“NK Key Notes”

Contract – I
Prepared as per the syllabus prescribed by Karnataka
State Law University (KSLU), Hubballi

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SYLLABUS
PART-II -
NO. CONTENTS [Link]
I.  Formation of Contract — Agreement and Contract — Definitions — -
Classification -Offer and Acceptance —Communication— -
Revocation— Essential elements — Invitation to Offer — Tenders. -
 Consideration—Nudum pastum-Essential elements—Privity of -
Contract and of Consideration — Exceptions —Unlawful -
Consideration and its effect—e-contract. -

II.  Capacity to Contract — Minor’s Agreements and its effects — -

Agreement of Persons of unsound mind and Persons disqualified -
by Law. -
 Free Consent—Coercion-Undue influence—Misrepresentation— -
Fraud —Mistake—Legality of Object—Void Agreements—and -
Contingent Contracts. -

III.  Modes of Discharge of Contracts - Time and place of performance -

— Performance of reciprocal promises -Appropriation of Payments -
— Discharge by Agreement, operation of Law, frustration -
(Impossibility of Performance) and by Breach(Anticipatory and -
Actual). -

IV.  Remedies for Breach of Contracts — Damages —Kinds of damages -

- Remoteness of damages — Ascertainment of damages – Quasi -
Contracts.
V.  The Specific belief Act — Sections 9-16, Sections21, Section 24, -
Sections 36-42. -
 Nature of Specific Relief—Recovery of Possession of movable and -
immovable Property— Specific performance when granted and not -
granted—Who may obtain and against whom— Discretionary -
remedy—Power of Court to grant relief—Rectification of -
instruments Cancellation—Declaratory decrees—Preventive relief -
— Temporary injunctions—Perpetual and Mandatory Injunctions.

II PART-II Page No
1 Previous years important question

III PART IV Page No

1 Bare Acts

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 UNIT—I
 Formation of Contract — Agreement and Contract — Definitions — Classification -Offer and
Acceptance —Communication— Revocation— Essential elements — Invitation to Offer —
Tenders.
 Consideration—Nudum Pactum -Essential elements—Privity of Contract and of
Consideration — Exceptions —Unlawful Consideration and its effect—e-contract.

 Contract
 Definitions all
• All defnation at one side

TOPIC:INDIANCONTRACTACT1872

INTRODUCTION:

It extends to the whole of India.

The Act is divided into 2 parts;

Section 1-75

Section 2(h) defines contract as, “an agreement enforceable by law”

Acceptance

“all contracts are agreement; but all agreements may not be contract”

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 Section 2(e) defines Agreement as, “every promise and every set of promises,
forming the consideration for each other”

Section 2(b) defines promise, “when a person to whom the proposal is made, signifies his
assent thereto ,the proposals is said to be accepted .Aproposal when accepted becomes a
promise.”

 Formation of Contract:

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

2) Law of contract is not the whole of law of agreement nor whole law of obligation.
Discuss enumerating the essentials of a valid contract?

Answer:

Definition: According to section 2(h) of the Indian contract act, 1872. “An agreement
enforceable by law is a contract.

According to SALMOND, a contract is “An agreement creating and defining obligations between
the parties”

 Essential elements of a valid contract:

According to section 10, “All agreements are contracts if they are made by the free consent of
the parties competent to contract, for a lawful consideration and with a lawful object and
not here by expressly declared to be void”

In order to become a contract an agreement must have the following essential elements,
they are follows:-

1) Offer and acceptance:

 To constitute a contract there must be an offer and an acceptance of that offer.

 The offer and acceptance should relate to same thing in the same sense.
 There must be two (or) more persons to an agreement because one person cannot enter
into an agreement with himself.

2) Intention to create legal relationship:

 The parties must have intention to create legal relationship among them.
 Generally, the agreements of social, domestic and political nature are not a contract.
 If there is no such intention to create a legal relationship among the parties, there is no
contract between them.

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Example: BALFOUR (vs) BALFOUR (1919)
Facts: A husband promised to pay his wife a household allowance of L 30 (pounds) every
month. Later the parties separated and the husband failed to pay the amount. The wife
sued for allowance.

Judgment: Agreements such as there were outside the realm of contract altogether. Because
there is no intention to create legal relationship among the parties.

3) Free and Genuine consent:

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

4) Lawful Object:

 The object of the agreement must be lawful. In other words, it means the object must not be
(a) Illegal, (b) immoral, (c) opposed to public policy.

 If an agreement suffers from any legal flaw, it would not be enforceable by law.

5) Lawful Consideration:

 An agreement to be enforceable by law must be supported by consideration.

 Consideration means “an advantage or benefit” moving from one party to other. In other
words, “something in return”.

 The agreement is enforceable only when both the parties give something and get
something in return.

 The consideration must be real and lawful.

6) Capacity of parties: (Competency)

 The parties to a contract should be capable of entering into a valid contract.

 Every person is competent to contract if:
a) He is the age of majority.
b) He is of sound mind and
c) He is not dis-qualified from contracting
by any law.

 The flaw in capacity to contract may arise from minority, lunacy, idiocy, drunkenness, etc..,

7) Agreement not to be declared void:

 The agreements must not have been expressly declared to be void u/s 24 to 30 of the act.

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 Example: Agreements in restraint of trade, marriages, legal proceedings, etc..,
 Certainty: The meaning of the agreement must be certain and not be vague (or) indefinite.

‘A’ agrees to sell to ‘B’ a hundred tones of oil. There is nothing whatever to show what kind of
a oil intended. The agreement is void for uncertainty.

8) Possibility of performance:

 The terms of an agreement should be capable of performance.

 The agreement to do an act impossible in itself is void and cannot be enforceable.

Example:
‘A’ agrees with ‘B’, to put life into B’s dead wife, the agreement is void it is impossible of
performance.

9) Necessary legal formalities:

 According to Indian contract Act, oral (or) written are perfectly valid.
 There is no provision for contracting being written, registered and stamped.

 Agreement and Contract:

i. All contracts are agreements but all agreements are not contract discuss.
Answer: “All contracts are agreements but all agreements are not contracts”- the statement has
two parts.

(a) All contracts are agreement:As per section 2(h) of Indian contract Act, “A contract is an
agreement enforceable by law”. Obviously an agreement is a pre requisite (i.e.., essential
elements) for formation of contract. An agreement clubbed with enforceability by law and
several other features (i.e.., free consent, consideration, etc..,) will create a valid contract.
Therefore, obviously all contracts will be agreements.

(b)All agreements are not contracts:As per section 2(e) of Indian contract act, “An agreement
is a promise and every set of promises, forming consideration for each other”. Thus, a
lawful offer and a lawful acceptance create an agreement only. Therefore all agreements
are notcontracts.

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 Classification:
1. Explain void and voidablecontracts.
2. Distinguish between void contract and voidable contract.
3. Define contract? Explain its kinds of contracts?

Contract is an agreement enforceable by law. Between two or more parties fort he doing or not
doing of something specified. Contracts can also be classified according performance. A contract
can be either executed or executor. An executed contract—is where one party has performed all
that is required to be done according to the contract. For example, Alan delivers one tone of
wood to Brian. Alan has performed his part of the contract, now it remains for Brian to pay the
price. An executor contract—This is a contract where both parties still have obligations to
performunder the contract.

 Classification of contract

1. The method offormation of a contract

2. The time of performance of contract
3. The parties of the contract
4. The method of legality of the contract

[Link] method offormation of a contract

 Express contract
 Implied contract
Quasi contract

Express contract: Express contract is one which expressed in words spoken or written. When
such a contract is formal, there is no difficulty in understanding the rights and obligations of the
parties.

Implied contract: The condition of an implied contract is to be understood form the acts, the
contract of the parties or the course of dealing between them.

Quasi contract: There are certain dealings which are not contracts strictly, though the parties act
as if there is a contract. The contract Act specifies the various situations which come within what
Is called Quasi contract.

[Link]

Underthemethodofthetimeofperformanceofcontractmay betwokinds

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  ØExecutedContract
 ØExecutoryContract

Executed Contract:There are contracts where the parties perform

theirobligationsimmediately,as soonas thecontractis formed.

ExecutoryContract:Inthiscontracttheobligationsofthepartiesaretobeperformedatalater time.

3. Thepartiesofthecontract

Underthemethodofthepartiesofthecontractmaybetwokinds

 ØBilateralContract
 ØUnilateralContract

BilateralContract:[Link]
ultilateral.

Unilateral Contract: In certain contracts one party has to fulfill his obligationswhere
as the other party has already performed his obligations. Such a contract
iscalledunilateralcontract.

4. Themethodoflegalityofthecontract

Underthemethodofthemethodoflegalityofthecontractmaybefivekinds

 ValidContract
 VoidAgreement
 VoidableContract
 UnenforceableAgreement
 IllegalAgreement

Valid Contract: An agreement which satisfied all the essential of a contract andwhichis
enforceablethroughthecourtis calledvalidcontract.

VoidAgreement: Anagreementwhichisfailedtosatisfiedalloranyoftheessential element of a

contract and which is not enforceable by the court is calledvoid agreement. An agreement not
enforceable by law is said to be void. A voidagreement has no legal fact. It confers no right on
any person and created noobligation.

Example:Anagreementmade bya minor.

Voidable Contract: An agreement which is enforceable by law at the open of oneor more parties
of the contract but not at the open of the other or others is a voidablecontract.

A void able contract is one which can be avoided and satisfied by some of thepartiesto

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[Link],itis agoodcontract.

Example:contractsbroughtaboutbycoercionorundueinfluenceormisrepresentationorfraud.

Unenforceable Agreement: An Unenforceable Agreement is one which cannot

beenforcinginacourtforits technicalandformaldefect.

Example: (1) An agreement required by law to register but not resisted. (2)
Anagreementwithnotsatisfiedstamped.

Illegal Agreement: An illegal agreement is one which is against a law enforcing inBangladesh.

Example:Anagreementtocompiledmurder.

The following are the differences between void and voidable contract. They are follows: -

Base Void contract Voidable contract

Definitio According to section 2(j) a void contract According to section 2(i) a voidable contract is
n
as ‘a contract which ceases to be ‘an agreement which is enforceable by law
enforceable by law becomes void at the option of one or more the parties but
when it ceases to be enforceable’. not at the option of the other or other
orothers’.
Nature A void contract is valid when it is made. A voidable contract on the other hand is
But binding on the parties it may voidable at the option of the aggrieved party
subsequently become void. We may and remains valid until rescinded by him.
talk of such a contract as void Contract caused by coercion, undue
agreements. influence, fraud, misrepresentation are
voidable. But in case contract is caused by
mistake it isvoid.
Rights A void contract does not provide any The aggrieved party in a voidable contract gets
legal remedy for the parties to the a right to rescind the contract. When such
contract. It may void of into right from party rescinds it, the contract become void.
the beginning. In other words it is not In case aggrieved party does not rescind the
a contract at all contract with in a reasonable time, the
contract remains valid.

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 Offer and Acceptance
 Communication
 Revocation
 Essential elements
 Invitation to Offer

 Define offer? Explain the rule relating to valid offer with the help of decidedcases.
Answers

Introduction:
Everydaywedirectlyorindirectlyenterintoagreementsforthepurposeofcarrying out various
activities. Agreements can be for social/family or for legalrelationships. An agreement entered
for legal purpose which intends to have legalrelationshipcanbetermedas Contract.
It is the Contract which is considered to be legally enforceable in the eyes of
Lawaspersection2(h)oftheIndianContract Act, 1872.
Every Contract to be valid has to satisfy certain essential elements as laid downunder the
Contract Act, 1872. The first and foremost essential element for a validContractif-

Meaning:
An Offer is intimation by words or by conduct of a willingness to enter into
alegallybindingContract.

Definition:

Section2(a)oftheIndianContractAct,1872definestheterm"Proposal"asfollows: “when one person

signifies to another his willingness to do or to abstainfrom doing something with a view to
obtaining the assent of the other to such anactorabstinence, he is saidto makeaproposal”.
The person making the 'proposal' or 'offer' is called the 'promisor' or 'offeror' andthepersonto
whomtheoffer is madeis calledthe'offeree'.

 Essentialsofvalidoffer:
[Link] maybeexpressor implied:
[Link],whichismadebywords spoken or
written, is called an express offer. The offer, which is made
bytheconductofaperson,iscalledanimpliedoffer.

Example:

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 1. M says to N that he will sell his motorcycle to him for RS. 40,000. It is
anexpressoffer.

2. A railway coolie carries the luggage of B without being asked to do so B allowshimtodoso.

Itis animpliedoffer.
3. The new Khan Transport Company runs buses on different routes to
[Link].

[Link]:
The offer must be made in order to create legal relations otherwise, there will beno agreement.
If an offer does into give rise to legal obligations between thepartiesitisnotavalidoffer
intheeyeoflaw.

Example:
1. A invites B to dinner B accept the invitation. It does not create any
legalrelations,sothereisnoagreement.
2. A offers to sell his watch to B for Rs.200 and B agrees. There is an
agreementbecauseherethepartiesintendtocreate legalrelations.
3. Three friends joined to enter a newspaper competition and agreed to share anywinnings. It
was held the intended to create legal relations and their agreementwasthereforeacontract.

3. Itmust bedefinite&clear:
An offer must be definite and clear, if the terms of an offer are not definite andclear,itcannot
becalledavalidoffer. Ifsuchofferisaccepteditcannot createabindingcontract.
Example:
A has two motorcycles. He offers B to sell one motorcycle for Rs.27,000. It is not
avalidofferbecauseitisnotclearthatwhichmotorcycleAwantedtosell.

4. Itisdifferent frominvitationtooffer:
An offer is different from an invitation to offer. It is also called invitation to treator invitation
to receive offer. An invitation to offer looks like offer but legally it isnotoffer.
In the case of an invitation to offer, the person sending out the invitation does notmake an offer
but only invites the other party to make an offer. His object is toinform that he is willing to deal
with anybody who after getting such informationis willing to open negotiations with him. Such
invitations for offers are not offersaccordingtolawand socannotbecomeagreementbyacceptance.

Example:
1. Quotations, Catalogues of prices, display of goods with prices issue
ofprospectusbycompaniesareexamplesofinvitationtooffer.

2. Display of goods in an auction sale is not an offer rather it is an invitation

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 [Link] comefromthebuyerintheformof bids.

[Link]:
When an offer is made to a specified person or group of persons, it is calledspecific offer. Such
an offer can be accepted only by the person or persons towhom it is made. A general offer, on
the other hand, is one, which is made topublic in general and it may be accepted by any person
who fulfils the conditionsmentionedinit. Bothspecifiedandgeneraloffers arevalid.

Example:
1. M makes an offer to N to sell his bicycle for Rs.800, it is a specific offer. In
thiscase,onlyN canacceptit.
2. A announces in a newspaper a reward of Rs.1,000 for any one who will
[Link] generaloffer.

6. Itmustbecommunicated totheofferee:
An offer is effective only when it is communicated to the offeree. If an offer is
notcommunicated to the offeree it cannot be accepted. Thus an offer, which is
notcommunicated,[Link].

Example:
A without knowing that a reward has been offered for the arrest of a particularcriminal, catches
the criminal and informs the police. A cannot recover the rewardashewas notawareofit.

7. Itshouldnotcontainnegativecondition:
An offer should not contain a condition the non-compliance of which may beassumed as
acceptance. An offeror cannot say that if acceptance is notcommunicated up to a certain date, the
offer would be presumed to have beenaccepted. If the offeree does not reply, there is no contract,
because no obligationto reply can be imposed on him, on the ground of justice no agreement
[Link].

Example:
A wrote to B offering to sell his book for Rs.500 adding that if he didn‟t replywithin 5 days, the
offeree would be presumed to have been accepted. There is noagreement b/c such condition
can‟t be imposed on the offeree. It is only a onesidedoffer.

8. Itmaybesubjecttoanyterms &conditions:
An offeror may attach any terms and conditions to the offer he makes. He mayeven prescribe
the mode of acceptance. There is no contract, unless all the termsof the offer are accepted in the
mode prescribed by the offeror. It must be notedthat if the offeror asks for sending the
acceptance by telegram and the offereesendstheacceptancebyletter,andtheofferor
mayrejectsuchacceptance.

Example:

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A asks B to send the reply of his offer by telegram but B sends reply by letter, Amay reject
such acceptance because it is opposed to the prescribed mode ofcommunication.

9. Itmustnotcontain crossoffers:
When two parties make similar offers to each other, in ignorance of each other‟ssuch offers are
called cross-offers. The acceptance of cross-offers does not resultincompleteagreement.

Example:
On 23rd December 2007, A wrote B to sell him 100 ton of iron at Rs.10,000 perton. On the
same day, B wrote to A to buy 100 tons of iron at Rs.10,000 per [Link] is no contract
between A & B because the offers wee similar and made inignoranceoftheother
andsothereisnoacceptanceof eachother‟soffer.

Conclusion:
Therefore, Offer is very important element for starting a Contract. Offer should
[Link]
[Link],cataloguesofprices or display of goods with prices marked thereon
do not constitute an [Link] are instead an invitation for offer and hence if a customer asks for
goods ormakesanoffer,theshopkeeperisfreeto acceptthe offer ornot.

 Acceptance:

• Explain the rules relating to a valid acceptance.

Ans:Definition:

According to section 2(b) of the Indian contract Act, 1872, defines an acceptance is “when the
person to whom the proposal is made signifies is assent thereto, the proposal is said to be
accepted becomes a promise”.
On the acceptance of the proposal, the proposer is called the promisor/offeror and the
acceptor is called thepromise/offeree.
Legal rules as to acceptance: A valid acceptance must satisfies the following rules:-
1) Acceptance must be obsolute andunqualified:

 An acceptance to be valid it must be obsolute and unqualified and in accordance with the
exact terms of theoffer.
 An acceptance with a variation, slight, is no acceptance, and may amount to a mere
counter- offer (i.e.., original may or may notaccept.
2) Acceptance must be communicated to theofferor:

 For a valid acceptance, acceptance must not only be made by the offeree but it must also
be communicated by the offeree to theofferor.
 Communication of the acceptance must be expressed or implied.

 A mere mental acceptance is no acceptance.

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3) Acceptance must be according to the mode prescribed (or) usual and reasonablemanner:

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

4) Acceptance must be given with in a reasonabletime:

 If any time limit is specified, the acceptance must be given with in thattime.

 If no time limit is specified, the acceptance must be given with in a reasonabletime.

Example: Ramsgatevictoria Hotel Company (vs) Monteflore (1886)

Facts:On June 8th ‘M’ offered to take shares in ‘R’ Company. He received a letter of acceptance
on November 23rd. he refused to take shares.
Judgment:‘M’ was entitled to refuse his offer has lapsed as the reasonable period which it could
be accepted and elapsed.
5) It cannot precede anoffer:

 If the acceptance precedes an offer, it is not a valid acceptance and does not result in a
contract.
 In other words “acceptance subject to contract” is noacceptance.
 Acceptance must be given by the parties (or) party to whom it ismade:

 An offer can be accepted only by the person (or) persons to whom it ismade.
 It cannot be accepted by another person without the consent of theofferor.

Example: Boulton (vs) Jones (1857).

Facts:Boulton bought a hose-pipe business from Brocklehurst. Jones, to whom Brocklehurst
owed a debt, placed an order with Brocklehurst for the supply of certain goods. Boulton
supplied the goods even though the order was not addressed to him. Jones refused to pay
Boulton for the goods because he, by entering into a contract with Brocklehurst, intended
to set off his debt against Brocklehurst.
Judgment:The offer was made to the Brocklehurst and it was not in the power of Boulton to
step in and accept. Therefore there was no contract.
6) It cannot be implied fromsilence:

 Silence does not amount to acceptance.

 If the offeree does not respond to offer (or) keeps quite, the offer will lapse after

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 reasonable time.
 The offeror cannot compel the offeree to respond offer (or) to suggest that silence will be
equivalent toacceptance.
7) Acceptance must be expressed (or)implied:

 An acceptance may be given either by words (or) byconduct.

 An acceptance which is expressed by words (i.e.., spoken or written) is called ‘expressed

acceptance’.
 An acceptance which is inferred by conduct of the person (or) by circumstances of the case
is called an ‘implied or tacitacceptance’.
Example: Carilill (vs) Carbolic Ball company (1893).

Facts:A company advertised in several newspapers is that a reward of L 100 (ponds) would be
given to any person contracted influenza after using the smoke ball according to the printed
directions. Once [Link] used the smoke balls according to the directions of the company
but contracted influenza.
Judgment:she could recover the amount as by using the smoke balls she accepted the offer.

8) Acceptance may be given by performing some condition (or) by accepting someconsideration.

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

Communication of offer:
The following are the rules regarding communication of offer:
The communication of an offer is complete when it comes to the knowledge of the person to whom
it is made.
An offer may be communicated either by words spoken (or) written (or) it may be inferred from the
conduct of theparties.

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When an offer/proposal is made by post, its communication will be complete when the letter
containing the proposal reaches the person to whom it ismade.
Example: ‘A’ makes proposal to ‘B’ to sell his house at a certain price. The letter is posted on 10 th
July. It reaches ‘B’ on 12th July. The communication of offer is complete when ‘B’ receives the letter
(i.e.., on 12th July).

 Communication of acceptance: The following are the rules

regardingcommunication of acceptance:-
Communication of an acceptance iscomplete:-
 As against the proposer/offeror when it is put into the certain course oftransmission tohim,
 so as to be out of the power of the acceptor.
 As against the acceptor, when its comes to knowledge of theproposer.
 When a proposal is accepted by a letter sent by the post the communication of acceptance
willbe
 complete:-
 As against the proposer when the letter of acceptance is postedand
 As against the acceptor when the letter reach theproposer.

 Communication of revocation:The following are the rules regarding communication of

revocation:
 As against the person who makes it, when it put into a course oftransmission.
 As against the person to whom it is made, when its comes to his knowledge. Example: ‘A’
proposes by a letter, to sell a house to ‘B’ at a certain price. The letter is posted on 15th may. It

reaches ‘B’ on 19th may. ‘A’ revokes his offer by telegram on 18th may. The telegram reaches ‘B’
on 20th may. The revocation is complete against ‘A’ when the telegram is dispatched (i.e.., in
18thmay). It is complete as against the ‘B’ when he receives it (i.e.., on 20thmay).

 Revocation:
 Revocation of Acceptance
There are often instances where a proposer makes a suggestion and therefore the acceptor accepts
the proposal and communicates an equivalent to the proposer. Can the acceptor revoke/cancel this
acceptance?
Yes, the acceptor can rescind this acceptance prior the communication of acceptance reaches the
proposer. That is prior the communication of
acceptance is complete as against the acceptor. If the revocation of acceptance outreach the
proposer before the acceptance involves in the knowledge of the proposer there are often a
legitimate revocation of acceptance. The Revocation of Acceptance is complete only at any time
prior the communication of acceptance is complete as against the acceptor, but not subsequently.

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 Consideration:

• Define consideration? Explain itsexceptions.

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

Definition:-

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

Example: Abdul Aziz (vs) Masum Ali (1914)

Facts:The secretary of a mosque committee filed a suit to enforce a promise which the promisor
had made to subscribe Rs.500/- for rebuilding a mosque.

Judgment: ‘The promise was not enforceable because there was no consideration in the sense of
benefit’, as ‘the person who promised gained nothing in return for the promise made’, and the
secretary of the committee to whom the promise was made, suffered no detriment (liability) as
nothing had been done to carry out the repairs. Hence the suit wasdismissed.

 Essentials of a valid consideration:-The following are the essentials of a valid consideration

(OR) legal rules as to consideration.

1. It may be past, present (or)future:

 The words “has done (or) abstained from doing refer to pastconsideration.
 The word “does (or) abstains from doing” refer to presentconsideration.
 Similarly the word “promises to do (or) to abstain from doing” refers to the future consideration.
Thus, the consideration may be past, present (or)future.

2. It must move at the desire of thepromisor:

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

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

Facts:‘B’ spent some money on the improvement of a market at the desire of the collector of the
district. In consideration of this ‘D’ who was using the market promised to pay some money to
‘B’.

Judgment:The agreement was void being without consideration.

 It must not be illegal, immoral (or) not opposed to publicpolicy:

 The consideration given for an agreement must not be unlawful, illegal, immoral and not
opposed to publicpolicy.
 Where it is unlawful, the court will not allow an action on the agreement.

3. It need not beadequate:

 Consideration need not be any particularvalue.
 It need not be approximately equal value with the promise for which it is exchanged. But it must
be something which the law would regard as having somevalue.
 In other words consideration, as already explained, it means “something in return”. This means
something in return need not be necessarily be an equal in value to “somethinggiven”.

4. It must be real and notillusory:

 Consideration must not be illegal, impossible (or) illusory but it must be real and of some value
in the eyes oflaw.
 The following are not realconsideration:

(a)Physical impossibility, (b)legal impossibility, (c)uncertain consideration, (d) illusory consideration.

5. It must move from the promise (or) any otherperson:

 Under English law consideration must move from the promisee itself. But, under Indian law,
consideration move from the promisee (or) any other person (i.e.., even astranger).
 This means as long as there is a consideration for a promise, it is immaterial who has furnished
it. But the stranger to a consideration will be sue only if he is a party to thecontact.

Example: Chinnaya (vs) Ramayya (1882).

Facts:An old lady, by a dead of gift, made over certain property to her daughter ‘D’, under the
directions that she should pay her aunt, ‘P’ (sister of old lady), a certain sum of money annually.

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 The same day ‘D’ entered into an agreement with ‘P’ to pay her the agreed amount later ‘D’
refused to pay the amount on the plea that no consideration had moved from ‘P’ to ‘D’.

Judgment:‘P’ was entitled to maintain suit as consideration had moved from the old lady, sister of
‘P’, to the daughter, ‘D’.

 It must be something the promisor is not already bound to do:A promise to do what one is
already bound to do, either by general law (or) under an existing contract, is not a good
consideration for a new promise, since it adds nothing to the pre-existing legal or
contractualobligation.
 It may be an act, abstinence (or) forbearance (or) a return promise:consideration may be an
act, abstinence (or) forbearance (or) a return promise. Thus it may be noted that the following
are good considerations for acontract.
• Forbearance tosue.
• Compromise of a disputedclaim.
• Composition withcreditors.
EXAMPLE:- A promise to perform a public duty by a public servant is not a consideration.
.
 Exceptions to Consideration:-
Section 25 of the Contract Act lays down a few exceptions when an agreement made without
consideration is not void.

Exception 1- Natural Love and Affection:

A written and registered agreement based on natural love and affection between near relatives is
enforceable without consideration. The expression ‘near relative’ will include parties related by
blood or marriage.

Exception 2- Past Voluntary Service

Apromisetocompensateaperson,whohasalreadyvoluntarilydonesomething for the promisor, or
something which the promisor was legally compellable to
do,[Link],suchserviceshouldhavebeenrenderedvoluntarily and without promisor’s
knowledge, and for the promisoronly.

Forexample,apromisemadeafterattainingtheageofmajoritytopayforgoods supplied to the promisor

during minority was held to be within theexception.

Illustration:- A finds B’s mobile phone and gives it to him. B promises to give Rs.
100. This is a contract.

Exception 3- Time-barred Debt

A promise to pay a time-barred debt is enforceable.

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Illustration:- X owes Y, Rs. 1,000, but the debt is barred by the Limitation Act. X signs a written
promise to pay Y, Rs. 500 on account of the debt. This is a contract.

 Related case Laws:

[Link], AIR(1964)28 Cal 853
The court held that if the promise is made for the maintenance for a lady for her voluntary services
and a promissory note in written for voluntary service rendered by a man, such promises are valid.

[Link], AIR 1956 SC 3940

Section 25(3) requires a promise to pay a time barred debt. It thereby becomes a new contract. It is
not just merely acknowledgement of existing liability. The promise need to be in expressed
manner.

Abdul Aziz v. Masum Ali, AIR 1914 All 22

The defendant promised rs.500 to find started to rebuild mosque but nothing had been done to
carry out the repairs and reconstructions. Then the court says that the subscriber held not liable

 PrivityofContractandofConsideration and its Exceptions:

1) State the doctrine of privity of contract. Explain the exceptions to thedoctrine
OR
2) ”A stranger to a consideration can sue” – Are there any exceptions to this rule?

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

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

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

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

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

2. Marriage settlements, partition (or) other family arrangements:When an agreement is made in

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

3. Acknowledgement (or) Estoppel:If a contract requires that a party pays a certain amount to a
third-party and he/she acknowledges it, then it becomes a binding obligation for the party to pay
the third-party. The acknowledgment can also beimplied.

Illustrations:
1) Peter gives Rs 1,000 to John to pay Arjun. John acknowledges the receipt of funds to be paid to
Arjun. However, he fails to pay him. Arjun can sue John for recovery of the amount.
2) [Link],Pankaj,[Link] sale price, Pankaj
was to be paid Rs 25,000 as his professional charges. Seema promised to pay Pankaj the amount
before taking possession of the property. She made three payments of Rs 5,000 each and then
stopped paying him. Pankaj filed a suit against Seema which was held by the Court because Seema
had acknowledged her liability by conduct.

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

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

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

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

 UnlawfulConsiderationanditseffect:

• Explain unlawful consideration and itseffects?

• Explain unlawful consideration and its effects? Introduction:
In India it is said that for a contract to be understood as a valid contract two things are a must: a
lawful object and a lawful consideration. To ensure the regulation of such valid contracts in the
country naturally legal provisions have been implemented. Under Section 23 of the Indian Contract
Act, 1872 certain restrictions have been imposed on an individual while indulging into any
agreement and limits the freedom of that individual and his said privileges by drawing a parallel
with the contemplations of public policies and various other provisions that have been articulated
under this section.

 Section 23 of the Indian Contract Act, 1872, the legality of a consideration is only valid if:

1. The Consideration Is Not Forbidden By Law:It is understood that if the consideration in a

contract is prohibited by law then it is considered to be an unlawful consideration and the
contract is said to become invalid. It is important to note that for an act forbidden by law to
account as an unlawful consideration it would generally include acts that are explicitly unishable
by the law and it can also include those acts that are prohibited through the medium of either
rules or regulations.
2. The Consideration Is Not Immoral In Nature:A consideration in a contract is considered to be an
unlawful one if it has been regarded as an immoral act by the honorable court. In case of an
immoral consideration the contract would end up being invalid andvoid.
3. In Case The Consideration Is Not Fraudulent In Nature:A contract becomes invalid or void by

4. nature if the consideration of the contract is fraudulent in nature. Here, it is important to

understand what may fall under a fraudulent act. To understand the term fraud better Section
17 of the Indian Contract Act, 1872, can be referred to which states that any act committed by a
party to a contract with the intent to deceive another party or to induce that party into entering
into the contract.
5. The Consideration Does Not Defeat the Provisions Set Under The Law Of The Country:A
consideration is termed as an unlawful consideration of a contract, and end up making the
contract an invalid and void contract, when the said consideration aims at defeating the
provision of law or the intentions of law. In case the court finds the consideration to be in
contradiction with the provisions of the law then it can discard the contract asvoid.
6. The Consideration Does Not Involve Harm Or Injury To Any Other Person Or Property:A

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 Consideration is denied to be considered a lawful consideration of a contract if the consideration
includes an act which involves causing harm to any other person or property. It can be
understood with the simple example of a person taking money as an object and in return as a
consideration killing a third personorvandalizing a third party’s property. This type of
consideration can be broadly included under an act forbidden by law as well since the
consideration includes an unlawful act.
7. The Consideration Does Not Defeat Any Rules Already In Effect:A Contract is said to become
invalid or void in nature if the consideration of that contract is against the essence of any rules
already implemented in the country or if it intends to defeat the intention of any rules in effect
in the country at that time. Such a consideration is also termed as an unlawfulconsideration.
8. The Consideration Does Not Oppose The Public Policies:The ultimate motive of the Indian
judiciary is to maintain the essence of natural justice in the community. In case the
consideration of a contract is oppressive of the public policy then such a consideration is said
to be an unlawful consideration and the contract becomes an invalid contract or void
bynature.

 e-contract.
As long as the essentials of a valid contract under the Indian Contract Act 1872 are met, an online
contract is valid and enforceable under Indian law. The IT Act provides validity to a contract
where the contract has been accepted in electronic form.

UNIT—II
Capacity to Contract — Minor’s Agreements and its effects — Agreement of Persons of unsound
mind andPersons disqualifiedby [Link]—Coercion-Undue influence—
Misrepresentation—Fraud —Mistake—Legality of Object—VoidAgreements—
andContingentContracts.

 Minor’s Agreements and its effects

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

There are three main aspects:

1. Attaining the age ofmajority
2. Being of sound mind
3. Notdisqualifiedfromenteringintoacontractbyanylawthatheissubjectto

Introduction:

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

Page 23
Mental Incapacity

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

The concept of minor’s agreement is explained in MohoriBibee V. DharmodasGhose case: a minor

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

• Legal rules or effect or Misrepresentation

1) A minor’s agreement is void from the beginning:A contractual agreement dealing with a
person below the age of 18 in India is considered void from the beginning in the same way a

minor can not enter into a contract. A minor’s agreement

[Link].

2) A minor’s property is liable for necessaries:if a minor is supplied by someone with food,
medication, clothing and other necessities, the person who supplied such necessities is entitled
to be reimbursed from the property of thatperson.

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

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

agreement cannot be urged for specific performance of anagreement.

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

Page 24
7) Restitution of benefit:when a person at whose option a contract is voidable revokes it, the
other party need not perform it. This applies to voidable contracts, but a minor’s contract being
void, a minor cannot be asked to refund themoneylender.

8) No insolvency:Due to minor’s incapability of contracting debts and dues payable from the
minor’s personal property he is not personally liable as the result of which he can not be
heldinsolvent.

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

 General rule exceptions

The certain exceptions to contractual agreement of minors are :

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

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

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

 Two conditions must be satisfied to render minor’s estate liable for necessaries
a) the necessaries supplied to the minor should really be necessities required for the
supportof a minor’slife.
b) Thereshouldn’tbesufficientsupplyofthesenecessitieswiththeminorbefore.

• Person of unsound mind

• Ans: According to section 12 of the Indian contract Act, 1872 “A person is said to be of sound
mind for the purpose of making a contract if, at the time when he makes it, he his capable of
understanding it and of forming a rational judgment as to its effects upon his interests”.

Page 25
Soundness of mind of a person depends on two facts:
a) Ability to understand the contract at the time ofmaking.
b) Ability to form a rational judgment about the effect of the contract on hisinterest.
• Unsoundness may arise from idiocy, lunacy, drunkenness, hypnotism, mental decay because of
old age and delirium (high temperature) etc..,A person who is usually of unsound mind and
occasionally of sound mind can contract when he is of sound mind.
• A person who is usually of sound mind and occasionally of unsound mind cannot contract
when he is of unsound mind.
• Thus, the burden of proof will be lie upon the person who claims that he was not of sound
mind at the time of making a contract.

 DisqualifiedPersons:

• Apart from minors and people with unsound minds, there are other people who cannot enter into
a contract. i.e. do not have the capacity to contract. The reasons for disqualification can include,
political status, legal status, etc. Some such persons are foreign sovereigns and ambassadors, alien
enemy, convicts, insolvents, etc.

 PYQ
 Define consent? Explain circumstances under which consent is said to be free? what is the
effect of freeconsent?

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

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

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

Page 26
• Free consent Consent of both the parties entering into contract must be free. It is an essential
requirement of a valid contract. So it is not only important that there should be consent, but
the consent should be free also.
• A free consent is defined by Section 14 of the Indian Contract Act in these words: Consent is
said to be free when it is not caused by (1) Coercion or (2) Undue influence or (3) Fraud or (4)
Misrepresentation, or (5) Mistake

 Coercion Under Sec–15

• Coercion is aimed against any person by:

 committingorthreateningtocommitanyactwhichforbiddenbyIndianPenal Code1860.
 Unlawful detaining or threatening to detain any property to the bias ofany person.
 The intention of causing any person enter into anagreement.

• Consent acquired by such an act amounts to coercion under Indian Contract Act and it is
voidable in nature.

• In Ammiraju v. Seshammathe court held that coercion may aim against any person, stranger
and also against a good for example unlawful detention.

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

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

Page 27
Essential ingredients of fraud are as follow:
• representation or assertion relating to fact,
• it made with the knowledge that it is false or without belief in itstrue.
• made other party to act upon hisclaim
• the person acting is to made loss ordamage.

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

fact with the knowledge or belief of the fact is also amounts to fraud. There are certain
exceptions to the general rule “ silence not amounts to representation and not amount to
fraud” are Insurance Contracts, Family Settlement, contract for allotment of shares in
company, parents and child, guardian and wards, which are required disclosure and good faith.

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

• the suggestion, as a fact, of that which is not true, by one who does not believe it to betrue;
• The active concealment of a fact by one having knowledge or belief of thefact;
• A promise made without any intention of performingit;
• Any other act fitted todeceive;
• Any such act or omission as the law specially declares to be fraudulent.

• Explanation – Mere silence as to facts likely to affect the willingness of a person to enter into a
contract is not fraud, unless the circumstances of the case are such that, regard being had to
them, it is the duty of the person keeping silence to speak, or unless his silence is, in itself,
equivalent tospeech.

• EXCEPTIONS:-
• When there is a duty to speak, keeping silence isfraud.
• When silence is, in itself, equivalent to speech, such silence is afraud.

 MISREPRESENTATION
• Simply said misrepresentation is a false representation made innocently without any intention
to deceive other person. It is a false statements made by a person, believe it to be true. As per
section 18 of Contract Act, 1872 Misrepresentation means a positiveclaim, not guaranteed by
the information of the person who creates it, is not true, be true even if he believes. Consent
obtained by misrepresentation is voidable.

• Misrepresentation is two kinds they are:

1. Innocent misrepresentation, in which the assertion is false but the person
makingitbelievesitistrueandnotknowitisfalseso,damagescannotclaimed but the contract can

Page 28
 berescued.

2. Negligence or fraudulent misrepresentation, in which breach of duty, negligence of a party

make loss to opposite party. it was held in the caseEsso Petroleum co. Ltd v. Mardonthat it is
actionable and damages are claimed by affected party.

• Section 18 of the Indian Contract Act, 1872 defines misrepresentation as under:

Misrepresentation means and includes-

 The positive assertion, in a manner not warranted by the information of a person

making it, of that which is not true, though he believes it to betrue.
 Any breach of duty which, without any intent to deceive, gains an advantage to the
person committing it, or anyone claiming under him, by misleading another to his
prejudice or to do the prejudice of another claiming underhim. Causing, however
innocently, a party to an agreement, to make a mistake as to the substance of the
thing which is the subject of theagreement.
• Positive assertion, i.e. an explicit statement of fact by a person of that which is not true,
though he believes it to be true amounts to misrepresentation. There should be a false
statement made innocently, without any intention to deceive.

• NOORUDEEN vs. UMAIRATHU BEEVIis an illustration where the transaction was set aside on
the ground of fraud and misrepresentation. The defendant, who was plaintiff’s son got a
document executed from the plaintiff describing it as hypothecation deed of the plaintiff’s
property. In fact, by fraud and misrepresentation, the document executed was a sale deed of
the plaintiff’s property. The plaintiff was a blind man and the sale was for an inadequate
consideration. It was held that such a deed which was got executed by fraud and
misrepresentation, was rightly set aside.

 Mistake A Void Contract

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

• There are two kinds of mistake:

a. Common Mistake, both the parties make the same mistake. Each partyknow the intention
of the other and accept it, thus the doctrine of common mistake render a contractvoid.

b. Mutual Mistake is a misunderstanding between each other and are at cross-

[Link] an agreement, the
agreement is void andunenforceable.

Page 29
 MISTAKE
According to section 20, Mistake may work in two ways:
• A mistake in the minds of parties is such that there is no genuine agreement at all.
There may be no consensus and idem i.e. the meeting of two minds, i.e. there may be
absent of consent. The offer and acceptance do not coincide and thus no genuine
agreement is constituted between theparties.
• There may be a genuine agreement, but there may be a mistake as to a matter of fact
relating to thatagreement.

• In RAFFLES vs. WICHELHAUS[14],the buyer and the seller entered into an agreement under
which the seller was to supply a cargo of cotton to arrive “ex Peerless from Bombay”. There
were two ships of the same name i.e. Peerless and both were to sail from Bombay, one in
October and other in December. The buyer had in mind peerless sailing in October while the
seller thought of the ship sailing in December. The seller dispatched the cotton by December
ship but the buyer refused to accept the same. In this case, the offer and the acceptance didn’t
coincide and there was no contract. Therefore, it was held that the buyer was entitled to
refuse to take delivery.

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

• According to section 20, where both the parties to an agreement are under the mistake as to a
matter of fact essential to the agreement, the agreement is void.

• For example – A agrees to buy a certain horse from B. It turns out that the horse was dead at
the time of bargain, neither party was aware of these facts. Hence the agreement is void.

 REQUIREMENTS UNDER SECTION 20

 Both the parties to the contract should be under amistake.
 Mistake should be as regards a matter offact.
 The fact regarding which the mistake is made should be essential to the agreement.

 MISTAKE OF FACT
• There should be a mistake of fact and not of law. The validity of the contract is not affected
by mistake of law.

ILLUSTRATION:-
A and B make a contract grounded on the erroneous belief that a particular debt is barred by the
Indian law of limitation, the contract is not voidable. Everyone is supposed to know the law of
the land. Ignorance of law is no excuse. If a person wants to avoid the contract on the ground
that there was a mistaken impression in his mind as to the existence of some law while he
entered into the contract, he will get no relief. For instance, A owes B Rs 1000, both A and B
mistakenly thinks that the debt is time- barred and agrees that A may pay only Rs 500 to clear
the debt. It is a mistake of law and the contract to pay Rs 500 isvalid.

MISTAKE OF LAW
Mistake of law is a defense that the criminal defendant misunderstood or was ignorant of the law

Page 30
 as it existed at the time. The onus is generally placed on individuals to be aware of the laws of
their state or community, and thus this defense only applies in very limited circumstances. For
example, while a defendant will not be able to claim that he was not aware that murderwas a
crime, he may be able to argue that he was not aware of some obscure traffic law.

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

 When the law has not beenpublished;

 When the defendant relied upon a law or statute that was later overturnedor deemed
unconstitutional;
 When the defendant relied upon a judicial decision that was later overruled;or
 When the defendant relied upon an interpretation by anapplicable official.

 Effect of free consent:

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

• If such consent was caused by misrepresentation or by silence, fraudulent within the meaning
Section 17, the contract, nevertheless is not voidable, if the party whose consent was so
caused had the means of discovering the truth with ordinary diligence.

• A fraud or misrepresentation which did not cause the consent to a contract of the party on
whom such fraud was practiced, or to whom such misrepresentation was made, does not
render a contract voidable.

 Void agreements:

• Ans: According to section 2(g) of the Indian contract Act, 1872. „A void agreement is one
which is not enforceable by law‟.
• A void agreement does not create any legal right (or) obligation. It is void-ab-initio (i.e.., void
of into right from the beginning).

 The following agreements have been expressly declared to void by the contract act:-

 Agreements by incompetent parties. (Section 11)

 Agreements made under mutual mistake of facts. (Section20)
 Agreements which the consideration (or) object is unlawful. (Section23)
 Agreements which the consideration (or) object is unlawful in part. (Section24)
 Agreements made without consideration. (Section25)

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  Agreements in restraint of marriage. (Section 26)
 Agreements in restraint of trade. (section27)
 Agreements in restraint of legal proceedings. (section28)
 Agreement which the meaning is uncertain. (section29)
 Agreements by way of wager. (section30)
 Agreements contingent on impossible events. (section36)
 Agreements to do impossible Acts. (section56)
 In case of reciprocal promises to do things legal and also other things illegal. The
second set (illegal) of reciprocal promises is a void agreement. (section57).

Q. Write a note on voidagreements.

• What Is a Void Contract?

• A void contract is a formal agreement that is effectively illegitimate and unenforceable from
the moment it is created. A void contract differs from a voidable contractbecause, while a void
contract is one that was neverlegally valid to begin with (and will never be enforceable at any
future point in time), voidable contracts may be legally enforceable once underlyingcontractual
defects are corrected. At the same time, void contracts and voidable contracts can be nullified
for similar reasons.

• A contract may be deemed void if the agreement is not enforceable as it was originally written.
In such instances, void contracts (also referred to as "void agreements"), involve agreements
that are either illegal in nature or in violation of fairness or public policy.

 A void contract is a formal agreement that is effectively illegitimate and unenforceable from the
moment it is created.
 A void contract differs from a voidable contract, although both may indeed be nullified for
similarreasons.
 A contract may be deemed void if it is not enforceable as it was originallywritten.
 Void contracts can occur when one of the involved parties is incapable of fully comprehending
the implications of the agreement, like when a mentally impaired individual or an inebriated
person may not be coherent enough to adequately grasp the parameters of the agreement,
rendering itvoid.
 Agreements entered into by minors or for illegal activities may also be renderedvoid.

 Voidable Contract vs. Void Contract

• While a void contract is often considered not executable by design, a contract may be deemed
voidable if the agreement is actionable, but the circumstances surrounding the agreement are
questionable in nature. This includes agreements made where one party withheld information

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 or intentionally provided inaccurate information. Failure to disclose items as required by law,
or misrepresenting information, may render the contract voidable but doesn't automatically
make it void. In instances when one party is allowed to cancel the contract because of the
illegal or unfair (voidable) actions by the other party, the contract or agreement then
becomesvoid.

 ContingentContracts
• PYQ
[Link] the meaning of contingent contract? What are the rules related to contingent
contract?

• Ans: DEFINITION:According to sec (31) of ICA, 1872, a contingent contract is a contract to do or

not to do something, if the event, collateral to such contract, does or does not happen.

• Thus it is a contract, the performance of which is dependent upon the happening or non
happening of an uncertain future event, collateral to such events.

EX: ‘A’ promises to pay Rs 10000/-, if B’s house is burnt.

• ESSENTIAL CHARACTERISTICS OF A CONTINGENT CONTRACT:

1. Its performance depends upon the happening or non happening in the future of someevent.
2. The event must beuncertain
3. The event must becollateral

• RULES REGARDING PERFORMANCE OF A CONTINGENT CONTRACT:The following arethe rules

regarding performance of a contingent contract:

1. Contingent contract upon the happening of a future uncertainevent:-When the happening

of such event has possible it becomes enforced and if the happening of such event
becomes impossible it becomesvoid.

EX: ‘A’ contracts to pay ‘B’ a sum of money when ‘B’ marries ‘C’.’C’ dies without being married
to ‘B’. The contract becomesvoid.

2. Contingent contract upon the non happening of a future uncertain event:When the
happening of such event becomes impossible it becomes enforced and when such event
has possible it becomesvoid.

EX: “A” agrees to sell his car to “B” if “C” dies. The contract cannot be enforced as long as “C”
is alive.

3. Contingent contract upon happening of an event within a specified time:When such

event has happened within the specified time it can be enforced and if the happening of

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 such event becomes impossible within the specified time it becomesvoid.

EX: ‘A’ agrees to pay ‘B’ a sum of money if ‘B’ marries ‘C’,’C’ marries ‘D’. The marriage of ‘B’ to
‘C’ must be considered impossible now, although it is possible that ‘D’ may die and that ‘C’
may afterwards marry‘B’.

4. Contingent contract upon non happening of an event within a specified time:When the
happening of such event becomes impossible within the specified time it can be enforced
and if the happening of such event has happened within the specified time it becomesvoid.

EX:’A’ promises to pay ‘B’ a sum of money if a certain ship returns within a year. The contract
may be enforced if the ship returns within a year, and becomes void if the ship is burnt
within the year.

5. Contingent contract upon impossible events:Such an agreement cannot be enforced since

it is void. Whether the impossibility of the event was known to the parties or not
isimmaterial.

EX:‘A’ agrees to pay ‘B’ Rs 1000/- if ‘B’ will marry A’s daughter, ‘X’. ‘X’ was dead at the time of
the agreement. The agreement is void.

6. Contingent contract upon future conduct of a living person:When such person acts in
the manner as desired in the contract it can be enforced and if such person does not acts
in the manner as desired in the contract it becomesvoid.

POINTS OF
CONTINGENT CONTRACT WAGERING AGREEMENT
DIFFERENCE

Type of A contingent contract is enforceable A wager is an agreement that can be

document by the Law. This means that any enforceable or non-enforceable
contract based on the happening or by law.
non-happening of an event that is
opposed by law, shall not be
considered a validcontract.
A contingent contract is mentioned in A wagering agreement is
Section 31 of the Indian Contract mentioned in Section 30 of the
Mentioned Act 1872, and is legally valid. Indian Contract Act 1872.
under
According to this Section, wagering
agreements are considered void.

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 Section 31 of the Indian Contract Act The Indian Contract Act does not
states that a contingent contract define the term wagering
is a contract to do or not to do agreement. However, a wager
Definition something depending on the means to either profit or incur
outcome of a future uncertain a loss by betting on something
event, which is collateral to this depending on the outcome of a
contract. future uncertain event.
In a contingent contract, there is an In a wagering agreement, the only
interest in the contract, as an act interest is in whether I have
Interest
will be done depending on the gained profit or incurred loss,
uncertain future event. depending upon the outcome of
an event.
An uncertain future event is the
Uncertain An uncertain future event is only factor that determines
Future event secondary or collateral to who has won the wager.
the

contract. It does not determine the

outcome of the contract

Reciprocal In a contingent contract, there may or In a wagering agreement,

Promise not be reciprocal promises. reciprocal promises are
involved.

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 UNIT—III
Modes of Discharge of Contracts - Time and place of performance — Performance of reciprocal
promises -Appropriation of Payments — Discharge by Agreement, operation of Law, frustration
(Impossibility of Performance) andby Breach(Anticipatoryand Actual).

 Modes of Discharge of Contracts:

• PYQ
• Explain in brief the various modes of discharge of contracts.
• Modes of Discharge of Contract
• The contract may be discharged in the following six modes of discharge of contract discussed as
follows:
• Discharge by performance
• Discharge by mutual consent or agreement
• Discharge by impossibility of performance
• Discharge of a contract by lapse of time
• Discharge of a contract by operation of law
• Discharge by breach of contract

 Discharge by performance:
• Performance of a contract is the principal and most usual mode of discharge of a contract.
Performance may be:
• Actualperformance:Itmeansthepartiestoacontracthaveperformedtheir respective promises
under the contract.
• Attempted performance or a tender: It means the promisor has made .

 Discharge by mutual consent oragreement

• A contract can be discharged by mutual agreement in any of the following ways:
• Novation: The term novation implies the substitution of a new contract for the original one.
• Example: A owed Rs 100 to B, under contract. B owned Rs 100 to C. It was agreed among A, B and C
that A would pay Rs 100 to C.
• Alteration:Itreferstoachangeinoneormoreofthetermsofacontractwith the consent of all the
contracting parties.

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• Example: A agreed with B to supply 100 TV sets at a certain price by the end of October.
Subsequently, ‘A’ and ‘B’ mutually agree that the supply can be made by the end of November. This
is an alteration in the terms of the contract by consent of both the parties.
• Remission: Remission means the acceptance(by the promisee)of a lesser sum than what was
contracted for, or a lesser fulfillment of the promise made.
Example:owesBRs5,000.ApaysRs2,000toBandBacceptstheamount in satisfaction of the whole debt.
The whole debt is discharged.

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

 Discharge by impossibility ofperformance

• Sometimesafteracontracthasbeenestablished,somethingmightoccur,thoughnotat the fault of either
party, which can render the contract impossible to perform, or illegal, or radically different from
that originally undertaken, which leads to discharge of contract.

 Supervening impossibility or Post-contractual impossibility:

• The contract becomes void on account of the subsequent impossibility only if the following
conditions are satisfied:
– The act should have become impossible after the formation of the contract.
– The impossibility should have been caused by a reason of some event which was
beyond the control of the promissory.
– The impossibility must not be the result of some act or negligence of the promisor
himself.

 Discharge of a contract by lapse of time

• Every contract and promise under the contract should be performed within a time limit. The
contract is discharged if it is not performed or enforced within a specified period called the period
of limitation.
• Example:Theperiodoflimitationforrecoveringthedebtis3yearsand12yearsfor the recovery of
immovable property.

 Discharge of a contract by operation oflaw

• In the following circumstances, the discharge of contract by the operation of law.
• Unauthorized material alteration of a written document;
• Death;
• Merger;
• Insolvency;

 Discharge by breach ofcontract

• Breach occurs where one party to a contract fails to perform its contractual obligations, or the

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 performance is defective, which leads to a discharge of contract.
• A Breach may be anticipatory or actual.
• Anticipatory: is also known as‘ breach by repudiation’. Where a person repudiates a contract
before the stipulated due date.

• Actual breach refers to the failure to perform contractual obligations when performance is due.

 Time and place of performance

[Link] are the rules of law relating to time and place of performance of contract?

Ans: “Performance of contract means carrying out of promises and obligations undertaken by the
parties according to the terms prescribed in the contract”.A contract can be performed by the
promisor himself, by the agent on behalf of the promisor, by the legal representatives on the
death of the promisor, by the joint promisors or by any third person.

• Time and place of performance:

• Time and place of performance of a contract are matters/rules to be determined by an

agreement between the parties themselves. Section 46 to 50 of the contract Act lay down the
rules regarding the time and place of performance they are follows:-

i. Where no application is to be made and no time is specified : [Sec 46]Where a promisor has to
perform his promise without application by the promisee and no time is specified for
performance, the engagement or promise must be performed within a reasonabletime.

• “What is a reasonable time” is a question of fact in each particular case. It depends on the
special circumstances of the case (contract), the usage of trade, or the intention of the parties
at the time of entering into thecontract.

ii. Where time is specified and no application is to be made : [Sec 47]When a promise is to be
performed on a certain day without application by promisee, the promisor may perform the
promise at any time during the usual working hours on suchday.

EX: “A” promises to deliver goods at “B”s warehouse on the 1st of January. On that day “A” brings
the goods to “B”s warehouse, but after usual hour of closing it and they are not received. “A”
has not performed the promise.

iii. Application for performance on a certain day and place : [Sec 48]When a promise is to be
performed on a certain day the promisor may undertake to perform it after the application by
the promisee to that affect. In such a case it is the duty of the promisee to apply for
performance at a proper place and time within usual businesshours.

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iv. Application by the promisor to the promisee to appoint a place : [Sec 49]When a promise is to
be performed without application by the promisee and no place is fixed for the performance, it
is the duty of the promisor to apply to the promisee to appoint a reasonable place for the
performance of the promise and perform the promise at suchplace.

EX: “A” undertakes to deliver goods to “B” on a fixed day. “A” must apply to “B” to appoint a
reasonable place for the purpose of receiving it, and must deliver it to him at such place.

v. Performance in manner or at the time prescribed or sanctioned by the promisee: - [Sec 50]The
performance of any promise may be made in any manner or at any time which the promisee
prescribes orsanctions.

 By whom must contracts be performed?

Ans: The promise under a contract may be performed by;

a. Promisor himself: If there is something in the contract to show that it was the intention of the
parties that the promise should be performed by the promisor himself, such promise must be
performed by promisor himself. This means contracts which involve the exercise of personal
skill or diligence or which are founded on personal confidence between the parties must be
performed by promisorhimself.

EX: A contract to paint a picture or to sing or to marry.

Agent:Where personal consideration is not the foundation of the contract, the promisor or his
representative may employ a competent person to performit.

EX: ‘A’ promises to pay ‘B’ a sum of money; ‘A’ may perform the promise, either by personally
paying the money to ‘B’ or by causing (making)it to be paid to ‘B’ by another.

b. Legal Representatives:A contract which involves the use of personal skill or is founded on
personal considerations comes to an end on death of the promisor. As regards any other
contract, the legal representatives of the deceased promisor are bound to perform it unless a
contrary intention appears from the contract. But their liability under a contract is limited to the
value of property they inherit from the deceased.

EX: ‘A’ promises to deliver goods to ‘B’ on a certain day on payment of Rs.1000/-. ‘A’ dies before
that day. A’s representatives are bound to deliver the goods to ‘B’, and ‘B’ is bound to pay Rs
1000/- to A’s representative.

c. Third person:When a promisee accepts the performance of the promise from third person, he
cannot afterwards enforce it against thepromisor.

d. Joint promisors:When two or more persons have made a joint promise, then unless a contrary
intention appears from the contract, all such persons must jointly fulfill the promise, if any of

Page 39
 them dies, his legal representatives must jointly with the surviving promisor have to fulfill the
promise. If all of them die, the legal representatives of all of them must fulfill the
promisejointly.

• As per section 67,”If any promisee neglects or refuses to afford reasonable facilities for
performance of the promise to promisor, the promisor is excused for non performance.”

 Performance of reciprocal promises

• PYQ
Q. what is reciprocal promises? Explain the rules regarding the reciprocal promises?

• Ans: According to section 2(f) of Indian Contract Act, 1872. “Promises which form the
consideration or part of the consideration for each other are called “reciprocal promises”.

• Rules regarding performance of reciprocal promises:Section (51 to 54) of the contract Act, lay
down the rules regarding the order of performance of reciprocal promises; which are as
follows:-

o Simultaneous performance of reciprocal promises:Where the promises are to be

performed simultaneously, they are said to be “mutual and concurrent”. According to
section 51 such promises need not perform by the promisor unless the promise is ready
and willing to perform his reciprocalpromise.

o EX: “A” and “B” enter into a contract that “A” shall deliver certain goods to “B” to be
paid for by “B” on delivery ; and “B” need not pay for the goods unless “A” is ready and
willing to deliver them onpayment.

o Order of performance of reciprocal promises:According to section 52, where the order

in which the reciprocal promises are to be performed is expressly fixed in the contract,
they must be performed in that order. Where the order is not expressly fixed, they
must be performed in that order which the nature of transactionrequires.

o EX: “A” and “B” entered into a contract, that “A” shall build a house for “B” at a fixed
price. A’s promise to build the house must be before B’s promise to pay for it.

o Effect of one party preventing another from performing promise:According to section

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

o EX: “A” and “B” enter into contract that “B” shall execute certain work for “A” for Rs
1000/-. “B” is ready and willing to execute the work accordingly but “A” prevents him
from doing so. The contract is voidable at the option of “B” and if he elects to rescind it,

Page 40
 he is entitled to recover from “A”, compensation for any loss which he has incurred by
its nonperformance.

o Effect of default as to promise to be performed first:According to section 54, where the

performance of promise by one party depends on the prior performance of the promise
by other party. In such a case one of them cannot be performed till the other party has
performed his promise then if the other party fails to perform it, he cannot claim off the
performance of the reciprocal promise from the first party and the other party make
compensation for any loss which the first party may sustain by the non performance of
thecontract.

o EX:“A” promises to ”B” to sell him 100 bales of merchandise to be delivered next day,
and “B” promises “A” to pay for them within a month. “A” does not deliver according to
his promise. B’s promise to pay need not be performed and A must make compensation
to “B”.
o Reciprocal promises to do things legal and also other things illegal. (Section57).

 Appropriation of Payments

• PYQ
Q. Explain the rule relating to appropriation of payment between debtor and creditor

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

[Link] a debtor pays
an amount to the creditor, the creditor is to take note of these sections before applying the
payment to a particular debt, because the creditor would be inclined to appropriate the
payments to the debt which is not likely to be realized easily.

• Sections59to61,oftheContractAct,embodythegeneralrulesastoappropriationof payments in
cases where debtor owes several distinct debts to one person and voluntarily makes payments
tohim.

• Itwasobservedthat“Whenmoneyispaid,itisappliedaccordingtotheexpresswillof the payer and

not the receiver. If the party to whom the money is offered does not agree to apply it
according to the express will of the party offering it, he must refuse it and stand upon the
rights which the law giveshim.

• Appropriationistherefore,[Link] in case of
several and distinct debts and do not apply where there is only one debt, though payable
byinstallments.

• Sections59to61laydownthreerulesregardingappropriationofpaymentsbasedon English law laid

down that when a debtor makes a payment he may appropriate it to any debt he pleases and

Page 41
 the creditor must apply itaccordingly.

 RULES:

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

• Where a debtor, owing several distinct debts to one person, makes a payment to him,
eitherwithexpressintimation,orundercircumstancesimplyingthatthepaymentisto be applied to
the discharge of some particular debt, the payment if accepted, must be appliedaccordingly.

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

Illustrations:
a) A owes B, among other debts, Rs.1,000 upon a promissory note which falls due on 1st June. He
owes B no other debt of that amount. On the 1st of June A pays to B
Rs.1,[Link].
b) A owes B, among other debts a sum of Rs.567. B writes to A and demands
[Link] of the debt which
B haddemanded.

• Debtor may express his intentions expressly or impliedly under the circumstances. If there is no
express intimation by the debtor, but from the circumstances, it is implied
thatthedebtorintendedappropriationtoaparticulardebt,thedebtor’sintentionsmust be followed,
if the money isaccepted.

• The Court should, in the absence of any appropriation by the debtor or creditor, direct
thatthepaymentshouldbeappliedindischargeofthedebts,inorderoftimeiftherebe such, and if
they are all of the same date, in discharge of each of such debts proportionately.

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

• Where the debtor has omitted to intimate and there are no other circumstances indicating to
which debt the payment is to be applied, the creditor may apply it at his
discretiontoanylawfuldebtactuallydueandpayabletohimbythedebtorwhetherits
recoveryisorisnotbarredbythelawinforceforthetimebeingastothelimitationof suits.

• If a debtor does not exercise his right, the creditor has the right to appropriate the
[Link] is a running
account, the payment can be appropriated to any debt. It is a settled law
thatacreditorisentitledtoadjustthedebtsfromanysecurityinthecreditor’scustody.
• The time barred debt remains a debt even if the remedy to recover it is barred.

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• Where the debtor does not intimate and the creditor fails to appropriate: (Sec.61)
• Where neither party makes any appropriation, the payment shall be applied in
dischargeofthedebtsinorderoftime,whethertheyareorarenotbarredbythelawin force for the
time being as to the limitation of suits. If the debts are of equal standing, the payment shall be
applied in discharge of eachproportionately.

• To summarize, the debtor has the first right to intimate appropriation of a debt at the
timeofpaymentifhefailstoexercisehisright,thisrightthandevolves on the creditor
andifthecreditoralsofailstoexercisehisrighttheappropriationwillbedoneinorder
[Link],eachwillbeappropriatedproportionately.

 Discharge by Agreement,
• Explain in detail “Discharge of a contract by agreement (or) by consent or by mutual consent

Ans: The general rule of law is a thing may be destroyed in the same manner in which it is
constituted. This means a contractual obligation may be discharged by a agreement which may
be expressed or implied.
• The various cases of discharge of a contract by mutual agreement are dealt with in Section 62
and 63 and are discussed below:

1. Novation (Section.62):Novation takesplaces:

i. When substitution of a new contract for the original one either between the same parties or
between same partiesor
ii. The consideration for the new contract is mutually being the discharge of oldcontract.
iii. Novation should take place before the expiry of the time of the performance of the original
contract.
Ex: “A” owes “B” Rs.10,000/-. He enters into an agreement with “B” a mortgage of his (A’s)
estate for Rs.5,000/- in place of the debt of Rs.10,000/-. This is a new contract extinguishes
the old one.

2. Recession (Section.62):Recession of a contract takes place when all or some of the terms of the
contract are cancelled. It may occur:

a) By mutual consent of the parties(or)

b) Where one party fails in the performance of his obligation. In such a case, the other party
may resend the contract without claiming compensation for the breach ofcontract.

• In case of recession, only the old contract is cancelled and no new contract comes to exist in its
place. Both in novation and in recession, the contract is discharged by mutual agreement.

• Ex: “A” and “B” enters into a contract that “A” shall deliver certain goods to be by the 15 th of
this month and that “B” shall pay the price on the 1 st of the next month. “A” does not supply

Page 43
 the goods. “B” may resend the contract, and need not pay the money.

3. Alteration (Section.62):Alteration means a change in one or more terms of a contract with

mutual consent of parties. In such a case the old isdischarged.

• Ex: “A” enters into a contract with “B” for the supply of hundred bales of cotton at his godown
No.1 by the 1st of the next month. “A” & “B” may alter the terms of the contract by mutual
consent.
4. Remission (Section.63):Remission means acceptance of a lesser fulfillment of the promise made
or acceptance of a sum lesser than what was contracted for. In such a case, Section.63 of the
Contract Act allows the promise to dispense or remit the performance of the promise by the
promisor, or to extend the time for the performance of to accept any other satisfaction instead
ofperformance.

• Ex: “A” owes “B” Rs.5,000/-. “A” pays to “B” and “B” accepts in the satisfaction of the whole
debt Rs.2,000/- paid at the time and place which Rs.5,000/- were payable. The whole debt is to
be discharged.

5. Waiver:When a contracting party fails to perform his obligation under the contract, the other
party (aggrieved party) may resend the contract and may waive the promisor or release. This is
called as Waiver.

6. By merger: Merger takes place when an inferior right accruing to a party under a contract
merges into a superior right accruing to the same party under the same or some othercontract.

• Ex: “P” holds a property under a lease. He later buys the property. His rights as a lessee merge
into his rights as a owner.

 Operation of Law,
• Discharge by Operation of Law:

1. By Death:If contracts involving personal skill or ability of the promisor, the contract is
discharged / terminated on the death of thepromisor.
2. By insolvency:When a person is adjudged insolvent, he is discharged from all liabilities incurred
prior to hisadjudication.
3. By merger:Merger takes place when an inferior right accruing to a party under a contract
merges into a superior right accruing to the same party under the same or some other contract.
In such a case, the contract may bedischarged.
4. By unauthorized alteration of the terms of a writtenagreement:Where a party to a contract
makes any material alteration in the contract without the consent of the other party, the other

Page 44
 party can avoid thecontract.
5. By rights and liabilities becoming vested in the sameperson:When the rights and liabilities
under a contract vests in the same person, the other parties aredischarged.

 Frustration (Impossibility of Performance)

 PYQ
 What is frustration of contract? State specific grounds of frustration
 Critically examine discharge of a contract by impossibility of performance
 Explain the doctrine of impossibility of performance of contracts with illustrations.

 Doctrine of Frustration in India

• Section 56 of the Indian Contract Act: As with most laws in India, the contract act is influenced
by English laws/doctrines(The act was passed when India was under colonial rule). This
doctrine constitutes the Indian Contract Act,1872, as Section 56( Agreement to do
impossible act). An agreement to do something, which was possible or lawful when the
contract was constructed, but subsequently, becomes
impossibleorunlawfulwithoutanyfaultofeitherparty,thensuchanactwillbevoid.

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

The ingredients of Section 56 are as follows

• the agreement is to do an impossible act is initself

• a contract to do an act becomes impossible or unlawful by an event whichthepromise could
not foresee,
• thepromisorknewormighthaveknownwithreasonablediligencethattheact he promise! is
impossible or unlawful, but the promise did not know of it, in such circumstances, promisor is
held liable to pay compensation to the promisee for any loss occurred by promise for the non-
performance of the promise,
• Illustrations appended to Section 56 clarify and give propositions ofthis doctrine

 GROUNDS FOR FUSTRATION

1. Destruction of subject-matter:The doctrine of impossibility is befitting ‘’where the specific
subject-matter of the contract is annihilated. ‘’Taylor vs Cadwell’’as discussed previously is a
goodexample.
2. Change of circumstances:A contract will frustrate ‘’where certain situations arise which make
the accomplishment of the contract impossible in the way contemplated’’. Justice Kapur of the
Punjab High Court in Pameshwari Das Mehra v Ram Chand Om Prakashexplained the principle
thus: ‘’It is clear that if there is entirely unforeseen occurrence the critical point that has to be
pondered upon, whether this occurrence has influenced the responsibility of the parties in the

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 contract to such an extent as to make it virtually impossible or even perilous or hazardous. If
that be the case, the occurrence not having been brought about by the fault of either party, the
courts will not enforce the contract’’. For example, A ship was chartered to load cargo but on
the day she should have proceeded to her berth, an explosion occurred in the auxiliary boiler,
which made it impossible for her to undertake the voyage at the scheduled time, the House of
Lords held that frustration had occurred in thecircumstances.

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

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

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

contingent upon the survival of a given person, if that person dies’’. The essence of these type
of cases that it requires individual to use his particular skill, in this case the promisor, his death
or incapacity puts an end to the contract. An illustration where A contract between painter, and
the person to draw his picture on a particular date. The painter dies before that date, hence the
parties are automatically discharged.
5. Government, Administrative or Legislative intervention:Contract will be dissolved when by the
operation of legislative or administrative action which strikes the objective or purpose of the
contract, thereby changing the fundamental nature of the contract. Thus, where a vendor of
land could not complete the sale-deed because he was no longer the owner due to a law which
came into effect, it was held that the contract had become impossible ofperformance.

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

 EFFECTS OF FUSTRARTION

• Frustration should not be self-induced:The frustration should not be caused because of any of
the parties’ fault or [Link] of the case illustrates this points where the exporter had an
export licence to supply 3000 tons of sugar beet pulp pellets. They had applied to the
government to increase their quota but that was refused. After exporting 1500 tons to the first
buyer with an option to supply 1500 tons later. They also contracted with another buyer to

Page 46
 supply them with 1500 tons of sugar . This was clearly beyond their limit under the licence. To
get out of this exporters apportioned the 1500 tons between the two buyers equally. One of
the buyers sued the exporters for the breach of the contract. The suppliers pleaded frustration.

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

• Major Indian Case related to this doctrine:

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

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

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

 by Breach(Anticipatoryand Actual).
• PYQ
• Write a note on anticipatory breach ofcontract.

Introduction
• Anticipatory breach of contract refers to the cases involving the breach of the contract before
the due date of the performance of the contract. This type of breach occurs when one of the
parties to the contract, indicates to the other inadvance, his/her inability or wish against
fulfilling the contract. When an anticipatory breach of contract occurs various rights and
remedies are bestowed upon the aggrieved party as to the further performance of the contract

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 or compensation, rescission etc.

 Anticipatory Breach of Contract

• An anticipatory breach of contract occurs when before the date of the performance of the
contract one of the parties declares about its intention to break the contract or about his/her
non-performance. It is discussed under section 39 of the act which is as follows:

• Section 39. Effect of refusal of party to perform promise wholly – When a party to a contract
has refused to perform, or disabled himself from performing, his promise in its entirety, the
promisee may put an end to the contract, unless he has signified, by words or conduct, his
acquiescence in its continuance.

 Constituents of an anticipatory breach of contract

• An anticipatory breach of contract happens in any of the following situations or ways:

a) The defaulting party expresses to the other party, a positive and unconditional refusal: This is
called expressed repudiation. This refusal should be clear, straightforward, and directed
towards the innocent party. But in cases where the refusal is unqualified or ambiguous, the
non-breaching party may request an assurance for performing from the other party and
meanwhile may suspend his/herperformance.

b) The breaching party, because of a certain cause, is unable to perform: If the defaulting party
voluntarily does something which makes his performance of contractual obligations
impossible, it will also be considered as a repudiation of thecontract.

 Difference between anticipory breach and actual breach of contract Anticipatory Breach:

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

 By express repudiation: Under this one party to the contract communicatesto the other
party, before the performance is due, his intention not to performit.
 By creating some impossibility: A promisor may, before the timeof performance arrives, by
doing some act, make the performanceof
 his promise impossible.

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

either of the following two options:
 He can treat the contract as rescinded and can bring an action for damages for
breachofcontractimmediatelywithoutwaitingtilltheduedateforperformance;or
 He may treat the contract operative till the date of performance arrives andto sue only

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 after that date for damages forbreach.
 The option to sue at once or wait for performance lies with the aggrieved party.

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

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

 Effects of anticipatory breach of contract:

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

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

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

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

 Election to rescind thecontract

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

 Election to keep the contractalive

• Anticipatory breach of contract by one party does not automatically put an end to the
contract. It has already been noted above that on the anticipatory breach by one party, the

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 other party can exercise the option either to treat the contract at an end, or, to treat it as still
alive and subsisting until the due date of performance comes.

• When the contract is kept alive by the promisee, the promisor may perform the same in spite
of the fact that he had earlier repudiated it. If the promisor still fails to perform the contract
on the due date, the promise will been titled to claim compensation on the basis of the
breach of the contract on the agreed date of performance.

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

UNIT—IV
• Remedies for Breach of Contracts ,
• Damages —Kinds of damages,
• Remoteness of damages,
• Ascertainment of damages ,
• Quasi Contracts.

 Remedies for Breach of Contracts:

• PYQ
• What is meant by of contract of contract? Explain the remedies for or breach of contract?

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• When a promise or agreement is broken by any of the parties we call it a breach of contract.
Sowhen either of the parties does not keep their end of the agreement or does not fulfil their
obligation as per the terms of the contract, it is a breach of contract. There are a few
remedies for breach of contract available to the wronged party. Let us take a look.
• Recession ofContract
• When one of the parties to a contract does not fulfil his obligations, then the other party can
rescind the contract and refuse the performance of his obligations.
• As per section 65 of the Indian Contract Act, the party that rescinds the contract must restore
any benefits he got under the said agreement. And section 75 states that the party that
rescinds the contract is entitled to receive damages and/or compensation for such a
recession.

• Sue forDamages
• Section 73 clearly states that the party who has suffered, since the other party has broken
promises, can claim compensation for loss or damages caused to them in the normal course
of business.
• Such damages will not be payable if the loss is abnormal in nature, i.e. not in the ordinary
course of business. There are two types of damages according to the Act,
• Liquidated Damages: Sometimes the parties to a contract will agree to the
amount payable incase of a breach. This is known as liquidated damages.

 Damages
• Introduction
• Damages are the solution or the remedy for the damage caused to the party.
• Damage can be caused in two ways: consequential or incidental.
• The estimated money should equal the harm or detriment suffered by either party, as
directed by law.

• Legal Provisions
• Section 73 of the Indian Contract Act, 1872 lays down the provision relating to damages.
• It provides that the party who breaches a contract is liable to compensate the injured
party for any loss or damage caused due to the breach of contract.
• Illustration: - ‘A’ contract to repair B’s house in a certain way and receive the money in
advance. ‘A’ repairs house, but not according to the contract. ‘B’ is entitled to recover the cost
of making the repairs in accordance with the contract from ‘A’.
• Section 74 of the Indian Contract Act, 1872, deals with liquidated damages.
• Section 75 of the Indian Contract Act, 1872 deals with the cases where
the plaintiff is entitled to receive compensation when the contract is rescinded rightfully.

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 Types o damages:
• Damages may be of different types they are as follows:

• Ordinary or natural or general or compensatorydamages:Ordinary damages are generally the

difference between contract price and market price in sale of such damages which arise
naturally in usual course of things from the breach ofcontract.

• Ex: Hadley (vs) baxendale (1854):

• Facts:H’s mill was stopped by the break down of shaft. He delivered the shaft to ‘B’, a common
carrier to be taken to a manufacturer to copy it and make a new one. “H” did not make known
to “B” that delay would result in loss of profits by some neglect on the part of “B” the delivery
of shaft was delayed in transit beyond a reasonable time (so that the mill was idle for a longer
period than other wise would have been the case had there been no breach of the contract
ofcarriage.
• Judgment:“B” was not liable for loss of profits during the period of delay as the circumstances
communicated to “B” did not show that a delay in the delivery of shaft would entail loss of
profit to mill.

• special damages:where a party to a contract receives a notice of a special circumstances

affecting the contract, he will be liable not affecting the contract , he will be liable not only for
damages arising naturally but directly from the breach and also fo4 specialdamages.

• Ex: A, having a contracted with “B” to supply “B” 1000 tons of iron @100 a ton, to be delivered
at a stated time. “A” contracts with “c” for to purchase of 1000 tons of iron 80 a ton telling “C”
that he does so for the purpose of performing his contact with “B”. “C” fails to perform his
contract with “A” Rs.20000 /- being the profit which “A” would made by the performance of his
contract with“B”.

• Nominal (or) token damages:Nominal damages are awarded where the plaintiff has proved
that there has been a breach of contract but he has not in fact suffered any real damage. Now
you may ask why such damages are awarded. The answer is simple. It is awarded just to
establish the right to decree or the breach of contract. The amount may be even arupee.

• Vindictive or exemplary damages:Exemplar damages are punitive damages which are awarded
by the court in some cases. It is generally given by way of compensation for loss suffered and
not by way of punishment for wrong inflicted. Exemplary damages awarded only in twoways:

a. Breach o contract ofmarry.

b. Dishonor of a cheque by a banker when there are sufficient funds to the credit of
theconsumer.

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• Damages for loss of reputation:Damages for loss of reputation in case of breach o contact are
generally not recoverable. But there is an exemption to this rule exists in a case o a banker who
wrongly refuses to honor a customer’s cheque. If the customer happens to be a trade man, he
can recover damages in respect of any loss to his trade reputation by the breach of contract.
And the rule o law is: the smaller the amount of damages awarded. But I the customer is not a
tradesman, he can recover only nominal damages.

• Damages or inconvenience and discomfort:Damages can be recovered for physical

inconvenience and discomfort. If, how ever the inconvenience or discomfort caused by a
breach is substantial, the damages can be recovered on the ground offairness

• Mitigation of damages:It is the duty o the injured party to take all reasonable steps to mitigate
the loss caused by the breach. He cannot claim compensation or loss which is really due not to
the breach but due to his ownneglect.

• Cost of decree:The aggrieved party id entitled, in addition to damages, to get the decree for
damages. The cost of suit for damages is in the discretion of thecourt.

• Damages agreed upon in advance in cash for breach: If a sum is named in a contract as the
amount to be paid in cash of its breach, or if the contract contains any other stipulation by way
of penalty for failure to perform the obligations, the aggrieved party is entitled to receive from
the party who has broken the contract, a reasonable compensation not exceeding the amount
so named in thecontract.
• Difficulty of assessment: The damages which are difficult to assess with inconvenience
discomfort and sufficiency cannot be recovered. But the damages which are difficult to
asses with certainty does not prevent the aggrieved party from recovering them. Them
court will look into it and may allow monetary damages of ouchinconveniences.

• UnliquidatedDamages:In other cases where the courts instead of parties to the contract
determine the damages to be paid by the defaulting party; such damages are known as
unliquidated damages.

• PYQ
• Explain general and special damages with the help of decided cases.
Introduction:
There are two types of compensatory damages you can receive when you file a personal injury
claim: special damages and general damages. Sometimes they are also referred to as economic
and non-economic damages.

 General Damages

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 TYPES OF GENERAL DAMAGES
Injuries come in all shapes and sizes, including but not limited to:

1. Physical pain andsuffering.

2. Disfigurement.
3. Physicalimpairment.
4. Mental healthissues.
5. Loss of love, care, andcompanionship.
6. Reduced quality oflife.
7. Future pain andsuffering.
When it comes to general damages, whether or not the defendant was able to anticipate the injury
does not prevent the claimant from receiving full compensation for any harm done.
An example: Driver 1 is the negligent party in a minor car accident. Driver 2 has a rare bone
condition that is aggravated by the accident. Driver 1 may be responsible for all of Driver 2’s
general damages. This is the case even if a driver without a bone condition would have
experienced no injury as a result of the accident. Each specific plaintiff’s condition is unique to
their case,
meaning “What ifs?” don’t come intoplay.

HOW TO CALCULATE GENERALDAMAGES

When it comes to general damages, it is often difficult to calculate the exact monetary amount
that each plaintiff should be awarded. For example, compensation for mental suffering—or, in
some cases, even embarrassment— will differ for each individual case. Often, outside experts,
such as mental health professionals, are brought in to help determine an exact dollar amount for
general damages compensation.

Some determining factors include the intensity of an injury, the emotions ofthe jury, and the
skillset of the injured party’s lawyer. This is why it’s critical to work with an experienced attorney
who knows how to maximize your compensation.

 Special damages

Special damages are those that do not, of course, arise from the breach of the defendant and can
only be recovered if they were in the reasonable consideration of the parties at the time they
made the contract.
It refers to those losses that must be specifically pleaded and proven.
It refers to those losses that can be calculated financially. It represents the exact amount of
pecuniary loss that the claimant proves to have suffered from the set of pleaded facts.

SomeoftheexamplesofSpecial damages are:

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  Loss of business opportunities, contract andprofits.
 Damage or loss to businessreputation.
 Loss of time and otherinconveniences.
 Loss from Operatingrevenues.
 Loss of business product andproperties.

For example, in the above illustration if both the party estimated loss and took the difference of
Rs. 5 per bags but if he has to suffer the loss of only Rs. 1 per
bagthenhehastothefacelessamountoflossandtheparticularamountwillbe recovered under
Specialdamages.

• In CedrickMakara vs. Newmark Realty, Makara claim compensation as he hurt his thumb while
leaving the restroom at his workplace, due to injury he was not able to come for 6 months for
work. The injury was so bad that he required surgery and jury awarded him a compensation of
$ 2 as compensatory damages for pain and suffering and $2,00,000 under special damages for
any kind of medical need he might be required in future.
• In the case of Bret Michaels vs. CBS, a celebrity sued a company over an accident. At the Tony
Award Broadcast in 2009, he was not guided in a correct way on how to exit from the stage
due to which he was hit by a set piece in his head and he broke his nose and suffered from a
brain haemorrhage. The court has given the decision in favour of Michael but the
compensatory and general damage amount was not disclosed in public.

 Liquidated Damages and Penalty:

If the parties to a contract specify the amount of compensation payable in case of a breach of
contract, then will the Court accept this figure as a measure of damage? This scenario is handled
differently by the English and Indian laws.

• Liquidated Damages and Penalty:

• If the parties to a contract specify the amount of compensation payable in case of a breach of
contract, then will the Court accept this figure as a measure of damage? This scenario is
handled differently by the English and Indian laws. Let’s look at each of them:
• English Law
• As per the English law, the amount specified can be interpreted either as liquidated damages
or penalty.
• Indian Law
• The Indian lawmakes no distinction between liquidated damages and penalty. The compensation
awarded cannot exceed the amount mentioned in the contract. According to Section 74 of the
Indian Contract Act, 1872, if the parties fix the damages, the Court will not allow more. However,
it may award a lesser amount, depending on the case.
• Hence, the suffering party gets reasonable compensation but no penalty.
• There is an exception to Section 74 which states that if a party enters into a contract with the

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 State or Central governmentfor the performance of an act in the interest of the general public,
then a breach of such a contract makes the party liable to pay the entire amount mentioned in
the contract.
• Liquidated damages: If the amount fixed by all parties is a genuine estimate of the loss by a
future breach of contract, then it is liquidated damages. Thus, all
partiestothecontractagreethattheamountisfaircompensationforthebreach.
• Penalty: If the amount fixed by all parties is unreasonable or used to force the performing
party to fulfill the obligation, then it is a penalty. In such cases, the amount is disregarded and
the suffering party cannot claim more than the actual loss.

• How to differentiate between Liquidated Damages and Penalty?

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

 Other Remedies Available

• Interestingly, claiming damages is not the only remedyfor a breach of contract. Here are
some other remedies available to suffering parties:
• Rescission of Contract:
• Rescission means revocation, cancellation, or repeal of a law, order, or agreement. If one party
breaches the contract, then the other party can treat the contract as rescinded. Also, he is
discharged of all obligations under the contract. Further, he can claimcompensation for
damages, ifany.
• Example: Peter agrees to deliver 50 bags of cement to John on July 01, 2018. John agrees to
pay Rs 10,000 on receipt of the same. However, Peter fails to deliver the cement on the
specified date. Hence, John is absolved of his obligation to pay the price. Further, he can claim
compensation for losses suffered in procuring the cement from another seller.
• Quantum Meruit
• Quantum Meruit means a reasonable sum of money paid to a personfor services rendered

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 when the amount is not specified in a legally enforceable contract.
• In such cases, the law infers a promise to pay since the service rendered indicates an
understanding between both parties. Quantum Meruit covers a case where the party who
provides the service has completed part, but not all of the work that he was bound to do and
seeks compensation for the value of the work done. There are two important conditions that
must be met for this rule to be applied:
• Contract is discharged:
• The claim is brought by the party who has not defaulted.
• In simple words, Quantum Meruit allows compensating a party for the value of work done or
services rendered. While damages are compensatory in nature, Quantum Meruit is restitutory
since it is a reasonable compensation awarded on the implication of a contract to remunerate.
• Suit for Specific Performance
• There are cases where damages are not an adequate remedy upon the breach of acontract. In
such cases, the Court may, in its discretion on a suit for specific performance, instruct the
defaulting party to perform the promise as per the terms of the contract.
• Suit forInjunction
• If a party has promised not to do something vide a contract but is negating these terms, then
the Court can issue an injunction order to restrain the party from doing what he has promised
not to do.
• Example: Peter is a famous Bollywood actor. He signs a contract with John, a producer. In the
contract, he agrees to work exclusively for him for the next 2 years. However, he enters into a
contract with Oliver, another producer, to act in his upcoming movie. The Court can issue an
injunction order restraining Peter from working with any other producer.

 Remoteness of damages :
1) Write a note on remoteness of damage.
2) Explain the principle of remoteness of damages with special reference to Hadley Vs.
Baxendale case.
The term ‘remoteness of damages’ refers to the legal test used for deciding which type of loss
caused by the breach of contract may be compensated by an award of damages. It has been
distinguished from the term measure of damages or quantification which refers to the method of
assessing in money the compensation for a particular consequence or loss which has been held to
be not too remote.

In Arun Mills Ltd v Dhanrajmal Gobindram,it was stated with regard to remoteness of loss, until
recently it could fairly be said that, subject to the decision in The Parana, the law on the
remoteness of damage in a contract has been codified by the decision in Hadley v Baxendale.

 HADLEY vs. BAXENDALE (1854) 9 Ex.341(156) E.R. 146 ([Link].)

Facts: The plaintiffs was the flour mill owner The defendant was the common carrier, ie, transport

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 business, Crank-shaft of the mill was broken Due to the break in the shaft the operation of a mill
was stopped for five days. The plaintiff engaged the defendant to carry the broken shaft to the
manufacturers of the shaft to get it repaired or to bring a new one in place of the old one if it
was not repaired The defendant delayed in transporting. The plaintiff sued the defendant for
the breach of contract for the delay, and requested the Court to award damages for the losses
all those days stopped the operation of the mill.
JUDGMENT: The House of Lords held that the defendant was not liable Because the plaintiff did
not inform the defendant about the importance of the shaft. In fact the mill was already
stopped due to the breakage of the shaft, with which the defendant was nothing to do. It was
occurred in the natural and mechanical process. If the importance of the arranging new one was
told to the defendant, he might have arranged the substitute arrangements for quick
transportation of the shaft It was the fault of the plaintiff not informing the realcircumstances

 THE GENERAL PRINICIPLE:The rules on the remoteness of damage in the contract are found in
the Court of Exchequer’s judgment in Hadley v Baxendale,as interpreted in later cases. In
Hadley v Baxendale, the plaintiff’s mill had come to astandstill due to their crankshaft
breakage. The defendant carrier failed to deliver the broken crankshaft to the manufacturer
within the specified time. There has been a delay in restarting the mill. The plaintiff sued to
recover the profits they would have made if the mill was started without delay. The court
rejected the claim on the ground that the mill’s profits must be stopped by an unreasonable
delay in the carrier’s delivery of the broken shaft to the third person.

 That rule, expressly and carefully framed, to be guided to judges in directing juries, was as
follows:
 Where two parties have entered into a contract which one of them has broken, the damages
which the other party should be entitled to receive in respect of such breach of contract should
either be deemed to have arisen naturally, fairly and reasonably, i.e. according to the usual
course of things, from such breach of contract itself, or as might reasonably have been deemed
to have arisen in the contemplation of the contract. Now, in the particular circumstances
under which the contract was actually concluded were communicated by the plaintiff to the
defendant and thus known to both parties, the damages resulting from such a breach of
contract that they would reasonably contemplate would be the amount of injury that would
normally result from a breach of the contract, under these special circumstances were wholly
unknown to the party breaking the contract, he could, at most, only have had in his
contemplation the amount of injury that would generally arise from such a breach of the
contract and in the great multitude of cases not affected by any special circumstances.

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

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 Remoteness of damage is a matter of fact, and the only guidance, the law can give to lay down
general principles.

 Ascertainmentof damages
 PYQ
 Discuss the rules relating to assessment of damages and state the differences between
ascertained damages and penalty.
 Explain the principles governing the assessment of damages for breach of contract.

 COMPENSATION FOR LOSS OR DAMAGE CAUSED BY BREACHOF

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

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

-- When an obligation resembling those created by contract has been incurred and has not been
discharged, any person injured by the failure to discharge it is entitled to receive the same
compensation from the party in default, as if such person had contracted to discharge it and
had broken his contract Explanation. --- In estimating the loss or damage arising from a breach
of contract, the means which existed of remedying the inconvenience caused by the non-
performance of the contract must be taken intoaccount.
 rules framed in Sec 73 are summed up as follows When a contract has been brokenthe
injured party is entitledto:
a) such damages which naturally arose in the usual course of things from such breach This
relates to ordinary damages arising in the usual course ofthings
b) such damages which the parties knew, when they made the contract, to be likely to result
from the breach. This relates to specialdamages.
c) but-such compensation is not to be given for any remote or indirect loss or damage
sustained by reason of the breachand
d) such compensation for damages arising from breach of a quasi-contract shall be same as
in any othercontract

 QuasiContracts.
 PYQ

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 Define “Quasi Contract”. Explain the types of “Quasi Contract”.

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

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

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

 Silent features of Quasi-contract:

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

 TYPES OF QUASI-CONTRACTS:
The following are of Quasi-contracts are discussed below.

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

contract or any one whom he as legally bound to support is supplied by another with
necessaries suited to his condition in life the person who has furnished such supplies I entitled
to be reimbursed from the property of such incapable person.

Ex: ‘A’, supplies “B” a lunatic with necessaries suitable to his condition in life. ”A” is entitled to
reimburse from B’s property.

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

which another is bound by law to pay and who therefore pays it, is entitled to be reimbursed
byother.

The essential requirements of Section.69 as follows:

a) The payment mode should be bonafide for the protection of one’sinterest.
b) The payment should not be a voluntaryone.
c) The payment must be such as the other party was bound by law topay.
Ex: “B” holds land Bengal on a lease granted by the Zamindar. The revenue payable by “A” to the
Government being in arrears his land is advertised for sale by the Government under the
Revenue Law. The sale will be annulment of “B’s lease. ’B’ to prevent the sale and the

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 consequent of annulment of his own lease pays to the Government the sum due from A. A is
bound to make good to B the amount so paid.

3. Obligation to pay for non-gratuitous acts (Section.70):When a person lawfully does anything
for another person or delivers anything to him not intending to do so, gratuitously, and such
other person enjoys the benefit thereof, the latter is bound to make the compensation to the
former in respect of or restore, the things do done ordelivered.

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

4. Responsibility of finder of goods (Section.71): A person who finds goods belonging to another
and takes them into his custody is subject to the same responsibility as Bailee. He is bound to
take as much care o the goods as a man of ordinary prudence would under similar
circumstances take of his own goods of the same bulk, quality and value. He must also take all
necessary measures to trace its owner. If he
doesnot,hewillbeguiltyofwrongfulconservationofthepropertytilltheownerisfoundout,the
 property in goods will vest in the finder and he can retain the goods as his own against the
whole world (except the owner).

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

5. Mistake or coercion (Section.72):A person to whom money has been paid, or anything
delivered by mistake or under coercion, must repay or return it to the person who paid it by
mistake or undercoercion.

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

 DAMODAR MUDALIAR VS. SECRETARY OD STATE FOR INDIA (1894) 18Mar 88)

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

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

1. Responsibility of finder of goods (Section.71):A person who finds goods belonging to another
and takes them into his custody is subject to the same responsibility as Bailee. He is bound to
take as much care of the goods as a man of ordinary prudence would under similar

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 circumstances take of his own goods of the same bulk, quality and value. He must also take all
necessary measures to trace its owner. If he does not, he will be guilty of wrongful conservation
of the property till theownerisfoundout,thepropertyingoodswillvestinthefinderandhecanretain
the goods as his own against the whole world (except theowner).

Ex:“F”picksupadiamondonthefloorof‘S’[Link]‘S’tokeepit till the real owner is

found out. No one appears to claim it for quite some week’s inspite of wide advertisement in
the news papers. ‘F’ claims the diamond from ‘S’ who refuses to return. ‘S’ is bound to return
the Diamond to ‘F’ who is entitled to retain the diamond against the whole world except the
trueowner.

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

anythingdeliveredbymistakeorundercoercion,mustrepayorreturnittotheperson who paid it by
mistake or undercoercion.

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

Porcelain Electrical Manufacturing Co. vs. Collector of Central Excise, NewDelhi (SC 1998 (9) SCC
637) (Quasi Contract - Amount paid by Mistake or underCoercion)

 Brief Facts: The appellant is the manufacturer of porcelain and its components which
comeunder23-BoftheCentralExciseRules.1944Itpaidcentralexciseforthegoods manufactured by
it. Some years after the Supreme Court declared in another case that such items should not be
included and should not be levied excise duty Basing upon the judgment, the appellant sought
refund of the duty paid by it. The respondent sought the defence oflimitation

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

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

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

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

JUDGMENT: The Supreme Court gave judgment in favour of the appellant/Government

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 UNIT 5
The Specific belief Act — Sections 9-16, Sections21, Section 24, Sections 36-42.
Nature of Specific Relief—Recovery of Possession of movable and immovable Property— Specific
performance when granted and not granted—Who may obtain and against whom—
Discretionary remedy—Power of Court to grant relief—Rectification of instruments
Cancellation—Declaratory decrees—Preventive relief — Temporary injunctions—Perpetual and
Mandatory Injunctions.

 Specific relief
• PYQ
• Explain in brief the various types of specific relief that may be granted by the court under
the Specific ReliefAct.
• Section 4 of this act explains that this Act grants special relief for the enforcement of
individual rights and not for imposing penal laws. The enforcement under this Act only bases
itself on the individual civil right and the substantive nature must be established for that fact.

1. Recovering the possession

• The recovery of possession of this Act is provided under two heads: recovery of the
immovable property and recovery of the movable property.
• Section6 of this Act details that if a person has been dispossessed or divested from the
property against the nature of law, then that person can file a suit for recovery of possession.
• This section is not only a mere legal rule but also has a wide practical approach. There are
certain essential requirements for fulfilment of recovery under this section that are as
follows:

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

 Recovery of the possession of movable property

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

• Essentials of section 7 are as follows:

– There must be a presence of movable property which is capable of being delivered
or disposed of.
– The person suing must have the possession of the property in question.
– There may be an existence of a special or temporary right on the property.
–
• Section 8 of the Specific Relief Act,1963 explains that when a person is in the possession of
the article to which is he is not the owner, shall be compelled to deliver such article to the
person who will have its immediate possession in following cases:
 When the article is held by the defendant as the trustee of a person who has the immediate
possession.
 When compensation in money is not an adequate relief.
 When it is difficult to ascertain actual damage caused to the person.
 When the possession of the article has been wrongfully transferred from.

 Specific Performance of contracts

• Section 10 includes in what condition-specific performance of the contract may be
enforceable, specific performance usually depends upon the discretion of the court but there
are certain conditions for performance which are mentioned as follows:
– When the damages or loss occurred due to the non-performance of the contract
cannot beascertained.

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 – When money as compensation is not an adequate relief due to the non-
performance of thecontact.

• Contracts that cannot be specifically enforced

• Section 14 mentions certain contracts which cannot be specifically enforced which are as
follows:
 When there is a non-performance for the act, and money is adequate compensation.
 A contract that is full of many details and its nature is personal to the parties, these can not
be specifically enforced.
 The contract requires continuous work for which the court cannot supervise.
 The court whose nature is determinable.

 Persons against whom the contracts can be specifically enforced:

• Section 15 deals with the person against whom the contracts can be specifically enforced:
• Any party to contract or any party to suit.
• Representative in interest or principal, which holds certain important ingredients-
– Any special skill, or any qualification.
– The principal in interest shall be not be entitled to specific performance.
• Where the contract is for settling a marriage or to compromise the situation between the
family members.
• When a contract has been entered into by a tenant over a property for life.
 Enforcement of awards:
• Section 21 deals with the power to award compensation; in various cases, compensation can
be done through the court to the aggrieved person. There are certain cases which are as
follows:
– When there is a suit filed for specific performance of the contract due to its breach
the aggrieved person may also demand compensation in addition.
– When according to the court the specific performance may not be granted but
there has been a breach of contract, the court accordingly will order for
compensation to be given to the aggrieved party.
– When the court thinks that in this case specific performance of the court shall be
granted but it will not be an adequate relief so, compensation in money can be
ordered.
– No compensation shall be awarded when the relief for money is not itself
mentioned in the plaint.
 Rectification of instruments
• Section 26 deals with the ways in which instrument can be rectified:
• When through fraud or mutual mistake the parties do not show their real intention then:

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 – Eitherpartyorrepresentativeininterestmayfileasuitforrectificationofthe instrument,
– The plaintiff in his plaint may plead for rectification of instrument,
– The defendant in his defence may claim for rectification of instrument.
• The court can direct rectification of instruments in cases where the party through fraud does
not show their real intention to prevent violation of rights to the third party.

 Requirement for rectification

• The party who wants to rectify the instrument firstly must give them in writing and then
mention them in their pleading. No relief shall be granted when the rectification is not
specifically mentioned.
 Recession of Contracts:
 Section 27 deals with the recession of the contract, in law, recession means withdrawing of
the contract or in simpler terms: cancellation of the contract. It brings the party in a situation
as if the contract did not happen [Link] quo ante meaning in its original state.
 Recession when cancelled
 A contract can go through the recession by the pleading of any party except there are some
cases in which recession may be cancelled. Recession can be cancelled in certain ways: a)
where the contract has been terminated or “has been deemed” voidable by the plaintiff, b)
when the contract is unlawful.

 Cancelling the contracts through recession

• A contract may be cancelled through the recession in cases:
– where the plaintiff has himself given consent to the contract,
– wherethethirdpartyhasgainedinterestinthecontractandwheretheirrightscome into
question,
– whereonlyaportionofthecontractistobecancelledbutitisinsuchaposition that the
faulty portion cannot get separated from the contract.

 Cancellation of the contracts:

• Cancellation is one of the remedies which is available to parties against injuries in a contract;
section 31 to 33 deals with cancellation of instruments through the court.
• Section 31 explains that when an instrument is void or voidable against a person then he can
get that instrument if it may cause damage to it.
•
• Section 32 deals when a contract can be partially cancelled; for example in cases where there
are certain rights and obligations connected with some parties through that contract, then
the court accordingly may cancel the faulty portion and let the other inmotion.
• Section 33 has two heads in it i.e powers to aggrieved party after cancellation and orders to
the defendant after cancellation.

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

• Orders to the defendant after cancellation

• When the suit has been proven voidable against the defendant, he is required to restore
every benefit to the plaintiff which the defendant may have received during the contract.
 Declaratory decrees
• Section 34 and 35 deal with declaratory decrees which are declared through the courts to the
parties to suit or contract.
• Section 34 deals with that when any person has a certain right or obligation over the property
and he has been denied that right by any party, then the aggrieved party may file a suit for the
enforcement of the right over the property which has been denied to him.
• The Court will give a declaration after looking over the case that the aggrieved party has a
right over the title of such property and so a declaratory decree will be passed. Such
declaratory decree will not be passed by the court when the plaintiff demands something more
than the title over that property.
• Section 35 deals with the effect of the declaration which explains that this decree will be
binding to only to those which are the parties to suit, the decree will be binding to only the
parties to suit and the trustees at the time of suit if any.
 Preventive relief
• Preventive relief is considered to be any relief which abstains a party from doing any act; a
relief from the court which details that the party should not perform certain acts for which
the relief shall be prescribed. Such reliefs can be imposed in the form of injunctions.

 Injunctions
• PYQ
• What is injunction? What are the types of injunctions available under the Act?
• Injunctions are a specific order under which a party must abstain from performing any act.
Injunctions under the Specific Relief Act,1963 may be divided into different types namely
temporary, perpetual and mandatory. Injunction is mentioned from section 36to 44.
• In State of Rajasthan Vs Randheer Singh (A.I.R. 1972, Rajasthan 241), the High Court of
Rajasthan while defining injunction has said that the injunction is such specific order of the
court which is issued to:
• prevent such wrongful act which has been commenced or to prevent the threatening to
commence such act.

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 • Thus injunction is such order of the court which is issued by it, at any stage of the case, to
maintain the status quo of the disputed property till the final disposal of the case or till
further orders.
 Temporary Injunction
• A temporary injunction is a legal remedy that temporarily restrains a party from
performing a specified act. This type of injunction can be granted until the disposal of
the suit or until the court issues a further order. The grant of an injunction is subject to
the provisions of Order 39, Section 94 (c) and (e) of the Code of Civil Procedure 1908&
Section 37(1) of the Specific Relief Act 1963 and may be awarded at any juncture of
the legal proceedings.
• As per the case of Agricultural Produce Market Committee Vs. Girdharbhai R. Chhaniyara*3+,
the Supreme Court determined that temporary injunctions may only be issued if the
petitioner possesses a definitive right that is capable of being enforced through injunctive
relief.

• Circumstances in which Temporary Injunction is granted

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

• Principles of Injunction:
• There are three principles of temporary injunction:
– Prima facie case;
– Irreparable loss; and
– Balance of convenience.
• In Nagrao Vs Nagpur Improvement Trust A.I.R. 2001, Bombay 402, the Bombay High Court has
decided that for issueing injunction, the compliance of all the three conditions as above is
necessary. The same opinion was expressed in C.J. International Hotels Ltd. Vs N.D.M.C (A.I.R.
2001, Delhi 435).

• Prima facie case:

• The first principle of issuing injunction is whether there is a prima facie case which justifies such
injunction. Prima facie case means that the dispute is bonafide and there is possibility of success
in favour of the plaintiff.
• Irreparable loss:

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• The second principle of issueing injunction is the irreparable loss to plaintiff. Irreparable loss
means such loss which may be caused to the plaintiff if injunction is not issued. It is not
possible to evaluate such loss in money.

It can be said also that if injunction is not issued, then the plaintiff can be deprived of his
rights for ever.

 Balance of Convenience:
• The third principle of issueing injunction is balance of convenience. It means if the injunction
is not issued, then there will be more inconvenience to the plaintiff relative to defendant. The
court has to take into account the balance of convenience. If the balance of convenience is
not in favour of the plaintiff, then injunction cannot be issued in his favour.

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

• Section 38 of the Specific Relief Act, 1963 specifies certain circumstances under which
permanent injunction may be granted. Section 38 with the head ‘Perpetual injunction when
granted’ reads as,
• “(1) Subject to the other provisions contained in or referred to by this chapter, a perpetual
injunction may be granted to the plaintiff to prevent the breach of an obligation existed in his
favour or by implication.
• (2) When any such obligation arises from the contract, the court shall be guided by the
provisions and rules contained in chapter II (specific performance).
• (3) When the defendant invades or threatens to invade the plaintiff’s right to, or enjoyment
of, property, the court may grant the perpetual injunction in the following cases,namely-
– Where the defendant is the trustee of the property of the plaintiff.
– Where there exist no standards for ascertaining the actual damage caused, or
likely to be caused by aninvasion.
– Where the invasion is such that compensation in money would not afford
adequate relief.
– Where the injunction is necessary to prevent multiplicity of judicial proceedings.”

• Requirements of Applicability:

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• The conditions pre-requisite for the application of this section are-
– There must be an expressed or implied legal right in favour of the plaintiff;
– Such a right must be violated or there should be a threatened invasion;
– Such right must be an existingone;
– Should fall within the sphere of restraining provisions (referred to in section 41 of
the specific reliefact).
• Illustrations
– ‘A’ lets certain land to ‘B’ and ‘B’ contracts not to dig sand and gravel. ‘A’ may sue
for an injunction to refrain ‘B’ from digging in violation of the contract.
– Where the directors of the company are about to pay a dividend out ofcapital.
Any of the shareholders may sue for an injunction to restrainthem.

 Damages in addition to injunctions:

• Section 40, Specific Relief Act, 1963 entail the conditions for seeking damages in addition to
injunctions:
1. The plaintiff in addition to or substitution to a suit praying perpetual injunction or mandatory
injunction may claim damages & the court may if it deems fit to award suchdamages.
2. For the plaintiff to claim damages as relief in his plaint only if no such damages have been
claimed in the plaintiff, then the court shall allow the plaintiff to amend its plaint on such
terms itprescribes.
3. If the suit, favouring the plaintiff to prevent the breach of an obligation stands dismissed, it
shall create a bar on his or her right to sue for damages for such breach.

 Prohibitory injunction:
 It is such type of injunction by which the third party is prevented from doing any act i.e. the
order is passed as not to do any act. For example, to prevent from doing any construction
work, illegal possession and selling any property.

 Mandatory injunction:
• It is the fourth type of injunction. It is such a type of injunction whereby an order is issued to
any party to do a particular act in a particular way.

• When injunction can be refused (Section 41)

• It has been noted above that Section 38 mentions the circumstances when an injunction can
be granted. Section 41 supplements Section 38 and states the circumstances when an
injunction cannot be granted, and is to be refused.
• According to Section 41, an injunction can not be granted in the following situations
• (a) to restrain any person from prosecuting a judicial proceedings pending at the institution
of the suit in which the injunction is sought, unless such restraint is necessary prevent a
multiplicity ofproceedings;

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• (b) to restrain any person from instituting or prosecuting any proceeding in a court not
subordinate to that from which the injunction is sought;
• (c) to restrain any person from applying to any legislative body;
• (d) to restrain any person from instituting or any proceeding in a criminal matter; prosecuting
• (e) to prevent the breach of a contract the performance of which would not be specifically
enforced;
• (f) to prevent, on the ground of nuisance, an act which it is not reasonably clear that it will
be a nuisance;
• (g) to prevent a continuing breach in which the plaintiff has acquiesced;
• (h) when equally efficacious relief can certainly be obtained by any other usual mode of
proceeding except in case of breach of trust3;
– when the conduct of the plaintiff or his agents has been such as to disentitle him
to the assistance of the court;
– when the plaintiff has no personal interest in the matter,
– An interim injunction cannot be granted and could be refused if the performance
would not be specifically enforced and when equally efficacious relief could be
obtained.
– The defendant is the trustee of the property.
– Actual damage cannot be ascertained.
– Money as compensation would not be adequate relief.
– Injunctions are necessary to prevent multiplicity of judgments.

• Landmark Judgments
• Geeta Rani Paul v. Dibyendu Kundu
• It was held by the Hon’ble Supreme Court that when the plaintiff files suit regarding the
dispossession, it is enough if he proves that he is entitled over the title of that property. Once
the title is proved other details like being divested from the property or other things are not
required to be proved.
• N.P. [Link]. R.J. Mohan Rao
• It is held by the Court that when in a case it is observed that the plaintiff itself did not
perform his portion in the contract or neither does he want to perform, so the decision
regarding specific performance act will be issued under this favour.

• PYQ
• What is meant by specific performance? Who can claim it?
or
• By whom and against whom a specific performance of contract can be claimed?
 Specific Performance of Contracts
• Specific performance means enforcement of exact terms of the contract. Under it the plaintiff
claims for the specific thing of which he is entitled as per the terms of contract.

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• For example, if A agrees to sell certain shares to B of a specific companywhich are limited in
number and after the payment made by B, if A refuses to sell the shares then B is entitled to
recovery of those shares.
• Parties to a contract must perform their contractual obligations otherwise they can be sued
for non-performance. Specific performance is a discretionary order made by a court wherein
a party to a contract must perform a specific action as outlined in an existent contract.
Specific performance can refer to any kind of forced action, though it is usually enforced so as
to complete a transaction that had been previously agreed to.

• According to Section 10 of Specific Relief Act 1963 in the following conditions specific
performance of the contract is enforceable:
• When there exist no standard for ascertaining actual damage: It is the situation in which the
plaintiff is unable to determine the amount of loss suffered by him. Where the damage
caused by the breach of contract is ascertainable then the remedy of specific performance is
not available to the plaintiff. For example, a person enters into a contract for the purchase of
a painting of dead painter which is
onlyoneinthemarketanditsvalueisunascertainablethenheisentitledtothesame.
• When compensation of money is not adequate relief: In following cases compensation of
money would not provide adequate relief:
 Where the subject matter of the contract is an immovable property.
 Where the subject matter of the contract is movable property and,
 Such property or goods are not an ordinary article of commerce i.e. which could be sold or
purchased in the market.
 The article is of special value or interest to the plaintiff.
 The article is of such nature that is not easily available in the market.
 The property or goods held by the defendant as an agent or trustee of the plaintiff.

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

• WHO CAN OBTAIN SPECIFIC PERFORMANCE:

• Section 15 of the Specific Relief Act, 1963 provides for those persons who can obtain specific
performance of a contract. Those are as follows:-
• Any party to a suit;
• Representative in interest or principal of any party;
• If a contract is a settlement of marriage or a compromise of doubtful rights between
members of the same family, any beneficiary entitled there under;

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• If a tenant enters into a contract for life in due exercise of a power, the remainderman;
• A reversioner in possession, if an agreement is a covenant entered into with his
predecessorintitleandthereversionerisentitledtothebenefitofsuchcovenant;
• A reversioner in remainder, if an agreement is a covenant and the reversioner is entitled to
the benefit and will sustain material injury if there is a breach of contract;
• If a company has entered into an amalgamation with another company through a contract,
the new company which arises out of such amalgamation;
• If the promoters of a company entered into a contract before its incorporation for purposes of
the company and such contract is warranted by the terms of the incorporation, the company
provided that the company accepted the contract and communicated such acceptance to the
other party of the contract.

• AGAINST WHOM CAN SPECIFIC PERFORMANCE BE ENFORCED:

• Section 19 of the Specific Relief Act, 1963, provides for those persons against whom specific
performance can be enforced. Those are as follows:-
 Either party to asuit;
• Any other person claiming under him by a title arising subsequently to the contract except a
transferee for value who has paid his money in good faith and without notice of original
contract;
• If a company has entered into an amalgamation with another company through a contract,
the new company which arises out of such amalgamation;
• If the promoters of a company entered into a contract before its incorporation for purposes of
the company and such contract is warranted by the terms of theincorporation, the company
provided that the company accepted the contract and communicated such acceptance to the
other party of the contract;
• Any person claiming under a title which, though prior to the contract and known to the
plaintiff might have been displaced by the defendant.

• CASE LAWS
• In 2016, the Supreme Court in Robin Ramjibhai Patel v. Anandibai Rama @Rajaram
Pawar&Ors. *SLP (C) No. 31087 of 2014+reiterated that when a plaintiff wants to implead
certain persons as defendants in a suit for specific performance on the ground that they may
be adversely affected by the outcome of the suit, then interest of justice also requires
allowing such a prayer for impleadment so that the persons likely to be affected are aware of
the proceedings and may take appropriate defence as suited to theirvendors.
• The court also observed that the necessary parties in a suit for specific performance of a
contract for sale are not only parties to the contract or their legal representatives, but also a
person who had purchased the contracted property from the vendor.

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

• PYQ
• Write a note on preventive reliefs provided under the Act.
 Preventive relief
• Preventive relief under the Specific Relief Act, 1963 has a negative connotation in its
operationality. This type of relief has been devised to deal & counter a scenario where the
nature of the contract is such that neither the grant of damages nor the specific performance
is unlikely to serve any purpose. In such cases, the court resorts to restrain the party who
threatens to breach the contract to the possible extent.
• For instance, in a contract of musical performance between the performer & the other party,
the other party, can seek preventive relief to deter the performer from accepting or entering
into any other such contracts, which creates a pressure & compulsion for fulfilling his
promise.
• Granting of Preventive relief
• Preventive relief is typically granted through the standard mode of injunction.
• According to Section 37, the Specific Relief Act, 1963 defines that “preventive relief is granted
at the discretion of the court by injunction, temporary or perpetual”.

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 THE INDIAN CONTRACT ACT, 1872

PREAMBLE
PRELIMINARY
1. Short title. [Link].
2. Interpretation-clause.
CHAPTER I
OF THE COMMUNICATION, ACCEPTANCE AND
REVOCATION OF PROPOSALS
3. Communication, acceptance and revocation of proposals.
4. Communication when complete.
5. Revocation of proposals and acceptances.
6. Revocation how made.
7. Acceptance must be absolute.
8. Acceptance by performing conditions, or receiving consideration.
9. Promises, express and implied.
CHAPTER II
OF CONTRACTS, VOIDABLE CONTRACTS AND VOID
AGREEMENTS
10. What agreements are contracts.
11. Who are competent to contract.
12. What is a sound mind for the purposes of contracting.
13. “Consent” defined.
14. “Free consent” defined.
15. “Coercion” defined.
16. “Undue influence” defined.
17. “Fraud” defined.
18. “Misrepresentation” defined.
19. Voidability of agreements without free consent.
19A. Power to set aside contract induced by undue influence.
20. Agreement void where both parties are under mistake as to matter of fact.
21. Effect of mistakes as to law.
22. Contract caused by mistake of one party as to matter of fact.
23. What considerations and objects are lawful, and what not.
Void agreements
24. Agreement void, if considerations and objects unlawful in part.
25. Agreement without consideration, void, unless it is in writing and registered, or is a promise
to
compensate for something done, or is a promise to pay a debt barred by limitation law.
26. Agreement in restraint of marriage, void.
27. Agreement in restraint of trade, void.
Saving of agreement not to carry on business of which good-will is sold.
28. Agreements in restraint of legal proceeding void.

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Saving of contract to refer to arbitration dispute that may arise.
Saving of contract to refer questions that have already arisen.
Saving of a guarantee agreement of a bank or a financial institution.
29. Agreements void for uncertainty.
30. Agreements by way of wager, void.’

Exception in favour of certain prizes for horse-racing.

Section 294A of the Indian Penal Code not affected.
CHAPTER III
OF CONTINGENT CONTRACTS
31. “Contingent contract” defined.
32. Enforcement of contracts contingent on an event happening.
33. Enforcement of contracts contingent on an event not happening.
34. When event on which contract is contingent to be deemed impossible, if it is the future
conduct of
a living person.
35. When contracts become void which are contingent on happening of specified event within
fixed
time.
When contracts may be enforced, which are contingent on specified event not happening within
fixed time.
36. Agreement contingent on impossible events void.
CHAPTER IV
OF THE PERFORMANCE OF CONTRACTS
Contracts which must be performed
37. Obligation of parties to contracts.
38. Effect of refusal to accept offer of performance.
39. Effect of refusal of party to perform promise wholly.
By whom contracts must be performed
40. Person by whom promise is to be performed.
41. Effect of accepting performance from third person.
42. Devolution of joint liabilities.
43. Any one of joint promisors may be compelled to perform.
Each promisor may compel contribution.
Sharing of loss by default in contribution.
44. Effect of release of one joint promisor.
45. Devolution of joint rights.
Time and place for performance
46. Time for performance of promise, when no application is to be made and no time is specified.
47. Time and place for performance of promise, where time is specified and no application to be
made.
48. Application for performance on certain day to be at proper time and place.
49. Place for performance of promise, where no application to be made and no place fixed for
performance.
50. Performance in manner or at time prescribed or sanctioned by promise.
Performance of reciprocal promises

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51. Promisor not bound to perform, unless reciprocal promise ready and willing to perform.
52. Order of performance of reciprocal promises.
53. Liability of party preventing event on which the contract is to take effect.
54. Effect of default as to that promise which should be first performed, in contract consisting of
reciprocal promises.
55. Effect of failure to perform at fixed time, in contract in which time is essential.
Effect of such failure when time is not essential.
Effect of acceptance of performance at time other than that agreed upon.
56. Agreement to do impossible act.
Contract to do an act afterwards becoming impossible or unlawful.
Compensation for loss through non-performance of act known to be impossible or unlawful.
57. Reciprocal promise to do things legal, and also other things illegal.
58. Alternative promise, one branch being illegal.
Appropriation of payments
59. Application of payment where debt to be discharged is indicated.
60. Application of payment where debt to be discharged is not indicated.
61. Application of payment where neither party appropriates.
Contracts which need not be performed
62. Effect of novation, rescission, and alteration of contract.
63. Promise may dispense with or remit performance of promise.
64. Consequences of rescission of voidable contract.
[Link] of person who has received advantage under void agreement, or contract that
becomevoid.
66. Mode of communicating or revoking rescission of voidable contract.
67. Effect of neglect of promise to afford promisor reasonable facilities for performance.

CHAPTER V
OF CERTAIN RELATIONS RESEMBLING THOSE CREATED BY CONTRACT
SECTIONS
68. Claim for necessaries supplied to person incapable of contracting, or on his account.
69. Reimbursement of person paying money due by another, in payment of which he is
interested.
70. Obligation of person enjoying benefit of non-gratuitous act.
71. Responsibility of finder of goods.
72. Liability of person to whom money is paid, or thing delivered, by mistake or under coercion.
CHAPTER VI
OF THE CONSEQUENCES OF BREACH OF CONTRACT
73. Compensation for loss or damage caused by breach of contract.
Compensation for failure to discharge obligation resembling those created by contract.
74. Compensation for breach of contract where penalty stipulated for.
75. Party rightfully rescinding contract, entitled to compensation.

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