then they could’ve told him
to go without any compensation. But after compensation was given, they can’t
argue on quality, mutual mistake was as to quality-of-service contract and not
subject matter.
 Mistake as to substance of subject matter-
 o Seikh Bros v. Oshcner- agreement where a land was leased out to respondent.
Here certain crops were to be grown by them. In return the respondent had to
give the owner some amount of the crop. Later, it was discovered that the
amount of crop agreed upon could not be grown on the land. In this case it was
held that there was a mistake wrt the subject matter of both the parties and the
contract was thus void.
 Quality v. substance of the goods.
o Smith v. Hughes- Parties entered into a contract for sale of old oats and one of
them gives the oats to the other for a day, and on subsequent acceptance and
sale, it was discovered that they were new. Contract was not void, as they may
not have been ad idem to the age but were certainly ad idem with respect to
the sale of the oats.
o If mistake happened wrt the quality of subject matter it cannot fall under
mistake unless the quality was a vital term of the agreement.
o Great Peace Shipping Ltd. v. Tsalviris Salvage- there was a ship in distress,
they contacted and tried to find ships in the vicinity, they discovered a ship,
Great Peace, contacted and asked for help and they agreed to help, after the
agreement was made, they found out that it was at a place that was 410 miles
away, but they assumed it to be 35 miles away, both the parties had believed t
the time of entering the contract that they were 35 miles apart. Once this was
realised by the ship in distress, they started looking for other ships and found
one, once the new agreement with this ship was made, they cancelled the
agreement with Great Peace. Great Peace sued them for breach. It was said by
the respondent that there was a mistake by both parties wrt the distance and
this was an essential subject matter to the contract. But the court held that it is
not a case of mistake. The ship had to be rescued, but it had to be seen if
rescue was possible or not. Here, timely help did not mean immediate help.
Here the important matter was whether the ship could be rescued in time. Even
after the parties found out about the mistake, the agreement wasn’t cancelled.
It was only cancelled when they found another ship. Thus, the time and
distance were qualities of subject matter and not a substance of subject matter.
 Mistake as to nature of promise-
 o Doctrine of non est factum- signature on a contract signed by mistake. This
applies if the deed signed for is different from what the party intended to sign
for.
o Foster v. Mackinnon – A blind man or a person who can’t see well or any non-
negligent person has a contract read to him, and such contract is misread it and
he signs it. Signature obtained would be of no force. This is not due to fraud
but because the mind of the person did not accompany the signature.
o Hartog v. Colin and Shields – in a contract for the trade of hare skins, it was
written per pound instead of per piece and the previous negotiations had been
per piece. As the offer was wrongly expressed, held it could not have possibly
carried the intention.

DISCHARGE OF CONTRACT

 So, sir just read some sections in the first two classes, i.e., section 37 to 58. I’ll copy
paste them read off once.
 S. 37. Obligation of parties to contracts. The parties to a contract must either perform,
or offer to perform their respective promises, unless such performance is dispensed
with or excused under the provisions of this Act, or of any other law. Promises bind
the representative of the promisors in case of the death of such promisors before
performance, unless a contrary intention appears from the contract.
 S. 38. Effect of refusal to accept offer of performance. Where a promisor has made an
offer of performance to the promisee, and the offer has not been accepted, the
promisor is not responsible for non-performance, nor does he thereby lose his rights
under the contract. Every such offer must fulfil the following conditions —
(1) it must be unconditional;
(2) it must be made at a proper time and place, and under such circumstances that the
person to whom it is made may have a reasonable opportunity of ascertaining that the
person by whom it is made is able and willing there and then to do the whole of what
he is bound by his promise to do;
(3) if the offer is an offer to deliver anything to the promisee, the promisee must have
a reasonable opportunity of seeing that the thing offered is the thing which the
promisor is bound by his promise to deliver. (the offer of performance is also called
the tender of performance)
 Section 39 is the effect of refusal of party to perform the promise wholly.
 S. 40. Person by whom promise is to be performed. — If it appears from the nature of
the case that it was the intention of the parties to any contract that any promise
contained in it should be performed by the promisor himself, such promise must be
performed by the promisor. In other cases, the promisor or his representative may
employ a competent person to perform it.
 S. 41. Effect of accepting performance from third person. — When a promisee
accepts performance of the promise from a third person, he cannot afterwards enforce
it against the promisor.
 S. 42. Devolution of Joint liabilities. When two or more persons have made a joint
promise, then, unless a contrary intention appears by the contract, all such persons,
during their joint lives, and, after the death of any of them, his representatives jointly
with the survivor or survivors, and, after the death of the last survivor, the
representatives of all jointly, must fulfil the promise. If they have another term
whereby a different rule applies in case of death of any promisor then this section will
not apply.
 S. 43. Any one of joint promisors may be compelled to perform. When two or more
persons make a joint promise, the promisee may, in the absence of express agreement
to the contrary, compel any (one or more) of such joint promisors to perform the
whole of the promise.
Each promisor may compel contribution. Each of two or more joint promisors may
compel every other joint promisor to contribute equally with himself to the
performance of the promise, unless a contrary intention appears from the contract.
Sharing of loss by default in contribution. If any one of two or more joint promisors
makes default in such contribution, the remaining joint promisors must bear the loss
arising from such default in equal shares.
Explanation- Nothing in this section shall prevent a surety from recovering, from his
principal, payments made by the surety on behalf of the principal, or entitle the
principal to recover anything from the surety on account of payments made by the
principal.
 S. 44. Effect of release of one joint promisor. Where two or more per sons have made
a joint promise, a release of one of such joint promisors by the promisee does not
 discharge the other joint promisor or joint promisors; neither does it free the joint
promisor so released from responsibility to the other joint promisor or joint promisors.
 S. 45. Devolution of joint rights. When a person has made a promise to two or more
persons jointly, then, unless a contrary intention appears from the contract, the right to
claim performance rests, as between him and them, with them during their joint lives,
and, after the death of any of them, with the representative of such deceased person
jointly with the survivor or survivors, and after the death of the last survivor, with the
representatives of all jointly. Very similar to section 42.
 S. 46. Time for performance of promise, where no application is to be made and no
time is specified. Where, by the contract, a promisor is to perform his promise without
application by the promisee, and no time for performance is specified, the engagement
must be performed within a reasonable time.
 S. 47. Time and place for performance of promise, where time is specified and no
application to be made. When a promise is to be performed on a certain day, and the
promisor has undertaken to perform it without application by the promisee, the
promisor may perform it at any time during the usual hours of business on such day
and at the place at which the promise ought to be performed.
 S. 48. Application for performance on certain day to be at proper time and place.
When a promise is to be performed on a certain day, and the promisor has not
undertaken to perform it without application by the promisee, it is the duty of the
promisee to apply for performance at a proper place and within the usual hours of
business.
 S. 49. Place for performance of promise, where no application to be made and no
place fixed for performance. When a promise is to be per formed without application
by the promisee, and no place is fixed for the performance of it, it is the duty of the
promisor to apply to the promisee to appoint a reasonable place for the performance
of the promise, and to perform it at such place.
 S. 50. Performance in manner or at time prescribed or sanctioned by promisee.—The
performance of any promise may be made in any manner, or at any time which the
promisee prescribes or sanctions.
 S. 51. Promisor not bound to perform, unless reciprocal promisee ready and willing to
perform. When a contract consists of reciprocal promises to be simultaneously
 performed, no promisor need perform his promise unless the promisee is ready and
willing to perform his reciprocal promise.
 S. 52. Order of performance of reciprocal promises. Where the order in which
reciprocal promises are to be performed is expressly fixed by the contract, they shall
be performed in that order; and where the order is not expressly fixed by the contract,
they shall be performed in that order which the nature of the transaction requires.
 S. 53. Liability of party preventing event on which contract is to take effect. When a
contract contains reciprocal promises, and one party to the contract prevents the other
from performing his promise, the contract becomes voidable at the option of the party
so prevented; and he is entitled to compensation from the other party for any loss
which he may sustain in consequence of the non-performance of the contract.
 S. 54. Effect of default as to that promise which should be first per formed in contract
consisting of reciprocal promises.—When a contract consists of reciprocal promises,
such that one of them cannot be performed, or that its performance cannot be claimed
till the other has been performed, and the promisor of the promise last mentioned fails
to perform it, such promisor cannot claim the performance of the reciprocal promise,
and must make compensation to the other party to the contract for any loss which
such other party may sustain by the non-performance of the contract.
 The previous two sections need to be read with section 57 and 58

Time of performance

 Section 55- . Effect of failure to perform at fixed time, in contract in which time is
essential —When a party to a contract promises to do a certain thing at or before a
specified time, or certain things at or before specified times, and fails to do any such
thing at or before the specified time, the contract, or so much of it as has not been
performed, becomes voidable at the option of the promisee, if the intention of the
parties was that time should be of the essence of the contract.
Effect of such failure when time is not essential.—If it was not the intention of the
parties that time should be of the essence of the contract, the contract does not become
voidable by the failure to do such thing at or before the specified time; but the
promisee is entitled to compensation from the promisor for any loss occasioned to
him by such failure.
Effect of acceptance of performance at time other than that agreed upon.—If, in case
of a contract voidable on account of the promisor's failure to perform his promise at
 the time agreed, the promise accepts performance of such promise at any time other
than that agreed, the promisee cannot claim compensation for any loss occasioned by
the non-performance of the promise at the time agreed, unless, at the time of such
acceptance, he gives notice to the promisor of his intention to do so.
 Section 55- doctrine of time being of essence.
 Time is of essence in three circumstances-
o When parties have expressly agreed to treat is as an essence
o When delay operated as an injury
o When the nature and necessity of the contract requires it to be so construed.
 Bhudra Chandra v. Betts- one party had to deliver his elephant so that it can be used
by the other to catch wild elephants. The elephant had to be delivered on the 1 st. but
the party said that he can’t deliver it on 1 st but will do so on 6th. The other agreed with
th
this. But even on sixth it wasn’t delivered. It was delivered on 11 and the plaintiff
refused to accept it. The court in this case held that time was of essence because the
receiving party had already allowed an extension by being generous to the other party.
 In business matters time is usually of essence- Mahabir Prasad Rungta v Durga
Datt- a transporter contracted with Rungta, a colliery owner, to transport coal from a
colliery to the railway station. The colliery-owner had to keep the road in repair and to
arrange for petrol. He had also to pay for the transportation on the 10th of the next
month. It was alleged that these things were not done in time and, therefore, the
transporter could not go on with his work. The transporter rescinded the contract and
brought an action for damages. It was held that in commercial transactions time is
ordinarily of the essence of the contract. In this contract the time of payment and of
arranging other things was, particularly, such an important condition of the contract
that Section 55 could be invoked by the aggrieved party and the transporter was
entitled to rescind the contract.
 Even for construction contracts, time is usually of essence.
 For sale transactions it is decided on a case-to-case basis.
o China Cotton Exporters v Beharilal Ramcharan Cotton Mills Ltd- The
appellants who carried on an import business at Bombay contracted to supply
to the respondent mill a quantity of Italian staple fibre cotton. The shipment
was to take place in October or November. The contract concluded by the
remark: "This contract is subject to import licence and therefore the shipment
 date is not guaranteed". A part of the goods was supplied and accepted, but the
rest were not supplied in the time mentioned. The buyer wanted to avoid the
contract on this ground. It was held that in spite of the remark that shipment
date was not guaranteed, time was of the essence and the buyer was entitled to
avoid the contract.
 In a contract for the sale of land or immovable property, the Supreme Court has laid
down that "it would normally be presumed that time was not of the essence of the
contract. Mere incorporation in the written agreement of a clause imposing penalty in
case of default does not by itself evidence an intention to make time of the essence".
 The time of performance is of the essence of the contract, any delay will render the
contract voidable at the option of the other party. He may reject the performance and
immediately sue for the breach. But he may at his option accept the delayed
performance. If he does so he cannot afterwards recover compensation for the delay,
"unless, at the time of such acceptance, he gives notice to the promisor of his intention
to do so"
 Kamal Rani v Chand Ram- In a contract for sale of land the vendor wanted payment
to be made within a week, but on the insistence of the vendee, 10 days' period was
agreed upon. The vendee offered money after ten days. The vendor refused. The court
allowed no remedy to the vendee.

Impossibility of performance and frustration

 Section 56 deals with circumstances when a contract is frustrated or there is an

impossibility of performance.
 Frustration is an idea that applies only at the stage of performance of the contract. It is
concerned with supervening impossibility which is beyond the control of the parties.
 Frustration also acts as a defence against breach. The doctrine of frustration is applied
when the contract is created validly but the parties cannot perform their obligations.
Frustration has a very high threshold.
 Frustration applies in two cases of impossibilities: (the same thing is given in the
section also. I’ve copy pasted it below)
o Existing impossibility- there is impossibility when the contract is created. The
contract will be void ab initio.
 o Subsequent impossibility- impossibility creeps up during performance. This
contract becomes void when the act becomes impossible.
 S. 56. Agreement to do impossible act. An agreement to do an act impossible in itself
is void.
Contract to do act afterwards becoming impossible or unlawful. A contract to do an
act which, after the contract is made, becomes impossible, or, by reason of some event
which the promisor could not prevent, unlawful, becomes void when the act becomes
impossible or unlawful.
Compensation for loss through non-performance of act known to be impossible or
unlawful. Where one person has promised to do something which he knew, or, with
reasonable diligence, might have known, and which the promisee did not know, to be
impossible or unlawful, such promisor must make compensation to such promisee for
any loss which such promisee sustains through the non-performance of the promise.
(I’ve just copy pasted the section, read off)
 Initially the courts opined that parties entering into a contract must perform it in any
way whatsoever.
o Paradine v. Jane- concerned itself with the idea of lease agreement. Alien
enemies drove lessee out of the land leased out to him. He thus stopped paying
rent to the owner. The owner sued him for breach. Lessee said that it was
impossible to perform the contract because he could no longer enjoy the land.
The court held that since the lessee had made the contract and created his own
duty, he needs to perform it whatsoever.
 This stand was later changed and courts recognised that there is no breach if the
performance of a contract relies on some other condition that doesn’t work out. It was
held that the above rule is applicable only where the contract is positive and absolute.
o Taylor v. Caldwell- defendants let the plaintiffs use the music hall. The
plaintiffs were to hold a concert here on certain dates. But before the first day
of the concert, the hall was destroyed by fire without the fault of either of the
parties. The plaintiffs sued the defendants for their loss. It was held that the
contract was not absolute, as its performance depended upon the continued
existence of the hall. Therefore, the contract was void.
 In the previous case, the performance was impossible because the subject matter of
the contract had disappeared. But the principle of frustration is not confined to
 physical impossibilities. It extends also to cases where the performance of the contract
is physically possible, but the object the parties had in mind has failed to materialise.
o Krell v. Henry- the king was to be coronated on a particular day and on this
day a procession had to pass in the street. Few people intended to see this
procession from the balconies of buildings that faced this street. For this
reason, they rented out the flats. But on that particular day, the king fell ill and
the coronation and procession thus did not take place. The purpose of renting
the flats with these balconies had gone for a toss. The tenant refused to pay
rent to the owner since he had not seen the procession and the object of renting
the place was to see the procession. It was held that the real object of the
contract, as recognised by both contracting parties, was to have a view of the
coronation procession. The taking place of the procession was, therefore, the
foundation of the contract. The object of the contract was frustrated by non-
happening of the coronation and the plaintiff was not entitled to recover the
balance of the rent. (this case is too weird, sad owner)
 Thus, the doctrine of frustration comes into play in two types of situation, first, where
the performance is physically cut off, and, second, where the object has failed. The
SC of India has identified that section 56 will apply to both the cases. (the next case is
kind of long but important, I copy pasted this from my tutorial notes)
o Satyabrata Ghose v. Mugneeram Bangur and Company- the respondent
company, owned a piece of land which it was going to develop for residential
purposes. (around WWII).it was looking for purchasers and the contracts
entered with them promised that roads would we constructed in the place.
Bijoy entered into agreement to purchase the land. This was done in 5 th of Aug
1939. He was going to pay money, company would develop lands, roads. And
the conveyance will be completed. And while this was being done he would
pay the balance amount. On November 30th 1942, SG was made nominee by
Roy. The Trial court, DC and HC found out this guy SG was an assignee. Now
contract between SG and the company. In the meantime, the collector on Nov
12 passed an order on the basis of which land was taken over for military
purposes. Subsequent orders of requisition was passed and almost all of the
land was taken possession of the purpose. As land had been requisitioned, the
company wrote letters to purchasers that since land was in possession of govt.
 they would not be able to construct roads and houses as were promised and
these would thus be cancelled. They gave 2 options to them: to take back the
money that they had given or the company will complete the contract when
circumstances allow. SG, rejected both options. In trial court they asked court
to order to company to finish the contract as was decided in the beginning and
give the land to plaintiff. TC ruled in favour of plaintiff. DC also upheld this
decision. HC found that because of the orders the present agreement had been
frustrated and ruled in favour of the company. Court interpreted section 56 of
the Indian Contract Act (bone of contention was the second paragraph).
According to the SC, the first paragraph was exactly the same as the position
of law under English law. second paragraph pertained to discharge of contract
when a supervening act occurs. The operative term was “impossible”. They
said that this term didn’t mean physical impossibility or literal impossibility. It
means that when the event happens and this event makes it impractical to go
forward with contract because change in circumstances brought about due the
intervening event had a bearing on the very foundation of the contract. Such
an event would frustrate the agreement. They extended definition of
impossibility. Term frustration and impossibility are often used
synonymously, court found that frustration would come under the purview of
section 56 and we could lie on the English laws as well. SC did not agree with
the first submission. Implied reading of frustration in contracts was allowed
because justice demanded such a thing.
o Parshotam Das v Municipal Committee- A Municipal Committee leased out
certain tonga stands to the plaintiff for Rs5000. But no tonga driver came
forward to use the stand throughout the year and the plaintiff could not realize
anything. He sued for the refund of his money. It was held that "the plaintiff
obtained the lease and the committee granted the same to him on the
assumption that the tonga stands would be used by drivers and the plaintiff
would recover fees from them, but for reasons which both sides could not help
the drivers did not use the stands, the doctrine of frustration applied with full
force".
 An agreement cannot be frustrated just because of the reason that the parties will find
it hard to perform the contract. Even a weakest possibility to perform a contract will
take away the pleas of frustration.
 ' The doctrine of frustration or impossibility does not apply to a situation so as to
excuse performance "where performance is not practically cut off, but only rendered
more difficult or costly. Commercial hardship is not a ground for frustration.
o Gopal Chandra v. Sachindra Nath- a person took a restaurant on lease at a
time when British troops were stationed in the vicinity. Thus, he agreed to pay
a higher rent because he would make profits from the troops. Subsequently,
the region was made out of bounds for the troops. The person said that he
cannot pay the higher price anymore since the contract was frustrated as the
British troops weren’t there anymore. The court held that though it was
possible that the defendant would not have paid such a high rent apart from the
expectation of deriving high profits from the British troops, that was not
sufficient to make out a case of frustration. This person could still enjoy the
land but would only have to work harder or give up some of the money to pay
off the rent.
o A situation like this has been described as one of commercial hardship, which
may make the performance unprofitable or more expensive or dilatory, but is
not sufficient to excuse performance.
o Hurnandrai Fulchand v Pragdas Budhsen- By a contract in writing the
plaintiff bought of the defendants a number of dhotis to be manufactured by
specified mills and to be delivered as and when the same may be received
from the mills. The sellers delivered only part of the goods owing to the mills
failing to perform their contract with the defendants as they were engaged in
fulfilling certain Government contracts. The defendants pleaded frustration.
The Privy Council held that the adventure was not frustrated, as the stipulation
as to delivery did not make delivery by the mills a condition precedent. It was
a simple case of breach. "The closing or even the destruction of the mills
would not affect a contract between third parties, which is in terms absolute.
The contract could’ve been performed by purchasing dhotis from another mill
as well.
 o Ganga Saran v Firm Ram Charan Ram Gopal- A contract was made for
supplying certain bales of cloth manufactured by the New Victoria Mills,
Kanpur. The contract added: "We shall go on supplying goods to you of the
Victoria Mills as soon as they are supplied to us by the said mills." The mill
failed to supply the goods to the sellers and, therefore, the sellers pleaded
frustration. But they were held liable: "The agreement does not seem to us to
convey the meaning that the delivery of the goods was made contingent on
their being supplied to the respondents by the Victoria Mills. We find it
difficult to hold that the parties ever contemplated the possibility of the goods
not being supplied at all. The words 'prepared by the Mills' are only a
description of the goods to be supplied, and the expression 'as soon as they are
prepared' and 'as soon as they are supplied to us by the said Mills', simply
indicate the process of delivery.” There is a possibility to procure cloth from
another mill to perform the contract.
o Samuel Fitz & Co. v. Standard Cotton and Silk Weaving Co- plaintiff placed
an order for goods, that he intended to sell off in the Australian markets. The
defendant was aware of this fact. Just when the goods was going to supplied to
the seller, the Australian government stopped the import of this good. Due to
this the plaintiff refused to accept goods. The court held that the Australian
market was only one of the markets where he could sell the goods. There were
other ways of making the intended profits. Thus, there would only be a
commercial hardship which is not a ground for frustration.
 Frustration will only apply wherein the suffering party can show that there was no
possibility to perform the contract. Frustration is a grave plea and is not usually
granted.

Specific grounds of frustration:

 Subject matter of the contract is destroyed- (like in Taylor v. Caldwell)

o Howell v. Coupland- a farmer agreed to sell the potatoes in his farm. Some
disease attacked the potatoes due to which everything was ruined. He could
not sell anything. The buyer held him for the breach of contract. Farmer pleads
frustration on grounds that subject matter was destroyed. The court held that
since all of the crop was destroyed, he couldn’t have performed the contract.
 Thus, the contract was held to be frustrated due to destruction of subject
matter.
o V.L. Narasu v P.S.V. lyer- cinema hall- one of the walls collapsed. It then
became dangerous for customers. The license was cancelled. Owner was
informed that the license will remain cancelled until the wall is rebuilt. He was
in a contract with a person to play his film. He couldn’t fulfil because wall had
collapsed. He pleaded for frustration. The court held that the owner could take
any amount of time to rebuild his wall. The cinema hall was a subject matter
that had been destroyed and when the subject matter was destroyed the
contract was frustrated.
o Ghee Seng Motor v Ling (Malaysian case)- a contract for carriage of goods
by sea, a vessel sank with cargo. There was evidence to show that the vessel
had started taking in water. When the vessel was discovered to be tilting, the
water in the bilge was pumped out but no action was taken to go to the nearest
port to have the vessel berthed and the condition of the vessel checked. Instead
of that, after pumping out water, the vessel attempted to continue on its course.
The court said that the sinking of the vessel could not be described as an
inevitable accident. Reasonable care had not been taken to prevent the sinking
of the vessel. The defence of frustration failed.
o If the destruction of the subject matter is avoidable, the destruction of the
subject matter cannot be a ground for the plea of frustration.
 Change of circumstances- a contract will frustrate where circumstances arise which
make the performance of the contract impossible in the manner and at the time
contemplated.
o Pameshwari Das Mehra v Ram Chand Om Prakash- American goods were
to be delivered to Karachi. Goods delivered after a delay, purchaser in Karachi
refused to accept because it was late and the quantity and quality do not match
expectations. An arbitration clause was invoked by one of the parties. The
other said that the clause cannot be invoked due to change of circumstances
i.e., due to partition. The court said that for arbitration, the arbitrator need not
necessarily travel to Pakistan. It was not essential for the arbitration to take
place physically. The postal service wasn’t suspended. Thus, an arbitration can
happen through post. This contract was not frustrated.
 o Alopi Parshad & Sons Ltd v Union of India- The plaintiffs were acting as the
agent to the Government of India for purchasing Ghee for the use of army
personnel. They were to be paid on cost basis for different items of work
involved. The performance was in progress when the Second World War
intervened and the rates fixed in peace time were entirely superseded by the
totally altered conditions obtaining in war time. The agents demanded revision
of rates but received no replies. They kept up the supplies. The Government
terminated the contract in 1945 and the agents claimed payment on enhanced
rates. But they could not succeed. "Ghee having been supplied by the agents
under the terms of the contract, the right of the agents was to receive
remuneration under the terms of that contract."
o Davis Contractors Ltd v Fareham Urban Distt Council. A contractor was
given a responsibility to construct houses for council. Due to bad weather and
strikes it took 22 months for him to complete it instead of 18 months. He
incurred additional costs and claims that the contract was frustrated due to bad
weather but he still performed it because of which he needs to get the extra
amount. The court in this case said that due to strikes and bad weather he took
extra time to perform his duty under the contract. It was not completely
impossible for him to perform the contract. Due to this possibility of
completion, there is no frustration. But he only met some commercial hardship
which is not a ground for frustration. The contractor will only get the
contractual amount and not the additional amount.
 Non-occurrence of the contemplated event- if an event whose occurrence is of prime
importance to the contract, doesn’t occur, then the contract is said to be frustrated.
Like in Krell v. Henry
o Herne Bay Steam Boat Co v Hutton- a particular person, for the King’s
coronation and the Naval review, hired a steam boat for 2 days to take paying
people to view the Naval review and for a day’s cruise. The Naval review was
cancelled. This man said that the contract is frustrated and he cannot pay for
the steam boat. The court rejected the plea of frustration saying the once the
steam boat was hired and some paying passengers were to be taken for a
cruise, the Naval review was not the only contemplated event. The boat could
 still take the people on cruise and the contract could be performed. Again, he
would make less money, but commercial hardship is not a ground.
 Death or incapacity of the party- A party to a contract is excused from performance if
it depends upon the existence of a given person, if that person perishes or becomes too
ilh to perform. Thus, where the nature or terms of a contract require personal
performance by the promisor, his death or incapacity puts an end to the contract.
o Robinson v. Davison- There was a contract between the plaintiff and the
defendant's wife, who was an eminent pianist, that she should play the piano at
a concert to be given by the plaintiff on a specified day. On the morning of the
day in question she informed the plaintiff that she was too ill to attend the
concert. The concert had to be postponed and the plaintiff lost a sum of
money. The plaintiff's action for breach of contract failed. The court said that
under the circumstances she was not merely excused from playing, but she
was also not at liberty to play, if she was unfit to do so. The contract was
clearly subject to the condition of her being well enough to perform: The
whole contract is based on the assumption of the continuance of life, and on
the conditions which existed at the time. That assumption is made by both; it
is really the foundation of the contract. It does not require close reasoning to
prove that if the foundation fails, the whole contract must fail. Here the
foundation was wanting for there was on Mrs Davison's part an entire and total
incapacity to do the thing contracted for.
o Morgan v Manser- a person had entered into a service contract for 10 years.
Under this contract he said that he shall not undertake any professional
engagement during the currency of the contract. But before the expiry of 10
years, this person was called to serve in the army during war. After he came
back from war, he engaged in some other work and refused to engage with the
initial service. The initial employer sued him for breach. The court held that
the contract was frustrated when the person was called to serve in the military
forces. Thus, he cannot be held liable for breach.
o Storey v Fulham Steel Works Co Ltd- 5 year contract was entered into
between employer and employee. After 2 years, the employee fell ill and could
not perform his duties. He took a leave for 5 months. During this leave the
employer fired him. Employee sued him for breach. The employer said that
 the contract was frustrated when he took a leave for 5 months since the work
required his skill. The court held that a leave of 5 months on account of illness
does not amount to frustration.
 Government, administrative or legislative intervention- A contract will be dissolved
when legislative or administrative intervention has so directly operated upon the
fulfilment of the contract for a specific work as to transform the contemplated
conditions of performance.
o Metropolitan Water Board v Dick Kerr & Co Ltd- a firm was given a task of
building a water tank within 6 months. While it was being built, an order was
passed by the military that the work needs to be stopped. The firm claimed
frustration. The court said that, in this contract, the term “within 6 months”
was important. It was impossible to finish the construction within 6 months
after the intervention of the army. Thus, there was a frustration of the contract.
o Satyabrata Ghose v Mugneeram Bangur & Co (this case was there before
but this summary is better)- defendants raised a scheme for development of a
residential area. Plaintiff had paid money for the same. While laying down
pipes and planning, the second world war broke out, and the army troops had
to be station at this place. The defendants claimed that due to this reason the
contract was frustrated. The court in this case asked if there was a definite
time limit within which it had to be complete. The answer was a no. there was
nothing obstructing the completion after the troops left and the war was over.
Thus, it was held in this case that the contract was not frustrated.
o Naihati Jute Mills Ltd v Khyaliram Jagannath- There was an agreement to
purchase raw jute to be imported from East Pakistan (now Bangladesh). The
buyer was to supply the import licence within November, failing which it was
to be supplied within December at the pain of a little more price and if he
failed in December he was to pay the difference between the contract and
market prices. The buyer applied for a licence which was refused because he
had stock in his mill sufficient for two months. He applied again. He was
advised this time that the rules had been changed and to obtain a licence he
must show that he had used an equal quantity of Indian jute. Thus, the buyer
failed to supply the licence and was sued for breach. He pleaded frustration
caused by the change in Government policy. The court here said that
 frustration depends on the terms of the contract. If the intention of the parties
was to do their best to the license and the sale was subjected to getting the
import license, then the contract was frustrated, but in this case the person has
said that a difference amount would be paid in case he doesn’t receive the
license. Thus, the court held that there was no frustration since the party had
taken the burden to fulfil the contract.
 Intervention of war-
o Tsakiorglou & Co Ltd v. Noblee & Thorl GMBH- agreement to sell
groundnuts from Sudan to Hamburg. Generally used to happen through the
Suez Canal. War broke out and this canal was closed and the sale couldn’t
happen. The party that had to sell the groundnuts pleaded for frustration. The
court examined if there was any other route that the ship could have taken to
deliver the goods. The plaintiffs claimed that they had the whole sea. It wasn’t
commercially practical but it was possible. Thus, the court said that the
contract was not frustrated.
o Twentsche Overseas Trading Co Ltd v Uganda Sugar Factory Ltd-
agreement to purchase “Krupps” steel rails. Contract said that only this
company stell rails were required. Before this could be performed WWII
broke out. Thus, trade couldn’t happen with Germany since it was an enemy
nation. Buyer held seller for breach. The court held that the buyer was
expecting the quality of rails to be same as that of Krupps steel rails. They did
not require the specific identity of Krupps. The seller could have gotten the
same kind of rails from some other country and finished the performance of
contract. There was no frustration.

So, sir didn’t cover application to leases and theories of frustration, I’m also skipping that.

Effects of frustration

 Frustration should not be self-induced-

o Maritime National Fish Ltd v Ocean Trawlers Ltd- The appellants hired the
respondent’s trawler called the "St. Cuthbert" to be employed in fishing
industry only. Both parties knew that the trawler could be used for that
purpose only under a licence from the Canadian Government. The appellants
 were using five trawlers and, therefore, applied for five licences. Only three
were granted and the Government asked the appellants to name three trawlers
and they named trawlers other than the St. Cuthbert. They then repudiated the
charter and pleaded frustration in response to the respondents' action for the
hire. The judicial Committee of the Privy Council held that the frustration in
this case was the result of the appellants' own choice of excluding the
respondents' ship from the licence and, therefore, they were not discharged
from the contract.
 Frustration operates automatically-
o Frustration operates automatically to discharge the contract irrespective of the
individuals concerned, their temperaments and failings, their interest and
circumstances.
o HR & S Sainsbury Ltd v Street- There was the sale of 275 tons (5 per cent
more or less) of feed barley to be grown on seller's land. The crop amounted to
only 140 tons. The seller resold it to another and contended that he had the
right to do so because the contract had ended by frustration. But he was held
liable for breach of contract. There was frustration only to the extent of crop
failure. The buyer could waive it and claim delivery of whatever little crop the
seller's land had produced.
 Adjustment of rights-
o S. 65. Obligation of person who has received advantage under void agreement,
or contract that becomes void. When an agreement is discovered to be void, or
when a contract becomes void, any person who has received any advantage
under such agreement or contract is bound to restore it, or to make
compensation for it, to the person from whom he received it.
o Jagadish Prasad Pannalal v Produce Exchange Corporation Ltd.- there was
a contract for the sale of one wagon of maize starch at the rate of Rs77 per
cwt., the control price being Rs78. The goods were delivered on January 3 and
paid for. A few days earlier, viz. on December 16, a new order was passed by
the Government making Rs48 as the price and this was to apply to all
contracts in which delivery was to be given on or after January 1. The buyer
brought an action to recover the difference between the revised control price
and the price he paid. The court agreed with him to this extent that the contract
 had become void by the change in the control price and, therefore, neither
party was compellable to perform, but that the buyer, having paid up, was not
entitled to any refund under Section 65. For this section to apply the advantage
must have been received under "contract", whereas, in the present case, the
excess price was paid after the contract had already become void and ceased to
be enforceable.

Doctrine of Pari Delicto

 If two parties enter into a contract and both the parties are to be blamed equally for
the frustration, then there is no restitution and claims of parties under section 65 will
not be heard.
 Onkarmal v Banwarilal- The principle behind the doctrine of pari delicto is that
where each party is equally at fault, the law favours him who is actually in possession,
or that where both parties are equally culpable, the law will leave them where it finds
them and will not engage itself to determine the rights as between them
 The doctrine is attracted only when none of the parties is a victim and both parties
have voluntarily and by their free will joined hands to flout the law for their mutual
gain.

Appropriation of payments

 S. 59. Application of payment where debt to be discharged is indicated. Where a

debtor, owing several distinct debts to one person, makes a payment to him, either
with express intimation, or under circumstances implying, that the payment is to be
applied to the discharge of some particular debt, the payment, if accepted, must be
applied accordingly.
 S. 60. Application of payment where debt to be discharged is not indicated. Where the
debtor has omitted to intimate, and there are no other circumstances indicating to
which debt the payment is to be applied, the creditor may apply it at his discretion to
any lawful debt actually due and payable to him from the debtor, whether its recovery
is or is not barred by the law in force for the time being as to the limitation of suits.
 S. 61. Application of payment where neither party appropriates. Where neither party
makes any appropriation, the payment shall be applied in discharge of the debts in
order of time, whether they are or not barred by the law in force for the time being as
 to the limitation of suits. If the debts are of equal standing, the payment shall be
applied in discharge of each proportionately

Assignment of contracts

 If personal skill and confidence is a pillar on which the contract stands, it cannot be
assigned.
 Kemp v Baerselman- The defendant agreed to supply a cake manufacturer with all the
eggs that he might require for a year and the latter was not to purchase elsewhere.
Deliveries were to be made at three different places and payment was to be by
drawing bills of exchange on the manufacturer. The manufacturer's business was
taken over by a company in which he was the principal shareholder, but even so the
defendant refused to continue with the supplies. It was held that the contract, being of
personal nature in that it involved the personal creditworthiness of the buyer as to the
mode of payment, was not capable of being assigned.

Discharge by agreement

 S. 62. Effect of novation, rescission and alteration of contract. — If the parties to a

contract agree to substitute a new contract for it, or to rescind or alter it, the original
contract need not be performed.
 Novation- both the parties agree to replace the old contract with a new one. Alteration
to such an extent that the whole contract is renewed.
o Novation is of two kinds: change of parties and substitution of the whole
contract.
o Kumar Nagendra Brijraj Singh v Hindustan Salts Ltd - The petitioner was
appointed in response to an advertisement but placed at a lower scale than that
mentioned in the advertisement. He accepted his placement. He then claimed
the promised pay scale. He was not allowed to do so. The principle of
novation applied. The appointment and acceptance at the lower scale
substituted the original proposed scale.
o Manohur Koyal v Thakur Das Naskar- The plaintiff sued to recover the sum
of Rs 1173 due on a bond. After the due date of the bond, the plaintiff agreed
to accept Rs400 in cash and a new bond of Rs 700 payable by instalments.
Subsequently, the defendant neither gave Rs400 nor the bond. The plaintiff
thereupon sued him on the original bond. The Calcutta High Court held that
 the original contract was discharged, not by novation, but by breach, and the
plaintiff was entitled to sue for the breach of the original contract.
 Remission of performance- S. 63. Promisee may dispense with or remit performance
of promise. Every promisee may dispense with or remit, wholly or in part, the
performance of the promise made to him, or may extend the time for such
performance or may accept instead of it any satisfaction which he thinks fit.
o The effect of the provision is that the party who has the right to demand the
performance of a contract may— (1) remit or dispense with it, wholly or in
part; or (2) extend the time for performance; or (3) accept any other
satisfaction instead of performance
o Charles Rickards Ltd. v. Oppenheim- agreement to procure chassis and build
a car on it. Party who had to procure it was not an expert so he allowed
someone else to do it on his behalf. Here, time was of essence, but an
extension was granted. When there was a delay for a long time, a letter was
sent that it needs to be delivered within 4 weeks. But it was delivered after 3
months. The buyer refused to accept it. The court in this case said that time
was of essence initially but when the extension was granted, he gave up the
right but he revived this right when the letter was sent. Thus, time was of
essence and there was a breach.
 Accord and satisfaction- The accord is an agreement made after breach whereby
some consideration other than his legal remedy is to be accepted by the party not in
fault, followed by performance of the substituted consideration. The liability arising
out of breach of contract may be discharged by accord and satisfaction.
 S. 67. Effect of neglect of promisee to afford promisor reasonable facilities for
performance. — If any promisee neglects or refuses to afford the promisor reasonable
facilities for the performance of his promise, the promisor is excused by such neglect
or refusal as to any non-performance caused thereby.
 Ellon v. Topp- An infant was placed by his father under a master to learn his three
trades. Subsequently the master gave up one of his trades. The apprentice gave up his
training for that reason. The master sued for breach. The court came to the conclusion
that the contract was on the basis of picking up three trades and the abandonment of
one would not leave it to be the same contract. "If the master is not ready to teach in
the very trade which he has stipulated to teach, the apprentice is not bound to serve.
DISCHARGE BY BREACH

 A breach of contract occurs when a party thereto renounces his liability under it, or by
his own act makes it impossible that he should perform his obligations under it or
totally or partially fails to perform such obligations.
 After breach, primary obligations are suspended and secondary obligation to pay
damages arise.
 The breach is of two kinds:
o Anticipatory breach- anticipatory that I cannot perform the contract and I
communicate the same to the other party.
o Present breach- breach on the date of performance

Anticipatory breach

 Communicated to the other party by the breaching party before the date of
performance. Communication by way of notice of repudiation.
 When such a repudiation is made, the other party is excused from performance or
from further performance.
 The other party may not be under the obligation to accept the notice of repudiation
and may continue with the contract.
 The injured party has two options- either to accept the repudiation and sue
immediately or to wait till the date of performance.
 When the repudiation is accepted, the contract comes to an end and the parties are
discharged.
 Hochester v. De La Tour- a party of travellers approached the tour guide to guide
them tour. Tour guide agreed to help. Few months before the travel, the travelling
party said that they won’t be travelling. The tour guide filed a case for breach. The
travelling party defended by saying that they had still not reached the date of travel
and must be given time till then. The court held that, once a party has communicated
the repudiation of contract, they do not get the advantage of waiting till the date of
performance. The fact that the notice was sent was evident of the fact that they would
breach the contract and the tour guide had accepted repudiation and sued them for
breach.
 if the injured party does not accept the repudiation and keeps the contract open, the
obligations still exist under the contract.
 Forcometal SARL v. Mediterranean Shipping Co- a person was asked to take cargo
from a port. Ship owner, a month before the cargo had been taken, told the person that
he wouldn’t be available on that particular day. The person did not accept the
repudiation. On the day of the performance, the ship owner managed to come but the
person who had to take the cargo didn’t come. Thus, the ship owner filer a case. The
person said that since the repudiation was communicated, he was discharged of his
obligations. But the court held that, since the repudiation was not accepted, the ship
owner had performed his duty and the obligation still existed. Thus, the person had
breached the contract.
 The acceptance of repudiation must be made clear to the repudiating party. It need not
be in the language of acceptance. It is sufficient that the communication or conduct
clearly conveys that the repudiation is accepted.
 If while the contract is lying open, some event happens which discharges the contract
otherwise than by repudiation, for example, by supervening impossibility or
frustration, the promisor would also be entitled to take the advantage of changed
circumstances.
 Avery v. Bowden- the captain of a ship reached the port and asked the other party to
load the ship. The party said that they did not have enough load and that the captain
must go. The captain refused to go. Before the date of performance, war broke out and
on the date of performance it was illegal to load the ship, and the other party couldn’t
load it. Therefore, the court in this case held that the captain had not accepted
repudiation and was waiting for performance. But due to the war, the contract was
frustrated, therefore, there was no breach of contract by the party.
 the repudiation of the contract by one of the parties does not itself discharge it.
 When the anticipatory repudiation is accepted, the damages for breach would be
assessed at the time when repudiation takes place.
 What amounts to repudiation?
o Maple Flock Co Ltd v Universal Furniture Products- a contract for the
supply of 100 tons of flock of Government standard to be delivered by
instalments, the sixteenth delivery was below the standard and the buyer
attempted to treat this as a repudiation, but the court held that the seller's
conduct did not show an intention to throw away the contract and, therefore,
the buyer should have to be content with damages for defective goods.
 o The court came up with an objective test under this case: irregularity will
amount to repudiation if:
 The ratio of irregularity holds the contract as a whole
 The degree of probability or improbability that such an irregularity will
occur is high
 S. 39. Effect of refusal of party to perform promise wholly. When a party to a contract
has 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.
o If one party has refused to perform the contract by send a notice of
repudiation, the contract becomes voidable at the option of the other party.
 Does partial failure go to the root?
o Juggilal Kamlapat v Pratapmal Rameshwar- There was a contract for the
sale of B Twill and Hessian deliverable in the months of April, May and June.
April and May quota of B Twill and April quota of Hessian were delivered
and they were accepted and paid for by the buyer. For the rest the sellers sent
to the buyer’s delivery orders on certain mills asking them to take goods
directly from the mills. The orders reached the buyers through the hands of
several middlemen. They contained conditions different from the contract and
required the buyer to take goods subject to the conditions imposed by the
mills. The buyer refused to accept. The court held that the sellers were in
breach of their contract. There was breach since the sellers themselves had to
deliver it according to the terms of the contract.
 Aggrieved party’s liability to restitution- The aggrieved party may, after putting an
end to the contract, bring an action for damages for breach, but he will be bound
under Section 64 to restore to the other party the benefits he might have received
under the contract.
 Muralidhar Chatterjee V International Film Co Ltd- The defendants, a firm of film
importers, agreed with the plaintiffs to supply them films at the rate of about one in a
month. The plaintiffs were to pay them a fixed amount for rent and, of course, some
other charges. One film was supplied and a sum of Rs2000 Was paid against it, but on
account of exhibition difficulties, the film was returned to the defendants.
Subsequently another sum of Rs2000 was paid against which no film was supplied.
 The plaintiffs wrote to the defendants that on account of delay and breach of contract,
all business dealings would be stopped. The defendants accepted this repudiation and
plaintiffs sued them for the refund of their money. The money was paid by the
plaintiff in part discharge of the consideration or to become due to them from him
under the contract. It was a benefit or advantage received under the contract which the
defendants were bound to restore, though they may set off against the plaintiff's claim
such damage as they had sustained. The fact that the money had been spent by the
defendants for the purposes of the contract was wholly immaterial."
 If there is an anticipatory breach, the aggrieved party can claim damages under
section 64 and 73.

Why are damages granted?

 Restitution has an effect of restoring the parties into a position in which they would
have been if the contract would not have been created at all.
 Damages have an intent of pushing the suffering party into a position in which the
party would have been if the contract was performed duly.
 Damages- to restore a party into a position as far as money can do. This is called the
Robinson v. Harman principle.

Damages for breach

 Burden lies on the injured party to prove loss while claiming for damages.
 Every action for damages raises two problems: remoteness of damage and measure of
damage.
 The consequences of a breach maybe endless, but there must be an end to liability.
There must be a limit to liability beyond which the damage is too remote and
irrecoverable.
 Hadley v Baxendale- The plaintiffs carried on an extensive business as miller. Their
mill was stopped by a breakage of the crankshaft by which the mill was worked. The
defendants, a firm of carriers, were engaged to carry the shaft to the manufacturers as
a pattern for a new one. The plaintiffs' servant told the defendants that the mill was
stopped, and that the shaft must be sent immediately. But the defendants delayed the
delivery by some neglect, and the consequence was, that the plaintiffs did not receive
the new shaft for several days after they would otherwise have done. The action was
brought for the loss of profits which would have been made during the period of the
 delay. On the basis of this principle the defendants were held not liable for the loss of
profits, because in the great multitude of cases of millers sending off broken shafts for
repair, it does not follow in the ordinary circumstances that the mill is stopped. Even
though it was pointed out that the mill was stopped there could have existed several
reasons for the stopping of the mill. The fact that the mill was out of action for want
of the shaft was a special circumstance affecting the plaintiff's mill and the same
should have been pointed out to the defendants in clear terms. It should also have
been communicated that the plaintiffs would have suffered unreasonable loss by way
of delay
 The case above laid down two rules for deciding the case:
o defendant is liable for all that which naturally happens in the usual course of
things after the breach
o Special damages are those which arise on account of the unusual
circumstances affecting the plaintiff. They are not recoverable unless the
special circumstances were brought to the knowledge of the defendant so that
the possibility of the special loss was in the contemplation of the parties.
 There can be no recovery of damages when special damages are not known. (Horne v
Midland Railway Co).
 If the special circumstances are already within the knowledge of the party breaking
the contract, the formality of communicating them to him may not be necessary.
o Simpson v London & North Western Railway Co- The plaintiff was in the
habit of exhibiting samples of his implements at cattle shows. He delivered his
samples to the defendant company for consignment to the show grounds at
New Castle. The consignment note said: "must be at New Castle on Monday
certain". But no mention was made of the intention to place the goods in the
exhibition. On account of negligence the goods reached only after the show
was over. But as the company was already aware of the object of carrying the
goods there, the plaintiff was allowed to recover not only the loss of freight
but also the profits he would have made by placing the goods at the show.
 Victoria Laundry (Windsor) Ltd v Newman Industries Ltd- A firm of launderers and
dyers wanted to expand their business and, therefore, ordered with the defendants for
the supply of a boiler of much greater capacity. The defendants agreed to deliver on
June 5, 1946, but delayed delivery until November 8. The plaintiffs claimed as
 damages the loss of profits which would have been earned if their business was
expanded in time as there were at the time unique business opportunities. The court
allowed £110 as general damages but disallowed loss of profits. On appeal the case
was referred to an official referee to determine what damages, in addition to £ 110,
should be allowed on the basis of the knowledge then possessed by the parties.
Asquith J said "that no supplier who has promised delivery of a boiler of an unusually
large size by a particular date, with knowledge that it was to be put into use
immediately on delivery can reasonably contend that he could not foresee that loss of
business would be likely to result from the delay"
 Section 73 of the ICA takes into account both the rules laid under Hadley v.
Baxendale. S. 73. Compensation for loss or damage caused by breach of contract.
When a contract has been broken, the party who suffers by such breach is entitled to
receive, from the party who has broken the contract, compensation for any loss or
damage caused to him thereby, which naturally arose in the usual course of things
from such breach, or which the parties knew, when they made the contract, to be
likely to result from the breach of it. Such compensation is not to be given for any
remote and indirect loss or damage sustained by reason of the breach.
Compensation for failure to discharge obligation resembling those created by
contract. When an obligation resembling those created by contract has been incurred
and has not been discharged, any person injured by the failure to discharge it is
entitled to receive the same compensation from the party in default, as if such person
had contracted to discharge it and had broken his contract.
 Madras Railway Co V Govinda Rau- a tailor delivered a sewing machine, clothes to
the Railway Company to deliver at a place where he would sell it at a higher price to
make profit. The Railway Company delivered it late the tailor sought compensation
for transport, damages for staying there and for not selling the machine. The court in
this case held that the damages claimed were too remote. The fact that it was being
sent to the festival to make profits falls under special knowledge which had to be
specifically mentioned
 Since works and building contracts are undertaken only with a view to earning profits,
the party committing the breach would be liable for the con tractor's loss in terms of
expected profits.
Measure of damages

 Claim for damages is not debt owed to the claiming party. It only becomes debt once
a court awards damage.
 The primary aim or principle of the law of damages for a breach of contract is to place
the plaintiff in the same position he would be in if the contract had been fulfilled, or to
place the plaintiff in the position he would have occupied had the breach of the
contract not occurred. When this is accomplished, the primary aim or principle of the
law of damages has been fulfilled
 Robinson v Harman- The defendant, having agreed to grant a lease of a certain
property to the plaintiff, refused to do so. The court allowed the plaintiff by way of
damages the expenses incurred by him on the preliminary legal work and also for the
profits which he would have earned if the lease had been granted to him.
 Radford v De Froberville- Radford owned two adjacent blocks of land. He sold one
to de Froberville on the condition that she build an expensive brick wall on the
boundary. She failed to build the wall, and resold her property to a third party. Radford
sued de Froberville for damages for breach of contract. He claimed the cost of actually
constructing the promised brick wall. De Froberville argued that Radford was only
entitled to be compensated for the reduction in the value of Radford's property as a
result of her failure to build the wall. This was less than the cost of actually building
the wall. Issue: What was the appropriate measure of damages? Decision: Radford
was entitled to claim damages equal to the cost of actually constructing the wall.
Reason: The objective of an award of damages is to put the non-defaulting party in
the position he would have occupied had the breach of contract not occurred. If de
Froberville had performed the contract, the wall would have been built, and it was the
cost of this that Radford was entitled to claim.
 Ruxley Electronics and Construction Ltd v Forsyth, Ruxley agreed to build a
swimming pool at Forsyth’s home. The contract specified the depth of the pool was to
be seven feet and six inches. Ruxley completed the pool to a depth of six feet and nine
inches. Forsyth brought an action for breach of contract, claiming the cost of
rebuilding the pool to the specified depth. Ruxley argued the pool was still safe for
diving despite the breach and Forsyth had not, therefore, suffered any damage in
terms of a loss to the value of his home. Given the cost of re-building the pool was
£21,560, it would be wholly unreasonable and disproportionate to the loss Forsyth had
 suffered in not having the pool at his desired depth. He further contended that Forsyth
had no actual intention of having the re-building work conducted and, therefore, he
had not suffered any loss. Forsyth argued that Ruxley had failed to perform his
specific obligations under the contract and he should, therefore, be entitled to
damages which would place him in the position he would have been in had the
obligations been appropriately performed. He asserted it was irrelevant whether he
chose to use the damages for the re-building work. Forsyth could not recover the cost
of re-building because this would be totally out of proportion to the loss he had
suffered. He could recover £2,500 for loss of amenity but the law must cater for cases
where full performance of the promise would vastly exceed the loss which had truly
been suffered. The pool was, in fact, worth no less because of the breach but to award
nothing would render the contractual promise illusory, and so a nominal award was
appropriate.
 Golden Strait Corporation v Nippon Yusen Kubishika Kaisha- (golden victory
case)- a charter party (agreement wherein an agreement is entered into with a ship
owner to transport goods from one place to another) which was entered into for 7
years. After 3 years of charter party, the defendant repudiated transaction. They thus
breached the contracted. One of the terms of the charter party said, in case the gulf
war breaks out during the charter party continuance, the agreement will automatically
come to an end or either of the parties can repudiate the contract without any claim for
damages. (Iran war 2007). 15 months after the defendants repudiated the charter
party, the gulf war broke out. The question was: should damages be granted for the
remaining four years of the charter party or for 15 months, because anyway it would
have come to an end in 15 months. Majority said that damages should be granted only
for 15 months because the purpose of damages is to restore the party into a position in
which they would’ve have been if the contract was duly performed. Even if it was not
repudiated, the agreement would have eventually come to an end at the onset of the
gulf war. So, they said that the loss was for 15 months and not 4 years.
But one of the arguments was that if loss is granted only for 15 months, then it does
away with the principle of certainty in the commercial world. Otherwise, how will the
parties be certain of what they will get.
The response of the court- certainty in commercial world is a value. Whereas, when
we look at Robinson case, which is to restore a party… is a principle of damages or
commercial law. And wherever there is conflict of value and principle at least in the
 legal domain, the value should give leeway to the principle. Although there is a
conflict in this case, the principle is given priority and 15 months of damages is
granted.
Dissenting judge- entire 4 years should be given. This 15- month thing came into play
because litigation was extended and now the court knows that the gulf war broke out.
But the obligation to pay damages arose when the contract was repudiated i.e., when 4
years were remaining.
Principle triumphs over values at least in legal parlance.

The principles of limitations for measuring damages are:

 Remoteness
 Principle of directness/ test of intervening cause
 Mitigation

Principle of directness- only for those losses that are directly attributable to the breach and
remedy will be granted for losses that emanate directly due to breach.

 Quinn v. Burch & Bros.- a particular person was engaged in the business where he
had to climb a ladder. Subsequently, the ladder broke and he gave it to one contractor
for repairs. Since, the contractor was taking time to repair, he use an unfooted trestle
for his work. He fell off the trestle and hurt himself. He filed case to claim damages
against the contractor. The court said that breach of contract is not something which
can be understood for a cause of action to grant damages for injury. The person
hurting himself was due to him using an unsuitable equipment and this was not
suggested by the contractor. Thus, this was an intervening cause between the breach
and the injury. There was indeed a breach but the consequence was not direct.

Mitigation of damages

 Section 73 provides the duty to mitigate damages.

 The loss is always ascertained at the date of breach.
 If a person has suffered loss and there is a possibility to reduce the loss due to breach,
the court will ask the person if the possibility was explored and exercised. If a
possibility existed and the person didn’t exercise, the court will mitigate the damages
that he claims.
  Brace v Calder- on account of the retirement of two out of four partners, a partnership
firm was ended and with it the services of the manager but the remaining two partners
reconstituted the firm and offered him employment on identical terms which he
refused to accept and instead brought an action for damages, it was held that he
should" have accepted the employment in mitigation of his loss and that he was
entitled to nominal damages only.
 British Westinghouse Electric & Mfg Co v Underground Electric Railway Co of
London- the defendants had asked plaintiffs to repair certain turbines. The turbines
were not properly repaired and couldn’t perform their function. Defendants purchased
new turbines which were more efficient than the old turbines if they were repaired
properly. The defendants had not paid money to the plaintiff for repairs. Thus, the
plaintiff filed a case. The defendants asked for payment of loss due to old turbines.
The court here held that the losses were mitigated due to the efficiency of the new
turbines, since efficiency is much more than the efficiency of the proper old one,
reduction of losses must be calculated in the total quantum of damages.

Specific performance of contract (another remedy for breach)

 A plaintiff can ask the court to ask the other party to perform contract as decided
previously.
 Thus, damages are not an adequate remedy for breach of a contract concerning
transactions or conveyance of an immovable property.
 In 2018, amendment. Specific Relief Act, 1963 chapter 2 talks about specific
performance act. The amendment is that, now specific performance will be granted or
the damages (even if it is adequate).
 If damages are granted the contract is discharged and they do not have obligations.
But if specific performance the contract still holds and the same obligations exist.
 Falcke v. Gray- court agreed that where the object is a rare artefact, specific
performance can be asked.
 Now even if it is not rare you can ask for specific performance.
LEGALITY OF OBJECT

 An agreement the object of which is opposed to the law of the land may be either
unlawful or simply void, depending upon the provision of the law to which it is
opposed.

UNLAWFUL AGREEMENTS

 S. 23. What considerations and objects are lawful, and what not? The consideration or
object of an agreement is lawful, unless —
it is forbidden by law; or
is of such a nature that, if permitted, it would defeat the provisions of any law; or
is fraudulent; or
involves or implies injury to the person or property of another; or
the Court regards it as immoral, or opposed to public policy.
In each of these cases, the consideration or object of an agreement is said to be
unlawful. Every agreement of which the object or consideration is unlawful, is void.
 Where the object of an agreement is forbidden by law, the agreement is void.
 Nandlal v Thomas J. William- The plaintiff was licensed under an Excise Act to
work a liquor shop. The Act forbade the sale, transfer or sub-lease of the licence or
the creation of a partnership to run the shop. The plaintiff took the defendant into
partnership. The partnership was held void as it would defeat the policy of the law if
unapproved persons could find their way into working liquor shops.
 Sometimes the object of, or the consideration for, an agreement is such that though
not directly forbidden by law, it would, if permitted, defeat the provisions of any law.
Such an agreement is also void.
o Mohinder Singh v State of Punjab- A person, who was elected as a sarpanch
for a period of five years, made an agreement with another member that the
latter would be given two year term and the elected one, the remaining three
years. The agreement was held to be void as it would have defeated the
purpose and provisions of the Punjab Panchayat Raj Act, 1994.
 An agreement which defeats the law of a friendly country would be equally void
 o Foster v Driscoll- Here the agreement was to buy whisky in Great Britain and
to smuggle it into the United States against the law of that country. The Court
of Appeal held the agreement to be illegal. It involved the commission of an
offence in a foreign and friendly country and so a breach of international
comity. It did not matter that the parties had not succeeded in their attempt and
they could have lawfully taken their goods to another country
 An agreement made for a "fraudulent" purpose is void. "Intention to deceive" seems
to be necessary for an agreement to fall in this category.
 An agreement between two persons to injure the person or property of another is
unlawful. In the same way, if the object of an agreement is such that it involves or
implies injury to the person or property of another, the agreement is unlawful and
void
 The law does not allow an agreement tainted with immorality to be enforced.
Consequently, every agreement the object of or consideration for which is immoral, is
unlawful. What is "immoral" depends upon the standards of morality prevailing at a
particular time and as approved by the courts. But certain kinds of acts have been
regarded-as immoral since times immemorial and will perhaps always be so regarded
o One such act is interference with marital relations.
o Dealings with prostitutes have always been regarded as immoral.
o A promise to pay for future cohabitation is unenforceable. A promise to pay
for past cohabitation for the purpose of securing the continuance of the
cohabitation is also unenforceable
 An agreement is unlawful if the court regards it as opposed to public policy. The term
"public policy"' in its broadest sense means that sometimes the courts will, on
considerations of public interest, refuse to enforce a contract.
o An agreement is unlawful if the court regards it as opposed to public policy.
The term "public policy" in its broadest sense means that some times the
courts will, on considerations of public interest, refuse to enforce a contract
 HEADS OF PUBLIC POLICY:
o Trading with enemy-The King's subjects cannot trade with an alien enemy,
i.e., a person owing allegiance to a Government at war with the King, without
the King's licence. “It is now fully established that the presumed object of war
being as much to cripple the enemy's commerce as to capture his property, a
 declaration of war imparts a prohibition of commercial intercourse and
correspondence with the inhabitants of the enemy's country, and that such
intercourse, except with the licence of Crown, is illegal". "The doctrine
applies to all contracts which involve intercourse with the enemy or tend to
assist the enemy, even though no enemy be a party to the contract."
o Trafficking in public offices
o Interference with administration of justice- A contract, the object of which is
to interfere with the administration of justice, is obviously opposed to public
policy.
o Marriage brokerage contracts - An agreement to procure the marriage of a
person in consideration of a sum of money is called marriage brokage
contract. Such agreements are void
o Unfair, unreasonable or unconscionable dealings- Where the parties are not
economically on equal footing and there is a wide gap in the bargaining
power of the parties, where one of them is in a position to exploit and the
other is vulnerable and the contract made with that other is apparently unfair,
it can in circumstances be also regarded as opposed to public policy.

Void agreements

 The following types of agreement are declared to be void:

(1) Agreements of which consideration and objects are unlawful in part, [S. 24]
(2) Agreements without consideration, [S. 25]
(3) Agreements in restraint of marriage, [S. 26]
(4) Agreements in restraint of trade, [S. 27]
(5) Agreements in restraint of legal proceedings, [S. 28]
(6) Unmeaning agreements, [S. 29]
(7) Wagering agreements, [S. 30] and
(8) Agreements to do impossible acts. [S. 56]

Section 24

 S.24. Agreements void, if considerations and objects unlawful in part. — If any part
of a single consideration for one or more objects, or any one or any part of any one of
several considerations for a single object, is unlawful, the agreement is void.
  The whole of the agreement would be void unless unlawful portion can be severed
without damaging the lawful portion.
 Where the legal part of an agreement is severable from the illegal, the former would
be enforced.

Section 25

 Section 25 declares that an agreement without consideration is void.

Section 26

 S. 26. Agreement in restraint of marriage void. Every agreement in restraint of the

marriage of any person, other than a minor, is void.
 It is the policy of law to discourage agreements which restrain freedom of marriage.
 The only exception is in favour of a minor.

Restraint of trade – section 27

 S. 27. Agreement in restraint of trade void. — Every agreement by which any one is
restrained from exercising a lawful profession, trade or business of any kind, is to that
extent void.
Exception 1. Saving of agreement not to carry on business of which goodwill is sold.
— One who sells the goodwill of a business may agree with the buyer to refrain from
carrying on a similar business, within specified local limits, so long as the buyer, or
any person deriving title to the goodwill from. him, carries on a like business therein:
Provided that such limits appear to the Court reasonable, regard being had to the
nature of the business.
 Public policy requires that everyman shall be at liberty to work for himself, and shall
not be at liberty to deprive himself or the State of his labour, skill or talent, by any
contract that he enters into.
 Madhub Chander v Raj Coomar- The plaintiff and the defendant were rival
shopkeepers in a locality in Calcutta. The defendant agreed to pay a sum of money to
the plaintiff if he would close his business in that locality. The plaintiff accordingly
did so, but the defendant refused to pay. The plaintiff sued him for the money
contending that the restraint in question was only partial as he was restrained from
exercising his profession only in one locality and that such restraints had been upheld
in English law. Couch J, however, held the agreement to be void and laid down: The
 words "restrained from exercising a lawful profession, trade or business", do not mean
an absolute restriction, and are intended to apply to a partial restriction, a restriction
limited to some place.
 Nordenfelt v Maxim Nordenfelt Guns & Ammunition Co.- The case involved a sale
of goodwill by an inventor and a manufacturer of guns and ammunition who agreed
with the buyer company: (1) not to practise the same trade for 25 years, and (2) not to
engage in any business competing or liable to compete in any way with the business
for the time being carried on by the company. He afterwards entered into agreement
with another manufacturer of guns and ammunition and the company brought an
action to restrain him. It was held that first part of the agreement was valid being
reasonably necessary for the protection of the purchaser's interest. But the rest of the
covenant by which he was prohibited from competing with the company in any
business that the company might carry on was held as unreasonable and, therefore,
void.
 Thus, both in England and in India the general principle is the same, namely, that all
restraints of trade whether partial or total, are void. The only difference is that in
England a restriction will be valid if it is reasonable. In India it will be valid if it falls
within any of the statutory, or judicially created exceptions.
 The English law may be a little more flexible as the word "reasonable" enables the
courts to adapt it to changing conditions.
 Mohd Isack v Daddapaneni- A postal authority invited tenders for licence for
carrying mails. The plaintiff, a bus owner, abstained from tendering on the promise of
the defendant, another bus owner, to pay him some money. The latter obtained the
contract but refused to pay the money. The court said that tendering to obtain a
contract is not in the nature of a trade or calling. The court compared the case with an
agreement between intending bidders and said that such an agreement was considered
as being not opposed to public policy in a few previous cases.
 Esso Petroleum Co Ltd v. Harper's Garage (Stourport) Ltd- In this case, their
Lordships struck down an exclusive dealing agreement because it extended to a period
of 21 years, which was unreasonable. A five-year period would have been held to be
reasonable. In holding that the doctrine applied to exclusive dealing agreements they
opened up the possibility that it might be extended to every sort of contract because
all contracts must need involve a restraint of some sort.
Exceptions to section 27: Statutory exceptions and judicial interpretation

Statutory exceptions

 Sale of goodwill- One who sells the goodwill of a business may agree with the buyer
to refrain from carrying on a similar business, within specified local limits, so long as
the buyer, or any person deriving title to the goodwill from him, carries on a like
business therein: Provided that such limits appear to the court reasonable, regard
being had to the nature of the business.
o Apparently, the object is to protect the interest of a purchaser of goodwill.
o Where the aim of an agreement is prevention of competition, it will be void
even if its nakedness is concealed behind the "imposing facade of a sale" of
goodwill.
Vancouver Malt & Sake Brewing Co Ltd v Vancouver Breweries Ltd.- A
company was licensed to manufacture liquor and beer but it con fined its
business to produce only 'sake', a Japanese liquor made from rice. Its only
customer was the Government. It entered into an agreement with another
wine and beer manufacturing company by which it sold its business and
goodwill of manufacturing wine and beer, but not the right to produce sake.
The agreement was held to be devoid of any content. "The only business in
which it was engaged was the brewing of sake, and the goodwill of its licence
so far as relating to sake was expressly excluded from sale. It had no goodwill
to sell so far as regards the brewing of beer. Nothing has been sold. It is
simply a case of the appellant undertaking to the respondent in consideration
of a sum of money that it will not for 15 years carry on a particular branch of
business. If there was any sale, it was a sale by the appellant of its liberty to
brew beer and a purchase by the respondent of protection against the possible
competition of the appellant in the brewing of beer."
o Limits of restraint. The agreement has to specify the local limits of the
restraint. The seller can be restrained within certain territorial or geographical
limits and the limits must be reasonable.
 Partnership Act
Judicial interpretation

 Trade combinations- It is now almost a universal practice for traders or manufacturers

in the same fine of business to carry on their trade in an organised way. Thus, there
are combinations of ice manufacturers, grain merchants, sugar producers, etc. The
primary object of such associations is to regulate business and not to restrain it.
Combinations of this kind are often desirable in the interest of trade itself and also for
the promotion of public interest.
o Kores Mfg Co Ltd v Kolok Mfg Co Ltd: Both companies were engaged in
manufacturing similar products involving technical processes in which the
employees were likely to acquire knowledge of trade secrets and confidential
information. The companies agreed that neither would employ, without the
written consent of the other, any person who had been the employee of the
other for any time during the previous five years. Though the agreement was
between two employers who were dealing at arm's length and on equal terms,
it was held to be void. It prohibited the appointment of any person by any one
company or the other who had been in the service of one or the other for any
period, however short, and in any capacity, however humble. The ban was
applicable as much to an unskilled manual labourer who might have been
employed even for a single day as to a highly skilled and long-term employee,
as much to a dismissed servant as to one who might have resigned; as much to
a lay employee as to one who might have acquired confidential knowledge.
 Solus or exclusive dealing agreements - Another business practice in vogue is that a
producer or manufacturer Ukes to market his goods through a sole agent or distributor
and the latter agrees in turn not to deal with the goods of any other manufacturer. A
producer may, for example, agree to sell all his output to one consumer who, in turn,
agrees not to buy his requirements from any other source. As long as the negative
stipulation is nothing but an- ordinary incident of or ancillary to the positive covenant,
there is hardly anything obnoxious to Section 27
 o Gujarat Bottling Co Ltd v Coca Cola Co- An agreement for grant of
franchise by Coca Cola Co to Gujarat Bottling Co to manufacture, bottle, sell
and distribute beverages under trademarks held by the franchiser contained
the negative stipulation restraining the franchisee to "manufacture, bottle, sell,
deal or otherwise be concerned with the products, beverages of any other
brands or trademarks/trade names during subsistence of this agreement
including the period of one year's notice". It was held that the negative
stipulation was intended to promote the trade. Moreover, operation of the
stipulation was confined only to subsistence of the agreement and not after
termination thereof. Hence stipulation could not be regarded as in restraint of
trade.
o Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd.- Esso Co had an
agreement with two garages which was to bind one for about four and a half
years and the other for 21 years. During this period, they had to buy the whole
of their requirements from Esso and to operate the garages in accordance with
Esso co-operation plan. The garage which was bound for 21 years was also
mortgaged to Esso against a loan which was repayable in instalments lasting
for 21 years and not earlier. The House of Lords unanimously held that the
agreement fell within the sphere to which the doctrine of restraint applies and
the period of 21 years being not reasonable, it was void, but the tie with the
other garage for four years and five months was reasonable
 Restraint on employees-
o Restraints during employment. Agreements of service often contain negative
covenants preventing the employee from working elsewhere during the period
covered by the agreement.
o Charlesworth v MacDonald- A agreed to become assistant for three years to
B who was a physician and surgeon practising at Zanzibar. The appointment
was subject to the clause against practising. A left the service within a year
and began to practise there on his own account. But he was restrained from
doing so during the period of three years. Farran CJ explained the principle
thus: "An agreement of this class does not fall within Section 27. If it did, all
contracts of personal service for a fixed period would be void. An agreement
to serve exclusively for a week, a day, or even for an hour, necessarily
 prevents the person so agreeing to serve from exercising his calling during that
period for anyone else than the person with whom he so agrees.
o V.N. Deshpande v Arvind Mills Co -The defendant took employment as a
weaving master in a mill and agreed not to serve in that capacity for three
years for anyone else in any part of India. An injunction was granted to
restrain him in terms of the agreement.
o Agreements for protection of confidentiality and trade secrets are not one-
sided or unfair or unreasonable. Any breach of such clauses on the part of the
employee can also be treated as a misconduct.
o Restraints after termination of employment- But an agreement to restrain a
servant from competing with his employer after the termination of
employment may not be allowed by the courts.
o Niranjan Shankar Golikari v Century Spg &Mfg Co Ltd- A company
manufacturing tyre cord yarn was offered collaboration by a foreign producer
on the condition that the company shall maintain secrecy of all the technical
information and that it should obtain corresponding secrecy arrangements
from its employees. The defendant was appointed for a period of five years,
the condition being that during this period he shall not serve anywhere else
even if he left the service earlier. Shelat J held the agreement to be valid. The
defendant was accordingly restrained from serving anywhere else during the
currency of the agreement. "The evidence is clear that the appellant has torn
the agreement to pieces only because he has been offered a high remuneration.
Obviously, he cannot be heard to say that no injunction should be granted
against him to enforce the negative covenant which is not opposed to public
policy. The injunction issued against him is restricted as to time, the nature of
employment and as to area and cannot therefore be said to be too wide or
unreasonable or unnecessary for the protection of the interest of the
respondent company."
o Gopal Paper Mills Ltd v Surendra K. Ganeshdas Malhotra- where an
injunction to enforce a negative covenant during the period of employment
was refused as the agreement was for a period of twenty years and its terms
were also unconscionable. Shelat J said: The period of contract there was as
much as 20 years and the contract gave the employer an arbitrary power to
 terminate the service without notice... such a contract would clearly be held
void as being one-sided.
o Protection of trade secrets. — One of the principles is that a master is not
entitled to restrain his servant after the termination of employment from
offering competition, but he is entitled to reasonable protection against
exploitation of trade secret
o Superintendence Co of India v Krishan Murgai- Effect of premature removal
—A restriction of this kind will cease to be effective against an employee who
has been prematurely removed without his fault. The Supreme Court also
pointed out that a restraint beyond the term of service would be prima facie
void and that the only ground on which it could be justified is by bringing it
within the scope of the exception, that is, by showing that it is necessary for
the protection of the employer's goodwill. The court further said that even if
such a restraint is valid, it will only apply after the expiry of the term in its
natural course, and not when the employee is wrongfully dismissed earlier.
o Star India (P) Ltd v Laxmiraj Setharam Nayak- An employee of Star TV
wanted to resign, but his resignation was not being accepted. On the contrary,
a case was filed against him for a declaration that he had no right to resign or
to join a rival firm. The court refused to issue an injunction for enforcing a
negative covenant. The court said that the question whether the employee had
gained knowledge of some trade secrets, whether he was imparted special
training and was in possession of confidential information were matters which
could be determined at the trial and till all this was sorted out, a negative
covenant in matters of personal service could not be enforced.