UNIT-1

1)Define consideration? State the exceptions to the rule that the promise without
consideration is void.
Meaning:- Consideration is a technical term used in the sense of quid-pro-quo (i.e..,
some thing in return). When a party to an agreement promises to do something, he
must get something in return. This “something” is defined as consideration.

Definition:- According to section 2(d) of the Indian contract Act, 1872, defines
consideration as “when at the desire of the promisor, the promise (or) any other person
has done (or) abstained from doing, (or) does (or) abstains from doing, (or) promises
to do (or) to abstain from doing, something, such act (or) abstinence (or) promise is
called a consideration for the promise”.

CASE LAW: Abdul Aziz (vs) Masum Ali (1914)

Facts: The secretary of a mosque committee filed a suit to enforce a promise which the
promisor had made to subscribe Rs.500/- for rebuilding a mosque.
Judgment: ‘The promise was not enforceable because there was no consideration in
the sense of benefit’, as ‘the person who promised gained nothing in return for the
promise made’, and the secretary of the committee to whom the promise was made,
suffered no detriment (liability) as nothing had been done to carry out the repairs.
Hence the suit was dismissed.

Validity of an agreement without consideration: The general rule is that an

agreement made without consideration is void. In the following cases, the agreement
though made without consideration, will be valid and enforceable according to section
25 and 185 are as follows:-

1. Nature love and affection:

An agreement made without consideration is valid if it is made out of love, nature and
affection such agreements are enforceable if
• The agreement is made in writing and registered.
• The agreement must be made between the parties standing in near relations to each
other and
• There must be nature, love and affection between the parties.
Example: Venkatswamy (vs) Rangaswamy (1903):
Facts: By a registered agreement, ‘V’, on account of nature, love and affection for his
brother, ‘R’, promises to discharge debt to ‘B’. If ‘V’ does not discharge the debt.
Judgment: ‘R’ may discharge it and then sue ‘V’ to recover the amount. Therefore it is
a valid agreement.

2. Compensation for past voluntary services: A promise made without consideration

is valid if, it is a person who has already done voluntarily done something for the
 promisor, is enforceable, even though without consideration. In simple words, a
promise to pay for a past voluntary service is binding.

3. Promise to pay Time-Bared debt: An agreement to pay a time-bared debt is

enforceable if the following conditions are satisfied.
• The debt is a time bared debt
• The debtor promises to pay the time barred debt.
• The promise is made in writing.
• The promise is signed by the debtor.

4. Completed gifts: The rule “No consideration – No contract” does not apply to
completed gifts. According to section 1 to 25 states “nothing in section 25 shall affect
the validity, as between the donor and donee, of any gift actually made”

5. Agency: According to section 185, no consideration is necessary to create an agency.

6. Charitable subscription: Where the promisee on the strength of promise makes

commitments (i.e.., changes his position to his liability/detriment).
Example: Kedernath (vs) Ghouri Mohammed (1886).
Facts: ‘G’ had agreed to subscribe Rs.100/- towards the construction of a town hall at
Howrah. The secretary, ‘K’, on the faith of the promise, called fro plans and entrusted
the work to contractors and undertook the liability to pay them.
Judgment: The amount could be recovered, as the promise resulted in a sufficient
detriment to the secretary. However, be enforceable only to the extent of the liability
incurred by the secretary. In this case, the promise, even though it was gratuitous,
became, enforceable because on the faith of promise the secretary had incurred a
detriment.
2) State the doctrine of privity of contract. Explain the exceptions to the doctrine
OR
5)”A stranger to a consideration can sue” – Are there any exceptions to this rule?

Introduction
There is a general rule of law is that only the parties to a contract can sue. In other
words, if a person not a party to a contract, he cannot sue. This rule is known as the
“Doctrine of privity of contract”. Privity of contract means relationship subsisting
between the parties who have entered into contractual obligations.

There are two consequences of doctrine of privity of contract they are follows:
1) A person who is not a party to a contract cannot sue even if the contract is for his
benefit and he provided consideration.
(Or)
A stranger to a contract cannot sue.
2) A contract cannot provide rights (or) impose obligations arising under it on any
person other than the parties to it.
(Or)
A stranger to a contract can sue.

Example: Dunlop Pneumatic Tyre Co.Ltd (vs) Selfridge & Co.Ltd (1915).
Facts: ‘S’ bought tyres from the Dunlop Rubber company and sold them to ‘D’, a sub-
dealer, who agreed with ‘S’ not to sell below Dunlop’s list price and to pay the
Dunlop company L 5 (pounds) as damages on every tyre ‘D’ undersold. ‘D’ sold two
tyres at less than the list price and there upon, the Dunlop Company sued him for the
breach.
Judgment: The Dunlop Company could not maintain the suit as it was a stranger to the
contract.

Exceptions: The following are the exceptions to the rule that a stranger to a contract
cannot sue:-

1. A trust: In trust deed beneficiaries is allowed to sue the trustee for enforcement of
trustee’s duties even though they are not contracting party. However, the name of the
beneficiary must be clearly
mentioned in the contract.
Example: Gandy (vs) Gandy (1884):
Facts: A husband who was separated from his wife executed a separation deed by
which he promised
to pay to the trustees all expenses for the maintenance of his wife.
Judgment: This sort of agreement creates a trust in favour of the wife and can be
enforced.

2. Marriage settlements, partition (or) other family arrangements: When an

agreement is made in connection of marriage settlements, partitions (or) other family
arrangements and a provision is made for the benefit of a person, he may sue although
he is not a party to the agreement.
Example: Daropti (vs) Jaspat Rai (1905):
Facts: ‘J’s wife deserted him because of his ill treatment. ‘J’ entered into an agreement
with his father-in-law to treat her properly (or) else pay her monthly maintenance.
Subsequently, she was again ill-treated and also driven out.
Judgment: she was entitled to enforce the promise made by ‘J’ to her father.

3. Acknowledgement (or) Estoppel: If a contract requires that a party pays a certain

amount to a third-party and he/she acknowledges it, then it becomes a binding obligation
for the party to pay the third-party. The acknowledgment can also be implied.
Illustrations:
1) Peter gives Rs 1,000 to John to pay Arjun. John acknowledges the receipt of funds to be
paid to Arjun. However, he fails to pay him. Arjun can sue John for recovery of the
amount.
2) Rita sold her house to Seema. A real estate broker, Pankaj, facilitated the deal. Out of the
sale price, Pankaj was to be paid Rs 25,000 as his professional charges. Seema promised
to pay Pankaj the amount before taking possession of the property. She made three
payments of Rs 5,000 each and then stopped paying him. Pankaj filed a suit against
Seema which was held by the Court because Seema had acknowledged her liability by
conduct.

4. Assignment of contract: Assignment means voluntary transfer of the rights by a

person to another. In such a case an assignee becomes entitled to sue and enforce the
rights which are assigned to him.

5. Contracts entered into through an agent: The principal enforce the contract
entered into by his agent provided the agent act within the scope of his authority and
in the name of the principal.

6. Covenants running with the land: In case of transfer of immovable property, the
purchaser of land (or) the owner of the land is bound by certain conditions (or)
covenants created by an agreement affecting the land.

Illustration:
Peter owned a piece of land which he sold to John under a covenant that a certain part of
the land will be maintained as a public park. John abided by the covenant and eventually
sold the land to Arjun. Though Arjun was aware of the covenant, he built a house in the
specific plot. When Peter came to know of it, he filed a suit against Arjun. Although
Arjun denied liability since he was not a party to the contract, the Court held him
responsible for violating the covenant

3) Define offer and acceptance. Discuss the rules relating to communication,

acceptance and revocation of offer and acceptance
Definition of offer:
According to section 2(a) of Indian contract act, 1872, defines offer as “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 otherto, such act (or) abstinence, he his said
to make a proposal”.
Definition of acceptance:
According to section 2(b) of the Indian contract Act, 1872, defines an acceptance is
“when the person to whom the proposal is made signifies is assent thereto, the
proposal is said to be accepted becomes a promise”.
On the acceptance of the proposal, the proposer is called the promisor/offeror and the
acceptor is called the promise/offeree.

Communication of offer
An offer, its acceptance and their revocation (withdrawal) to be complete when it must
be communicated. When the contracting parties are face to face and negotiate in
person, a contract comes into existence the movement the offeree gives his absolute
and unqualified acceptance to the proposal made by the offeror.
The following are the rules regarding communication of offer:
i) The communication of an offer is complete when it comes to the knowledge of the
person to whom it is made.
ii) An offer may be communicated either by words spoken (or) written (or) it may be
inferred from the conduct of the parties.
iii) When an offer/proposal is made by post, its communication will be complete when
the letter containing the proposal reaches the person to whom it is made.

Revocation of Offer

The Indian Contract Act lays out the rules of revocation of an offer in Section 5. It says
the offer may be revoked anytime before the communication of the acceptance is
complete against the proposer/offeror. Once the acceptance is communicated to the
proposer, revocation of the offer is now not possible.
Let us take the same example of before. A accepts the offer and posts the letter on
10th July. B gets the letter on 14th July. But for B (the proposer) the acceptance has been
communicated on 10th July itself. So the revocation of offer can only happen before the
10th of July.

Revocation of Acceptance
Section 5 also states that acceptance can be revoked until the communication of the
acceptance is completed against the acceptor. No revocation of acceptance can happen
after such date.
Again from the above example, the communication of the acceptance is complete
against A (acceptor) on 14th July. So till that date, A can revoke his/her acceptance, but
not after such date. So technically between 10th and 14th July, A can decide to revoke the
acceptance.

4)Define consideration? Discuss the essentials of a valid contract

 Meaning:- Consideration is a technical term used in the sense of quid-pro-quo (i.e..,
some thing in return). When a party to an agreement promises to do something, he
must get something in return. This “something” is defined as consideration.

Definition:- According to section 2(d) of the Indian contract Act, 1872, defines
consideration as “when at the desire of the promisor, the promise (or) any other person
has done (or) abstained from doing, (or) does (or) abstains from doing, (or) promises
to do (or) to abstain from doing, something, such act (or) abstinence (or) promise is
called a consideration for the promise”.
Example: Abdul Aziz (vs) Masum Ali (1914)
Facts: The secretary of a mosque committee filed a suit to enforce a promise which the
promisor had made to subscribe Rs.500/- for rebuilding a mosque.
Judgment: ‘The promise was not enforceable because there was no consideration in
the sense of benefit’, as ‘the person who promised gained nothing in return for the
promise made’, and the secretary of the committee to whom the promise was made,
suffered no detriment (liability) as nothing had been done to carry out the repairs.
Hence the suit was dismissed.
Essentials of a valid consideration:- The following are the essentials of a valid
consideration (OR) legal rules as to consideration.
1. It may be past, present (or) future:
• The words “has done (or) abstained from doing refer to past consideration.
• The word “does (or) abstains from doing” refer to present consideration.
• Similarly the word “promises to do (or) to abstain from doing” refers to the future
consideration. Thus, the consideration may be past, present (or) future.

2. It must move at the desire of the promisor:

• In order to constitute a legal consideration, the act (or) abstinence forming the
consideration for the promise must move at the desire (or) request of the promisor.
• If it is done at the instance of a third party (or) without the desire of the promisor, it
will not be a valid contract.

Example: Durga Prasad (vs) Baldeo (1880);

Facts: ‘B’ spent some money on the improvement of a market at the desire of the
collector of the district. In consideration of this ‘D’ who was using the market
promised to pay some money to ‘B’.
Judgment: The agreement was void being without consideration.

3. It must not be illegal, immoral (or) not opposed to public policy:

• The consideration given for an agreement must not be unlawful, illegal, immoral
and not opposed to public policy.
• Where it is unlawful, the court will not allow an action on the agreement.
4. It need not be adequate:
• Consideration need not be any particular value.
• It need not be approximately equal value with the promise for which it is
exchanged. But it must be something which the law would regard as having some
value.
• In other words consideration, as already explained, it means “something in return”.
This means something in return need not be necessarily be an equal in value to
“something given”.

5. It must be real and not illusory:

• Consideration must not be illegal, impossible (or) illusory but it must be real and of
some value in the eyes of law.
• The following are not real consideration:
(a)Physical impossibility, (b)legal impossibility, (c)uncertain consideration, (d)
illusory consideration.

6. It must move from the promise (or) any other person:

• Under English law consideration must move from the promisee itself. But, under
Indian law, consideration move from the promisee (or) any other person (i.e.., even a
stranger).
• This means as long as there is a consideration for a promise, it is immaterial who
has furnished it. But the stranger to a consideration will be sue only if he is a party to
the contact.
Example: Chinnaya (vs) Ramayya (1882).
Facts: An old lady, by a dead of gift, made over certain property to her daughter ‘D’,
under the directions that she should pay her aunt, ‘P’ (sister of old lady), a certain
sum of money annually. The same day ‘D’ entered into an agreement with ‘P’ to pay
her the agreed amount later ‘D’ refused to pay the amount on the plea that no
consideration had moved from ‘P’ to ‘D’.
Judgment: ‘P’ was entitled to maintain suit as consideration had moved from the old
lady, sister of ‘P’, to the daughter, ‘D’.

7. It must be something the promisor is not already bound to do: A promise to do

what one is already bound to do, either by general law (or) under an existing contract, is
not a good consideration for a new promise, since it adds nothing to the pre-existing
legal or contractual obligation.

8. It may be an act, abstinence (or) forbearance (or) a return promise: consideration

may be an act, abstinence (or) forbearance (or) a return promise. Thus it may be noted
that the following are good considerations for a contract.
• Forbearance to sue.
• Compromise of a disputed claim.
• Composition with creditors.
 EXAMPLE:- A promise to perform a public duty by a public servant is not a
consideration.

6)Define acceptance? Explain the rules regarding a valid acceptance?

OR
12) Explain the rules relating to a valid acceptance.

Definition: According to section 2(b) of the Indian contract Act, 1872, defines an
acceptance is “when the person to whom the proposal is made signifies is assent
thereto, the proposal is said to be accepted becomes a promise”. On the acceptance
of the proposal, the proposer is called the promisor/offeror and the acceptor is called
the promise/offeree.

Legal rules as to acceptance: A valid acceptance must satisfies the following rules
1) Acceptance must be obsolute and unqualified:
• An acceptance to be valid it must be obsolute and unqualified and in accordance
with the exact terms of the offer.
• An acceptance with a variation, slight, is no acceptance, and may amount to a
mere counteroffer (i.e.., original may or may not accept.

2) Acceptance must be communicated to the offeror:

• For a valid acceptance, acceptance must not only be made by the offeree but it
must also be communicated by the offeree to the offeror.
• Communication of the acceptance must be expressed or implied.
• A mere mental acceptance is no acceptance.

3) Acceptance must be according to the mode prescribed (or) usual and reasonable
manner:
• If the offeror prescribed a mode of acceptance, acceptance must given according to
the mode prescribed.
• If the offeror prescribed no mode of acceptance, acceptance must given according
to some usual and reasonable mode.
• If an offer is not accepted according to the prescribed (or) usual mode. The
proposer may within a reasonable time give notice to the offeree that the acceptance
is not according to the mode prescribed.
• If the offeror keeps quite he is deemed to have accepted the acceptance.

4) Acceptance must be given with in a reasonable time:

• If any time limit is specified, the acceptance must be given with in that time.
• If no time limit is specified, the acceptance must be given with in a reasonable
time.
Example: Ramsgate victoria Hotel Company (vs) Monteflore (1886)
 Facts: On June 8th ‘M’ offered to take shares in ‘R’ Company. He received a letter
of acceptance on November 23rd. he refused to take shares.
Judgment: ‘M’ was entitled to refuse his offer has lapsed as the reasonable period
which it could be accepted and elapsed.

5) It cannot precede an offer:

• If the acceptance precedes an offer, it is not a valid acceptance and does not result
in a contract.
• In other words “acceptance subject to contract” is no acceptance.

6) Acceptance must be given by the parties (or) party to whom it is made:

• An offer can be accepted only by the person (or) persons to whom it is made.
• It cannot be accepted by another person without the consent of the offeror.
Example: Boulton (vs) Jones (1857).
Facts: Boulton bought a hose-pipe business from Brocklehurst. Jones, to whom
Brocklehurst owed a debt, placed an order with Brocklehurst for the supply of
certain goods. Boulton supplied the goods even though the order was not addressed
to him. Jones refused to pay Boulton for the goods because he, by entering into a
contract with Brocklehurst, intended to set off his debt against Brocklehurst.
Judgment: The offer was made to the Brocklehurst and it was not in the power of
Boulton to step in and accept. Therefore there was no contract.

7) It cannot be implied from silence:

• Silence does not amount to acceptance.
• If the offeree does not respond to offer (or) keeps quite, the offer will lapse after
reasonable time.
• The offeror cannot compel the offeree to respond offer (or) to suggest that silence
will be equivalent to acceptance.

8) Acceptance must be expressed (or) implied:

• An acceptance may be given either by words (or) by conduct.
• An acceptance which is expressed by words (i.e.., spoken or written) is called
‘expressed acceptance’.
• An acceptance which is inferred by conduct of the person (or) by circumstances of
the case is called an ‘implied or tacit acceptance’.
Example: Carilill (vs) Carbolic Ball company (1893).
Facts: A company advertised in several newspapers is that a reward of L 100 (ponds)
would be given to any person contracted influenza after using the smoke ball
according to the printed directions. Once Mr.Carilill used the smoke balls according
to the directions of the company but contracted influenza.
Judgment: she could recover the amount as by using the smoke balls she accepted
the offer.
9) Acceptance may be given by performing some condition (or) by accepting some
consideration.
10) Acceptance must be made before the offer lapses (or) before the offer is
withdrawn

Classifications of a valid contract:

Valid Contracts-
If a contract has covered all of the required elements, it is valid and enforceable in a
court of law
Example: A homeowner (who is over the age of 18 and sound mind) signed a contract
with the store to buy a refrigerator. The homeowner pays for the refrigerator, and the
appliance store presents the refrigerator for the homeowner to take home.
Void Contracts –
A void contract is not considered as a contract and has no effect in a court of law and
cannot be enforced in a court of law. Most commonly, a void contract will be missing
out one or all of the essential elements needed for a valid contract. Neither party needs
to take action to terminate it, since it was never a contract, to begin with.
Example: An agreement between an illegal drug dealer and an illegal drug supplier to
purchase a specified amount of drugs for a specified amount. Either one of the parties
could void the contract since there is no lawful objective and hence missing one of the
elements of a valid contract.
Voidable Contracts –
A voidable contract is a contract which may appear to be valid and has all of the
necessary elements to be enforceable under the act, but has some flaws which could
cause one or both of the parties to void the contract. The contract is legally binding but
could become void. If there is an injured party involved, the injured party or the
defrauded must take action; otherwise, the contract is considered valid.
Example: A contract entered into with a minor (under 18 years) could be voidable.
Unenforceable Contracts –
An unenforceable contract is a contract which cannot be enforced in a court of law.
This could happen because the terms of the contract are ambiguous (unclear), if one
party has a voidable contract or if the Statute of Limitations has expired.
Example: Clint bought a property from Harry through a written contract for sale.
Seven years after the purchase, Harry wanted to claim that the contract was
unenforceable. The statute of limitations for written contracts in Oregon is six years,
and Harry would not be able to challenge the contract.

7) All contracts are agreements but all agreements are not contracts?
OR
6)Define acceptance. Discuss the rule for the formation of a valid contract when a
contract becomes complete?

Introduction:
i) MULLA: - Every agreement or promise enforceable by law is a contract.
ii) SALMOND: -Contract is an agreement creating defining obligations between
parties.
A contract is an agreement enforceable by law. An agreement is the prime stage of the
contract. If agreement is enforceable by law or if agreement is recognised by law then
it will become a contract otherwise not. It is basically based upon British Law because
the Contract Act was passed by British Indian Govt., in 1872.
To make contract an agreement it is essential that no contract is possible without an
agreement, but we cannot say that all agreements are contracts. Section 2(y) of
contract Act says that, “ Contract is an agreement enforceable bylaw.” All agreement
e.g. to see cinema is not contract, if offer is accepted then it becomes promise.
Promise is followed by consideration then it becomes agreement and if an agreement
is enforceable by law then it becomes CONTRACT, see below :-
i) Proposal + acceptance = PROMISE
ii) Promise + consideration = AGREEMENT
iii) Agreement+ Enforceability = CONTRACT
AGREEMENT : Agreement 2(e) promise or set of promises forming the
consideration with each other, is an agreement.
PROMISE :- Promise is an important part of the agreement. A proposal when
accepted becomes promise.
PROPOSAL/OFFER :- According to section 2(a) when one person signifies to other
his willingness to do or to abstainfrom doing anything with a view of obtaining the
assent of that offer to such act or abstinence, he is said to make aproposal.
ACCEPTANCE:- According to section 29(b) of contract act when the person to
whom the proposal is made signifieshis assent there to the proposal then it is said to be
accepted. A proposal when accepted becomes promise.
CONSIDERATION :- Section 2(d) of contract act defines consideration. Section 2
says that an agreement madewithout consideration is void unless
a) Natural love and affection. Sec.25 of contract act, the parties to the agreement
must be standing in a nearrelationship to each other. The promise should be made by
one party out of natural love and affection for the other.The promise should be in
writing and registered.
b) Compensation for past voluntary services. sec. 25(2) in case Sindha
v.Abrahim-1895 Bombay: The promise tocompensate though without consideration
is binding because of this exception. The exception also covers a situationwhere the
promise is for doing something voluntarily”
c) Promise to pay time barred debt: Sec.25(3): The promise must be to pay wholly
or in part a time barred debt i.e. adebt of which the creditor might have enforced
payment but for the law for the limitation of suit. The promise must bein writing and
signed by the person to be charged therewith. Case Gobind Das v. Sarju das-1908,
Ganesh Prasadv.Mt. Rambati Bai-1942.ENFORCEABLE BY LAW :- in Indian
Contract Act 2(h) it says that contract is agreement enforceable by law. If
anagreement is enforceable by law then it is CONTRACT, otherwise merely an
agreement
To make an agreement a contract in Indian Contract Act section 10, the following
conditions must be fulfilled :-
1. Competent Parties :- Section 11 says, contract should be made with person who
must be major and sound mindnot disqualified by law.
2. Free Consent :- Section 14, says that consent must be free, when it is not caused by
coercion, undue influenceunder section 16, fraud under section 17, misappropriation
under section 18 and mistake under section 20.
3. Lawful consideration & object :- According to section 23, when agreements
consideration or object are unlawful,they are void.
4. Not expressly declare as void:- The such agreements which are made without
consideration or expressly declaredto be void as per section (25) are no contract, these
are as under:-
i) Agreement in restrain of marriage section-26
ii) Agreement in restrain of trade section-27.
iii) Agreement in restrain of legal proceedings section –28.
iv) Agreement which is ambitious and uncertain sec.29.
v) Agreement by way of wages section-30.
vi) Agreement to do an impossible act section-56
Other legal requirements- An agreement must fulfill the requirements or formalities
necessitated by any particular law. An agreement must be in writing, attested and
registered, if so required by any law in force in India. Certain agreements, such as:-

 Agreement to pay a time-barred debt

  Agreement for the transfer of immovable property       

 Agreement to refer the matter to arbitration in case of dispute

Are such agreements which must be reduced to writing and registered.  

11) Define contract? Discuss the essential elements of a valid contract?

Or
13)Define contract? Describe the various requisites of a valid contract and its
classifications
Meaning:” A contract is an agreement made between two (or) more parties which the
law will enforce.”
Definition: According to section 2(h) of the Indian contract act, 1872. “An agreement
enforceable by law is a contract. According to SALMOND, a contract is “An
agreement creating and defining obligations between the parties”
Essential elements of a valid contract: According to section 10, “All agreements are
contracts if they are made by the free consent of the parties competent to contract, for
a lawful consideration and with a lawful object and not here by expressly declared to
be void” In order to become a contract an agreement must have the following essential
elements, they are follows:-
1) Offer and acceptance:
• To constitute a contract there must be an offer and an acceptance of that offer. • The
offer and acceptance should relate to same thing in the same sense.
• There must be two (or) more persons to an agreement because one person cannot
enter into an agreement with himself.

2) Intention to create legal relationship:

• The parties must have intention to create legal relationship among them.
• Generally, the agreements of social, domestic and political nature are not a contract.
• If there is no such intention to create a legal relationship among the parties, there is
no contract between them.
Example: BALFOUR (vs) BALFOUR (1919)
Facts: A husband promised to pay his wife a household allowance of L 30 (pounds)
every month. Later the parties separated and the husband failed to pay the amount.
The wife sued for allowance.
Judgment: Agreements such as there were outside the realm of contract altogether.
Because there is no intention to create legal relationship among the parties.

3) Free and Genuine consent:

• The consent of the parties to the agreement must be free and genuine.
 • Free consent is said to be absent, if the agreement is induced by a)coercion, b)undue
influence, c)fraud, d)Mis-representation, e)mistake.

4) Lawful Object:
• The object of the agreement must be lawful. In other words, it means the object must
not be (a) Illegal, (b) immoral, (c) opposed to public policy.
• If an agreement suffers from any legal flaw, it would not be enforceable by law.
•
5) Lawful Consideration:
• An agreement to be enforceable by law must be supported by consideration.
• Consideration means “an advantage or benefit” moving from one party to other. In
other words “something in return”.
• The agreement is enforceable only when both the parties give something and get
something in return.
• The consideration must be real and lawful.

6) Capacity of parties: (Competency)

• The parties to a contract should be capable of entering into a valid contract.
• Every person is competent to contract if (a). He is the age of majority. (b). He
is of sound mind and (c). He is not dis-qualified from contracting by any law.
• The flaw in capacity to contract may arise from minority, lunacy, idiocy,
drunkenness, etc..,

7) Agreement not to be declared void:

• The agreements must not have been expressly declared to be void u/s 24 to 30
of the act. Example: Agreements in restraint of trade, marriages, legal
proceedings, etc..,

8) Certainty:• The meaning of the agreement must be certain and not be vague (or)
indefinite.
• If it is vague (or) indefinite it is not possible to ascertain its meaning.
Example: ‘A’ agrees to sell to ‘B’ a hundred tones of oil. There is nothing whatever
to show what kind of a oil intended. The agreement is void for uncertainty.

9) Possibility of performance:
• The terms of an agreement should be capable of performance.
• The agreement to do an act impossible in itself is void and cannot be enforceable.
Example: ‘A’ agrees with ‘B’, to put life into B’s dead wife, the agreement is void it
is impossible of performance.

10) Necessary legal formalities:

• According to Indian contract Act, oral (or) written are perfectly valid.
• There is no provision for contracting being written, registered and stamped.
• But if is required by law, that it should comply with legal formalities and then it
should be complied with all legal (or) necessary formalities for its enforceability.
14)Communication of offer, acceptance and revocation.When is communication
complete?

An offer, its acceptance and their revocation (withdrawal) to be complete when it must
be communicated. When the contracting parties are face to face and negotiate in
person, a contract comes into existence the movement the offeree gives his absolute
and unqualified acceptance to the proposal made by the offeror.
Rules regarding the communication of offer, acceptance and revocation are laid down
in section 4, as follows.

Communication of offer: The following are the rules regarding communication of

offer:
1) The communication of an offer is complete when it comes to the knowledge of the
person to whom it is made.
2) An offer may be communicated either by words spoken (or) written (or) it may be
inferred from the conduct of the parties.
3) When an offer/proposal is made by post, its communication will be complete when
the letter containing the proposal reaches the person to whom it is made.
Example: ‘A’ makes proposal to ‘B’ to sell his house at a certain price. The letter is
posted on 10th July. It reaches ‘B’ on 12th July. The communication of offer is
complete when ‘B’ receives the letter (i.e.., on 12th July).

Communication of acceptance: The following are the rules regarding

communication of acceptance:-
1) Communication of an acceptance is complete:-
a) As against the proposer/offeror when it is put into the certain course of transmission
to him,
so as to be out of the power of the acceptor.
b) As against the acceptor, when its comes to knowledge of the proposer.
2) When a proposal is accepted by a letter sent by the post the communication of
acceptance will be
complete:-
a) As against the proposer when the letter of acceptance is posted and
b) As against the acceptor when the letter reach the proposer.

Communication of revocation: The following are the rules regarding communication

of revocation:
1) As against the person who makes it, when it put into a course of transmission.
2) As against the person to whom it is made, when its comes to his knowledge.
Example: ‘A’ proposes by a letter, to sell a house to ‘B’ at a certain price. The letter is
posted on 15th may. It reaches ‘B’ on 19th may. ‘A’ revokes his offer by telegram on
18th may. The telegram reaches ‘B’ on 20th may. The revocation is complete against
‘A’ when the telegram is dispatched (i.e.., in 18 th may). It is complete as against the
‘B’ when he receives it (i.e.., on 20th may).

SHORT NOTE (6MRKS)

1) Doctrine of privity of contract and of consideration

doctrine of privity :
There is a general rule of law is that only the parties to a contract can sue. In other
words, if a person not a party to a contract, he cannot sue. This rule is known as the
“Doctrine of privity of contract”. Privity of contract means relationship subsisting
between the parties who have entered into contractual obligations.
There are two consequences of doctrine of privity of contract they are follows:
1) A person who is not a party to a contract cannot sue even if the contract is for his
benefit and he provided consideration. (Or) A stranger to a contract cannot sue.
2) A contract cannot provide rights (or) impose obligations arising under it on any
person other than the parties to it. (Or) A stranger to a contract can sue.
Example: Dunlop Pneumatic Tyre Co.Ltd (vs) Selfridge & Co.Ltd (1915).
Facts: ‘S’ bought tyres from the Dunlop Rubber company and sold them to ‘D’, a sub-
dealer, who agreed with ‘S’ not to sell below Dunlop’s list price and to pay the
Dunlop company L 5 (pounds) as damages on every tyre ‘D’ undersold. ‘D’ sold two
tyres at less than the list price and there upon, the Dunlop Company sued him for the
breach.
Judgment: The Dunlop Company could not maintain the suit as it was a stranger to the
contract.

The doctrine of privity of consideration states that the consideration must only move
from the promisee and the stranger to the contract, although a beneficiary can enforce
the terms of the agreement.
This principle of the doctrine of privity of consideration is not applicable in India. As
per the Indian Contract Act, 1872 the definition of consideration in Section 2(d) states,
consideration may be furnished by ‘the promisee or any other person’ as long as it is
‘at the desire of promisor’.  Thus, the consideration may move from promisee, or
some other person, if the promisor has no objection, from any other person. The
leading authority, in this case, is the case of  Venkata Chinnaya v.
VenkataramayaGaru.

An old lady gave to the defendant, her daughter, and certainly landed property by way
of gift deed. The terms being that a stipulated annuity of ₹ 653 should be paid every
year to the plaintiff, sister of the old lady. The defendant executed in plaintiffs favour
and iqraranama, agreeing to give effect to this stipulation. The plaintiff filed a suit
upon the failure of the defendant to pay the annuity.
 UNIT-2 (16MRKS)

1) & 6) & 10) Define consent? Explain circumstances under which consent is said
to be free? what is the effect of unfree consent?

When two parties enter into a contract the first thing that is required is perfect mutual
understanding regarding the subject matter of the contract. Both the parties should
agree upon the same thing in the same sense. This understanding is called consent.

Section 13 of the Contract Act provides : Two or more persons are said to consent
when they agree upon the same thing in the same sense. This means that parties
should have the same thing in mind while entering into a contract. The parties are of
the same mind, a contract does not come into existence

Examples
  A agrees to sell his Maruti car 2004 model for Rs. 1,00,000. B agrees, to buy
the same. There is a valid contract since A and B have consented to the same subject
matter.
 A who owns three maruti cars, offers to sell one, say, ‘Car X’ to B for Rs.
2,00,000. B agrees to buy the car for the price thinking that A is
selling ‘Car Y’. There is no consent and hence no contract. A and B have agreed not
upon the same thing but to different things.

Free consent Consent of both the parties entering into contract must be free. It is an
essential requirement of a valid contract. So it is not only important that there should
be consent, but the consent should be free also.
A free consent is defined by Section 14 of the Indian Contract Act in these words:
Consent is said to be free when it is not caused by (1) Coercion or (2) Undue influence
or (3) Fraud or (4) Misrepresentation, or (5) Mistake

Coercion Under Sec–15

Coercion is aimed against any person by:

 committing or threatening to commit any act which forbidden by Indian Penal
Code 1860.
 Unlawful detaining or threatening to detain any property to the bias of any
person.
 The intention of causing any person enter into an agreement.

Consent acquired by such an act amounts to coercion under Indian Contract Act
and it is voidable in nature.
In Ammiraju v. Seshamma the court held that coercion may aim against any
 person, stranger and also against a good for example unlawful detention.

Undue Influence
As per section 16 undue influence means a person dominant the will of the other by
using the position to acquire an unfair advantage over the other.
There are certain relationship in which one party is in position to dominate the will of
other party. Such relationship holding a real or apparent authority over the other or
standing in a fiduciary relation to the other and makes a contract with a person whose
mental capacity is temporarily or permanently strained by the reason of age, illness or
bodily distress.
Burden of prove the undue influence in the contract of fiduciary relationship is lies on
the dominant party. If the transaction is due to unconscionable the dominant party
have to prove that there is no undue influence. In case of pardanashin women the
burden of prove lies on the person who benefits from such transaction and a full
disclosure about the transaction to that women. For other transaction weaker party
prove the influence. This provision can not affect the provisions of Section 111 of
Indian Evidence Act, 1872. Thus a consent by Undue influence is voidable.

Fraud Sec - 17
The term fraud means a representation of fact willfully to make another person to
cheat. As by the section 17 fraud mean any act committed by party of Contract,
abetting, by agent with intention to deceive another person or his agent or induce him
to enter into a contract.
This section is based on Taylor v. Ashton case, in which the court observed that, the
defendant not necessary to show that he knew the fact to be untrue, statement of
untrue fact for the fraudulent purpose consider as a legal and moral fraud.

Essential ingredients of fraud are as follow:

 representation or assertion relating to fact,
 it made with the knowledge that it is false or without belief in its true.
 made other party to act upon his claim
 the person acting is to made loss or damage.

The conduct of representation of fraud must be deliberately dishonest. Active

concealment of fact with the knowledge or belief of the fact is also amounts to fraud.
There are certain exceptions to the general rule “ silence not amounts to representation
and not amount to fraud” are Insurance Contracts, Family Settlement, contract for
allotment of shares in company, parents and child, guardian and wards, which are
required disclosure and good faith.
Misrepresentation
Simply said misrepresentation is a false representation made innocently without any
intention to deceive other person. It is a false statements made by a person, believe it
to be true. As per section 18 of Contract Act, 1872 Misrepresentation means a positive
claim, not guaranteed by the information of the person who creates it, is not true, be
true even if he believes. Consent obtained by misrepresentation is voidable.

Misrepresentation is two kinds they are:

1. Innocent misrepresentation, in which the assertion is false but the person
making it believes it is true and not know it is false so, damages cannot claimed
but the contract can be rescued.
 
2. Negligence or fraudulent misrepresentation, in which breach of duty,
negligence of a party make loss to opposite party. it was held in the case Esso
Petroleum co. Ltd v. Mardon that it is actionable and damages are claimed by
affected party.

Mistake A Void Contract

As Per section 20 agreement entered by the parties of Contract under mistake of fact,
such agreement is void. When both the parties to the contract are under a mistake of
fact on essential, subject matter, identity, price or any other essential matters of the
agreement, no contract arises. Consent acquired by a mistake is void.

There are two kinds of mistake:

a. Common Mistake, both the parties make the same mistake. Each party know
the intention of the other and accept it, thus the doctrine of common mistake
render a contract void.
 
b. Mutual Mistake is a misunderstanding between each other and are at cross-
purposes. Mistake of parties fals going to the root of Contract and essential to
an agreement, the agreement is void and unenforceable.

Effect of unfree consent:

Voidability of agreements without free consent": Section 19 says that when consent to
an agreement is caused by coercion, fraud or misrepresentation, the agreement is a
contract voidable at the option of the party whose consent was so caused A party to a
contract, whose consent caused by fraud, or misrepresentation, may, if he thinks fit,
insist that the contract shall be perform and that he shall be put in the position in
which he would have been if the representation made had been true.

If such consent was caused by misrepresentation or by silence, fraudulent within the

meaning Section 17, the contract, nevertheless is not voidable, if the party whose
consent was so caused had the means of discovering the truth with ordinary diligence
A fraud or misrepresentation which did not cause the consent to a contract of the party
on whom such fraud was practiced, or to whom such misrepresentation was made,
does not render a contract voidable.

3)Explain different types of agreements which are void ab initio

OR
4)What is capacity to contract? Briefly explain its various aspects

2.void ab initio agreement is Latin for "void from the beginning." This means that
legally, a contract was void as soon as it was created. The parties of the contract are
not legally related based on what was written in the agreement because the agreement
in question was never valid. However, certain exceptions do apply. This type of
agreement can never be void because it was never a legal contract to begin with.

Sec.11 of the Indian Contract Act, 1872 if contract Is made with list down agreement
becomes void ab initio
 Minor
 Person of unsounded mind
 Persons diaqualifed under law
Or
3. One of the most essential elements of a valid contract is the competence of the parties
to make a contract. Section 11 of the Indian Contract Act, 1872, defines the capacity to
contract of a person to be dependent on three aspects; attaining the age of majority, being
of sound mind, and not disqualified from entering into a contract by any law that he is
subject to.

Capacity to Contract
According to Section 11, “Every person is competent to contract who is of the age of
majority according to the law to which he is subject, and who is of sound mind and is
not disqualified from contracting by any law to which he is subject.”

So, we have three main aspects:

1. Attaining the age of majority
2. Being of sound mind
3. Not disqualified from entering into a contract by any law that he is subject to

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

Mohori Bibee vs. Dharmodas Ghose

1. The respondent, Dharmodas Ghose, a minor, had mortgaged his property in
favor of the moneylender, Brahmo Dutt for securing a loan amounting to INR
20,000/-. Mr. Brahmo Dutt had authorized Kedar Nath to enter into the transaction
through a power of attorney. Mr. Kedar Nath was informed of the fact that
Dharmodas Ghose was a minor through a letter sent by his mother. However, the
deed of mortgage contained a declaration that Dharmodas Ghose was of the age of
majority.The respondent’s mother brought a suit on the ground that the mortgage
executed by his son is void on the ground that her son is a minor.The relief sought
by the respondent was granted and an appeal was preferred by the executors of
Brahmo Dutt before the Calcutta high court. The same was dismissed.
2. An appeal was then made to the Privy council. The Privy council held that-
a.  A contract with a minor is void-ab-initio.
b. Sec.7 of the Transfer of Property Act, 1882 states that a person
competent to contract is competent to transfer a property.
c. Hence, the mortgage executed by the respondent is void.

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

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

1. A minor entered into a contract for mortgage with a person of the age of
majority. The minor extended the monetary amount and performed his part of the
obligations. The other party refused to honor the agreement.The full bench of the
Madras High court had to decide “whether a mortgage executed in favour of a
minor who has advanced the whole of the mortgage money is enforceable by him
or by any other person on his behalf.”
2. The court ruled that-
a. The agreement sought to be enforced is the promise of the mortgagor
who is of full age to repay the money advanced to by the mortgagee.
b. The mortgagee (the minor) has already advanced the money which was
the consideration for the promise of the mortgagor and performed his part of the
obligations. There is nothing pending from his side.
c. Hence, the contract is enforceable.

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

 Idiots- An idiot, in medical terms, is a condition of mental retardation where a

person has a mental age of less than a 3-year-old child. Hence, idiots are incapable of
understanding the nature of the contract and it will be void since the very beginning.
 Lunatic- A person who is of sound mind for certain duration of time and
unsound for the remaining duration is known as a lunatic. When a lunatic enters into a
contract while he is of sound mind, i.e. capable of understanding the nature of the
contract, it is a valid contract. Otherwise, it is void.

Illustration- A enters into a contract with B for sale of goods when he is of sound
mind. A later becomes of unsound mind. The contract is valid.

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

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

Persons disqualified by law

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

Illustration- A, of country X, orders goods from B, of country Y. The goods are

shipped and before they could reach Y, country X declares a war with country Y. The
contract between A and B becomes void.

 Convicts- A convict cannot enter into a contract while he is serving his

sentence. However, he regains his capacity to enter into a contract upon completion of
his sentence.
Illustration- A, is serving his sentence in jail. Any contract signed by him during this
period is void.
 Insolvent- An insolvent is a person who is declared bankrupt/ against whom
insolvency proceedings have been filed in court/resolution professional takes
possession of his assets. Since the person does not have any power over his assets, he
cannot enter into contracts concerning the property.
Illustration- A enters into a contract for sale of goods with B. Before the sale takes
place, an insolvency suit is filed against A. A sell the goods to B during pendency of
insolvency proceedings. The contract is valid.

 Foreign sovereign- Diplomats and ambassadors of foreign countries enjoy

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

 Body corporate- A company is an artificial person. The capacity of a company

to enter into a contract is determined by its memorandum and articles of association.

4. Define undue influence. Point out the distinction between coercion and undue
influence.

Definition (S16) of The Indian Contract Act

Undue Influence is defined under Section 16 of the Indian Contract Act. When one
party is in a position to dominate the will of others and actually misuses the power,
then it is a case of undue influence, and the contract becomes voidable. When all the
following three conditions are fulfilled then only the situation is considered as an
undue influence:

1. One person is in a position to dominate the will of others.

2. He misuses his position.
3. He obtains an unfair advantage.

The word undue means unnecessary, unwarranted, or more than required. Influence
means convincing the mind of a counterparty through changing his mind or changing
his will, but this influence must be undue i.e it is not required. Undue influence
applies to a relationship which may be blood relation or some other kind of relation i.e
fiduciary or relation based on trust. It means the unfair use of one’s superior position
to obtain the consent of a person who is in a weak position. For example, A police
officer bought a property worth Rs 1 lakh for Rs 5000 from Ram, an accused under his
custody. Later this contract can be cancelled and it can be held as void because there is
a mental pressure on a person.
Relations causing undue influence

All cases where there is an active trust and confidence between the parties and both
parties are not on equal footing. The principle of undue influence applies to all the
cases where influence is acquired and abused. It applies to all relations where
domination can be exercised by one party over another. i.e where exists a real or
apparent authority or fiduciary relationship. In the category of undue influence, the
circumstances under which the contract was made is taken in the account along with
their relationships. The existence of a dominating position along with its use is
mandatory to invoke an action. Merely a dominant position does not lead to undue
influence. It arises only when this position is used for gaining an undue advantage.
Undue advantage means any kind of advantage which is not warranted by
circumstances in which the contract was entered. In the case of Ganesh Narayan
Nagarkar Vs Vishnu Ramchandra Saraf, it was stated by the court that unfair
advantage is the advantage or enrichment which is obtained through unjust means. It
comes into existence when bargains favour a person who enjoys influence and which
proves unfair to others.

Burden of proof

Generally, the party bringing a claim has the burden to prove the truth of the facts on
which he or she is relying. The burden of proof is on the claimant to show that undue
influence was exerted by a stronger party over the weaker party, and the latter could
not exercise free choice when entering the agreement. However, this burden can be
shifted to the defendant in an undue influence case if the plaintiff can demonstrate that
a confidential relationship existed between the testator and defendant, and that
suspicious circumstance surrounded the preparation and execution of the will. When
this occurs, the burden shifts totally on the defendant to prove that undue influence did
not occur. When a person is found to be in a position by which he can dominate the
will of the other or a transaction appears to be affected due to dominance, the burden
of proof that no undue influence was exercised in the transaction lies on the party who
is in a position to dominate the will of others. In the case of Diala Ram Vs Sarga, the
defendant was already indebted to the plaintiff, who was village moneylender. He
again took a fresh loan from a plaintiff and then executed a bond, wherein he agreed to
pay some interest. The court held that the contract was unconscionable and therefore,
the burden of proof was on the plaintiff to show that there was no undue influence in
this case. The burden of proving that the contract was not induced by undue influence
is to lie upon the person who was in the position to dominate the will of others if the
transaction appears to be unconscionable.
Presumption of undue influence

There are some cases in which the Honourable Courts of India presume the existence
of undue influence between the parties:

1. Where one of the parties to a contract is in a position to dominate the will of

the other and contract is prima facie unconscionable i.e unfair, the court
presumes the existence of undue influence in such cases.
2. Where one of the parties to a contract is a Pardanashin Woman, the contract
is presumed to be induced by undue influence. In relation to Pardanashin
Woman, Bombay High Court made an opinion that a woman becomes
Pardanashin because she is totally exempted from ordinary social intercourse
not because she is the seclusion of some degree.

Difference Between Coercion and Undue Influence

BASIS FOR
COERCION UNDUE INFLUENCE
COMPARISON

Meaning Coercion is an act of Undue Influence is an act of

threatening which influencing the will of the other
involves the use of party.
physical force.

Sections It is governed by Section It is governed by Section 16 of the

15 of the Indian Contract Indian Contract Act, 1872.
Act, 1872.

Use of Psychological pressure or Mental pressure or Moral force

Physical force

Purpose To compel a person in To take unfair advantage of his

such a way that he enters position.
into a contract with the
other party.

Criminal Nature Yes No

Relationship The relationship between The act of undue influence is done

 BASIS FOR
COERCION UNDUE INFLUENCE
COMPARISON

parties is not necessary. only when the parties to the

contract are in relationship. Like
teacher - student, doctor - patient
etc.

Key Differences Between Coercion and Undue Influence

The major differences between coercion and undue influence are as under:
1. The act of threatening a person in order to induce him to enter into an
agreement is known as coercion. The act of persuading the free will of another
individual, by taking advantage of position over the weaker party, is known as
undue influence.
2. Coercion is defined in section 15 while Undue Influence is defined in section
16 of the Indian Contract Act, 1872.
3. Any benefit received under coercion is to be restored back to the other party.
Conversely, any benefit received under the undue influence is to be returned to
the party as per the directions given by the court.
4. The party who employs coercion is criminally liable under IPC. On the other
hand, the party who exercises undue influence is not criminally liable under
IPC.
5. Coercion involves physical force, whereas Undue Influence involves mental
pressure.
6. The parties under coercion need not be in any relationship with each other. As
opposed to undue influence, the parties must be in a fiduciary relationship with
each other.

5)Who are competent to contract? Discuss the effects of minors agreement with
the help of decided cases.
OR
13) discuss laws relation to minor agreement

According to Section 11, “Every person is competent to contract who is of the age of
majority according to the law to which he is subject, and who is of sound mind and is
not disqualified from contracting by any law to which he is subject.”

There are three main aspects:

1. Attaining the age of majority
2. Being of sound mind
3. Not disqualified from entering into a contract by any law that he is subject to

Introduction:

Anyone who is under the age of 18 is known as a minor. Every agreement with minors
is void from the beginning. it is void and null hence there is no legal obligations
arising from a minor’s agreement and contract per se hence nobody who has not
attained the age of majority can enter into a contract.

Mental Incapacity

A person who cannot form mental intent to enter into a contract be it a major or a
minor can make a contract void. The ground on which one can decide one’s mental
capacity is whether one understood what was the contract all about and the
consequences arising from the contract. This is known as a “cognitive” test. Another
type of test is the “effective” test: a contract is said to be void if one party has reason
to know of the condition of the other party’s inability to act reasonably. The last one is
known as the “motivational” test. In this the court measures one’s ability to enter or
not to enter into an agreement. These tests usually produce varying results.

The concept of minor’s agreement is explained in Mohori Bibee V. Dharmodas

Ghose case : a minor in this case mortgage his property in favour of Brahmo Dutt, the
defendant the attorney at the time when the transaction was taking place had
knowledge about plaintiff being a minor, an action was brought against Brahmo Dutt
by Dharmodas Ghose on the grounds that Dharmodas was a minor when he executed
the mortgage and the mortgage should be void and canceled. the judgment held that
contractual agreement with minors is void thus mortgage deed is also void.

1) A minor’s agreement is void from the beginning: A contractual agreement

dealing with a person below the age of 18 in India is considered void from the
beginning in the same way a minor can not enter into a contract. A minor’s agreement
can easily be explained through the case of Mohori Bibee V. Dharmodas Ghose.

2) A minor’s property is liable for necessaries: if a minor is supplied by someone

with food, medication, clothing and other necessities, the person who supplied such
necessities is entitled to be reimbursed from the property of that person.

3) No estoppel against a person below the age of 18: A Minor inducing another
person by falsely representing himself to be a major to enter into a contract with that
person, can appeal his age as a defense.
4) No ratification of contractual agreement: minor’s agreement being void, an
agreement entered by him during his minority cannot be ratified after becoming a
major.

5) No specific performance of contractual agreement: the party and the minor in a

minor’s agreement cannot be urged for specific performance of an agreement.

6) The rule of estoppel: Estoppel is a rule which can hold a party liable who has
started to do something before coming into a contract as a part of the -consideration.
this rule can not be applied to minors.

7) Restitution of benefit: when a person at whose option a contract is voidable

revokes it, the other party need not perform it. This applies to voidable contracts, but a
minor’s contract being void, a minor cannot be asked to refund the moneylender.

8) No insolvency: Due to minor’s incapability of contracting debts and dues payable

from the minor’s personal property he is not personally liable as the result of which he
can not be held insolvent

9) Minor can be an agent: A minor can work as an agent. But can not be held liable
for his acts to the principal. A minor can deliver, indorse and draw negotiable
instruments without being liable himself.

General rule exceptions

The certain exceptions to contractual agreement of minors are :

When the minor has performed his obligation: In a contract, a person below the age
of 18 cannot become a promisor but can be a promisee. In case the party hasn’t
completed their obligations but the minor has then the minor can enforce the contract
being a promisee.

A contract entered by a minor’s guardian for his benefit: In this case if a party
does not perform its promise the minor being a promisee can sue the non-performing
party. In the case of Great American Insurance v. Madan Lal, the guardian entered
into an insurance contract on the behalf of the son in respect of fire for the minor’s
property. When the property was damaged a compensation was questioned by the
minor, the contract was opposed by the insurer on the grounds of the minor’s
incompetency to enter into a contract. But later it was held that this contract was
enforceable, and the insurer is liable to the guardian.

When a minor is supplied with Necessities

In case a minor who is incompetent to enter into a contractual relationship and is
provided by another person with necessities of life, the person who thus supplied the
necessities to the minor can be reimbursed from the property of the minor. A minor
cannot be bound if he does not have any property.

Two conditions must be satisfied to render minor’s estate liable for necessaries
(a) the necessaries supplied to the minor should really be necessities required for the
support of a minor’s life.
(b) there shouldn’t be sufficient supply of these necessities with the minor before.

Q.7. define misrepresentation, fraud and mistake. Distinguish between them.

FRAUD
According to section 17 of the Indian Contract Act, 1872 “FRAUD” means and
includes any of the following acts committed by a party to a contract, or by his agent,
with intent to deceive another party thereto or his agent, or to induce him to enter into
the contract:

 the suggestion, as a fact, of that which is not true, by one who does not believe
it to be true;
 The active concealment of a fact by one having knowledge or belief of the fact;
 A promise made without any intention of performing it;
 Any other act fitted to deceive;
 Any such act or omission as the law specially declares to be fraudulent.
Explanation – Mere silence as to facts likely to affect the willingness of a person to
enter into a contract is not fraud, unless the circumstances of the case are such that,
regard being had to them, it is the duty of the person keeping silence to speak, or
unless his silence is, in itself, equivalent to speech.
EXCEPTIONS:-
 When there is a duty to speak, keeping silence is fraud.
 When silence is, in itself, equivalent to speech, such silence is a fraud.

MISREPRESENTATION
Section 18 of the Indian Contract Act, 1872 defines misrepresentation as under:
Misrepresentation means and includes-
 The positive assertion, in a manner not warranted by the information of a
person making it, of that which is not true, though he believes it to be true.
 Any breach of duty which, without any intent to deceive, gains an advantage to
the person committing it, or anyone claiming under him, by misleading another
to his prejudice or to do the prejudice of another claiming under him.
  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.
Positive assertion, i.e. an explicit statement of fact by a person of that which is not
true, though he believes it to be true amounts to misrepresentation. There should be a
false statement made innocently, without any intention to deceive.
NOORUDEEN vs. UMAIRATHU BEEVI is an illustration where the transaction
was set aside on the ground of fraud and misrepresentation. The defendant, who was
plaintiff’s son got a document executed from the plaintiff describing it as
hypothecation deed of the plaintiff’s property. In fact, by fraud and misrepresentation,
the document executed was a sale deed of the plaintiff’s property. The plaintiff was a
blind man and the sale was for an inadequate consideration. It was held that such a
deed which was got executed by fraud and misrepresentation, was rightly set aside.

MISTAKE
According to section 20, Mistake may work in two ways:
1. A mistake in the minds of parties is such that there is no genuine agreement at
all. There may be no consensus and idem i.e. the meeting of two minds, i.e.
there may be absent of consent. The offer and acceptance do not coincide and
thus no genuine agreement is constituted between the parties.
2. There may be a genuine agreement, but there may be a mistake as to a matter of
fact relating to that agreement.
 
In RAFFLES vs. WICHELHAUS[14], the buyer and the seller entered into an
agreement under which the seller was to supply a cargo of cotton to arrive “ex
Peerless from Bombay”. There were two ships of the same name i.e. Peerless and both
were to sail from Bombay, one in October and other in December. The buyer had in
mind peerless sailing in October while the seller thought of the ship sailing in
December. The seller dispatched the cotton by December ship but the buyer refused to
accept the same. In this case, the offer and the acceptance didn’t coincide and there
was no contract. Therefore, it was held that the buyer was entitled to refuse to take
delivery.

Mistake as to a matter of fact essential to the agreement:-

According to section 20, where both the parties to an agreement are under the mistake
as to a matter of fact essential to the agreement, the agreement is void.
For example – A agrees to buy a certain horse from B. It turns out that the horse was
dead at the time of bargain, neither party was aware of these facts. Hence the
agreement is void.
REQUIREMENTS UNDER SECTION 20
 Both the parties to the contract should be under a mistake.
 Mistake should be as regards a matter of fact.
  The fact regarding which the mistake is made should be essential to the
agreement.

MISTAKE OF FACT
There should be a mistake of fact and not of law. The validity of the contract is not
affected by mistake of law.
ILLUSTRATION:-
A and B make a contract grounded on the erroneous belief that a particular debt is
barred by the Indian law of limitation, the contract is not voidable. Everyone is
supposed to know the law of the land. Ignorance of law is no excuse. If a person wants
to avoid the contract on the ground that there was a mistaken impression in his mind
as to the existence of some law while he entered into the contract, he will get no relief.
For instance, A owes B Rs 1000, both A and B mistakenly thinks that the debt is time-
barred and agrees that A may pay only Rs 500 to clear the debt. It is a mistake of law
and the contract to pay Rs 500 is valid.
MISTAKE OF LAW
Mistake of law is a defense that the criminal defendant misunderstood or was ignorant
of the law as it existed at the time. The onus is generally placed on individuals to be
aware of the laws of their state or community, and thus this defense only applies in
very limited circumstances. For example, while a defendant will not be able to claim
that he was not aware that murder was a crime, he may be able to argue that he was
not aware of some obscure traffic law.

Specifically, mistake of law can be used as a defense in four limited circumstances:

 When the law has not been published;

 When the defendant relied upon a law or statute that was later overturned or
deemed unconstitutional;
 When the defendant relied upon a judicial decision that was later overruled; or
 When the defendant relied upon an interpretation by an applicable
official.

BASIS FOR
FRAUD MISREPRESENTATION
COMPARISON

Meaning A deceptive act done The representation of a misstatement,

intentionally by one party made innocently, which persuades other
in order to influence the party to enter into the contract, is known
other party to enter into the as misrepresentation.
contract is known as
Fraud.
 BASIS FOR
FRAUD MISREPRESENTATION
COMPARISON

Defined in Section 2 (17) of the Section 2 (18) of the Indian Contract

Indian Contract Act, 1872 Act, 1872

Purpose to deceive Yes No

the other party

Variation in extent In a fraud, the party In misrepresentation, the party making

of truth making the representation the representation believes the statement
knows that the statement is made by him is true, which subsequently
not true. turned out as false.

Claim The aggrieved party, has The aggrieved party has no right to sue
the right to claim for the other party for damages.
damages.

Voidable The contract is voidable The contract is not voidable if the truth
even if the truth can be can be discovered in normal diligence.
discovered in normal
diligence.

Key Differences Between Fraud and Misrepresentation

The major difference between fraud and misrepresentation are as under:

1. Fraud is a deliberate misstatement of a material fact. Misrepresentation is a

bonafide representation of misstatement believing it to be true which turns out
to be untrue.
2. Fraud is done to deceive the other party, but Misrepresentation is not done to
deceive the other party.
3. Fraud is defined in Section 17 and misrepresentation is defined in Section 18 of
the Indian Contract Act, 1872.
4. In fraud, the party making representation knows the truth however in
misrepresentation, the party making representation does not know the truth.
 5. In fraud, the aggrieved party can claim damages for any loss sustained. On the
other hand, in misrepresentation, the aggrieved party cannot claim damages for
any loss sustained.

9) ‘Agreements by way of wager are void” explain.

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 may wager is made. Exception on
favour of certain prizes for horse-racing: This section shall not be deemed to render
unlawful a subscription or contribution, or agreement to subscribe or contribute, made
or entered into for or toward any plate, prize or sum of money, of the value or amount
of five hundred rupees or upwards, to be rewarded to the winner or winners of any
horse-race.

According to Section 30 of the Indian contract act, 1872, Wagering agreements

cannot be enforced in any court of law as they have been expressly declared to be
void.
No suit can be filed in the court of law with the intention of recovering anything
claimed to be won in any wager or non-compliance of any party to abide by the results
of the wager.

In the case of Gherulal Parakh v. Mahadeodas Maiya , The managers of two joint
families entered into a partnership to carry on wagering contracts with two firms of
Hapur upon the agreement that the profit and loss resulting from the transactions
would be borne by them in equal shares. Later the appellant denied the liability to bear
his share of the loss. The subordinate judge held that the wagering agreement entered
into by the partners was void under section 30 of the act. Later on appeal, the high
court held that although the agreement entered into by the parties was void yet its
object was not unlawful as under section 23 of the same act and, therefore, was
subsisting between the parties.

An interesting interpretation of this case was that although all illegal agreements are
void and unenforceable by law, yet all void agreements are not illegal or immoral or
as opposed to public policy. Therefore though all wagering agreements are void and
unenforceable by law yet in a wagering agreement it is important to determine if such
an agreement is also unlawful under Section 23 of the Indian Contract Act in order to
test its legality.
ESSENTIALS FOR WAGER

1) It must be dependent on an uncertain event

For an agreement to be a wagering agreement, it is necessary that the subject matter of

the agreement must be dependent on an uncertain event.
In the case of Jethmal Madanlal Jokotia v. Nevatia & Co(1962) , it was held that
although a wager is generally about a future event, it may also be of an event that
happened in the past but the parties were not aware of its result or the time of its
happening.

2) There is a mutual chance of gain or loss

A necessary element in a wagering agreement is that both the parties should have a
mutual chance of winning or losing based on the uncertain event. Therefore it is not a
wager when one party has a chance or winning but not losing or a chance of losing but
not winning or neither winning or losing.

In the case of Narayana Ayyangar v. Vallachami Ambalam(1927) , it was held that a

chit fund cannot be called a wager because although some members have a chance to
gain, yet none of them have a chance to lose as the recovery of the amount contributed
is assured even if the time period is unknown.

Illustration
A cricket match is about to start in Delhi between India and Australia. If India wins
the match, Pallav agrees to pay Nishant Rs. 2000, whereas if Australia wins the match,
Nishant agrees to pay Rs. 2000 to Pallav.This is a wagering agreement since both
parties have a chance to win or lose.

3) Neither of the parties must have control over the event

If one of the parties has the power to influence the results of the wager, the agreement
will lack an essential ingredient of a wager as said in the case of Dayabhai
Tribhovandas v Lakshmichand(1885).

Illustration
Shivani and Munish enter into an agreement that if Shivani resigns from her job,
Munish will pay Rs. 20000 to Shivani and Shivani will pay Rs. 20000 to Munish if
she does not resign from her job. Here Shivani has control over her resignation and
therefore will not constitute a wager.
4) Must have no other interest other than the stake

The only interest that both the parties should have is the stake of winning or losing on
the happening of the uncertain event. If either of the parties has some other interest
other than the amount at stake, it will not constitute a wager.

Illustration
Jay insures his car against any damage by taking a car insurance policy and also pays
an insurance premium for the same. Here we can say that Jay has an interest in the car
and in case of the future uncertain event i.e an accident he will not gain anything.
Therefore it is not a wager.

EXCEPTIONS TO WAGER

1) Insurance Contracts

An insurance contract is a contract of indemnity which is used to safeguard the

interest of one party against damage and also has an insurable interest. A wagering
contract, on the other hand, is a conditional contract and has no interest in the
happening or non-happening of an event. Unlike Insurance contracts, wagering
agreements are void in nature and the object of a wagering contract is to speculate for
money or money’s worth, whereas the object of an insurance contract is to protect an
interest.

In the case of Northern India General Insurance Co. Ltd. Bombay Vs. Kanwarjit
Singh Sobti,  The owner of a truck transferred it benami i.e illegally to another party.
Later the truck met with a major accident which injured a young army officer who
claimed heavy damages from the owner, the benamidar and the insurance company. A
plea was raised that a benamidar had no insurable interest which is why it was a
wager. These pleas were rejected by the court and it was held that insurable interest
was present and the benamidar was liable to pay the damages to the young army
officer.

2) Competitions involving skill

Skill competitions are not said to be wagers since they the winning of such events
requires a substantial amount of skill and are not dependent on the probability of an
uncertain event.
For example crossword puzzles, sports competitions etc
But if the competition is based on chance and not skill for example a lottery it would
amount to a wager and therefore be void.
 In the case of Moore v. Elphick(1945) it was held that wherever skill plays a major
part in the result of the competition and the results are awarded according to the merits
of the solution, it is not a lottery and therefore not a wager.

3) Horse racing competitions

Some state governments may authorize horse racing and the contribution for the
reward of such competitions of amounts more than Rs 500 is not considered unlawful.
In the case of K. R. Lakshmanan v. State of Tamil Nadu(1996), the Supreme Court
had held that horse racing was a game of skill and playing for stakes in a game of skill
was not illegal.

4) Share Market Transactions

The purchase and sale of stocks with the mere intention to give and take delivery of
shares do not amount to a wager except if the only intention is to settle the price
difference. In that case, it will be called a wager.

Is Rummy a game of skill?

In Indian law, a game of skill is that which predominates the element of chance.
In  Andhra Pradesh v. Satyanarayana, AIR 1968   it was held that rummy is a
predominantly skill-based game since the fall of the cards has to be memorized and
skill is required in holding and discarding cards. Hence we cannot say that rummy is a
game completely bases on chance.

However, If the court finds evidence that the game is being played by the owner of the
house or club for making a profit, the owner can be brought to court. But if a group of
people plays rummy in a Diwali party, it is not an offense. Hence there are websites in
India that allow users to play rummy online and use payment gateways for the transfer
of money.

Q.11. what is fraud? Explain the essential elements of fraud. Does silence amount to
fraud.

Section 17 has defined fraud: Fraud means and includes any of the following acts
committed by a party to a contract, or with his connivance, or by his agent, with intent
to deceive another party thereto or his agent, or to induce him to enter into the
contract:
 The suggestion, as a fact, of that which is not true, by one who does not believe
it to be true,
 The active concealment of a fact by one having knowledge or belief of the fact,
 A promise made without the intention of performing it,
 Any other act fitted to deceive.
 Any such act or omission as the law specially declares fraudulent.

In simple words, fraud is a method of misleading a person deliberately means deceit

by making certain mis-statement deliberately. Fraud includes all intentional or willful
mis-representation of facts, which are material for the formation of a contract. The
most important thing in fraud is the intention to mislead the other party.

Essential elements or conditions for a fraud to exist. For a fraud to exist the
following are the essential elements :

1. There must be a false representation of facts. To constitute of fraud there must

be a false statement of facts.
2. The representation must be made with the knowledge that it is false or with
reckless disregard about its truth or false hood. If the person
making the statement honestly believes it to be true, he is not guilty of fraud.
3. The representation must have been made by the party to the contract or with his
knowledge or by his agent. If a statement is made by a
stranger, it does not affect the contract. A fraud will make a contract voidable only if
it is committed by a party to a contract or his agent.
4. The representation must have been made with an intention to deceive the other
party.
5. The representation must have induced the other party to act upon it. An attempt
to deceive which does not deceive is no fraud. The fraud
must have in fact affected the willingness of the other party to enter into a contract.
6. The party misled must have suffered some loss. It is a common rule of law that
there is no fraud without damage. Therefore, the misled
party must suffer a loss. The damage may be some loss in terms of money or
money’s worth. Without damage fraud does not give rise to
any action for deceit.

Silence as Fraud: 
Section 17 states: Mere Silence as to facts likely to affect the willingness of a person
to enter into a contract is not fraud unless the circumstances of the case are such, that
regard being had to them, it is the duty of the person keeping silence to speak or
unless his silence is in itself equivalent to speech. Therefore, the general rule is that
silence as to facts likely to affect the willingness of a person to enter into a contract is
not fraud.
When silence amounts to fraud? Under the following cases, silence as to facts amount
to fraud:

Duty to speak : Silence is fraudulent if the circumstances are such that it is the duty
of the person to speak. Duty arises when one contracting party reposes trust and
confidence in the other. ‘It also arises in cases where one party is not in a position to
discover the truth and therefore depends on the good sense of the other party. An
insurer, for example, has to depend on the disclosures made by the Other party. A
contract of insurance is, therefore, regarded as a contract of absolute good faith.
Similarly contract for the sale of property, family settlement, etc., are all contracts of
good faith. In all these cases it is the duty of the parties to disclose all material facts
known to them.

Silence is in itself equivalent to speech : Silence is sometimes itself equivalent to

speech. So where a person knows that his silence is going to be deceptive, and still
keeps silent, he is guilty of fraud.

Change of circumstances : Sometimes a statement may be true when it is made, but

due to change in circumstances it may become false when it is actually acted upon. In
such, cases it is the duty of the person to communicate the changed circumstances. For
example, a company’s prospectus contained a statement that certain persons were the
directors of a company. This was true. But before allotment, there were some changes
and some directors had retired. This was not communicated to applicants of shares. It
was held to be sufficient basis to avoid the contract of allotment.

SHORT NOTES (6 MRKS)

1) Contingent contract

ANS: Introduction

The word contingent means when an event or situation is contingent, i.e. it depends on
some other event or fact.

For example, making money is contingent on finding a good-paying job.

Now, the ‘contingent contract’ means enforceability of that contract is directly

depends upon happening or not happening of an event.

Section 31 of the Indian Contract Act, 1872 defines the term ‘Contingent Contract’
as follows:
‘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’.

In simple words, contingent contracts, are the ones where the promisor perform his
obligation only when certain conditions are met. The contracts of insurance,
indemnity, and guarantee are some examples of contingent contracts.

Illustration:- A contracts to pay to B Rs. 20,000 if B’s house is burnt. This is a

contingent.

Case law : Chandulal Harjivandas v. CIT– In this case, it was held that all contracts
of insurance and indemnity are contingent.

Essential elements of the contingent contract

After examining the definition of the contingent contract given under section 31 of the
Act, the essentials of the term contingent contract are as follows:

There must be a valid contract to do or abstain from doing something

Section 32 and 33 of the Act talks about enforcement of the contingent contract on the
happening or not happening of the events respectively. The contract will be valid only
if it is about performing or not performing an obligation.

Illustration 1: X makes a contract with Y to buy Y’s dog if X survives Z. This

contract cannot be enforced by law unless and until Z dies in X’s lifetime.

Illustration 2: X agrees to pay Y a sum of money if a certain ship does not return. The
ship is sunk. The contract can be enforced when the ship sinks.

Performance of the contract must be conditional

The condition for which the contract has been entered into must be a future event, and
it should be uncertain. If the performance of the contract is dependent on an event,
which is although a future event, but certain and sure to happen, then it’ll not be
considered as a contingent contract.

The said event must be collateral to such contract

The event on whose happening or non-happening of the event on which the

performance of the contract is dependent should not be a part of the consideration of
the contract. The happening or non-happening of the event should be collateral to the
contract and should exist independently.

Illustration: X enters into a contract with Y and promises to deliver 10 books to him.
Y promises to pay Rs. 2000 upon delivery. This is not a contingent contract since Y’s
obligation depend on the event which is a part of the contract(delivery of 10 Books)
and not a collateral event.

The event should not be at the discretion of the promisor

The event so considered as for contingency should not at all to be dependent on the
promisor. It should be totally a futuristic and uncertain event.

Illustration: X promises to pay Y, Rs. 10,000 if Y leaves Delhi for London on 31st
March 2019. This is a contingent contract. Going to London can be within Y’s will but
is not merely his will.    

2) agreement by way of wager

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 may wager is made. Exception on
favour of certain prizes for horse-racing: This section shall not be deemed to render
unlawful a subscription or contribution, or agreement to subscribe or contribute, made
or entered into for or toward any plate, prize or sum of money, of the value or amount
of five hundred rupees or upwards, to be rewarded to the winner or winners of any
horse-race.

Section 294A of the Indian Penal Code not affected : Nothing in this section shall be
deemed to legalize any transaction connected with horse-racing, to which the
provisions of section 294A of the(45 of 1860) apply.

Scope

To treat an agreement by way of wager as void is that the law discourages people to
enter into games of chance and make earning by trying their luck instead of spending
their time, energy and labour for more fruitful and useful work for themselves, their
family and the society; Subhash Kumar Manwani v. State of Madhya Pradesh, AIR
2000 MP 109.

Wagering Contract
A chit-fund does not come within the scope of wager; Narayana Ayyangar v. K.V.
Ambalam, (1927) ILR 50 Mad 696 (FB).

UNIT 3 ( 10 MRKS)

1) What is frustration of contract? State specific grounds of frustration

OR
8) Critically examine discharge of a contract by impossibility of performance
OR
11) Explain the doctrine of impossibility of performance of contracts with
illustrations.
OR
12) Explain the doctrine of ‘Frustration' with reference to decided cases.

Doctrine of Frustration in India

Section 56 of the Indian Contract Act: As with most laws in India, the contract act is
influenced by English laws/doctrines(The act was passed when India was under
colonial rule). This doctrine constitutes the Indian Contract Act,1872, as Section
56( Agreement to do impossible act). An agreement to do something, which was
possible or lawful when the contract was constructed, but subsequently, becomes
impossible or unlawful without any fault of either party, then such an act will be void.

INGREDIENTS: Section 56 explains the circumstances in which the Doctrine of

Frustration arises The ingredients of Section 56 are as follows

I. the agreement is to do an impossible act is in itself

II. a contract to do an act becomes impossible or unlawful by an event which the
promise could not foresee,
III. the promisor knew or might have known with reasonable diligence that the act
he promise! is impossible or unlawful, but the promise did not know of it, in
such circumstances, promisor is held liable to pay compensation to the
promisee for any loss occurred by promise for the non-performance of the
promise,
IV. Illustrations appended to Section 56 clarify and give propositions of this
doctrine

GROUNDS FOR FUSTRATION

1. Destruction of subject-matter: The doctrine of impossibility is befitting

‘’where the specific subject-matter of the contract is annihilated. ‘’Taylor vs
Cadwell’’ as discussed previously is a good example.
2. Change of circumstances: A contract will frustrate ‘’where certain situations
arise which make the accomplishment of the contract impossible in the way
contemplated’’. Justice Kapur of the Punjab High Court in Pameshwari Das
Mehra v Ram Chand Om Prakash explained the principle thus: ‘’It is clear that if
there is entirely unforeseen occurrence the critical point that has to be pondered
upon, whether this occurrence has influenced the responsibility of the parties in the
contract to such an extent as to make it virtually impossible or even perilous or
hazardous. If that be the case, the occurrence not having been brought about by the
fault of either party, the courts will not enforce the contract’’. For example, A ship
was chartered to load cargo but on the day she should have proceeded to her berth,
an explosion occurred in the auxiliary boiler, which made it impossible for her to
undertake the voyage at the scheduled time, the House of Lords held that frustration
had occurred in the circumstances.

3. Non-occurrence of contemplated event: There are times when the

performance of contract is entirely possible, but only if a specific event occurs,
which if doesn’t affect the core objective of the contract. It makes the purpose of
the contract unattainable.The coronation case is the best example here. This has
been discussed earlier in the article.

4. Death or incapacity of party:’’A party to a contract is exempted from the

obligation if it is contingent upon the survival of a given person, if that person
dies’’. The essence of these type of cases that it requires individual to use his
particular skill, in this case the promisor, his death or incapacity puts an end to the
contract. An illustration where A contract between painter, and the person to draw
his picture on a particular date. The painter dies before that date, hence the parties
are automatically discharged.

5. Government, Administrative or Legislative intervention: Contract will be

dissolved when by the operation of legislative or administrative action which strikes
the objective or purpose of the contract, thereby changing the fundamental nature of
the contract. Thus, where a vendor of land could not complete the sale-deed
because he was no longer the owner due to a law which came into effect, it was
held that the contract had become impossible of performance.

6. Intervention of War: War or War like situations has often raised difficult
questions for the courts. In a particular case, appellants had agreed to sell to the
respondents three hundred tons of groundnuts.The usual route at the date of the
contract was via Suez Canal. The shipment was to be in November/December, but
due to certain geopolitical development the canal was closed until April next year.
It was stated that the appellants could have shipped through the alternate route
which was Cape of Good Hope. Appellants refused to ship goods via Cape. The
appellant’s argument was that it was a tacit understanding between the parties in the
 contract that the shipment should be via Suez. It was held that such an
understanding was wrong. What the appellants could have done was shipped the
shipment through Cape route,and they were bound by law (Sale of Goods
Act,1893) to do this. Although this would have been more expensive for the
appellants, but it didn’t render the contract fundamentally or radically different,
hence there was no frustration of contract.

EFFECTS OF FUSTRARTION

Frustration should not be self-induced: The frustration should not be caused

because of any of the parties’ fault or action.One of the case illustrates this points
where the exporter had an export licence to supply 3000 tons of sugar beet pulp
pellets. They had applied to the government to increase their quota but that was
refused. After exporting 1500 tons to the first buyer with an option to supply 1500
tons later. They also contracted with another buyer to supply them with 1500 tons of
sugar . This was clearly beyond their limit under the licence. To get out of this
exporters apportioned the 1500 tons between the two buyers equally. One of the
buyers sued the exporters for the breach of the contract. The suppliers pleaded
frustration. 

This was not accepted, though the court referred to the principle stated in the
American Uniform Commercial code that in such a situation the seller may apportion
supplies in any case which is prudent and just but found no basis for applying the
principle into English law.

Major Indian Case related to this doctrine

Satyabrata Ghose v Mugneeram Bangur and Company & Anr.: The defendant
company launched a scheme related to developing the land into a housing colony. The
plaintiff was granted a plot on payment of advance money. The company committed
to constructing the roads and drains necessary for improving the land, thereby making
it suitable for building and residential purposes. Following the completion of
development work, the purchaser was to pay the remaining amount to complete the
conveyance. Meanwhile, a large part of the land was taken over by the State during
the Second World War for war purposes. The company attempted to rescind the
contract on the ground of supervening impossibility.

Held: The court dismissed the defendant’s suit stating that the ‘’impossibility’’ under
Section 56( Agreement to do impossible act) doesn’t mean in the physical or literal
context. It refers to change in circumstances which completely upsets the very
foundation upon which the parties rested their bargain. The requisition orders, it must
be noted were temporary in nature. There was no timeline mentioned within which the
project had to be completed. With the absence of any deadline whatsoever in the
contract, and when it was natural for some restrictions to be in effect during the war,
thereby causing difficulties and delay in the project. This delay caused by the
requisition order didn’t affect the fundamental objective or struck at the roots of the
adventure.

Sushila Devi vs Hari Singh

This case expanded the scope of the Doctrine of Frustration. ‘’Impossibility’’ under
Section 56 of the Contract act should not be restricted to humanely possible scenarios.
In this case, lease of certain property was the subject matter of the agreement. Later,
because of partition the property to be leased became a part of Pakistan, thereby
making the terms of agreement impossible.

2) State the effects of anticipatory breach of contract

OR
4) What is anticipatory breach of contract? How does it differ from actual
breach?
OR
6) What is anticipatory breach of contract? How does it differ from
actual breach? What are the remedies and defenses available to
parties?

Anticipatory breach of contract means the repudiation of a contract by one party to it

before the due date of its performance has arrived. Section 39, which contains law
relating to anticipatory breach of contract, reads as under:

"When a party to a contract has refused to perform, or disabled himself from

performing, his promise in its entirety, the promise may put an end to the contract,
unless he has signified, by world or conduct, his acquiescence in its continuance."

an anticipatory breach is a breach of contract before the time of performance. So, if

a promisor denies to perform his promise and signifies his unwillingness before the time
for performance, then it is an anticipatory breach of contract.
The promisor can convey his unwillingness either by:
 Expressing it in words (spoken or written)
 Implying it by his conduct

West Bengal Financial Corporation v. Gluco Series

A granted a loan to B amounting to Rs. 4,38,000 and also agreed grant a further loan of
Rs. 1,62,000 at its discretion, provided that B made the repayment of the loan in
accordance with the agreement at the rate of Rs. 60,000 every year. B failed to make
 the repayment as agreed. B insisted that A should grant further loan of Rs. 1,62,000 to
him, but A did not grant further loan because did not make the repayment of loan as
agreed. B's contention was that A had failed to perform the contract by not advancing
further loan, which should be considered to be breach of contract. It was, however,
held that A had already advanced some loan, which B had accepted, there cannot in its
entirety. B was therefore not entitled to put an end to the contract on the ground of
breach of the contract on the part of A.

Difference between anticipory breach and actual breach of contract

Anticipatory Breach:
When before the contract becomes due for performance, one of the parties to it shows
his intention not to perform the contract, this is called anticipatory breach of contract.
It is an announcement by one of the contracting parties of his intention not to fulfill
the contract. It may take place by two ways:

 By express repudiation: Under this one party to the contract communicates to

the other party, before the performance is due, his intention not to perform it.
 By creating some impossibility: A promisor may, before the time of
performance arrives, by doing some act, make the performance of
his promise impossible.

Effect of an anticipatory breach: Anticipatory breach would give to the aggrieved

party either of the following two options:
 He can treat the contract as rescinded and can bring an action for damages for
breach of contract immediately without waiting till the due date for performance; or
 He may treat the contract operative till the date of performance arrives and to
sue only after that date for damages for breach.
The option to sue at once or wait for performance lies with the aggrieved party.

Actual Breach:
When at the time of performance of contract one of the parties to the contract fails,
neglects or refuses to perform or does not perform his obligations, such breach is said
to be actual breach of contract. Actual breach can be of the following types:

On the due date of performance: Actual breach occurs when at the time of

performance of contract, one party fails or refuses to perform his obligation. In such a
case the other party is discharged from his obligation and can hold the defaulter party
liable for damages for breach.
During the performance of the contract: This occurs when during the performance
of the contract, one party refuses or fails to perform his obligations under the contract.
This breach can be by express words (or act) or implied. In such cases the other party
is discharged from further performance of the contract.

Effects of anticipatory breach of contract:

When the promisor has made anticipatory breach of contract, the promisee may put an
end to the contract, unless he has signified by words or conduct his acquiescence in its
continuance

It means that on the anticipatory breach of contract by one party, the other party has
two alternatives open to him, viz.

(1) He may rescind the contract immediately, i.e., he may treat the contract at an end,
and may bring an action for the breach of contract without waiting for the appointed
date of the performance of the contract.

(2) He may not put an end to the contract but treat it as still subsisting and alive and
wait for the performance of the contract on the appointed date.

(1) Election to rescind the contract

On anticipatory breach of contract by the promisor, the promisee has a right to treat the
contract at an end, even though the due date of performance has not yet arrived When
the promisee accepts the repudiation of the contract even before the due date of
performance and elects to treat the contract at an end, he is discharged from his
obligation to perform the contract, and also gets a right to bring an action for the
breach of contract, if he so likes, even before the due date of performance has arrived.

In Hochster v. De La Tour, the defendant engaged the plaintiff on 12th April, 1852,
as a courier to accompany him on the tour of Europe. The tour was agreed to begin on
1st June, 1852 and the plaintiff was to be paid £ 10 per month for his services. On 11th
May, 1852, the defendant wrote to the plaintiff informing him that he had changed his
mind and declined to take the services of the plaintiff. On 22nd May, 1852, the plaintiff
brought an action against the defendant for the breach of contract. The defendant
contended that there could be no breach of contract before 1st June. It was held that a
party to an executory contract may make a breach of contract before the actual date of
performance, and the plaintiff, in such a case, is entitled to put an end to the contract
and he can bring an action even before the actual date of performance has arrived. The
plaintiff's action, therefore, succeeded.
In Frost v. Knight, the defendant promised to marry the plaintiff on his defendant's
father's death. While the defendant's father was still alive, he broke off the engagement.
The plaintiff did not wait till the defendant's father's death and she immediately sued
him for the breach of contract. She was successful in her action.
(2) Election to keep the contract alive

Anticipatory breach of contract by one party does not automatically put an end to the
contract. It has already been noted above that on the anticipatory breach by one party,
the other party can exercise the option either to treat the contract at an end, or, to treat
it as still alive and subsisting until the due date of performance comes.
When the contract is kept alive by the promisee, the promisor may perform the same in
spite of the fact that he had earlier repudiated it. If the promisor still fails to perform
the contract on the due date, the promisee will be entitled to claim compensation on the
basis of the breach of the contract on the agreed date of performance.

In case the promisee has elected to keep the contract alive and Subsisting, it is just
possible that before the due date of performance, some event happens because of which
the promisor gets excused from the performance of the contract. The promisor can
advantage of such a situation and he will be discharged from performance of the
contract The position was thus explained in Fro V. Knight

The case of Avery Bowden illustrates the point where the promisee elects to keep the
contract alive, and the promisor, m of his earlier repudiation of the contract, is
discharged from liability because of supervening circumstances before the date of
performace arrives. In this case. A chartered B's ship at Odessa, a Russian teen and
undertook to load the ship with cargo within 45 days Be this period had elapsed, A
failed to supply the cargo and decline to supply the same The master of the ship
continued to insist the the cargo be supplied but A continued to refuse to load. Before
the period of 45 days was over, Crimean war broke out between England and Russia,
whereby it became illegal to load the cargo at a hostile port. The question in this case
was, whether by the declaration the war, A had been discharged from his liability to
load the cargo In this case, on A's refusal to load the cargo, B could have rescinded the
contract and brought an action against A, but B instead, insisting that the cargo be
supplied, kept the contract alive. The contract continued to be alive and subsisting for
the benefit of both A B. By the declaration of war, the performance of the contract
have become unlawful, it was held that A had been discharged from duty to supply the
cargo, and, therefore, A could not be made for the non-performance of the contract.

3) Explain the rule relating to appropriation of payment between debtor and

creditor
OR
5) Discuss the rules relating to appropriation of payment
OR
9) Explain the law relating to appropriation of payment

Appropriation means ‘application’ of payments. In case of a creditor and a debtor,

Section 59 to 61 lay down certain rules regarding the appropriation of payments. When
a debtor pays an amount to the creditor, the creditor is to take note of these sections
before applying the payment to a particular debt, because the creditor would be
inclined to appropriate the payments to the debt which is not likely to be realized
easily.

Sections 59 to 61, of the Contract Act, embody the general rules as to appropriation of
payments in cases where debtor owes several distinct debts to one person and
voluntarily makes payments to him.

It was observed that “When money is paid, it is applied according to the express will of
the payer and not the receiver. If the party to whom the money is offered does not
agree to apply it according to the express will of the party offering it, he must refuse it
and stand upon the rights which the law gives him.

Appropriation is therefore, a primary right of a debtor. Appropriation rules apply only

in case of several and distinct debts and do not apply where there is only one debt,
though payable by installments.

Sections 59 to 61 lay down three rules regarding appropriation of payments based on

English law laid down that when a debtor makes a payment he may appropriate it to
any debt he pleases and the creditor must apply it accordingly.

RULES:

Where payment of debt to be discharged is indicated: (Sec.59)

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

Clayton’s Case

In England, it has been considered a basic rule since the case of Devaynes vs Noble,
also known as Clayton’s case. In this, it was held that the debtor can request the
creditor to appropriate the amount to any of the debt in case he owes to the creditor
several and distinct debts, if the creditor agrees to it, then he is bound by it. 

Illustrations:
(a) A owes B, among other debts, Rs.1,000 upon a promissory note which falls due on
1st June. He owes B no other debt of that amount. On the 1st of June A pays to B
Rs.1,000. The payment is to be applied to the discharge of the promissory note.
(b) A owes B, among other debts a sum of Rs.567. B writes to A and demands
payment of this sum. A sends B Rs.567. This payment is to be applied to the discharge
of the debt which B had demanded.

Debtor may express his intentions expressly or impliedly under the circumstances. If
there is no express intimation by the debtor, but from the circumstances, it is implied
that the debtor intended appropriation to a particular debt, the debtor’s intentions must
be followed, if the money is accepted.

The Court should, in the absence of any appropriation by the debtor or creditor, direct
that the payment should be applied in discharge of the debts, in order of time if there be
such, and if they are all of the same date, in discharge of each of such debts
proportionately.

Where payment of debt to be discharged is not indicated: (Sec.60)

Where the debtor has omitted to intimate and there are no other circumstances
indicating to which debt the payment is to be applied, the creditor may apply it at his
discretion to any lawful debt actually due and payable to him by the debtor whether its
recovery is or is not barred by the law in force for the time being as to the limitation of
suits.

If a debtor does not exercise his right, the creditor has the right to appropriate the
payment to any lawful debt though barred by the law of limitation. In case where there
is a running account, the payment can be appropriated to any debt. It is a settled law
that a creditor is entitled to adjust the debts from any security in the creditor’s custody.
The time barred debt remains a debt even if the remedy to recover it is barred.

Where the debtor does not intimate and the creditor fails to appropriate: (Sec.61)

Where neither party makes any appropriation, the payment shall be applied in
discharge of the debts in order of time, whether they are or are not barred by the law in
force for the time being as to the limitation of suits. If the debts are of equal standing,
the payment shall be applied in discharge of each proportionately.

To summarize, the debtor has the first right to intimate appropriation of a debt at the
time of payment if he fails to exercise his right, this right than devolves on the creditor
and if the creditor also fails to exercise his right the appropriation will be done in order
of time. In case of debts of equal standing, each will be appropriated proportionately.

Q.7. What are the modes of discharge of contract?

Discharge of a contract means termination of contractual relation between the parties to
a contract.

Modes of Discharge of Contract

The contract may be discharged in the following six modes of discharge of contract
discussed as follows:

i. Discharge by performance
ii. Discharge by mutual consent or agreement
iii. Discharge by impossibility of performance
iv. Discharge of a contract by lapse of time
v. Discharge of a contract by operation of law
vi. Discharge by breach of contract

1. Discharge by performance

2. Performance of a contract is the principal and most usual mode of discharge of a

contract. Performance may be:
3. Actual performance: It means the parties to a contract have performed their
respective promises under the contract.
4. Attempted performance or a tender: It means the promisor has made an

2. Discharge by mutual consent or agreement

A contract can be discharged by mutual agreement in any of the following ways:

a) Novation: The term novation implies the substitution of a new contract for the
original one.
Example: A owed Rs 100 to B, under contract. B owned Rs 100 to C. It was
agreed among A, B and C that A would pay Rs 100 to C.

b) Alteration: It refers to a change in one or more of the terms of a contract with

the consent of all the contracting parties.
Example: A agreed with B to supply 100 TV sets at a certain price by the end of
October. Subsequently, ‘A’ and ‘B’ mutually agree that the supply can be made
by the end of November. This is an alteration in the terms of the contract by
consent of both the parties.

c) Remission: Remission means the acceptance (by the promisee) of a lesser sum
 than what was contracted for, or a lesser fulfilment of the promise made.
Example: A owes B Rs 5,000. A pays Rs 2,000 to B and B accepts the amount
in satisfaction of the whole debt. The whole debt is discharged.

d) Merger: The conversion of the inferior right into the superior right is called a
merger. It is also called as the vesting of rights and liabilities in the same person.
Example: A person holds property under lease, purchases the property. On
purchase, his lease agreement is discharged.

3. Discharge by impossibility of performance

Sometimes after a contract has been established, something might occur, though not at
the fault of either party, which can render the contract impossible to perform, or illegal,
or radically different from that originally undertaken, which leads to discharge of
contract.

The impossibility of performance may be of two:

Initial impossibility or Pre-contractual impossibility: It means impossibility exists at
the time of making a contract.

The initial impossibility may be:

(i) Known or
(ii) unknown to the parties at the time of making the agreement.

4. Supervening impossibility or Post-contractual impossibility: The contract

becomes void on account of the subsequent impossibility only if the following
conditions are satisfied:

1. The act should have become impossible after the formation of the contract.
2. The impossibility should have been caused by a reason of some event which was
beyond the control of the promissory.
3. The impossibility must not be the result of some act or negligence of the promisor
himself.

5. Discharge of a contract by lapse of time

Every contract and promise under the contract should be performed within a time limit.
The contract is discharged if it is not performed or enforced within a specified period
called the period of limitation.
Example: The period of limitation for recovering the debt is 3 years and 12 years for
the recovery of immovable property.

6. Discharge of a contract by operation of law

In the following circumstances, the discharge of contract by the operation of law.

Unauthorized material alteration of a written document: A party can treat a

contract discharged (i.e., from his side) if the other party alters a term (such as quantity
or price) of the contract without seeking the consent of the former.

Death: The contract that requires personal skill is discharged on the death of the
promisors. However, any benefit received before the performance shall be returned by
the legal representative of the deceased party.

Merger: The conversion of the inferior right into the superior right is called a merger.
It is also called as the vesting of rights and liabilities in the same person.

Insolvency: The insolvent is discharged from all the liabilities on all the contracts,
entered into, up to the date of insolvency.

7. Discharge by breach of contract

Breach occurs where one party to a contract fails to perform its contractual obligations,
or the performance is defective, which leads to a discharge of contract.

A Breach may be anticipatory or actual.

Anticipatory: is also known as ‘breach by repudiation’. Where a person repudiates a
contract before the stipulated due date.
For instance, A, after agreeing to sell his car to B on a fixed date, sells it to C. This is
an anticipatory breach.

Actual breach refers to the failure to perform contractual obligations when

performance is due

Q.10. Discuss the law relating to devolution of joint rights and liabilities under
the Act

MEANING: When two or more persons have made a joint promise, they are known
as joint promisors. Unless a contrary intention appears from the contract, all joint
promisors must jointly fulfill the promise. If any of them dies, his legal representatives
must, jointly with the surviving promisors,
fulfill the promise. If all of them die, the legal representative of all of them must fulfill
the promise jointly.

By whom joint promises must be performed: The following are the rules as regards
performance of joint promises:

1. All promisors must jointly fulfill the promise: According to section 42. when two
or more persons have made a joint promise, then unless a contrary intention appears
by the contract, all joint promises must jointly fulfill the promise. If any of them dies,
his legal representatives must, jointly with the surviving promisors, fulfill the promise.
If all of them die, the legal representative of all of them must fulfill the promise jointly

2. Any one of the joint promisors may be compelled to perform: (section 43, para
1) when two or more persons make a joint promise and there is in the absence of
express agreement to the contrary, the promisee may compel any one or more of the
joint promisors to perform the whole of the promise. This means the liability of joint
promisors is joint and several
Illustration: A, B, and C jointly promises to pay D Rs 3000. D may compel all or any
or either A or B or C to pay him Rs 3000

3. A joint promisor compelled to perform, may claim contribution (section

43,Para 2}: If one of the several joint promisors is made to perform the whole
contract, he may compel the other joint promisors to contribute equally with himself
to the performance of the promise, unless a contrary intention the contract. appears
from
Illustration: A, B, and C jointly promises to pay D Rs 3000/-. A is compelled to pay
the whole amount to D. he may recovers Rs 1000/- from B and C.

4. Sharing of losses arising from default:-{section 43, Para 3): if any one of the
joint promisors makes a default in making contribution, the remaining joint promisors
must bear the loss arising from such default in equal shares.
Illustration: A, B, and C jointly promises to pay D Rs 3000/-. C is unable to pay
anything and A is compelled to pay the whole amount to D and entitled to receive Rs
1500/- form B.

5. Release of joint promisor: {section 44}:if one of joint promisor is released from
his liability by the promisee, his liability to the promise ceases nut this does not
discharge the other promisor from their liability. The released joint promisor also
continues to be liable to the other promisors.
Illustration: D1, D2, and D3 jointly owe a debt to C. C releases D1 from his liability
and files a suit against D2 and D3 for payment of debt. D2 and D3 are not released
from their liability nor is D1 discharged from his liability to D2 and D3 for
contribution

6.Joint rights: Section 45 provides that when a person has made a promise to two or
more persons jointly, then, unless a contrary intention appears from the contract, the
right to claim performance test, as between him and them with them during their joint
lives, and after the death of any of them with the representative of such deceased
person jointly with the survivor or survivors, and after the death of the last survivor,
with the representatives of all jointly

Illustration :A, in consideration of Rs 5,000, lent to him by B and C. promises B and C

jointly to repay them that sum with interest on a day specified B dies The right to
claim performance rests with B s representative jointly with C during C's life and after
the death of C, with the representatives of B and C jointly

13) What are Reciprocal promises? Explain the order of performance of

reciprocal promises.

MEANING: When a contract consists of an exchange of promises they are called

reciprocal promises

DEFINITION: Section 2 defines Promises which form the consideration or part of

the concerto for each other are called reciprocal promises

IMPORTANT POINTS:

A Sections 51 to 54. 57 & 58 explain the performance of reciprocal promises B.

Promisor is not bound to perform, unless reciprocal promise is ready and willing to
perform:

1) Section 51 provides that when a contract consists of reciprocal promises to be

simultaneously performed no promisor need perform his promise unless the
promise is ready and willing to perform his reciprocal promise.

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

ii) A and B contract that A shall deliver goods to B at a price to be paid by

instalments, the first installment to an delivery on payment. A need not deliver
unless B is ready and willing to pay the first installment on delivery. B need not
pay the first instalment unless A is ready and willing to deliver the goods on
payment to the first instalment
2) Order of performance of reciprocal promises: Section 52 provides that where
the order which reciprocal promises are to be performed is expressly fixed by the
 contract they shall be performed In that order and where the order is not expressly
fixed by the contract, they shall be performed in that order which the nature of the
transaction requires

Illustration
i) A and B contract that A shell build a house for at a fixed price A's promise to
build the house must be performed before B's promise to pay for it

ii) A and B contract that A shall make over his stock-in-trade to B at a fixed price
and promises to give security for the payment of the money As promise need not
be performed until the security is given for the nature of the transaction requires
that A should have security before he delivers up his stock

3) Liability of party preventing event on which the contract is to take effect.-

Section 53 provides that when a contract contains reciprocal promises, and one
party to the contract prevents the other from performing his promise, the contract
becomes voidable at the option of the party so prevented and he is entitled to
compensation from the other party for any loss which he may sustain in
consequence of the non-performance of the contract

Illustration
i) A and B contract that A shall execute certain work for A for Rs 1 000 B ready and
willing to execute the work accordingly but A prevents him from doing so. The
contract is voidable at the option of B, and if he elects to rescind it, he is entitled to
recover from A compensation for any loss which he has incurred by its non-
performance

4) Effect of default as to that promise which should be first performed, in

contract consisting of reciprocal promises: Section 54 provides that when a
contract consists of reciprocal promise such that one of them cannot be performed,
or that its performance cannot be claimed till the other has been performed and the
promisor of the promise last mentioned fails to perform it such promisor cannot
claim the performance of the reciprocal promise, and must make compensation to
the other party to the contract for any loss which such other party may sustain by
the non-performance of the contract.

Illustration
i) A hires Bs ship to take in and convey from Calcutta to the Mauritius, a cargo to be
provided by A. B receiving a certain freight for its conveyance Does not provide
any cargo for the ship A cannot cam the performance of and must make
compensation to B for the loss which B sustains by the non-performance of the
contract
ii) A contracts with B to execute certain builders won to a fixed price. B supplying the
coding and necessary for the work Refuses to furnish any scaffolding or timber and
the work cannot be executed A not execute the work and Is bound to make
compensation to A for any loss caused to him by the non performance of the
contract

iii) A contracts with B to deliver to him, at a specified price, certain merchandise on

board a ship which cannot arrive to a month and B engages to pay for the
merchandise within a week from the date of the contract does not pays the week As
promise to deliver need not be performed and B must make compensation

iv) A promises B to sell him one hundred bales of merchandise to be delivered next
day and B promises A to pay for them within a month A does not deliver according
to his promise B's promise to pay need not be performed and A must make
compensation

5) Reciprocal promises to do things legal, and also other things illegal.- Section
57 lays : down that where persons reciprocally promise, firstly to do certain things
which are legal, and second a contract, but the second is a void agreement.

Illustration
i) A and B agree that A shall sell B a house for 10 000 rupees but that, if B uses it as a
gambling house, he shall pay 50,000 rupees for it

The first set of reciprocal promises, namely, to sell the house and to pay 10,000 rupees
for it, contract. The second set is for an unlawful object, namely that B may use the
house as a gambling is a house, and is a void agreement

PROBLEM: A and B agree that A shall sell B a house for Rs. 10,000 but that if B uses
it as a gambling 2 he shall pay A Rs 50,000 Discuss the legality of this transaction
SOLUTION: The Problem given is identical with illustration appended to Section 57,
and answered the illustration itself The first part of the agreement is valid However,
the second part of the agreement, ie., B shall pay Rs. 50,000 for the house, if he uses it
for gambling house, is void as the hectare is unlawful according to Section 57

6) Alternative promise, one branch being illegal: According to Section 58, in the
case of an alternative promise, one branch of which is legal and the other illegal,
the legal branch alone can be enforced

Illustration
i) A and B agree that A shall pay B 1.000 rupees, for which B shall afterwards
deliver to A either rice or smuggled opium This is a valid contract to deliver
rice, and a void agreement as to the opium
UNIT IV (16 mrks)

1) What is quasi contract? Explain the different types of quasi contracts

OR
2) Explain the relations resembling those created by contract and refer to
relevant provisions in the Indian Contract Act.
OR
5) Explain the provisions of the Indian Contract Act relating to Quasi-contracts
OR
10) What is Quasi Contract? When quasi contractual liability arises?

Meaning: Under certain special circumstances, a person may receive a benefit to

which the law regards another person as better entitled or for which the law considers
he should pay it to the other person, even though there is no contract between the
parties these relationships are terms as “Quasi Contract” or constructive contracts
under the English Law and “Certain relationships resembling those created by
contracts” under the Indian Law.

Quasi contract is not made by a process of proposal and acceptance or by free consent.
It is a trust upon us by law.

A Quasi-contract rests upon the equitable, which declares that a person shall not be
allowed to enrich himself unjustly at the expense of another.

Silent features of Quasi-contract:

i. It is a right which is available not against a particular person or persons and so, that
in this respect it resembles a contractual right.
ii. It does not arise from any agreement of the parties concerned it is imposed by law.
iii. Such Quasi-contractual right is always a right to money, and generally, though not
always, to a liquidated sum of money.

TYPES OF QUASI-CONTRACTS:

The following are of Quasi-contracts are discussed below.

1. Supply of necessaries (sec68): according to section 68, if a person incapable of

entering into a contract or any one whom he as legally bound to support is supplied by
another with necessaries suited to his condition in life the person who has furnished
such supplies I entitled to be reimbursed from the property of such incapable person.
Ex: ‘A’, supplies “B” a lunatic with necessaries suitable to his condition in life. “A” is
entitled to reimburse from B’s property.

2. Payment by an interested person (Section.69):A person, who is interested in

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

The essential requirements of Section.69 as follows:

a) The payment mode should be bonafide for the protection of one’s interest.
b) The payment should not be a voluntary one.
c) The payment must be such as the other party was bound by law to pay.

Ex: “B” holds land Bengal on a lease granted by the Zamindar. The revenue payable
by “A” to the Government being in arrears his land is advertised for sale by the
Government under the Revenue Law. The sale will be annulment of “B’s lease. ’B’ to
prevent the sale and the consequent of annulment of his own lease pays to the
Government the sum due from A. A is bound to make good to B the amount so paid.

3. Obligation to pay for non-gratuitous acts (Section.70): When a person lawfully

does anything for another person or delivers anything to him not intending to do so,
gratuitously, and such other person enjoys the benefit thereof, the latter is bound to
make the compensation to the former in respect of or restore, the things do done or
delivered.

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

STATE OF WEST BENGAL vs. B.K. MONDAL & SONS (AIR 1962 SC 779)

Brief Facts: One of the Officials of the State Government of West Bengal requested
the plaintiff to construct a kutcha road, guard room, office, kitchen room for clerks
and storage sheds for the use of the Civil Supplies Department. Accordingly, the
plaintiff constructed them The bill was for Rs. 19,325/-. The State Government of
West Bengal tried to avoid the payment of the bill under the protection of Article 299
of the Constitution of India, which denotes that all contracts made for the Government
shall be executed by the President or by the Governor of the State. In this case no
agreement was executed by any official, but the said constructions have been occupied
by the State Government and are completely in possession and enjoyment of it. The
Contractor/plaintiff took the plea of Section 70 of the Indian Contract Act, 1872 and
pleaded that his services were being utilised by the State Government, and it was
liable for the payment of the bill.

JUDGMENT: The Supreme Court accepted the plea of the plaintiff and ordered the
defendant State Government of Bengal to pay the bill
DAMODAR MUDALIAR VS. SECRETARY OD STATE FOR INDIA (1894) 18
Mar 88)

Brief Facts: There was a big tank, serving the water to the surrounding villages Some
of the villages were under direct State tenancy, and some of them were under
Zamindars The Government carried out repairs to the tank. The Zamindars were
drawing the water from the tank demanded proportionate expenses for repairs from
Zamindars, who refused to pay The Government

JUDGMENT: The Court held that the Zamindars were under liability under Section
70 of the Indian Contract Act, 1872 as they utilised the services of the Government

4. Responsibility of 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 Bailee. He is bound to take as much care of the goods as a man of
ordinary prudence would under similar circumstances take of his own goods of the
same bulk, quality and value. He must also take all necessary measures to trace its
owner. If he does not, he will be guilty of wrongful conservation of the property till
the owner is found out, the property in goods will vest in the finder and he can retain
the goods as his own against the whole world (except the owner).

Ex: “F” picks up a diamond on the floor of ‘S’s shop. He hands it over to ‘S’ to keep it
till the real owner is found out. No one appears to claim it for quite some week’s
inspite of wide advertisement in the news papers. ‘F’ claims the diamond from ‘S’
who refuses to return. ‘S’ is bound to return the Diamond to ‘F’ who is entitled to
retain the diamond against the whole world except the true owner.

5. Mistake or coercion (Section.72): A person to whom money has been paid, or

anything delivered by mistake or under coercion, must repay or return it to the person
who paid it by mistake or under coercion.

Ex: “A” & “B” jointly owe Rs.100/- to “C”. A alone pays the amount to C and B not
knowing this fact pays Rs.100/- over again to “C”. C is bound to pay the amount to B.

Porcelain Electrical Manufacturing Co. vs. Collector of Central Excise, New

Delhi
(SC 1998 (9) SCC 637) (Quasi Contract - Amount paid by Mistake or under
Coercion)

Brief Facts: The appellant is the manufacturer of porcelain and its components which
come under 23-B of the Central Excise Rules. 1944 It paid central excise for the goods
manufactured by it. Some years after the Supreme Court declared in another case that
such items should not be included and should not be levied excise duty Basing upon
the judgment, the appellant sought refund of the duty paid by it. The respondent
sought the defence of limitation

JUDGMENT: The Supreme Court held that the appellant is entitled to refund under
Sec 72 of the Contract Act

PRINCIPLE: The Supreme Court held that in such cases the law of limitation does not
arise

State of Rajasthan and others vs. Novelty Store and others (1998)(9) SCC 570)
(Quasi Contract - Amount paid by Mistake or under Coercion)

Brief Facts: The facts of this case are also similar as in the above case However, in
this case the respondent/ trader has collected the octroi from its customers. It claimed
the refund of the octroi under Sec 72 of the Contract Act. The appellant contended that
as the trader already collected the octri from its customers and paid the same to the
Government and if it would be refunded to the trader, it Would not be practically
possible to refund entire money to the customers

JUDGMENT: The Supreme Court gave judgment in favour of the

appellant/Government

2) Explain ‘general’ and ‘special’ damages.

Breach of Contract
When any contracting parties or two different people who want to deal for any
business transaction whether, for car selling or purchase of a house etc., it can be any
reason, then both the parties sit together with documents and explain their point of
view to each other with specified terms and conditions.
Damages of Contract
Damages, in a simple language, refers to a form of compensation due to a breach of
contract. As explained by Fuller and Perdue, damages may seek protection for an
exception, restitution and reliance interest.

Let’s say ‘Y’ has to supply 10 bags to mangoes to ‘Z’ for Rs. 10 per bag now, ‘Y’
cancel the contract and said ‘Y’ don’t have bags to deliver but ‘Y’ has contracted with
someone else to deliver the bags of mangoes and he purchased the bags from the
market but the price has reached peak now ‘Y’ will get purchase at a high price and he
suffered the loss of Rs. 5 on every bag of mango. This amount of loss is called
Damages.  
Ordinary damages

The actual loss which the aggrieved party has suffered in the normal ordinary course
of business.

Illustration– I have given the example above of bags of mangoes Rs. 5 is the actual
loss per bag if ‘Y’ is suffering this loss will be called  Ordinary loss because this is the
actual loss ‘Y’ is suffering this is not the estimated loss. So, this difference between
the two.

So, which one of these will be incurred when the situation of breach will arise?
Liquidated damages are decided by both parties, it is ascertained, estimated and put
into the contract by both parties.

However, ordinary damages are actual damages that the aggrieved party has incurred
because of the breach of contract. The court will award Ordinary damages to the
aggrieved party because in liquidating damages it is the estimated loss and court
cannot go ahead the estimated loss, the court will always see what is the actual loss the
party is suffering from and the actual loss is Ordinary loss which will award the
damages to him. The Court is not much worried about liquidating damages he is more
concerned about actual damages.

Special damages

Special damages occur in special circumstances only like ordinary damages have been
in the ordinary course of business special damages occur in a special situation only. It
is not the loss which occurs in an ordinary situation.

Illustration Let’s say ‘X’ agreed to supply 100 bags of wheat to ‘S’ but due to riots in
the city ‘X’ couldn’t supply bags of wheat. Now, this is not an ordinary transaction,
this is a special event. So, in this case, the Court will investigate that the special event
is directly responsible for the breach of contract. So, the Court appoint an officer to
investigate more to find the correct and accurate piece, if the cause of the breach of
contract is directly related to it then the Court might award special damages otherwise
getting the special damages is not the exclusive right. Like ordinary damages are the
right of the aggrieved party whatever loss he has suffered it will get but special
damages get in a special situation so it might not get in all the situations. Some of the
examples of Special damages are:

1. Loss of business opportunities, contract and profits.

2. Damage or loss to business reputation.
3. Loss of time and other inconveniences.
 4. Loss from Operating revenues.
5. Loss of business product and properties.

For example, in the above illustration if both the party estimated loss and took the
difference of Rs. 5 per bags but if he has to suffer the loss of only Rs. 1 per bag then
he has to the faceless amount of loss and the particular amount will be recovered
under Special damages.  

In Cedrick Makara vs. Newmark Realty , Makara claim compensation as he hurt his
thumb while leaving the restroom at his workplace, due to injury he was not able to
come for 6 months for work. The injury was so bad that he required surgery and jury
awarded him a compensation of $ 2 as compensatory damages for pain and suffering
and $2,00,000 under special damages for any kind of medical need he might be
required in future.

In the case of Bret Michaels vs. CBS, a celebrity sued a company over an accident.
At the Tony Award Broadcast in 2009, he was not guided in a correct way on how to
exit from the stage due to which he was hit by a set piece in his head and he broke his
nose and suffered from a brain haemorrhage. The court has given the decision in
favour of Michael but the compensatory and general damage amount was not
disclosed in public.

Usually, special damages do not occur in a normal situation, failing to request for
special damages will occur in losing the right of special damages by the non-breaching
party. In order to receive Special damages, some essentials need to be fulfilled.

 Foreseeable- The loss can be easily predicted by the parties at the time of

forming a contract.
 Flowing from the Breach- The losses should not be the direct and ultimate
consequences of the breach of contract. Some sort of connection should be
present between the breach and losses.

 Calculable– Since special damages are not given under the situation of the
ordinary contract it is difficult to calculate the loss amount.

For example, the loss incurred due to business reputation to an individual cannot be

calculated. It should be calculated during the time of the formation of the contract. 
Are Special Damages different in Tort?

Under tort and personal injury also, the claim can be made for special damages.
However, in a different condition both damages can be claimed under a contractual
term decided by the parties.

For example, special damages claim under personal injury can be easily calculated or
determined as it refers to tangible damages and in case of general damages it becomes
difficult to determine the pain or suffering faced by an individual. As you can easily
observe that below this situation it’s the complete opposite in claim in contract
cases. It is important to note down the change because many contract claims
include issues also. Thus, the amount of damages recovered by the plaintiff directly
depends to attempt that under which head they will file for the violation in contract
claim or tort.

Special damages are determined on the market value at the time of the loss arose. But
in case of tort claim, the attorney may try to secure the claim by special damages.
Such as:

1. Replacement of damaged property.

2. Medical expenses.
3. Loss of wages.
4. Cost related to home care or domestic services.

In the case of tort claim under general damages, it has a different meaning. It consists
of losses which are hard to determine. Such as:

1. Physical injury or disfigurement.

2. Mental stress.
3. Lower the living standard of life.
4. Anxiety.
5. Emotional distress like sexual harassment.

4) Explain the principle of remoteness of damages with special reference to

Hadley Vs. Baxendale case
The term ‘remoteness of damages’ refers to the legal test used for deciding which type
of loss caused by the breach of contract may be compensated by an award of damages.
It has been distinguished from the term measure of damages or quantification which
refers to the method of assessing in money the compensation for a particular
consequence or loss which has been held to be not too remote.
In Arun Mills Ltd v Dhanrajmal Gobindram[1], it was stated with regard to
remoteness of loss, until recently it could fairly be said that, subject to the decision in
The Parana, the law on the remoteness of damage in a contract has been codified by
the decision in Hadley v Baxendale.

HADLEY vs. BAXENDALE (1854) 9 Ex.341(156) E.R. 146 (E.Ch.)

Facts: The plaintiffs was the flour mill owner The defendant was the common carrier,
ie, transport business, Crank-shaft of the mill was broken Due to the break in the shaft
the operation of a mill was stopped for five days. The plaintiff engaged the defendant
to carry the broken shaft to the manufacturers of the shaft to get it repaired or to bring
a new one in place of the old one if it was not repaired The defendant delayed in
transporting. The plaintiff sued the defendant for the breach of contract for the delay,
and requested the Court to award damages for the losses all those days stopped the
operation of the mill.

JUDGMENT: The House of Lords held that the defendant was not liable Because the
plaintiff did not inform the defendant about the importance of the shaft. In fact the
mill was already stopped due to the breakage of the shaft, with which the defendant
was nothing to do. It was occurred in the natural and mechanical process. If the
importance of the arranging new one was told to the defendant, he might have
arranged the substitute arrangements for quick transportation of the shaft It was the
fault of the plaintiff not informing the real circumstances

THE GENERAL PRINICIPLE: The rules on the remoteness of damage in the contract
are found in the Court of Exchequer’s judgment in Hadley v Baxendale[2], as
interpreted in later cases. In Hadley v Baxendale, the plaintiff’s mill had come to a
standstill due to their crankshaft breakage. The defendant carrier failed to deliver the
broken crankshaft to the manufacturer within the specified time. There has been a
delay in restarting the mill. The plaintiff sued to recover the profits they would have
made if the mill was started without delay. The court rejected the claim on the ground
that the mill’s profits must be stopped by an unreasonable delay in the carrier’s
delivery of the broken shaft to the third person.
That rule, expressly and carefully framed, to be guided to judges in directing juries,
was as follows:
Where two parties have entered into a contract which one of them has broken, the
damages which the other party should be entitled to receive in respect of such breach
of contract should either be deemed to have arisen naturally, fairly and reasonably, i.e.
according to the usual course of things, from such breach of contract itself, or as might
reasonably have been deemed to have arisen in the contemplation of the
contract. Now, in the particular circumstances under which the contract was actually
concluded were communicated by the plaintiff to the defendant and thus known to
both parties, the damages resulting from such a breach of contract that they would
reasonably contemplate would be the amount of injury that would normally result
from a breach of the contract, under these special circumstances were wholly
unknown to the party breaking the contract, he could, at most, only have had in his
contemplation the amount of injury that would generally arise from such a breach of
the contract and in the great multitude of cases not affected by any special
circumstances.

Test of Remoteness
In deciding whether the claimed damages are too remote, the test is whether the
damage is such that it must have been considered by the parties as a possible result of
the breach. If it is, then it can not be considered too remote. The damage shall be
assessed on the basis of the natural and probable consequences of the breach. Actual
knowledge must be shown knowledge is not merely imprudence and carelessness.
The defendant is liable only for reasonably foreseeable losses-those that a normally
prudent person would have reason to foresee as likely consequences of a future
breach, standing in his place possessing his information when contracting.
Remoteness of damage is a matter of fact, and the only guidance, the law can give to
lay down general principles.

7) Discuss the rules relating to assessment of damages and state the differences
between ascertained damages and penalty.
OR
8)Explain the principles governing the assessment of damages for breach of
contract.

COMPENSATION FOR LOSS OR DAMAGE CAUSED BY BREACH OF

CONTRACT section 73 of the Indian Contract Act, 1872 is based on the judgment of
the Hadley vs. Baxendale rule.
Section 73. Compensation for loss or damage caused by breach of contract. When a
contract as been broken the party who suffers by such breach is entitled to receive
from the party who has broken the contract compensation for any loss or damage
caused to him thereby, which naturally arose in the usual course of things from such
breach, or which the parties knew, when they made the contract, to be likely to result
from the breach of it. Such compensation is not to be given for any remote and
indirect loss or damage sustained by reason the breach

Compensation for failure to discharge obligation resembling those created by contract.

-- When an obligation resembling those created by contract has been incurred and has
not been discharged, any person injured by the failure to discharge it is entitled to
receive the same compensation from the party in default, as if such person had
contracted to discharge it and had broken his contract Explanation. --- 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 of the contract must be
taken into account.
rules framed in Sec 73 are summed up as follows When a contract has been broken the
injured party is entitled to:
(a) such damages which naturally arose in the usual course of things from such breach
This relates to ordinary damages arising in the usual course of things
(b) such damages which the parties knew, when they made the contract, to be likely to
result from the breach. This relates to special damages.
(c) but-such compensation is not to be given for any remote or indirect loss or damage
sustained by reason of the breach and
(d) such compensation for damages arising from breach of a quasi-contract shall be
same as in any other contract
DIFFERENT KINDS OF DAMAGES
Basically, the Damages are of two kinds - Liquidated and Unliquidated Damages. For
the academic purposes, the Damages may also be divided in the following classes
1. Ordinary Damages/General Damages: When a contract has been broken, the
injured party can recover from the other party such damages as naturally and directly
arose in the usual course of things from the breach. Such damages are called as
"Ordinary Damages"/"General Damages".
Illustration
A contract to buy mason rice @ Rs 800/- per quintal a quantity of 100 quintals from B
contracting the rate of masoon rice is increased in the market from Rs 200/- to Rs
900/- per quintal Refuses to the rice A is entitled to claim damages at the rate of Rs.
100 per quintal fou 100 quintals
2. SPECIAL DAMAGES: Damages other than those arising from the breach of a
contract may recovered if such damages may reasonably be supposed to have been in
the contemporary of both the parties as the probable result of the breach of the
contract. Such damages are known as "Special Damages". Such damages cannot be
claimed as a matter of right
Illustration
There was a books-exhibition at Vijayawada from 10th to 20th of May A publisher
handed over the books on Ist May exhibition to the carrier and informed them that the
books must reach Vijayawada on or before the date of exhibition The carrier
undertook to deliver before the starting date of exhibition. The carrier delivered the
books after the exhibition i.e., 20th May The publisher is entitled to claim
compensation as special damages
3. Vindictive or Exemplary Damages: Damages of Vindictive or Exemplary are of
punishment nature In Law of Contract there is no place of punishment for the breach
of contract. But in case of breach of promise to marry, and dishonour of cheque (for
the want of sufficient funds) the Court may award exemplary damages.
4. Nominal Damages: Where the injured party has not, in fact, suffered any loss, the
damages are awarded for the breach of contract are nominal.
5. Damages for loss of reputation: Damages for loss of reputation in case of breach
of a contract are generally not recoverable
6. Damages for inconvenience and discomfort: Damages can be recovered or
physical Inconvenience and discomfort. It is equal to tortious liability

Difference between Liquidated Damages and Penalty

Here are some principles to help you distinguish between a penalty and liquidated
damages:

 If the sum payable is far in excess of the probable damage on breach of the
contract, then it is a penalty.
 If a contract mentions an amount payable at a certain date and an additional
amount if a default happens, then the additional sum is a penalty. This is because a
mere delay in payment is unlikely to cause damage.
 Even if the contract specifies a sum as ‘penalty’ or ‘damages’, the Court needs
to discern from the facts of the case if the amount mentioned therein is, in fact, a
penalty or liquidated damages.
 The crux of the penalty is the payment of money as a terrorem of the defaulting
party. Liquidated damages, on the other hand, are the true pre-estimate of the
damage.
 While the English law distinguishes between a penalty and liquidated damages,
in India, there is no such distinction. The Indian Courts focus on awarding a
reasonable compensation to the suffering party which does not exceed the amount
fixed in the contract.

7) “No one shall enrich himself unjustly at the expense of another”. Discuss.

When anything is done against the decided norms and principles of justice and
fairness, it is defined as an unjust act. A person will be said to have been enriched
when he obtains some services, money, property or gift etc. from others. This
enrichment can be fair or unfair, obtained directly or indirectly. For example, if a
person receives a car from his parents on completion of his graduation, he is said to be
justly enriched. When somebody wrongfully uses other’s property for his own use, it
will be counted as unjustly enriched. In case a person derives some service or benefits
from other person but doesn’t give him anything in return it will be called as unjust
enrichment. This is usually against the standards of a civil society when one person
enriches himself at the expense of another person. Therefore, unjust enrichment may
be defined as retention of money, property or service against the fundamental
principle of justice or equity and good conscience.

The principle of unjust enrichment states that no person can be enriched at another’s
expenses and the person who enriches or obtains benefit at another’s expense and
causing loss to another, he shall be required to reimburse or restitute a reasonable
value of those services and money which he received unfairly. Plaintiff should be
restituted for his loss by the defendant. The beneficiary shall make good the loss to
plaintiff by giving him reasonable money in proportion to the loss caused to plaintiff.
According to the doctrine of Unjust enrichment it would be wrong for plaintiff to
retain the benefit by the beneficiary and without reimbursing him. It will go against
the spirit of equity and justice.

The principle of unjust enrichment can be understood in three ways:

(i) Unjust enrichment can be interpreted as a principle of Aristotelian equity,
providing correction when normally sound rules produce unjust results in particular
cases.
(ii)  Unjust enrichment can be characterised as a ‘legal principle’ incorporating a
broad ideal for justice, from which courts can deduce solutions to particular restitution
problems.
(iii) Unjust enrichment can be understood simply as expressing a common theme of
restitution cases.

the law of unjust enrichment simply states that if person derives some kind of benefits
from other person casing him loss, he shall be liable to reimburse the plaintiff. ‘Nemo
Debet Locupletari ex Aliena Jactura.’ It is a legal maxim which means that no one
should grow rich out of another person’s loss.

The doctrine of unjust enrichment consists of three components which are as follows:
(i) A person, the defendant received benefit from another person
(ii)  another person incurred loss
(iii) defendant is liable to make good the loss to the plaintiff by reimbursing or
restituting him.

Wherever these elements are present, the same circumstances shall constitute unjust
enrichment. Where there a case of fraud or mistake or consideration, the plaintiff is
entitled for the reimbursement. Even if a person tries to take advantage of his higher
position and subsequently another suffered from loss, the person will restitute the
same. Thus, it is a general rule that one can’t grow out of loss of another person

One of the landmark judgements is  Indian Council for Enviro-Legal Action v.
Union of India, where some environment activist brought the matter into light how
chemical industries are polluting or damaging the soil fertility and polluting the river
by releasing its hazardous waste into them without even disposing them off in a proper
manner. The court held that the chemical industries would pay the remedial measures
required to restore and purify the water and land. Court was of opinion that no one can
take advantage of his own wrong. The concept of unjust enrichment was defined as
retention of money or services by beneficiaries would be against the law of equity and
good conscience. It was decided if a person has retained services, thereby causing loss
to another, defendant is liable to reimburse the plaintiff. Defendant can’t take benefit
or retain the things which in equity and good conscience belong to another. Law can’t
allow anybody to retain unjust benefit. The court is obliged to revere or neutralize the
unjust enrichment or unjust benefit.

The doctrine of unjust enrichment is gradually evolving with the interpretation by the
court and has become the basis of the ‘Restitution’. It has been observed by the courts
that unjust enrichment can be referred as a ground for Restitution because with any
unjust enrichment or unjust profit there can never be a restitution.

Remedies available for unjust enrichment:

Under Indian Contract Act, 1872 various remedies have been provided under Sections
68 to 72 which deal with various circumstances of unjust enrichment. The remedies
are as follows:

1. According to section 68 of the Act, if a person is not capable of entering into a

contract and he is supplied with the basic necessities of life, the amount for supplying
the necessaries will be recovered form the property of that person. For an instance, A,
a physically disabled person, is supplied food and other necessaries required for his
survival by B. B is entitled to recover that amount from the property of A.
In case of Jai Indra Bahadur Singh v. Dilraj Kaur, it was held that money
advanced by minor for the marriage of his sister is necessary and the same is
recoverable from the minor’s property.

2. Section 69 states that 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.
3. According to Section 70, if a person, by mistake or somehow, not gratuitously, does
any act or delivers something to other and the other person uses or gains some benefit
out of that service or gift, the former shall be entitled for compensation to the extent of
the benefit he derives. Thus, it simply says if any person gains something out of the
act or service of another, he shall make restitute the same. For example, if A, a
delivery boy, unknowing leaves some gifts to the house of B. B uses those gifts. B is
liable to pay reasonable amount of gifts to A.

In a very famous case of ‘Great Eastern Shipping Company Limited v. Union of

India’, the plaintiff lawfully carried a cargo of coal and delivered it to the defendant’s
union. Plaintiff didn’t do it gratuitously and defendant also accepted the same. So, the
defendant was held liable to make compensation to plaintiff.

5. According to Section 71 of Act, a person who finds goods belonging to another and
takes them into his custody is subject to the same responsibilities as that of bailee.
He will also a duty to return the goods after the true owner is find. He is supposed
to take reasonable care of goods and not to make unauthorized use etc. He shall be
liable to make compensation if he has not taken reasonable care of goods or, if he
makes unauthorized use of the goods or, if he doesn’t return the good within a
specified time after the owner is found. He shall be liable for any loss or destruction
of the goods. He is supposed to take care of the goods like a prudent man. If he
fails, he will make compensation. Let take a case law to understand in a better way:

In the case of Newman v. Bourne and Hollingsworth, A, a customer of B’s shop,

forgot his ring in B’s shop. One of B’s servant took that ring and placed in an almirah.
When A came to the shop of B to ask for the ring. The ring was stolen. B was held
liable to not to take care the things.

5. According to Section 72 of the Act, if someone gets money or receives something

from another, by mistake, or by coercion, the former must repay or return it. For an
instance, A and B jointly owe 100 rupees to C, A alone pays the amount to C and B
not knowing of this fact, pays 100 rupees over again to C. Then C is bound to repay
the amount to B.
There was a situation in which Indian railway asked the passenger for extra fare, under
mistakenly beliefs that the train would go through a long route. The court asked the
railway to return the extra-money received from the passenger

8) Explain the various remedies available in case of breach of contract.

Remedies for Breach of Contract

When a promise or agreement is broken by any of the parties we call it a breach of
contract. So when either of the parties does not keep their end of the agreement or does
not fulfil their obligation as per the terms of the contract, it is a breach of contract. There
are a few remedies for breach of contract available to the wronged party. Let us take a
look.

1.Recession of Contract
When one of the parties to a contract does not fulfil his obligations, then the other party
can rescind the contract and refuse the performance of his obligations.
As per section 65 of the Indian Contract Act, the party that rescinds the contract must
restore any benefits he got under the said agreement. And section 75 states that the party
that rescinds the contract is entitled to receive damages and/or compensation for such
a recession.

2. Sue for Damages

Section 73 clearly states that the party who has suffered, since the other party has broken
promises, can claim compensation for loss or damages caused to them in the normal
course of business.
Such damages will not be payable if the loss is abnormal in nature, i.e. not in the
ordinary course of business. There are two types of damages according to the Act,

 Liquidated Damages: Sometimes the parties to a contract will agree to the

amount payable in case of a breach. This is known as liquidated damages.

 Unliquidated Damages: Here the amount payable due to the breach of contract is
assessed by the courts or any appropriate authorities.

3. Sue for Specific Performance

This means the party in breach will actually have to carry out his duties according to the
contract. In certain cases, the courts may insist that the party carry out the agreement.
So if any of the parties fails to perform the contract, the court may order them to do so.
This is a decree of specific performance and is granted instead of damages.
For example, A decided to buy a parcel of land from B. B then refuses to sell. The courts
can order B to perform his duties under the contract and sell the land to A.

4. Injunction

An injunction is basically like a decree for specific performance but for a negative
contract. An injunction is a court order restraining a person from doing a particular act.
So a court may grant an injunction to stop a party of a contract from doing something he
promised not to do. In a prohibitory injunction, the court stops the commission of an act
and in a mandatory injunction, it will stop the continuance of an act that is unlawful.
5. Quantum Meruit
Quantum meruit literally translates to “as much is earned”. At times when one party of
the contract is prevented from finishing his performance of the contract by the other
party, he can claim quantum meruit.
So he must be paid a reasonable remuneration for the part of the contract he has already
performed. This could be the remuneration of the services he has provided or the value
of the work he has already done.

11) Discuss the rights and liabilities of finder of goods.

POSITION OF FINDER OF GOODS

According to section 71 of Indian Contract Act, a person who find goods belonging to
another and takes them into his custody, is subject to the same responsibility as a
bailee. Since the position of the finder of the goods is that of a bailee he is supposed to
take the same amount of care with regard to the goods as is expected of a bailee under
section 151. He is also subject to all the duties of a bailee, including a duty to return
the goods after the true owner is found. If he refuses to return, he could be made liable
for conversion.

RIGHTS OF FINDER OF GOODS

Section 168 and 169 confer certain rights on the finder of goods.

SECTION 168 – MAY SUE FOR SPECIFIC REWARD OFFERED :

The finder of goods has no right to sue the owner for compensation for trouble and
expense voluntarily incurred by him to preserve the goods and to find out the owner,
but he may retain the goods against the owner until he receives such compensation,
and where the owner has offered a specific reward for the return of goods lost, the
finder may sue for such reward, and may retain the goods until he receives it.

RIGHT OF LIEN
According to section 168, a finder of goods has no right to sue the owner for trouble
and expenses voluntarily incurred by him to preserve the goods and to find the owner.
He has, however, the right of particular lien in respect of those goods. He may retain
the goods against the owner until he receives compensation for trouble and expense
voluntarily incurred by him to preserve the goods and to find the owner

RIGHT OF CLAIMING THE REWARD, IF ANNOUNCED BY THE OWNER

It has been noted above that the finder has the right to retain the goods until he Is paid
compensation for trouble and expense voluntarily incurred by him to preserve the
goods and find the owner. In addition to that, where the owner has offered a specific
reward for the return of goods lost the finder may sue for such reward and also may
retain the goods until he receives it.

If the goods have already been found voluntarily, and then the owner of the goods
promises to compensate the finder for his past voluntary services, the contract is
binding and the owner is bound to pay the promised amount.

SECTION 169 – WHEN FINDER OF THING COMMONLY ON SALE MAY

SELL IT:
When a thing which is commonly the subject of sale is lost, if the owner cannot with
reasonable diligence be found, or if he refuses upon demand, to pay the lawful charge
of the finder, finder may sell it –

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

RIGHT TO SELL THE GOODS FOUND (SEC.169)

The finder of the goods has also been given the right to sell the goods found by him
under certain circumstances mentioned in section 169.          Such a right is available
to the finder of the lost goods when the following conditions are satisfied:

1. If the owner of the goods cannot be found; or if he refuses to pay the lawful
charges of the finder, and
2. When the good is in danger of perishing its value; or when the lawful
charges of the founder in respect of the thing found amount to two-third of
its value.

DUTIES OF FINDER OF ANY LOST GOODS

If a person finds any lost goods he does not become the actual of those goods. He, in
fact, becomes a special kind of bailee in the sense that he has to take care of the goods
until the actual owner of the goods is found. Thus he possesses same duties towards
the lost goods as of a bailee, and therefore finder’s position has been considered along
with bailment. A finder of the lost goods has to observe following duties towards the
goods he possesses:

Duty to take reasonable care of goods (section 151 & 152)

According to Section 151, the finder of goods should take such care of the goods as a
man of ordinary prudence would take of his own goods. If he fails to act like an
ordinary prudent man, he cannot be excused by pleading that he had taken similar care
of his own goods also, and his goods have also been lost and damaged along with
those of the ordinary prudent man.

According to section 152, the finder of goods in the absence of any special contract,
is not responsible for the loss, destruction or deterioration of the goods, if he has taken
the amount of care of it described on section 151.

Duty not to make unauthorized use of goods (section 153 & 154)

According to section 153, termination of bailment by finder of good’s act

inconsistent with conditions: – a contract of bailment is voidable at the option of the
actual owner, if the finder of goods make any unauthorized use of the goods found
inconsistent with the condition of the bailment.

According to section 154, liability of finder of goods making unauthorized use of

goods bailed: – if the finder of goods makes any use of the goods found, which is not
according to the conditions of the bailment, he is liable to make compensation to the
owner of goods for any damage arising to the goods from or during such use of them.

Duty not to mix goods (section 155 – 157)

According to Section 155, effect of mixture with owner’s consent, of this goods
with finder of good’s: – if the finder of goods, with consent of the owner, mixes the
goods of the owner with his own goods, the owner and the finder of goods must shall
have an interest in proportion to their respective shares, in the mixture thus produced.

According to section 156, effect of mixture without owner’s consent when the
goods can be separated: – when the goods mixed can be separated, the finder and the
owner will remain the possessor of their respective shares. But the finder of goods is
bound to bear the expense of separation, and any damage arising from the mixture.

According to section 157, effect of mixture, without owner’s consent when the
goods cannot be separated: – in case, the nature of the goods is such that the owner’s
cannot be separated from those of the finder’s good, it is deemed to be loss of goods
and the owner cannot recover compensation for the same from the finder of goods.

Duty to return goods (section 160 & 161)

According to section 160, return of goods found on expiration of time period: – it
is the duty of the finder of the goods to return or deliver the goods found to the true
owner as per his directions before the expiration of the time period specified by him.
According to section 161, finder of goods responsibility when the goods are not
duly returned: – if by the default of the finder of goods, the goods are not returned or
delivered at the proper time, he is responsible to the loss or destruction of goods from
that time.

Q.12. Explain the terms ‘penalty' and ‘liquidated damages'.

Liquidated Damages and Penalty

If the parties to a contract specify the amount of compensation payable in case of a

breach of contract, then will the Court accept this figure as a measure of damage? This
scenario is handled differently by the English and Indian laws.

English Law
As per the English law, the amount specified can be interpreted either as liquidated
damages or penalty.

 Liquidated damages: If the amount fixed by all parties is a genuine estimate of

the loss by a future breach of contract, then it is liquidated damages. Thus, all
parties to the contract agree that the amount is fair compensation for the breach.
 Penalty: If the amount fixed by all parties is unreasonable or used to force the
performing party to fulfill the obligation, then it is a penalty. In such cases, the
amount is disregarded and the suffering party cannot claim more than the actual
loss.

Indian Law
The Indian law makes no distinction between liquidated damages and penalty. The
compensation awarded cannot exceed the amount mentioned in the contract. According
to Section 74 of the Indian Contract Act, 1872, if the parties fix the damages, the Court
will not allow more. However, it may award a lesser amount, depending on the case.
Hence, the suffering party gets reasonable compensation but no penalty.
There is an exception to Section 74 which states that if a party enters into a contract with
the State or Central government for the performance of an act in the interest of the
general public, then a breach of such a contract makes the party liable to pay the entire
amount mentioned in the contract.

Differentiation between Liquidated Damages and Penalty

Here are some principles to help you distinguish between a penalty and liquidated
damages:
 If the sum payable is far in excess of the probable damage on breach of the
contract, then it is a penalty.
 If a contract mentions an amount payable at a certain date and an additional
amount if a default happens, then the additional sum is a penalty. This is because a
mere delay in payment is unlikely to cause damage.
 Even if the contract specifies a sum as ‘penalty’ or ‘damages’, the Court needs
to discern from the facts of the case if the amount mentioned therein is, in fact, a
penalty or liquidated damages.
 The crux of the penalty is the payment of money as a terrorem of the defaulting
party. Liquidated damages, on the other hand, are the true pre-estimate of the
damage.
 While the English law distinguishes between a penalty and liquidated damages,
in India, there is no such distinction. The Indian Courts focus on awarding a
reasonable compensation to the suffering party which does not exceed the amount
fixed in the contract.

Other Remedies Available

Interestingly, claiming damages is not the only remedy for a breach of contract. Here are
some other remedies available to suffering parties:

1. Rescission of Contract
Rescission means revocation, cancellation, or repeal of a law, order, or agreement. If one
party breaches the contract, then the other party can treat the contract as rescinded. Also,
he is discharged of all obligations under the contract. Further, he can claim compensation
for damages, if any.
Example: Peter agrees to deliver 50 bags of cement to John on July 01, 2018. John
agrees to pay Rs 10,000 on receipt of the same. However, Peter fails to deliver the
cement on the specified date. Hence, John is absolved of his obligation to pay the price.
Further, he can claim compensation for losses suffered in procuring the cement from
another seller.

2. Quantum Meruit
Quantum Meruit means a reasonable sum of money paid to a person
for services rendered when the amount is not specified in a legally enforceable contract.
In such cases, the law infers a promise to pay since the service rendered indicates an
understanding between both parties. Quantum Meruit covers a case where the party who
provides the service has completed part, but not all of the work that he was bound to do
and seeks compensation for the value of the work done. There are two important
conditions that must be met for this rule to be applied:
 Contract is discharged

 The claim is brought by the party who has not defaulted.

In simple words, Quantum Meruit allows compensating a party for the value of work
done or services rendered. While damages are compensatory in nature, Quantum Meruit
is restitutory since it is a reasonable compensation awarded on the implication of a
contract to remunerate.

A Quantum Meruit claim arises in the following cases:

 When an agreement is found to be void or it becomes void

 If a party does some work or renders services without the intention of doing so
‘free of charge’.
 If there is a contract to render services (express or implied) but there is no
mention of remuneration.
 When one party refuses to perform a contract.
 The contract is divisible and the party who has not defaulted has enjoyed the
benefit of the part-performance.
 The contract is indivisible and for a lump sum but the performance is not proper.
In such cases, the party performing the contract can claim the lump sum and the
other party can deduct a certain amount for the bad work done.

3. Suit for Specific Performance

There are cases where damages are not an adequate remedy upon the breach of a
contract. In such cases, the Court may, in its discretion on a suit for specific
performance, instruct the defaulting party to perform the promise as per the terms of the
contract.

4. Suit for Injunction

If a party has promised not to do something vide a contract but is negating these terms,
then the Court can issue an injunction order to restrain the party from doing what he has
promised not to do.

Example: Peter is a famous Bollywood actor. He signs a contract with John, a producer.
In the contract, he agrees to work exclusively for him for the next 2 years. However, he
enters into a contract with Oliver, another producer, to act in his upcoming movie. The
Court can issue an injunction order restraining Peter from working with any other
producer.
Section 75 of the Indian Contract Act, 1872

According to this section, if a party rightfully rescinds a contract, then he can claim
compensation for any losses or damages sustained due to non-performance of the
contract.
Example: Peter is a drummer and enters into a contract with John, a nightclub owner.
According to the contract, Peter agrees to play at John’s club every Friday and Saturday
night. The agreement is for the next two months against a payment of Rs 5,000 per
night. On the fourth night, Peter wilfully absents himself from the club and John rescinds
the contract.Since he does so rightfully, John can claim compensation for the damages
sustained due to Peter’s non-fulfillment of his promise.

UNIT-V (16MRKS)

1) Explain in brief the various types of specific relief that may be granted by the
court under the Specific Relief Act.

As the main objectives of the Act have been vested in the very title of this statute i.e.
Specific Relief, due to which we can have a basic understanding that the Specific
Relief Act is a legal statute dealing with reliefs or recovery of the damages of the
injured person. This Act was enacted in 1963 following the approach that when a
person has withdrawn himself from the performance of a particular promise or a
contract with respect to another person, the other person so aggrieved is entitled to a
relief under Specific Relief Act, 1963. This Act is considered to be in one of the
branches of the Indian Contracts Act, 1872.

Specific relief

Section 4 of this act explains that this Act grants special relief for the enforcement of
individual rights and not for imposing penal laws. The enforcement under this Act
only bases itself on the individual civil right and the substantive nature must be
established for that fact. To be understood in a simpler way specific relief is related to
providing relief for the infringed civil rights of the individual. Its main objective is to
focus on the rights and if there is any penal nature of the case, it may have to be
established for proving the same. 

1. Recovering the possession

The recovery of possession of this Act is provided under two heads: recovery of the
immovable property and recovery of the movable property. The law of Specific Relief
Act,1963 works on a basic principle that “Possession is itself a prima facie evidence of
the ownership”. 

Recovery of the possession of immovable property 

Section 5 explains the remedies available to a person when he is disposed from his
property. If a person has been removed through the line of possession or wants to
recover what lawfully is his property, then that person can do so through the recovery
procedure provided by the Code of Civil Procedure, 1908 and in which the person will
prove that the title belongs to him. 

Section 6 of this Act details that if a person has been dispossessed or divested from the
property against the nature of law, then that person can file a suit for recovery of
possession. This section is not only a mere legal rule but also has a wide practical
approach. There are certain essential requirements for fulfilment of recovery under
this section that are as follows:

 The person suing for dispossession must be in possession of that property.

 The person must be dispossessed from the property and such divest from the
property must be unlawfully done or must be carried out against the nature
of law. 
 The dispossession must be without the consent of the person suing.
 Section 6 sub-clause (2) explains that no suit can be bought by a person after
the expiry of 6 months from the date of dispossession. 
 Section 6 sub-clause (2) also explains that no suit by a person can be brought
against the government. 

If the person has not filed any suit in the prescribed time period (section 6) then the
only relief open to him is that of section 5 i.e to prove his title of the property in a
better way. Section 6 has certain limitations which explains that if any order or decree
has been directed by the court in regards to section 6 then, no appeal or review shall
lie against such order or decree but such order is open to revision.

Recovery of the possession of movable property

Section 7 explains that when a person wants to recover the possession of the movable
property, they can follow the procedure expressed by the Code of Civil
Procedure,1908. section 7 has further two sub-clauses which further details that a
trustee may file suit against the beneficial interest he was entitled to and the other sub-
clause explains that the ownership of the property can also be expressed with the
presence of a special right given to the person suing; which would be enough as an
essential to file a suit.
 Essentials of section 7 are as follows: 

1. There must be a presence of movable property which is capable of being

delivered or disposed of. 
2. The person suing must have the possession of the property in question.
3. There may be an existence of a special or temporary right on the property.

Section 8 of the Specific Relief Act,1963 explains that when a person is in the
possession of the article to which is he is not the owner, shall be compelled to deliver
such article to the person who will have its immediate possession in following cases:

 When the article is held by the defendant as the trustee of a person who has
the immediate possession.
 When compensation in money is not an adequate relief.
 When it is difficult to ascertain actual damage caused to the person.
 When the possession of the article has been wrongfully transferred from


2. Specific Performance of contracts

Section 10 includes in what condition-specific performance of the contract may be

enforceable, specific performance usually depends upon the discretion of the court but
there are certain conditions for performance which are mentioned as follows:

1. When the damages or loss occurred due to the non-performance of the

contract cannot be ascertained.
2. When money as compensation is not an adequate relief due to the non-
performance of the contact.

Until the contrary is proved it is presumed by the court that (i) that the breach of
contract of immovable property cannot be adequately fulfilled by money (ii) the
breach of contract of movable property can be relieved except in the cases of a) where
the property is not an ordinary article of commerce, b) where the property is kept by
the defendant as a trustee for the property.

Contracts that cannot be specifically enforced

Section 14 mentions certain contracts which cannot be specifically enforced which are
as follows:

1. When there is a non-performance for the act, and money is adequate

compensation.
 2. .A contract that is full of many details and its nature is personal to the
parties, these can not be specifically enforced.
3. The contract requires continuous work for which the court cannot supervise.
4. The court whose nature is determinable. 

Persons against whom the contracts can be specifically enforced

Section 15 deals with the person against whom the contracts can be specifically
enforced:

 Any party to contract or any party to suit.

 Representative in interest or principal, which holds certain important
ingredients-

1. Any special skill, or any qualification. 

2. The principal in interest shall be not be entitled to specific performance.

 Where the contract is for settling a marriage or to compromise the situation

between the family members.
 When a contract has been entered into by a tenant over a property for life.

3. Enforcement of awards

Section 21 deals with the power to award compensation; in various cases,

compensation can be done through the court to the aggrieved person. There are certain
cases which are as follows:

1. When there is a suit filed for specific performance of the contract due to its
breach the aggrieved person may also demand compensation in addition.
2. When according to the court the specific performance may not be granted
but there has been a breach of contract, the court accordingly will order for
compensation to be given to the aggrieved party.
3. When the court thinks that in this case specific performance of the court
shall be granted but it will not be an adequate relief so, compensation in
money can be ordered.
4. No compensation shall be awarded when the relief for money is not itself
mentioned in the plaint.

4. Rectification of instruments

Section 26 deals with the ways in which instrument can be rectified:

 When through fraud or mutual mistake the parties do not show their real intention
then:

 Either party or representative in interest may file a suit for rectification of the
instrument,
 The plaintiff in his plaint may plead for rectification of instrument,
 The defendant in his defence may claim for rectification of instrument.

The court can direct rectification of instruments in cases where the party through fraud
does not show their real intention to prevent violation of rights to the third party.

Requirement for rectification

The party who wants to rectify the instrument firstly must give them in writing and
then mention them in their pleading. No relief shall be granted when the rectification
is not specifically mentioned.

5. Recession of Contracts

Section 27 deals with the recession of the contract, in law, recession means
withdrawing of the contract or in simpler terms: cancellation of the contract. It brings
the party in a situation as if the contract did not happen i.e status quo ante meaning in
its original state.

Recession when cancelled

A contract can go through the recession by the pleading of any party except there are
some cases in which recession may be cancelled. Recession can be cancelled in
certain ways: a) where the contract has been terminated or “has been deemed”
voidable by the plaintiff, b) when the contract is unlawful. 

Cancelling the contracts through recession

A contract may be cancelled through the recession in cases:

a) where the plaintiff has himself given consent to the contract,

b) where the third party has gained interest in the contract and where their rights come
into question, 
c) where only a portion of the contract is to be cancelled but it is in such a position
that the faulty portion cannot get separated from the contract.

6. Cancellation of the contracts

Cancellation is one of the remedies which is available to parties against injuries in a

contract; section 31 to 33 deals with cancellation of instruments through the court.

Section 31 explains that when an instrument is void or voidable against a person then
he can get that instrument if it may cause damage to it. 

Section 32 deals when a contract can be partially cancelled; for example in cases
where there are certain rights and obligations connected with some parties through
that contract, then the court accordingly may cancel the faulty portion and let the other
in motion. 

Section 33 has two heads in it i.e powers to aggrieved party after cancellation and
orders to the defendant after cancellation.

Power of aggrieved party

When the contract has been successfully cancelled, the aggrieved party may receive
all the restoration of benefit and compensation to ensure justice.

Orders to the defendant after cancellation

When the suit has been proven voidable against the defendant, he is required to restore
every benefit to the plaintiff which the defendant may have received during the
contract.

7. Declaratory decrees

Section 34 and 35 deal with declaratory decrees which are declared through the courts
to the parties to suit or contract. 

Section 34 deals with that when any person has a certain right or obligation over the
property and he has been denied that right by any party, then the aggrieved party may
file a suit for the enforcement of the right over the property which has been denied to
him. The Court will give a declaration after looking over the case that the aggrieved
party has a right over the title of such property and so a declaratory decree will be
passed. Such declaratory decree will not be passed by the court when the plaintiff
demands something more than the title over that property. 

Section 35 deals with the effect of the declaration which explains that this decree will
be binding to only to those which are the parties to suit, the decree will be binding to
only the parties to suit and the trustees at the time of suit if any.

8. Preventive relief

Preventive relief is considered to be any relief which abstains a party from doing any
act; a relief from the court which details that the party should not perform certain acts
for which the relief shall be prescribed. Such reliefs can be imposed in the form of
injunctions. 

Injunctions

Injunctions are a specific order under which a party must abstain from performing any
act. Injunctions under the Specific Relief Act,1963 may be divided into different types
namely temporary, perpetual and mandatory. Injunction is mentioned from section 36
to 44.

Perpetual injunctions

Perpetual injunctions are known as permanent injunctions. They can only be imposed
after hearing the parties on the merits of the case in which the defendant has enjoyed
an assertion of the right and by affecting the plaintiff on the contrary. The perpetual
injunction may be granted to the plaintiff to prevent the breach of an obligation and
imposing rights in his favour. When the defendants invade the plaintiff’s right to
enjoyment, a perpetual injunction may be applied in certain cases where:

1. The defendant is the trustee of the property.

2. Actual damage cannot be ascertained.
3. Money as compensation would not be adequate relief.
4. Injunctions are necessary to prevent multiplicity of judgments.

Landmark Judgments

Geeta Rani Paul v. Dibyendu Kundu 

It was held by the Hon’ble Supreme Court that when the plaintiff files suit regarding
the dispossession, it is enough if he proves that he is entitled over the title of that
property. Once the title is proved other details like being divested from the property or
other things are not required to be proved.

N.P. Thirugnanam v.Dr. R.J. Mohan Rao

It is held by the Court that when in a case it is observed that the plaintiff itself did not
perform his portion in the contract or neither does he want to perform, so the decision
regarding specific performance act will be issued under this favour. 

Prem Singh vs. Birbal

The Court, in this case, held that when a contract is valid no doubt of it being
cancelled arises and when it is void ab initio (meaning no existence in the law from
the starting ) then no also no option of cancelling it arises as it is not present in the
eyes of law. When a contract has no existence no action is enforced on it.

2) Explain the circumstances under which court may refuse to grant perpetual
injunction
OR
4) What are the cases in which the court can grant perpetual injunction?

Perpetual Injunction
Section 37(2) of the Specific Relief Act, 1963 lays down that a permanent injunction
can only be granted by a decree at the hearing and upon the merits of the case. In
simple words, for obtaining a permanent injunction, a regular suit is to be filed in
which the right claimed is examined upon merits and finally, the injunction is granted
by means of judgement. A permanent injunction therefore finally decides the rights of
a person whereas a temporary injunction does not do so. A permanent injunction
completely forbids the defendant to assert a right which would be contrary to the
rights of the plaintiff.

Section 38 of the Specific Relief Act, 1963 specifies certain circumstances under

which permanent injunction may be granted. Section 38 with the head ‘Perpetual
injunction when granted’ reads as,

“(1) Subject to the other provisions contained in or referred to by this chapter, a

perpetual injunction may be granted to the plaintiff to prevent the breach of an
obligation existed in his favour or by implication.
(2) When any such obligation arises from the contract, the court shall be guided by
the provisions and rules contained in chapter II (specific performance).
(3) When the defendant invades or threatens to invade the plaintiff’s right to, or
enjoyment of, property, the court may grant the perpetual injunction in the following
cases, namely-
  Where the defendant is the trustee of the property of the plaintiff.
 Where there exist no standards for ascertaining the actual damage caused, or
likely to be caused by an invasion.
 Where the invasion is such that compensation in money would not afford
adequate relief.
 Where the injunction is necessary to prevent multiplicity of judicial
proceedings.”

Requirements of Applicability
The conditions pre-requisite for the application of this section are-

 There must be an expressed or implied legal right in favour of the plaintiff;

 Such a right must be violated or there should be a threatened invasion;
 Such right must be an existing one;
 Should fall within the sphere of restraining provisions (referred to in section
41 of the specific relief act).

Illustrations

 ‘A’ lets certain land to ‘B’ and ‘B’ contracts not to dig sand and gravel. ‘A’
may sue for an injunction to refrain ‘B’ from digging in violation of the
contract.
 Where the directors of the company are about to pay a dividend out of
capital. Any of the shareholders may sue for an injunction to restrain them.

Section 38 expressly states that where an obligation arises from contract, the court
shall be guided by the rules and principles given in connection with the specific
performance of contracts. Thus, a perpetual injunction will be granted to prevent a
breach of contract only in those cases where the contract is capable of specific
performance (section 41(e)).

However, section 42 says that where a contract compromise of a positive agreement to

do something and negative agreement not to do a certain act, whether expressly or
impliedly, the fact that positive part is not capable of specific performance will not
prevent the court from of enforcing the negative part by means of an injunction.

The crux of this section is that where an agreement contains both affirmative and
negative agreement, the court may enforce the negative agreement if a positive
agreement is incapable of specific performance and may restrain a party from
committing a breach of the negative part.
The court may grant a permanent injunction where the defendant invades or threaten
to invade the plaintiff in the following cases:

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

2. Where there exists no measure to ascertain the loss or actual damage caused.
For example, ‘A’ pollutes the air with smoke so as to interfere with the
physical comfort of Band C, who carries on business in the neighbourhood.
‘B’ and ‘C’ may sue for an injunction to restrain ‘A’ from polluting the air.
3. Where the invasion is such that compensation in terms of money is not an
adequate relief. For example, ‘A’ a professor deliver lectures to his students,
being his own literature composition he does not communicate them to the
whole world. These lectures are the property of the professor and he is
entitled to restrain the students from publishing without his contents.
4. Where it is necessary to prevent a multiplicity of judicial proceedings.

When injunction can be refused (Section 41)

It has been noted above that Section 38 mentions the circumstances when an
injunction can be granted. Section 41 supplements Section 38 and states the
circumstances when an injunction cannot be granted, and is to be refused.

According to Section 41, an injunction can not be granted in the following situations
(a) to restrain any person from prosecuting a judicial proceedings pending at the
institution of the suit in which the injunction is sought, unless such restraint is
necessary prevent a multiplicity of proceedings;
(b) to restrain any person from instituting or prosecuting any proceeding in a court not
subordinate to that from which the injunction is sought;
(c) to restrain any person from applying to any legislative body;
(d) to restrain any person from instituting or any proceeding in a criminal matter;
prosecuting
(e) to prevent the breach of a contract the performance of which would not be
specifically enforced;
(f) to prevent, on the ground of nuisance, an act which it is not reasonably clear that it
will be a nuisance;
(g) to prevent a continuing breach in which the plaintiff has acquiesced; (h) when
equally efficacious relief can certainly be obtained by any other usual mode of
proceeding except in case of breach of trust 3;
(i) when the conduct of the plaintiff or his agents has been such as to disentitle him to
the assistance of the court;
(i) when the plaintiff has no personal interest in the matter,
An interim injunction cannot be granted and could be refused if the performance
would not be specifically enforced and when equally efficacious relief could be
obtained.
 Q.3. What is meant by specific performance? Who can claim it?
OR
Q . 5 . By whom and against whom a specific performance of
contract can be claimed?

Specific Performance of Contracts

Specific performance means enforcement of exact terms of the contract. Under it the
plaintiff claims for the specific thing of which he is entitled as per the terms of
contract. For example, if A agrees to sell certain shares to B of a specific company
which are limited in number and after the payment made by B, if A refuses to sell the
shares then B is entitled to recovery of those shares.

Parties to a contract must perform their contractual obligations otherwise they can be
sued for non-performance. Specific performance is a discretionary order made by a
court wherein a party to a contract must perform a specific action as outlined in an
existent contract. Specific performance can refer to any kind of forced action, though
it is usually enforced so as to complete a transaction that had been previously agreed
to.

One of the reasons the court orders specific performance is because in some contracts
damages cannot be remedied by money or where the true amount of damages is not
clear. The most common example of such contract is a contract for a sale of property,
for instance, mere monetary damages may not remedy the purchaser’s situation

According to Section 10 of Specific Relief Act 1963 in the following conditions
specific performance of the contract is enforceable:

 When there exist no standard for ascertaining actual damage: It is the

situation in which the plaintiff is unable to determine the amount of loss suffered by
him. Where the damage caused by the breach of contract is ascertainable then the
remedy of specific performance is not available to the plaintiff. For example, a
person enters into a contract for the purchase of a painting of dead painter which is
only one in the market and its value is unascertainable then he is entitled to the same.
 When compensation of money is not adequate relief: In following cases
compensation of money would not provide adequate relief:

1. Where the subject matter of the contract is an immovable property.

2. Where the subject matter of the contract is movable property and,
3. Such property or goods are not an ordinary article of commerce i.e. which
could be sold or purchased in the market.
 4. The article is of special value or interest to the plaintiff.
5. The article is of such nature that is not easily available in the market.
6. The property or goods held by the defendant as an agent or trustee of the
plaintiff.

In Case of Ram Karan v. Govind Lal , an agreement for sale of agricultural land was
made & buyer had paid full sale consideration to the seller, but the seller refuses to
execute sale deed as per the agreement. The buyer brought an action for the specific
performance of contract and it was held by the court that the compensation of money
would not afford adequate relief and seller was directed to execute sale deed in favour
of buyer.

Similarly, it was held by the court where the part payment was paid by plaintiff and
defendant admitted that he had handed over all documents of title of property to the
plaintiff. Sale price in an agreement is not low and defendant had failed to establish
that said document was only a loan transaction then the agreement is valid and
defendant is liable to perform his part (M. Ramalingam v. V. Subramanyam)

WHO CAN OBTAIN SPECIFIC PERFORMANCE?

Section 15 of the Specific Relief Act, 1963 provides for those persons who can obtain
specific performance of a contract. Those are as follows:-

1. Any party to a suit;

2. Representative in interest or principal of any party;
3. If a contract is a settlement of marriage or a compromise of doubtful rights
between members of the same family, any beneficiary entitled thereunder;
4. If a tenant enters into a contract for life in due exercise of a power, the
remainderman;
5. A reversioner in possession, if an agreement is a covenant entered into with his
predecessor in title and the reversioner is entitled to the benefit of such covenant;
6. A reversioner in remainder, if an agreement is a covenant and the reversioner is
entitled to the benefit and will sustain material injury if there is a breach of
contract;
7. If a company has entered into an amalgamation with another company through
a contract, the new company which arises out of such amalgamation;
8. If the promoters of a company entered into a contract before its incorporation
for purposes of the company and such contract is warranted by the terms of the
incorporation, the company provided that the company accepted the contract and
communicated such acceptance to the other party of the contract.  
AGAINST WHOM CAN SPECIFIC PERFORMANCE BE ENFORCED?

Section 19 of the Specific Relief Act, 1963, provides for those persons against whom
specific performance can be enforced. Those are as follows:-

1. Either party to a suit;

2. Any other person claiming under him by a title arising subsequently to the
contract except a transferee for value who has paid his money in good faith and
without notice of original contract;
3. If a company has entered into an amalgamation with another company through
a contract, the new company which arises out of such amalgamation;
4. If the promoters of a company entered into a contract before its incorporation
for purposes of the company and such contract is warranted by the terms of the
incorporation, the company provided that the company accepted the contract and
communicated such acceptance to the other party of the contract;
5. Any person claiming under a title which, though prior to the contract and
known to the plaintiff might have been displaced by the defendant.

CASE LAWS

In 2016, the Supreme Court in Robin Ramjibhai Patel v. Anandibai Rama @

Rajaram Pawar & Ors. [SLP (C) No. 31087 of 2014] reiterated that when a plaintiff
wants to implead certain persons as defendants in a suit for specific performance on
the ground that they may be adversely affected by the outcome of the suit, then
interest of justice also requires allowing such a prayer for impleadment so that the
persons likely to be affected are aware of the proceedings and may take appropriate
defence as suited to their vendors.

The court also observed that the necessary parties in a suit for specific performance of
a contract for sale are not only parties to the contract or their legal representatives, but
also a person who had purchased the contracted property from the vendor.

In 2017, the Kerala High Court held that a plaintiff is entitled to specific performance
of a contract only if he sticks to the original terms of the contract. If there is any
variation in the terms of the contract even if it for the benefit of the defendant, the
plaintiff will not be entitled to seek specific performance

IN 2018, the Supreme Court in Sucha Singh Sodhi v. Baldev Raj Walia (Civil
Appeal No.  3777 of 2018) held that specific performance and permanent/temporary
injunction cannot be claimed in one suit. This was held for the following reasons:-
 1. Specific performance and temporary/permanent injunction cannot be
claimed in one suit as they are independent of each other.
2. The cause of action to claim temporary/permanent injunction against the
defendants from interfering in plaintiff’s possession over the suit premises
accrues when defendant No.1 threatens the plaintiff to dispossess him from
the suit premises or otherwise cause injury to the plaintiff in relation to the
suit premises. It is governed by Order 39 Rule 1 (c) of the Code which deals
with the grant of an injunction. The limitation to file such suit is three years
from the date of obstruction caused by the defendant to the plaintiff.

6) Write an explanatory note on perpetual and temporary injunctions

OR
10) What is injunction? What are the types of injunctions available
under the Act?
OR
12) Under what circumstances a court may not grant injunction?

Introduction

An injunction is a prohibitive writ issued by a court of equity, at the suit of a

party complainant, directed to a party defendant in the action, or to a party made a
defendant for that purpose, forbidding the latter to do some act, or to permit his
servants or agents to do some act, which he is threatening or attempting to commit, or
restraining him in the continuance thereof, such act being unjust and inequitable,
injurious to the plaintiff, and not such as can be adequately redressed by an action fit
law.

For example, if it so happens that a person is demolishing a building you have

possible claims on, you may ask the competent court to order such person to not
demolish the building until the trial for the claim of the building is complete and
judgement goes in his favour.

The law of injunction has been provided for by the Specific Relief Act, 1963
(hereinafter, the Act), and is also regulated by the Code of Civil Procedure, 1908 in
India.

Types of Injunctions in the Indian Law

Generally speaking, there are two types of injunctions under the act [2], as mentioned
below:

1. Temporary Injunction
 2. Perpetual/Permanent Injunction

Both the types of injunctions are discussed below.

Temporary Injunction

Temporary injunctions, as the name suggests, are the injunctions that are given
for a specific period of time or until the court gives further order regarding the
matter in concern. They can be obtained during any stage of the trial and are regulated
by the Code of Civil Procedure (CPC), 1908 [3]:

 Section 94: The section provides for supplemental proceedings, to enable the

court to prevent the ends of justice from being defeated. Section 94(c) states that a
court may grant temporary injunction and in case of disobedience commit the
person guilty thereof to the civil prison and order that his property be attached and
sold. Section 94(e) of the Code enables the court to make interlocutory orders as
may appear to it to be just and convenient.

 Section 95: If it is found by the court that there were no sufficient grounds to
grant the injunction, or the plaintiff is defeated in the suit, the court may award
reasonable compensation to the defendant on his application claiming such
compensation.

 Order XXXIX:
o Rule 1: It enlists the situations when a court may grant temporary
injunction. These are:

1. Any property in dispute in a suit is in danger of being wasted, damaged or

alienated by any party to the suit, or wrongfully sold in execution of a
decree, or
2. the defendant threatens, or intends, to remove or dispose of his property with
a view to defrauding his creditors,
3. the defendant threatens to dispossess the plaintiff or otherwise cause injury
to the plaintiff in relation to any property in dispute in the suit.

 Rule 2: It provides that an interim injunction may be granted for restraining
the defendant from committing a breach of contract or other injury of any
kind to the plaintiff.

 Rule 3: It states that a court shall direct a notice of application to the
opposite party, before granting the injunction to the plaintiff. However, if it
seems to the court that the purpose of the injunction would be defeated by
the delay, it may not provide the notice.
  Rule 4: It provides for vacation of already granted temporary injunction.
 Rule 5: It states that an injunction directed to a corporation is binding not
only on the corporation itself, but also on all members and officers of the
corporation whose personal action the injunction seeks to restrain.

In the M. Gurudas and Ors. case, the Hon’ble Supreme Court of India has
opined, “while considering an application for injunction, the Court would pass an
order thereupon having regard to prima facie, balance of convenience and
irreparable injury.”

1.  Prima Facie  Case: 

Prima Facie literally means, on the face of it. In Martin Burn Ltd. vs. R.N.
Banerjee, while discussing a the meaning of the ‘prima facie’ case, the court said:

“A prima facie case does not mean a case proved to the hilt but a case which can be
said to be established if the evidence which is led in support of the same were
believed. While determining whether a prima facie case had been made out the
relevant consideration is whether on the evidence led it was possible to arrive at the
conclusion in question and not whether that was the only conclusion which could be
arrived at on that evidence.”

Prima facie case is a must to be eligible to obtain a temporary injunction. However, it

is not sufficient and temporary injunction cannot be granted if the damage that will be
caused if the injunction is not given is not irreparable. [6]

2. Irreparable Injury:
‘Irreparable injury’ means such injury which cannot be adequately remedied by
damages. The remedy by damages would be inadequate if the compensation
ultimately payable to the plaintiff in case of success in the suit would not place him in
the position in which he was before injunction was refused. [7]

3. Balance of Convenience:
In the case of Anwar Elahi, the court has clearly explained the meaning of ‘balance
of convenience’. According to the court:

“Balance of convenience means that comparative mischief or inconvenience which is

likely to issue from withholding the injunction will be greater than that which is likely
to arise from granting it. In applying this principle, the Court has to weigh the amount
of substantial mischief that is likely to be done to the applicant if the injunction is
refused and compare it with that which is likely to be caused to the other side if the
injunction is granted.”

Permanent Injunction

A permanent injunction can be granted by the court by passing a decree made at the
hearing and upon the merits of the suit. Once such decree is passed, the defendant is
permanently prohibited from the assertion of a right, or from the commission of an
act, which would be contrary to the rights of the plaintiff. [9]

When can a permanent injunction be granted?

A permanent injunction may be granted:

a. To the plaintiff in a suit to prevent a breach of an obligation existing in his favour,
whether implicit or explicit.[10] However, in a case where such an obligation arises out
of a contract, the court follows the rules as specified by Chapter II of the Act.
[11]
 Chapter II, under Section 9 provides that a person may claim relief in respect to a
contract, by pleading in his defense, any of the ground available to him under any law
relating to contracts.

b. In a case where the plaintiff invades or threatens to invade the the plaintiff’s right
to, or enjoyment of, property, the court may grant a permanent injunction where:

1. The defendant is trustee of the property for the plaintiff;

2. there exists no standard for ascertaining the actual damage caused, or likely
to be caused, by the invasion;
3. the invasion is such that compensation in money would not afford adequate
relief;
4. the injunction is necessary to prevent a multiplicity of judicial proceedings.

Case Laws Regarding Permanent Injunction

In the case of  Jujhar Singh vs. Giani Talok Singh where a permanent injunction
was sought for by a son to prevent his father who happened to be the Karta of the
Hindu Undivided Family (HUF), from selling the HUF property was set aside. It was
not maintainable because the son, also a coparcener, had got the remedy of
challenging the sale and getting it set aside in a suit subsequent to the completion of
the sale.
On the other hand, granting the injunction sought would allow the son to use the
injunction to prevent the father from selling the property even if he is compelled to do
so, due to legal necessities.

Where in the case of Cotton Corporation Of India vs. United Industrial Bank, an
injunction was sought for to restrain the defendants from presenting a winding-up
petition under the Companies Act, 1956 or under the Banking Regulation Act, 1949,
the court dismissed the petition as it was not competent to grant, as a relief, a
temporary injunction restraining a person from instituting a proceeding in a court not
subordinate to it.

The court here was of the view that if a perpetual injunction cannot be granted for the
subject matter of the case under Section 41(b) of the act, ipso facto temporary
injunction cannot be granted.[19]

MAJOR DIFFERENCES BETWEEN PERMANENT AND TEMPORARY

INJUNCTIONS

1. A temporary injunction is granted for a specified period of time, or as adjudged

by the court. It may be granted at any point during the suit.
2. A permanent injunction, on the other hand, is granted by the decree of the court,
and upon the examination of the facts and merits of the case.
3. Order 39 (Rules 1 to 5) of the Civil Procedure Code, 1908, governs temporary
injunctions.
4. Whereas, permanent injunctions are governed by sections 38 to 42 of The
Specific Relief Act, 1963.
5. A temporary injunction is non-conclusive. Basically, it is a temporary order,
rather than a permanent solution.
6. A permanent injunction, on the other hand, deals with the finality of a
judgement, thereby providing a conclusive and long term solution to the dispute
at hand.
7. A temporary injunction may only focus on the Plaintiff’s side of the case and
therefore may be one-sided. However, it is important to understand, that this is
not always so.
8. A permanent injunction, on the other hand, focuses on the Plaintiff as well as
the Defendant. It hears both parties, and then provides a solution.
9. A temporary injunction, being temporary in nature, may be revoked by the
court that passes the injunction order.
10.However, a permanent injunction is non-revocable by the court that decides to
pass such order. However, it may be revoked by an appellate or higher court.
11.A lack of immediate response or request by the Plaintiff may lead to a dis-
approval of the grant of an injunction order.
 12.On the other hand, a permanent injunction order allows the parties to explain,
elaborate and provide for details at a later and more relaxed pace, provided
there are sufficient and valid grounds for the same.
13.A temporary injunction is simply an order by the court.
14.A permanent injunction is a decree (i.e., an official order by a court of law).

Mandatory Injunction

If the court finds it necessary and within its capability, to compel the performance of
an act, to prevent the breach of an obligation, it may do so granting a mandatory
injunction to the plaintiff, compelling the defendant to perform the requisite acts. [13]

Damages In Lieu of, or in Addition to Injunction

If the plaintiff claims for any additional damages along with the injunction sought for,
either perpetual or mandatory, or in substitution of the said injunction, the court may
award him such damages, if it thinks fit [14]. If no damages have been claimed, the court
may allow the plaintiff to make the required amendments to the plaint and claim
damages[15].

However, it is highly recommended to claim damages in the plaint before submitting

it, as permission for further amendments rests solely at the discretion of the court.

The dismissal of a suit to prevent the breach of an obligation existing in favor of the
plaintiff bars his right to sue for damages for such breach. [16]

Injunction to Perform Negative Agreement

The court can grant an injunction to not do certain acts, which are prohibited by the
contract to do. The court may do so even if it is unable to compel the performance of
the affirmative terms of the contract, i.e. the terms that requires the defendant to do
(perform) certain acts. However, it is subject to the fact, whether the plaintiff has
performed the terms of the contract binding on him or not. Non performance by the
plaintiff dis-entitles him from obtaining such an injunction. [17]

Grounds for Rejection of an Application for Injunction

On the following grounds, an injunction cannot be granted:

 1. To restraint a person from prosecuting a pending judicial proceeding, unless
it is to prevent multiplicity of the proceeding.
2. To restraint a person from instituting or prosecuting a judicial proceeding in
a court, where the injunction is sought from a court subordinate to that court.
3. To restrain any person from applying to any legislative body.
4. To restrain any person from instituting or prosecuting any proceeding in a
criminal matter.
5. To prevent the breach of a contract the performance of which would not be
specifically enforced (Illustration: a contract between a master and servant,
requiring the servant to render personal services to the master cannot be
specifically enforced by the master or the servant. Hence, an injunction
cannot be granted in this situation)
6. Where it is not reasonably clear that an act it nuisance, to prevent such an act
on the ground of nuisance.
7. To prevent a continuing breach in which the plaintiff has acquiesced, as the
general rule is that an acquiescence is an implied consent by remaining
silent.
8. Where except in the case of breach of trust, equally efficacious relief can
certainly be obtained by any other usual mode of proceeding.
9. When the conduct of the plaintiff or his agents has been such as to dis-entitle
him to the assistance of the court.
10.When the plaintiff has no personal interest in the matter.

7) Explain the jurisdiction of the court to grant relief by way of rectification of

instruments

Rectification of Instruments

Section 26 of the Specific Relief Act talks about rectification. Let us understand in

more clear terms. Rectification’ means correction and here ‘instrument’ means any
legal document/contract.

So rectification of instruments means correction or changes in the contract.

Under Section 26 of the Specific Relief Act,1963, it is provided that when any
contract may be rectified:

1. When there is a fraud or when there is a mutual mistake by both the parties. Now
the person who is entitled for the rectification of instrument are as follows: –

 Either party or his representative can file.

 The plaintiff in any suit can file if any rights arising under the rectification of
instruments.
  Defendants can file in any suit as mentioned in sub-clause (B).

2. If in any case in which a contract or instrument is to be rectified under clause (1),

the court finds that contract is done by fraud or by mutual mistake of the parties, then
the court has discretionary power to rectify it.

3. If parties claim for rectification and the court thinks fit, then it will be specifically
enforced.

4. No relief shall be granted until the parties specifically claim for rectification of the
instrument.

Modes of Rectification of Instrument

Chapter three of the Specific Relief Act, 1963 deals with the rectification of
instruments and Chapter five of the Specific Relief Act, 1963 deals with the
cancellation of instruments. Under section 26 of the specific relief act, the modes of
rectification of instrument are: –

Fraud 

Whenever someone intentionally misrepresents the other regarding the contract, there
is a way of rectification of the instrument. Fraud means, when:

 A person suggests a fact which is not true. 

 A person hides a fact, which he already knows about.
 A person made a promise without any intention of performing it.

Mutual mistake of parties

The term ’mutual mistake’ means the common mistake on the part of both the parties
to contract. A party who wants rectification of the instrument has to establish that
there was a prior complete agreement that was reduced to writing in accordance with
the common intention of the parties and by reason of mistake the writing did not
express the real intention of the parties. If the mistake is not from both the parties but
from the scribe then it will not be rectified. A mutual mistake can be established by
any parties to a contract. On the basis of unilateral mistake not amounting to fraud,
there cannot be rectification.
Real Intention of the Party

The rectification of the instrument always involves the real prior agreement between
the parties and the absence of such facts in the agreement of the document as a result
of fraud or mutual mistake.

The court has also the responsibility to see whether the parties do have a real intention
or they are framing the instrument and further the court has to ascertain for the same.

Requirements For Rectification of Instrument Under Section 26

There are certain requirements under Section 26 of the specific relief act.

 Existence of fraud or mutual mistake: – for the rectification of instrument, one

has the proof regarding the fraud and the mutual mistake. The intention must be
truthful which is owing to fraud or common mistake.

    ‘Fraud’ means an act done by any party through a contract to deceive another party
to enter into a contract.

   ‘Common mistake’ means when the mistake in any contract or in any deed done by
both the parties.

     ‘Real intention of the parties’ means it’s not only the party to prove fraud or mutual
mistake but also the court has to find out and further the court has to also ascertain the
real intention of the parties. 

 The burden of proof lies on the person who wants rectification of the
instrument.

Parties To Rectification of Instrument

Either party to a contract or their legal representative in interest can take action for the
rectification of the instrument under Section 26. Any other person does not have any
right to maintain a suit for its rectification. Proper parties can apply for the same.
‘Proper parties’ are those parties when a case is brought for rectification of sale deed
at that time the other parties who are affected by it are called proper parties.
Effect of rectification of Instrument

A deed can only be rectified by the court so as to confirm the true intention of the
executing party at the moment of execution. After the execution the written agreement
does not continue to exist with a parol variation, it is to be read as if it had been
originally drawn in its rectified form. When the court rectifies a deed of transfer it
becomes a conveyance and so no further conveyance is required. The order should be
declared that the deed ought to be rectified, point out the way in which it should be
rectified and direct an endorsement of the order on the conveyance.

Cases for rectification

There are several cases regarding the rectification of instruments.

 Sartaj And Another vs Ayub Khan (2019)

In this case, it was held that the appellant filed a civil suit with the allegation that the
plaintiff purchased property (land) from the defendant by registered sale deed for
valuable consideration but due to inadvertent mistake and misunderstanding in the sale
deed they are taking undue advantage for the same. In the judgment it was held that
the appeal is liable to be allowed and the judgment passed by the lower appellate court
is liable to set aside and the judgment and decree passed by the trial court are liable to
be restored.

 Noordin Esmailji Kurwa vs Mahomed Umar Subrati (1939)

The case began with an agreement between the Nevitia Floor Mills and Sardar Haji
Badloo Subrati. The land has been divided into six parts. And the dispute regarding
the land began. At last, it was held that a suit for rectification of deed on grounds of
mutual mistake if the rights of third parties have not intervened. The date of the notice
of the mistake is the date from which time runs.

 Manik Lal And Ors. vs Rajaram And Anr. (2003)

In this case, it was held that case was filed by the Rajaram and Laxminath on the
grounds that plaintiff is co-owner and joint holder of the agriculture lands, before
filing the complaint the defendant entered in the field of plaintiff and threatened
plaintiff as defendant doesn’t have any right regarding the land. The appellant also
said that all heirs do have a right on the land. Lastly, it was said that appeal is allowed.

 Joseph Johan Peter Sandy vs Veronica Thomas Rajkumar & Anr (2013)
In this case, it was held that the appellants are the son and daughter of late B.P Sandy,
he transfers his two houses in favour of his youngest son and daughter but the house
which was given to his daughter, ought to have been given to his son and the house
which was given to the son, ought to be given to his daughter. At the end, the court
held that it is applicable only where it is pleaded and proved that through fraud or
mutual mistake of the parties and considered that appeals are devoid of any merit.

 Shamim Ahmed Siddique vs Society Ltd. And Ors. ( 2008)

In this case it was held that rectification of an instrument under 31, it must be proved
that it was through the mutual mistake of the parties that the instrument in question did
not truly express the intention of the parties. And it must be proved that there has been
a mistake in framing the instrument, and it must ascertain the real intention of the
parties in executing the instrument. If the court is satisfied by these are the two
conditions, the court has the discretionary power to rectify it.

Q.8. Write a note on preventive reliefs provided under the Act.

Preventive relief

Preventive relief under the Specific Relief Act, 1963 has a negative connotation in its
operationality. This type of relief has been devised to deal & counter a scenario where
the nature of the contract is such that neither the grant of damages nor the specific
performance is unlikely to serve any purpose. In such cases, the court resorts to
restrain the party who threatens to breach the contract to the possible extent. For
instance, in a contract of musical performance between the performer & the other
party, the other party, can seek preventive relief to deter the performer from accepting
or entering into any other such contracts, which creates a pressure & compulsion for
fulfilling his promise.

Granting of Preventive relief

Preventive relief is typically granted through the standard mode of injunction. The law
of injunction in our country has originated from the equity jurisprudence which in turn
is borrowed from Roman law.

According to Section 37, the Specific Relief Act, 1963 defines that “preventive relief
is granted at the discretion of the court by injunction, temporary or perpetual”. An
injunction is a judicial process whereby a party is ordered to refrain either from doing
 a particular act or omission or directed to do a particular act or omission. In the former
case, it is called a restrictive injunction and in the latter, it is called a mandatory
injunction. One purpose of granting an injunction is to maintain peace & order in
society.

Maxims on which Injunction is based

“He who seeks equity must do equity” which bestows obligation on both the parties to
honour their obligations, to enforce reciprocal promises.

“One who seeks equity must come with clean hands” which interprets that the
plaintiff who is praying before the court for a specific relief must not be at first place
at fault.

“Whenever there is a right there is a remedy”, the most widely known & used, where
there exists a right for an individual, he or she shall also have a recourse to enforce it.

Section 42, Specific Relief Act, 1963, wherein a contract, it stipulates (expressly or
impliedly) either to do certain an act in affirmative or in negative, there persists a
circumstance that the court is unable to assert the specific performance of such act, it
shall not preclude it from granting an injunction, only if the plaintiff holds his or her
end of the bargain, i.e. performing his or her reciprocal promise. 

Factors to be considered before granting Injunction

 Prima Facie Case: the literal meaning being “on the face of it” or at the first
look or instance from what it can be judged from its first disclosure. The plaintiff
brings sufficient evidence on the record which reasonably buttresses that he or she is
entitled to the claim seeking & thereby establishing a strong cause of action for further
continuing the proceedings to the trial stage.

In Martin Burn Ltd vs R.N Banerjee  explained a prima facie case which
emphasized doesn’t have to prove the guilt rather present the evidence on record to
support its claim were to be believed. The evidence presented should be such that it
possibly leads to an impugned question & that it leads to land upon the same
conclusion.[1] The court should be satisfied there poses a serious question, triable in
further proceedings & that the plaintiff seeks relief in the trial based on solid evidence
presented on the record. A Prima facie case as interpreted in Gujarat Electricity
Board vs Maheshkumar & Co refers to substantial question(s) raised bona fide,
requiring due investigation & decision on merits. The court would be unjustified &
prejudiced on its part to demand full proof warranting an eventual decree. The
plaintiff’s claim mustn’t be frivolous or vexatious.
 Balance of Convenience: it refers that at the initial stage the case is in a
favourable inclined towards the plaintiff, seeking a particular relief, based on the
overwhelming evidence presented on record innuendoes the likelihood of cause of
action.                                           
It means the quantum of comparative mischief or inconvenience which is likely to
ensue from withholding the injunction will be much greater than which might arise
from granting it. The court has to weigh the substantial mischief that is likely to be
caused to the applicant if the injunction is refused & the subjugation of the legal rights
of the defendant. It has to consider the possibilities or probabilities of the likelihood of
injury that might ensue with the subject-matter sub judice, that status quo must be
maintained.

 Irreparable Injury: This term refers to any injury which necessitates the court
intervention especially when the plaintiff seeking relief is left with no other remedial
measure, except the grant of an injunction. The injury should be such that it by no
adequate damages be remedied. Even with the compensation for damages caused to
the plaintiff would ultimately be insufficient, payable at the conclusion of the trial,
would not be able to put him in the same position or place, where he or she stood
before when the injunction was denied. 

It becomes sworn duty of the court to exercise its “sound judicial discretion” with
utmost care & caution, while granting or rejecting the ad-interim injunctions, because
the role of the court becomes crucial & simultaneously dilemmatic as it has to either
grant or refuse scrupulously the injunction order, based on the arguments of only one
party due to the gravity of issue concerning the subject-matter, by skipping the
disclosure of other vital information from the other party. This, of course, all has to be
done by balancing the interests of both sides. The grant of ad-interim relief becomes
all the more perplexing as there is no strait-jacket formula or even broad guidelines
aiding it & varies from facts & circumstances of each case.

Temporary injunctions

The primary purpose of temporary or interim or sometimes referred to as interlocutory

injunctions is the preservation of the status quo of the property (subject-matter) in
dispute until the legal rights and conflicting claims of the parties before the court are
adjudicated.

One of the other reasons of temporary injunctions is to deter the defendant who
threatens to dispossess the plaintiff or cause any injury to the plaintiff concerning the
subject-matter in dispute, the court, therefore, may grant a temporary injunction to
restrain or prohibit from a particular act or omission. Its purpose is to prevent the
dissolution of the plaintiff’s rights, which in nutshell is a means to provide immediate
relief to the plaintiff.

Circumstances in which Temporary Injunction is granted

According to Section 37(1), Specific Relief Act, 1908 defines temporary injunctions
as that continues until a specific time, or until further order(s) of the court, and they
may be granted at any stage of a suit, and are regulated by the Code of Civil
Procedure, 1908.

Thus, the procedural requirements to be fulfilled for granting temporary injunctions &
interlocutory orders are determined in Order XXXIX, Code of Civil Procedure, 1908:

1. That in any suit it is proved by affidavit or otherwise;

2. That the property constituting the subject matter of the suit is under the
apprehension of being wasted, damaged or alienated or illicitly sold in the
execution of a decree, by any party to the suit;
3. That the defendant threatens or intends to remove or dispose of his property
with the intent to defraud his creditors;
4. That the defendant threatens to dispossess the plaintiff or cause any injury to
him concerning the property (subject-matter) of the dispute;

the court may then after being satisfied that any one of such circumstances is existing
or prevailing, may pass the order of injunction until further notice or until the disposal
of the suit, as it deems fit.

Perpetual injunctions

Section 37(2), Specific Relief Act, 1963 states that perpetual injunctions are granted
by a way of decree, as it is supposed to be final, creating an obligation on the
defendant to either restrain from doing an act or an omission or compels him or her to
act or omit. Thus, the defendant is enjoined with the assertion of the right of the
plaintiff, failing to abide by it or act contrary to it will result in infringement of the
plaintiff’s right.

Granting of Perpetual injunctions

Section 38, Specific Relief Act, 1963, states the circumstances under which the
perpetual injunction could be granted:
  Preventing the breach of an express or implied obligation existing in the favour
of the plaintiff;
 Such obligation arising from the contract shall be dealt with by the court as per
the rules & provisions of Chapter II;
 The defendant invades or threatens to invade the plaintiff’s right to the
enjoyment of the property in situations where;

1. The defendant is a trustee of the property for the plaintiff;

2. There exists no standard for ascertaining the actual damage caused by such
invasion of a right;
3. The compensation for actual damages would prove to inadequate for such
invasion; or
4. The injunction is necessary to prevent multiplicity of judicial proceedings.

Mandatory injunctions

Section 39 of Specific Relief Act, 1963 explains the purpose of granting a “mandatory
injunction” is:

to prevent the breach of an obligation such that the obligation is capable of being
enforceable by the court where the performance of the promise is necessary. The court
may then exercising its sound discretion grant an injunction to prevent such breach to
compel the performance of such promise.

The rationale behind the grant of a mandatory injunction is on the same judicial
testing parameters that are:

1. Prima Facie case;

2. Balance of Convenience; and
3. Irreparable Injury.

However, besides the consideration of above testing factors, in addition to it, there
must exist a higher degree or gravity of compelling circumstance(s) or extreme
hardships (restoration or preservation of the status quo of the subject-matter). Since
the controversy lies here, concerning the mandatory injunction, it poses a more
compelling legal duty or an obligation on the defendant to adhere, as compared to
nominal injunction order.

It becomes imperative to understand the competency of the court while granting such
“majestic remedy”. The courts practice their ‘discretionary jurisdiction’ while
adjudicating the grant or refusal of an injunction, circumventing the boundary drawn
from Section 37 to Section 42, Specific Relief Act.
Damages in addition to injunctions

Section 40, Specific Relief Act, 1963 entail the conditions for seeking damages in
addition to injunctions:

1. The plaintiff in addition to or substitution to a suit praying perpetual injunction

or mandatory injunction may claim damages & the court may if it deems fit to
award such damages.
2. For the plaintiff to claim damages as relief in his plaint only if no such damages
have been claimed in the plaintiff, then the court shall allow the plaintiff to amend
its plaint on such terms it prescribes.
3. If the suit, favouring the plaintiff to prevent the breach of an obligation stands
dismissed, it shall create a bar on his or her right to sue for damages for such
breach.

9) Which contracts cannot be specifically enforced?

Specific Performance of Contracts

Specific performance means enforcement of exact terms of the contract. Under it the
plaintiff claims for the specific thing of which he is entitled as per the terms of
contract. For example, if A agrees to sell certain shares to B of a specific company
which are limited in number and after the payment made by B, if A refuses to sell the
shares then B is entitled to recovery of those shares.

According to Section 10 of Specific Relief Act 1963 in the following conditions
specific performance of the contract is enforceable:

 When there exist no standard for ascertaining actual damage: It is the

situation in which the plaintiff is unable to determine the amount of loss suffered
by him. Where the damage caused by the breach of contract is ascertainable then
the remedy of specific performance is not available to the plaintiff. For example, a
person enters into a contract for the purchase of a painting of dead painter which is
only one in the market and its value is unascertainable then he is entitled to the
same.
 When compensation of money is not adequate relief: In following cases
compensation of money would not provide adequate relief:

1. Where the subject matter of the contract is an immovable property.

2. Where the subject matter of the contract is movable property and,
 3. Such property or goods are not an ordinary article of commerce i.e. which could
be sold or purchased in the market.
4. The article is of special value or interest to the plaintiff.
5. The article is of such nature that is not easily available in the market.
6. The property or goods held by the defendant as an agent or trustee of the
plaintiff.

In Case of Ram Karan v. Govind Lal, an agreement for sale of agricultural land was
made & buyer had paid full sale consideration to the seller, but the seller refuses to
execute sale deed as per the agreement. The buyer brought an action for the specific
performance of contract and it was held by the court that the compensation of money
would not afford adequate relief and seller was directed to execute sale deed in favour
of buyer.

Similarly, it was held by the court where the part payment was paid by plaintiff and
defendant admitted that he had handed over all documents of title of property to the
plaintiff. Sale price in an agreement is not low and defendant had failed to establish
that said document was only a loan transaction then the agreement is valid and
defendant is liable to perform his part (M. Ramalingam v. V. Subramanyam)

Contracts which cannot be specifically enforced

According to Section 14 of Specific Relief Act 1963, there are certain contracts which
cannot be specifically enforced and these are:

 Where compensation in money is an adequate relief:  Here the court will not
order specific performance of contract as it is expected that the plaintiff will bank
upon the normal remedy for breach of contract i.e. remedy of compensation. For
example contract of mortgage of immovable property (Rambai v. Khimji)[3],
contract of sale of goods (Bharat v. Nisarali) [4], contract of repair of premises etc.

 Where a contract runs into minutes or numerous detail:  These contracts

includes contract which depends upon the personal qualification or the violation of
the parties or is of such nature that the court cannot enforce specific performance of
its material terms. In Robinson Davison [5], it was held by the court that the contract
to perform in concert depends upon the personal kill of defendant’s wife, and the
contract cannot be specifically enforced due to her illness. The other example is
construction contract where the detailed terms of contract are not explained.

 Contracts of determinable nature: Determinable contract means a contract

which can be determined or revoked or put to an end by a party to the contract. For
example in case of partnership at will any partner can retire by giving notice in
writing to other partners and can dissolve the firm.
  Contracts which involve the performance of continuous duty which court
cannot supervise: Earlier under Specific Relief act, 1877 the continuous duty which
court cannot supervise is considered over a period of 3 years which was omitted
under Specific Relief Act, 1963 and no time limit restricted for the performance of a
continuous duty. These include contract of appointment of employees for continuous
service or contract to execute sale deed every year. In Central Bank v.
Vyankatesh , the defendant was required to execute deed every year for the period of
25 years and contract is held to be specifically unenforceable.
 Contract of arbitration: According to Section 14(2), a contract to refer
present or future differences to arbitration shall not be specifically enforceable.

However, Section 14(3) contains certain exception and the following kinds of contract
are specifically enforceable

1. A contract to execute a mortgage or furnish other security for repayment of any

loan which the borrower is not willing to repay at once, the court would grant specific
performance to execute mortgage or to give any other security.
2. A contract to take up and pay for any debentures of a company.
3. A contract to execute a formal deed of partnership at will when the business has
already commenced.
4. A contract for the construction of any building or the execution of any other
work on land if;
5. Detailed or the terms of the contract has been sufficiently explained & the court
can determine the exact nature of building or work.
6. The plaintiff has a substantial interest in performance of the contract and
compensation in money is not an adequate relief.
7. The defendant has in accordance with the contract, obtained possession of
whole or part of the land on which the building is to be constructed or other work is to
be executed.

6 MARKS (SHORT NOTES)

2) Declaratory decrees
Declaratory decrees
The declaratory decree is the edict which declares the rights of the plaintiff. It is a
binding declaration under which the court declares some existing rights in favour of
the plaintiff and declaratory decree exists only when the plaintiff is denied of his right
which the plaintiff is entitled to. After that specific relief is obtained by the plaintiff
against the defendant who denied the plaintiff from his right. 

According to Section 34, of the Special Relief Act, 1963, any Person entitled to any
legal character, or to any right as to any property, may institute a suit against any
person denying, or interested to deny, his title to such character or right, and the court
may in its discretion make therein a declaration that he is so entitled, and the plaintiff
need not in such suit ask for any further relief. 

Declaratory decree provisions bring out to merely perpetuate and strengthen the
Plaintiff in case of an even adverse attack so that the attack on the Plaintiff can not
weaken his case and it is mentioned in the case of Naganna v. Sivanappa. And by the
arguments made in this case, it encourages the plaintiff to come forward to enjoy the
rights which they are entitled to and if any Defendant denied the Plaintiff from
providing any rights for which the Plaintiff is entitled, then it gives them the power to
file the suit and get special relief.

Discretion of court as to declaration of status 

As in the Section 34 of Special Relief Act, 1963 the condition mentioned for the

declaration of status or right i.e. (1) the plaintiff at the time of suit was entitled to any
legal character or any right to any Property (2) the defendant had denied or was
planning or interested in denying the rights of the plaintiff (3) the declaration asked
for should be same as the declaration that the plaintiff was entitled to a right (4) the
plaintiff was not in a position to claim a further relief than a mere declaration of his
rights which have been denied by the defendant. But, it is not compulsory that even
after the fulfilment of all the four essential conditions required for declaration, the
specific relief will be provided through a declaration to the plaintiff. It is totally on the
discretion of the court whether to grant the relief or not to the plaintiff. The relief of
Declaration or specific relief cannot be asked as a matter of right, it is a total
discretionary power which is in the hands of the court.

In the case of Maharaja Benares vs. Ramji khan, it was declared that if the suit is
filed and the necessary party is absent then the court will dismiss the suit for the
declaration. So, it is necessary that both parties should be available. There is no
specific rule to decide whether the discretionary power of the courts should be granted
or not, the discretionary power of the court is being exercised according to the case
and there are no specific criteria to decide in which cases the court will exercise its
discretionary power.

Effect of declaration

Before going into an in-depth analysis of what is the effect of the Declaration, first, we
should look at what it is according to Section 35 of the Special Relief Act, 1963.
According to this Section, a declaration made under this section is binding on both the
parties to the suit and the persons claiming through them respectively and, where any
 of the Parties are trustees, on the persons for whom, if in existence at the date of
declaration, such parties would be trustees. 

Case laws

There are several case laws related to the declaratory decree under the Special relief
Act, 1963 in which several aspects of the Declaratory decree has been covered up and
Judgment have been declared on that and were setting precedents to be followed up in
the new cases of Declaratory Decree. 

Some of the Cases are mentioned below with their judgment related to Declaratory
decree for the sake of convenience of Reader. 

 Tarak Chandra Das vs. Anukul Chandra Mukherjee, it was held that the
court had absolute discretion to refuse the relief if considered the claim to be too
remote or the declaration if given, would be ineffective. In this same case, it was
observed that the term mentioned above in this article ‘Right to Property’ showed
that Plaintiff should have an existing right in any property, not the mere interest in
that property would lead to special relief. 
 Ram Lal vs. Secretary of Staten this case was held that by virtue of section 35
of Special relief Act, 1963, a judgment is binding only upon the inter partes, which is
not in rem and does not operate as res-judicata. No other party who is not the party of
the suit does not come under the ambit of Section 35 of Special relief Act, 1963.