1

USHA JAGANATH LAW

ACADEMY
Registered office: No. 32, Narmadha Nathi Street,

Mahatma Gandhi Nagar, Madurai – 625 014.

Ph: 9994449004, 9994449001.

Email: jaganathassociates@gmail.com

CONTRACT - I
(NEW batch)

BY

P. Jaganathan, MA., MBA., MMM., ML., (Contracts).,

ML.(Admn., & Lab. Laws).,

(Gold Medalist, & University Rank Holder in Law for all the
three years of Law degree Course)

Usha Jaganathan,M.A., M.A., ML.,

J.P. Arjun, M.A., M.B.A., LL.M.,

Advocates
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CONTRACT – I
(NEW batch)

FOR DEC/JAN 2024 L.L.B., EXAMINATION

MOST IMPORTANT AND MOST EXPECTED CHAPTERS AND

QUESTIONS -SIMPLE LANGUAGE

1. CHARACTERISTICS/ESSENTIALS OF A VALID
CONTRACT (Sec. 10)

UNIVERSITY QUESTIONS

1. “An agreement enforceable by law is a contract” –

Discuss the definition, bringing out clearly the
essentials of a valid contract.
2. Describe the essential elements of a valid contract.
When is an agreement voidable?
3. a. What are the requisites of a valid contract?
b. Explain the terms ‘promisor’ and ‘promisee’.
4. “The law of contract is not the whole law of
agreements nor is it the whole of obligations” –
Salmond. Discuss.

Answer

A. DEFINITION

Sec. 2 (h) of the Indian Contract Act defines a

contract as an agreement enforceable by law.

E.g.: A enters into a contract to sell his car to B for

Rs. 1,00,000/- on a certain date and if A refuses to sell the
car on that date without valid reason, then B can enforce
the contract through a Court.
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B. AGREEMENT

1. If a proposal (offer) is accepted by the acceptor, then

it becomes a promise on the part of the proposer
(offeror).

2. Sec. 2 (e) defines agreement – ‘every promise or set

of promises, forming consideration for each other is
an agreement’.

3. The rules of agreement and contract are as follows:

Agreement = Offer + Acceptance

Contract = Agreement + Enforceability at law

So, all agreements are not contracts, but all contracts

are agreements.

Law of contracts is not the whole law of agreements

nor the whole law of obligations

C. CHARACTERISTICS/ESSENTIALS OF A VALID
CONTRACT: (Sec. 10)

According to Sec. 10, all agreements are contracts, if

they are made by the free consent of parties, competent
to contract, for a lawful consideration and with a lawful
object and are not expressly ( orally or in writing)declared
to be void by law.

An agreement to become a contract must have the

following six essentials:

1. Free consent:
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For the creation of a contract, the parties must have

given their free consent. In the absence of free consent,
the agreement becomes void or voidable.

A free consent is vitiated by mistake, coercion, undue

influence, fraud, misrepresentation, etc.,

Ranganayakamma Vs. Alwarchetti

A young widow of 13 years was forced to adopt a boy

by threatening to prevent the dead body of her husband
from being removed for cremation (burial). Since the
consent for adoption was given under coercion, it was
held invalid.

2. Competent to contract/Capacity of parties:

The term ‘Competent to contract/Capacity of parties’

refers to physical and mental capacity and not financial
capacity, unless law has declared a person as financially
insolvent. A minor, a lunatic, idiot, drunken persons and
any legally disqualified person like insolvent are not
eligible to enter into a valid contract because of their
incompetency.

Mohiribibi Vs. Dharmodas Ghosh (1903) 30 Cal. 539

A minor executed a mortgage for Rs. 20,030/-. The

money lender had paid Rs. 8,000/- on the security of
mortgage. The minor sued for setting aside the mortgage,
as the minor contract was invalid. The court held that a
contract by a minor was void ab initio and any amount
advanced by the lender could not be recovered from the
minor.

3. Lawful consideration:
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Every agreement must be supported by money

consideration. Consideration means ‘something in return’.
For existence of consideration, both the parties to the
contract must have some gain and some loss. If one party
always gains and another party always loses, then there is
no consideration.

Pearce Vs. Brooks (1866) L.R. 1 Ex. 213

A coach builder rented his carriage for prostitution

purposes. The prostitute failed to pay the rent. The Court
held that the coach builder could not recover the rent as
he had knowledge of the purpose for which the coach was
rented.

4. Lawful object:

The object of the agreement must be lawful. In other

words, it must not be illegal, immoral or opposed to public
policy.

5. Agreement not declared void:

The agreement must not have been expressly

declared void by any law of our country. For e.g.,
wagering contract, agreement in restraint of trade are all
declared void as per the Indian Contract Act. Such
contracts which are not declared void are alone valid
contracts and they are enforceable in a Court of law.

6. Consensus Ad-Idem: (Identity of mind):

The parties must have agreed upon the subject

matter in the same thinking and sense.

Boulton Vs. Jones

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Here, A intended to contract with C, but contracted

with B believing him to be C. The contract was held void
due to the absence of consensus-ad-idem.

Only if all the above six essentials are satisfied, an

agreement becomes a contract and is enforceable by law.
Thus the quotation ‘all agreements are not contracts, but
all contracts are agreements’ is correct.

2. CONSIDERATION AND ITS GENERAL RULES
[Sec. 2 (d)]

UNIVERSITY QUESTIONS

1. Explain the rules regarding consideration.

2. Discuss the doctrine of consideration. State the
difference between Indian and English law on the
subject.
3. Consideration is an essential element of a contract –
Explain citing case laws.
4. Define consideration. Why is it essential in a
contract? What are the legal rules regarding
consideration?

Answer

A. INTRODUCTION

Section 25 lays down that an agreement made

without consideration is void.

Consideration consists in some benefit to the

promisor or some detriment (loss) to the promisee.

E.g.: A agrees to sell his car to B for Rs. 1,00,000/-.

Car is the consideration for B and Rs. 1,00,000/- is the
consideration for A.
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B. DEFINITION OF CONSIDERATION

Sec. 2 (d) of the Contract Act defines consideration –

Consideration may be –

1. An act, i.e., doing of something in a positive form.

E.g.: A agrees to sell goods (a positive act) to B for

Rs.1,00,000/. For A’s promise, the consideration is Rs.
1,00,000/-. For B’s promise, the consideration is the
goods.

2. An abstinence or forbearance, i.e., abstaining or

refraining from doing something, i.e., a negative
form.

E.g.: A promises B not to file a suit against him if he

pays him Rs.1,00,000/-. The abstinence of A is the
consideration for B’s payment.

2. A promise and a return promise and law enforces only

those promises which are made for consideration.

E.g.: A agrees to sell his house to B for Rs. 1,00,000/-.

Here B’s promise to pay the sum of Rs. 1,00,000/- is
the consideration for A’s promise to sell the house
and A’s promise to sell the house is the consideration
for B’s promise to pay the sum of Rs. 1,00,000/-.

C. LEGAL RULES OF CONSIDERATION

1. Consideration must move at the desire of the

promisor:

This is also called privity of contract and

consideration. To treat an act or abstinence as a good
consideration for a promise, it must have been done at the
desire of the promisor.
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The general rule of law is that only a party to the

contract can sue and be sued. Strangers or third parties
cannot enforce the contract. In other words, contract is a
private affair between the parties to the contract alone.

Dunlop Pneumatic Tyre Co. Ltd., Vs. Selfridge & Co.,

Ltd.,:

Dunlop Tyre Co., sold tyres to Dew and Co., under the
condition that the tyre should not be resold below the
Dunlop listed price. If there were resold below the Dunlop
list price, the Dew and Co., must pay £ 5 as damages for
every tyre so sold. Dew & Co., resold the tyres to Selfridge
£ Co. The Selfridge & Co., breached the stipulation and
sold the tyres below the Dunlop’s price list. The Dunlop &
Co., sued the Selfridge & Co., for damages. It was held
that Dunlop & Co., was a stranger to the contract between
Dew & Co., and Selfridge & Co., and hence could not
enforce the agreement subsisting between Dew & Co., &
Selfridge & Co.

Exceptions:

There are six exceptions to the rule that a stranger to

a contract cannot sue i.e., a stranger can sue in the
following cases:

1. Trust properties:

In the case of a trust, a beneficiary can enforce the

provisions of the trust, though he is not a party to
contract between the trust and the third parties.

Candy Vs. Candy

A husband created a trust in favour of his wife to

meet the expenses for her maintenance. The Court held
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that the agreement could be enforced by the wife,

because she was a beneficiary.

2. Charge:

When a person creates a charge on an immovable

property in favour of a third person, then such third
person for whose benefit the charge is created can
enforce the charge.

3. Family agreements, partition and marriage

settlement:

If any agreement is made in connection with family

arrangement like marriage, partition etc, the beneficiary
can sue for the enforcement of the agreement, though he
is not a party to the contract.
Shuppu Ammal Vs. Subramanian

On partition of their properties, two brothers agreed

to pay equal sum of money for maintenance of their
mother. The Court held that she was entitled to sue the
sons for such payment of money.

4. Estoppel or Acknowledgement:

If a person by his conduct acknowledges a stranger as

his agent, then such stranger can enforce the contract on
behalf of the principal.

5. Assignment of a contract:

If a contract is assigned, the assignee can enforce the

contract not involving any personal skill against the third
parties.

6. Agency:

The principal can enforce all contracts entered into by

his agent with third parties, though he is not a party to
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the contract. But the agent should act within the scope of
his authority.

2. Consideration must move from the promisee or

any other person:

It is not necessary that the consideration should

always proceed only from the promise. Consideration
given by a third party is also valid, provided it has been
done at the desire of the promisor. This is called ‘doctrine
of constructive consideration’.

3. Consideration may be an act, abstinence or

forbearance or a return promise.
4. Consideration may be past, present or future and past
consideration is valid consideration.

Past consideration is doing an act before the promise

is given. Here, the act is totally unconnected with the
promise as the promise is subsequent.

For example, A saves B from his death. Later on, B

promises to give Rs. 5,000/- to A. Here the promise of B is
subsequent and not simultaneous to the act of saving by
A. The promise should always be prior to the act. Thus, if
the act comes first and the promise comes second, then it
is past consideration.

Sec. 2 (d) of the Indian Contract Act uses the term

‘has done’ and hence past consideration is valid, but in
English Law, past consideration is not a valid
consideration.

5. Consideration need not be adequate:

The contracting parties are free to decide the

quantum of consideration in a contract and make their
own negotiations and bargains. The agreement is not void
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or voidable, merely because the consideration is

inadequate.

6. Consideration must be real and not illusory:

It means the consideration must have some value in

the eye of law. The physical or legal impossibility of the
promised act makes the consideration illusory or unreal.
Again if the consideration is uncertain or vague, then they
are not valid. For eg., promises to run 100 k.m. in an hour
and B agrees to give Rs. 5,000/-.

7. An agreement without consideration is void:

For every contract, there must be a valid

consideration for enforcing it a Court of law. ‘A promise
without consideration is a gift, one made for a
consideration is a bargain’.

The rule is known by the latin maxim ‘ex nudopacto

non orituractio’. It means that nothing arises out of a
nude contract.

Sec. 25 of the Act gives six exceptions to this. In

these cases, the agreements are enforceable even though
they are made without consideration.

A. Love and Affection Theory: [Sec. 25 (i)]:

If an agreement is expressed in writing and

registered under the law in force and if it is made on
account of natural love and affection between the parties
closely related to each other, then such agreement is
enforceable, even if there is no consideration.

Ram Dass Vs. Krishnan Dev, AIR (1986) H.P. 9

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The Court held that a written and registered

agreement based on natural love and affection between
near relatives is enforceable even if it is without
consideration.

B. Compensation for voluntary service: [Sec. 25 (ii)]:

If a person promises to compensate another who has

voluntarily done something for the promisor, then the
promise made by the promisor is enforceable even though
it is without consideration. In simple terms, a promise to
pay for the past voluntary services is binding even though
there is no consideration.

Sindha Vs. Abraham

Sindha, rendered services to a minor Abraham.

Abraham, on becoming a major, promised Sindha to give
maintenance for the past services. Here, the promise of
Abraham is later to the act of Sindha. So, it is a past
consideration. It was held that the contract could be
enforced.

C. Promise to pay a time barred debt:

A promise made by a debtor to pay a time barred

debt is enforceable even though there is no consideration
for such agreement. However, the agreement must be in
writing and must be signed by the debtor or by his
authorized agent. The promise may be to pay the whole or
any part of the debt.

D. Gifts:

Under Sec. 25 explanation 1, the rule that ‘a contract

without consideration is void’ does not apply to gifts. If a
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property is gifted by registered deed and attested by two

witnesses, then the gift is held valid.

E. Charitable subscriptions:

Agreement created for the purpose of charitable

subscription or donation is not generally enforceable,
because such agreement is not supported by
consideration. But if sufficient steps have been taken
towards the achievement of the object depending on the
promise for donation, then such agreement is enforceable.

Kedarnath Vs. Gori Mohammed

Kedarnath agreed to subscribe Rs. 100/- towards the

construction of a hall in a mosque. Gori Mohammed
relying on the promise called for the plans and entrusted
the work to the contractors. The Court held that the
agreement is enforceable, because definite steps have
been taken relying on the promise of Kedarnath.

F. Agency:

Consideration is not necessary to create an agency.

8. Consideration must not be illegal, immoral,

impossible, uncertain, ambiguous, fraudul- ent or
opposed to public policy:

Sec. 23 reads - the consideration of an agreement is

unlawful if:

a. It is forbidden by law, or
b. It is of such a nature that if permitted it would defeat
the provisions of any law, or
c. It is fraudulent, or
d. It involves or implies injury to the person or property
of another, or
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e. The Court regards it as immoral or opposed to public

policy.


3. FREE CONSENT (FLAW IN CONSENT)

(Sec. 10 & 14)

UNIVERSITY QUESTIONS

1. Define ‘consent’. When the consent is said to be free

consent? State the legal effects on an agreement
when consent is caused by fraud.
2. What is “free consent”? Explain in brief when the
consent is said to be free according to the Indian
Contract Act, 1872?
3. What is ‘free consent’? Explain in brief with decided
cases.

Answer

According to Sec. 10, - Agreements are contracts if

they are made by the free consent of the parties.

Consent is defined as, ‘two or more persons are said

to consent when they agree upon the same thing in the
same sense’.

According to Sec. 14, consent is said to be free when

it is not caused by (1) coercion (2) undue influence (3)
fraud (4) misrepresentation and (5) mistake.

Now let us take up each item one by one:

I. COERCION

When a person is compelled to enter into a contract

by the use of force by the other party or under a threat,
coercion is said to be employed.

Section 15 of the Indian Contract Act defines - Coercion as

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1. Committing any act forbidden by the Indian Penal

Code:

If a party to the contract commits any act which is

forbidden by the Indian Penal Code, then it amounts to
committing coercion.

For e.g. Committing a murder, causing grievous hurt,

kidnapping and abduction, rape are acts forbidden by the
Indian Penal Code – if a person makes another entered
into contract by the former committing murder etc, then
the contract is vitiated by coercion.

2. Threatening to commit any act forbidden by

Indian Penal Code:

It is not only the committing of an act forbidden by

the Indian Penal Code amounts to coercion, but even
threatening to commit such act amounts to coercion.

E.g: Getting consent from a person by threatening to

commit murder, rape, cause grievous hurt etc are acts
forbidden by the Indian Penal Code.

A threatens to kill B if he does not lend him Rs

1,00,000/. B lends the amount. The threat amounts to
coercion.

A, on board an English ship on the high seas, causes B

to enter into an agreement by an act amounting to
criminal intimidation under the Indian Penal Code. A,
afterwards, sues B for breach of contract at Calcutta. A
has employed coercion, although his act is not an offence
by the law of England and although Sec. 506 of the Indian
Penal Code was not in force at the time when or place
where the act was done.

Ranganayakamma Vs. Alwar Setti (1889, 13 Mad. 214)

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A young widow of 13 years was forced to adopt a boy

by threatening to prevent the dead body of her husband
from being removed for cremation. This is an offence
under I.P.C. Since the consent for adoption was given by
committing an offence punishable by I.P.C., it was held
invalid.

3. Unlawful detaining of any property:

If a party to the contract unlawfully detains a

threatens to detains the property of another person and
forces him to enter into a contract, then the consent is
deemed to be given under coercion.

Hansraj Vs. the Secretary of State

The Government of India gave a threat of attaching

the property of the father for the recovery of fine from the
son. The father paid the fine under the threat. The Court
held that the contract was voidable because of coercion.

II. UNDUE INFLUENCE (Sec. 16 & 19A)

Undue influence is unfair persuasion by one party

thereby influencing the mind of the other contracting
party. It is the improper use of any power/authority
possessed by one party over the mind of the other
contracting party.

Section 16 of the Indian Contract Act Reads–

i. A contract is induced by ‘undue influence’ if the

relations between the parties are such that one of the
parties is in a position to dominate the will of the
other and uses that position to obtain an unfair
advantage over the other.

ii. A person dominates the will of another –

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a. If he holds a real or apparent authority over the

other or

b. If he stands in a fiduciary relation to the other, or

c. If he makes a contract with a person whose

mental capacity is temporarily or permanently
affected by reason of age, illness or mental or
bodily distress.

iii. When a person who is in a position to dominate the

will of another, enters into a contract with him and
the transaction appears to be unconscionable, then
the burden of proving that such contract was not
induced by undue influence lies upon the person in a
position to dominate the will of the other.
PERSONS IN POSITIONS TO DOMINATE THE WILL OF
ANOTHER

i. Real or apparent authority:

If a person holds a real or apparent authority over the

other, then there is presumption of existence of undue
influence. The expression ‘apparent authority’ would
include cases in which a person has no real authority, but
is able to approach the other with a show or colour of
authority.

For example:

Real authority exists in relations between master and

servant, parent and child.

Apparent authority exists between creditor and

debtor, tax authority and assessee, Police Officer and
accused.

ii. Fiduciary relationship:

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If a person stands in a fiduciary relationship to the

other, then there is presumption of existence of undue
influence. Fiduciary relationship means a relationship
based on trust.

For example - relationship between guardian and

ward, solicitor and client, doctor and patient, religious
Guru and his disciples, trustee and beneficiaries.

Allcard Vs. Skinner

The plaintiff joined in a sister hood institution. She

donated her property of value £ 7,000/- to the lady
superior of the institution. After 8 years, she left the
institution and after another 4 years, she sued to recover
the property on the ground of undue influence. The Court
held that she could not get back the property because the
plaintiff had delayed in filing the suit for a very long
period though there was undue influence in the case.

iii. Mental capacity temporarily or permanently

affected:

If a person makes a contract with another person

whose mental capacity is temporarily or permanently
affected by reason of age, illness or mental or bodily
distress, then there is presumption of existence of undue
influence.

For example - persons of poor memory, weak

intelligence, old age, illiterates and persons of ill health.

EFFECT OF UNDUE INFLUENCE

1. The contract becomes violable at the option of the

party unduly influenced.
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2. Any benefit received by either party must be

restored.

3. The plaintiff must prove that the defendant was in a

dominant position to control his will and he actually
influenced the plaintiff.

4. The defendant can rebut the presumption by proving

that full disclosure of facts was made to the plaintiff,
the consideration was adequate and the plaintiff was
free to seek independent advice before entering into
the contract.



III. FRAUD OR FRAUDULENT MISREPRESENTATION

(SUPPRESSIO VERI/SUGGESTIONS FALSI) (Sec. 17)

Sec. 17 of the Indian Contract Act does not define

fraud, but it includes the following acts which amount to
fraud.

1. False representation of a fact made with the

knowledge of false hood.

2. False representation or suggestion of a fact made

without belief in its truth.

3. False representation of a fact made recklessly

without knowing whether it is true or not.

4. A promise made without any intention of performing

it.

5. Any act fitted to deceive.

6. Any act or omission which the law specially declares

to be fraudulent.

ESSENTIALS OF FRAUD
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1. There must be a false representation or assertion:

In order to constitute fraud, there must be a

representation or assertion which must contain false or
untrue facts. Such facts must be disclosed by way of
speaking, writing, etc. Non disclosure or silence will not
generally amount to fraud. But there is an exception to it.

Derry Vs. Peek

Peek and another person were Directors of Tramway

Company. They applied for a licence to sue steam power
for the trams. They honestly believed that they would
definitely get the licence from the Board of Trade. So, they
issued a prospectus stating that they had the right to use
the steam power. Derry took a share in the company on
the strength of the right to use steam power. But the
Board of Trade refused to give licence and so the company
was wound up. Derry claimed damages. The Court held
that the act of the directors was not fraud because of
their honest belief that they would definitely get the
licence from the Board of Trade. This is known as the rule
in “Derry Vs. Peek”.

Exceptions:

When there is a duty to speak such facts, the offender

should speak or disclose the fact. If he remains silent,
then it amounts to fraud.

2. The false representation must relate to a fact:

Expression of opinion or description cannot be

considered as representation.

3. The representation must be done before the

conclusion of the contract with the intention of
inducing the other party to act upon it.
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4. The representation must have been made either. a)

with knowledge of its falsity b) without belief in its
truth c) recklessly not caring whether it is true or not.

5. The other party relying upon the misrepresentation

must have been deceived. If the other party has given
the consent independently and not on the basis of
deception, then the contract is valid.

6. The other party must have suffered some loss

subsequently.

7. Without damage or loss, there is no fraud. Similarly

damage without fraud does not give rise to an action
on deceit. Attempt to commit fraud is not a tort.

EFFECT OF FRAUD

A contract induced by fraud is voidable at the option

of the party defrauded.
The party defrauded has the following remedies.

1. He can rescind the contract but he must act within a

reasonable time.

2. He can insist on the performance of the contract.

3. He can sue for damages.



IV. MISTAKE
(Unilateral and bilateral mistake) (Sec. 20, 21 & 22)

Mistake is defined as an ‘erroneous belief about

something’.

Mistake can be divided into two types.

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i) Mistake of Law ii) Mistake of fact

i. Mistake of Law: (Sec. 21):

Mistake of Law is not an excuse – i.e., ‘ignorantiajuris

non excusat’. If a party has done a particular act in
ignorance of law, then it is not an excuse. A contract
entered due to mistake of law is fully valid and
enforceable, but if the mistake of law is due to the
inducement of another person, then such contract
becomes voidable.

ii. Mistake of fact:

When the mistake is to a matter of fact essential to

the agreement, then it is called mistake of fact. Generally
mistake of fact is excusable, but subject to exceptions
(Ignorantia of factum excusat).

For e.g., a purchases B’s motor car which is lying in

B’s garage. Unknown to A and B, the car was destroyed.
This is a mistake of fact, hence the agreement is void.

Mistake of fact may be divided into three types

1. Unilateral mistake: (Sec. 22):

When only one of the parties is under mistake as to a

matter of fact essential to the agreement, then it is called
unilateral mistake. Generally a unilateral mistake is not
allowed and hence the agreement is valid.

For e.g., A buys an article thinking that it is worth Rs.

1,000/-. It is only worth Rs. 500/- A cannot subsequently
avoid the contract.
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In certain cases, if the unilateral mistake is very

fundamental as to affect the very basis of the agreement,
then such agreement is void.

2. Bilateral Mistake: (Sec. 20):

When both the parties to the contract are under a

mistake as to a matter essential to the contract, it is
called Bilateral Mistake. Thus the mistake must be mutual
and relate to the essential terms of the contract. However,
an erroneous opinion as to the value of the thing which
forms the subject matter of the agreement is not to be
deemed a mistake as to a matter of fact.

Bilateral Mistake may relate to be divided into the

following 7 types.

a. Existence of subject matter:

If both the parties believe the subject matter of the

contract to be in existence, but in fact, it is non-existent,
then such contract between the parties is void.

b. Identity of subject matter:

When the parties do not understand the same thing in

the same sense, then there is mistake as to identity of
subject matter.

c. Title of subject matter:

If the parties believe that the seller has the right to

sell the properties, but actually he has no right, then such
agreement becomes void.

d. Price of the subject matter:

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If there is mistake as to the price of the subject

matter, then such agreement is void.

e. Quality of subject matter:

If the subject matter is of different quality from what

the parties expected it to be, then the agreement is void.

f. Quantity of subject matter:

If there is a mistake as to the quantity of subject

matter, then the agreement is void.

Cox Vs. Prentice

There was difference in value in the weight of the

silver bars purchased. The Court held that the agreement
was void due to mistake as to the quantity of the subject
matter.

g. Possibility of performing a contract:

The agreement is void on the ground of physical

impossibility and legal impossibility of performing a
contract.

Griffith Vs. Brymer, (1903) 19 T.L.R. 434

A contract for hiring of a room for witnessing the

coronation procession was held to be void, because
unknown to the parties, the procession had already been
cancelled.

3. Mistake due to negligence of a third party:

Here mistake is done by a third party and hence the

contract is void.

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V. MINOR

Sec. 11 of the Indian Contract Act says ‘every person

is competent to contract who is of the age of majority and
who is of sound mind and is not disqualified by any law’.
Law protects minor by declaring any agreement entered
by them as “void ab initio” (invalid from the beginning).

RULE REGARDING MINOR’S AGREEMENT

1. Minor’s Contract Act is void ab initio:

A minor contract is totally invalid and hence it is

called void ab initio and it is invalid from the beginning of
the Contract.

Mohiribibi Vs. Dharmodas Ghosh

A minor had executed a mortgage for Rs. 20,030/-.

The money lender had paid Rs. 8,000/- on the security of
mortgage. The minor sued for setting aside the mortgage.
It was held that a contract by a minor was void and that
the amount advanced by the lender could not be
recovered under Section 64 and 65 of the Indian Contract
Act.

2. A minor’s agreement cannot be ratified:

A minor’s agreement cannot be ratified (approved

subsequently) by the minor even after attaining the age of
majority, because the minor’s contract is void ab initio
(void from the beginning).

4. Necessaries supplied to a Minor:

Necessaries supplied to a minor can be recovered

from him.

5. No ‘estoppel’ against minors:

 26

‘Estoppel’ means - when one person by his words or

acts or omissions made another person believe a thing to
be true and to act upon such belief, then such person
(first person), later on, cannot deny his earlier
representations. Estoppel does not apply to minors. Thus,
even if a minor has said or done something, he can, later
on, deny what he has said or done.



4. DISCHARGE OF CONTRACT
(Sec. 62 to 67)

UNIVERSITY QUESTIONS

1. What are the different methods by which a contract

comes to an end?
2. How is a contract discharged?
3. Write short notes on: (a) Novation (b) Rescission
(c) Remission.
Answer

A. INTRODUCTION

Discharge of contract means termination of the

contractual relationship between the parties. A contract is
discharged when the rights and obligations created by it
come to an end.

A contract may be discharged in the following ways:

1. PERFORMANCE: (Sec. 37 to 67)

By actual performance of the terms of the contract,

the contract is discharged i.e., it comes to an end. Even
by the attempted performance of promise, the contract
gets discharged.
 27

2. BREACH OF CONTRACT: (Sec. 39)

A contract is discharged if one party fails or refuses

to perform his duties under the contract. This is known as
discharge by breach of contract.

The breach of contract is of 2 types:

a. Actual breach of contract

b. Anticipatory breach of contract

3. MUTUAL AGREEMENT OR CONSENT:

(Sec. 62 to 64 & 75)

A contract can be terminated by express or implied

agreement. Sec. 62 provides that if the parties to a
contract agree to substitute the original contract with a
new contract or rescind or alter it, then the original
contract need not be performed. It may be by Novation,
Rescission, Alteration, Remission, Waiver or Merger.
a. Novation: (Sec. 62)

Novation means substituting a new contract in the

place of the original contract. The original contract is
discharged and it forms the basis for the new contract.

b. Rescission: (Sec. 62)

It means cancellation of the contract. Here, all or

some of the terms of the contract are cancelled.

c. Alteration: (Sec. 62)

It takes place when one or more of the material terms

of the contract are altered by the mutual consent of the
parties to the contract. The old contract is discharged.

d. Remission: (Sec. 63)

 28

It means acceptance of a lesser consideration than

the one promised i.e., for lesser sum of money.

Rule in Pinnel’s Case

In English law, till 1947 consideration was essential

for formation of contract and also for discharge of
contract.

For e.g., if A had to pay 100 pounds to B and if B

takes only 50 pounds and remits (waives) the balance, the
remission agreement was without consideration and
hence void. So B could sue A for balance 50 pounds.

e. Waiver: (Sec. 64)

It is an agreement between the parties to contract

that they shall no longer be bound by the contract. In
other words, it is a mutual abandonment of rights.

f. Merger

The inferior rights accruing to a party under a

contract merges with a superior right belonging to the
same party by the same or some other contract.

4. MATERIAL ALTERATION

Any material alteration without the consent of the

promisor affects directly or indirectly the nature or
operation of the contract and hence the contract is
treated as rescinded.

5. IMPOSSIBILITY OF PERFORMANCE: (Sec. 56)

If a contract contains an undertaking to perform an

impossibility, it is void ab initio.

a. Impossibility existing at the time of formation of

contract.
 29

b. Impossibility arising subsequent to the formation of

contract.

6. LAPSE OF TIME

The Limitation Act lays down that a contract should

be performed within a specified period called the period of
limitation. If it is not performed within such period of
limitation, then there can be no legal remedy and the
contract is terminated.

7. OPERATION OF LAW

A contract may be discharged by operation of law

independently of the wishes of the parties.

The following are the ways in which the contract is

discharged by operation of law.

a. By Death
b. By merger
c. By Insolvency
d. By un authorized alteration of the terms of a written
agreement
e. By complete laws of evidence


5. REMEDIES FOR BREACH OF CONTRACT

(OR)
TYPES OF DAMAGES/MEASURE OF DAMAGES
(Sec. 73 to 75)

UNIVERSITY QUESTIONS

1. What are the remedies open to an aggrieved party in

case of a breach of contract?
 30

2. What is meant by breach of contract? What remedies

are available to an aggrieved party on the breach of
the contract?
3. ‘Where there is a right, there is a remedy’. Amplify
this statement and briefly explain the various
remedies available for breach of contract?
4. Write short notes on: (a) Rescission (b) Suit for
damages

Answer

When a contract is breached, the affected party has

the following remedies:

A. RESCISSION OF THE CONTRACT

When a contract is breached by one party, the other

party may sue to treat the contract as rescinded and
refuse further performance. He is free from all his
obligations under the contract.
E.g.: A promises to supply 10 bags of ragi on a certain
day. B agrees to pay the price after he gets the goods. A
does not supply the goods. B is free from liability to pay
the price for the goods.

If a party treats the goods as rescinded, he is liable to

restore any benefit received under the contract to the
other party. But if a person rightfully rescinds the
contract, he is entitled to compensation for any damage
he has suffered through non performance by the other
party.

B. SUIT FOR DAMAGES

1. Ordinary damages: (Damages arising naturally

from the breach):
 31

1. Ordinary damages are awarded if the loss is direct

and natural arising in the usual course of things from
such breach of contract.

2. There must be some proximate link between the loss

and the breach of contract.

3. The damages are measured by the difference between

the contract price and the market price of goods on
the date of breach of contract.

2. Special damages/Measure Of Damages

(Compensation):

1. It is awarded only if the parties had contemplated at

the time of making the contract.

2. There must be special circumstances which would

cause special loss in case of breach of contract.

Hadley Vs. Baxendale

The plaintiff’s mill was closed down by the breakdown

of a shaft. He delivered the shaft to the defendant for
repairs. The plaintiff did not disclose the fact that the mill
would remain closed till the shaft was repaired and
delivered to the plaintiff. By some negligence, the delivery
of the shaft was unduly delayed.

The Court held that the defendant was not liable for
the loss of profit due to the delay, because the plaintiff
did not communicate to the defendant the necessity of the
shaft and the fact that the mill would remain closed till
the delivery of the shaft.
 32

In deciding the case, justice B. Alderson observed

that when a contract is breached, the injured party is
entitled to receive:

a. Such damages as would arise naturally in the course

of things. This relates to ordinary damages.

Hobbs Vs. London South Western Railways

Damages can be recovered for physical discomfort

and inconvenience.

b. Such damages which the parties know at the time of

making the contract to be likely to result from such
breach of contract. These are damages reasonably
supposed to be in the contemplation of both the
parties at the time of making the contract as the
probable result of the breach of contract. This relates
to special damages. This is known as Rule in Hadley
Vs. Baxendale.

c. Compensation is not given for any remote or indirect

loss or damage due to breach of contract.
Sec. 73 of the Indian Contract Act incorporates the
Rule in Hadley Vs. Baxendale.

3. Vindictive or Exemplary Damages:

1. It is damages means damages by way of punishment

for the wrong committed by breach.

2. Damages for breach of contract are given by way of

compensation for loss suffered.

EXEMPTIONS:

In the following 2 cases, vindictive damages are awarded:

1. Breach of promise to marry a person.

 33

2. Wrongful dishonour of a cheque by a banker

when the customer possesses sufficient funds to
his credit.

4. Nominal damages:

When the injured party has not suffered any loss due
to breach of contract, the damages recoverable by him are
nominal.

C. SUIT UPON QUANTUM MERUIT (Sec. 70)

When one person has performed some work under a

contract but the other party repudiates the contract or
some event happens which makes the further
performance of the work impossible, then the first party
can claim remuneration for the work he has already done
from the second party.

Quantum Meruit arises:

1. When an agreement is discovered to be void, and the

contract has thus become void, any person who has
received any advantage, has to return it or to make
compensation for it.

2. When a work is lawfully done or when goods are

supplied to a person without any intention to do so
freely, and if the other person enjoys the benefit
thereof, he is bound to make compensation to the
former in respect of the thing so done or delivered.
Thus the cost of supply of goods not intending to be
free can be recovered and this is called by a term
‘quantum valubent’.

3. When one party abandons or refuses to perform the

contract, he is, however, entitled to recover
 34

compensation for the work he has already performed

under the contract.

4. When a contract is divisible and the party not in

default has enjoyed the benefit of the ‘part
performance’, the party in default may sue on
quantum meruit.

D. SUIT FOR SPECIFIC PERFORMANCE OF THE

CONTRACT

Specific Relief means a decree issued by the Court

that the defendant should actually perform his promise.
There is no money compensation for the breach of the
contract but actual performance of the contract. It
includes injunctions.



6. CONTRACTS WHICH CAN BE AND WHICH CANNOT

BE SPECIFICALLY ENFORCED
(DISCRETIONARY REMEDY OF COURT) (Sec. 10 to
14)

MODEL QUESTIONS

1. Enumerate the contracts which can be specifically

enforced.
 35

2. In certain circumstances, specific performance of a

contract can be enforced against a party thereto –
Discuss.
3. Mention the contracts which cannot be specifically
enforced.

Answer

On the basis of specific performance, contracts are

divided into two types namely:

I. Contracts which can be specifically enforced (Sec. 10 to

13)

II. Contracts which cannot be specifically enforced (Sec.

14)

I. ACONTRACTS SPECIFICALLY ENFORCEABLE: (Sec.

10)

1. Specific relief may be given if there exists no

standard for ascertaining the actual damage caused
by non-performance of any agreed act.

For e.g.: A agrees to sell an ancient painting to B for

Rs. 2,000/- Later on, he refuses. The loss to B is not
ascertainable because the value of the painting cannot be
determined. Here specific performance may be granted.

2. Specific relief may be given, if money compensation is

not an adequate relief of non-performance of any
agreed act.

For e.g: A agrees to sell an ancient Buddha idol for Rs.

2,000/- to B. A later on refuses to perform the sale. The
Court can order specific Relief to B by directing A to sell
the Buddha idol to B, as in this case, money compensation
is not an adequate relief.
 36

3. In a contract of transfer of immovable property, the

Court shall presume that in case of breach of such
contract, money compensation cannot be an adequate
relief and therefore specific performance can be
granted.

4. In a contract of transfer of movable property, the

Court shall presume that in case of breach of such
contract, money compensation can be an adequate
relief and therefore specific performance cannot be
granted. However there are three exceptions to the
above rule and in these cases, specific performance
may be granted.

5. TRUST CONTRACTS SPECIFICALLY ENFORCEABLE:

(Sec. 11)

If any act agreed to be done is in the performance

wholly or partly of a trust, then such a contract may be
specifically enforced by the Court. However, a contract
made by a trustee in excess of his powers or in breach of
trust cannot be specifically enforced.

6. PART OF CONTRACTS SPECIFICALLY

ENFORCEABLE: (Sec. 12)

Generally the Court shall not direct the specific

performance of part of a contract.

II. CONTRACTS WHICH CANNOT BE SPECIFICALLY

ENFORCED

The following contracts cannot be specifically enforced

1. If money compensation is adequate relief for non-
performance of a contract, then specific performance
cannot be granted.
 37

2. If the contract contains minute and numerous details,

specific performance cannot be granted.

3. A contract which is determinable cannot be

specifically enforced.

4. If the contract requires the constant supervision by

the Court, specific performance cannot be granted.

5. Under the Arbitration Act, any contract to refer

present or future differences to arbitration cannot be
specifically enforced.

6. Any contract, which requires the personal services of

the dependant, cannot be of specific performance.

7. Partnership at will cannot be specifically enforced.



7. PREVENTIVE RELIEF (Sec. 36 to 42)

INJUNCTION - TYPES AND REFUSAL

MODEL QUESTIONS

1. What are the principles governing the grant of

temporary injunction?
2. What are different kinds of injunctions that can be
issued under Specific Relief Act?
3. Explain ‘preventive relief’. When may a perpetual
injunction be refused?

Answer

A. INTRODUCTION
 38

‘Injunction’ means the specific order of the Court

prohibiting the threatened or prohibiting the continuance
of the wrongful act already commenced. In other words, it
is an order to prevent the breach of contract. It is based
on justice and equity.

For e.g.: A is about to sell B’s land to C. Now B can

get a specific order form the Court to prevent the
wrongful act of sale by A.

It is an order of the Court whereby it restraints the

commission or continuance of wrongful commission.

B. TYPES OF INJUNCTIONS

1. TEMPORARY INJUNCTION: (Sec. 37)

It is an order of a Court to do the rightful act or to

prevent from doing a wrongful act for a specified time or
till the order of the Court. This injunction may be granted
at any stage of the suit. It may be even in initial stage of
the proceedings. It is to prevent the commission of a
wrongful act. It may be revoked by a subsequent Court
order.

For e.g.: A is about to sell a land concerned in a

dispute between A and B to C. Now B can get a temporary
injunction to prevent A from selling the land till the true
owner is decided by the Court.

2. PERMANENT OR PERPETUAL INJUNCTION: (Sec. 37)

It is an order of the Court to do a rightful act or to

prevent from doing a wrongful act permanently or for an
unspecified time. It is given only at the end of the final
hearing on the merits of the case.
For e.g.: A is about to sell a land where a dispute is
pending between A and B to C. First temporary injunction
 39

will be granted by the Court. After the final hearing, if the

land is found to belong to B, then permanent injunction
will be given to prevent A from selling the land.

3. PERPETUAL INJUNCTION WHEN GRANTED: (Sec. 38)

1. A perpetual injunction may be granted to the plaintiff

to prevent the breach of an obligation, expressly or
impliedly.

2. The Court shall be guided by the provisions of Specific

Relief Act if any such obligation arises from a
contract.

3. In the following cases, if the defendant invades or

threatens to invade the plaintiff’s right to enjoyment
of property, the Court may grant a perpetual
injunction:

a. If the defendant is a trustee of the property for

the plaintiff.

b. If it is not possible to ascertain the actual

damage caused by the invasion.

c. If money compensation is not an adequate relief

for the invasion.

d. In order to prevent multiplicity of judicial

proceedings.

4. POSITIVE INJUNCTION (MANDATORY INJUNCTION):

(Sec. 39)

It is an order of the Court to do a positive act in order

to prevent the breach of an obligation. For e.g., the Court
may order to cut the overhanging branches on another
man’s land.
 40

In the suit for mandatory injunction, the plaintiff may

claim damages either in addition to or in substitution of
such injunction.

Illustration

A is B’s medical advisor. He threatens to publicise B’s

immoral life and activities on default of payment of
money. Now B can get two injunctions. A positive
injunction to compel A to destroy the materials about B’s
immoral life and a negative injunction not to publish B’s
immoral life.

5. NEGATIVE INJUNCTION (PROHIBITORY

INJUNCTION): (Sec. 42)

It is an order of the Court to prevent a party from

doing a wrongful act. For e.g., A was constructing his
house in such a way that it would project over B’s land.
Now B can get preventive injunction. By this injunction, A
is prevented from further construction of such projections
over B’s land.

Lumley Vs. Wagner

The defendant agreed to sing only at the Plaintiff’s

theatre for a specific period. Later she agreed to sing at
another man’s theatre and refused to sing for the plaintiff.

The plaintiff sought for two injunctions:

1. To compel the singer to sing in the Plaintiff’s theatre

only.
2. To prevent the defendant from singing in any other
theatre.

The Court was not competent to order specific

performance of the contract for singing in the plaintiff’s
 41

theatre. It was a contract for personal service and hence

injunction was refused.

As regards the negative part (the second request) the

Court granted an injunction restraining the singer from
singing at any other theatre.

C. REFUSAL OF INJUNCTION: (Sec. 41)

In the following 10 circumstances, injunction will not

be granted:

1. No injunction can be granted to prevent a person

filing a case in any other Court against the plaintiff.

2. No injunction can be granted to stay the proceeding

in equal or superior Courts.

3. No injunction can be granted to legislative body,

Parliament or Assembly.

4. There is no injunction in criminal cases.

5. There is no injunction for contracts which cannot be

specifically enforced.

6. There is no injunction if the plaintiff has given

consent to do an act.

7. There is no injunction in doubtful cases of nuisance.

8. If there is adequate alternative remedy, then

injunction will not granted.

9. If the plaintiff comes with unclean hands, then

injunction will not be granted.

10. If the plaintiff has no interest in the disputed case,

then injunction will not be granted in his favour.

 42

MOST IMPORTANT AND MOST EXPECTED CHAPTERS

AND QUESTIONS -SIMPLE LANGUAGE

SHORT NOTE NO -1
ESSENTIALS OF VALID ACCEPTANCE
(Sec. 2(b))

The following are the essentials of a valid acceptance

1. Acceptance must be absolute and unqualified:

If the acceptance is conditional and does not

absolutely accept the offer, then it is only a counter offer.

Rejected offers:

An offer once rejected cannot again be accepted. Any

such acceptance is treated only as a fresh offer.

2. An offer can be accepted only by the person to

whom such offer is made:

3. Acceptance must be communicated to the offer or

in some visible form:

If the person to whom the proposal is made remains

silent and does nothing to show that he has accepted the
proposal, then no contract is formed. Mere mental
acceptance without expression by words or conduct is no
acceptance.

4. Communication of acceptance should be from the

offer or from his duly authorized agent:

5. Waiver of communication of acceptance:

Though communication of the acceptance by the

acceptor to the offer or is essential, the offer or may waive
such communication to himself.
 43

6. Prescribed mode of acceptance:

If the offer or has prescribed a particular mode of
acceptance, then the acceptor must follow such
prescribed methods. Otherwise, the acceptance is invalid.

7. Performance of the terms of the offer:

Generally, the acceptance must be communicated by

the acceptor to the offeror. In some cases, the offeror
need not communicate his acceptance. The performance
of the terms of the offer itself is deemed to be an
acceptance.

8. Reasonable time for accepting the offer:

The acceptor must be given a reasonable time for

accepting the offer. If time limit is stipulated, then
acceptance must be given within that period.

9. An acceptance cannot precede an offer:

Acceptance must be given only after knowing about

the offer. There can be no acceptance without knowing the
offer.

10. Acceptance must be given before the offer lapses or

is withdrawn.

11. Acceptance of the offer means acceptance of all the

terms of the offer.

 44

SHORT NOTE NO-2

UNLAWFUL CONTRACTS
(UNLAWFUL CONSIDERATION OR OBJECT)
(Sec. 23 & 24)

An agreement is a valid contract only if it is made for

a lawful consideration and lawful object. If the
consideration or object of the agreement is unlawful, then
the agreement is void.

KINDS OF UNLAWFUL AGREEMENTS

1. Consideration or object is forbidden by law:

If the object or the consideration of an agreement is

the doing of an act forbidden by law, the agreement is
void. When an act is punishable by the criminal law or any
other special law of the land, then such act is considered
to be forbidden by law.

Illustration:

a. An agreement by A to transfer his liquor licence to

another is unlawful.

b. A promises B to drop a prosecution which he has

instituted against B for robbery and B promises to
restore the value of the things taken. The agreement
is void, as its object is unlawful.

2. If the consideration or object would defeat the

provisions of any law:

In some cases, the consideration or object of an

agreement are not expressly forbidden by law. however, if
such agreements are allowed, then they would indirectly
 45

defeat the provisions of law and hence such agreements

are unlawful and void.

3. If the consideration or object is fraudulent:

Any agreement entered between the parties for a

fraudulent purpose is unlawful and void. Thus, an
agreement to defraud the creditors with a view to defeat
their rights is void.

4. If consideration or object involves injury to the

person or property of another

If the object of an agreement is to injure the person

or property of another, then it is unlawful. for e.g., an
agreement to commit an offence causing physical injury or
damage to one’s property is unlawful.

5. If the Court regards the consideration or object as

immoral

This is known as ‘contract contra bonus mores’

(contrary to good morals). Law does not permit immoral
agreements to be enforced.

The term ‘immoral’ depends upon the standards of

morality prevailing in the society and approved by law.
Generally interference with marital relations is considered
as immoral act and hence unlawful and void.

Pearce Vs. Brooks

A coach builder rented his carriage for prostitution

purposes. The prostitute failed to pay the rent. The Court
held that the coach builder could not recover the rent as
he had knowledge of the purpose for which the coach was
rented.
 46

6. If the Court regards consideration or object as

opposed to public policy

Any agreement is unlawful if the court regards it as

‘opposed to public policy’. Thus any agreement which
promotes corruption, injustice or is against the interests
of the public is considered as opposed to public policy and
hence void.

7. If Consideration and objects are unlawful in part:

(Sec. 24)

If any part of a single consideration for one or more

objects is unlawful, then the agreement is void.

Similarly, if any one or any part of any one of several

considerations for a single object is unlawful, then the
agreement is void.

8. Blue Pencil Rule

If legal part is severable from the illegal part verbally,

then the court will take out the illegal part and keep the
legal part as valid. this is known as the blue pencil rule.



SHORT NOTE NO – 3
CONTINGENT CONTRACT
(Sec. 31 to 36)

Contingent contract is a contract which depends on

the happening or non happening of some future event.

Sec. 31 to 36 deals with contingent contracts.

Sec. 31 lays down “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”.
 47

A contracts to pay B Rs.10,000/- if B’s house is burnt.

This is contingent contract.

ESSENTIALS OF CONTINGENT CONTRACT

1. The performance of the contract must depend upon

the happening or non-happening of some future
event.

2. Such event must be uncertain. This is known as

contingency.

3. Such event must be collateral, i.e., incidental to the

contract.

4. Contract of insurance, indemnity and guarantee are

all contingent contracts only.

5. The event must not form part of the consideration but

must be independent of it.

RULES OF CONTINGENT CONTRACT

1. On the happening of an uncertain event: (Sec. 32)

The contract becomes valid only if the uncertain

event happens. If the uncertain event does not happen or
becomes impossible, the contract becomes void.

For e.g., A agrees with B to pay Rs.1000/- if B marries

C. B marries C. Now the contract becomes valid. But if B
does not marry C or C dies before the marriage could be
celebrated, the contract becomes void.

2. On the non-happening of an uncertain event: (Sec.

33)
 48

The contract becomes valid only if the uncertain

event does not happen. But if the event happens, the
contract becomes void.

For e.g. A agrees to pay B a sum of money if a certain

ship does not return. The ship is sunk. The contract is now
enforceable.

3. On the happening of an event within a fixed

period: (Sec.35)

The For e.g. A agrees with B to pay Rs.1000/- if B

marries C within a period of one year. B marries C within
one year. The contract becomes valid.

The contract becomes void if B marries C after one

year or does not marry C at all or C dies before marriage.

4. On the non-happening of an event within a fixed

period: (Sec. 35)

The contract becomes valid only if the uncertain

event does not happen within a fixed period. Otherwise it
becomes void.

For e.g., A agrees with B to pay Rs.1000/- if a certain

ship does not return within a period of one year. The ship
does not return within a year or is burnt within the year.
Now the contract is void.

5. Event depending upon the act of a person: (Sec.34)

If the happening or non-happening of an uncertain

event depends on how a person will act at an unspecified
time, then the agreement becomes void if such person
does any thing as to render the event impossible.
For e.g., A agrees with B to pay Rs. 1000/- if B marries
C. C married D. The marriage between B and C is now
 49

impossible, though C can marry B after D’s death. The

agreement is void.

6. An agreement to do an impossible act is void (Sec.

36)

An agreement is void if it is contingent on impossible

events. It is not necessary that the parties must know its
impossibility at the time when it is made Contract
becomes valid only if the uncertain event happens within
a fixed period. Otherwise the contract becomes void.

For e.g.

A agrees with B to pay Rs. 1,000/- if B walks 1000

miles per hour. The agreement is void.


SHORT NOTE NO – 4
APPROPRIATION OF PAYMENTS
(RULE IN CLAYTON’S CASE)
(Sec. 59 to 61)

When a debtor owes several distinct debts to one

person and makes a payment not sufficient to satisfy the
whole indebtedness, it is difficult to decide to which debt
the payment should be first appropriated. The rules are as
follows:

1. If the debtor intimates at the time of payment that

the payment should be applied towards the discharge
of a particular debt, the creditor must do so. (Sec. 59)

E.g., A owes B, among other debts, a sum of Rs.

1,000/- B writes to A and demands payment of this sum. A
sends to B Rs. 1,000/. This payment is to be applied to the
discharge of the debt of Rs. 1,000/- of which B had
demanded payment.
 50

2. If the debtor does not intimate and the circumstances

are not indicative, then the creditor may apply the
payment to any of the lawful debts payable to him.
(Sec. 60)

3. If the debtor does not intimate and the creditor fails

to appropriate, the payment shall be applied in
discharge of the debts in order of time.

Clayton’s Case: (Devaynes Vs. Noble)

There was a partnership firm carrying on banking

business in the joint names of five partners.

Mr. Nathenial clayton had a current account and

deposited huge amounts in the account. Even after one of
the partners died, the firm’s business was carried on by
the surviving four partners in the old name of the firm,
despite objections from the executors of the deceased
partner. The firm became insolvent in a further period of 3
years.

At the time of death of one of the partners of the

firm, Mr. Clayton had 1713 pounds in his current account.

In the period between the death of the partner and

insolvency of the firm, Mr. Clayton had numerous
transactions, having withdrawn money and deposited
money and the balance of the money at the time of
insolvency of the firm was again 1713 pounds.

After insolvency of the firm, Mr. Clayton claimed his

money in the current account from the estate of the
deceased partner. His contention was that he did not
withdraw 1713 pounds remaining in his account at the
time of the death of the deceased partner.
 51

He had withdrawn only the money which he had

deposited after the death of the deceased partner and the
firm was solvent at that time.

Hence the amount of 1713 pounds remained at the

time of the death of the partner must be paid by the legal
representatives of the deceased partner.

The Court held that the amount 1713 pounds

remaining in the current account of Mr. Clayton at the
time of insolvency of the firm was a fresh debt and hence
the deceased legal heirs were not liable to pay the
amount.

The following rules were made:

1. If there is running account, then the rule of specific

appropriation of debt will not apply.

2. In case of a death of a partner, the bank must close

the account and start afresh.

3. The rule ‘first deposited amount deemed first

withdrawn’ applies only in the absence of any other
agreement contrary to it between the banker and the
customer.

4. The above rule is applicable for the death of a surety

also.


SHORT NOTE NO – 5
DOCTRINE OF FRUSTRATION
(IMPOSSIBILITY OF PERFORMANCE –
SUPERVENING IMPOSSIBILITY) (Sec. 56)

If a contract contains an undertaking to perform an

impossibility, it is void ab initio. (Sec. 56)
 52

Thus, if the performance is impossible whether it is

known or not known to both the parties, the agreement is
void.

E.g.: A agrees to pay B Rs. 5,000/- and B promises to

bring for A the moon from the sky. The agreement is void.

IMPOSSIBILITY EXISTING AT THE TIME OF FORMATION

OF CONTRACTS

It is divided into two types:

a. Known to the parties:

This is known as absolute impossibility and the

agreement is void ab initio.

b. Unknown to the parties:

If both the parties are ignorant of the impossibility,

then the contract is void due to mutual mistake. If the
promisor alone knows of the impossibility of performance
at the time of making the contract, then he has to
compensate the promisee for any loss.

IMPOSSIBILITY ARISING SUBSEQUENT TO THE

FORMATION OF CONTRACT
(SUPERVENING IMPOSSIBILITY)

If the impossibility arises subsequent to the

formation of the contract, it is called supervening
impossibility. Such a contract becomes void. Usually
impossibility of performance is not an excuse for non-
performance of a contract, but if the impossibility is due
to circumstances beyond the control of the parties, then
the party who has to perform the contract need not
perform and he is discharged.
 53

E.g.: A and B contract to marry each other. But A goes

mad before the time fixed for the marriage. Hence the
contract becomes void.

IMPOSSIBILITY OF PERFORMANCE – AN EXCUSE

In the following cases, supervening impossibility is an

excuse for the non performance of a contract.

a. Destruction of subject matter:

If the subject matter of a contract is destroyed

subsequent to its formation without the fault of the
parties to the contract, then the contract is discharged.

b. Non-existence or non-occurrence of a particular

state of things

A contract is sometimes based on a continued

existence of things. If there is any change in the state of
things which forms the basis for the contract, the contract
is discharged.

c. Death or incapacity for personal service:

If the performance of the contract depends on the

personal skill or qualification of a party, the contract is
discharged. For e.g., on the illness or incapacity or death
of a party.

d. Outbreak of war:

Any contract entered into with an alien enemy during

war is unlawful and impossible of performance. If
contracts are entered before the war, then they are
suspended and revived after the war is over.
 54

IMPOSSIBILITY OF PERFORMANCE - NOT AN EXCUSE

Generally, if a person undertakes to do something, he

must do it unless its performance is absolutely impossible.
In the following cases, a contract is not discharged on the
ground of supervening impossibility.

1. Contract is not discharged on the fact that it is very

difficult to perform due to some unexpected event or
delay.

2. Commercial impossibility is not an excuse i.e., a

contract is not discharged, because expectations of
better profits is not realized, or the necessary raw
material is not available or available at a higher price
etc.

3. A contract cannot be discharged due to failure by a

third party on whose work the promise or has relied.

4. Events such as strikes, lockouts and civil disturbances

do not discharge a contract.

5. When there are several objects for a contract and if

one of them fails, the contract is not discharged.

DOCTRINE OF FRUSTRATION:
(ENGLISH LAW)

When the common object of a contract cannot be

achieved or if the contract becomes impossible of
performance due to circumstances beyond the control of
the parties, the doctrine of frustration comes into play.

Rule in Paradine Vs. Jane

In England, in the 17th century, it was a common rule

of law that a man was absolutely bound to perform an
obligation which he had undertaken under a contract. It
 55

could not be excused by the mere fact that performance

had become subsequently impossible.

By express condition in the contract, the parties could

guard against unforeseen contingencies. But if a party
voluntarily undertakes to perform an absolute and
unconditional obligation, then he could not avoid, even if
it becomes impossible and the events turn out to his
disadvantage.

Implied term theory:

In order to mitigate the effect of the rule in Paradine

Vs. Jane, the Court evolved ‘implied term theory’.

According to it, the Court infers from the nature of

the contract and its circumstances that if a condition not
expressed was the foundation upon which the parties
contracted and if the condition is not fulfilled, then the
promisor is excused from performance.



SHORT NOTE NO – 6
TYPES OF SPECIFIC RELIEFS

1. RECTIFICATION OF INSTRUMENTS (Sec. 26)

Correction of a mistake in the contract. Mistake

corrected by the Court to bring out the real intention of
the parties.

2. CANCELLATION OF INSTRUMENTS (Sec. 31 to 33)

When original contract is void or voidable, then

affected party may sue for cancellation. Court declares the
contract as void or voidable even before the performance
of the contract.
 56

3. DECLARATORY DECREE OR RELIEF (Sec. 34 & 35)

A person entitled to any legal character institute a

suit against any person denying such title.

4. RESCISSION (Sec. 27 to 30)

All or some of the terms of the contract are cancelled

by Court.

5. RECOVERY OF POSSESSION OF IMMOVABLE &

MOVABLE PROPERTY
(Possessory Remedies) (Sec. 5 & 6)

Here, a person is dispossessed of his quiet and

undisturbed possession of immovable property, not in due
course of law.

1. Section 5: Person entitled to the possession of

immovable property may recover if he institutes a
suit within 12 years.

2. Section 6: Person dispossessed of his immovable

property without his consent, may institute a suit
within 6 months for recovery of possession.
