Law of Contract – I

Ans: In everyday words, a contract is an agreement between two or more parties that creates duties each side must perform and that the law will enforce. The Indian Contract Act, 1872 puts it in one line: “An agreement enforceable by law is a contract” (Section 2(h)).

Agreement and enforceability

An agreement is a set of promises that the parties give in exchange for each other (Section 2(e)). It becomes a contract only when the law backs it. Pollock describes the same idea: every agreement and promise enforceable by law is a contract. So we can write:

Contract = Agreement + Enforceability

What is not a contract

• A promise to give to charity is not a contract, because the giver expects nothing in return.
• A social promise, such as a dinner invitation, is not meant to be legally binding.

Governing law

Contracts in India are mainly governed by the Indian Contract Act, 1872. It lays down the basic elements of a contract and the general rules that apply to every contract.

Sections: 2(e)2(h)10

Ans: Section 10 of the Indian Contract Act says all agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not expressly declared void. The essentials are explained below.

Essentials of a valid contract

• Offer. There must be a proposal by one party. Without an offer, no contract can arise (Section 2(a)).
• Acceptance. The person to whom the offer is made must accept it absolutely and without conditions (Section 2(b), Section 7). An offer made to A can be accepted by A only.
• Consensus ad idem. This Latin phrase means a meeting of minds. Both parties must understand the terms in the same sense (Section 13).

• Capacity. Each party must be an adult by the law that applies to them, of sound mind, and not disqualified by law (Section 11).
• Consideration. Each side must give something in return for the other’s promise, such as money, goods, a service or a promise (Section 2(d)).
• Lawful object. The object and consideration must be lawful (Section 23). They are unlawful when they are forbidden by law, would defeat the provisions of any law, are fraudulent or involve injury to the person or property of another, or are regarded by the court as immoral or opposed to public policy.
• Free consent. Consent must not be caused by coercion, undue influence, fraud, misrepresentation or mistake (Sections 14 to 22).
• Not expressly declared void. Agreements such as those in restraint of marriage, trade or legal proceedings, uncertain agreements and wagers are void (Sections 26 to 30).

Conclusion

An agreement that meets all these conditions is a contract, and both parties are legally bound to perform their promises.

Sections: 1011142325

Ans: An offer is the first step in forming a contract. Section 2(a) of the Indian Contract Act, 1872 calls it a proposal: 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 it is the promisor (offeror), and the person who accepts it is the promisee (offeree) (Section 2(c)).

Essentials of a valid offer

• Willingness is signified. The offeror must show willingness to do something, or not to do something. A proposal made in words is express and one made otherwise is implied (Section 9).
• It is made to obtain assent. The aim must be to get the other person’s agreement to the act or abstinence. A statement made without that aim is not a proposal.
• It is communicated. A proposal or its revocation is made by any act or omission by which the party intends to communicate it, or which has the effect of communicating it (Section 3). Communication of a proposal is complete when it comes to the knowledge of the person to whom it is made (Section 4).
• It can be revoked. A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards (Section 5).

Offer and invitation to offer

A statement that only invites the other side to make an offer is not itself an offer. The point was decided in Harvey v. Facey, a Privy Council case. The appellants telegraphed, “Will you sell us B. H. P.? Telegraph lowest cash price”, and the respondent replied, “Lowest price for B. H. P. £900.” The appellants then telegraphed that they agreed to buy for £900. The Privy Council held that there was no contract. The reply stating the lowest price was not an offer to sell, so the final telegram was not an acceptance. It was itself an offer to buy, and no acceptance of it had been given.

Sections: 2(a)2(c)3459

Ans: Acceptance is the second step in forming a contract. Under Section 2(b), when the person to whom the proposal is made signifies his assent to it, the proposal is said to be accepted. A proposal, when accepted, becomes a promise.

Essentials of a valid acceptance

• It is absolute and unqualified. To convert a proposal into a promise, the acceptance must be absolute and unqualified (Section 7(1)).
• It follows the proper manner. It must be expressed in some usual and reasonable manner, unless the proposal prescribes the manner. If the proposal prescribes a manner and the acceptance is not made in that manner, the proposer may, within a reasonable time after the acceptance is communicated to him, insist that it be made in the prescribed manner. If he fails to do so, he accepts the acceptance (Section 7(2)).
• It may be given by performance. Performance of the conditions of a proposal, or acceptance of any consideration for a reciprocal promise offered with the proposal, is an acceptance (Section 8).
• It is communicated. The communication of an acceptance is complete as against the proposer when it is put in a course of transmission to him so as to be out of the power of the acceptor. As against the acceptor, it is complete when it comes to the knowledge of the proposer (Section 4).
• It is made while the offer is open. A proposal can no longer be accepted once it has been revoked or has lapsed (Sections 5 and 6).

Acceptance must be made with knowledge of the offer

In Lalman Shukla v. Gauri Dutt (1913) the defendant’s nephew went missing and the plaintiff, his servant, was sent to search for him. After the servant had left, the defendant announced a reward of Rs 501 for finding the boy. The servant found and brought back the boy without knowing of the reward, and later sued for it. The Allahabad High Court dismissed the suit. It held that a person cannot accept an offer of which he knows nothing. It also held that the search was only the discharge of a duty he already owed as a servant.

Sections: 2(b)4578

Ans: Consideration is what each party gives in return for the other’s promise. Section 2(d) defines it: 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, abstinence or promise is called a consideration for the promise.

What the definition shows

• It moves at the desire of the promisor. The act or promise must be wanted by the promisor.
• It may come from the promisee or any other person. The words “or any other person” mean the consideration need not come from the promisee himself.
• It may be past, present or future. The Act speaks of something already done, something being done and something promised.
• It must be lawful. The consideration or object of an agreement must not be forbidden by law, fraudulent, injurious to another or immoral (Section 23).

Consideration and the validity of a contract

Consideration is one of the conditions in Section 10. An agreement made without consideration is void (Section 25), unless it falls within one of these cases:

• it is in writing, registered, and made on account of natural love and affection between parties standing in a near relation to each other (Section 25(1));
• it is a promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor, or something the promisor was legally compellable to do (Section 25(2)); or
• it is a promise, made in writing and signed by the person to be charged, to pay wholly or in part a debt barred by limitation (Section 25(3)).

Cases

• Dunlop Pneumatic Tyre Co. v. Selfridge (1915): the House of Lords stated that, to enforce a contract not under seal, the person suing must have given consideration to the promisor or to some other person at the promisor’s request.
• Lalman Shukla v. Gauri Dutt (1913): the servant’s search for the boy was a duty he already owed his master, so it did not give fresh consideration for the reward.

Sections: 2(d)102325

Ans: Under Section 13, two or more persons consent when they agree upon the same thing in the same sense. Section 14 says consent is free when it is not caused by coercion, undue influence, fraud, misrepresentation or mistake. Consent is said to be so caused when it would not have been given but for the existence of that coercion, undue influence, fraud, misrepresentation or mistake. Section 10 requires free consent for every valid contract. The factors that destroy free consent are explained below.

1. Coercion (Section 15)

Coercion is committing, or threatening to commit, any act forbidden by the Indian Penal Code, or unlawfully 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. It is immaterial whether the Indian Penal Code is in force in the place where the coercion is used.

2. Undue influence (Section 16)

A contract is induced by undue influence where the relations between the parties are such that one of them is in a position to dominate the will of the other and uses that position to obtain an unfair advantage. A person is deemed to be in such a position where he holds a real or apparent authority over the other or stands in a fiduciary relation to him, or where he contracts with a person whose mental capacity is temporarily or permanently affected by age, illness, or mental or bodily distress. Where the transaction appears unconscionable, the burden of proving that there was no undue influence lies on the person in the dominant position.

3. Fraud (Section 17)

Fraud means any of these acts, committed by a party to a contract, with his connivance or by his agent, with intent to deceive another party or to induce him to enter into the contract:

• suggesting as a fact that which is not true, by one who does not believe it to be true;
• actively concealing a fact by one having knowledge or belief of the fact;
• making a promise without any intention of performing it;
• any other act fitted to deceive; and
• any act or omission the law specially declares to be fraudulent.

Mere silence about facts likely to affect a person’s willingness to contract is not fraud, unless the circumstances make it the duty of the silent person to speak, or his silence is itself equivalent to speech.

4. Misrepresentation (Section 18)

Misrepresentation includes a positive assertion, not warranted by the speaker’s information, of something untrue though he believes it true; a breach of duty that gains an advantage without intent to deceive by misleading another to his prejudice; and causing, however innocently, a party to make a mistake about the substance of the thing that is the subject of the agreement.

5. Mistake (Sections 20 to 22)

• Where both parties are under a mistake as to a matter of fact essential to the agreement, the agreement is void (Section 20).
• A contract is not voidable because of a mistake as to any law in force in India (Section 21).
• A contract is not voidable merely because one party was under a mistake as to a matter of fact (Section 22).

Effect on the contract

When consent is caused by coercion, fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused (Section 19). The same rule applies to undue influence (Section 19A). A party induced by fraud or misrepresentation may instead insist that the contract be performed and that he be put in the position he would have been in if the representations had been true. The contract is not voidable for misrepresentation or fraudulent silence if the party had the means of discovering the truth with ordinary diligence.

Sections: 101314151617181919A202122

Ans: An agreement whose object or consideration is unlawful is void (Section 23). Under Section 23 the consideration or object is lawful unless it:

• is forbidden by law;
• is of such a nature that, if permitted, it would defeat the provisions of any law;
• is fraudulent;
• involves or implies injury to the person or property of another; or
• is regarded by the court as immoral or opposed to public policy.

Other agreements the Act declares void

• Partly unlawful agreements (Section 24). If any part of a single consideration for one or more objects, or any part of one of several considerations for a single object, is unlawful, the agreement is void.
• Agreement without consideration (Section 25). It is void, unless it comes within the cases listed in the section.
• Restraint of marriage (Section 26). Every agreement in restraint of the marriage of any person, other than a minor, is void.
• Restraint of trade (Section 27). Every agreement by which anyone is restrained from exercising a lawful profession, trade or business is void to that extent. The exception is an agreement by the seller of the goodwill of a business not to carry on a similar business within specified reasonable local limits.
• Restraint of legal proceedings (Section 28). An agreement that absolutely restricts a party from enforcing his rights by the usual legal proceedings, or limits the time for doing so, is void to that extent. An agreement to refer future disputes to arbitration is saved, and so is a written agreement to refer an existing question to arbitration.
• Uncertain agreements (Section 29). Agreements whose meaning is not certain, or capable of being made certain, are void.
• Wagers (Section 30). Agreements by way of wager are void, and no suit lies to recover anything alleged to be won on a wager.

Sections: 2324252627282930

Ans: Revocation means taking back a proposal or an acceptance. Section 5 of the Indian Contract Act, 1872 fixes the time limit. A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards. An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards.

When is communication of a revocation complete? (Section 4)

• As against the person who makes it, when it is put into a course of transmission to the person to whom it is made, so as to be out of his power.
• As against the person to whom it is made, when it comes to his knowledge.

Modes of revocation of a proposal (Section 6)

• Notice of revocation. By communication of notice of revocation by the proposer to the other party.
• Lapse of time. By the lapse of the time prescribed in the proposal for its acceptance or, if no time is prescribed, by the lapse of a reasonable time, without communication of the acceptance.
• Failure of a condition precedent. By the failure of the acceptor to fulfil a condition precedent to acceptance.
• Death or insanity of the proposer. By the proposer’s death or insanity, if the fact comes to the knowledge of the acceptor before acceptance.

Uttar Pradesh amendment to Section 5

In Uttar Pradesh, an Explanation added by U.P. Act 57 of 1976 provides that where an invitation to a proposal says that any proposal made in response must be kept open for a specified time, and a proposal is made accepting that condition, the proposal may not be revoked within that time.

Sections: 3456

Ans: Privity of contract means that only a person who is a party to a contract can sue on it. A stranger to the contract cannot enforce it, even if the contract was made for his benefit.

The rule in Dunlop v. Selfridge

In Dunlop Pneumatic Tyre Co. v. Selfridge (1915), Dew & Co. bought tyres from Dunlop on terms that they would not sell below list prices, and that they would obtain a similar undertaking from the trade buyers to whom they sold. Selfridge bought from Dew & Co. and agreed, in a contract with Dew & Co., not to sell below Dunlop’s list prices, and to pay a penalty for each breach. Dunlop sued Selfridge for selling below the list price. The House of Lords held that Dunlop could not sue, because it was not a party to the contract between Dew & Co. and Selfridge. Viscount Haldane stated two fundamental principles: only a person who is a party to a contract can sue on it, and a person who wants to enforce a contract must have given consideration to the promisor, or to some other person at the promisor’s request.

Position under the Indian Contract Act

Section 2(d) allows consideration to move from the promisee “or any other person”. The Act does not itself list the cases in which a stranger may sue. The main recognised exceptions that appear in the sources are these:

• Trust. Viscount Haldane noted in Dunlop that a right may be conferred on a stranger by way of property, as under a trust, even though it cannot be conferred as a right to enforce a contract.
• Agency. Contracts entered into through an agent can be enforced as if the principal had made them in person (Section 226). Viscount Haldane also noted that a principal not named in the contract may sue on it if the promisee really contracted as his agent, provided consideration was given either personally or through the agent.

Sections: 2(d)226

Ans: Section 30 of the Indian Contract Act, 1872 deals with wagers and states the rule: agreements by way of wager are void, and no suit shall be brought for recovering anything alleged to be won on any wager, or entrusted to any person to abide the result of any game or other uncertain event on which any wager is made.

Consequences

• The agreement is void, so it cannot be enforced.
• No suit can be brought to recover what is alleged to have been won.
• No suit can be brought to recover anything entrusted to a person to abide the result of the game or uncertain event.

Exceptions and saving

• Horse-race prizes. Section 30 does not make unlawful a subscription or contribution, or an agreement to subscribe or contribute, towards any plate, prize or sum of money of Rs 500 or upwards to be awarded to the winner or winners of a horse-race.
• Section 294A of the Indian Penal Code. Nothing in Section 30 legalises any transaction connected with horse-racing to which Section 294A of the Indian Penal Code applies.

Wager and a contingent contract

A contingent contract depends on an event collateral to the contract (Section 31), and is valid. Insurance and guarantee are examples of such contracts. A wager is void under Section 30.

Case

In Carlill v. Carbolic Smoke Ball Co. (1893) the defendants argued that their advertised promise was a wagering contract. The Court of Appeal rejected this and held that there was nothing in the wagering point.

Sections: 3031

Ans: A contingent contract is a contract to do or not to do something, if some event collateral to the contract does or does not happen (Section 31). For example, A contracts to pay B Rs 10,000 if B’s house is burnt. The Act sets out when such a contract can be enforced in Sections 32 to 36.

Conditions for enforcement

• Event must happen (Section 32). A contract contingent on an uncertain future event happening cannot be enforced unless and until that event has happened. If the event becomes impossible, the contract becomes void.
• Event must not happen (Section 33). A contract contingent on an uncertain future event not happening can be enforced when the happening of that event becomes impossible, and not before.
• Conduct of a living person (Section 34). If the event is the way a person will act at an unspecified time, it is considered impossible when that person does anything that makes it impossible for him to act in that way within any definite time, or otherwise than under further contingencies.
• Event within a fixed time (Section 35, first paragraph). A contract contingent on a specified event happening within a fixed time becomes void if, when the time expires, the event has not happened, or if, before the time expires, the event becomes impossible.
• Event not happening within a fixed time (Section 35, second paragraph). A contract contingent on a specified event not happening within a fixed time may be enforced when the time has expired and the event has not happened, or, before then, if it becomes certain that the event will not happen.
• Impossible events (Section 36). A contingent agreement to do or not to do anything if an impossible event happens is void, whether or not the parties knew of the impossibility.

Sections: 313233343536

Ans: Section 31 of the Indian Contract Act, 1872 says a “contingent contract” is a contract to do or not to do something, if some event, collateral to such contract, does or does not happen. The illustration given is: A contracts to pay B Rs 10,000 if B’s house is burnt.

Essentials of a contingent contract

• It is a contract. It must satisfy the conditions of a valid contract under Section 10.
• Performance depends on an event. The duty to perform depends on whether an event happens or does not happen.
• The event is collateral. The event is outside the contract itself. It is neither the performance promised nor the consideration for the promise.
• The event is uncertain. Sections 32 and 33 speak of an “uncertain future event”.

Rules for enforcement

• A contract contingent on an event happening cannot be enforced until the event happens, and becomes void if the event becomes impossible (Section 32).
• A contract contingent on an event not happening can be enforced only when it becomes impossible for the event to happen (Section 33).
• An event that depends on a person’s future conduct is treated as impossible when he does something that makes it impossible for him to act in that way (Section 34).
• A contract contingent on an event happening, or not happening, within a fixed time is governed by Section 35.
• A contingent agreement that depends on an impossible event is void (Section 36).

Contingent contract and a wager

A wager is void under Section 30, while a contingent contract is valid and enforceable once the conditions in Sections 32 to 36 are met.

Sections: 30313233343536

Ans: The Indian Contract Act, 1872 distinguishes three situations. They are explained below with the sections that define them.

Void agreement (Section 2(g))

An agreement not enforceable by law is said to be void. The Act declares these agreements void:

• an agreement with a minor, which the Privy Council held to be void in Mohori Bibee v. Dharmodas Ghose (1903), since competence is a condition under Sections 10 and 11;
• an agreement where both parties are under a mistake as to a matter of fact essential to the agreement (Section 20);
• an agreement whose object or consideration is unlawful (Section 23), or is unlawful in part (Section 24);
• an agreement without consideration, unless it falls within Section 25;
• agreements in restraint of marriage, trade or legal proceedings (Sections 26 to 28), uncertain agreements (Section 29) and wagers (Section 30);
• an agreement to do an act impossible in itself (Section 56).

Voidable contract (Section 2(i))

An agreement which is enforceable by law at the option of one or more of the parties, but not at the option of the other or others, is a voidable contract. Section 19 applies where consent is caused by coercion, fraud or misrepresentation, and Section 19A where it is caused by undue influence. The contract is then voidable at the option of the party whose consent was so caused. Until that party chooses to avoid it, the contract remains valid.

A contract that becomes void (Section 2(j))

A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable. For example, a contract to do an act that afterwards becomes impossible or unlawful becomes void when the act becomes impossible or unlawful (Section 56).

Difference at a glance

• A void agreement is not enforceable by anyone. A voidable contract is enforceable until the party entitled to do so avoids it.
• A contract is voidable at the option of the party whose consent was not free. A void agreement needs no option, since it has no legal effect.
• A person who receives an advantage under a void agreement, or a contract that becomes void, must restore it (Section 65). A party rescinding a voidable contract must restore any benefit received (Section 64).

Sections: 2(g)2(i)2(j)1919A2023566465

Ans: Liquidated damages are a sum the parties fix in the contract itself as the amount payable if the contract is broken. Section 74 of the Indian Contract Act, 1872 deals with them.

The rule in Section 74

When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved, to receive from the party who broke the contract reasonable compensation not exceeding the amount so named or the penalty stipulated for. A stipulation for increased interest from the date of default may be a stipulation by way of penalty.

Exception

A person who enters into a bail-bond, recognizance or similar instrument, or gives a bond to the Central or a State Government for performing a public duty or an act in which the public are interested, is liable on breach to pay the whole sum mentioned.

Case: Fateh Chand v. Balkishan Dass (1963)

The Supreme Court held that the words “the contract contains any other stipulation by way of penalty” apply to every covenant involving a penalty, whether it is for payment of money on breach, delivery of property in the future, or forfeiture of a right to money or other property already delivered. Section 74 imposes a duty on the court not to enforce the penalty clause, but only to award reasonable compensation. Where a contract provides for forfeiture of an amount paid, the court may award only the sum it considers reasonable, not exceeding the amount named in the contract.

Sections: 74

Ans: Novation is the substitution of a new contract for an existing one. Section 62 of the Indian Contract Act, 1872 provides that if the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed.

Kinds of substitution shown in the Act

• A new party takes the place of an old party. A owes money to B. It is agreed between A, B and C that B shall henceforth accept C as his debtor instead of A. The old debt of A to B is at an end, and a new debt from C to B has been contracted (illustration (a)).
• A new contract between the same parties replaces the old. A owes B Rs 10,000. A gives B a mortgage of his estate for Rs 5,000 in place of the debt of Rs 10,000. This is a new contract and extinguishes the old (illustration (b)).

Essentials

• There must be an existing valid contract.
• All the parties to the arrangement must agree to the substitution. In illustration (c), B asks A to credit C with Rs 1,000 in his books, but C does not assent. B still owes C Rs 1,000, and no new contract has been entered into.
• The new contract must replace the old one. The original contract is then discharged and need not be performed.

Effect

The old contract comes to an end and the parties are bound only by the new one. Section 62 also covers rescission and alteration of a contract by agreement, with the same effect that the original contract need not be performed.

Sections: 62

Ans: Rescission means cancelling a contract so that it no longer binds the parties. The Indian Contract Act, 1872 deals with it in these provisions.

Rescission by agreement

If the parties to a contract agree to rescind or alter it, the original contract need not be performed (Section 62).

Rescission of a voidable contract (Sections 19, 19A, 64 and 66)

• A contract caused by coercion, fraud, misrepresentation or undue influence is voidable at the option of the party whose consent was so caused (Sections 19 and 19A).
• When the person at whose option the contract is voidable rescinds it, the other party need not perform any promise in which he is promisor. The rescinding party must restore, so far as may be, any benefit he received from the other party (Section 64).
• The rescission of a voidable contract may be communicated or revoked in the same manner, and subject to the same rules, as apply to the communication or revocation of a proposal (Section 66).
• Under Section 19A the court may set aside such a contract either absolutely or, if the party entitled to avoid it has received a benefit, upon such terms as the court thinks just.

Rescission for default by the other party

• Where one party prevents the other from performing, the contract is voidable at the option of the party prevented, and he is entitled to compensation for any loss (Section 53).
• Where time is of the essence and a party fails to perform by the fixed time, the contract becomes voidable at the option of the promisee (Section 55).
• A person who rightfully rescinds a contract is entitled to compensation for any damage he has sustained through its non-fulfilment (Section 75).

Sections: 1919A53556264656675

Ans: Promises which form the consideration or part of the consideration for each other are called reciprocal promises (Section 2(f) of the Indian Contract Act, 1872). Sections 51 to 54 lay down how they are to be performed.

Rules for performance

• Simultaneous promises (Section 51). Where the promises are to be performed at the same time, no promisor need perform unless the promisee is ready and willing to perform his own reciprocal promise.
• Order of performance (Section 52). Where the contract expressly fixes the order, the promises must be performed in that order. Where it does not, they must be performed in the order the nature of the transaction requires.
• Prevention (Section 53). If one party 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 for any loss.
• Default in the promise to be performed first (Section 54). Where one promise cannot be performed, or its performance cannot be claimed, until the other has been performed, and the promisor of the latter fails to perform it, he cannot claim performance of the reciprocal promise and must compensate the other party for any loss.

Sections: 2(f)51525354

Ans: Appropriation means applying a payment to a particular debt when a debtor owes several distinct debts to one creditor. Sections 59 to 61 of the Indian Contract Act, 1872 decide which debt a payment discharges.

The three rules

• The debtor indicates the debt (Section 59). Where a debtor owing several distinct debts to one person makes a payment, either with express intimation or under circumstances implying that the payment is to be applied to a particular debt, the payment, if accepted, must be applied accordingly.
• The debtor does not indicate the debt (Section 60). Where the debtor has omitted to intimate and there are no other circumstances indicating which debt the payment is to be applied to, the creditor may apply it at his discretion to any lawful debt actually due and payable to him, whether its recovery is or is not barred by the law of limitation.
• Neither party appropriates (Section 61). Where neither party makes any appropriation, the payment is applied in discharge of the debts in order of time, whether or not barred by limitation. If the debts are of equal standing, the payment is applied in discharge of each proportionably.

Sections: 596061

Ans: Damages are money paid to make good the loss caused by a breach of contract. They are called liquidated when the parties fix the amount in advance, and unliquidated when the court has to work out the amount after the breach.

Liquidated damages

• The contract names a sum, or a method of calculating it, payable on breach. It is a genuine pre-estimate of the loss.
• Section 74 of the Indian Contract Act, 1872 applies where a sum is named as the amount to be paid on breach, or a penalty is stipulated for. The injured party is entitled to reasonable compensation not exceeding the amount named, whether or not actual damage or loss is proved.
• The Act does not separate a penalty from liquidated damages. The court allows only reasonable compensation up to the named sum.
• In Fateh Chand v. Balkishan Dass (1963) the Supreme Court held that Section 74 applies to a stipulation by way of penalty, and that the party claiming must still show that the breach caused a loss. In Kailash Nath Associates v. DDA (2015) it held that the party claiming must show that some loss was caused, and that only reasonable compensation is awarded. Where the loss is difficult or impossible to prove, the named sum may be awarded if it is a genuine pre-estimate of the loss. In that case the earnest money had to be refunded.

Unliquidated damages

• The contract names no sum. The court assesses the loss under Section 73.
• Section 73 allows compensation for loss that naturally arose in the usual course of things from the breach, or that the parties knew, when they made the contract, would likely result from it.
• Compensation is not given for remote or indirect loss (Hadley v. Baxendale).
• The injured party must take reasonable steps to reduce the loss (duty to mitigate).

Difference at a glance

• Amount: fixed by the parties (liquidated) or fixed by the court (unliquidated).
• Governing section: Section 74 (liquidated) or Section 73 (unliquidated).
• Proof of loss: the court may award the named sum as reasonable compensation (liquidated); the plaintiff must prove the loss in full (unliquidated).

Sections: 7374

Ans: An offer (proposal) under Section 2(a) of the Indian Contract Act, 1872 may be made to a particular person or to the public at large. Offers are therefore classed as specific or general.

Specific offer

• It is made to a definite person or a definite group of persons.
• Only the person to whom it is addressed can accept it. A stranger cannot accept it.
• Acceptance must be communicated to the offeror (Section 3 and Section 4).
• Example: A writes to B offering to sell his car for Rs 50,000. Only B can accept.

General offer

• It is made to the world at large, usually by advertisement, a notice or a public announcement.
• Any person who knows of it and performs the stated conditions can accept it, and a contract then arises with that person.
• Under Section 8, performance of the conditions of a proposal is an acceptance of it. Notice of acceptance to the offeror is not needed.
• Leading case: Carlill v. Carbolic Smoke Ball Co. (1893). The company offered £100 to any person who caught influenza after using its smoke ball as directed. Mrs Carlill used it, caught influenza and recovered the reward.
• Acceptance needs knowledge of the offer. In Lalman Shukla v. Gauri Dutt (1913) a servant who found the master’s missing boy without knowing of the reward could not claim it.

Main differences

• Addressee: a particular person (specific) or the public (general).
• Acceptance: communicated acceptance by the addressee (specific) or performance of the conditions by anyone aware of it (general).
• Revocation: a general offer is withdrawn by the same publicity that made it, and it can be withdrawn until a person has performed the conditions.

Sections: 2(a)348

Ans: A finder of goods is a person who takes into his possession goods that someone else has lost. The Indian Contract Act, 1872 treats him as a bailee and gives him certain rights while imposing duties.

Responsibility of the finder (Section 71)

A person who finds goods belonging to another and takes them into his custody is subject to the same responsibility as a bailee. He must take as much care of the goods as a person of ordinary prudence would take of his own goods (Section 151). He must not mix them with his own goods or use them for his own purposes. He must restore them when the owner is found.

Rights of the finder

• Right of lien (Section 168). He may keep the goods against the owner until he receives compensation for the lawful expenses he spent in preserving them and in finding the owner.
• Right to reward (Section 168). He has no right to sue for compensation for his trouble, but where the owner has offered a specific reward for return of the goods, the finder may sue for the reward and keep the goods until he receives it.
• Right to sell (Section 169). If the owner cannot be found with reasonable diligence, or refuses on demand to pay the lawful charges, the finder may sell goods that are commonly the subject of sale. He may sell only when the goods are in danger of perishing or losing the greater part of their value, or when his lawful charges amount to two-thirds of their value.
• Title against all but the true owner. In Armory v. Delamirie (1722) a chimney sweep’s boy found a jewel and a goldsmith refused to return it. The court held that the finder had a good title against everyone except the rightful owner.

Duties in brief

• Take reasonable care of the goods.
• Make reasonable efforts to find the owner.
• Return the goods to the owner when he is found and has paid the lawful charges.

Sections: 71151168169

Ans: An injunction is a court order that directs a person to refrain from an act, or in some cases to do an act. The Specific Relief Act, 1963 deals with it in Part III. Section 37 divides injunctions into temporary and perpetual.

Temporary injunction (Section 37(1))

• It lasts until a specified time or until the further order of the court.
• It may be granted at any stage of a suit.
• It is regulated by the Code of Civil Procedure, 1908 (Order 39, Rules 1 and 2).
• Its purpose is to preserve the position of the parties until the case is decided.
• The court looks for a prima facie case, the balance of convenience and irreparable injury if the order is refused.

Perpetual injunction (Section 37(2))

• It can be granted only by a decree made at the hearing and upon the merits of the suit.
• The defendant is permanently stopped from asserting a right or committing an act contrary to the plaintiff’s rights.
• Section 38 sets out when it may be granted. Section 41 sets out when an injunction is refused.

Difference

• Duration: limited (temporary) or permanent (perpetual).
• Stage: any stage of the suit (temporary) or final decree (perpetual).
• Law: Code of Civil Procedure (temporary) or Specific Relief Act (perpetual).
• Nature: interim protection (temporary) or final relief on the merits (perpetual).

Sections: 36373841

Ans: Injunctions are also grouped by what they order the defendant to do. A prohibitory injunction stops an act. A mandatory injunction compels an act.

Prohibitory injunction

• It restrains the defendant from doing, or continuing to do, a wrongful act. Section 38 describes it when it speaks of preventing the breach of an obligation or the invasion of the plaintiff’s right to or enjoyment of property.
• It may be temporary or perpetual.
• Example: an order stopping a neighbour from building a wall on the plaintiff’s land.
• Section 42 allows an injunction to enforce a negative covenant even where specific performance of the connected positive covenant cannot be ordered, provided the plaintiff has performed his part.

Mandatory injunction (Section 39)

• Where it is necessary to compel the performance of certain acts to prevent the breach of an obligation, and the court is able to enforce those acts, the court may grant an injunction to prevent the breach and to compel performance of those acts.
• It is granted in the court’s discretion, usually to undo a wrong that has been done.
• Example: an order to pull down an unauthorised construction that blocks the plaintiff’s right of way.

Difference

• A prohibitory injunction orders the defendant not to act. A mandatory injunction orders him to act.
• A mandatory injunction needs the court to be able to supervise the act. It is granted more cautiously.

Sections: 383942

Ans: Contracts can be classified by the way the parties show their agreement. Section 9 of the Indian Contract Act, 1872 makes the distinction.

Express contract

• A contract in which the proposal and acceptance are made in words, written or spoken (Section 9).
• Example: A writes to B, “I offer to sell my scooter for Rs 20,000”, and B replies, “I accept”.

Implied contract

• A contract in which the proposal or acceptance is made otherwise than in words, that is, by conduct or from the circumstances (Section 9).
• Example: a person boards a public bus and takes a seat. He impliedly promises to pay the fare, and the conductor impliedly accepts by issuing a ticket.
• Example: a person takes goods from a shop shelf and carries them to the cash counter.

Difference

• Mode: words (express) or conduct and circumstances (implied).
• Proof: the terms of an express contract appear in the words used. For an implied contract, the court infers the terms from what the parties did.
• Effect: both are equally binding. The law treats them alike.

An implied contract is different from a quasi-contract (Sections 68 to 72). In a quasi-contract the law imposes an obligation although the parties never agreed.

Sections: 9

Ans: Specific performance is a remedy under which the court orders the defendant to perform the contract he agreed to make, instead of paying damages. After the Specific Relief (Amendment) Act, 2018, Section 10 says that the specific performance of a contract shall be enforced by the court. It is no longer a purely discretionary remedy. The court may refuse it only on the grounds in Section 11(2), Section 14 and Section 16.

Contracts that can be enforced

• A valid contract between competent parties that is certain in its terms.
• A contract for a unique thing, such as a particular house or a rare painting, for which money cannot give adequate relief.
• A contract which the court can supervise and carry out.
• A contract in which the plaintiff proves that he has performed, or has always been ready and willing to perform, his part (Section 16(c)).
• A contract for the transfer of immovable property, where damages would usually not be adequate.

Contracts that cannot be enforced (Section 14)

• A contract where a party has obtained substituted performance under Section 20.
• A contract whose performance involves a continuous duty that the court cannot supervise.
• A contract so dependent on the personal qualifications of the parties that the court cannot enforce its material terms.
• A contract that is in its nature determinable.

Persons who cannot claim it (Section 16)

• A person who has obtained substituted performance under Section 20.
• A person who has become incapable of performing the contract, who violates an essential term, who acts in fraud of the contract, or who acts in subversion of the relation intended to be established by it.
• A person who fails to prove that he has performed or has always been ready and willing to perform the essential terms.

Sections: 10141620

Ans: A quasi contract is not made by agreement. It is a relation which the law creates between two persons, resembling one created by contract, so that one must pay or return something to the other. The Indian Contract Act, 1872 deals with these in Chapter V, headed “Of certain relations resembling those created by contract” (Sections 68 to 72).

The five cases

• Necessaries supplied to a person incapable of contracting (Section 68). If a person incapable of contracting, or anyone he is legally bound to support, is supplied by another with necessaries suited to his condition in life, the supplier is entitled to be reimbursed from the property of the incapable person. Example: A supplies B, a lunatic, with necessaries suitable to his condition in life. A is entitled to be reimbursed from B’s property.
• Payment by an interested person (Section 69). A person interested in the payment of money which another is bound by law to pay, and who therefore pays it, is entitled to be reimbursed by the other.
• Benefit of a non-gratuitous act (Section 70). Where a person lawfully does anything for another, or delivers anything to him, not intending to do so gratuitously, and the other enjoys the benefit, the latter must compensate the former or restore the thing. Example: A, a tradesman, leaves goods at B’s house by mistake and B treats them as his own. B must pay A for them. If A saves B’s property from fire and intended to act gratuitously, A gets no compensation.
• Finder of goods (Section 71). A person who finds goods belonging to another and takes them into his custody is subject to the same responsibility as a bailee.
• Money paid or thing delivered by mistake or under coercion (Section 72). The person who received it must repay or return it. Example: A and B jointly owe Rs 100 to C. A alone pays, and B, not knowing this, pays Rs 100 over again. C must repay B.

Why the law imposes these duties

In each case one person has received a benefit, or has paid or supplied something, and there is no agreement between them. The Act gives a right to be reimbursed or repaid so that the benefit is not kept without payment.

Sections: 6869707172

Ans: Quasi contracts apply in the five situations covered by Sections 68 to 72 of the Indian Contract Act, 1872. In each, the law gives a right to payment although there is no contract between the parties.

• Section 68: necessaries supplied to a person incapable of contracting, or to anyone he is bound to support. The supplier is reimbursed from that person’s property. Illustration (b): A supplies the wife and children of B, a lunatic, with necessaries suitable to their condition. A is entitled to be reimbursed from B’s property.
• Section 69: payment of money by a person interested in its payment, which another is bound by law to pay. Illustration: B holds land on a lease granted by A, the zamindar. A’s land is advertised for sale for arrears of revenue and the sale would end B’s lease. B pays the sum due from A to prevent this. A must make good the amount to B.
• Section 70: a lawful act done or thing delivered, not intended to be gratuitous, whose benefit the other person enjoys. The person must compensate or restore.
• Section 71: goods found and taken into custody. The finder has the responsibility of a bailee.
• Section 72: money paid or a thing delivered by mistake or under coercion. It must be repaid or returned. Illustration (b): a railway company refuses to deliver goods unless an illegal charge for carriage is paid, and the consignee pays to obtain the goods. He may recover the illegally excessive part.

What the claimant must show under Section 70

• he did something for another, or delivered something to him, lawfully;
• he did not intend to act gratuitously; and
• the other person enjoyed the benefit.

Sections: 6869707172

Ans: Quantum meruit means payment in proportion to the work done or services rendered. It lets a person who has done work be paid for it, where the price was not fixed by a contract.

Statutory basis

Section 70 of the Indian Contract Act, 1872 says that where a person lawfully does anything for another, or delivers anything to him, not intending to do so gratuitously, and the other enjoys the benefit, the latter must compensate the former or restore the thing. If the person intended to act gratuitously, as in illustration (b) where A saves B’s property from fire, there is no right to compensation.

Case: Alopi Parshad & Sons Ltd. v. Union of India (1960)

The appellants were appointed under a written agreement as agents to buy and supply ghee for the Army. After the Second World War began, the agreement was revised by mutual consent in 1942 and the rates were scaled down. The Supreme Court held that compensation on a quantum meruit basis can be awarded for work done or services rendered only when the price is not fixed by a contract. It cannot be awarded where the contract provides for the consideration payable. The Court held that the arbitrator had no power to vary the terms of the contract or to award payment on a quantum meruit basis.

In short

• There must be work done or services rendered that were not meant to be free.
• The other party must have received the benefit.
• The price must not already be fixed by a contract covering that work.

Sections: 70

Ans: A contract is broken when a party fails to perform his promise. Chapter VI of the Indian Contract Act, 1872, together with provisions in Chapter IV, gives the party who suffers the following remedies.

1. Rescission, or putting an end to the contract

• When a party refuses to perform, or disables himself from performing, his promise in its entirety, the promisee may put an end to the contract, unless he has by words or conduct accepted its continuance (Section 39).
• Where one party prevents the other from performing, the contract is voidable at the option of the party prevented (Section 53). Where time is of the essence and a party fails to perform in time, the contract is voidable at the option of the promisee (Section 55).
• The party rescinding a voidable contract must restore any benefit he received (Section 64).

2. Compensation for loss or damage (Section 73)

A party who suffers by the breach is entitled to compensation for any loss or damage caused to him, which naturally arose in the usual course of things from the breach, or which the parties knew when they made the contract to be likely to result from it. No compensation is given for remote and indirect loss. The means of remedying the inconvenience which existed must be taken into account.

3. Compensation where a penalty or sum is stipulated (Section 74)

If a sum is named in the contract as payable on breach, or the contract contains any other stipulation by way of penalty, the party complaining is entitled, whether or not actual loss is proved, to reasonable compensation not exceeding the amount named or the penalty stipulated.

4. Compensation on rightful rescission (Section 75)

A person who rightfully rescinds a contract is entitled to compensation for any damage he has sustained through its non-fulfilment.

5. Other remedies

Specific performance and injunction are given by the Specific Relief Act, 1963, which this answer does not cover.

Sections: 39535564737475

Ans: A party who suffers loss from a breach of contract must take reasonable steps to reduce the loss. The Indian Contract Act does not use the word “mitigate”, but the Explanation to Section 73 says that, in estimating the loss or damage arising from a breach of contract, the means which existed of remedying the inconvenience caused by the non-performance must be taken into account.

How the Act applies the idea

• Compensation is for loss that naturally arose from the breach, not for loss that could have been avoided by using the means available.
• Illustration (b) to Section 73: A hires B’s ship to go to Bombay, take on a cargo that A is to provide, and bring it to Calcutta. B’s ship does not go, but A has opportunities of procuring suitable conveyance for the cargo on terms as advantageous as those on which he had chartered the ship. A avails himself of them but is put to trouble and expense. A is entitled to compensation for that trouble and expense.
• Illustration (c): A contracts to buy 50 maunds of rice from B and later tells B he will not accept it. B is entitled to the amount by which the contract price exceeds what B can obtain for the rice at the time A refuses.

In these examples the compensation is measured by what the injured party could have obtained by dealing with the goods or the opportunity on the market. He cannot claim more than the loss that remains after he has used the means open to him.

Sections: 73

Ans: A contract is discharged when the obligations it created come to an end. The Indian Contract Act, 1872 recognises these ways.

1. Performance

The parties must either perform or offer to perform their promises (Section 37). If the promisor makes a proper offer of performance and the promisee does not accept it, the promisor is not responsible for non-performance and does not lose his rights. The offer must be unconditional, made at a proper time and place, and the promisee must have a reasonable chance to see that the thing offered is what was promised (Section 38).

2. Agreement

• Novation, rescission or alteration (Section 62). If the parties agree to substitute a new contract, or to rescind or alter it, the original contract need not be performed.
• Remission or satisfaction (Section 63). A promisee may dispense with or remit, wholly or in part, the performance of the promise, extend the time for it, or accept any satisfaction he thinks fit instead.

3. Breach

When a party refuses to perform the promise in its entirety, the promisee may put an end to the contract (Section 39).

4. Impossibility

A contract to do an act which later becomes impossible or unlawful becomes void when the act becomes impossible or unlawful (Section 56). Where an agreement is discovered to be void, or a contract becomes void, a person who received an advantage must restore it (Section 65).

5. Rescission of a voidable contract

The party entitled to avoid it may rescind it, and the other party need not perform (Section 64).

6. Default by the promisee

If a promisee neglects or refuses to give the promisor reasonable facilities for performance, the promisor is excused for any non-performance caused by it (Section 67). Prevention of performance makes the contract voidable at the option of the party prevented (Section 53).

7. Time not kept

Where time is of the essence, failure to perform by the fixed time makes the contract voidable at the promisee’s option (Section 55).

8. Death

Promises bind the representatives of the promisors on their death, unless a contrary intention appears. A contract for personal skill, such as painting a picture, cannot be enforced by or against the representatives (Section 37, illustration (b)).

Sections: 3738395355566263646567

Ans: Preventive relief is relief that stops a wrong before it is done, or stops it from continuing. Under Section 36 of the Specific Relief Act, 1963, it is granted at the discretion of the court by injunction, temporary or perpetual. An injunction is a court order that directs a person to refrain from an act, or to do an act, to prevent the breach of an obligation.

Kinds of injunction (Section 37)

• Temporary injunction. It continues until a specified time or until the further order of the court. It may be granted at any stage of a suit and is regulated by the Code of Civil Procedure, 1908 (Section 37(1)).
• Perpetual injunction. It can be granted only by a decree made at the hearing and upon the merits of the suit. The defendant is thereby perpetually enjoined from asserting a right, or from committing an act, contrary to the plaintiff’s rights (Section 37(2)).
• Mandatory injunction. When, to prevent the breach of an obligation, it is necessary to compel the performance of certain acts which the court is capable of enforcing, the court may in its discretion grant an injunction to prevent the breach and also to compel performance of those acts (Section 39).

When a perpetual injunction is granted (Section 38)

It may be granted to prevent the breach of an obligation existing in the plaintiff’s favour, expressly or by implication. Where the obligation arises from a contract, the court is guided by the rules in Chapter II. Where the defendant invades or threatens to invade the plaintiff’s right to, or enjoyment of, property, an injunction may be granted where the defendant is a trustee of the property, where there is no standard for ascertaining the actual damage, where compensation in money would not give adequate relief, or where it is necessary to prevent a multiplicity of judicial proceedings.

When an injunction is refused (Section 41)

Among other cases, an injunction cannot be granted to restrain a pending judicial proceeding unless necessary to prevent a multiplicity of proceedings; to prevent the breach of a contract whose performance would not be specifically enforced; to prevent a continuing breach in which the plaintiff has acquiesced; where equally efficacious relief can certainly be obtained by any other usual mode of proceeding; where the plaintiff’s own conduct disentitles him; or where the plaintiff has no personal interest in the matter.

Damages and negative agreements

• A plaintiff in a suit for perpetual or mandatory injunction may also claim damages, in addition to or instead of the injunction, if claimed in the plaint (Section 40).
• Where a contract has an affirmative agreement coupled with a negative agreement, the fact that the court cannot compel specific performance of the affirmative part does not stop it from granting an injunction to perform the negative agreement, if the plaintiff has performed his part (Section 42).

Sections: 36373839404142

Ans: Both arise when two parties exchange proposals, but they work differently.

Counter offer

A counter offer is a reply to an offer that changes its terms. Under Section 7(1) of the Indian Contract Act, 1872, an acceptance must be absolute and unqualified to turn a proposal into a promise. A reply that adds a condition or changes a term is therefore not an acceptance. It is a fresh proposal.

Hyde v. Wrench (1840)

Wrench offered to sell his farm to Hyde for £1,000. Hyde replied offering £950. Wrench refused that, and Hyde then said he agreed to buy at £1,000. Lord Langdale held that there was no contract. By making a counter offer, Hyde had rejected the original offer, and he could not later revive it by accepting it.

Cross offer

Cross offers are identical offers made by two persons to each other, each unaware of the other’s offer. In Tinn v. Hoffman (1873), the defendant offered to sell 800 tons of iron at 69s a ton, and on the same day the plaintiff offered to buy it on the same terms. The court held that there was no contract. Blackburn J said that where each side makes an offer in ignorance of the other, neither can be construed as an acceptance of the other.

Difference

• A counter offer is made in reply to an offer. Cross offers cross each other, with neither side knowing of the other’s offer.
• A counter offer changes the terms. Cross offers have identical terms.
• A counter offer rejects the original offer. Cross offers do not create a contract, because neither is an acceptance.

Sections: 2(a)2(b)7

Ans: Contracts are classified by whether the parties have carried out their promises. The Indian Contract Act, 1872 does not use these words, but the classification follows from Section 2(d), which treats an act, an abstinence or a promise as consideration, and from Sections 37 to 39 on performance.

Executed contract

• A contract in which one or both parties have fully performed their obligations.
• Where both sides have performed, nothing remains to be done and the contract is discharged by performance (Section 37).
• Where one side has performed, the other still owes a promise. This is sometimes called a unilateral contract, as in Carlill v. Carbolic Smoke Ball Co.: the buyer performed by using the ball, and the company’s promise to pay the reward remained.
• Example: A buys a book from a shop and pays the price in cash on delivery. Both promises are performed on the spot.

Executory contract

• A contract in which the obligations of both parties are yet to be performed, wholly or in part. The promises are to be carried out in the future.
• A contract made by an exchange of promises is a bilateral contract, and until performance it is executory (Section 2(f), reciprocal promises).
• Example: A promises to deliver 100 bags of wheat on 1 March, and B promises to pay Rs 50,000 on delivery. Neither has yet acted.
• If one party then breaches, the other may sue for damages under Section 73.

Executory and executed consideration

• Executed consideration: an act done in return for a promise. The act is complete when the promise is made.
• Executory consideration: a promise made in return for a promise. The performance is to take place later.

Difference

• Performance: complete (executed) or pending (executory).
• Remedy on breach: where one side has performed, he sues for what the other still owes. In an executory contract, either side may sue for damages if the other breaks his promise.
• Rights: both are valid and enforceable. The classification describes the stage of the contract, not its validity.

Sections: 2(d)2(f)3773

Ans: Yes. Under Section 11 of the Indian Contract Act, 1872, every person is competent to contract who is of the age of majority according to the law to which he is subject, is of sound mind, and is not disqualified from contracting by any law to which he is subject. A minor is not of the age of majority, so he is not competent to contract.

Mohori Bibee v. Dharmodas Ghose (1903)

Position of necessaries

Section 68 gives a person who supplies necessaries suited to the condition in life of a person incapable of contracting a right to be reimbursed from that person’s property. The liability is on the property and not on the minor personally.

Sections: 11646568

Ans: Remote damages are loss that does not arise naturally from the breach and was not in the contemplation of the parties when they made the contract. Section 73 of the Indian Contract Act, 1872 says that compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach.

What can be claimed

Compensation is given for loss that naturally arose in the usual course of things from the breach, or which the parties knew, when they made the contract, to be likely to result from it.

Hadley v. Baxendale (1854)

Illustrations in Section 73

• A contracts to pay B on a day specified. A does not pay, and B, unable to pay his debts, is ruined. A is liable only for the principal sum and interest up to the day of payment (illustration (n)).
• A contracts to sell and deliver 500 bales of cotton to B on a fixed day and knows nothing of B’s mode of conducting his business. A breaks his promise and B, having no cotton, has to close his mill. A is not responsible for the loss caused by closing the mill (illustration (p)).
• A delivers a machine to B, a common carrier, for delivery without delay, telling B that A’s mill is stopped for want of it. B delays, and A loses a profitable Government contract. A may recover the average profit the mill would have made during the delay, but not the loss of the Government contract (illustration (i)).

Sections: 73

Ans: The doctrine of frustration, or supervening impossibility, is contained in Section 56 of the Indian Contract Act, 1872. It deals with a contract that cannot be performed because of an event that occurs after it was made.

What Section 56 says

• An agreement to do an act impossible in itself is void.
• 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.
• Where a 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, he must compensate the promisee for any loss through non-performance.

Conditions

• There is a valid contract.
• Some part of it remains to be performed.
• After the contract is made, performance becomes impossible or unlawful.
• The event is one the promisor could not prevent.

Illustrations in the Act

• A and B contract to marry each other. Before the time fixed, A goes mad. The contract becomes void (illustration (b)).
• A contracts to take in cargo for B at a foreign port. A’s Government afterwards declares war against the country where the port is situated. The contract becomes void when war is declared (illustration (d)).
• A contracts to act at a theatre for six months in consideration of a sum paid in advance. On several occasions A is too ill to act. The contract to act on those occasions becomes void (illustration (e)).

Case: Robinson v. Davison (1871)

Robinson engaged Mrs Davison, a pianist, to perform at a concert through her husband. On the morning of the concert she was ill and could not perform. The court held that the contract was discharged by her illness, because it depended on her personal performance.

Effect

When the contract becomes void, a person who received an advantage under it must restore it or compensate for it (Section 65).

Sections: 5665

Ans: A standard form contract is a contract on printed terms, prepared by one party, which the other party is asked to accept as they stand, without any real chance to negotiate. Insurance policies, bank forms and railway tickets are common examples.

The problem

The party who drafts the terms is usually in a stronger position, and the other party has no choice but to accept or walk away. Unfair terms can be placed in the fine print.

The law

Section 23 of the Indian Contract Act, 1872 makes the object or consideration of an agreement unlawful if the court regards it as immoral or opposed to public policy, and such an agreement is void.

Case: Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly (1986)

The service rules of the corporation allowed it to terminate a permanent employee on three months’ notice, or pay in lieu, without giving any reason. The Supreme Court held that unconscionable contracts imposed by a party in a position of dominance are against public policy under Section 23, and that courts have both the power and the duty to strike them down.

Sections: 23

Ans: Appropriation means applying a payment to a particular debt when a debtor owes several distinct debts to one creditor. It is governed by Sections 59 to 61 of the Indian Contract Act, 1872.

• Section 59: if the debtor, with express intimation or under circumstances implying it, says that the payment is to be applied to a particular debt, the payment, if accepted, must be applied accordingly.
• Section 60: if the debtor has not intimated and nothing shows which debt is meant, the creditor may apply it at his discretion to any lawful debt actually due and payable to him, whether or not its recovery is barred by limitation.
• Section 61: if neither party appropriates, the payment is applied to the debts in order of time, whether or not barred by limitation. If the debts are of equal standing, it is applied to each proportionably.

Essential elements

• the debtor owes several distinct debts to the same creditor;
• a payment is made that is not enough to discharge all of them; and
• the rules of Sections 59 to 61 are followed in the order stated.

Sections: 596061

Ans: An anticipatory breach happens when a party refuses to perform, or disables himself from performing, his promise before the time for performance has arrived. Section 39 of the Indian Contract Act, 1872 deals with it: 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.

The promisee’s choices

• End the contract and claim compensation for the loss caused (Section 73), without waiting for the date of performance.
• Keep the contract alive by words or conduct. He then cannot afterwards put an end to it for that refusal. Illustration (b) to Section 39: a singer misses a night and the manager lets her sing the next night. The manager has accepted the contract’s continuance and cannot now end it, but is entitled to compensation for the missed night.

Case: Hochster v. De La Tour (1853)

Sections: 3973

Ans: A proposal ceases to exist, or is revoked, in the four ways listed in Section 6 of the Indian Contract Act, 1872. When it lapses it can no longer be accepted.

• Notice of revocation. By the proposer communicating notice of revocation to the other party. The proposer may revoke at any time before the communication of acceptance is complete as against him (Sections 5 and 6(1)).
• Lapse of time. By the lapse of the time prescribed in the proposal for its acceptance, or, if no time is prescribed, by the lapse of a reasonable time, without communication of the acceptance (Section 6(2)).
• Failure of a condition precedent. By the failure of the acceptor to fulfil a condition precedent to acceptance (Section 6(3)).
• Death or insanity of the proposer. If the fact of his death or insanity comes to the acceptor’s knowledge before acceptance (Section 6(4)).

Sections: 56

Ans: A declaratory decree is a court order that declares that the plaintiff has a legal character or a right to property. It does not order the defendant to do or pay anything. Section 34 of the Specific Relief Act, 1963 governs it.

Section 34

Any person entitled to any legal character, or to any right as to any property, may institute a suit against any person denying, or interested to deny, his title to that character or right. The court may in its discretion make a declaration that he is so entitled. The plaintiff need not in such a suit ask for any further relief.

Proviso

No court shall make such a declaration where the plaintiff, being able to seek further relief than a mere declaration of title, omits to do so.

Essentials

• the plaintiff is entitled to a legal character or to a right as to property;
• the defendant denies, or is interested to deny, that title; and
• the plaintiff is not omitting a further relief that he is able to seek.

Effect of the declaration (Section 35)

A declaration is binding only on the parties to the suit, on persons claiming through them, and, where any of the parties are trustees, on the persons for whom those parties would be trustees if they were in existence at the date of the declaration.

Sections: 3435

Ans: Both misrepresentation (Section 18) and fraud (Section 17) are false statements or acts that cause a person to enter a contract, but they differ in the state of mind of the person making them.

Misrepresentation (Section 18)

• a 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;
• a breach of duty which, without an intent to deceive, gains an advantage to the person committing it, or anyone claiming under him, by misleading another to his prejudice; and
• causing, however innocently, a party to make a mistake as to the substance of the thing which is the subject of the agreement.

Fraud (Section 17)

Fraud means any of these acts committed by a party to a contract, or with his connivance, or by his agent, with intent to deceive another party or to induce him to enter into the contract: suggesting as a fact that which is not true by one who does not believe it to be true; active concealment of a fact by one having knowledge or belief of it; a promise made without any intention of performing it; any other act fitted to deceive; and any act or omission the law specially declares fraudulent. Mere silence is not fraud unless there is a duty to speak or the silence is equivalent to speech.

Differences

• Fraud needs an intent to deceive. Misrepresentation does not.
• In fraud the speaker does not believe his statement. In misrepresentation he may believe it to be true.
• Under Section 19, in both cases the contract is voidable at the option of the party whose consent was caused. A party deceived by fraud or misrepresentation may instead insist on performance and to be put in the position he would have been in if the representation had been true.
• The exception to Section 19 applies to misrepresentation, or to silence fraudulent under Section 17: the contract is not voidable if the party had the means of discovering the truth with ordinary diligence.

Sections: 171819

Ans: Hadley v. Baxendale (1854), decided by the Court of Exchequer, is the leading case on how far a party must pay for the consequences of breaking a contract.

The rule

Where two parties have made a contract which one has broken, the damages the other ought to receive should be such as may fairly and reasonably be considered either:

• arising naturally, that is, according to the usual course of things, from the breach itself; or
• such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach.

If special circumstances were communicated by the plaintiff to the defendant and so known to both, the damages are the injury that would ordinarily follow from a breach in those circumstances. If the special circumstances were wholly unknown to the party breaking the contract, he is taken to have contemplated only the injury that arises generally, in the great multitude of cases not affected by special circumstances.

In India

Section 73 of the Indian Contract Act states the same principle: compensation for loss that naturally arose in the usual course of things, or which the parties knew when they made the contract to be likely to result from the breach, but not for remote and indirect loss.

Sections: 73

Ans: This follows from the definitions in Section 2 of the Indian Contract Act, 1872.

• An agreement is every promise and every set of promises forming the consideration for each other (Section 2(e)).
• A contract is an agreement enforceable by law (Section 2(h)).
• An agreement not enforceable by law is void (Section 2(g)).

All contracts are agreements

Every contract is an agreement that the law enforces. Without an agreement there can be no contract.

All agreements are not contracts

An agreement becomes a contract only when it satisfies Section 10: it must be made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and must not be expressly declared void. These conditions are explained in Sections 11 to 30. An agreement that fails them is not a contract. Examples in the Act:

• An agreement without consideration is void (Section 25). A promises, for no consideration, to give B Rs 1,000. This is a void agreement.
• An agreement whose object is unlawful is void (Section 23). A, B and C agree to divide among themselves gains acquired by fraud. The agreement is void.
• An agreement in restraint of marriage or trade is void (Sections 26 and 27), and so is an agreement by way of wager (Section 30).

Conclusion

Agreement is the wider term, and contract is the narrower. Contract is an agreement plus legal enforceability.

Sections: 2(e)2(g)2(h)102325

Ans: Accord and satisfaction means that the promisee agrees to accept something different from what was promised, in discharge of the original promise. The Indian Contract Act, 1872 recognises it in Section 63, which says that 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.

Illustrations in the Act

• A owes B Rs 5,000. A pays to B, and B accepts, in satisfaction of the whole debt, Rs 2,000 paid at the time and place at which the Rs 5,000 were payable. The whole debt is discharged (illustration (b)).
• A owes B Rs 5,000. C pays B Rs 1,000, and B accepts it in satisfaction of his claim on A. This payment is a discharge of the whole claim (illustration (c)).
• A owes B a sum of money, the amount of which has not been ascertained. A, without ascertaining the amount, gives B, and B in satisfaction accepts, Rs 2,000. This discharges the whole debt, whatever its amount (illustration (d)).
• A owes B Rs 2,000 and is also indebted to other creditors. A arranges with his creditors, including B, to pay each eight annas in the rupee. Payment to B of Rs 1,000 discharges B’s demand (illustration (e)).

Related provision

Under Section 62, if the parties agree to substitute a new contract for the old one, or to rescind or alter it, the original contract need not be performed.

Sections: 6263

Ans: Section 23 of the Indian Contract Act, 1872 says that the consideration or object of an agreement is lawful unless it is forbidden by law, would defeat the provisions of any law if permitted, is fraudulent, involves or implies injury to the person or property of another, or is regarded by the court as immoral or opposed to public policy. In each of these cases the consideration or object is unlawful, and every agreement of which the object or consideration is unlawful is void.

Examples from the Act

• A, B and C agree to divide among themselves gains acquired by fraud. The object is unlawful (illustration (e)).
• A promises to obtain for B an employment in the public service and B promises to pay Rs 1,000. The consideration is unlawful (illustration (f)).
• A, an agent for a landed proprietor, agrees for money, without his principal’s knowledge, to obtain a lease of the principal’s land for B. This implies a fraud by concealment on the principal (illustration (g)).
• A, who is B’s mukhtar, promises to use his influence with B in favour of C, and C promises A Rs 1,000. The agreement is void because it is immoral (illustration (j)).
• A agrees to let her daughter to hire to B for concubinage. The agreement is void because it is immoral (illustration (k)).

Partly unlawful agreements (Section 24)

If any part of a single consideration for one or more objects, or any part of one of several considerations for a single object, is unlawful, the agreement is void. Illustration: A promises to superintend a legal manufacture of indigo and an illegal traffic in other articles for B at a salary of Rs 10,000 a year. The agreement is void.

Sections: 2324

Ans: Sections 36 to 39 of the Specific Relief Act, 1963 deal with these injunctions.

Temporary and perpetual injunctions (Section 37)

• Duration. A temporary injunction continues until a specified time or the further order of the court. A perpetual injunction is permanent.
• Stage. A temporary injunction may be granted at any stage of a suit. A perpetual injunction can be granted only by a decree made at the hearing.
• Basis. A perpetual injunction is granted upon the merits of the suit.
• Governing law. Temporary injunctions are regulated by the Code of Civil Procedure, 1908. Perpetual injunctions are governed by the Specific Relief Act, 1963.
• Effect. By a perpetual injunction the defendant is perpetually enjoined from asserting a right, or committing an act, contrary to the plaintiff’s rights.

Mandatory and prohibitory injunctions

• Mandatory (Section 39). It compels the performance of certain acts, when that is necessary to prevent the breach of an obligation and the court is capable of enforcing it. The court may also prevent the breach complained of.
• Prohibitory. It restrains a person from doing an act. Section 37(2) describes it when it says the defendant is enjoined from asserting a right or committing an act contrary to the plaintiff’s rights. The Act does not use the word “prohibitory”.

Sections: 36373839

Ans: Rectification means correcting a written instrument so that it states what the parties really intended. Section 26 of the Specific Relief Act, 1963 deals with it.

Section 26

• When it applies. When, through fraud or a mutual mistake of the parties, a contract or other instrument in writing (not being the articles of association of a company) does not express their real intention, either party may institute a suit for rectification, claim it within a pending suit, or raise it as a defence.
• Discretion. The court may in its discretion direct rectification so as to express the real intention, so far as this can be done without prejudice to rights acquired by third persons in good faith and for value.
• Enforcement. A contract may first be rectified and then, if prayed for, specifically enforced.

Essentials

• a written contract or instrument;
• fraud or a mutual mistake of the parties;
• the instrument does not express the parties’ real intention; and
• rights of third persons who acquired them in good faith and for value are not prejudiced.

Sections: 26

Ans: A perpetual injunction is a permanent order of the court that stops a person from asserting a right or doing an act contrary to the plaintiff’s rights. Sections 37 to 42 of the Specific Relief Act, 1963 govern it.

• How granted (Section 37(2)). It can be granted only by a decree made at the hearing and upon the merits of the suit. The defendant is thereby perpetually enjoined from asserting a right, or committing an act, contrary to the plaintiff’s rights.
• For what (Section 38(1)). To prevent the breach of an obligation existing in the plaintiff’s favour, expressly or by implication.
• Contract (Section 38(2)). Where the obligation arises from contract, the court is guided by the rules in Chapter II.
• Property (Section 38(3)). Where the defendant invades or threatens to invade the plaintiff’s right to, or enjoyment of, property, an injunction may be granted where the defendant is a trustee of the property, there is no standard for ascertaining actual damage, compensation in money would not give adequate relief, or it is necessary to prevent a multiplicity of judicial proceedings.
• Damages (Section 40). The plaintiff may also claim damages in addition to or instead of the injunction, if claimed in the plaint.
• When refused (Section 41). For example, where equally efficacious relief can certainly be obtained by another usual mode of proceeding, where the plaintiff’s conduct disentitles him, or where he has no personal interest in the matter.
• Negative agreements (Section 42). An injunction to perform a negative agreement can be granted even though specific performance of the affirmative part cannot be compelled.

Sections: 3738404142

Ans: Consensus ad idem is a Latin phrase meaning agreement on the same thing in the same sense. Section 13 of the Indian Contract Act, 1872 puts it this way: two or more persons are said to consent when they agree upon the same thing in the same sense. Consent is a condition of a valid contract under Section 10.

When it is missing

Where the parties do not understand the subject matter in the same sense, there is no real agreement. Section 20 deals with the case where both parties are under a mistake as to a matter of fact essential to the agreement. The agreement is void. Illustration (b): A agrees to buy a certain horse from B, but the horse was dead at the time of the bargain, though neither party knew. The agreement is void.

Case: Raffles v. Wichelhaus (1864)

Sections: 101320

Ans: Section 15 of the Indian Contract Act, 1872 defines coercion as committing, or threatening to commit, any act forbidden by the Indian Penal Code, or unlawfully 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. It is immaterial whether the Indian Penal Code is in force in the place where the coercion is employed.

Effect

• Consent caused by coercion is not free consent (Section 14).
• The agreement is a contract voidable at the option of the party whose consent was so caused (Section 19).
• A person to whom money has been paid, or anything delivered, under coercion must repay or return it (Section 72). Illustration (b): a railway company refuses to deliver goods unless an illegal charge is paid, and the consignee pays to obtain them. He may recover the illegally excessive part.

Sections: 14151972

Ans: A minor is not competent to contract (Section 11). The effects of his agreement were settled by the Privy Council in Mohori Bibee v. Dharmodas Ghose (1903).

• The agreement is void. The Privy Council held that a minor’s agreement is absolutely void. In that case a minor’s mortgage of his houses to secure Rs 20,000 was declared void.
• No estoppel where the truth is known. The lender argued that the minor was estopped under Section 115 of the Evidence Act, because he had declared that he was of age. The Privy Council held that there can be no estoppel where the truth is known to both parties. The lender’s attorney knew the real facts and was not misled.
• Sections 64 and 65 do not apply. These sections start from an agreement between competent parties and have no application where there never was, and never could have been, a contract. The minor was not made to return the money he had received.
• Necessaries. A person who supplies necessaries suited to the condition in life of a person incapable of contracting is entitled to be reimbursed from that person’s property (Section 68).

Sections: 11646568

Ans: A specific offer is an offer made to a particular person. Only that person can accept it. The Indian Contract Act, 1872 supports this. Under Section 2(a), a proposal is made when one person signifies his willingness to do or abstain from doing something “to another”. Under Section 2(b), the proposal is accepted when “the person to whom the proposal is made” signifies his assent.

Case: Boulton v. Jones (1857)

The plaintiff bought the business of Brocklehurst, a hose manufacturer, with whom the defendants had dealt before and with whom they had a running account. On the same day the defendants sent a written order addressed to Brocklehurst. The plaintiff supplied the goods and sent an invoice. The defendants said they knew nothing of him, because they had meant to deal with Brocklehurst, against whom they had a set-off. The Court of Exchequer held that the plaintiff could not sue for the price. Pollock CB said that if you propose to make a contract with A, B cannot substitute himself for A without your consent and to your disadvantage.

Sections: 2(a)2(b)

Ans: Section 29 of the Indian Contract Act, 1872 says that agreements, the meaning of which is not certain, or capable of being made certain, are void. The parties must know the exact nature of their rights and duties, so a court cannot enforce vague terms.

Illustrations in the Act

• A agrees to sell to B “a hundred tons of oil”. There is nothing to show what kind of oil was intended. The agreement is void for uncertainty (illustration (a)).
• A agrees to sell to B one hundred tons of oil of a specified description, known as an article of commerce. There is no uncertainty here (illustration (b)).
• A, a dealer in cocoanut-oil only, agrees to sell to B “one hundred tons of oil”. The nature of A’s trade shows what he meant, so the agreement is for cocoanut-oil (illustration (c)).
• A agrees to sell to B “all the grain in my granary at Ramnagar”. There is no uncertainty (illustration (d)).
• A agrees to sell to B “one thousand maunds of rice at a price to be fixed by C”. The price is capable of being made certain, so the agreement is not void (illustration (e)).
• A agrees to sell to B “my white horse for rupees five hundred or rupees one thousand”. There is nothing to show which price was to be given. The agreement is void (illustration (f)).

Sections: 29

Ans: Damages are the compensation a court awards for breach of contract. This answer covers the kinds recognised by the Indian Contract Act, 1872 and the case law in our judgment files.

• Damages for natural and probable loss (Section 73). Loss that naturally arose in the usual course of things from the breach, or which the parties knew when they made the contract to be likely to result from it.
• Remote and indirect loss. Not recoverable (Section 73). This is the rule in Hadley v. Baxendale.
• Damages for failure to discharge a quasi-contractual obligation (Section 73). A person injured by the failure to discharge an obligation resembling those created by contract is entitled to the same compensation as if there had been a contract.
• Liquidated damages or penalty (Section 74). Where a sum is named in the contract as payable on breach, or there is a stipulation by way of penalty, the party complaining gets reasonable compensation not exceeding the amount named, whether or not actual loss is proved. Fateh Chand v. Balkishan Dass (1963) held that the court awards only reasonable compensation, not exceeding the amount named in the contract, even when the contract provides for forfeiture of money already paid.
• Compensation on rescission (Sections 53, 55 and 75). A party who rightfully rescinds a contract can claim compensation for the damage he suffered.

Other labels used in textbooks, such as nominal, aggravated and exemplary damages, are not defined in the Act and are not covered here.

Sections: 5355737475

Ans: A temporary injunction (also called an interim or interlocutory injunction) is a court order that restrains the defendant for a limited time, usually until the suit is decided. Section 37(1) of the Specific Relief Act, 1963 describes it. It continues until a specified time or until the further order of the court, and it may be granted at any stage of the suit.

Source of the power

Section 37(1) says temporary injunctions are regulated by the Code of Civil Procedure, 1908. The detailed rules are in Order 39, Rules 1 to 5 of that Code. Rule 1 covers cases where the disputed property is in danger of being wasted, damaged, alienated or wrongly sold in execution, or where the defendant threatens to remove or dispose of his property to defraud creditors, or to dispossess the plaintiff. Rule 2 covers restraint of breach of contract or other injury.

Conditions for grant

• Prima facie case: the plaintiff has a case that raises a serious question to be tried.
• Balance of convenience: greater harm would be caused to the plaintiff by refusing the order than to the defendant by granting it.
• Irreparable injury: the plaintiff would suffer loss that cannot be adequately made good by damages.

These three tests are repeated by the Supreme Court in many decisions, including Dalpat Kumar v. Prahlad Singh (1992).

Limits

• Section 41 lists cases where an injunction is refused, for example to stay a judicial proceeding, to prevent the breach of a contract that could not be specifically enforced, or where the plaintiff’s own conduct disentitles him.
• Under Section 20A, inserted in 2018, a court cannot grant an injunction in a suit about an infrastructure project in the Schedule if it would delay or impede the project.

Temporary and perpetual injunction compared

A temporary injunction preserves the position until the hearing. A perpetual injunction is part of the final decree and decides the matter on its merits (Section 37(2)).

Sections: 36374120A

Ans: The Specific Relief (Amendment) Act, 2018 (Act 18 of 2018) amended the Specific Relief Act, 1963. It came into force on 1 October 2018. Its main aim was to make specific performance of contracts the general rule and to speed up the enforcement of infrastructure contracts.

Main changes

• Section 10 substituted. Specific performance of a contract shall be enforced by the court, subject to Section 11(2), Section 14 and Section 16. Before the amendment it was a discretionary remedy.
• Section 14 substituted. It now lists the contracts that cannot be specifically enforced: where substituted performance has been obtained, continuous duties the court cannot supervise, contracts dependent on personal qualifications, and contracts that are by nature determinable. The old bar for contracts where compensation was an adequate relief was removed.
• Section 20 substituted. It gives the party who suffers a breach the option of substituted performance, through a third party or by his own agency, after giving the defaulter at least thirty days’ written notice. He may recover the expenses from the party in breach. He cannot then claim specific performance.
• Section 16 amended. The plaintiff must prove (not merely aver and prove) readiness and willingness, and a person who has obtained substituted performance cannot sue for specific performance.
• Section 6 amended. The suit for recovery of possession may now also be brought by a person through whom the dispossessed person was in possession, or by any person claiming through him.
• New Section 20A. No injunction may be granted in a suit involving a contract for an infrastructure project in the Schedule if it would delay or impede the project.
• New Section 20B. The State Government, in consultation with the Chief Justice of the High Court, designates one or more Civil Courts as Special Courts to try suits about infrastructure project contracts.
• New Section 20C. Such suits must be disposed of within twelve months from the date of service of summons on the defendant, a period that the court may extend by up to six months in writing.
• New clause (ha) in Section 41. An injunction cannot be granted where it would impede or delay an infrastructure project.
• Section 21 amended. The plaintiff may claim compensation for the breach only in addition to specific performance. The earlier words “or in substitution of” were removed from sub-section (1).

Effect

• Specific performance is now the rule, and refusal is the exception.
• Parties get a right to have the contract performed by someone else and to claim the cost from the defaulter.
• Infrastructure contracts are protected from delay by injunctions.

Sections: 61014162020A20B20C2141

Ans: Chapter I of Part II of the Specific Relief Act, 1963 (Sections 5 to 8) gives specific relief by way of recovery of possession of property. Sections 5 and 6 deal with immovable property. Sections 7 and 8 deal with movable property.

Immovable property

• Section 5. A person entitled to the possession of specific immovable property may recover it in the manner provided by the Code of Civil Procedure, 1908. He may sue on his title.
• Section 6. A person who is dispossessed without his consent, otherwise than in due course of law, may sue to recover possession even though the defendant sets up another title. This is a summary suit meant to prevent people from taking the law into their own hands.

Conditions of a suit under Section 6

• The plaintiff must have been in possession and dispossessed without his consent.
• The dispossession must be otherwise than in due course of law.
• The suit must be brought within six months from the date of dispossession.
• The suit cannot be brought against the Government.
• No appeal lies from the order or decree, and no review is allowed.
• The defendant’s title is not examined. A person who loses may still sue on title to establish his title and recover possession (Section 6(4)).

Movable property

• Section 7. A person entitled to the possession of specific movable property may recover it in the manner provided by the Code of Civil Procedure. A trustee may sue for possession of movable property for the person for whom he is trustee. A special or temporary right to present possession is enough.
• Section 8. A person who has possession or control of a particular article but is not its owner may be compelled to deliver it to the person entitled to immediate possession in these cases: (a) he holds it as the agent or trustee of the plaintiff; (b) compensation in money would not give adequate relief; (c) it would be extremely difficult to ascertain the actual damage; (d) possession has been wrongfully transferred from the plaintiff. In cases (b) and (c) the court presumes, until the contrary is proved, that money is not adequate and that damage is difficult to measure.

Sections: 5678

Ans: Carlill v. Carbolic Smoke Ball Co. [1893] 1 QB 256 (Court of Appeal) is the leading case on general offers, acceptance by performance and the difference between an offer and a mere advertising puff.

Facts

• On 13 November 1891 the company advertised in newspapers that it would pay £100 to any person who caught influenza, colds or any disease caused by taking cold after using its carbolic smoke ball three times daily for two weeks according to the printed directions.
• The advertisement said that £1,000 was deposited with the Alliance Bank, Regent Street, to show the company’s sincerity.
• Mrs Carlill bought a ball on the faith of the advertisement. She used it as directed from 20 November 1891 to 17 January 1892 and then caught influenza.
• She sued for £100. The trial judge decreed it, and the company appealed.

Issues

• Was the advertisement a mere puff, or a real offer intended to create legal relations?
• Was it too vague, because it fixed no time limit for catching influenza, or because it was addressed to the world at large?
• Did she have to notify acceptance to the company?
• Was there consideration for the promise?
• Was the transaction a wager, or a policy of insurance, and therefore void or unenforceable?

Decision

• Not a puff. The deposit of £1,000 with the Alliance Bank showed the company’s intention to be bound.
• A valid general offer. An offer may be made to the world at large. It becomes a contract with any person who comes forward and performs the conditions.
• No notice of acceptance needed. The company, by the terms of its offer, waived the need to be told of acceptance. Performing the conditions was acceptance. This is the rule in Section 8 of the Indian Contract Act.
• Consideration existed. The use of the smoke ball as directed was an inconvenience to her and a benefit to the company, since it sold more balls.
• Not a wager. The plaintiff risked nothing on the uncertain event, because she could not lose anything by it. The court therefore did not treat it as a wager.
• Not too vague. The court read the offer reasonably, as covering influenza caught while using the ball as directed, so the terms could be enforced.

Law laid down

A general offer made to the public is a binding promise if it shows an intention to be bound. Anyone who acts on it by performing its terms accepts it, and no separate communication of acceptance is needed. Indian law follows this view (Sections 2, 4 and 8 of the Indian Contract Act, 1872). In Lalman Shukla v. Gauri Dutt (1913) it was added that the acceptor must know of the offer.

Sections: 2(a)2(d)48

Ans: Section 27 of the Indian Contract Act, 1872 says that every agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind is, to that extent, void. The law protects the freedom to earn a livelihood and encourages competition.

Concept

• The restraint may be total or partial, and limited in time or place. In India, a restraint that is reasonable is not saved merely by being reasonable. It is void unless it falls within an exception.
• This differs from the English rule, where a reasonable restraint is valid. Section 27 is stricter, since the only exception it gives in its text is the sale of goodwill.
• In Nordenfelt v. Maxim Nordenfelt Guns and Ammunition Co. [1894] AC 535, a restraint was upheld in English law only because it was reasonable in the interest of both parties and the public. That test does not apply in India.

Exception (Section 27)

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 there. The limits must appear reasonable to the court, having regard to the nature of the business.

Other recognised exceptions

• Partnership. The Indian Partnership Act, 1932 allows agreements between partners not to carry on a competing business while they are partners (Section 11(2)) and, after retirement or dissolution, within specified limits (Sections 36(2) and 54).
• Employment during the term. A clause that stops an employee from working for a competitor during his employment is valid. In Niranjan Shankar Golikari v. Century Spinning and Manufacturing Co. (1967) the Supreme Court upheld a negative covenant operating during the term of employment.

After the term

• A restraint that continues after the contract has ended is void under Section 27. In Percept D’Mark (India) Pvt. Ltd. v. Zaheer Khan (2006) the Supreme Court held that a post-term restraint on a cricketer’s right to sign with others was void.
• A restraint by way of a negative covenant that operates only during the contract is not treated as a restraint of trade.

Examples

• A sells his bakery and goodwill in Hyderabad to B and agrees not to open another bakery within Hyderabad for five years. This is valid as a sale of goodwill if the limits are reasonable.
• A, an employee, agrees that after leaving the job he will never work for any other firm in the same trade anywhere in India. This is void.

Sections: 27

Facts of the case

• A husband promised his wife that he would give her Rs 3,000 every month for running the family.
• He committed a breach of that promise.

Issues in the case

• Can the wife sue her husband for breach of contract?
• Did the husband intend his promise to be legally binding?

Principle

Under Section 10, an agreement is a contract only if it is enforceable by law. Besides the usual elements, the parties must intend the agreement to create legal relations. Courts presume that agreements of a social or domestic kind, especially between husband and wife living together, carry no such intention. The law of contract was not made to govern the ordinary arrangements of family life.

This problem is similar to the leading case Balfour v. Balfour (1919).

Judgement

The husband’s promise to give Rs 3,000 a month was made inside the family to meet household expenses. Nothing in the facts shows that the couple meant it to be a legal bargain. As in Balfour v. Balfour, it is a domestic arrangement and not an agreement made with an intention to create legal relations.

Answer: The wife cannot sue her husband for breach of contract, because there was no contract at all.

Facts of the case

• A agrees to pay B a sum of money if B marries C.
• C marries D.
• B now asks what remedy he has.

Issues in the case

• Is the agreement between A and B still enforceable after C marries D?
• Can B claim the money or any compensation from A?

Principle

This is a contingent contract. Section 31 defines it as a contract to do or not to do something if some event, collateral to the contract, does or does not happen. Here A’s duty to pay depends on the event that B marries C.

Section 32 says a contingent contract to do something if an uncertain future event happens cannot be enforced until that event happens. If the event becomes impossible, the contract becomes void.

Section 34 deals with an event that depends on how a living person will act. It is treated as impossible once that person does something that makes it impossible for him to act in the required way within any definite time. The Act gives this very example: A agrees to pay B a sum of money if B marries C, and C marries D. The marriage of B to C must now be considered impossible, although D may die and C may later marry B.

Judgement

When C married D, she did an act that made the marriage of B and C impossible. By Section 34 the event is treated as impossible, and by Section 32 the contingent contract becomes void. A therefore has no duty to pay.

B has no right to compensation either. A void contract cannot be enforced, and A has not broken any promise that the law can enforce.

Answer: B has no remedy against A. The contract became void when C married D.

Sections: 313234

Facts of the case

• A owes B Rs 2,000.
• The debt is barred by the Limitation Act.
• A orally promises to pay the debt.

Issues in the case

• Is A’s oral promise to pay a time-barred debt an enforceable contract?
• Can B recover the Rs 2,000 on that promise?

Principle

Section 25 of the Indian Contract Act, 1872 says that an agreement made without consideration is void, unless it falls within one of the cases listed in the section. Clause (3) is the case of a time-barred debt. It makes the agreement a contract if:

• it is a promise made in writing;
• it is signed by the person to be charged with it, or by his agent generally or specially authorised in that behalf; and
• it is a promise to pay, wholly or in part, a debt of which the creditor might have enforced payment but for the law for the limitation of suits.

Where these conditions are met, the Act says “such an agreement is a contract”. Illustration (e) to Section 25 gives the example: A owes B Rs 1,000, but the debt is barred by the Limitation Act. A signs a written promise to pay B Rs 500 on account of the debt. This is a contract.

Section 60 also deals with such debts. Where a debtor does not say to which debt a payment is to be applied, the creditor may apply it at his discretion to any lawful debt actually due and payable to him, whether its recovery is or is not barred by the law of limitation.

Judgement

A’s promise to pay the barred debt was only oral. Section 25(3) requires a promise that is in writing and signed. The oral promise therefore does not come within the exception, and an agreement without consideration is void under Section 25. B cannot enforce it, and cannot recover the Rs 2,000 through a court on that promise.

B could make the promise enforceable by getting A to sign a written promise to pay the debt, wholly or in part. If A makes a payment without saying which debt it is for, Section 60 allows B to apply it to the barred debt.

Answer: No. B cannot recover the debt on A’s oral promise. Section 25(3) requires a written promise signed by A.

Sections: 25(3)60

Facts of the case

• A, a minor, mortgaged his house to B, a money lender, for Rs 20,000.
• A told B that he was a major.
• B later learned that A is a minor.
• B wants to cancel the contract and get back the money.

Issues in the case

• Is a mortgage by a minor valid?
• Can B enforce the mortgage or recover the Rs 20,000?
• Does A’s false statement of age stop him from pleading minority?

Principle

Section 11 says only a person who is of the age of majority, of sound mind and not disqualified by law can contract. A minor is therefore not competent to contract. The leading case is Mohori Bibee v. Dharmodas Ghose (1903), decided by the Privy Council.

In Mohori Bibee the lender’s attorney knew the minor’s age, so the plea of estoppel failed. The Privy Council also held that Sections 64 and 65 start from an agreement between competent parties and have no application where there never was a contract.

Judgement

A is a minor, so the mortgage is void and creates no legal duty on him. B cannot enforce the mortgage or sue A on the contract. Section 65 asks a person who received a benefit under a void agreement to restore it, but following Mohori Bibee B cannot use it against a minor. In Mohori Bibee the Privy Council held that Sections 64 and 65 do not apply where there never was a contract, so they do not help B.

Answer: B cannot enforce the mortgage or recover the Rs 20,000 from A, because a minor’s agreement is void.

Sections: 1165

Facts of the case

• A, a singer, promised to perform a concert in B’s theatre.
• One day before the performance, A met with an accident.
• Because of the accident she could not perform.
• B wants damages for breach of contract.

Issues in the case

• Is A’s failure to perform a breach of contract?
• Can B claim damages from A?

Principle

Section 56 deals with supervening impossibility, also called the doctrine of frustration. A contract to do an act which, after the contract is made, becomes impossible or, by some event the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.

The Act itself gives an example in illustration (e): A contracts to act at a theatre for six months and is on several occasions too ill to act. The contract to act on those occasions becomes void.

The English case Robinson v. Davison (1871) is similar. Robinson engaged Mrs Davison, a pianist, to perform at a concert through her husband. On the morning of the concert he told Robinson that she was ill and could not perform. The court held that the contract was discharged by her illness, because it depended on her personal ability to perform.

Judgement

A’s contract needed her personal performance, and the accident made that impossible. The accident was not in her control and was not caused by any fault of hers. The contract therefore became void under Section 56 when performance became impossible.

A void contract cannot be breached, so B cannot claim damages. If B had paid any advance, A must return it under Section 65.

Answer: B cannot claim damages. The contract became void because A’s accident made performance impossible.

Sections: 5665

Facts of the case

• X finds a purse on the road.
• The purse was lost by Y.

Issues in the case

• What duties does X owe to Y as the finder of the purse?

Principle

Section 71 says a person who finds goods belonging to another and takes them into his custody is subject to the same responsibility as a bailee. This is a quasi-contract: a duty that the law imposes even though there is no agreement. A bailee’s duties are set out in Sections 151 to 161. The main ones are:

• Reasonable care (Section 151). He must take as much care of the goods as a man of ordinary prudence would take of his own goods of the same kind.
• No unauthorised use (Sections 153 and 154). If he uses the goods in a way not allowed, he must compensate the owner for any damage.
• No mixing (Sections 155 to 157). If he mixes the goods with his own without consent, he must bear the cost of separating them and any damage from the mixture.
• Return of goods (Sections 160 and 161). He must return the goods to the owner as soon as the owner is found, and is responsible for loss if he fails to do so.

The finder also has rights. Under Section 168 he cannot sue the owner for his trouble and expense in preserving the goods, but he may keep the goods until he is paid. If the owner has offered a reward, the finder may sue for it.

Judgement

By taking the purse into his custody, X took on a bailee’s responsibility. He must keep it with ordinary care, must not use or spend its contents, and must return it to Y when Y is found. If X loses or damages the purse through carelessness, he is liable to compensate Y.

Answer: X must take reasonable care of the purse and hand it over to Y, the true owner.

Sections: 71151168

Facts of the case

• A promised to supply fruits to B on 1 January 2013.
• On 20 December 2012, before the due date, A told B he could not deliver.

Issues in the case

• Is A’s refusal a breach of contract before the time for performance?
• What can B do?

Principle

An anticipatory breach happens when a party refuses to perform, or disables himself from performing, before the time for performance has arrived. Section 39 deals with it: when a party has refused to perform his promise in its entirety, the promisee may put an end to the contract, unless by words or conduct he has accepted the contract as continuing.

The promisee therefore has two choices:

• treat the contract as ended and sue for damages at once, without waiting for the due date (Section 39 and Section 73); or
• keep the contract alive, wait for the date of performance, and hold the other party to it. If he does this, he takes the risk that events may change in the meantime, and the other party may still perform.

The English case Hochster v. De La Tour (1853) is the leading authority. In April 1852 De La Tour agreed to employ Hochster as a courier for three months from 1 June 1852. On 11 May he wrote that Hochster was no longer needed, and Hochster sued on 22 May, before 1 June. The court held that he was entitled to sue for the anticipatory breach.

Judgement

A’s statement on 20 December 2012 was a refusal to perform the whole promise before the due date. This is an anticipatory breach. B can treat the contract as ended and sue A for compensation for the loss that naturally arises, such as the extra cost of buying similar fruits elsewhere (Section 73). B must also try to reduce the loss, for example by buying the fruits from another supplier.

Answer: B may end the contract and claim damages from A at once, or wait until 1 January 2013, at his option.

Sections: 3973

Facts of the case

• A offered by letter to sell his car to B for Rs 15,000.
• At the same time, B offered by letter to buy A’s car for Rs 15,000.
• The two letters crossed each other in the post.

Issues in the case

• Is there a concluded contract between A and B?

Principle

A contract needs a proposal and an acceptance of that proposal. Acceptance means assent to a proposal that is already made, and it must be given with knowledge of that proposal (Section 2(b)).

When two persons make identical offers to each other, each unaware of the other’s offer, the offers are called cross offers. Neither is an acceptance of the other, so no contract is formed.

Judgement

A and B made identical offers at the same time, without knowing about each other’s letter. Neither letter is an acceptance of the other. As in Tinn v. Hoffman, these are cross offers and no concluded contract exists. A contract would arise only if one of them later accepted the other’s offer.

Answer: There is no concluded contract between A and B, because cross offers are not an acceptance.

Sections: 2(a)2(b)

Facts of the case

• A promised to give Rs 5,000 to a cyclone relief fund.
• He did not pay.

Issues in the case

• Is A’s promise enforceable?
• Does the fund have a legal remedy against him?

Principle

Consideration is something done, not done or promised at the desire of the promisor, in return for his promise (Section 2(d)). An agreement without consideration is void (Section 25), unless it falls in one of the exceptions in that section. A bare promise to give a gift or a donation is a gratuitous promise. The other side gives nothing, so the promise is not enforceable.

There is one important qualification. In Kedar Nath Bhattacharji v. Gorie Mahomed (1886), the Calcutta High Court dealt with a subscription for building a town hall. Gorie Mahomed had subscribed Rs 100 towards the Howrah Town Hall and did not pay. The Small Causes Court dismissed the suit, but the High Court held that the subscription was an enforceable promise, because the promisee had acted on the promise.

Judgement

The facts do not say that the relief fund took any step, or incurred any liability, on the strength of A’s promise. A has received nothing in return, so the promise has no consideration and is void under Section 25. The fund cannot sue to recover the Rs 5,000.

If the fund had acted on A’s promise, as in Kedar Nath, the position could be different.

Answer: There is no legal remedy on these facts, because the promise is gratuitous and has no consideration.

Sections: 2(d)25

Facts of the case

• A, B and C jointly promised to pay D Rs 3,000.
• A and B cannot be traced.

Issues in the case

• Can D demand the whole Rs 3,000 from C alone?
• What can C do afterwards?

Principle

Section 42 says that when two or more persons make a joint promise, they must all fulfil it during their lives, and after the death of any of them his representative joins the survivors.

Section 43 gives three rules for joint promisors:

• The promisee may, unless there is an express agreement to the contrary, compel any one or more of the joint promisors to perform the whole of the promise.
• Each joint promisor may compel every other joint promisor to contribute equally with himself to the performance.
• If one joint promisor fails to contribute, the remaining promisors must bear the loss from that default in equal shares.

Judgement

There is no agreement that D can claim only a share from each promisor. D may therefore compel C to pay the full Rs 3,000. After paying, C may demand contribution of Rs 1,000 each from A and B. If A and B cannot be traced and he cannot recover from them, the loss is shared as Section 43 provides, and C may recover from their legal heirs where they can be found.

Answer: Yes. D can compel C to pay the whole Rs 3,000, and C may then claim contribution from A and B.

Sections: 4243

Facts of the case

• X instituted a prosecution against B for extortion.
• X promises to drop the prosecution.
• B gives an undertaking to repay the money and things he took away through extortion.

Issues in the case

• Is the agreement between X and B a valid contract?

Principle

Section 23 says the consideration or object of an agreement is unlawful if, among other things, it is forbidden by law, would defeat the provisions of any law, or the court regards it as immoral or opposed to public policy. Every agreement whose object or consideration is unlawful is void.

Judgement

X’s promise to drop a prosecution for extortion, in return for B’s promise to restore what he took, is the same as illustration (h). The consideration for B’s promise is the dropping of a criminal prosecution, which the law does not allow to be bargained for. The object is therefore unlawful and the agreement is void.

Answer: The agreement is void under Section 23, because its object is unlawful.

Sections: 23

Facts of the case

• A proposes by letter to sell his house to B at a certain price.
• B accepts the proposal by a letter sent by post.

Issues in the case

• When is the communication of A’s proposal complete?
• When is B’s acceptance complete?
• Until when can A revoke his proposal?

Principle

Section 4 says the communication of a proposal is complete when it comes to the knowledge of the person to whom it is made. The communication of an acceptance is complete as against the proposer when it is put in a course of transmission to him, so as to be out of the power of the acceptor, and as against the acceptor when it comes to the knowledge of the proposer.

Section 5 allows a proposal to be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards. An acceptance may be revoked at any time before its communication is complete as against the acceptor, but not afterwards.

Judgement

A’s proposal is complete when B receives A’s letter. B’s acceptance is complete as against A at the moment B posts the letter. A may therefore revoke his proposal at any time before or at the moment when B posts his letter of acceptance, but not afterwards (Section 5, illustration). B may revoke his acceptance at any time before or at the moment when the letter reaches A, but not afterwards.

Answer: The acceptance is complete as against A when B posts the letter, and as against B when A receives it. A can no longer revoke his proposal after B has posted the acceptance.

Sections: 45

Facts of the case

• A promises to sell his car to B for Rs 1,50,000 on a certain date.
• B agrees to pay the price on receipt of the car.
• A refuses to sell the car to B.

Issues in the case

• What can B do when A refuses to perform his promise?

Principle

The promises of A and B are reciprocal promises (Section 2(f)). Section 39 says that 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.

Section 73 gives a party who suffers by the breach a right to receive compensation for any loss or damage caused to him, which naturally arose in the usual course of things from the breach, or which the parties knew when they made the contract to be likely to result from it. The Act gives this example: A contracts to buy B’s ship for Rs 60,000 but breaks his promise. A must pay B the excess, if any, of the contract price over the price B can obtain for the ship at the time of the breach (Section 73, illustration (d)).

Judgement

A has refused to perform his promise in its entirety. B may therefore put an end to the contract under Section 39, unless he has shown by words or conduct that he accepts the contract as continuing. B need not pay the price, because B’s promise was to pay on receipt of the car.

B may also claim compensation under Section 73 for the loss caused by the breach, for example the extra amount he has to pay to buy a similar car elsewhere.

Answer: B may end the contract under Section 39 and claim compensation under Section 73.

Sections: 2(f)3973

Facts of the case

• A pays B Rs 10,000 in consideration of B’s promise to marry C, A’s daughter.
• C dies before the marriage.

Issues in the case

• What is the effect of C’s death on the contract?
• Must B return the Rs 10,000?

Principle

Section 56 deals with supervening impossibility. 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 becomes unlawful, becomes void when the act becomes impossible or unlawful.

Section 65 provides that when a contract becomes void, any person who has received any advantage under it is bound to restore it, or to make compensation for it, to the person from whom he received it.

Judgement

The contract was possible when it was made. C’s death before the marriage made performance impossible, and no one could prevent it. By Section 56 the contract became void when C died. B received Rs 10,000 as an advantage under the contract. By Section 65 he must restore it to A.

Answer: The contract becomes void on C’s death, and B must repay the Rs 10,000 to A.

Sections: 5665

Facts of the case

• A invites B to dinner.
• B accepts the invitation.
• B does not turn up at the dinner.

Issues in the case

• Is there a contract between A and B?
• Can A sue B for his loss?

Principle

Under Section 10, only agreements that are contracts are enforceable. Courts also ask whether the parties intended their agreement to create legal relations. Agreements of a social kind are not meant to be attended by legal consequences.

Judgement

A’s invitation and B’s acceptance are an offer and acceptance of hospitality. As Atkin LJ said in Balfour v. Balfour, nobody would suggest that such an agreement results in a contract, because the parties did not intend legal consequences. B’s failure to attend is therefore not a breach of contract.

Answer: A cannot sue B, because a social invitation is not a contract.

Sections: 10

Facts of the case

• X agreed to let his hall to Y for a public entertainment on 1 August 2014.
• On 20 July 2014 the hall was destroyed by fire.

Issues in the case

• What is the effect of the fire on the contract?
• Can either party claim damages from the other?

Principle

Section 56 says 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 becomes unlawful, becomes void when the act becomes impossible or unlawful. This is the doctrine of supervening impossibility, or frustration.

Under Section 65, when a contract becomes void, any person who has received an advantage under it must restore it or make compensation for it. In illustration (d) to Section 65, A is too ill to sing at a concert for which Rs 1,000 were paid in advance. A is not bound to compensate B for the profits B would have made, but must refund the Rs 1,000.

Judgement

The hall was destroyed by an event that neither party could prevent, so it became impossible for X to let it for the entertainment. The contract became void on 20 July 2014 under Section 56. Neither X nor Y can claim damages from the other for breach. If Y had paid any rent or advance, X must restore it under Section 65.

Answer: The contract became void when the hall was destroyed. Neither side can claim damages, and any advance paid must be returned.

Sections: 5665

Facts of the case

• Mr Lal offers to donate Rs 50,000 to an orphanage.
• The orphanage accepts the offer.
• Mr Lal does not pay.

Issues in the case

• Is Mr Lal’s promise to donate enforceable?
• Can the orphanage recover the amount through a court?

Principle

Consideration is something done, abstained from or promised at the desire of the promisor in return for his promise (Section 2(d)). Under Section 25, an agreement made without consideration is void, unless it is registered and made on account of natural love and affection between parties standing in a near relation (clause (1)), is a promise to compensate a person who has already voluntarily done something for the promisor (clause (2)), or is a written and signed promise to pay a time-barred debt (clause (3)).

Explanation 1 to Section 25 says that nothing in the section affects the validity, as between donor and donee, of any gift actually made.

Judgement

The orphanage gave nothing in return for Mr Lal’s promise, and the facts do not bring it within any case in Section 25. The promise is a promise to make a gift in future, and not a gift actually made. It is an agreement without consideration, and it is void.

Answer: The orphanage cannot recover the Rs 50,000, because the promise has no consideration.

Sections: 2(d)25

Facts of the case

• Pradeep hired a godown from Dinesh for ten months.
• He paid the whole rent for the ten months in advance.
• After four months the godown was destroyed by fire.
• Pradeep claims a refund of a proportionate amount of the rent.

Issues in the case

• What is the effect of the destruction of the godown on the contract?
• Can Pradeep recover the rent paid for the remaining months?

Principle

Under Section 56, 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 becomes unlawful, becomes void when the act becomes impossible or unlawful.

Section 65 says that when a contract becomes void, any person who has received any advantage under it is bound to restore it, or to make compensation for it, to the person from whom he received it. In illustration (d), a singer paid in advance is too ill to sing and must refund the sum paid in advance.

Judgement

The fire destroyed the godown, so Dinesh could no longer give Pradeep the use of it. The contract became void from the date of the fire under Section 56. Dinesh was paid the rent for ten months but gave the use of the godown for four. For the remaining six months he has received an advantage under a contract that has become void, and under Section 65 he must restore it.

This answer applies the Contract Act only. A lease of immovable property may also be governed by the Transfer of Property Act, which has not been checked here.

Answer: Pradeep may claim back the rent paid for the period after the fire, under Sections 56 and 65 of the Contract Act.

Sections: 5665

Facts of the case

• The wife of a person died from tin poisoning.
• The poisoning was caused by tinned salmon bought from a dealer.

Issues in the case

• Does anyone owe a duty of care to the consumer of a sealed product?
• Can the husband claim damages for his wife’s death?

Principle

The problem is similar to Donoghue v. Stevenson (1932).

Judgement

Tinned salmon is sold sealed and is meant to reach the consumer in the form in which it left the manufacturer, without any chance of examination on the way. On the principle in Donoghue v. Stevenson, the manufacturer owed the consumer a duty to take reasonable care. If the poisoning came from a lack of that care, the husband can claim damages for his loss.

Donoghue concerned the duty of a manufacturer. The judgment does not decide the position of a dealer who only resells a sealed tin, so that point has not been answered here.

Answer: The husband can claim damages in negligence, on the principle in Donoghue v. Stevenson, from the party who owed the duty of care.

Facts of the case

• A, a friend of B, seeks the help of a few persons to put down a fire in B’s house.
• B promises to give A Rs 10,000 for his timely help.

Issues in the case

• Is B’s promise enforceable?
• Can A recover the Rs 10,000?

Principle

Under Section 25(2), an agreement made without consideration is nevertheless a contract if it is a promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor. In illustration (c), A finds B’s purse and gives it to him, and B promises to give A Rs 50. This is a contract.

Section 2(d) also treats as consideration an act that a person “has done” at the desire of the promisor. Section 70 shows the contrary case: where a person helps another and intended to act gratuitously, he is not entitled to compensation (illustration (b): A saves B’s property from fire).

Judgement

A had already acted voluntarily for B by obtaining help to put out the fire in B’s house. B then promised to pay him Rs 10,000 for it. This is a promise to compensate a person who has voluntarily done something for the promisor, so it is a contract under Section 25(2). B’s later promise removes the question of A acting gratuitously.

Answer: Yes. B’s promise is enforceable under Section 25(2), and A can recover the Rs 10,000.

Sections: 2(d)25(2)70

Facts of the case

• A, B and C jointly promise to pay D Rs 3,000.
• A and B cannot be traced.

Issues in the case

• Can D demand the whole Rs 3,000 from C alone?

Principle

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 (Section 43). Each joint promisor may compel every other to contribute equally with himself, and if one makes default in contribution the remaining joint promisors must bear the loss in equal shares (Section 43).

Judgement

There is no agreement that D may claim only a share from each promisor, so D can compel C to pay the full Rs 3,000. C may then claim contribution from A and B.

Answer: Yes. D can compel C to pay the whole Rs 3,000 under Section 43.

Sections: 4243

Facts of the case

• Mr Das offered to sell his farm to Mr Lal for Rs 80,000.
• Mr Lal said he would buy it for Rs 75,000 only.
• Later, Lal agreed to buy for Rs 80,000.
• Das refused to sell the farm.

Issues in the case

• Was Lal’s first reply an acceptance?
• Could Lal later accept the original offer of Rs 80,000?
• Can Lal sue for specific performance?

Principle

Under Section 2(b) a proposal is accepted when the person to whom it is made signifies his assent. Under Section 7(1) the acceptance must be absolute and unqualified. A reply that changes the terms, such as a lower price, is not an acceptance. It is a counter offer.

Judgement

Lal’s reply that he would buy at Rs 75,000 changed the price, so it was not an absolute and unqualified acceptance. It was a counter offer and rejected Das’s offer of Rs 80,000. As in Hyde v. Wrench, Lal could not later accept the original offer, because it no longer existed. His later agreement to pay Rs 80,000 was a fresh offer, and Das was free to refuse it.

Answer: Lal cannot sue for specific performance, because no concluded contract came into existence.

Sections: 2(b)7

Facts of the case

• Arun fraudulently informs Bhushan that his house is free from encumbrances.
• Bhushan buys the house on that statement.
• The house is subject to a mortgage.

Issues in the case

• Is this fraud?
• Can Bhushan avoid the contract and get back his money?

Principle

Section 17 defines fraud to include the suggestion, as a fact, of that which is not true, by one who does not believe it to be true, committed by a party to a contract with intent to deceive another party or to induce him to enter into the contract.

Section 19 says that when consent to an agreement is caused by fraud, the agreement is a contract voidable at the option of the party whose consent was so caused. That party may instead insist that the contract be performed and that he be put in the position he would have been in if the representations had been true.

A party rescinding a voidable contract must restore any benefit he received under it (Section 64).

Judgement

Arun stated as a fact that the house was free from encumbrances. This was untrue and was said to induce Bhushan to buy. It is fraud under Section 17, and Bhushan’s consent was caused by it. The sale is voidable at Bhushan’s option. He may avoid it and recover the price, restoring any benefit he has received, or insist on the sale being carried out with the mortgage debt redeemed.

Answer: Yes. Bhushan may avoid the contract under Section 19 and get back his money, or insist that the mortgage be redeemed.

Sections: 171964

Facts of the case

• Rajan and Srujan jointly owe Rs 30,000 to Prasad.
• Rajan alone pays the amount to Prasad.
• Srujan, not knowing this, pays Rs 30,000 over again to Prasad.

Issues in the case

• Must Prasad repay the second payment to Srujan?
• Under which provision?

Principle

Section 72 says a person to whom money has been paid, or anything delivered, by mistake or under coercion, must repay or return it. It is one of the relations resembling those created by contract (Chapter V).

Judgement

The facts are the same as in illustration (a). Srujan paid the second Rs 30,000 by mistake, not knowing that Rajan had already paid. Prasad has received money by mistake and must repay it.

Answer: Yes. Prasad must repay Rs 30,000 to Srujan under Section 72.

Sections: 72

Facts of the case

• A conveys land to B.
• B bequeaths the land to C and dies.
• D gets possession of the land.
• D produces a forged instrument stating that the conveyance to B was in trust for D.

Issues in the case

• What relief can C claim against D?

Principle

Three provisions of the Specific Relief Act, 1963 apply.

• Recovery of possession (Section 5). A person entitled to the possession of specific immovable property may recover it in the manner provided by the Code of Civil Procedure, 1908.
• Cancellation of the instrument (Section 31). Any person against whom a written instrument is void or voidable, and who reasonably apprehends that it may cause him serious injury if left outstanding, may sue to have it adjudged void or voidable. The court may in its discretion order it to be delivered up and cancelled.
• Declaration (Section 34). A person entitled to any right as to property may sue a person denying his title for a declaration. The proviso says that no declaration shall be made where the plaintiff, being able to seek further relief than a mere declaration of title, omits to do so.

Judgement

C is entitled to the land under B’s bequest and D has taken possession on the strength of a forged instrument. C can therefore sue D for recovery of possession under Section 5. C can ask in the same suit that the forged instrument be declared void and be delivered up and cancelled under Section 31, because it threatens serious injury to him if left outstanding.

If C also asks for a declaration of his title under Section 34, he must not leave out the further relief of possession that he is able to seek, because of the proviso.

Answer: C should sue D for recovery of possession and for cancellation of the forged instrument, with a declaration of title if he wishes.

Sections: 53134

Facts of the case

• A offers by letter to sell his car to B for Rs 50,000.
• B, at the same time, offers by letter to buy A’s car for Rs 50,000.
• Each receives the other’s letter.

Issues in the case

• Is there a concluded contract between A and B?

Principle

A proposal, when accepted, becomes a promise (Section 2(b)). Acceptance means the person to whom a proposal is made signifies his assent to it. Two proposals made in ignorance of each other, with identical terms, are cross offers.

Judgement

A and B each made an offer without knowing of the other’s offer. Each letter is a proposal, and neither is an acceptance of the other. Nothing in the facts says that either of them afterwards accepted the other’s letter, so no concluded contract exists.

Answer: There is no concluded contract between A and B.

Sections: 2(a)2(b)

Facts of the case

• A sold some land to B.
• Both parties believed in good faith that the land measured 10 hectares.
• It turned out to be 7 hectares only.

Issues in the case

• Is the sale void because of a mistake of both parties?
• Does the wrong statement about the area make the contract voidable?

Principle

Mistake of both parties. Under Section 20, where both parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void. An erroneous opinion as to the value of the thing is not a mistake of fact (Explanation).

Misrepresentation. Section 18(3) includes, in misrepresentation, 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. Under Section 19, a contract whose consent was caused by misrepresentation is voidable at the option of the party whose consent was so caused.

Judgement

The area of the land is a matter of fact and not of value, and the sale was of land of a certain size. Both parties shared the same mistake in good faith. If the area is essential to the agreement, the agreement is void under Section 20.

The statement that the land was 10 hectares can also be treated as an innocent misrepresentation about the substance of the thing sold (Section 18(3)). On that view B’s consent was caused by it, so the contract is voidable at B’s option under Section 19. The two routes lead to B being able to get out of the sale. Use the one your examiner expects, and mention the other.

Answer: The sale is void under Section 20 if the area was essential to it, or voidable at B’s option under Sections 18(3) and 19 as an innocent misrepresentation.

Sections: 181920

Facts of the case

• A left his carriage on B’s premises.
• B’s landlord seized the carriage as distress for rent.
• A paid the rent to obtain its release.

Issues in the case

• Can A recover from B the rent he paid?

Principle

Section 69 says a person who is interested in the payment of money which another is bound by law to pay, and who therefore pays it, is entitled to be reimbursed by the other. It is a relation resembling a contract (Chapter V).

Judgement

The rent was a sum that B was bound by law to pay to his landlord. A was interested in its payment, because his carriage had been seized for it. A paid it to save his carriage. A is therefore entitled to be reimbursed by B.

Answer: Yes. A can recover the amount from B under Section 69.

Sections: 69

Facts of the case

• A invites B to dinner at his house on a Sunday.
• B hires a taxi and reaches A’s house at the appointed time.
• A fails to perform his promise.

Issues in the case

• Is there a contract between A and B?
• Can B enforce the promise or recover the taxi fare?

Principle

Only agreements that are contracts are enforceable (Section 10). Courts ask whether the parties intended the agreement to create legal relations. Social arrangements are not meant to be attended by legal consequences.

Judgement

The invitation to dinner and its acceptance are an offer and acceptance of hospitality. The parties did not intend legal consequences. B’s taxi expense was incurred on his own account and does not turn the invitation into a contract.

Answer: There is no contract, so B cannot enforce A’s promise.

Sections: 10

Facts of the case

• Ms Radha’s house has caught fire.
• Suman voluntarily renders substantial assistance to her.

Issues in the case

• Can Suman claim compensation from Ms Radha?

Principle

Section 70 says that where a person lawfully does anything for another, or delivers anything to him, not intending to do so gratuitously, and the other enjoys the benefit, the other must make compensation for it or restore the thing.

Judgement

Suman acted voluntarily to help Ms Radha when her house was on fire. Nothing in the facts shows that she expected payment, so she acted gratuitously. As in illustration (b), a person who saves another’s property from fire without intending payment cannot claim compensation under Section 70.

Answer: No. Suman acted gratuitously and cannot claim compensation under Section 70.

Sections: 70

Facts of the case

• Smt. Manasa owns a flat in an apartment in Cyberabad city.
• Mr Kumar is her neighbour and has no legal right over the flat.
• Mr Kumar disputes Manasa’s title to the flat.

Issues in the case

• What remedy does Manasa have under the Specific Relief Act, 1963?

Principle

Section 34 allows any person entitled to any legal character, or to any right as to any property, to institute a suit against any person denying, or interested to deny, his title, and the court may in its discretion make a declaration that he is so entitled. The plaintiff need not ask for any further relief. The proviso bars a declaration where the plaintiff, being able to seek further relief than a mere declaration of title, omits to do so.

Under Section 35 the declaration binds only the parties to the suit and persons claiming through them.

Judgement

Manasa owns the flat, and Mr Kumar denies her title. She can sue Mr Kumar for a declaration under Section 34 that she is the owner. The facts do not say that Mr Kumar has taken possession, so no further relief is shown, and she need not ask for any. If he had taken possession, she would also have to seek recovery of possession because of the proviso. The declaration will bind Mr Kumar and persons claiming through him (Section 35).

Answer: Manasa can sue Mr Kumar for a declaration of her title to the flat under Section 34.

Sections: 3435