CONTRACT ACT 1872

INTRODUCTION

 

INTRODUCTION

A modern industrial society is primarily built upon the fabric of `contract'. The relational integration and determination of mutual rights and obligations to a great extent, are dependent on ex contractum (out of contract) terms. There is contract around, between employer and the employees, producers and distributors, vendors and the customers, carrier and the buyer of services and the like. Even family relations also start with contract, marriage being either a contractual relation or similar to it. The very basic principle of market functioning in the early period of mercantalism and industrialisation was laid down on the efficient functioning of contractual relation by relative assessment of rights and duties arising out of a contract. In a modern state, government is also becoming a very important party in contractual relations. It is, therefore, necessary to understand how and when parties enter into such a contract in order to examine their mutual rights and obligations, and the time of origination of such rights and obligations. In order to correctly evaluate these aspects, one has to understand the following:

l . Whether the parties have agreed to make any binding right and obligation for themselves?;

2. How they have made it?;

3. What are their mutual advantages and obligations?;

4. How they intended to perform their mutual duties and when?;

What are the conditionals? and

What happens if one of the parties is unable to fulfil his/ her obligations?

Here we shall try to explain you why, when, and how a contract is made.

EARLY HISTORY OF CONTRACT LAW

Generally speaking history of human civilization has experienced several legal systems. Some of which are still in vogue in pure or moderated form. Leading legal systems are:

1.                          Ecclesiastical/religious system is based on the religious, textual and customary processes inducted through religious faith and belief;
2.                          Romana-Germanic system is based on growing codification on logical foundation as well as clear customary practices Justenian code;
3.                          Civil law system based on a well structured constitutional legal regime with inquisitorial procedural system. Western European countries follow this system;
4.                          Socialist system with high public interest involved specially on the issue of freedom of contract; and
5.                          Common law system which provided golden opportunity for mercantilism and capitalism to develop with rapid industrialisation. Besides, more than half of the globe was under die domination of this common law system under the British in eighteenth, nineteenth and early twentieth centuries.

In Common law, Law of Contract was carved out of the law of tort in the fourteenth and fifteenth centuries. Initially, three `writs'[1] used to play a very important key role. In case of agreements of loan and credit Writ of debt was issued. In clear cases of agreements, especially in writing[2], on transfer of landed properties writ of covenant was issued asking the party to perform his part and a writ of trespass was issued in the event of any party to the contract of quasi contractual situation transgressing the rights acquired by the other party.[3] Another writ to provide remedy in the event of a party to the contract committing breach, known as Writ of deceit was also issued.

Though it is difficult to make a functional distinction between these writs it can be stated that the basic principle of action on civil wrong was based upon three clear actions or inactions on the part of the defendant. For example a person could have done something which is per se wrong. In law it is known as Misfeasance. Such as, A agreeing to sell to B something on which A has no right of title and possession, and consequently B cannot acquire title or possession. Secondly, a right act could be wrongly done, which in law is termed as Malfeasance. Such as, A by use of coercion forces B to sell his land to A. Here, A has used foul means which he could rightly do as well i.e., without the use of force. On the other hand, a right thing not done at all is known in law as Nonfeasance. Such as, A not .paying back the amount of loan taken from B. In all these above cases the plaintiff could seek justice against the action or inaction of the defendant. The court used to issue writs in order to deliver justice to the plaintiff by appropriately designing a simple or compound writ. But as matters got complicated during the period of mercantilism at the early part of industrialisation, different theoretical foundations were necessary to legally bind parties in different contractual situations.

In early sixteenth century the court of King's Bench formulated another remedy known as Assumpsit. One could trace the conflict of ideas on remedying in the event of breach of contract between court of King's Bench and court of Common pleas. Anyway, according to the court of King's Bench under every executory contract the parties used to assume or promise to pay an amount or deliver goods. Thus action on assumpsit was held to be more appropriate than the limited applications of writs. `Writs' had pigeon-hole application whereas contract required a wider legal remedies, especially when contract of services were also involved during the period of early industrialisation. In actions of assumpsit during the earlier period there was scope for speculation as to the matter of promise gratuitously made. Gradually, English courts held that a`quid pro quo' would be required in all cases of promiscs to be legally binding excepting where a promise is ipso facto made binding under court's seal [This is explained in detail subsequently on consideration]. With the rapid growth of industrialisation in the last hundred and fifty years, importance of' contract could not be over estimated in all legal systems. Moral foundations of a promise to make it legally binding in religious or ecclesiastical systems, could not hold the system. The principle o1 'Pacta Sunt Servanda' of Romano-Germanic system meaning thereby, promise once made is binding or `one must observe one's words given to other, (else lie takes the curse of the God', a principle of the ecclesiastical system could not hold the test of time. Rapid industrialisation required more transparency in the legal system. Gradually more and more countries started codification of^- the law of contract. India however, has its codified contract law enacted in 1872. One can easily understand the benefits of codification, viz.,

l. transparency of law at any given point of time;

2.easy public accessibility; and

3. amendability with the change of time and need.

The argument made by common law advocates against codification is that it makes law more rigid as compared to the judge made law, is untenable. Judges by their nature of training and work, tend to become rigid and Status quoist (meaning person supporting status quo). Hence Common Law system based upon case law became mostly non-dynamic specially before Karl Marx came on to the scene. Legislative process, on the other hand, is bound to respond quickly to the requirement of time. Members of the legislature as represent the people so they understand well the need of the time and the people in a better way.

In fact with rapid globalization of economic production relations and quicker communication links, a uniform commercial code is bound to come for the whole world in the long run. The movement is already felt strongly. Through multi-lateral treaties and conventions many areas of the commercial contract have already been globally codified. Marine contracts, contracts of transitional services, tele­communication contracts, contracts of exports and imports, international, commercial arbitration, technology use contracts, contracts on Intellectual properties etc.. are either already under some sort of globalised code or under high globalisation. One can, at this stage, note the growing number of global legislation's in the area of contract. Sir Henry Maine (Friedman, Law in a Changing Society, 119-120) is perhaps right when he said that codification is a test of modernisation of the legal system. One may further add to it by suggesting that universalisation and secularisation are perhaps other two attributes of the most advanced legal culture.

CONTRACT AS A METHOD OF CREATING NEW RIGHTS

`Contract' is the method through which individuals make law for themselves by creating rights and obligations ex contracts. As a human being, a person shall have some rights, duties and obligations ex,factum i.e.., by mere fact of being a person in the society. For example, basic human rights or fundamental rights or family rights like right of parenthood, right of succession, right of paternal or maternal names etc.., are rights ex factum. But each individual is an economic being as well as a social identity. As an economic being he/she takes rational economic decisions to enter into contracts with others to derive better social, economic and other pleasures, through such relations by creating new rights and obligations. A person understands that his/her factual social existence shall be more meaningful if he/ she takes economic decisions rationally. By entering into a new contractual relation and thereby altering his/her position in relation to creation of  Contract is the sole method of altering factual situations and raising more and more wealth and economic satisfaction. Without `contractual relations' society would have remained static. Through contract wealth of a person is increased, so also of society's and society is made dynamic.

HOW IS A CONTRACT MADE?

A contract is made between two or more parties where­

a. An agreement is made through one party making an offer and the other accepting the same; an offer accepted becomes a promise;

b. The agreement being legally enforceable in so far as it fulfills .the following conditions:

i. the agreement is not otherwise void in the eyes of law.

 (i) parties must be willing to enter into a legal relation;

(ii) parties must be competent to enter into a contract that results in legally enforceable rights, duties and obligations;

(iii) parties must have given free consent to the terms of the contract;

(iv) there is a lawful object and consideration;

(v) the agreement is not against public policy or morality;

c. Once an agreement fulfills the above conditions it becomes a legally binding contract.

All these conditions require critical analysis.

Indian Contract Act

       The Indian Contract Act came into force on the first day of September 1872. Prior to this enactment the law relating to contracts as applied in India was wanting in uniformity and certainty. The English Law so far as it was suitable to local circumstances, was introduced in the Presidency Towns of Madras, Bombay and Calcutta by the Charter granted in 1726 by King George I to the East India Company. In 1781 the Act of settlement passed by the British Parliament provided that questions of inheritance and succession, and matters of contracts and dealings between parties should be determined in the case of Mohammdens and Hindus by their respective laws, and where only one of the parties should be a Mohammaden or Hindu “by the laws and usages of the defendant”. This was the rule in the Presidency Towns. In the mofussil, that is, outside the Presidency Towns, there was no Laws of Contract as such and suits involving questions of contract were to be decided according to justice, equity and good conscience.

The Contract Act of 1872 dealt with inter alia with Sale of Goods, Indemnity and Guarantee, Law of Bailment, Agency and Partnership. In 1930 a separate Act on the Sale of Goods was passed. In 1932 The Indian Partnership Act was passed. These two Acts closely follow analogous English Acts and have stated the law more fully and accurately. In consequence of the passage of these Acts the corresponding chapters of the Contract Act have been repealed. Apart from this the Contract Act has not been modified much from the date of its enactment.

Contract is a bilateral transaction between two or more than two parties. Every contract has to go through several stages beginning with the stage of negotiation during which the parties discus and negotiate proposals and counter-proposals as also the consideration resulting finally in the acceptance of the proposals. Under law it is not necessary that every contract must be in writing. There can be an equally binding contract between the parties on the basis of oral agreement unless there is law which requires the agreement to be in writing.

As an ordinary rule of law, an acceptance of an offer ought to be notified by the person who invites the offer to the person who makes the offer in order that the two minds may be apart and there is not that consensus which is necessary according to the Contract Act to make a contract. The natural corollary of this principle is that the communication of acceptance should be from a person who has authority to accept. The duty is cast on the offerer to accept or reject such tender of offer within a reasonable time. Unless the acceptance is communicated the contract cannot be said to be concluded.

  According to Sir Frederick Pollock, the law of contracts may be described as the endeavour of public authority to establish positive sanctions for the expectation of good faith which has grown up in the mutual dealings of men.

     Sir William Anson stated that the Law of Contracts is intended to ensure that a man has been led to expect, shall come to pass; that what has been promised to him shall be performed.

     Justification for enforcement of contract is two- fold. The first is the principle of moral justification. Prof.Goodhart observes that the moral basis of contract is that the promiser has by his promise created a reasonable expectation that it will be kept. According to Prof. Corbin, the law of Contracts attempts “the realisation of reasonable expectations that have been induced by the making of a promise”. He adds: “doubtless this is not the only purpose by which men have been motivated in creating the law of contracts”. The main justification however, for legal enforcement of promises is economic one. Trade and Commerce cannot thrive if promises could be broken without even an obligation on the part of the promise to make good the loss caused by his default. As pointed out by Sir George Paton “credit depends essentially on ability to rely on the promise of others and can flourish only when there is a fully developed law of contract”. In modern times commercial convenience rather than moral position of the parties tends to operate as the crucial factor. The juristic concept of contract consist of two constituent elements, viz., Obligation and Agreement

DEFINITION OF CONTRACT

Blackstone defines contract as ‘an agreement upon a sufficient consideration, to do or not to do a particular thing’.

 Section 2 (h) of the Indian Contract Act, 1872 defines a contract as ‘an agreement enforced by law’. Stephen.

The ICA has been amended from time to time of the Doctrine of Privity to entitle a third party to sue on a contract made for his benefit in certain cases. However the recommendation was not acted upon.

  The success of  Law of Contract based upon the moral principles of the persons,  that means persons must fulfill his promises and abide by his agreements.  There is no importance of The Law of Contract in 19th century but when the economic and social needs of the people are increasing that will necessitated the development of law of contract.

A contract is an agreement enforceable by law.  an agreement means every promise and every set of promises  which forms consideration for each other.  So the contract is the some total of the Agreements but all agreements are not contracts.

 

 

TOPIC 1

CAPACITY OF PARTIES

 

Capacity defined:

 

According to section 10,  an agreement becomes a contract if it is entered into between the parties who are competent to contract. ‘Capacity’ reffered to here means competence of the parties to enter into valid contract. Capacity here  also means physical and mental capacity. As per 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.

It may be seen from this definition that any and every person is not capable of entering into a contract. It follows from the definition enunciated in Section 11, that a person is incapable of entering into a contract under the following circumstances:

(i) Minor : If h is a minor i.e., if he has not attained the age of majority according to the law to which he is subject;

(ii) Insane : If he is of unsound mind, that is, if he is a lunatic or an idiot or suffering from a similar disability; and

(iii) Disqualified: If  he is disqualified from contracting by any law to which he is subject. The reason of the rule contained in this section, is that in the young the mind is immature, experience is lacking, the judgement is defective and more or less incapable of forming an  accurate judgement or conclusion on matters which immediately concern their interests. The same is true of persons of unsound mind and of persons who are disqualified from managing their own affairs or entering into certain agreements. The weakness of childhood, or unsoundness of mind, or of persons disqualified from contracting under the law, demands consistent protection. Everything has to be done for persons of imperfect growth or of unsound  mind, or others who can do but little to protect their interests. The section is founded on such and the like principles and on the manifest need of minors or persons of unsound mind, or persons disqualified by any law to which they are subject from contracting, to be protected from undue advantage being taken of their situation. It is also based on the principle that free consent is one of the essential ingredients of a contract, but persons mentioned in this section are deemed incapable of giving it.

It has been recognized since long that to render a contract binding  the parties must have the capacity to contract.  As a general rule, a contract is not set aside for incapacity of a party if he was competent to make the particular contract, provided that it is not illegal and there is no fraud or concealment and no advantage taken. But a contract, made by a person who is incompetent to contract, not falling within a particular exception recognized statute, altogether void. It cannot be ratified, and the incapacity to contract cannot beremoved by estoppel.

Meaning of words and phrases. – “Person.” –Every contract is a bilateral transaction and contemplates two or more parties to it. The word “parties” signifies persons, whether natural or artificial, but  recognized as persons in the eye of the law, that is, to whom it gives a status or legal recognition.

Persons may be classified into (a) legal, and (b) artificial. A “natural” person is such a human being as is recognized by the law as capable of having rights or duties.

A single human being may have a dual personality, that is, a double capacity ; so in the right of beneficiary he may be one person, in the right of trustee another, and in his own right a third.

Artificial legal  persons to whom the law attributes a mere legal personality may be–

(a) aggregates of human beings, or

(b) masses of property.

A contract may be made by any person save one who is incompetent to contract, irrespective of whether he is a natural person or a legal artificial person, but a contract cannot be made by a legal artificial person who is not authorized by its constitution to do so.

 “Competent to contract”.– 

In the matter of contracts competency is the rule and incompetency an exception. They law presumes competency. Incompetency has to be averred and proved. The onus rests on those who allege that the agreement is void by reason of he incompetency of any party to make a valid contract to establish the invalidating fact.

It is necessary to observe with respect to persons falling in 
Cl. (3) that legal artificial persons are, as a rule, competent to contract, but the powers and obligations of such persons are, very often, restricted and limited to those which fall within their constitution ; and, if their constitution does not authorize the making of a particular contract, it is beyond their powers to make, that is it is ultra vires.

Competency to contract, or capacity to contract, must, therefore, be distinguished from authority to contract. The principal points of distinction are:

(1) Capacity means power to bind oneself, while authority means power to bind another ;

(2) Capacity is a part of the law of status, while authority is part of the law relating to principal and agent ;

(3) Capacity is usually a question of law, while authority is usually a question of fact.

The rule may be enunciated thus :

(a) Contracts made by, persons who are incompetent to contract within the meaning of this section are void.

(b) Contracts made by, or on behalf of, persons who, though otherwise competent to contract, are prohibited by law from entering into certain contracts, or are not authorised by their constitution to make them are also void.

(c) Contracts made by agents and representatives, who have no authority from their principals to make them, do not bind their principals. They are not void, but merely voidable, and may be ratified. They bind the agents and representatives.

Any person domiciled in India since the passing of the Indian Majority Act, 1875, shall be deemed to have attained majority, under Sec. 3 there of, when he completes his age of 18 years.

“According to the law to which he  is subject,”– The age of minority as well as the disqualification from contracting is to be determined according to the law to which the party contracting is subject.

MINOR

Who is a Minor:-

Under Section 3 of the India  Majority Act of 1875, every person domiciled in India (whatever his personal law may be) is deemed to have attained his majority when he has completed his age of 18 years and not before. To this rule there are two exceptions :

(i) When a guardian of the minor of whose person or property is appointed by a Court of Law and (ii) when a minor’s property is taken over by the Court of Wards for management. In either of these cases, minority continues upto the completion of 21st year.

In England, it may be noted, minority continues upto the completion of 21st year in all cases. Negative proposition may be construed in two ways, namely,–

(a) A minor is altogether incompetent to contract, and that his contract is void.

(b) A minor is incompetent to contract only in the sense that he is not liable on the contract thought the other party is. That is to say, the contract is voidable at his instance.

Where there is a contract between several persons and some of them are minors, the contract is not wholly void. Undoubtedly it does not bind the minors, but it is perfectly good as regards others, unless the contract is such that by reason of dropping out of the minors it dies as a whole.

Effect of contracts made by minors.– According to Sec. 10 and 11 of the Contract Act a minor is incompetent to contract. It is well settled by the leading case in Mohori Bibee v. Dharmodas Ghose,[4]  That such a contract is a nullity, it is absolutely void and not merely voidable.

The law with respect of contracts of sale with minors may be stated as follows :

(1) A contract of sale made with a minor void.

(2) A contract of sale made with the guardian of minor may be binding on the minor, if it be made either for legal necessity or for the benefit of the estate, but not otherwise.

(3) If the minor sues to avoid the contract of sale, he must make restitution for the benefit received by him.

(4) When the age of majority has been provided by law to be 18 years, any person less than that age, even  by a day, would be a minor in law. The fact, therefore, that 17 years 5 months is very close upon 18 years is no legal ground for holding that, in such a case the plaintiff should be considered to be a major in law.[5]

(5) There appears to be no doubt that a contract by a minor is void, and, where it is void the party entering contract with the minor is not entitled to claim any refund of the consideration money paid by him to such person with full knowledge of his minority as there is no equality in his favour.

(6) Any transaction of sale entered into by a minor is void.[6] A minor is not competent to make a contract, and where a person having an adverse interest against the minor, acting as his guardian, enters into a contract on his behalf the settlement is not binding on the minor and is void against him.

Misrepresentation.–

 According to English law where an infant obtains a loan by falsely representing his age, he cannot be made to pay the amount of the loan as damages for fraud, nor can he be compelled in equity tp repay the money.[7]

In Vaikuntarama Pillai v. Athimoolam Chettiar,[8] it was laid down that where money was obtained by a minor misrepresenting his age, that amounted to a fraud and he might be made to refund it but, in the absence of fraud, a refund could not be ordered.[9]

 

 

Minor’s agreement is void ab initio:-

Today an agreement with or by a minor is void and inoperative ab initio. Formerly the position was not clear. The Indian Contract Act does not expressly state whether a contract made by a minor is void or voidable S.11 Of the Act simply states that a minor is not competent to contract. Following the English Law, it was held formerly that a minor’s contract was voidable but not void. The issue again came up in the case of Mohori Bibi v. Dharmadas Ghose as stated above ;

In this case, a minor executed an agreement for Rs. 20,000 and received Rs. 8,000 from the mortgage by way of earnest money. He sued for setting aside the mortgage. The mortgage wanted refund of the sum which he had actually paid viz. Rs. 8,000. The Privy Council held that an agreement by a minor was absolutely void and therefore, the question of refunding the money did not arise. Had the agreemen been only voidable, the benefit received would have been refunded under Sections 64 and  65 of the Act.

In other words, the Act makes it essential that all the contracting parties should be’ competent to contract’ and expressly provides that a person who by reason of infancy is incompetent to contract cannot make a contract  within the meaning of this Act. The obvious reason for protecting a minor seems to be that a minor is immature and is not supposed to be capable of judging what is good  for him. Law has granted a privileged position to minor.

A minor can be a promisee or beneficiary:

Incapacity of a minor to enter into a contract means incapacity to bind himself by a contract. There is nothing which deprives a minor from becoming a beneficiary. Thus, an agreement under which a minor in whose  favour a mortgage has been executed can get a degree for the enforcement of the agreement.[10]  So also a promissory note executed in favour of the minor can be enforced. He can draw, negotiate or endorse a negotiable instrument so as not to incur any liability upon him.

Burden of Proof :

The burden of proving minority is on the person asserting it. In cases of necessaries supplied, the burden is upon the tradesman not only so show that the goods were suited to the infant’s status, but were actually required by him at the time of sale and delivery.

The burden of proof should be laid on the party who says that at the date of contract he was a minor. There can be no doubt that it is for the plaintiff to prove the validity of a contract on which he relies. But the age of a person entering into a contract is not such an essential part of the contract as must be proved by the plaintiff.[11]  The presumption in the first instance is undoubtedly that the executant of a document was of a sound disposing mind and the burden of proof that he was not so i necessarily upon the defendants.

 No ratification  :-

A minor on attaining majority cannot ratify an agreement entered into while he was a minor. The reason is that ratification ‘relates back’ to the date of the making of the contract and, therefore, a contract which was void at the time when it was entered into cannot be made valid by subsequent ratificaton . Since minor’s agreement is void ab initio, it cannot be validated by any subsequent action.

Ratification.– Generally speaking, the pre-requisites of ratification are.

(1) The person making the contract must profess to make a binding contract.

(2) The contract must be one which is capable of ratification ;  that is to say a contract that is void in its inception cannot be ratified.

It follows, therefore, that, if the agreement is void ab initio subsequent ratifiation by a person on attaining the age of majority of a transaction which was originally null and void by virtue of the fact that he entered into it while still a minor, does not form a volid contract on which  a suit can be maintained.

 Claim for necessaries:-

 If every contract of a monor is void, minor might find himself in difficulties, for no one might lend him mony. So, the law has consistently held that contracts by monors are valid if for necessaries. The Privy Council pointed out in Mohoi Bibi’s case  that under Section 68 any person would be entitled to reimbursement out of the minor’s estate for necessaries supplied to him or to his family. A minor is liable to pay out of his property for ‘necessaries’ supply to him or to any one whom the minor the bound to support.

The term ‘necessaries’ is not confined to good. It can include other things such as good teaching, medical and legal advice. An article, therefore, is a necessity depending upon the status and the social position of the minor. The price in such cases, which the trader will receive, is a reasonable price and not the agreed price. Only the property of a miner is  liable. The minor is not personally resonsible.

Necessaries.– Section 68 of the Act provides for liability in respect of necessaries supplied to a person incapable of entering into a contract, and a minor is a person incapable of entering into contract within the meaning of the section.[12]  The wording of that section is clear and unlike under English law under Indian law the liability of the minor is not personal and it is only his property that is liable for the goods supplied. Necessary things are those which a minor actually needs. It is not sufficient that they should be of a kind which a person of his condition in life may reasonable need for ordinary use. They cannot be necessaries if he is already sufficiently supplied with things of that kind and it is immaterial that the other party was unaware of this fact.[13] Cloth supplied to a minor and cash lent to him to effect necessary repairs to his house are necessaries in law.[14]  The word “necessaries’’ certainly includes money urgently needed for the requirement of minors and cannot be restricted to what is necessary for elementary requirements of the minors such as food and clothing.

What are necessaries.–It depends upon the facts in each case whether goods or services contracted for by an infant are necessary.

Liability for necessaries.– It is well settled that an infant may make himself liable for goods that are necessary considering his position and station in life.  This liability, though often  treated as  arising from the promise of the infant, seems to be rather a quasi-contractual obligation. The is shown by several classes of cases.

It is essential to recover that necessaries shall have been furnished on the credit of the infant. If furnished on the credit of his parent or guardian, he is not liable, but when furnished  specifically on the credit of the infant the parent is not liable though he gives his written consent.

 

Beneficial contracts of service.– Since it is to his advantage that a minor should acquire the means of his livelihood, he may bind himself by a contract of apprentice or  of service,  provided that such a contract, when construed as a whole, is substantially for his advantage, if he is not to be free to repudiate it[15]  Prina facie it is binding upon him, but the Court has to carefully examine in all its terms to find if it is for his benefit. The mere fact that some stipulations are prejudicial to the minor is not decisive, for all service engagements contain some terms not directly beneficial to the servant.

No Estoppel :-

The principle of Estoppel :

This  rule is a rule of evidence. If a man has by words or conduct induced others to believe in the existence of a certain fact, knowing that they might act on  this belief, then, by rule of estoppel he is prevented from denying the  existence of such facts. This rule of estoppel is based on sound principles of equity and good conscience.

 

 A minor who falsely representing himself of age has induced person to enter into a contract with him, can nevertheless plead ‘minority’ as a defence in an action on the agreement. There can be no estoppel against, a minor[16]   Thus, a contract entered into by a minor is a complete nullity by the statutory provision contained in the Contract Act. There cannot be any estoppel against a statute.

Restitution or compensation:-

A minor cannot, in  a suit to avoid a contract which is  void, be compelled to compensate for or refund any benefit which he has received under such contract. Sections 64 and 65 of this Act do not apple to such cases. But equity requires a minor who seeks to avoid a contract which he induces the opposite party to enter with him by fraudulent representation as to his age, to return the consideration which he received in it. This rule of equity has been embodied in Section 30 of the Specific Relief Act of 1963 which provides: 

“On adjudging the rescission of a contract, the Court may require the party to whom such relief is granted to restore, so far as may be, any benefit which he may have received from the other party and to make any compensation to him which justice may require.’’

But under the guise restitution the contract, itself cannot be enforced. If a minor seeks relief on the ground that the contract is void, he must make restitution.[17]  Restitution stops where repayment begins.

The Court observed in Gokeda Latcharao v. Viswanadham Bhimayya.[18] “Where the property is not traceable and the only way to grant compensation would be by granting a money decree against the minor, decreeing the claim would be almost tantamount to enforcing the minor’s pecuniary liability under the contract which is void. There is no rule of equity, justice and good conscience which entiles a court to enforce a void contract or a minor against him under the cloak of restitution”.

No specific performance:-

There can be no specific performance of the agreement entered into by a minor as they are void abinitio. A contract entered into by a minor though void is not unlawful. If a person after attaining majority pays a debt incurred during his minority, he cannot subsequently bring a suit for the refund of this amount.

No Insolvecy:-

A minor cannot be adjudged insolvent. This is true even where there are dues payable from the properties of the minor. This is because he is incapable of contracting debts.

Minor as a Partner :-

A minor cannot become a partner in his own right since he is incapable of contracting under Section 11 of the Contract Act. A partnership pre-supposes a contract. Therefore, a minor admittedly cannot become a partner.  But he can be admitted into the benefits of a partnership in an existing firm with the consent of all the existing partners. (Section 30 of the Partnership Act)

Minor as an Agent :-

An agent is simply a ‘connecting link’ between the principal and the third party. As soon as the Principal and the third party are brought together the agent ceases to function. Since the parties to a contract, in such cases are the principal and the third party, they should be competent at law to contract. An agent, being not a party to such contract can either be a major or a minor. It matters little. A minor binds the principal by his acts without himself incurring any personal liability.

Minor along with a major :-

Where a contract is entered into by minor and a major jointly with another person, the minor is not liable under the contract. However, the contract can be enforced against the major if his liability can be separately ascertained. Similarly, if an adult stands surety for a minor, the adult is liable on the agreement although the minor is not.

Position of minor’s guardian :-

An agreement by a minor is void, but an agreement by his guardian on his behalf is valid provided the obligations undertaken are within the powers of the guardian. The guardian can function only within the doctrine of legal necessity or benefit.  Where contracting party is a minor represented by a guardian and the contract is clearly for the benefit of minor and was made at the request of the guardian for the benefit of minor, it binds the minor. However, the minor personally incurs no contractual obligation in such cases.  Moreover, a minor may not be answerable for the fraud of his guardian.

(i) A minor’s contract being void, there is no agreement to be specifically enforced.

(ii) It is, however, different with regard to contracts entered into on behalf of a minor, by his guardian or by a manager of his estate. In such a case the same can be specifically enforced by or against the minor if the contract is one which it is within the competence of the guardian, to enter into on his behalf so as to bind him by it, and further if it is for the benefit of the minor. If either of these conditions is wanting, the contract cannot be specifically enforced at all.[19]

Void Contracts.–

(1) A guardian cannot validly contract in the name of the ward so as to impose on him a personal liability by a covenant in a sale-deed or the other deed executed by the guardian on behalf of the minor.[20]

(2)  In like manner, a guardian cannot, while executing a mortgage on behalf of a minor, impose a personal liability by entering into a personal covenant

(3) A guardian of a minor or a manager of the minor’s estate is not competent to bind the  minor or his estate by a contract for the purpose of immoveable property, or to enter into a contract for the sale of immoveable property.[21]

(4) A contract by a minor is void; therefore, a compromise which purports to have been entered into through a guardian who has no authority under the law or under the personal law of the minor to make a contract on her behalf (and especiall having an adverse interest) is void as against the minor .If the settlement is joint on behalf of two persons one of whom is a minor the settlement is not enforceable against the other also.

(5) A contract of loan got executed by the de jure guardian or de facto manager in the name of the minor and excluding the personal liability of the guardian of the minor is void.(Mohori Bibee v. Dharmodas Ghose)

(6) The plaintiff’s (minor girl’s) promise to serve supplies no consideration and the contract is void, where a contract of service was entered into by minor girl’s father and natural guardian with the defendant for and on her behalf.[22]

(7) A minor’s promissory note being void the amount due thereunder cannot  form a consideration for a renewed one after the minor attains majority.

The following are instances of voidable contracts or transactions by a guardian on behalf of his ward.

(1) A guardian of a minor can bind the estate of  the minor by a simple contract of loan by way of pledge, simple, bond, hand-loan, or promissory note entered into on behalf of the minor in case of necessity, without charging the estate.

(2) The estate of the minor is not liable under a guardian’s contract of loan where the claim is based on the instrument evidencing the loan and not on the original debt.

(3) A de facto manager among Hindus has the same power as a dejure guardian.[23]

(4) A minor can avoid a contract of debt or other transaction by way of an independent action or by denouncing it in an action by the other side to enforce it.

(5) In respect of a voidable contract a minor may, after attaining majority,–

(i) rescind the contract, or

(ii) affirm the same, or

(iii) be liable to restore the benefit received under the transaction, if it is set aside.

(6) A minor may rescind the contract in one of two ways :

(i) expressly, or

(ii) impliedly.

(7) A contract may be avoided expressly either during minority through another guardian or by himself after attaining majority.

Where, however, a minor on becoming a major receives fresh consideration and makes a promise in respect also of a debt contracted during infancy, it has been held that the promise could be enforced to the extent to which it is supported by consideration given subsequent to his becoming a major.[24]

 

Ratification:–

A voidable transaction is susceptible of ratification by the late minor after attaining majority.

Where the minor affirms the contract he may sue for damages for breaches of it. Thus a minor may sue for damages on a policy of insurance against fire effected by the guardian in respect of the minor’s property, when the property was destroyed by fire.

Restitution.–(a) A minor cannot be permitted to avoid a sale or mortgage executed by his guardian except or condition that he shall restore any benefit he has received thereunder to the person from whom it was received.[25]

(b) This rule has no application where the contract relied upon is by the minor. Such a contract is void ab initio and, therefore, can form no consideration to render the agreement binding on the other side.

Valid and binding contracts.– The following contracts are valid and binding on the minor and therefore he cannot seek to set aside the same :

(1) A contract made either for legal necessity or for the benefit of the minor.[26]

(2) A contract of loan by the guardian is binding on the estate of the minor when the same is contracted for the necessaries of life of the minor.

(3) Award becomes personally liable under a covenent executed by the Court of Wards on behalf of the minor under Sec. 61, U.P. Court of Wards Act.

 (4) Where the guardian appointed by the Court enters into a transaction which the sanction of the Court, it is binding on the minor, he cannot avoid the same.

(5) The same principle applies where the guardian enters into a simple contract of loan with the sanction of the Court.

Where a guardian enters into a contract of insurance, the minor can sue on such contract.[27]

Liability for Torts :-

As the privilege of infancy is only to be used “ as a shield and not as a sword”, an infant is always liable for a tort. Action arising in contract, however, cannot be changed into an action in tort to fasten liability on the infant.

Sometimes a minor who cannot be made liable in contract can be made liable in tort. The underlying test is whether the act done by the minor was done in performance of the contract, though wrongfully, or whether if was something never contemplated by the contract at all. In respect of wrongs arising out of contract, the minor is not liable, because that would permit contracts, otherwise unenforceable against him to be enforceable, in other words, a minor will be liable for a wrongful act, only if it can be established that the act was independent of the contract.

 

PERSONS OF UNSOUND MIND

Insane Persons:-

One of the essential requisites on competency of parties to a contract is that they should be of sound mind, Section 12 (Part I) supplies this test. It reads :

A person is said  to be of sound mind for the purpose of making a contract if, at the time when he makes it, is capable of understanding it and of forming  a rational judgment as to its effect upon his interests.

The Test :

The test of ‘soundness of mind’ is whether at the time of the contract, the person has (i) capacity to understand the business concerned, and (ii) ability to form a rational judgement, (iii) as to its effect on a person’s interest.

Effect :-

Contracts made by persons of unsound mind like minors are void. The reason is that a contract requires assent of two minds but a person of unsound mind has nothing which the law recognises him as a mind.

The question of unsoundness of mind is the question of fact. There being a presumption in favour of sanity, the person who relics on unsoundness of mind  must prove it sufficiently to satisfy the Court.    The unsoundness must be referable to the time when the contract was formed. Mere weakness of mind or loss of memory is insufficient to prove unsoundness, and that while it is necessary to prove utter mental darkness, it must a least be shown that the person was incapable of understanding business and of forming a rational judgment. There must be lack of understanding to realise the effect of the terms of the contact.

Unsoundness of mind arise from (1) idiocy, (2) Lunacy or insanity, (3) drunkeness and similar other factors. Let us take one by one.

1) Idiocy :

Idiocy is an extreme  form of mental unsoundness of mind. Idiocy is permanent and incurable. A idiot or a natural fool is a person that has had no understanding from his infancy. If he has any glimmering of reason so as to tell his age, his father’s name or other common matters, he is not an idiot. Contracts entered into by a idiot other that those for necessaries are void.

(2) Lunatics :

A lunatic is such a person who is mentally deranged due to some mental strain or other personal experience. A lunatic or non compos mentis is one who has had understanding but, by discase, grief or other causes has lost the use of his reason. Lunacy can sometimes be curable.

(3) Drunkeness:

Drunkeness results from intoxication. A drunken person suffers from temporary incapacity to contract i.e. at the time when he is so drunk that he is incapable of forming a rational judgment. It is not ordinary drunkeness that would be a sufficient ground for a person to avoid a contract. A person, who wants to a avoid a contract on the ground of drunkeness must be (i) in a state of complete intoxication so that it can be said that he had not the reasoning mind about him to give a valid consent to the contract he enters into; and (ii) the other party to the contract must have known of his mental condition.

Contract in lucid interval:

The second paragraph of the section provides that a person who is usually of unsound mind, but occasionally of sound mind– lucid interval, may make a contract when hi is of sound mind. Thus even a patient in a lunatic asylum may contract during lucid intervals.

Thus, Section 12 (paras 2 and 3) reads:

 A person who is usually of unsound mind, but occasionally of sound mind may make a contract when he is of sound mind.

A person who is usually of sound mind, but occasionally of unsound mind, may not make a contract when he is of unsound mind.

 

Effects of agreements made by persons of unsound mind: -

Agreements by persons of unsound mind are void. Contracts are not in general affected by the subsequent insanity of one of the parties. But in particular circumstances, there may be a implied condition excusing the party from performance in such a contingency. Thus, a contract to marry will become void by the insanity of one of the parties  because the effect of marriage is to create certain reciprocal rights and obligations which parties cannot enter into unless they are sane enough to understand the purport of their actions.

However, an agreement entered into by a lunatic for the supply of necessaries for himself or for the persons whom he is bound to support is valid as a quasi-contract, under Section 68 of the Contract Act. But even in such cases, no personal liability attaches to them. It is only their estate which is liable. The guardian of a lunatic can bind the estate of a lunatic by contracts entered into on his behalf.

Under the English law, contracts made by persons of unsound mind are voidable and not void.

  DISQUALIFIED BY LAW

Disqualified persons:-

The section mentions only two cases of incapacity, namely minority ad lunacy, but there are grounds as well.

Chart:-

The accompanying chart will help us to understand the grounds on which such incapacity rests :

(1) Aliens:-

  An alien is a person who is not a subject of India, that is, he is a foreigner domiciled India and is a competent person to contract. He may be either (i) an alien friend or ii) an alien enemy. An alien living in India may be free to enter into contracts with citizens of India. But the State may impose restrictions. On the outbreak or war, contracts already entered into with an alien enemy are either suspended during the continuance of hostilities or dissolved. If the period is fairly long, the contract will become void on the ground of impossibility of performance. An alien enemy can sue in an Indian Court only after receiving a licence from the Central Government. During hostilities, however, contracts cannot be entered into with an alien enemy without a licence from the Government. Thus, an Indian who resides voluntarily or who is carrying on business in a hostile country, would be treated as an alien enemy.

(2) Foreign Soverign :-

Foreign sovereigns and accredited representatives of a foreign State or Ambassadors have got a peculiar privilege in that they can enter into contracts and enforce them in Courts but no contract can be enforced against them in any Court except under certain circumstances.

Foreign Sovereign and States have full capacity to enter into contracts in India, but neither they nor their representatives are in any way subject to the jurisdiction of the Indian Courts. This privilege can be waived by them and such a waiver is signified by entering appearance after receipt of summons. A prior sanction of the Central Government has to be obtained in order to sue a ruling Prince or Chief or any Envoy or Ambassador of   a foreign State in our law Courts. In one case,[28] the staff of a foreign mission, being a tenant, owed arrears of rent. Held, no action could lay against him since he was protected by diplomatic privilege. However, this immunity will not extend to professional or business beyond their official functions.

(3) Corporations :-

A Corporation is an artificial or fictitious person created by law having a legal existence apart from its members. It is sometimes said that a Corporation is a fictitious person clothed with legal attributes. A legal person is any subject matter other than a human being to which the law attributes personally, It may come into existence by a special Act of the Legislature i.e. Indian Oil Corporation, or by registration under the Companies Act, 1956.

A Corporation can both sue and be sued in the Courts of Law. A Company registered under the Companies Act, 1956, is being regulated in case of its contractual capacity by terms of its Memorandum of Association : While the contractual capacity  of a statutory Company is limited by the statute governing it. If it exceeds its powers, the contract is ultra vires the Company and void. It cannot enter into contract strictly of personal nature like marriage, because it is an artificial and not a natural person. They have necessarily to contract through an agent.

(4) Married Women :-

Position in India :

In India, there is no difference between man and woman, as regards contractual capacity. The rules and the limitations applicable to men are equally applicable to women also. In other words, a woman, whether married or single, who is major and is not suffering from any disability of contracting i.e. Lunacy, idiocy, etc. can enter into contracts and deal with her properties in any manner she likes. Besides, she can bind her husband’s properties for necessaries supplied to her. She becomes an agent for this purpose.

 (5) Professional incapacity :

In England, law prohibits  a member of any professional services from entering into a contract of is with his clients. Thus a Barrister or a Member of Royel College of physicians can only enter into a contract other than his professional fees. Thus services rentered by Barristers when acting  in their professtional capacity are deemed to be a purely honorary character.

In India, these professional disqualifications do not exist. An Advocate under the Bar Council Act of India has both the liberty to act and plead and has got the right to contract, to sue and be sued.  It has been held in Nihal Chand v. Dilwar Khan[29] by the Full Bench of the Allahabad High Court that a barrister can sue his client for his fees in India. A barrister has to enroll himself as an advocate under the Bar Council Act of 1927 and the Advocates Act of 1961 before he can start his practice in India.

 (6) Insolvency :

Under the Insolvency Act, on adjudication, insolvent’s property vests in the Official Receiver or the  Official Assignee, and has no power to deal with that property. All the transactions thereafter, can be entered into by Official Receiver or Official Assignee pertaining to that property and he can sue and be sued on behalf of insolvent.

These limitations are removed as soon as the court passes an order of discharge.

(7) Felon or convicts l :

A convict is a person undergoing imprisonment. He is incapable of entering into a contract. However, he can enter into a contract while “on parole.” As soon as the sentence-period has expired his incapacity also comes to an end. It may be noted, however, that the limitation is held in abeyance during the period of his sentence, i.e. the right to sue is only suspended and not lost so that when he regains his freedom he is at liberty to institute a suit.

TOPIC  2

OFFER

An offer is a proposal in Indian Law.

 

Definition [S.2 (a)]

 

  A person is said to have made a proposal, when he signifies to another his willingness to do or to abstain from doing anything with a view to obtain the assent of the other to such act or abstinence.

 

 

Essentials of Valid Offer

 

 1. The offer must be definite, certain and unambiguous.

E.g.: A promise of Rs. 1000 or Rs, 2000 is not a valid offer.

       

 In Taylor v. Portington, ‘A’ gave a house on three years lease to ‘B’ subject to the condition that it would be thoroughly repaired and decorated by B according to style. The Court held that the contract was void because of uncertainty due to the qualifying condition.

 

2. The offer must be capable of acceptance and must give rise to legal relationship. E.g. Invitations to marriage, dinner, etc. are only domestic offers and not offer.
3. An offer may be to an individual or to the public at large.
4. Offer must be communicated to the offeree.

  

 In Lalman Shukla v. Gauri Datt[30], G Sent, S his servant to trace his missing nephew. Subsequently G announced a reward to the person who would trace his nephew. S found the nephew and returned him to G without knowing about the announcement of reward. Subsequently, when be came to know about it he claimed the reward.  Court held that he is not entitled for the reward.

5. Offer may be express or implied.
6. Offer must be made with a view to obtain the assent of the other party.
7. Offer may be conditional.
8. Offer should not contain a term, the non-compliance of which would amount to acceptance

 Eg. A tells B “I offer to sell you my dog for Rs.45.  If you do not send your reply I assume that you have accepted my offer”. This offer is not a valid one

 

9. An invitation to offer is not an offer.  .

 

Classification of Offer

 

The offer may be express or implied.

Eg. Getting into a bus, taking food from hotel etc.  are all implied offers.

  

  Salmond classified offer into specific and general. Specific offers are offers to individuals. A is offering a pen to B. This is a specific offer.

General offers are offers to the public at large. A reward for bringing back a lost dog is an offer to the public.[31]

 In Carlill v. Carbolic Smoke Ball Co.[32], the Carbolic Smoke Ball Co. was engaged in the manufacturing of a medicine called Carbolic Smoke Balls, a preventive for influenza. The company advertised that they would pay £ 100 to any person who caught influenza even after using the smoke balls. They also deposited £ 1000. Mrs. Carlill used the medicine in the prescribed method but suffered from influenza subsequently. She sued the company for the reward.

 Hawkins, J. held that she was entitled to recover £ 100. The court of Appeal confirmed that judgment.

 

Communication of an Offer (Section 4)

The communication of a proposal is complete as soon as it comes to the knowledge of the offeree.

 

Cross Offer

  When two parties make identical offers to each other in ignorance of each other's offer, it is known as cross offer, there is no acceptance and no contract.

 In Ex. Tinn v. Hoffman, 'H' wrote to 'T' offering to sell him 800 tons of iron at  Rs. 69 per ton. At the same time T wrote to H offering to buy 800 tons at  Rs. 69 Their letters crossed in the post. T contended that there was a good contract. But the Court held that there was no contract.

 

Revocation of Offer

Methods of revocation

 Section 6 of the Indian Contract Act provides the following methods for revocation:

1. Notice

Offer can be revoked by an express or implied notice. It should be made before the offer is accepted.

 

2. By Lapse of Time

 In Head v. Diggen [33], D made an offer to sell wool to H on Thursday. He gave three days time to accept the offer. But H accepted the offer only on Monday. By that time D had sold the wool to another person.  Court found that D is not liable.

 

3. By Non-fulfillment of Condition Precedent

Illustration

 Suppose A offers to sell some goods to B upon a condition that B pays the price of it before a particular date.  B fails to make the payment within the time limit. A can revoke the contract.

 

4.                Subsequent Illegality

Illustration

Suppose A offers to sell arrack to B and before the acceptance a law prohibiting the sale of arrack by private individuals comes into effect. A need not perform the contract.

 

5. By Death or Insanity of the Proposer

 It will be revoked if the death or insanity of the proposer comes to the knowledge of the acceptor, before acceptance. If it is accepted without knowing it, it would be a valid contract.

 

.

6. By Counter Offer of the offer.

 

7. By Non-acceptance of the Offer According to the Prescribed or Usual Mode.

 

 

 

TOPIC 3

ACCEPTANCE[34]

 

Definition

 Section 2(b) defines acceptance. When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. Thus, acceptance is the act of giving consent to the proposal. A proposal when accepted becomes a contract.

 

Essentials of a Valid Acceptance

 

1.                Acceptance must be given by the person to whom the proposal is made.

 In Boulton v. Jons[35], D sent an offer to a firm with whom he had accounts. P who had just taken over the said firm got the letter addressed to the old firm, accepted the offer and sent the goods. P sued for the price of the goods. The court held that there was no contract since the order was to the old firm and the acceptance was by the new firm.

 

2.    Acceptance to be valid must be made within the time allowed by the offer and if no time is specified, it must be made within a reasonable time and it is a question of fact depending on the particular circumstance. Acceptance made after the offer has been withdrawn is invalid.

 

   In  Ramsgate Victoria Hotel Co v. Montefiore[36], a person applied for shares in a company in June. He cannot be bound by an allotment made late in November.

 

3. Acceptance cannot be implied from silence.

 

 In Brogdon v. Metropolitan Railway Co. (1877) [37], a draft agreement relating to the supply of coal was sent to the manager of a railway company for his acceptance. The manager wrote the word ‘approved’ on the agreement but the document remained in his drawer. It was held that there was no contract because no expression of his mental determination.

 

4. The acceptance must be unconditional.

 

  In Hyde v. Wrench, the defendant offered to sell his farm to the plaintiff for 1000 pounds. The plaintiff replied to purchase it for an amount of 950 pounds. The defendant was not ready to accept the offer. Then plaintiff became ready to buy the farm for the offered price of 1000 pounds. Then the defendant was not ready to sell the farm for that amount. The court found that the defendant is not under an obligation to sell the estate because the acceptance was not absolute.

 

5. The acceptance must be communicated in some visible form.

 

 In Felthouse v. Bindley, the plaintiff offered to buy his nephew’s horse for 30 pounds. He also mentioned that he is expecting a reply from his nephew and that if he did not reply, then his silence would be considered an acceptance. There was no answer from the defendant and so the plaintiff filed the present suit. The Court found that silence could not be considered as a mode of acceptance.

 

  In L.I.C. of India v. R. Vasireddy[38] the Supreme Court held that a Contract of Insurance will be concluded only when the party to whom an offer has been made accepts it unconditionally and communicates his acceptance to the person making the offer. Though in certain human relationships silence to a proposal might mean acceptance but in case of insurance proposal, silence does not denote consent and no binding contract arises until the person to whom an offer is made says or does something to signify his acceptance.  Mere delay in giving an answer cannot be constructed as an acceptance, as, prima facie, acceptance must be communicated to the offer.  Similarly the mere receipt of retention of premium until after the death of the applicant or the mere preparation of the policy document is not acceptance.

 

6. If a particular method of acceptance is prescribed by the offeror then the acceptor must follow it.

 In Eliason v. Henshaw, E offered to buy flour from H.  He directed that the answer of acceptance should be sent by the wagon which brought the offer. But H sent the acceptance letter by post. The Supreme Court of U.S.A. held that the acceptance was not valid.

 In K.V. Joseph & Sons v. Surya Constructions [39], there was stipulation to receive tender documents by registered post. It was held that tender can be rejected for the reason that it was not sent by registered post. There was no illegality in not accepting tender document through courier.

 

7. Generally, the acceptance must be communicated by the offeree (acceptor) to the offeror. In some cases, the offeree need not communicate his acceptance. The performance of the terms of the offer itself is deemed to be an acceptance.

 

 Eg. Carlill v. Carbolic Smoke Ball Co.[40]

 

 

Communication of Acceptance (Section 4)

 

Communication of an acceptance is complete

  (a) as against the proposer when it is put in course of transmission to him, so as to be out of the power of the acceptor to withdraw the same.

  (b) as against the acceptor when it comes  to the knowledge of the proposer.

 

 Where a letter of acceptance was duly posted but was delayed in post and the offeror sought to repudiate the contract, it was found that the posting of the letter was an acceptance of the offer.

 

 If the letter of acceptance was misdirected due to the fault of the acceptor, there would be no communication of the acceptance.

 

 In Dunlop v. Higgins (1848), D in an answer to an enquiry on the price of pig iron wrote to H, “We shall be glad to supply you with 2000 tons of pig iron at 65$ per ton”. H received it and on the same day replied by post, “We will take the 2000 tons of pig iron you offered us”. Due to postal delay the acceptance was received 6 hours after the scheduled time.  D was not ready to sell the iron. The Court held that D could not refuse to sell the iron.

 

English position.

 In England an acceptance once posted cannot be revoked even by or special messenger or by a telegram

 

Indian position.

 In India the acceptor can revoke his acceptance by a telegram reaching the offeror before he becomes aware of the acceptance.

 

Revocation of Acceptance.

 

English position

 In England acceptance cannot be revoked.

 

Indian Position.

In India acceptor can revoke the acceptance before it reaches the offeror .

 

Offer & Acceptance through Telex or telephone

 In Entores Ltd. v Miles for East Corporation[41] the Court found that a contract is complete when the acceptance is received by the offeror. The contract is made at the place where the acceptance is received.

 

 

TOPIC  4

INGREDIENTS OF VALID CONTRACT[42]

 

                 Sec. 10 of Indian Contract Act defines the essentials of a valid contract. Section 10 provides that 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 hereby expressly declared to be void.

 

Following are the essentials of a valid contract:

 

1. Agreement

  Agreement must consist of two elements, offer and acceptance. There must be two parties, offereror  and acceptor.

 

2.Free consent[43]

 

The parties must enter into a contract not due to compulsion but according to their free will. According to Sec. 13, two or more persons are said to consent when they ‘agree upon the same thing in the same sense’.

Eg.  A owns two cars  X and Y. A wishes to sell the car 'X' for Rs.1,00,000/- B does not know that 'A' owns the car 'X" also. B thinks that A owns only the car 'Y' and offering the same for Rs.1,00,000/- B gives his acceptance to by the same. There is not contract because the contracting parties have not agreed about the same thing in the same sense.

 

 By   Section 14 of the Act consent is said to be free when it is not caused by-

 

1.   Coercion; 

(b) Undue influence;

(c) Fraud;

(d) Misrepresentation; and

(e) Mistake.

 

 A contract to be valid it is necessary that parties must consent freely. If there is no free consent the contract is voidable at the option of the consenting party.

 

 Consent is said to be free when it is not affected by coercion, undue influence, fraud, misrepresentation and mistake. These elements are called vitiating elements.

 

3. Capacity of parties

According to section 11 of the Indian Contract Act a person who has attained the age of majority and is of sound mind is competent to enter into a contract. Some classes of persons may be disqualified by law from entering into enforceable agreements. Eg. Alien enemies.

 

              In Mohiri  Bibi v. Dharma Das Ghose[44], it was held that a minor’s contract is a void contract.

 

4. Consideration

               Section 2 (d) of the Indian Contract Act defines consideration; it can be an act or abstinence. There can also be a promise in return for promise. It must be lawful. An agreement made without consideration is void. This is expressed in the maxim ‘ex nudo pacto non oritur actio’.

 

5. Legality of Object

 The object of a contract must be lawful.

 

6 Agreements not Declared Void

 For instance, agreement in restraint of marriage, in restraint of trade, in restraint of legal proceedings or by way of wager are void.

 

 

7. Intention to Create Legal Obligation

 

In Balfour v. Balfour, ‘X’ who was employed in Ceylon and who came down to England in leave had to leave his wife there and get back alone to Ceylon because of her indifferent health. He promised to send her 30 pounds a month so long as he had to remain in England. In an action to enforce this promise, it was held that it was not a contract as there was no intention on the parties to create legal obligations.

 

 However, if the agreement is purely of social or domestic nature, but; the parties have intention to create legal relations, it will constitute contract.               In Parker v. Clark, an aged couple (Mrs & Mr.C) held out by correspondence to their neice and her husband (Mrs & Mr. P) that Mr.C would leave a portion of his estate in his will to them, if the young couple sold out their cottage and to come and stay with them and to share house hold expenses. The young couple sold their cottage and started living with the aged couple. Later, they quarreled and aged couple repudiated their agreement asking the young couple to stay somewhere else. The young couple filed a suit for breach of promise. It was held that there was an intention to create legal relation ship and young couple was awarded damages.

 

 Similarly, when one person promises to treat another and if it is not fulfilled, it is not enforceable.

 

8. Certainty of Meaning

  The terms of the agreement must be certain.

For eg:  A intends to sell two meters of cloth.  The type of cloth is not mentioned. Agreement is not valid as the terms are uncertain.

 

9. Possibility of Performance

  The terms of the agreement must be capable of performance. If the terms in itself is impossible to perform, the agreement is not valid.

 

10. Necessary Legal Formalities.

 A contract may be oral or in writing. If law requires formalities like writing, registration, attestation etc and if those formalities are not complied with, then the contract is not enforceable at law.

 

 

TOPIC 5

COERSION

 

  

             Section 15 of the Indian Contract Act defines coercion. Coercion occurs in the following circumstances.

 

1. Committing an act forbidden by the Indian Penal Code.
2. Threatening to commit an act forbidden by the Indian Penal Code.
3. Unlawful detention of any property.
4. Threatening to detain any such property.

 

Conditions for Coercion

1. Such act should be done to the prejudice of any person. It should be done with the intention to induce one person to enter into a contract.

 

               In Ranga Nayakamma v. Alwar Shetty[45] the husband of a girl of thirteen years died and the relatives of the deceased did not allow the dead body to be removed unless she adopted a boy of their choice. There upon the widow executed a Deed of Adoption and the question before the court was whether such a deed was valid.           

The Madras High Court held that coercion was employed as any person who obstructed a dead body from being removed would be guilty of an offence under Sec. 297 of the Indian Penal Code. Thus the appellant was clearly coerced into making the adoption and the document in question was executed otherwise than with free will and consent and there was no valid adoption.

 

                  In Chikkam Ammi Raju v. Chikkam Sheshamma (1917) a man gave a threat to his wife and son to commit suicide if they did not execute a release bond regarding some properties which the wife and son claimed as their own. On account of this threat the wife and son executed the release deed. A suit was filed to set aside the deed on the ground that the husband employed coercion. By a majority of two to one the court held that such a threat would amount to coercion within the meaning of sec. 15.

 

               In Purabi Banerjee v. Basudeb Mukharjee[46], Basudeb was engaged as a tutor for young Purabi, a B.A. student of the Scottish Church College , Calcutta. They fell in love and a year later Purabi who was then about 23 married Basudeb who was about 28 at that time. Later Purabi filed a suit for annulment of the marriage alleging that her consent to the marriage was obtained by coercion. She argued that Basudeb threatened her that if she did not marry him, he would put an end to his life. On the question whether a threat to commit suicide would amount to coercion the court held that if proved, it would amount to coercion at law. But in this case, the court came to the conclusion that the marriage was the natural culmination of mutual and spontaneous love between the two and Purabi consented to the marriage according to her own free will. The court therefore refused to grant her a decree for annulling the marriage.

 

 In Andhra Sugar Ltd. v. State Of Andhra Pradesh [47] the Supreme Court had to decide the validity of the provisions of the Andhra Pradesh (Regulation of Supply and Purchase) Act which provides that the Sugar Factory is bound to accept sugar cane, if offered by a cane grower. The Supreme Court held that compulsion of law is not coercion with in the meaning of section 15 of the Indian Contract Act.

 

In Muthiah Chettiar v Karuppan Chetti [48], an agent refused to handover the books of accounts to the principal unless the latter agreed to a settlement of accounts. The principal eventually did so. It was held that settlement was bad as coercion had been employed by the agent.

 

English law

The equivalent to coercion in English law is duress. Following are the differences between coercion and duress.

 

1. Coercion is the committing or threatening to commit any act forbidden by the Indian Penal Code while duress is confined to bodily violence and imprisonment.
2. Coercion may be employed by a person who is not a party to contract while duress has to be employed either by the party or his agent.
3. Coercion can be employed against any person including a stranger but duress can be employed only against the party to the contract or the members of his family.
4. According to Indian law, unlawful detention of goods is coercion but this will not amount to duress in English law. But recent decisions show that harm to property might also amount to duress.

 

Effect of coercion

        By S.19, when consent to an agreement is caused by coercion it is treated as a voidable agreement

 

TOPIC 6

UNDUE INFLUENCE

 

Section 16 of the Indian Contract Act defines undue influence. It is a vitiating element which will affect the free consent of a party. Undue influence means an influence exercised by one person against another.

 In Allcard v. Skinner[49] a woman became a nun and was naturally under the influence of the mother superior. She was bound by the rule of obedience not to seek the advice of anyone outside the community without the permission of mother superior. As she was a professed nun and so unable to hold property, she made a will in favour of mother superior and also transferred some stocks, which she had come into possession. Later she left the sisterhood and brought a suit for setting aside the gift deed. The court held that the relationship between the plaintiff and the defendant raised a presumption of undue influence. But on other grounds, the court held that there was an implied affirmation of the transaction as there was unreasonable delay in bringing the suit.

 

Indian law

 The doctrine of undue influence has been incorporated in S. 16 of the Indian contract Act. Clause (1) of S.16 lays down the following elements to constitute undue influence.

 

1. The relationship between the parties being such that one of the parties is in a position to dominate the will of the other.
2. He uses that position to obtain unfair advantage over the other.
3. Unfair advantage is in fact obtained.

 If any one of these elements is absent, the transaction cannot be set aside on the ground of undue influence.

 

Circumstances in Which a Person is Deemed to be in a Position to Dominate the Will of Another (Section 16 (2)

 

1. Person holding a real or apparent authority over the other or standing in a fiduciary relation to the other would be deemed to be in a position to dominate the will of the other person. Thus a parent in respect of his child, a guardian with reference to his ward, a trustee in reward to his fiduciary and a solicitor in regard to his client would be deemed to be in a dominating position.
2. A person may be able to dominate another whose mental capacity is affected because of old age, illness or bodily distress. Thus a doctor would be in a position to dominate his patients, a spiritual advisor would be regarded as capable or dominating the will of the disciple.

 

Illustations

1). A, having advanced money to his son, B, during his minority upon B’s coming of age obtains by misuse of parental influences, a bond from B for a greater amount than the sum due in respect of the advance, A employed undue influence.

 

2). A, a man enfeebled by disease or age is induced by B’s influence over him as his medical attendant, to agree to pay B an unreasonable sum for his professional services. B employs undue influence.

 

 

Presumption of Undue Influence [S. 16 (3)]

 Under the following  circumstances law presumes undue influence has been excercised

1.                Unconscionable Bargains
2.                Pardanashin Women

 

 In WajidKhan v. Ewaz Ali[50], the Privy Council set aside a gift deed executed by an old illiterate Mohammaden lady in favour of her confidential managing agent on the ground of undue influence.

 

 In Ismail v. Hafiz Boo[51], the court held that a woman who goes to court to give evidence, who leases out her property and collects rents, takes advice of others outside her family is not a pardinashin.

 

In Hans Raji v. Yosodanand[52] the plaintiff claimed herself to be an illiterate harijan woman and a childless widow. She had been employed in railway on compassionate ground on the death of her husband and had been serving since then and there was nothing on record to show that she had been suffering from ignorance or illiteracy or mental deficiency. The Court held that she cannot be compared to a 'pardanashin lady'

 

 

 

 

 

 

TOPIC  7

WILLFUL MISREPRESENTATION

OR FRAUD

 

 

 Fraud means intentional or willful misrepresentation of a material fact essential to the contract. According to section 17, fraud means and includes the following acts:

1. Suggestion, as to a fact which is not true or which he does not believe  to be true

Eg: A while selling milk tells B that it is pure, although he knows that water is mixed with the milk and is not pure.  Here  A is guilty of fraud.

 

2. The active concealment of a fact by one having knowledge or belief.

Eg: A sold a statue to B made of two pieces of stones joined together. A knows this fact.  He had very carefully connected the joints with architect technique to give an impression that it was made out of a single stone. Here  A is guilty of fraud.

 

 c. A promise made without an intention of performing it.

Eg: A invited his friends for a dinner at a hotel.  He has no money in his pocket.  He has no intention to pay the money and he slips away from there. Here  A is guilty of fraud.

 

d.Any other act intended to deceive.

 

5. Any such act or omission as the law specially declares to be fraudulent.

Eg: Railway Act declares the use of concessional tickets issued to students by any other person as a fraudulent act.  If A (a non-student) travels on a student concession ticket of B, then A is guilty of fraud.

 

 

The following are the essentials of fraud:

 

1.             There must be representation or assertion and it must be untrue.
2.                The representation must relate to a fact, and not to law.
3.                The representation must have been made with the full knowledge of  its falsehood.
4.                The representation must have been made with the object of inducing  other party to act upon it and enter into a contract.
5.                The mere falsehood of a statement will not give a right of action for  fraud.
6.                 The party so deceived must have suffered damage or injury.

 

 In A.C Ananthaswamy and Others v. Boraiah[53], it was held that to prove fraud, it must be proved that the representation made was false to the knowledge of the party making such representation or that the party could have no reasonable belief that it was true.

 

When Silence Amounts to Fraud?

         Normally a mere silence will not be treated as fraud.  But in the following circumstances a mere silence amounts to fraud.

 

a. Positive concealment is fraud

 

 Here duty to speak arises when one contracting party reposes trust and confidence  on the other.  In such cases the law requires that person to make full disclosure of all material facts.  Failure to disclose any material fact will be treated as fraud.  Such type of contract is called ‘ubeirimae fidei’ contract.

 

 Eg: Insurance contract, contract related to immovable property, surety ship contract, sale of shares, marriage contract, family settlement contract etc.

 

b. When silence is equivalent to speech:

 

 In certain circumstances a person’s silence will amount to speech.  In such case if a person keeps silence knowing that his silence is going to be deceptive, his silence will be treated as fraud.

 

Eg: A says to B. “If you don’t deny it I shall assure that the horse is sound.” B says nothing.  Here B’s silence amounts to speech.

 

c. Silence with regard to change of circumstances

 

 Sometimes a representation may be true when it is made but due to the change of circumstances it may become untrue before the contract is concluded.  In such cases it is the duty of the person who made the earlier statement to communicate the change of circumstances.  If he fails to do so and keeps silence then his silence will be treated as fraud.

 

 Eg: A, the owner of a house, at the time of negotiation for sale gave the full description of the house, to B.  Before the final contract for sale was entered, some portion of the house was destroyed by fire.  This fact was not communicated by A to B.  B entered   into the contract for the purchase of the house on the belief of A’s earlier statement.  A’s silence amounts to fraud.

 

d. Half truth

                        In certain cases a party need not voluntarily disclose all the facts to the other party.  He can keep silence except answering the other party’s questions. But if he speaks about the facts then he is under a duty to disclose the whole truth.

 

Remedies for Fraud

 

 He can avoid the contract and claim for damages. 

 

 In the Following Circumstances the Aggrieved Party Cannot Avoid the Contract.

 

1. If he has affirmed the contract even after knowing the fraud.
2. If a third party has secured right over the subject matter in good faith.
3. If long delay is involved to avoid the contract.

 

                                   

TOPIC 8

MISREPRESENTATION

 

  S. 18 deals with misrepresentation. Misrepresentation means representation of statement of fact, which is not true.  It may be classified into 3 categories based on intention.

 

a. Innocent Misrepresentation.

 This is simply called misrepresentation.  It means making a wrong statement innocently without any intention of deceiving the other party.  Innocent misrepresentation occurs in any one of the following ways.

 

1.      A party making a wrong statement honestly believes that it is true or
2.      A party who makes a wrong statement doesn’t know that it is wrong.

 

 Eg: A tells to B that his horse runs at a speed of 50 miles per hour.  Believing his statement, B purchases the horse at the price quoted by A.  Later on B finds that the horse cannot run even at a speed of 30 miles.  This is a case of misrepresentation.

 

b. Willful misrepresentation (Explained under the heading “Fraud”)

c. Negligent misrepresentation.

  To enter into an agreement a party expresses an erroneous opinion negligently, and induces the other party to enter into an agreement with him.  This is negligent misrepresentation.

 

Essentials of Misrepresentation

 

1.                    There must be a representation.
2.                   That representation must relate to a fact.
3.                    Such representation must have induced the other party to enter into a       contract.
4.                   The statement should not be a mere opinion or hearsay.
5.                    It must be untrue but the person who makes it believes it to be true.

 

 In the following circumstances the aggrieved party cannot avoid the contract.

1. A party cannot complain of misrepresentation if he had the means of discovering the truth.
2. If the misrepresentation does not affect the substance of the contract.
3. After becoming aware of the misrepresentation where he takes any benefit under the contract.
4. Where a third party acquires right in the subject matter before it is avoided.

 

 

Voidability of Agreement Without Free Consent (Section 19)

 

 When the consent to an agreement is obtained by coercion, fraud, or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so obtained.

 A party to contract, whose consent was caused by fraud or misrepresentation, may if he thinks fit, insist that the contract shall be performed.

 

Eg. A fraudulently informs B that A’s estate is free from encumbrance.  B thereupon buys the estate.  The estate is subject to mortgage.  B may either avoid the contract or may insist on it being carried out.

 

Distinction between Fraud and Misrepresentation

 

Fraud                Misrepresentation

 

1.  There is intention to deceive   1. No such intention.

2.  Aggrieved party can sue for damages 2. Only remedy is recession and

                      restitution.

3.  Defendant cannot take a good defence 3.  Defendant can take a good                                                                                                          defence

   

                               

TOPIC 9

MISTAKE (Ss 20-22)

 

Mistake means erroneous belief.  It may be classified into two, Mistake of Law and Mistake of Fact.

 

1.Mistake of Law

 Mistake of law means erroneous belief with regards to the provisions of law.  It is not excusable.  It is based on the principle,‘Ignorantia juris non excusat’.  It may be classified into 3 types.

 

1.                                        Mistake as to law of the land
2.                                        Mistake as to foreign law.
3.                                        Mistake as to private rights.

 

 

1. Mistake as to the law of land

 If there is a mistake as to the law of the land the contract cannot be avoided.

 Eg: If A and B entered into a contract to deal in opium without prior sanction of the Government, then the contract is not voidable.

 

2. Mistake as to foreign law

 Ignorance of foreign law is always excused, because a citizen of one country is not expected to know the laws of a foreign country.  Therefore mistake of foreign law is to be regarded as a mistake of fact.  Therefore the contract can be avoided.

 

3. Mistake of private rights

             The mistake of private right is regarded as a mistake of fact.  Therefore the contract can be avoided.

 

 In Cooper v. Phibbs[54] the plaintiff agreed to take a lease of a fishery from the defendant (plaintiff’s uncle’s daughter).  Later it was found that the plaintiff himself was the actual owner of the fishery.  So he filed the suit for canceling the contract of lease on the ground of mistake.  The House of Lords held that the private rights of ownership is only a matter of fact and the mistake involved was an ignorance of fact, and the plaintiff was allowed to avoid the contract.

 

Mistake of Fact[55]

 Mistake of fact means an erroneous belief regarding the material facts.

Mistake of fact may be unilateral mistake or bilateral mistake

 

1. Unilateral mistake

 Where one party to a contract is in a mistaken belief as to some fundamental fact relating to the contract and the other party knows this, the mistake is called unilateral mistake.

 Eg: A agreed to buy a V.C.R. from B believing that it is new. In fact it is not a new one and that fact is known to B.  Then A cannot avoid the contract.

 

2. Bilateral mistake

 Where both the parties to an agreement are in a mistaken belief with regard to the material facts essential to the contract, then it is called bilateral mistake.

 

 Eg: A agrees to sell his horse to B. While they are making the contract, it has died.  But both parties are unaware of this fact.  So it is a bilateral mistake and the contract can be avoided.

 

Following are the various types of bilateral mistakes.

 

a. Mistake as to the identity of the parties

 It occurs when one party represents himself to be some other person.  The effect of this kind of mistake varies depending upon the method of communication.  If the contract is entered through post wherein any mistake as to identity of the party is proved, the contract is treated as void.  If the contract is entered in each other’s presence contract can be avoided, on the ground of fraud

 

 In Cundy v. Lindsay[56], the plaintiff received orders in writing from a fraudulent company called ‘Blenkaran Co; 37, Wood Street’, to supply handkerchiefs on credit.  There was a well-reputed company named ‘Blenkaran & Co’. in the same street.  The difference in the name between the wellreputed company and the fraudulent company was only a slight variation in the spelling.  The plaintiff believing that the orders had come from the well reputed company sent large quantity of handkerchief on credit.  The ‘Blenkaran Co’. received the goods and sold it to the defendants, a bonafide purchaser, who purchased it in good faith.  But the ‘Blenkaran Co.’ did not pay to the plaintiff.  The plaintiff filed the suit against the defendants to recover the goods.  The House of Lords held that there was no contract between the plaintiff and the Blenkaran Co.  Hence the Blenkaran Co. has no right in the handkerchiefs. Consequently the transferee (defendant) cannot have any title over the goods and the court allowed the plaintiff to recover the goods from the defendant.

 

 In Philips v. Brooks[57] a man called North visited the plaintiff’s jewellery shop and selected a ring worth about $ 250 and offered to buy them.  The plaintiff accepted the offer and agreed to sell it.  North then offered to pay the amount by cheque.  The jeweller while accepting the cheque said that delivery would be made only after the cheque is collected.  North then insisted immediate delivery and introduced himself as Sir George Bullough (a well known person) and gave his London address.  The jeweller checked it in the directory and found that it was correct.  In cheque also he had signed as George Bullough.  The plaintiff then gave the ring.  North immediately pledged the ring for $ 350 with the defendant, a bonafide pledgee acted in good faith.  The cheque was dishonoured.  The plaintiff sued the defendant for the recovery of the ring.  The court dismissed the petition and held that he would have avoided the contract

 

b. Mistake as to the identity of the subject matter

 In these cases the agreement is void for want of consensus ad idem (identity of minds).

 

 In Raffles v.  Wichelhans[58] the defendant entered into a contract with the plaintiff for the purchase of 125 bales of Surat Cotton arriving in a ship called Peerless.  There were two ships by the same name and both were to sail from Bombay- one in October and other in December.  The vendor intended to sell the goods coming by the ship sailing in December while the purchaser thought that he was getting the goods coming by the ship sailing in October.  The court held that the agreement was void.  Even if the mistake was caused by the negligence of a third party the agreement would still be void.

 

c. Mistake as to the existence of subject matter

 This may arise when unknown to the contracting parties, the subject matter ceases to be in existence before the agreement is entered

 

 In Conturier v. Hastie[59], A agreed to sell B a specific cargo of goods supposed to be on its way from London to Bombay.  Sometimes before the contract, the cargo was damaged and was discharged on the way.  But the parties A and B did not know of this fact.  The contract became void because the subject matter was not in existence at the time of contract.

 

d. Mistake as to private rights

 Mistake as to private right of ownership is matter of fact and may be avoided.

 

e. Mistake as to nature of promise

 When a deed of one character is executed under a mistaken impression that it is the deed of different character, the contract is void.

 

 In Raja Singh. V. Chaichoo Singh[60] the plaintiff was a very old man and the defendant was looking after his land and cultivation.  The defendant asked the plaintiff to grant some of his lands to him on lease.  The plaintiff agreed and asked the defendant to prepare the lease deed.  The defendant came with a deed and plaintiff placed his thumb impression upon the deed thinking that it is a lease deed.  But it was a gift deed fraudulently prepared by the defendant.  The Patna High Court held that the gift deed was void, because it was executed on a mistaken belief that it was a lease deed.

 

f. Mistake as to the quality of subject matter

 A unilateral mistake as to quality of the subject matter of the contract is not a ground to invalidate the contract because of the ‘Caveat emptor rule’.

 

 In Smith.  v. Hughes[61], the defendant wanted to buy old oats for his horses.  The plaintiff showed him the sample of the oats he had.  After verification the defendant agreed to purchase it for 34 shillings a bushel and placed the order thinking that they were old oats.  When the oats were delivered to him according to the sample he found that they were new.  He rejected it on the ground that he was mistaken about its quality.  The court held that he (defendant) was bound by the contract.

 

 In Leaf v. International Galaries[62], the plaintiff bought from the defendant a painting, which he mistakenly believed to be by Constable (a well known painter) and of great value.  Later on the plaintiff discovered that it was by an unknown artist and comparatively worthless.  The court held that the plaintiff could not avoid the contract because his mistake related only to the quality of the subject matter and defendant had not made any misrepresentation.

 

 In the case of ‘Uberrimae fidei’ contract, the law imposes a special duty on the parties to disclose to the other party all the true facts including the quality.  This principle of caveat emptor is not applicable in uberrimae fidei contracts.  In such cases even the mistake as to the quality may be a good ground to avoid the contract.

 

 Eg: Contracts for the sale of immovable property, contracts regarding family arrangements etc.

 

TOPIC 10

CONSIDERATION (Sec. 2 (d) and 25)[63]

 

 

Definition (Section 2 (d))

 

 Consideration has been variously defined. The simplest definition is given by Blackstone. According to him “consideration is the recompense given by the party contracting to the other.” In other words, it is the price of the promise.

Section 2 (d) of the Contract Act defines consideration. According to the definition the essentials of consideration are as follows:

 

1. at the desire of the promisor,
2. from the promisee or any other person,   
3. must have done or abstained from doing, or must do or abstain from doing or must promise to do or abstain from doing something.

 

1. At the desire of the promisor

 

 The first essential ingredient of the definition of consideration is that act or abstinence must be done at the desire of the promisor. An act done at the desire of third person will not constitute a good consideration within the meaning of Sec. 2(d) of the Act.

 

 In Durga Prasad v. Baldeo (1880 All.), the plaintiff built a market at the desire of the District Collector. The defendant who subsequently occupied one of the shops in the market agreed to pay a certain commission on all goods sold through him in the market. An action brought by the plaintiff on the breach of the said promise was dismissed on the ground that the plaintiff built the market at the desire of the collector and not that of the defendant. Hence the promise was without consideration.

 

2. From the promisee or any other person

 

 The next essential part of the definition of consideration is that the consideration may be given by the promises or any other person. But the present English law is that consideration must move from the promise only. The party who wishes to enforce a contract must be able to show that he himself has enforce a contract must be able to show that the himself has furnished consideration for the promise of the other party.

 

 In Chinnayya v. Ramayya, ‘A’, a lady, by a deed of gift transferred certain property to her daughter, with a direction that the daughter should pay an annuity to A's brother. On the same day the daughter executed a wiring in favour of the brother, agreeing to pay the annuity.  Afterwards she declined to fulfill her promise saying that no consideration had moved from her uncle.  The Court however held that the words the promisee or any other person in section 2(d) clearly show that the consideration need not necessarily move from the promisee, it may move from any other person. Hence A's brother was entitled to maintain the suit.

 

Pepper Corn Theory 

 Consideration need not be adequate to the promise. But is must be real and not illusory. It must be of some value in the eye of the law. Inadequacy of consideration does not vitiate an agreement. It does not mean that a promise to pay age round for one penny would be regarded as a valid one. The doctrine would not apply to a mere exchange of money, of coin, whose value is exactly fixed.

 

Types of Consideration

 

Executory, Executed and Past Consideration

 

 According to English law, consideration may be executory, or executed. Consideration is called executory, when the defendant’s promise is made in return for a counter promise from the plaintiff.

 

 Consideration is executory when it consists of the making of a reciprocal promise.

Eg.  A promise to sell to B goods in return for promise to pay the price, a promise to do work in return for a promise of payment.

 

Indian Law

 In India, past consideration is valid. Hence it should always move at the desire of the promisor.

 

 In Sindha v. Abraham the plaintiff rendered services to the defendant during his minority at the defendant’s request which were continued after the defendant ceased to be a minor. After attainting majority the defendant promised to pay an annuity to the plaintiff for the services. It was held that it could be enforced, as the services formed a good consideration within the meaning of the definition.

 

Agreements without Consideration (Sec. 25)

 

 According to Section 25 of the Indian contract Act, an agreement made without consideration is void. In other words gratuitous promises are not enforceable in law. Every agreement must be supported by consideration. This principle in contained in the maxim ‘Ex nudo pacto non oritur action’ which means that out of a bare agreement no action shall arise. Thus S. 10 of the Indian contract Act requires the presence of lawful consideration as an essential requirement for the enforceability of an agreement.

 

Statutory  Exceptions

 

1.Natural love and affection [S. 25(1)]

 When one person who is having fiduciary relationship with another makes a promise and it is reduced into writing, signs it and registers it, the agreement is a contract even though there is no consideration.

 

Illustration

 A, for natural love and affection promises to give his son B, Rs.1000. A puts his promise to B into writing and registers at. This is a contract.

 

 In Rajlukhy Dabee v. Bhootnath Mukherjee (1900), the husband promises to pay his wife a fixed amount of money monthly for her separate residence and maintenance. There existed friction between the parties. The agreement was signed and registered one. The husband committed default. The wife filed the suit. The main question was whether there was the element of natural love and affection preset. The Calcutta High court held that the agreement is not enforceable because there was no element of natural love and affection.

 

2.   Promise to compensate for something done voluntarily [S. 25(2)]

  When one person has voluntarily done something for another and the latter is benefited and who promises to pay something, it is enforceable, even though there is no consideration.

 

Illustration

Mr. A finds the purse of B. B promises to give him Rs. 100 . This is an enforceable agreement.

 

3. Time barred debt (section 25 (3))

 The third exception recognized in section 25 (3) is in respect of a debt barred by limitation law.

 For. Eg. A owes B Rs. 1000. But the debt is barred by the Limitation Act. A signs a written promises to pay B Rs. 500 on account of the debt. This will be a valid contract and shall not void for want of consideration.

 

 In order to invoke this exception the following essential conditions must be present:

a. The promise to pay must be in writing and signed by the person concerned 

     or his agent generally or specially authorized  in that behalf.

b. The promise may be either for the whole of the debt or a part thereof.

1.    The promise to pay must be in respect of the debt which the creditor might have enforced payment but law for the limitation of suit.

 

Forbearance to sue whether constitute a good consideration?

 

Forbearance to sue will constitute a good consideration within the meaning of the definition of consideration. There can be forbearance to sue a person only if the person suing has a subsisting right which could be enforced against the other person.

                            

TOPIC 11

PRIVITY OF CONTRACT.

 

    A person cannot acquire rights under a contract to which he is not a party. This principle is known as the doctrine of privity of contract[64]. The essence of the doctrine is that, a stranger to a contract cannot sue upon it.

 

 In Dunlop Pneumatic Tyre Company v. Selfride, the Dunlop Company, manufacturer of motor tyres, sold them through agents under ‘a price-maintenance’ agreement. The agents agreed that they would not sell the goods at less than the retail prices advertised in Dunlop’s list and would obtain similar undertakings from any retailer to whim they sold the tyres. One of their agents ‘Dew and company’ sold Dunlop tyres to ‘Selfridge and company’ who agreed not to sell the goods, at less than the agreed list price. Selfridge and company sold tyres to a customer at less than the agreed list price and Dunlop Company brought an action against them. It was held that an action would not lie, as the contracting parties were Dew and Company and Selfridge and Company. Dunlop Company could not sue on a contract to which they were not a party.

 

 In Beswick v. Beswick (1968), Peter Beswick was a coal merchant who was assisted by his nephew John . In march 1962 he contracted to sell his coal business to John. This was made in return to a promise made by John to employ him as the consultant and on the event of his (Father’s) death, to pay an annuity of 5 pounds per week to his widow. In consequence of that, John took over the business and on the death of Peter in November, 1963 John failed to pay the promised sum of his widow. The court held that the widow, being the beneficiary of the contract, is entitled to enforce it.

 

 

Exceptions to the Rule in English law

 

1.   Statutory exception

 Under the Road  Traffic Act 1930, insurance policies can be taken to cover risk of accident to third parties. The insurer in such case can be  sued by the third party in case of accidents, to whom are covered by the insurance policy. This is a statutory exception to the rule that a stranger to a contract cannot sue upon it.

 

 2. Trusts

 When a trust is created, the beneficiary who is not a party to it but benefits by it is allowed by equity courts to sue for the enforcement of the trust.

 

Other Exceptions in India

 Indian law recognizes the two exception noted above. Further it recognizes two other exceptions as well. They are;

 

3. Charge created over property

 Where a promise is made to an individual for the benefit of a third party and charge on specific immovable property is created for the performance of that promise, the third party can proceed to enforce the promise. This principle is deducible from the decision of the Privy Council.

 

 In Khwaja Muhammed Khan v. Hussaini Begam[65], ‘A’, a Muhammedan entered into a contract with ‘B’ on the occasion of the marriage of A’s son with B’s daughter, the plaintiff. Under that contract, A agreed to pay Rs. 500 per month to plaintiff as Kharch panden or betel box expenses from the date of her marriage. The amount thus payable was made  a charge over certain immovable property. It was held that in those circumstances the plaintiff though a  stranger to a contract could sue for its enforcement.

 

4. Family agreement

A provision for marriage expenses of a female member of a Hindu Family can be enforced by the female beneficiary when such provision is part of a family arrangement.

 

 In Sundara Raja v. Lakshmi Ammal [66] a partition deed between brothers in a Hindu joint family contained a provision for payment of marriage expenses to their sister. It was held that their sister could enforce that provision though she was nit a party to the partition arrangement.

 

 

 

TOPIC 12

LEGALITY OF OBJECT

 

 

 Section 23 of the Act deals with unlawful agreement.  According to this section the following agreements are unlawful;

 

1. Agreement which is forbidden by law.

 If the agreement is forbidden by law, agreement is void.

 

 In Nandanlal V. Thomas F. Williams[67], the plaintiff got a licence under the Excise Act to run a liquor shop.  There was a total ban in the Excise Act regarding the sale, transfer or sublease of the licence or creation of a partnership to run the liquor shop.  In violation of these restrictions the plaintiff entered into a partnership agreement with the defendant for running the liquor shop. The Madras High Court held that the partnership agreement was unlawful.

 

2.                In certain cases agreement may not be expressly forbidden by law.  But if such agreement is allowed, it would indirectly defeat the purpose of some law.  Such types of agreements are unlawful and void.

 

3.                An Agreement which is fraudulent.

 

Eg: A, B and C entered into an agreement to cheat the public by giving false assurance to get job in Gulf countries and divided the money acquired by them by such fraud.  The agreement is unlawful and it is void.

 

4.                An agreement which involves injury to a person or property.

 

Eg: A promises to pay Rs. 1000/- to B if the latter beats C. The agreement is void.

 

 5 Immoral Agreements:

 

 Immoral agreement is an agreement against morality. What is immoral depends upon the standard of morality prevailing at a particular time in a particular society.  Interference with marital relation, dealings with prostitutes etc. are immoral from times immemorial in all societies.  Contradictory opinions have been expressed by different High Courts regarding the validity of a promise to give money in consideration of past illicit intercourse.  In England it is valid if it is under seal.  But a promise to pay for future illicit intercourse is immoral and unenforceable

 

 Eg: A agrees to let her daughter to hire to B for concubine.  The agreement is void, as the object is immoral.

 

6. Agreement opposed to public policy:

 

 

TOPIC -13

AGREEMENT OPPOSED TO PUBLIC POLICY (Sec. 23).

 

 By S. 23 of the Act, the following agreements are opposed to public policy:

1.                Trading with the enemies during war times.

 

2.   Agreement which interferes with Administration of Justice. It includes:

 

(a) Interference with the courts of justice.

 Any agreement for using improper influence with the Judges or officials of Justice is unlawful.

 

(b) Stifling prosecution or suppression of prosecution.

 An agreement not to prosecute an offender is an agreement for stifling prosecution, and is unlawful.

 

(c ) Champerty and Maintenance.

 Champerty is an agreement where a person promises to assist another in the recovery of his property and to share the proceeds of such action.[68]

 

 Maintenance is an agreement whereby a person promotes litigation financing or otherwise in which he has no interest of his own.  He gives assistance, financial or otherwise to another to enable him to defend legal proceedings when one has got no legal interest of his own on the subject matter.

 

 In England champerty and Maintenance are illegal and opposed to public policy. But in India they are not opposed to public notices, However there should be no moral turpitude or illegal intention. 

 

3.   Sale of Public offices and title.

 Agreements to pay money for getting appointment in Public services, getting degree in educational Institutions are opposed to public policy.

 

 Eg. A promises to obtain for B an employment in the Public services and B promises to pay Rs., 1000/- to A. The agreement is void.

 

4.   Agreement tending to create interest against duty.

 

5.   Agreement in restraint of parental rights.

 According to law, the father is the guardian of his minor child and after the father, the right of guardianship vest in the mother.  This right cannot be bartered away by an agreement.

 

 In Giddu Narayaniash V. Mrs. Annie Besant, a father having two minor sons agreed to transfer their guardianship in favour of Mrs. Annie Besant and also agreed to revoke the transfer. Subsequently, he filed a suit for recovery of boys and a declaration that he was the rightful guardian. The Court held that he had the right to revoke his authority and get back the children.

 

6.   Agreement to defraud creditors or revenue authorities.
7.   Agreement in restraint of legal proceedings.
8.   Marriage brokerage agreement.
9.   Agreement in restraint of marriage laws.
10. Agreement interfering with marital duties.
11. Contracts opposed to morality.

 

 

TOPIC  14

AGREEMENT IN RESTRAINT OF TRADE (Sec. 27)

 

 Art. 307 of the Constitution lays down that every agreement by which any one is restrainted from exercising a lawful profession, trade or business of any kind is to that extent void.

 

Restraint of Trade.

Restraint of Trade is divided into 2 types.

 

1. Absolute Restraint.
2. Partial Restraint.

 

 In absolute restraint, a person is totally deprived of engaging himself in any trade, profession or business and such agreements are void.

 

 In Oakes V. Jackson, an agreement  between an employee and company (employer) whereby the employee agreed not to work in a similar company within a distance of 300 miles from Madras after leaving the employment was held void. Because the distance of 300 miles is unreasonable.

 

 In Shoikhkalu V. Ramsaran Bhagat, when certain makers agreed to sell their comb only to R and to none else  it was held that the contract is valid.

     

Exceptions

1. An agreement  to protect any trade secret.
2. An agreement to regulate the selling price or to restrict the output of the products.
3. An agreement  regulating the opening and closing of business licensing the traders, regulating the price commission etc. are valid and not in restraint of trade.
4. An agreement not injurious to the parties and the public in general.
5. When a person sells the goodwill of his business agreeing not to carry on similar business with a limited distance and period.
6. When a partner leaves a firm agreeing not to carry on a similar business within limited distance and period.
7. When the partner of a firm agree not to carry on any business other than the partnership business.

In case of service agreements where employee is prevented from accepting any other engagement during his employment such restraint is valid. Eg. Doctors in Govt.  service presented from engaging private practice

 

 

 

TOPIC - 15

CONTINGENT CONTRACT (SEC. 31 TO 36)

 

  A contingent contract is a contract to do or not to do something if some uncertain event, collateral to such contract, does or does not happen.

 

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 contingence.
3. Such event must be 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.

 

Reciprocal promise

 In reciprocal promises, there is a mutual obligation. But in contingent contract obligation is one sided.

 

Blue Pencil Theory

 Where a contact of two separate parts, one of which is legal and other illegal, the legal parts can be separated from the illegal part by courts by blue pencil test. That is by cutting of the offending words by drawing a blue pencil across, the legal part can be made enforce. But if the legal and illegal  parts are inseparable the contract is void, in toto.

 

Wagering Agreement[69]

 The word wager means bet. Agreement by way of wager is void. Contract collateral to the wager is valid in India but void as well as illegal in England. In India wagering agreements are simply void.

  Eg: X says that tomorrow rain will come. But y says no rain will come tomorrow and promises to pay Rs.100 to X if it rains. If it does not rain, X agrees to pay Rs.100/- to Y (because he told that tomorrow rain will come). The agreement is a wager and it is void.

 

Essential of Wager

 

1. It must be a promise to pay money or money’s worth.
2. The promise must be conditional on the happening or non-happening of an event.
3. Event must be uncertain at the time of the contract.
4. There must be mutual chance of gain or loss.
5. The uncertainity may be mainly of a future event.
6. It can also be a past act.
7. Neither party must have any interest in the event other than the sum.

 

 In Subhash Kumar Munwani v. State of Madhya Pradesh[70], it was held that the principle and purpose behind Section 30 of the Contract Act to treat an agreement by way of wager as void is that the law discourages people to enter in to games of chance and make earning by trying their luck instead of spending their time, energy and labour for more fruitful and useful work.

 

Horse Race

 Horse race is an exception to wagering agreement. Cross word competition, arithematic competition etc are also exceptions to wagering agreement beause involves good measure of skill. In India participation in crossword competition is not wager, but in England it is wager.

 

Wagering Agreements and insurance Contract

 An Insurance Contract closely resembles wagering agreement, but it is not a wager. Just like a wager, the insurance company mainly depends upon the happening of a future uncertain event of the insured’s (policy holder’s) death or destruction of the insured’s property. This is the reason, why some authors treat that contract of insurance is basically a wager. Though an insurance contract depends on the happening of an uncertain event, it is not a wager because of the following reasons:

 

1. Insurance Interest
2. Contract of Indemnity
3. profit making Motive
4. An insurance contract is based on a scientific calculation of the incidence of risks but a wager is just a gamble.
5. Insurance Contract is regarded as beneficial to the society.
6. A contract of insurance is legal and enforceable. But a wagering agreement is valid.

Comparison with Wagering Agreement

 

Contingent       Wager  

1. It depends on happening or non-  1. Same

    happening of some future event.

2. The event must be uncertain at the             2. Same

    time of the contract.

3. Event must be collateral to the    3. The future event is the sole

    contract.             determining factor.

4. The promisor may have some     4. Parties may have no interest

     interest in the event.           except the money.

5. It is a valid contract.       5. It is void.

6. Collateral transactions are also valid.    6. In England collateral

            transactions are void and in

             India it is valid.

 

 Section 2 (g) of the Act defines the term void agreement. According to this Section void agreement is an agreement which is not enforceable by law. Contract Act declares certain agreements as void.[71]

 Section 2 (j) of the Act defines voidable contract[72]. According to this section voidable contract  means an agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of other or others.

 Section 2 (i) of the Act defines the term void contract. According to this Section void contract means a contract which ceases to be enforceable by law becomes void, when it ceases to be enforceable. In this case agreement may be valid at the time of its formation and it becomes void by some subsequent event.              

 

 

TOPIC -16

DISCHARGE OF CONTRACT[73]

 

A contract may be discharged by any one of the following ways.

 

1. By performance of the obligation.
2. Under the doctrine of frustration.
3. By subsequent agreement.
4. By breach.

 

1. By Performance

 Performance of the obligations undertaken by the parties concerned is called discharge  by performance.

 

Tender of Performance (Attempted Performance)

 

 It means an expression made by the promisor to the promisee about his willingness to perform his part of the obligation under the contract.  A valid tender of performance must satisfy the following conditions.

 

1.                    It must be unconditional:
2.                  It must be made at the proper time and place:

 

Time and place of the performance  is fixed by the parties.  The tender of performance is valid only if it is made at that time and place.  It is the duty of the promisor to approach the promisee to appoint a place for the performance if it is not mentioned in the contract.

 

 

3.               It must be made by the promisor:

 If the personal skill of the promisor is not involved then it can be performed either by the legal representative.

4.                It must be made to the promisee or to his authorised agent.
5.                  If there are more than one promisee, tender of performance of any one is enough.
6.                If the contract is for delivery of goods, tender of performance must be made much in advance giving reasonable opportunity to the promisee to inspect the goods.
7.             The obligation is payment of money.  It must be made for all amount and not for a part of the promise.  If cheque is given it cannot be treated as a valid tender.

 

The valid tender of performance is called an attempted performance.  If the other party has not accepted, the party who has extended the tender of performance need not perform his part and he can claim damages against the other party.

 

Reciprocal promises

Promises which form consideration or part of the consideration for each other are called reciprocal promises.  They are mutual promises. 

 

Lord Mansfield classifies reciprocal promise into three categories.

 

a.  Mutual and independent (Section 52)

 

 The reciprocal promises which are mutual and independent have to be performed in the order fixed as per the terms on the contract.  If no order is fixed it should be performed in the order which the nature of the transaction requires.

 Eg: A promises to pay Rs. 500 to B on the 10^th January and B Promises to deliver a radio to A on 20^th January.  So A has to pay the amount to B on 10^th January and B has to deliver the radio on 20^th January.

 

 In Hashman v. Lucknow Improvement Trust[74] the defendant took some land for lease with the condition, that defendant has to pay Rs. 630 towards levelling charges of the land and possession will be given after levelling. The dispute is that whether Rs. 630/- has to be paid before or after levelling. Court held that levelling must be done first because in the works contract usually payment will be made after the work is over.

 

b. Mutual and dependent (section 54)

 

 When one party’s promise is dependant upon the other party’s promise it is called mutual and dependant.  The promisor has to perform his obligation in the first instance and then the promisee has to perform his promise.  If the promisor fails to perform his promise other party can treat the contract as discharged and he may even claim damages.

Eg: A enters into an agreement with B to construct a house provided B supplies the necessary timber.  If B fails to do his part, A need not do anything.  But B has to compensate any loss caused to A.

 

c.  Mutual and Concurrent (section 51)

 

 When the promises of the parties are to be performed concurrently it is  called mutual and concurrent.

 Eg: A and B enter into an agreement whereby A agrees to sell goods worth Rs. 1000/ - and B agrees to take them against payment.  B is required to make payment when A delivers the goods.

Appropriation of Payments

 (Rule in Clayton’s case)( Section 59-61)[75]

 

When a debtor who owes several debts to the same creditor makes payment, the question may arise against which debt the payment is to be adjusted.  Answer to this question is based on the decisions in Clayton’s case.

 

The rule states as follows;

1.  If the debtor expressly intimates that the payment should be appropriated towards the discharge of a particular debt, the creditor must apply it.

Eg: A owes B Rs. 1000, 2000, 4000. A sends Rs. 3000/- asking him to adjust towards third debt.  Then B is bound to adjust.

 

2.  If there is no express intimation but there are circumstances which imply that the debtor intended appropriation to a particular debt,  the debtor’s intention must be followed.

Eg:  A owes several debts to B, one of such debts being Rs. 1000/- in the form of a promissory note.  The pronote falls due on 15^th January and A prays Rs. 1000/- to B.  The payment must be applied towards the discharge of pronote.

 

3.  If there is no express or implied appropriations by the debtor, the creditor may apply the money to any lawful debt, which is due.  He may apply even to a time barred debt.

 

Eg: A owes to B Rs. 10,000/- as a principal amount, 4000/- interest.  A pays to B Rs. 3000/- without stating appropriation to the principal amount or interest.  So B can appropriate the amount in any manner he likes.

 

4.  When neither the creditor nor the debtor makes any appropriation the payment shall be applied in the discharge of the debt in order of time, whether they are time – barred or they are in equal footing (same date).  When a debt carries interest the payment must be made first towards interest and the balance towards the principal.

 

 

Performance by joint promises

 (Section 42-45):

 

When two or more persons have made a joint promise, all such persons are jointly and severally liable to perform the promise.  If one or more joint promisors die all their legal representative must join with the surviving promisors.  If all promisors die all their legal representatives are liable to perform the promise.

  In England the liability of the joint promisors is only joint, not several.

 There are certain  rules regarding to devolution of joint liability.

They are;

a) As the joint promisors are jointly and severely liable the promisee may demand the performance of all the promise from any one or more of such joint promisors.

 

b)  Such promisor who was compelled to perform all promise, can be demand equal contribution from the other joint promisors.

 

c)  If any one of or more joint promisors make default, the loss arising from such default must be shared equally.                                             

 

Eg: A,B and C jointly promised to pay Rs. 3000/- to X.X may compel A or B or C to pay Rs. 3000/- If C is compelled to pay, C can claim equal share from A and B.

 

 

2. Under the Doctrine of Frustration [76]

 

 No law can compel the people to do the impossible act. Such an impossibility may exists either at the time of the contract or takes place afterwards. The impossibility may arise in the following ways.  (supervening impossibility)

 

1.      Destruction of the Subject Matter

 If the subject mater of the contract is fully or substantially destroyed without the fault of the parties; before the date of actual performance, the contract will be discharged.

Eg: A contracted to supply 20 bales of cotton to B from his field.  But the crop failed completely.  The contract is discharged.

 

 In Taylor v. Caldwell[77], an agreement to let out a music hall for certain dates was held discharged when the music hall was completely destroyed  before the due date.

 

 

 

 

2.      Death or Disablement of Parties

 In a contract involving personal skill, the contract comes to an end if one of the parties of the contract expires.

 

 In Robinson v. Davison[78], an eminent pianist entered into a contract with the plaintiff to play piano at a concert arranged by the plaintiff.  On the concert day morning Pianist informed the plaintiff that she was too ill.  So she could not play piano.  Plaintiff filed a suit for damages.  It was dismissed by the court and held that contract is discharged by disablement of parties.

 

c)  Legislative Intervention

 Where a subsequent law or administrative order makes the performance of the contract illegal the contract is discharged.

 

 In Man Singh v Khazen Singh[79], a contract for the sale of trees in a particular forest area was held discharged when the state of Rajasthan issued prohibiting orders of the cutting of trees in that area.

 

d)  Judicial Intervention

Where court passed injunction against the performance of contract then it will be discharged.

In re H.E.H Nizam’s jewellery Trust[80], the Supreme Court held that the sale of Nizam’s jewels was frustrated when a temporary injunction was  granted by the court on sale.

 

e) Out  Break of War

 A contract entered with a foreign national is discharged immediately when a war is declared with the foreign country.

 Eg: When the Suez Canal was closed due to Anglo-French war with Egypt during November 1956-April 1957, the performance of many contracts were interrupted.

 

f) Non-occurrence of a Contemplated Event

 

Where the event contemplated by both the parties as the reason for the contract does not takes place or failed the contract is discharged.

 In Kerell V.Henry[81] (Coronation procession case) the defendant agreed to hire a flat from the plaintiff for June 26^th and 27^th 1902 for viewing the proposed coronation procession of the King Edward VII. Due to the King’s sudden illness procession was cancelled. So the defendant also cancelled the agreement to hire the flat. Plaintiff’s action for damages was dismissed by the court on the ground that the contract was discharged by frustration.

 

3. By Agreement

The contracts may be discharged by a new agreement between the parties. New agreement may be by novation, by remission, by accord and satisfaction.

 

a. By Novation (section 62)[82]

 

 Novation means substitution of a new contract in the place of an existing contract. The new contract may be either between the same parties or between different parties; the new contract may be for the same subject matter with the same terms and conditions. The mutual discharge of the old contract agreed between the parties can be treated as a valid consideration for the new contract. The substitution of the new contract discharges the old contract. Following are the different kinds of novation.

 

 1. Between the same parties with the same old terms and conditions.

 

Eg: A by executing a promissory note borrowed Rs. 1000/- from B. After 2 years A enters into a new contract with B in substitution of the original promissory note wherein also a similar promissory note was entered in discharge of the earlier promissory note.

 

         2. Between the same parties with altered terms and condition.

    3. With change of parties with altered terms and conditions.  Eg: A borrowed Rs. 500/- from B under a contract.  Later B agreed to discharge the debt provided C agrees to pay the amount.  C also agreed to pay the debt and new contract was entered between B & C with the very old terms and conditions which discharges the earlier contract between A & B.

4. With change of parties and with altered terms and conditions.

 

Rules Regarding Novation

 

1.  The substitution of a new contract is possible only when the existing contract is subsisting.  That is novation is not possible after any breach is committed to the original contract.

 2.New contract must fulfill all the essentials of a valid contract.  Then only the original contract will be discharged by novation.

 

 In Subramanian Chettiar v. Muthaiah Chettiar[83], the plaintiff was allowed to claim the money on the original promissory note, when the substituted promissory note was insufficiently stamped and thereby becoming unenforceable.

 

Novation v. Assignments

Novation has close similarities with assignment of contracts.  But in the following points they differ in each other.

1.  Assignment involves transfer of rights and disabilities to a third party.  Novation is the annulment of one contract by substituting a new contract.

 

2. In certain cases assignment takes place by the operation of law.

 

3. In the case of novation it is possible only with the consent of all the parties.

 

 In Tata Construction v. Dr.Ramesh Ramniklal Shaw[84] it was held that substituted contracts should rescind or alter or extinguish the previous contract. But if terms of the two contracts are inconsistent and they cannot stand together, the subsequent contract cannot be sent to be in substitution of the earlier contract.

 

b. By  Remission

(section 63)

 

Remission allows a party to contract to dispense with the performance of the obligation of the other party.  The dispensation may be related to the whole obligation or part.  If the whole obligation is dispensed by way of remission the other party need not perform the contract and the contract will be treated as discharged.  If the remission is related to part of the obligation that part of the obligation alone will be discharged and the remaining part has to be performed by the other party.

 

Eg:  A by executing a promissory note in favour of B borrowed Rs. 10,000/- and agreed to pay 10% interest per annum.  Later B by a letter to A stated that A need not pay any amount towards interest.  This act of B is called remission.

 

c. By  Accord & Satisfaction

 

 Accord means a promise or understanding to accept less than what is due under the contract. Satisfaction means actual payment or performance of the lesser obligation. An accord followed by satisfaction discharges a contract.

 

Eg: A owes Rs.  5000/- to B . B agrees to accept Rs. 2000/- in full satisfaction of his claim of Rs. 5000/- (accord).  If A pays Rs. 2000/- and it is accepted by B (satisfaction) then the whole debt is discharged.

 

In English Law this kind of transaction is not enforceable because such accord is not supported with consideration.  This rule is called rule in Pinnel’s case[85]

In this case defendant owed Pinnel 13 pounds.  He paid 5 pounds which  Pinnel accepted as full satisfaction.  However Pinnel filed a suit for recovering the balance amount. Court held that part payment of a debt cannot operate as full satisfaction of the debt. According to the rule in  Pinnel’s case, a person who had made a promise to excuse the payment on part of the debt owed to him is not bound by his promise However in recent years this rule has  been much diluted  by the doctrine of estoppel.

 

There are certain exceptions to the rule in Pinnel’s case. They are;

1.Composition with creditors

 When a debtor who is unable to pay his debts in full enter into a composition with his creditors to pay a portion of the debt to each creditor in discharge of the old debt.

 

2.                Where the accord is to discharge the debtor by taking from a third party less than what is due from the debtor.

In India Pinnel’s rule has no application.

 

4.  By Breach

If one of the parties to a contract breaks the obligation, the other party is discharged from the obligation to perform his part and he can claim damages.  Breach may be anticipatory or actual.

Anticipatory breach means repudiation of one’s obligation before the agreed time for its performance.  This is because of the fact that in certain cases act done by a party before performance has become due was treated by law as something amounting to a constructive breach by way of anticipation.  This may be either express or implied.  When anticipatory, breach is committed by one party, the aggrieved party has two options. That is he can immediately sue for damages or refuse to accept the anticipatory breach and can insist for performance.  If any frustration of object occurs, subsequent to the non-acceptance of the anticipatory breach and before the actual date of performance the contract will be treated as discharged and the party who has committed anticipatory breach has no liability.

 

In Hochester V. De La Tour[86], the defendant agreed to engage the plaintiff a courier, to accompany him on a tour.  The tour was to commence on 1-6-1852.  But on 10-5-1852 defendant informed the plaintiff that his service was not required.  Plaintiff filed a suit for damages.  Court held that plaintiff was entitled to bring an action for damages immediately after knowing the anticipatory breach without waiting due date of performance.

Actual breach or present breach means a breach committed either at the time when the performance of the contract is due or during the performance of the contract.  A minor irregularity in the performance of a contract may not be viewed so serious to treat it as breach of contract.

 

Eg:  A agreed to supply 100 tonnes of rice of a particular quality  to B in ten installments. The rice supplied in the 7^th installment was below the standard.  This minor irregularity cannot be treated as the breach of all contracts.[87]

 

     TOPIC 17   

    QUASI-CONTRACTS[88]

 

 Section 68-72 of the Contract Act deal with Quasi Contract named as “certain relations resembling those of contracts”.  Quasi Contract means “as if”.  Quasi Contracts are not contracts in ‘stricto sensu’ because in these forms of contracts several elements of the valid contract are significantly absent.  Quasi contract is based on the principles of equity.  There are two theories cited for the validation of quasi contract.  That is

1.                    Prevention  of Unjust  Enrichment Theory
2.                  Implied Contract Theory

 The first theory is proposed by Lord Mansfield.  According to this theory no one shall be allowed to grow rich out of another man’s loss.  According to second theory though there is no express contract between the parties, the transaction can be treated as implied contract.[89]

Quasi Contract is to be distinguished from tacit contract.  A Quasi Contract is essentially a contract implied in law where there is debt or obligation imposed  by law apart from any consent or intention of the parties.  A right under  a quasi  contract arises under a variety  of circumstances.

Kinds of Quasi-Contracts

1. Necessaries supplied  to a  person  who is  incapable  of entering  into a contract (Section 68)[90]

    Minors and persons of unsound mind are not capable of entering into  contract  and therefore contracts entered into by them are void.  But this section  provides an exception  to that rule.  It provides that the persons who have supplied necessaries  to them  or to their  dependants, their property  is  liable for the things, so obtained.  If they have no property than there is no  liability.

  Eg:  A supplies the necessaries to the children of B, a lunatic  suitable to their condition  in life.  A is entitled to be reimbursed from B’s property.

2.Payment by an  interested person (section 69)

    A person who is interested  in the  payment of money inorder  to preserve his intrest  in the subject  matter which another  person is bound by law to pay, and who  therefore  pays  it, is entitled to be  reimbursed by the other.

   Eg: A is the owner  of a  particular land.  B has  taken that  land for 10 years lease.  The land tax  payable  by  A to the government being in arrears, the government ordered  to put  that  land  in action to realize  the dues.  In order to stop the action and preserve   his leasehold interest  B paid the dues to the government.  B can claim the amount from A even through there was no contract   between a and B.

    To get reimbursement  of money  so paid  the following  conditions must be satisfied.

1.      Plantiff should be  interested  in the payment.
2.      The interest  must be legally  recognized interest.
3.      The interest must  exist  as the time   of payment.
4.      Plaintiff himself should not  have  legal  liability  to pay suchcharges.
5.      The defendant  should be legally  bound to  pay money.
6.       The plaintiff should have made the payment to another  person and not to himself.

3.  Liability to pay   by a person  enjoying  benefit  of non-gratuitous act (section 70)

The person  who has  enjoyed  non-gratuitous  act is liable to compensate the person  who has  done  such  act  or service  to him  through   there  was no  formal contract to  this effect.  To invoke this section  following  conditions are to be satisfied:

a) The act or service  done, or thing delivered  must be lawful.

b)  Such act  or service  must be non-gratuitous act.

c)  The other party must  have enjoyed  some benefit thereof.

  Eg: A, a trader  sends  some goods through  his  servant to A’s house.  The  servant  mistakenly delivered the  goods in C’s house. C accepted  the goods and consumed it.  C is liable to pay  the prize of the goods to A through  there was no  contract  between them.

4. Responsibility of finder of goods (section 71)

   A person  who finds  goods  belonging  to another  and takes  it into  his  custody, his conduct creates  a quasi-contractual  obligation  between himself and the true owner.  Under such  circumstances  rights  and liabilities   of  the finder  is  same  as a bailee.

 There are certain  rights of finder  of lost  goods as follows:

1.      Right to lien
2.      Right for reward

   Where the owner has offered  any reward for the return of the goods, the finder is entitled   for that reward.  If the true  owner  failed  to honour  his  promise to give  the reward, the finder can use  for such  reward  and may  retain  the goods until  he receives it.

3.      Right of sale

In the following   cases   the finder can sell  the goods:

1. If the  true- owner could not  be found  despite reasonable  efforts by the finder.

 

2.     If the  goods  are in a perishable condition.

 

3.   If the  true owner refuses  to pay  the lawful  charges  for keeping  the goods in good condition.

 

4.   If the lawful charges come to 2/3or more of the value of the goods.

 

5.      Money paid or things  delivered  by mistake  or  coercion (sec 72)

 

A person to whom money has been  paid or goods have been  delivered by mistake to coercion is bound to repay that money or return the goods.

This section does not make any distinction between mistake of fact and mistake of law.  The word coercion in this section is used in its general and ordinary sense.

 Eg: A and B jointly owe Rs.1000/- to C.  A alone  pays the amount to C.   B not knowing this fact  pays Rs. 1000/- again  to C.  C is bound to repay  the amount to B. 

 

 

TOPIC 18

REMEDIES FOR BREACH OF CONTRACT[91]

(Section 73-75)

 

In a breach of contract the aggrieved has the  following remedies.

 

1.  Rescission (Exoneration)

2. Specific Performance

                 3.  Damages          

4.  Quantum Meruit

 

1. Recission

 It means recinding or withdrawing from the contract.  When one party commits breach, the other party can rescind the contract and get free from the obligation.

 

2. Specific Performance

 In certain cases court may direct the defendant to perform the contract because money compensation is not an adequate remedy in certain kinds of contract.

Eg: Breach of contract regarding the sale of immovable property.

 

3. Damages[92]

Damages mean money compensation given to an aggrieved party for the loss suffered by him due to the breach of contract.  The object of awarding damages is to put the aggrieved party into the position in which he would have been if the contract had been performed.

Damages are of various kinds.

 

1.      Ordinary damages (General Damages)
2.      Special damages
3.      Exemplary damages (Vindictive damages)
4.      Nominal damages
5.      Liquidated damages.

 

1.      Ordinary damages

Ordinary damages are those damages which are given for the loss which arise in the ordinary course of evens from the breach of contract.  They are also called as substantial damages.  They are paid for the proximate causes of the breach of contract and not for the remote causes.  They are not awarded for punishing the party.

A, having contracted with B to supply with 1,000 tons of iron at 100 rupees a ton, to be delivered at stated time, contracts with C for the purchase of 1,000 tons of iron at 80 rupees a ton telling C that he does so for the purpose of performing his contract with B. C fails to perform his contract with A. A cannot procure iron from other sources, and B, in consequence rescinds the contract. C must pay to A 20,000 rupees being the profit which A would have made by the performance of his contract with B.

 

2.      Special Damages

Generally, the Court shall award such damages that arise in the ordinary course of events from the breach. But under special circumstances, the Court may allow damages not arising entirely from the breach provided such damages may reasonably be supposed to have been in contemplation of the parties at the time they made the contract. Thus, special damages are those resulting from a breach of contract under some special circumstances known to the parties at the time of making the contract.

 

 In Hadley v. Baxendale[93], the plaintiff booked a parcel to Greenwich in the defendant’s common carrier. The plaintiff asked the defendant to transport it immediately.  But he never mentioned that due to the breakage of the crankshaft his mill was closed and he was sending the damaged one (parcel) to be used as a model for making new crankshaft.  Due to the negligence of the defendant’s servants delay was caused in transporting the shaft.  Consequently the plaintiff could not get the new one in time.  This delay caused considerable loss of profit to the plaintiff because the mill was closed during this period. Plaintiff’s action for special damages was dismissed by the court because the plaintiff has not disclosed the fact that his mill was closed and the delay in transporting the crankshaft will cause further loss of profit.

 

 

3.      Exemplary Damages

Damages awarded to the plaintiff not on the basis of actual loss, but of the injury to the feelings of the disappointed party is called exemplary damages. 

Generally these damages are not awarded in contracts except in cases of breach of contract to marry and in case of dishonour of a cheque by a banker wrongfully even though he possesses sufficient balance to the credit of the customer drawing the cheque.

 

4.      Nominal Damages

(Contemptuous damages )

             They are awarded in the case of breach of contract which does not result in any loss to the plaintiff.  Nominal damages are very small or nominal value of damages.  These are awarded in certain cases by courts when the court is satisfied that the plaintiff though technically right has come before the court with unclean hands.

 

5.      Liquidated Damages

 When a contract is broken the aggrieved party is entitled to claim damages from the party who has committed breach.  At the time of entering the contract itself the parties can determine the amount of compensation payable in event of breach and the same may be included in the agreement.  If the sum so fixed represents a genuine pre-estimate of the probable loss or a sum less than that of the probable amount of loss that is likely to result from the breach, it is called as liquidated damages.

 

 

 The plaintiff is entitled to recover that sum no more or no less according to English law.  Indian law is slightly different to this point.  According to Section 74 the party entitled to damages can recover only reasonable compensation not exceeding the amount fixed by the contract.  In Indian law claim to damages arises from law and not from contract.

 

 In Dunlop Pneumatic Tyre Co. v. New Garage motors Co. Ltd.[94],   the plaintiff supplied tyres to the defendant company on the condition that they should not sell it below the list price, and the defendant agreed to give $5 as damages for every tyre sold in breach of the agreement. Defendant committed breach. In the suit for damages, it was held that it was a genuine pre-estimate of loss and so the claim was allowed.

 

Penalty

If the amount is fixed not on the basis of reasonable estimate of the actual loss, but it is fixed by way of punishment and as a threat, then such amount is called penalty. In India there is no distinction between liquidated damages and penalty.

 

 In K. P. Subbrama  Sastry v. K. Raghavan[95], the Supreme Courts laid down certain rules to test whether a particular stipulation in a contract is in the nature of penalty or not.  It must be determined in the background of various relevant factors such as the character of the transaction, its special nature etc.

 

 

Rules Relating to Damages

 

 Rules regarding the measure of damages to be awarded in the breach of contract were laid down by Alderson J. in the case Hadley v. Baxendale.[96] The rule regarding the quantum of damages to be awarded in breach of contract as laid down in this case and subsequent English decisions can be formulated as follows:

 

1. Where a party sustains loss by breach of contract he must be placed in same position in which he would have been if the contract had been performed;

 

2. Aggrieved party is entitled to recover by way of compensation only the actual loss sustained by him;

 

3. Remote damages are not allowed.  It may be allowed if such damages may reasonably be supposed to have been in the contemplation of both the parties at the time when contract was made by them;

 

4. To recover special damages special circumstances must be communicated to the other party;

 

5. The injured party is entitled to get the costs of getting the decree for damages;

 

 

6. Difficulty of calculating damages is no ground for refusing damages.  The court must make an assessment of loss and pass a decree for it;

 

7. Exemplary damages are awarded only for the breach of marriage contract and dishonour of cheque by a banker;

 

8. If the amount of damages for breach is agreed and fixed in the contract more than that amount cannot be claimed as damages;

 

9. In a breach of contract for the sale of goods, the damages payable would be the difference between the contract price and the market price on the date of breach.

 

4.  Qantum Meruit[97]

 

The expression ‘Quantum Meruit’ means ‘as much as merited’ or ‘as much as earned’.  It may arise in cases where a person has done some work under a contract and the other party has repudiated the contract or the work cannot be performed due to impossibility or illegality.  In such cases the party who has partly performed a contract can claim reasonable compensation.  Even if the contract is silent regarding this point parties can claim it.

 

In the following cases quantum meruit can be claimed.

 

1.  When the agreement becomes void

 When the agreement becomes void due to subsequent events, then  the party who received benefits must restore it or make compensation for it to the person from whom it was received.

 

Eg: A pays B Rs.1000/-, in consideration of B’s promising to marry C, A’s daughter.  C is dead at the time of the promise.  The agreement is void, but B must repay A the  amount of Rs.1000/-.

 

2.  Contract performed but badly

Where the contract is completely performed with some defect in such cases, payment can be claimed by the person who has done the works after allowing to deduct the charges for rectifying the defect.  If the defect is a major one it will be treated as breach of contract.

 

3.  When one party refuses to perform the contract

When one party refuses to perform the contract and thereby the other party is prevented from fully performing the contract he can claim quantum meruit for the work done and also damages for breach of contract.

 

 

4. Party in default

 A party who commits breach may also sue for quantum meruit for the part he has performed, if the contract is divisible into the part, which is performed and the areas of breach and the other party has derived benefit from the part, which has been performed.

              

 

 

INDEMNITY AND GUARANTEE

 

TOPIC 19

INDEMNITY(Ss.124-147)[98]

 

  S.124 of Indian Contact Act  says it as  ‘A contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself or by conduct of any other person is called a contract of indemnity.

 

Illustration

A contract to indemnify B against the consequences of any proceedings which C may take against B in respect of a certain sum 5000 rupees. This is a contract of indemnity.

 

 In M.Sham Singh v. State of Mysore[99], the Court held that an employee who has executed a bond to serve the master for a particular period is a contract of indemnity.

 In  State of Orissa v. United India Insurance Company Ltd[100], it was held that indemnity as applicable to marine insurance must not be an indemnity, as contemplated by the Indian Contract Act, as the loss in such contract is covered by the contract itself and such loss is not caused to the assured by the conduct of the insurer nor by the conduct of any other person.

 

Important Elements

 

The definition excludes from its purview cases of loss arising from accidents like fire or perils of the sea. Loss must be caused by some human agency.

The person who gives the indemnity is called the ‘indemnifier’ and the person for whose protection it is given is called the ‘indemnity holder’ or ‘indemnified’.

 

Rights of the Indemnity Holder (Section 125)

 

1. He can recover all damages he may have to pay to the third party in respect of the matter for which the indemnity has been given.
2. He is entitled for all costs of suits, which he may have to pay such third party conditions.

 

1. He acted under the authority of the indemnifier.
2. He did not act in contravention of the  orders of the indemnifier, and
3. He acted in such a way as a prudent man would act in his own case.

 

3.  He can also get all sums paid by him on a compromise of such a suit.

 

       TOPIC 20

GUARANTEE[101]

 

According to section 126 of the Indian Contract Act, ‘A Contract of guarantee is a contract (1) to perform the promise or (2) discharge the liability, of a third person in case of his default’. The function of a contract of guarantee is to enable a person to get a loan, or goods on credit or an employment.

 

For example, if A says to C “Lend money at interest to B and if B be unable to pay I shall pay” then it is known as a contract of guarantee.

 

The person who gives the guarantee is called the ‘Surety’. The person in whose default the guarantee is given is called the ‘principal debtor’ and the person to whom the guarantee is given is called the ‘creditor’.

 In Syndicate Bank v. Vijay Kumar[102], it was observed:

“It is well settled that bank guarantee is an autonomous contract. It is in common parlance that the issuance of guarantee is what guarantor creates to discharge liability when the principal fails in his duty and guarantee is in the nature of collateral agreement to answer for the debt”.

In United Commercial Bank v. B.M. Mahadev Babu[103], it was observed that acknowledgement of debt by principal debtor binds the guarantor in all respects as if he had given express consent.

 

 

 

TOPIC 21

DISTINCTION BETWEEN INDEMNITY AND GUARANEE

 

 

INDEMNITY[104]

GUARANTEE

Only two parties. The indemnifier (promisor)  and the indemnity – holder (promisee).   The liability is primary and independent.     Request of debtor not necessary for the promise.   Only the possibility of a future risk or loss.   There are generally two contracts.             Indemnifier cannot sue third parties in his own name. He has to sue in the name of the indemnified. However, if there is an assignment in his favour he can do so.   Indemnifier usually has some interest in the transaction.   8.  Rights of indemnity may arise by operation of law also (eg . between principal and agents sec. 222)

Three parties – the creditor, the surety and principal debtor.       Surety’s liability is collateral or secondary to the principal debtor’s liability.   Surety’s guarantee is at the request of the debtor.   There is an already existing debt or duty.   There are three contracts one between the debtor and creditor one between the creditor and surety  and a third between surety and a debtor.          On discharging of the debt the surety is entitled in law to proceed against  the debtor in his own name.         Surety is totally unconnected with the contract.   Surety undertakes an obligation at the request (express or implied) of the debtor.

 

 

TOPIC 22

KINDS OF GUARANTEE

 

 Guarantee may be classified under the following heads;

 

1. Retrospective Guarantee

 A guarantee which is given for an existing debt or obligation is called retrospective guarantee.

 

2.Prospective Guarantee

  A guarantee which is given for a future debt or obligation is called prospective guarantee.

 

3.Fidelity Guarantee

  A guarantee which is given for the good conduct or honesty of a person employed in a particular office is called fidelity guarantee.

 

4. Specific Guarantee

  A specific or simple guarantee is one which extends to single transaction or debt.

 

5. Continuing Guarantee[105]

 According to section 129 a continuing guarantee is one which extends to  a series of transactions.

 

Illustration

 A, in consideration that B will employ C in collecting the rents of B’s estates, promises B to be responsible to the amount of 5000 rupees for the due and payment by C of those rents. This is continuing guarantee.

 

Methods for Revoking Guarantee

 

1.  By Notice (Section 130)

 The liability for previous transactions will continue in this method of revocation.

 In Offord v. Devies(1862), X gave a guarantee to Z for twelve months for discounting of bills by Y not exceeding 600 pounds This was revoked before any bill was discounted. But the plaintiff (Z) continued to discount. The revocation was effective as it was done in time. The court held that the surety was discharged from the liability.

 

 

 

2. By Death (Section 131)

 Revocation by death can apply only when there is no contract to the contrary.

 

Extend of Surety’s Liability (Section 128)[106]

 

• Surety’s liability is not primary in nature. It is only secondary.

 

• That is surety’s liability begins only when the principal debtor commits default.

 

• But surety’s liability is co-extensive with that of the principal debtor. This means that his liability is exactly the same as that of the principal debtor.

 

• If the principal debtor’s liability is reduced eg., after the creditor has recovered a part of the sum due from him out of his property, the liability of the surety is also reduced accordingly.

 

 In Narayan Singh v. Chatter Singh, the liability of an agriculturist, who was the principal debtor, was scaled down under the Rajastan Relief of Agricultural Indebtedness Act, 1957. It was held that the effect of scaling down the principal debtors liability was that the surety’s liability has also been reduced accordingly.

 

TOPIC 23

DISCHARGE OF SURETY FROM LIABILITY[107]

 

               The surety is discharged from liability in the following ways;

1. By Revocation  or Notice. (Sec.130)

 

2. By Death of Surety. (Sec. 131)

 

3. By Variance. (Sec. 133)

 

A surety is discharged when, without his consent, the creditor makes any change in the nature or terms of his contract with the principal debtor.

 

 

 In Bonar v. Macdonald, the defendant guaranteed the conduct of a manager of a bank. The bank afterwards raised his salary on the condition that he would be liable for one-fourth of the losses on discounts allowed by him. No communication of this new arrangement was made to the surety. The manager allowed a customer to overdraw his account and the bank lost a sum of money. It was held that the surety could not be called on to make good the loss, as the fresh agreement was a substitution of a new agreement for the former, which discharged the surety.

 

 In M.S. Anirudhan v. Thomco’s Bank Ltd.,  a guarantee was given for Rs. 25,000/- but without the knowledge of the surety it was reduced to

 Rs. 20,000/-. The Supreme Court held that the surety  was not discharged by such an immaterial alteration[108].

 

4. Release or discharge of principal debtor. (Sec. 134)

 

5. Compounding, Extension of time and Promise not to sue.(Sec. 135)

 

6. By impairing surety`s remedy. (Sec. 139)

If the creditor does any act which is inconsistent with the agreement and as a result of which the surety’s right against the principal debtor is lost and according to section 139, the surety is discharged.

 

 7. Loss of Security.

Loss of security held by the creditor at the time of the contract of suretyship will discharge the surety to the extent of such loss. The expression security is not used in a limited technical sense. It applies to all the rights which the creditor has against the property at the date of contract. If the Creditor has, therefore, lost or parted with the security without the consent of the surety, the surety is discharged to the extent of the value so parted.

 

 In State Bank of Saurashtra v. C.R. Raja (1980), a  bank loan was on the security of the stock in a godown and the guarantee given by a surety. Due to the negligence of the bank officials the goods were lost. It was held that the surety was discharged to the extent of the value of the stock lost due to the negligence.

 

TOPIC 24

BAILMENT

 

Definition[109]

   S. 148 of the Act defines bailment as “A bailment is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished be returned or otherwise disposed of according to the directions of the person delivering them”.

 

 In Kavitha Trehan v. Balsara Hygiene Products Ltd[110], it was held that one of the requirements of bailment is delivery of goods to the bailee. Delivery of possession to the bailee is sine qua non of bailment. In order to constitute a bailment change of possession is necessary.

 

Classification of Bailment

 

(1) Gratuitous Bailment

  It is one where the bailee keeps the goods for the bailor without reward.

(2)Non-gratuitous Bailment

  In this on the contrary is one where some consideration posses between the parties.

 In accordance with the benefits derived by the parties, the bailment is divided in to the following two;

(3) Bailment for the exclusive benefit of the bailor.

(4)Bailment for the exclusive benefit of the bailee.

 

TOPIC 25

 RIGHTS AND DUTIES OF A BAILOR

 

Duties of bailor

1.   Bailor’s  Duty to Disclose Faults in Goods Bailed (Sec. 150)

 

 First clause to section 150 deals with the duty of a gratuitous bailor. A person who lends his articles or goods without any charge is called a “gratuitous bailor”. His duty is naturally much less than that of a bailor for hire or consideration. According to section 150, he is bound to disclose those faults in the goods of which he is aware. The conditions of his liability are :-

 

1. He should have knowledge of the defect and the bailee should not be aware.
2. The defect in the goods must be such as exposes the bailee to extraordinary risks or materially interferes in the use of the goods.

 

2. Duty of Bailor for Reward.

 

 If the goods are bailed for hire, the bailor is responsible for such damage whether he was or was not aware of the existence of such faults in the goods bailed (Sec. 150).

 

In Human and Wife v. Nye and Sons[111] , the plaintiff hired from the defendant for a specific journey a carriage, a pair of horses and driver. During the journey a bolt beneath carriage broke, the splinter bar got displaced, the carriage broke and the plaintiff was injured. Held the defendant (bailor)  is liable.

 

In Reed v. Dean, where the fire fighting equipment of a motor launch turned out to be defective, the bailor was held liable.

 

3. Bailor’s Duty to Repay Necessary Expenses (sec. 158)

  

 For instance, A leaves his horse with his neighbour, B for safe custody for one week. B is entitled to recover the expenses incurred by him in feeding the horse.

 

Illustration

 X delivers to Y some gold for converting into ornaments. ‘Y’ is to receive no remuneration. Y incurs 100 rupees in the preparation of jewellery. It is the duty of X to repay the necessary expenses of 100 rupees incurred by X in doing so.

 

4. Bailor’s Duty to Indmenify the Borrower for Loss (S.159)

 If the borrower is compelled to return goods, in the case of gratuitous bailment, before the specified time and suffers loss which exceeds the benefit derived by him, it is the duty of the bailor to indemnify the borrower for such loss.

 

5. Bailor’s Duty to Make Good the Loss for Breach of Warranty of Title to Goods (sec. 164)

 

Illustration

 A lets to B, for hire a horse for his own riding. B drives the horse in his carriage. This is, at the option of A, a termination of the bailment.

 

Rights of bailor

 

 In the following circumstances the bailor shall be entitled to certain rights against the bailee.

1. Right to Claim Damages (sections 154, 156, 157, 161)

 

i).  For unauthorized use by the bailee (Sec. 154)

 If the bailee makes such use of the goods which is contrary to the conditions of bailment, the bailor  is entitled to compensation for any damage to the goods due to unauthorized use.

Illustration

  A  lends a horse to B for  his own riding only. B allows C, a member of his family, to ride the horse. C rides with care, but the horse accidentally falls and is injured. B is liable to make compensation to A the injury done to the horse.

 

ii). For Mixture of goods without the bailor’s consent.

 

  a) Where the goods are separable (Sec. 156)

 The bailor is entitled to compel the bailee to bear the expenses of such separation or division and is also entitled to claim damages arising from the mixture.

Illustration

 A  bails 100 bales of cotton marked with a particular mark to B. B without A’s consent, mixes the 100 bales with other bales of  his own, bearing a different mark. A is entitled to have his 100 bales returned. B is bound to bear all the expenses for the separation of the bales. A is entitled to recover any damages caused to the 100 bales, if any, due to such mixture and separation.

 

  (b) Where the goods are not separable (Section 157)

 The bailer can recover compensation  from the bailee to the extend of loss suffered.

 

 

Illustration

 A bails a barrel of caps flour worth Rs. 45  to B.  B without A’s consent mixes the flour country flour of his own, worth only Rs. 25 a barrel. B must compensate A for the loss of the flour.

 

 iii). For not returning the goods by the bailee (Section  161)

 The bailer is  in such case entitled to claim damages from the bailee.

Illustration

 A, the bailor, directs B, the bailee to return the goods to him by 10^th June. B delays in returning the goods by 15 days, and due to the delay the goods are deteriorated in value of Rs. 1000. A is entitled to claim Rs. 1,000 from B as damages.

 

2. Bailor`s, Right  to Get Back the Goods Lent Gratuitously (Section 159).

 

3. Bailor is Entitled to an Increase of Profit from Goods Bailed (Section 163)

 

Illustration

 A leaves a cow in the custody of B to be taken care of. The cow gives birth to a  calf. B is bound to deliver the calf as well as the cow to A.

 

TOPIC 26

PAWN OR PLEDGE[112]

 

 Sec.172 of the Indian Contract Act provides that pledge is “the bailment of goods as security for the payment of a debt or the performance of a promise”. The bailor or depositor is called the pledger or pawnor and the bailee or depositee is called the pledgee or pawnee.

 

 A pledge is created only when the goods are delivered by the borrower to the lender or to someone on his behalf with the intention of their being treated as security against the advance. Therefore, delivery is essential in case of pledge. Delivery may be actual or constructive.

 

Advantages of pledge

1.      Goods are in the possession of the creditor and, therefore, in case the borrower makes a default in payment, they can be disposed of after a reasonable notice.
2.      Stocks cannot be manipulated as they are under the lender’s possession and control.
3.      In the case of insolvency of the borrower, creditor can sell the goods and prove for the balance of the debt.
4.      There is hardly any possibility of the same goods being charged with some other party if actual possession of the goods is taken by the creditor. 

 

 

Rights of Pawnee

 

1.   Right to retain. The pawnee has a right to retain the goods bailed till the debt is paid with interest thereon and with all incidental expenses incurred by the pawnee for the possession and preservation of the goods pledged (Sec.173).
2.   Right to extra ordinary expenses (Sec. 175).
3.   Right of retainer for subsequent advances(Sec 174).
4.   Right in case of default of the pawnor. Where the pawnor fails to redeem his pledge, the pawnee can exercise the following rights;

 

(i)He can file a suit for the amount due to him, keeping the goods pledged as a collateral security.

(ii)He may have the right to sue for the sale of goods in his possession and realise the money due to him.

(iii)He can sell the goods in his possession after giving reasonable notice.

  

Rights of Pawnor

 Before the actual sale of goods pledged, the defaulted pawnor can redeem the goods by paying the amount due with the expenses arising out of such default (Sec,177).

 

Pledge by non-owners(Sec.178, 178A & 179)

 

(1)Pledge by a mercantile agent.

(2)Pledge by seller or buyer in possession after Sale.

(3)Pledge by co-owner.

(4)Pledge by a person in possession under voidable title.

 

 

TOPIC 27

AGENCY

Definition

  The law relating to agency is contained in Chapter X (Section – 182 to 238) of the Indian Contract Act, 1872. The Contract, which creates the relationship of ‘Principal’ and ‘agent’, is called an agency.

 

 One can appoint an agent to do whatever he can do as his right.

 

The above stated general rule has certain well-known exceptions. They are the following: :

 

When Agents Cannot be Appointed

 

1. If the act to be performed is  personal in character

 Eg:In the case of marriage one cannot appoint an agent to act for him.

 

2. If the act to be performed is annexed to a public office

 Eg: A magistrate cannot engage another to act for him.

 

The law of agency is based on the maxim,“Qui facit per alium facit per se”.  It means what a person does through  another do it by himself.

 

 

TOPIC 28

DEL CREDERE AGENT

  

   Agent is not answerable to his principal for the failure of the third person to perform the contract. A del credere agent constitutes an exception to this rule. He is a mercantile agent, who, on the payment of some extra commission, known as del credere commission, guarantees the performance of the contract by the third person.

 

TOPIC 29

CREATION OF AGENCY

 

 According to section 186 the authority of an agent may be express or implied.

 

An implied agency may take the following forms :

 

1. Agency by estoppel
2. Agency by holding out.
3. Agency by necessity
4. Agency by ratification.

 

 

 

 

1. Agency by Estopel (S.237)

 

  Here the principal by his conduct creates an impression in the mind of the third person that the agent has an authority to act on his behalf.

 

Illustration

 A consigns goods to B for sale, and gives him instructions not to sell under a fixed price. C, being ignorant of B’s instructions, enters into a contract with B to buy the goods at a price lower than the reserved price. A is bound by the contract.

2 Agency by Holding Out

  It may arise when the principal by his conduct has induced or compelled third persons to believe that he is dealing with his agent.

 

Illustration

 If a master permits his servant, by a long course of conduct to pledge his goods for certain purposes, he is bound by the acts of his servant in pledging his goods for similar purposes.

 The master’s conduct in “holding out” his servant to be his agents prevents him from denying the continuance of his authority.

 

 3 Agency by Necessity (Ss188 & 189)

  Following are the important instances of agency by necessity.

 

 a) In case of emergency

 

In Great northern Railway company v. Swafield  a horse was booked with the Railway Company for taking it from one place to another. When the horse arrived the destination the owner failed to take delivery. Therefore the Railway Company handed over it to a stable keeper for safe custody. This was done without the authority of the owners of the horse. This act of the Railway Company was treated as an act done under necessity and allowed its claim for the expenditure incurred in feeding the horse.

 

3.      Husband and wife

 

 The relationship of husband and wife does not make the wife the agent of the husband. But when they are living together and the wife is managing the household, the wife can buy necessaries on credit and make the husband liable. 

 

4 Agency by Ratification[113]

 

  An unauthorized act is converted into an authorized one by conferring authority subsequent to the act. Hence it is known as agency ratification or ex post facto agency.

 

 

TOPIC 30

ESSENTIALS OF A VALID RATIFICATION

 

 For validly ratifying an agency the following conditions need to be satisfied.

 

1.The act must be made on behalf of the person who wants to ratify it        (S. 196).

 

   In Keighley, Maxted and Co. v. Durant, K.M. and Co. authorized their agent to buy Karachi wheat at specified rates on their joint account. Wheat was not obtainable at those rates. He brought wheat from Durant at a higher rate. He did so in the hope and confidence that his act would be adopted by the principals and contracted in his own name. The principals approved the purchase, but when the price of wheat fell, refused to take delivery. Durant sued the agent and the principals for breach of contract. It was held that the contract could not be ratified because agent did not purport to enter into the contract on behalf of the principal. The principals were, therefore, held not liable.

 

2. Principal should be in existence and competent to contract.

 When a principal ratifies an act, the validity of the act relates back to the time of doing of the act by the agent. The act is valid of the same had been done with the prior authority of the principal.

 

 In Kelner v. Baxter,  B entered into a contract with K on behalf of a hotel company intended to be formed. The company, when duly formed ratified the contract.  After some time it went into liquidation. K used B upon the contract. B pleaded that the liability has passed to the company by ratification. It was held that since the company was not in existence at the time of doing the act, the purported ratification was nullity, and therefore, the liability of B continued in spite of ratification.

 

3. Principal must be aware of all facts (Sec. 198).

 According to S. 198 the principal should have full knowledge of the facts to make a valid ratification. The principal cannot adopt only that part of the transaction, which is to his advantage, and reject the part, which is prejudicial to him. He must ratify in toto or reject in toto (S. 199).

 

4. Ratification must not injure a third person (Section. 200).

 

Illustration:

 A holds a lease from B, terminable on three month’s notice. C, an unauthorized person, give notice of termination to A. The notice cannot be ratified by C so as to be binding on A.

 

 

 

7. An act to be ratified must not be ultra vires.

  

  An act, which is void from the very beginning, cannot be ratified.

Eg, A criminal act, for instance, cannot be ratified.

 

8. Within reasonable time.

 

9. The principal must have been in existence at the time the agent originally acted and should also have contractual capacity at the time of contract as well as at the time of ratification.

 

 

  A ratification to be effective must come within reasonable time.

 

Effect of Ratification

 The effect of ratification is to render the acts done by one person (agent) on behalf of another (principal), without his knowledge or authority, as binding on the other person  (Principal) as if they had been performed by his authority (Sec.196). It relates back to the date when the act was done by the agent.

 

 In Bolton Partners v. Lambert[114], A, the managing director of a company, purporting to act as agent on the company’s behalf, but without its authority, accepted an offer by T. T subsequently withdrew the offer, but the company ratified A’s acceptance. It was held that T was bound by the offer. The ratification related back to the time of A’s acceptance and so prevented the subsequent revocation by T.

 

 

 

TOPIC 31

‘DELEGATUS NON PROTEST DELEGARE’ and its exceptions[115]

 

  The relationship of principal and agent is based on confidence and trust. When the principal has reposed trust in a particular agent, the agent cannot replace another person in his place. The general law is that what is delegated to an agent cannot be re-delegated by the agent to another.

 

However in the following cases, the agent may delegate the work to another.

 

1. Nature of  Work

 For example, an agent appointed to sell an estate may retain services of an auctioneer and the one authorized to file a suit may engage a lawyer.

 

2. Trade Custom

 Thus a Stock Exchange Member broker may appoint clerks to transact business on behalf of their clients.

 

3. Ministerial Action

 For instance, if an agent has been appointed to weigh coal lying at a place, or to transport goods from the place to another, he may get the work done by a sub-agent.

 

4. Principal’s Consent

The principal may expressly allow his agent to appoint a sub-agent.

 

 

TOPIC 32

SUB AGENT

 

Section 191 defines a sub-agent as “a person employed by and acting under the control of the original agent in the business of the agency”.

 

A sub-agent may be a properly appointed one or an improperly appointed one. Where an agent having authority to do appoints a sub-agent; he is known as a sub agent properly appointed (Sec.192). Where an agent without authority appoints a sub-agent, he is called a sub-agent improperly appointed (Sec.193).

 

When the sub agent is properly appointed, he can represent the principal as regards third parties. There is no privity of contract between the sub-agent and the principal. The agent would be responsible to the principal for the acts of the sub-agent. In case of fraud or willful wrong, the sub-agent is also directly responsible to the principal.

 

 When the sub-agent is improperly appointed the principal is not bound by the acts of the sub-agent. The agent would be responsible to the principal as well as to the third parties.

 

T0PIC 33

SUBSTITUTED AGENT

 

A Co-agent or a Substituted Agent is a person who is appointed by the agent to act for the principal in the business of agency with the consent of the principal.

 

Section 194 says, “Where an agent holding an express or implied authority to name another person to act for his principal, names another person accordingly, he is not a sub agent but a substituted agent for the principal``.

 

Example

P is manufacturer of Car Tyres. He appointed A as an agent for a district and authorized to sell tyres to customers  on credit. Several customers failed to pay the price.  P  directed A to suggest the name of a lawyer to initiate legal proceedings against the customers for the recovery of the trade debt.  A suggested name of B.  B is only a substituted agent and not a sub-agent.

 

 

 

TOPIC 34

RIGHTS AND DUTIES OF AN

 AGENT AND PRINCIPAL

 

Duties of an Agent

 

1.Duty to follow instructions of  Principal (Sec. 211).

 An agent should act within the extent of authority conferred upon him and follow strictly the instructions of the principal.

 

2.Duty to follow custom in the absence of instructions (Sec 211)

 In the absence of express instructions, an agent must act as per the custom prevailing in the same kind of business at the place where he conducts such business.

 

3.Duty to exercise skill and diligence (Sec.212).

 An agent is bound to exercise reasonable skill and diligence in the business of agency.

 

 

4.Duty  to render accounts to his principal on demand (Sec. 213).

 An agent is bound to render proper accounts to his principal on demand.

 

5.Duty to communicate (Sec. 214).

 If there is difficulty in the conduct of business of agency, the agent must communicate with the principal and get his instructions.

 

6.Duty not to deal with his own account (Sec. 215 and 216).

 An agent must not deal on his own account without the consent of the Principal. If the agent has been acting privately in the business of agency, the principal has the right, on discovering this fact, either to claim the profit in cases the particular transaction has been profitable or to disown the losses in case it has ended in loss.

 

7. Duty to pay over all money (Sec. 218).

   An agent must pay all sums received in his account to the principal.

 

8. Duty not to make secret profit

 If the agent makes any secret profit, he should account it to the principal.

9. Duty to protect and preserve (Sec.209)

 On the death or insolvency of the principal an agent has to protect and preserve his interest

10. Duty not to set up an adverse title

 An agent shall not set up any adverse title.

 

11. Duty not to delegate authority

 An agent shall not delegate his authority. This is subject to certain exceptions in Section 190.

 

Rights of an Agent (Sec 217 to 223)

 

1. Right of  retainer (Sec.217)

   The agent has a right to retain his principal’s money until his claims in conducting the business of agency are paid.

 

2. Right to remuneration (Sec.219 and 220)

 Where the services rendered by the agent are not gratuitous, he is entitled to receive the agreed remuneration or if nothing has been agreed, a reasonable remuneration.  Payment for the performance of any work is not due until the completion of such a work unless otherwise provided (Sec. 219).

 An agent who is guilty of misconduct in the business of agency is not entitled to any remuneration in respect of that part of business in which he has committed misconduct (Sec. 220).

 

3. Right of lien (Sec. 221)

 An agent is entitled to retain goods until the amount due to him has been paid or accounted for.

 

4. Right of indemnification (Sec. 222 & 223).

 As the agent represents the principal the agent has a right to be indemnified by the principal against all charges, expenses and liabilities properly incurred by him in the business  of agency.

 

5. Right to compensation (Sec. 225).

 An agent has a right a claim compensation for the injury caused to him by the principal’s neglect or want of skill.

 

 

 

TOPIC 35

AGENCY COUPLED WITH INTEREST (S.202)

Some times an agent may have an interest in the property which forms the subject matter of the agency. Then the agency is called an ‘agency coupled with interest’.

 

Example

P is owner of an immovable property.  P owes to A  an amount Rs. 100000/- which he borrowed from A. P appoints  A as his agent to sell the immovable property and gives him authority to take the sale proceeds to satisfy his claim. A is an agent coupled with interest.

 

The general rule is that an agency can be revoked at any time. An agency may terminate on the death of the principal. An agency coupled with interest constitute an exception to the general rule that an agency is revocable at any time. An agency coupled with interest cannot be revoked to the prejudice of the interest of the agent. Even the death or insanity of the principal does not terminate the authority of the agent in the case of agency coupled with interest.

 

TOPIC 36

TERMINATION OF AGENCY

 

A contract of agency may come to an end by the operation of law or by the act of the parties. An agency may come to an end under the following circumstances.

 

1. By agreement between the principal and the agent.
2. By the performance of the contract of agency. (S.201)
3. By the death of the principal or the agent. (S.201)
4. By the insanity of either the principal or the agent (S.201)
5. By the expiration of the period fixed for the contract of agency.
6. By the renunciation of his authority by the agent (S.201)
7. By the revocation of authority by the principal (S.201)
8. By the destruction of the subject matter (S. 56).

 

When Agency is Irrevocable

 Revocation of agency is impossible in the following circumstances;

  1.Agency coupled with interest (S.202).

  2.Where the agent has incurred personal liability.

  3.Where the agent has partly exercised the authority, it is irrevocable, in particular with regard to the obligations, which arise from the acts already done (S.204).

 

When Termination of Agency Takes Effect (S. 208)

The termination of agency is complete, as regards the agent, when it comes to the knowledge of the agent. As regards the third persons, it takes effect when it becomes known to them.

 

If an agent, whose authority has been terminated, knowingly enters into a contract with a third person who deals with him bonafide, the agent will bind the principal by his act.

 

 The termination of the agent’s authority terminates the authority of the sub-agent too.

 

 

 

 

 

[1] 'Writ' is a specific order/direction by the court to act in a manner specified.

[2] Similarly a composite writ of debt-debtenu used to be issued in a situation where the defendant used to unjustly detain something, on which, the plaintiff had the claim or was entitled to possess.

 

[3] Trespass was issued in the event of physical injury to person and property and deceit was issued in wide range of cases.

3   I.L.R. 30 Cal. 539 at p. 548

4  Smt. Sudha v. Mansha Ram, A. I. R. 1971. H. P. 27 at  p. 28 : 1971 Sim. L. J. (H. P.) 216

 

[6] Dyaviah v. Shivamma, A. I. R. 1959 Mys. 188 at p. 189

 

[7]  R. Leslie   Ltd. v. Sheill, (1914) 3 K, B. 607

[8]  I. L. R. 38 Mad. 1071: A.I.R. 1914 Mad. 641 (2.)

[9] Batchu Veeraiah v. Chepuri Sarraju, A.I.R. 1959. A. P. 100 at p. 101.

 

[10]  Raghavachariah v. Srinivas 40 Mad. 308

[11]  Kandhai Lal v. Debi Prasad, A.I.R. 1925 All. 399 at p.399.

 

[12] Mohori Bibee v. Dharmodas Ghos, I.L.R. 30 Cal. 539: I.A.114 (P.C.)

 

12 Johnson v. Marks, (1887) 19 Q. B.D. 500 ; Daw Nyun v. Maung Nyi Pu, A.I.R. 1938 Range.        359 I.C.680 ; Jagan Ram v. Mahadeo Prasad, I.L.R. 36 Cal. 768.

 

[14]  Vishva Nath Khanna v. Shian Krishna, A.I.R.1936 All. 819 at p. 820 : 166 I.C. 47 : 1936                  A.L.J. 1120.

 

[15]  De Francesco v. Barunm, (1890) 45 Ch. D. 430 ; Clements v. London and North- Western       Railway, (1894) 2               Q.B. 65.

[16]  Sadiq Ali Khan v. Jai Kishore AIR 1928 (P.C.) 152

[17]  Latcharao v. Bhimayya AIR 1956 AP 182.

[18] A.I.R.(1956) A.P.182

[19] Sri Kakulam Subrahmanyam v. Kurra Subba Rao, A. I. R. 1948 P.C. at p. 97.

[20] Waghela v. Sheik Masludin, I.L. R. 11 Bom. 551 at p. 561 : 141. A 89.

 

[21] Gopalakrishna Govind v. Tukaram Narayan, A.I.R. 1956 Bom. 566 at p. 569.

[22] Raj Rani v. Prem Adib, A.I.R. 1949 Bom. 215 at pp. 215, 217 : 51 Bom.  L.R. 256.

 

[23] Sriramulu v. Pundarikakshayya. A.I.R. 1948 F.C. 218 at p. 221.

 

[24] Narendra Lal. v. Hrishi Kesh (1918) 46 I.C. 765.

 

[25] Sec 64, Contract Act, Infra ; Sec. 30, Transfers of Property Act.

 

[26] Sriramulu v. Pundarikakshayya. A.I.R. 1948 F.C. 218 at p. 222 : 1949 F.C.R. 65.

 

[27] Vijaya Kumar Motilal v. New Zealand Insurance Co., A.I.R. 1954. Bom. 347 at p. 351 : 56                 Bom. L.R.341.

 

[28] Engelke v. Musman (1928) A.C. 433

 

[29] 55 All. 570

[30] II, A.L.J 4sQ.

[31] What is the difference between general offer and specific offer'? {August 2001} (5 Marks)

 

[32] (1893) 1 QB 256.

[33] (1828) 3 M & R 97

[34] What are the essentials of a valid contract? {March 1996 & November 1988}

[35] (1857 )

[36] (1866)

[37] (1840) 49 ER 132

[38] AIR 1984 SC 1014

[39]    2005 (1) KLT 236.

[40] (12893) 1 QB 256

[41]  (1955) 2 All E.R.  493.

[42] What are the general obligations of the parties to a contract? (2007) (5 marks)

[43] What is free consent under the Indian Contract Act? {November 1988 & April 1990}

 

[44]  (1930) 30 Cal. 539 (P.C).

[45] (1889) 13 Mad 214

[46]  (AIR 1969 CUL. 293).

[47] AIR 1968 S.C.599

[48] (1927) 50 Mad 786: 105 IC 5.

[49] (1887) 36 Ch.D148.

[50] (1892 P.C).

[51]  (1906) 33 Cal. LR 773

[52] AIR 1996 SC 761 p.763.

[53] 2004 (8) SCC 588

[54] 1867 LR 2 HL 149.

[55] Write short note on ‘Mistake of fact’. (4 Marks)

 

[56] 1878, 3 AC 459.

[57] (1919,2 KB 243)

[58] (1864,2 HC 906)

[59] (1856, 10 ER, 1065)

[60] (AIR 1940 Pat. 201)

[61] (1871, LR 6 QB 597)

[62] (1950, 2 KB 86)

[63] What is meant by " consideration in contract "? "An agreement without consideration is void".  Are there exceptions? If so, what are they? {April 1990}

 

[64] 1915. AC. 847

[65] (1910) 32 All. 410 PC.

[66] (1915) 38 Mad .788.

[67]171 LC 1948.

[68] Write short note on ‘Champerty’. {March 1996} (5 marks)

 

[69] Section 30.

[70] AIR 2001 MP 109,110

[71] Sections 11, 25, 26, 28, 30, 56 etc.

[72] What are void and voidable contracts?  Give one illustration of each (2007) (5 marks)

[73] What are the circumstances or cases in which a party to the contract is discharged or released, from any further obligations?  Is the law in India in any way materially different from English Law? Discuss. (2007)

[74] ( 1927, 101 K 47)

 

[75] Write short note on ‘Rule in Clay tons Case’. {March 1996} (5 marks)

 

[76] Write short note in one paragraph on frustration of contract. {September 1988} {1996 March};

Discuss the doctrine of frustration. {May 1994} (10 marks)

[77] 1863, 122 Er 299

[78] 1871, 24Lt 755) Munich case

[79] AIR1961 Raj277

[80] AIR 1980 SC 17

[81] 1903,2 KB 740

[82] Write short note on ‘Novation’. {March 1996} (5 marks). (2007)

 

[83] AIR 1984, Mad 215

[84] AIR 2000 SC 380, (383-384)

[85] (1602, 77ER, 237).

[86] 22 LJ QB 455

[87] Write short note on ‘Anticipatory breach of contract’. {August 2001} (10 Marks)

[88] What is meant by Quasi Contract?  What is the theoretical basis of quasi contractual liability ? Discuss in brief the relevant provisions of the Indian Contract Act dealing with the same, with reference to leading decision of the Hon’ble Supreme Court of India, if any. (2007)

[89] What is the doctrine of "unjust enrichment' and which is the provision in the Contract Act that deals with the same?­

[90] What are the circumstances under which a contract can be enforced against a minor? {May 1994} (10 marks).

[91] Discuss the broad principles regarding the ascertainment of the measure of damages to be awarded for loss of damage caused by breach of Contract with reference to the provisions of Sections 73 and 74 of the Indian Contract Act, 1872. {March 1996} (10 marks)

 

[92] Explain the distinction between liquidated damages and penalty clauses, with one illustration of each. (2007) (5 marks)

[93] 1854 9 Ex 341

[94] 1915 AC 79

[95] AIR 1987, SC, 1257

[96] Explained under “Special Damages”.

[97] Write short note on ‘Quantum meruit’. (4 Marks).(2007) (5 marks)

 

[98] What is a 'Contract of Indemnity'? {March 1991} {1988 January}

[99] AIR1973 SC 2440.

[100] AIR 1997 SC 2671,2673.

[101] What is a guarantee? {November 1988}

 

[102] AIR 1992 SC 1066.

[103] AIR 1992 Kant 294.

[104] Contract of indemnity (2007) (5 marks)

[105] Write short note on ‘Continuing guarantee’. (4 Marks)

 

[106] What is the liability of a surety? {January 1988 & April 1990}

What is the liability of a surety as compared to that of the principal debtor? What are the circumstances in which a surety will be discharged from his liability? Please state the rights and benefits which a surety to entitled to upon payment or performance which he had undertaken? {March 1991} {1988 January}[While answering this question include  the next topic entitled  “Discharge of  Surety fromLiability”] 

 

[107] Write a short note on discharge of surety? (2007) (5 marks)

[108] (1963) 1 SCR 63

 

[109] Write short note on ‘Bailment’. {August 2001} (5 Marks).

 

[110] AIR 1992 Del 103.

[111] (1881) 7 QBD 685.

[112] What is pledge? {November 1988}

[113] Explain the law regarding ratification in agency. {August 2001} (5 Marks)[While answering this question include the next topic entitled “Essentials of a Valid Ratification]

 

[114]  (1888) 41 Ch. D 295.

[115] Can the agent employ another to perform acts he has to do? {August 2001} (5 Marks).