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English
Indian Contract Act 1872
AGREEMENT AND CONTRACT
Introduction Sec. 2(b) - Proposal + Acceptance = Promise
A person is in some way or other linked with Indian Contract Sec. 2(e) - Promise + Consideration = Agreement
Act from Womb to Tomb. Sec. 2(h) - Agreement + Enforceability u/s.10 = Contract
All promises must be performed and agreements honoured-
Basic principle. Therefore there is no question of a contract without an
In India in Ramayana there is a saying “Raghukul reet sada agreement even in common or legal parlance
chali aayi pran jaye par vachan na jaye” Therefore it can be said that all contracts are agreements but
A contract has a very sacrosanct position where by any all agreements are not contracts
promise/agreement has to be performed even at the cost of life.
Commencement and applicability:- Which agreements are enforcealate by law?
 Short Title- The Indian Contract Act, 1872 Sec.10 explains this
 Extent- Applicable to whole of India What is implicit in sec.2(h) is made explicit in sec.10
 The words "except the State of Jammu and “All agreements are contracts, if they are made –
Kashmir" were omitted by Act 34 of 2019, s. 95 and by free consent of the parties, competent to contract,
the Fifth Schedule (w.e.f. 31-10- 2019). for a lawful consideration and
 Commencement- 1-Sept.- 1872 with a lawful object, and
not hereby expressly declared to be void.” - Sec.10.
Nature of Indian Contract Act
It is a universal law i.e. applicable to everybody (human Section 10 Essentials of a Valid Contract
beings) not a sectional law like Hindu law or Muslim law 1. A valid Agreement
It is not an exhaustive law because it does not cover There cannot be a contract without an agreement but the
Partnership, Sale of goods, Negotiable instruments, and converse is true.
Insurance etc.
It is not a retrospective law i.e. prospective effect was given
The various agreements may be classified into two categories:
to this law and not retrospective effect i.e. from back date.
1. Agreement not enforceable by law- Any essential of
It confines itself to the enforcement of voluntarily created
a valid contract is not available
civil obligations.
2. Agreement enforceable by law- All essentials of a
It does not cover the whole range of civil obligations.
valid contract are available
It is based on English law of Contracts which is an unwritten
law
Conclusion: Thus we see that an agreement may be or may not
Question:
be enforceable by law, and so all agreementsare not contracts.
“The law of contracts is not the whole law of agreements, nor is
Only those agreements are contracts, which are enforceable by
it the whole law of obligations. It is the law of those agreements
law, In short.
which create obligations, and those obligations, which have
their source in agreements.” Comment.
Contracts = Agreement + Enforceability by Law
Answer:
Hence, we can conclude “All contracts are agreement, but all
In these lines Salmond has very beautifully discussed the
agreements are not contracts.”
scope of the Law of Contract.
With these words he means that only those agreements are
contracts which give rise to legal obligations. Enforceability
For Example: A social promise or an agreement to go for a 2. Free Consent Sec.13-22
movie is an agreement but not a Contract, because the An agreement under pressure is not a genuine agreement.
obligations that arise out of it is not legal in nature. It is necessary to distinguish between a fake and a genuine
However, all legal obligations are not contracts; only those agreement.
legal obligations that arise out of agreements constitute Because only a genuine agreement should get legal sanctity
contracts. Sec.14-The consent is said to be free when it is not caused
For Example the following legal obligations are not contracts by:-
as they do not arise out of agreement.  Coercion-15
1. A civil liability for torts, Breaches of trust etc.  Undue influence-16
2. A Quasi Contract  Fraud-17
3. Contracts of Record- Judgements of courts  misrepresentation-18
4. Recognizance- An arrested person may be released on his  Mistake-20,21,22
promise to appear in the court and/ or to pay a um of money in
the event of Non- Appearance 3. Parties (Sec.11, 12)
5. Status obligations- Husband and wife All types of persons are there in this world i.e. intelligent and
fools, sick, diseased and healthy- mature and immature etc.
Modes of creating contractual obligations But classes of persons who are likely to be exposed to serious
Formation of contract or an obligation to perform a promise consequences are- unsound mind and minor
could arise in the following three ways. Because they do not have capacity to rationalise the
1. Agreement and contract agreement.
2. Standard form contracts Capacity and competency is to distinguish between genuine
3. Promissory Estoppel and non-genuine agreements
1 Krishna IAS, SCO 161,(Corner Showroom),Sec.24-D,Chandigarh 9988003622, 9417193622

English
 An offer which is made via words, whether such words are
4. Lawful Consideration and lawful object (Sec.23,24) written or spoken (oral contract) we call it an express contract.
Law can not recognize something which is unlawful or illegal  And when an offer is made through the conduct and the
in nature actions of the offeror it is an implied contract.
5. Not hereby expressly declared to be void (Sec.26-30 and 9] Offer may be Positive or Negative
Sec.56)  The offeror can be to an act or not to do an act
Certain things/acts are expressly declared unenforceable
E.g. Agreements in restraint of Marriage (sec.26) 10] The offer must be made with a view to obtain the consent
Agreements in restraint of trade (sec.27) of the offeree:
Agreements in restraint of legal proceedings (sec.28)  When a person is making an offer it means that he is making
Agreements having uncertain meaning (Sec.29) it with a view to obtain the consent of the offeree.
Wagering agreements (Sec.30) As soon as the offeree accepts it, the offeror is bound by it.
Some other essentials 1. Clear, Certain and Definite read with sec.29 of ICA
Compliance of legal formalities- Written, Registered and
Witnesses- as per law a. I am interested in selling my house on a fair price- It is not
Certainty and possibility of performance S.56 clear and certain
Intention to create a legal relationship b. I wish somebody could buy my house for 5 lacs- No
A contract may be oral communication.
c. I am willing to sell my house for around 5 lacs or near about
it- It is not clear and certain
VALID AGREEMENT d. I am prepared to sell the house to buyer for a fair price- It is
Agreement is not physical or tangible. not clear and certain
There has to be a VALID OFFER and a VALID e. I am prepared to sell my house to you for 5 lacs- Valid offer.
ACCEPTANCE
The Parties should have IDENTICAL VIEWS on the subject Case Law
matter i.e. [Consensus-ad-idem] Guthying vs. Lynn (1831)2 B Ad 232
Exchange of mental views is necessary to determine whether A Horse was purchased for a certain price coupled with a
the person has identical views or not promise to give £5 more if the horse proved lucky
The Agreement was held to be void for uncertainity
Essentials of a valid offer Reason:There is no machinery to determine Luck
1. It must be –clear, certain and Definite Read with illustration (f) of Section 29
2. There must be an intention to create a legal
Relationship/Obligation 2nd Essential: Intention to create Legal Relation
3. It must be communicated S.2a, 3, 9, 4 Due to this reason Promise in the case of social engagements
4. An offer is different from an invitation to offer is not a valid offer
5] Offer may be Conditional There is no provision in Indian Contract Act requiring that an
 While acceptance cannot be conditional, an offer might be offer or its acceptance should be made with the intention of
conditional. creating a legal relationship.But in English law it is a settled
 The offeror can make the offer subject to any terms or principle
conditions he deems necessary. Justice Atkin at Pg no.293 in Rose and Frank Co.V.J.R.
 So A can offer to sell goods to B if he makes half the Crompton and Bros (1923)2KB 261 said “To create a contract
payment in advance. Now B can accept these conditions or make there must be a common intention of the parties to enter into
a counteroffer. legal obligations”
In this case the Agreement provided “That arrangement is not
6] Offer cannot contain a Condition, non compliance of entered into……as a formal or legal agreement, and shall not be
which would amount to Acceptance subject to legal Jurisdiction in law courts……….”
 The non-compliance of any terms of the offer cannot lead to
automatic acceptance of the offer. Balfour v. Balfour 1919 2 KB 571
 Hence it cannot say that if acceptance is not communicated Husband was employed in Ceylon and went to England on
by a certain time it will be considered as accepted. leave.
 Example: A offers to sell his Horse to B for 5000/-. If the Due to Health reason Wife could not accompany her Husband
offer is not rejected by your reply by Monday it will be considered back to Ceylon
as accepted. This is not a valid offer. Husband had promised to pay £ 30 per month as maintenance
 However, if B is in possession of A’s Horse at the time offer Subsequently Husband failed to pay maintenance
is made and he continues to use the horse thereafter, B’s silence Court held-Husband is not liable because there was no
and his continued use of horse amount to Acceptance intention to create a legal relationship.
7] Offer can be Specific or General In Jones V. Padavatton (1969)1WLR 328,[ Justice

 As we saw earlier the offer can be to one or more specific Danckwerts]
parties. Or the offer could be to the public in general. Mrs. Jones lived in Trinidad
8] Offer may be Expressed or Implied Her daughter who had been divorced and had a young son
 The offeror can make an offer through words or even by his lived in Washington and was serving in Indian Embassy
conduct. Mrs. Jones persuaded her daughter to leave her job and study
law in England.

English
Mrs. Jones offered to pay her daughter a monthly allowance She gave the necessary information but mentioned that she had
during her studies of law in England given the information ‘to clear her conscience’ and not for
The daughter reluctantly agreed to the suggestion and left the reward.
Job and went to England in 1962 The accused was convicted
Mrs. Jones bought a house in England in 1964 The Palintiff subsequently brought an action to claim the
The daughter was allowed to stay in a part of the house reward
whereas the other part was let out on rent, which was to be The Court held that since the offer had been accepted with its
given to the daughter for her expenses knowledge, there was a valid contract and that the informer was
In 1967 there arose differences between mother and daughter influenced by motives other than the reward will be immaterial.
and the mother brought an action to evict her daughter.
Till that time the daughter had not completed her studies of Proposition-A person teaches a parrot-‘My Master is ready
law to sell house for 5 Lacs to you’ and sends Parrot to B, B said he
Mother’s action for eviction succeeded as court held that accepted offer. Is the contract valid?
there was no intention to create a legal relationship Ans. – No, Because Parrot here was the agent of offeror but
sec.184 of ICA says that an agent has to be a person but a
In Meritt. V.Meritt (1970) 1WLR 1211 parrot is not a person. Therefore cannot be a valid agency.
Husband &Wife were joint owners of a building which was
subject to a mortgage to a building society.
Husband left the matrimonial home to live with another 4. Offer and Invitation to Offer are different
woman An offer is the final expression of willingness by the offeror
Husband signed a note stating that the wife will pay all to be bound by his offer should the other party chooses to
outstanding amount in respect of the house and in return “I will accept it.
agree to transfer the property into your sole ownership” Whereas,
The court held that in this case its clear that Parties intended Where a party, without expressing his final willingness,
to create a legal relationship. proposes certain terms on which he is willing to negotiate, he
Therefore H Bound under the contract does not make an offer but only invites the other party to make
an offer on those terms.
3rd Essential: It must be Communicated During Auction, Display of goods, Quotation of price or price
As per Sec.4. Communication of offer is complete when it list, there is no offer to be bound by any contract.
comes to the knowledge of the person to whom it is made. Such advertisements are offers to negotiate, offers to recieve
The offer has to be communicated to the offeree in order that offer or offers to chaffer. (This expression was used by Justice
the offeree can accept it Bowen in Carlill v. Carbolic Smoke Ball Co.)
Acting in ignorance of an offer does not amount to the  (Chaffer mean to Bargain or haggle over Price/Cost)
acceptance of the same
AUCTION
In Lalman Shukla V. Gauri Dutt 1913 Inviting persons to an auction where goods to be auctioned are
Prior knowledge of offer is necessary. But where from this displayed is not an offer for the sale of goods.
condition of prior knowledge emerges? The offer is made by the intending buyers in the form of bid.
S.8-Acceptance by Conduct Making of the highest bid will not automatically result in a
 S.2(b)- When the person to whom the proposal is made contract.
than he signified his positive response The Contract arises only when the highest bid is accepted by
S.4- The communication of proposal is complete when it the competent authority and the said acceptance is
comes to the knowledge of the person to whom it is made. communicated to the tenderor.
It is operation of S.4 and not S.2(b) that it emerges as a
precondition. Harris v.Nickerson 1873 (page 5 of Bangia)
S.8 talks of acceptance by word or conduct but question of Defandant advertised a sale by auction
acceptance arises only when proposal is made. S.8 comes at a Plaintiff travelled to the auction site but came to know that
later stage Auction was cancelled
Suggestion: This may be technically correct but morally Court held that the Plantiff cannot recover travel expenses.
wrong.
The Rich man is getting richer at the cost of poor who is loyal, UOI v. Gangadharan Mohandas 1997 Calcutta
honest and selfless servant. The Court held that in case of cancellation of Auction after
There is an element of irrationality particularly when award due consideration, no bidder can claim anything under the
is for social service or public interest doctrine of legitimate expectations
When one is asking something to be done, if done with or
without knowledge does not make any differene In Anil Kumar Srivastava v. St of UP 2004
The SC held that Indication of reserve price is neither a
In WILLIAMS v. CARWARDINE 1833 proposal to sell at that price nor it is a valuation of the property
Information was given about the murderers of the husband of Display of goods
the plaintiff Pharmaceutical Society of Great Britain v. Boots Cash
Plaintiff, knew that reward had been announced to be given to Chemists Ltd. 1952
anyone who gave the information leading to the conviction of  Judge Lord Goddard
an assailant for murder The question which had arisen in this case was, whether the
display of articles indicating their prices was an offer and the
selection of articles by the customer an acceptance thereof, or

English
The offer was made by a customer when hebrought the articles
to the cash desk and the defendants were free not to accept the 6] Offer cannot contain a Condition, non compliance of
offer, if they so liked . which would amount to Acceptance
It was held that the display of articles, even on a “self service”  The non-compliance of any terms of the offer cannot lead to
basis was not an offer but was merely an invitation to treat. automatic acceptance of the offer.
When the customer selected an article and brought the same to  Hence it cannot say that if acceptance is not communicated
the cash desk that amounted to an offer to buy the goods. by a certain time it will be considered as accepted.
The defendants were therefore free to accept thereafter or not.  Example: A offers to sell his Horse to B for 5000/-. If the
offer is not rejected by your reply by Monday it will be considered
Grainger & Son v. Gough 1896 as accepted. This is not a valid offer.
Lord Herschell, the Judge held that the transmission of a price  However, if B is in possession of A’s Horse at the time offer
list does not amount to an offer to supply an unlimited quantity is made and he continues to use the horse thereafter, B’s silence
of the wine described at the price named, so that as soon as an and his continued use of horse amount to Acceptance
order is given there is a binding contract to supply that quantity.
7] Offer can be Specific or General
State Aided Bank of Rravancore v. Dhirt Ram 1942  As we saw earlier the offer can be to one or more specific
The Privy Council held that a banker’s catalogue of charges is parties. Or the offer could be to the public in general.
also not an offer.
8] Offer may be Expressed or Implied
Fisher v. Bell 1960  The offeror can make an offer through words or even by his
Where a shopkeeper was convicted of offering for sale a flick- conduct.
knife contrary to the Restriction of Offensive Weapons Act,  An offer which is made via words, whether such words are
1959 which he had displayed in his shop window, it was held written or spoken (oral contract) we call it an express contract.
that it was in no sense an offer for sale the acceptance of which  And when an offer is made through the conduct and the
could constitute a contract. actions of the offeror it is an implied contract.
Price list/Quotation of Price 9] Offer may be Positive or Negative

Proposal is a statement but all statements are not proposal  The offeror can be to an act or not to do an act
In Harvey v. Facey 1893 case 10] The offer must be made with a view to obtain the consent
Commonly known as Bumper hall pen case of the offeree:
Defendant’s plot named Bumper hall pen was lying vacant  When a person is making an offer it means that he is making
The plaintiff being interested in purchasing the same sent a it with a view to obtain the consent of the offeree.
telegram to the defendants “will you sell us Bumper Hall Pen?  As soon as the offeree accepts it, the offeror is bound by it.
The Defendants in reply telegraphed “Lowest price for
Bumper Hall Pen, £900”
The Plaintiff sent another telegram to the defendants saying CLASSIFICATION OF OFFERS
“we agree to buy Bumper Hall Pen for £900 asked by you. KINDS OF OFFER
Please send us your title deeds.” I. Cross Offers: When two parties make identical offers to
Court held 2nd telegram was invitation to offer and not offer each other, in ignorance of each other’s offer, the offers are
therefore no contract cross offers
Such offers do not constitute acceptance of one’s offer by the
MacPherson v. Appana 1951 case other and therefore there is no completed agreement.
Plaintiff offered to purchase a Lodge for Rs.6000 and said that
he is ready for any higher price if found reasonable Tinn v. Hoffman & Co. 1873
Agent of defendant replied “won’t accept less than Rs.10,000 A wrote to B indicating his willingness to sell 800 tons of iron
Plaintiff accepted at 69 sh. per ton
Plaintiff Sued-case not maintainable On the same day, B also wrote to A offeing to buy 800 tons of
iron at the same rate of 69 sh. per ton
Some other examples The 2 letters crossed each other in post.
Menu card of a Hotel B brought an action against A for the supply of iron
Banker’s catalogue of charges It was held that there were only 2 cross offers and no valid
Prospectus of a company inviting applications for Job contract
Announcement of voluntary retirement scheme by a
nationalized bank II. Specific and General offers
A specific offer is made to a particular party or a specific or an
5] Offer may be Conditional ascertained person, while the general offer is made to public or
 While acceptance cannot be conditional, an offer might be world at large and can be accepted by anybody and everybody
conditional. In general offers the contract is made only with that person
 The offeror can make the offer subject to any terms or who comes forward and performs the conditions of the proposal
conditions he deems necessary. Performance of such conditions amounts to acceptance of
 So A can offer to sell goods to B if he makes half the proposal (sec.8)
payment in advance. Now B can accept these conditions or make The Communication of acceptance is not necessary in such
a counteroffer. cases

English
Therefore ANSON has rightly said “An offer need not be
made to an ascertained person, but no contract can arise until it Upton rural District Council v. Powell 1942
has been accepted by an ascertained person” A fire broke out in Defendant’s farm
Defendant believed that he was entitled to the free service of
Carlill v. Carbolic Smoke ball Co. 1893 the company therefore he summoned it.
The Defendants advertised their product ‘carbolic smoke ball’ The defendant’s farm was not within the free service zone of
a preventive remedy against influenza. upton.
In the advetisement they offered to pay a sum of £100 as Upton claimed compensation for service
reward to any one who contacted influenza, cold or any disease Court observed that the defendant asked for the services and
caused by cold, after having used the smoke ball three times a the Co. provided them
day for two weeks, in accordance with the printed directions. Hence the services were rendered on an implied promise to
They also announced that a sum of £1000 had been deposited pay for them.
with the Alliance Bank to show their sincerity in the matter.
Mrs. Carlill, the plaintiff, relying on the advertisement ACCEPTANCEsec.2(b)
purchased a smoke ball from a chemist, used the same as per
directions but still caught influenza 1. When the person to whom proposal is made who can give
She sued the defendants acceptance
In General offer-anybody
Following are the contentions of Defendants and detail of the In Specific offer-by that party only
manner in which these were rejected:
2. Signifies- method of acceptance
1. Offer was vague, not definite, no time limit was fixed for
catching of influenza Communication of Acceptance
The court said that offer was definite. 1. Acceptance may be express or implied
The protection was for time during the use of smoke ball and 2. Acceptance may be by conduct i.e. implied
in this case the disease was contracted during the use of smoke 3. Communication of Acceptance to offeror himself
balls 4. Communication by Acceptor himself
5. Reasonable or Prescribed mode of communication
2. There was no intention to create legal relation it was only
a PUFFING Advertisement Communication of Acceptance should be complete-when?
Because £1000 were deposited in Alliance Bank for this Communication of Acceptance within reasonable time.
purpose therefore the advertisement was intended to be
understood by the public as an offer which was to be acted Some other essentials
upon and not a mere puff. 1. Acceptance only for the offer which has been communicated
2. Silence is not a mode of Acceptance
3. It would be insensate thing unless you could check or 3. Acceptance means Acceptance of all terms of the offer
superintend the manner of using the product 4. Acceptance May be provisional i.e. subject to final approval
The court said that if a person chooses to make extravagant
promises of this kind he probably does so because it pays him Essentials of a valid Acceptance
to make them, and if he has made them, the extravagance of the 1. Acceptance must be absolute and unconditional S.7
promises is no reason in law why he could not be bound by Acceptance should be without any change, amendment or
them. alteration
In proposal there are a no. of terms and conditions e.g. place,
4. That the offer was not made to any one person in time, transportation, price, quality, etc.
particular and the plaintiff had not communicated her Acceptor has to either accept it or reject it as a whole
intention to accept Even a suggestion on part of acceptor to proposal is treated as
The court said that a general offer is for world at large and the an amendment and change in condtions is trated as counter
contract is made with that limited portion of public who came offer.
forward and performs the condition on the faith of the
advertisement A. Counter Proposal
And in Advertisement cases, the performance of condition is a
sufficient acceptance without notification In Hyde v. Wrench 1840
Offer to sell a farm for £1000
5. There was no consideration for the promise Plaintiff offered £950 for it
The court said that the transaction was advantageous to the This was turned down by offeror
company (for increasing sale), this is an enough consideration. Then plaintiff agreed to pay £1000
The court held that when plaintiff offered £950 he thereby
III. Standing, Open or Continuing offer rejected the offer made by defendant and was not afterwards
An offer which is allowed to remain open for acceptance over competent to revive the proposal of the defendant
a period of time is known as a standing, open or a continuing
offer. In Haji Mohd Haji Jiva vs. E.Spinner 1900 case
CJ Sir Jenkins said counter offer puts an end to the original
IV. Express or implied offer offer and it cannot be revived by subsequent acceptance.
Sec.9 provides that a valid proposal may be made by words
(written or spoken) i.e. express or by conduct i.e. implied offer B. Inquiry into terms of proposal
e.g. stepping into a taxi; or consuming eatables at a Hotel

English
To seek an explanation of the terms is something different
from introducing new terms therefore can not be treated as a Technical Reason
counter-proposal Under sec.2(b)-The word ‘singifies’ is there which means an
Eg.offer-acceptance+query-can I pay within 2 months- This external manifestation which can be oral or written or by
acceptance …… with query can not be termed as counter conduct.
proposal. If a person is silent, it is conduct but not something which
signifies anything.
C. Provisional Acceptance Conduct may amount to acceptance but silence as a
conduct does not amount to acceptance
When acceptance is subject to final approval Practical Reason
If it is done and treated as acceptance then it will go against
In Union of India v. S.Narain Singh 1953 the very nature of contract.
Condition of Auction sale that the acceptance of the bid shall An offeror cannot impose upon the offeree the burden of
be subject to the confirmation of the chief commissioner refusal.
The person whose bid has been provisionally accepted is The offeror cannot say that if no answer is received within a
entitled to withdraw his bid certain time, the same shall be deemed to have been accepted.
Acceptance is complete when it is communicated- Before that It is not open to an offeror to stipulate against an unwilling
the bidder can withdraw. offeree that the latter’s silence will be regarded as equivalent to
Acceptance not complete of bidder comes to know the fact of acceptance.
his own He cannot force him to take a positive course of action under
If there is a condition of the auction sale that a bid which has penalty of being contractually bound if he does not.
been provisionally accepted cannot be withdrawn-such a
prohibition against withdrawal does not have the force of law 2nd Issue:-
Felt house sued Bindley for the tort of conversion on the plea
Dissenting opinion of Madras High court that felthouse had become the owner of the hourse which
Madras High Court in 2 cases held that confirmation need not Bindley had disposed off.
be notified i.e. “The communication of acceptance twice, The court held that the Nephew never communicated
that is, once when the conditional acceptance is made and acceptance to uncle therefore no contract & therefore no tort of
again when the condition is fulfilled is unnecessary. conversion.
In Pollock and Mulla “It is submitted that these 2 cases were
wrongly decided 3rd issue:-
 These 2 cases were chittibobuAdenna v. Court held that offeror cannot impose upon the offeree any
GarimallaJaggarayadu 1916 and Rajanagram village duty to reply
cooperative society v. veerasami, 1915
2. The communication of Acceptance must be sent by either
Communication of Acceptance the acceptor or his authorised agent
1. Acceptance to Proposer or his authorised Agent
In Felthouse v. Bindley 1863 In Powell v.Lee, 1908
Uncle visited establishment of nephew who had hobby of Plaintiff powell was an applicant for the head mastership of a
breeding horses for races. school
Uncle became interested in a horse The 6 member Board of Managers passed a resolution
Uncle said “I wish to buy it” selecting him for the post.
Nephew “I am willing to sell it in £50” No decision was communicated to him
Uncle “Not now” One of the members, however, in his individual capacity
Uncle went and consulted someone and wrote “If I hear no informed him.
more about the hourse, I consider the horse mine at £33.15sh.” The managers met again and cancelled the appointment of
No reply to uncle Felthouse by nephew. Powell and appointed another candidate Parker.
Nephew told to defendant, The Auctioneer (Bindley) not to Powell sued Lee, the chiairman of Board for Breach of
sell the horse as it was already sold to his uncle. contract.
The Auctioneer, Bindley by mistake put up the hourse for Court held that information by an unauthorized person is as
auction and sold it. insufficient as overhearing from behind the door.
Uncle felthouse sued the Auctioneer Bindley to give horse or Therefore Powell’s action failed
margin as Bindley sold the horse at a higher price.
3. The Communication of Acceptance must be complete
3 ISSUES
1. Can silence as a conduct or behaviour (on the part of Read with Sec. 2(b)--Sec. 3-Sec. 9-Sec. 3-Sec. 4
nephew) amount to acceptance?
2. Can Accpetance be treated as complete if communicated to a It may be studied under the following 2 heads:
third party? 1. Parties Inter-Praesentes i.e. When parties are in presence of
3. Can offeror impose upon the offeree a duty to reply? each other
2. Parties not Inter-Praesentes i.e. When parties are at a
1st Issue Distance
The court held that silence as a conduct does not amount to
acceptance for two reasons: Parties Inter-Praesentes i.e. When parties are in presence of
 Technical reason each other
 Practical reason

English
When parties are in presence of each other, the contract is But it never reached him.
concluded when acceptance is communicated to the proposer. Company brought an action against him to recover balance.
Justice THESIGER heldthe defendant, Grant bound by the
Parties not Inter-Praesentes i.e. When parties are at a contract when the letter of acceptance of his offer was posted to
Distance him.
It may be studied under the following 3 heads:
1. Acceptance by POST In Adams v. Lindsell (1818)
2. Acceptance by TELEPHONE The letter of proposal was sent by Defendant on -2nd
3. Acceptance by TELEX / TELEPRINTER September
Letter reached plaintiff on 5th sept
The same day i.e (5th sept) letter of Acceptance was posted
A. Acceptance by POST etc. (messenger) Sec.4 Letter of acceptance reached defendants on 9th September
The Defendants had sold the goods on 8th September
The communication of an acceptance is complete Suit for Breach of Contract
As against Proposer:-When it is put in a course of Held that a complete contract arises on the date when the letter
transmission to him so as to be out of the power of the acceptor of accdeptance is posted in due course i.e. on Sept 5th
As against the Acceptor :-When it comes to the knowledge of
the proposer InJ.K. Enterprises v. State of M.P. (1997)
Petitioner submitted tender on 11-01-1993
Illustration Respondents sent letter of acceptance by registered post at the
B accepts A’s proposal by a letter sent by post address given by the petitioner on 12-02-1993
The communication of acceptance is complete Letter never reached the Petitioner because of incomplete
As against A----when the letter is posted to B address
And Petitioner tried to withdraw his offer by FAX message on 03-
As against B---when the letter is received by A. 03-1993
FAX message was sent on incorrect number
A makes Proposal to B through Post on---10 Aug 2014 Earnest money forfeited
Which B receives on ----15 Aug 2014 Held that a valid contract came into existence on 12-02-1993.
B sent acceptance letter on --20 Aug 2014
Which A recieved on ----25 Aug 2014 Place of cause of Action
The communication of Proposal is complete when it comes Progressive Constructions Ltd. V.Bharat Hydro Power
to the knowledge of B i.e. on 15 Aug 2014 corporation Ltd. 1996
The communication of Acceptance is complete Contract came into existence at the place where the acceptance
 As against A when letter is posted i.e. 20 aug 2014 was posted.
 As against B when the letter is received by it i.e. 25 aug The place of delivery of Acceptance is irrelevant and does not
2014 provide any cause of action.
By reference to sec.20(c) of CPC, the suit cannot be filed at
 Philosophy behind this principle: the place where the letter of acceptance was delivered
When B has posted the letter of acceptance in post office i.e.
20 Aug 2012 the contract comes into existence, because Philosophy behind the Rule
o Both parties have chosen post office- a legal Person for Delivery of the letter of acceptance is not a part of the cause of
communication of proposal and acceptance as their AGENT action.
o Law of Agency applies here i.e. any act done by agent is
presumed to be done by principle himself Place of Contract
ONGC v. Modern Construction Co.( 1998)
Effect of Lost of Letter in Post Acceptance of tender by a telegram
There is no effect of Held that the contract becomes concluded where the telegram
 Delay in transit, is dispatched and therefore, the place of contract is where the
 Lost of letter in the post acceptance telegram starts Journey.
 Offeror never receives it
EXCLUSION OF POSTAL RULE:- Postal Rule can finally Difference between English and Indian Law
be excluded by the terms of the offer and whether it is excluded In England, when a letter of acceptance is posted, both the
or not- The question is one of construction. offeror and acceptor become irrevocably bound.
Holwell securities Ltd. V. Hughes (1974) case. Similarity:-Under both English and Inidan Laws a contract is
It was held that if it is expressly agreed that the acceptance to made at a place where the letter of acceptance is posted.
be binding must not only be in writing but had to reach the
offerror. B. ACCEPTANCE BY TELEPHONE
The mere posting not being enough, there will be no contract
till the condition is fulfilled. In case of Telephonic conversation, the position is the same as
in the case where parties are in the presence of each other and
In Household Fire Insurance Co. v. Grant (1879) the rule of a contract through POST does not apply to such
Grant, the Defendant made an application for 100 shares contracts.
making part payment. In case of acceptance sent by post the contract is concluded
Letter of allotment addressed to the defendant at his residence when the letter of acceptance is posted, whereas in the case of
was posted in due time. acceptance by Phone, the contract is deemed to be complete

English
when (time) and where (place) the offeror hears the acceptance 6. Acceptance must be within Reasonable time or before the
at his end rather than when the acceptor speaks the words of offer Lapses
Acceptance.
Similar is the position in UK Refer diagram
But in USA and Canada in case of telephones and telex the Revocation
contract is made in the district where the acceptance is spoken. Revocation (Sec.4 r/w S.5 and S.6)
 In BhagwandasGoverdhandasKedia v.
GirdharilalParshottam Das and Co. (1966) case Justice Revocation of Proposal :-
Hidayatullah and Justice Shah A proposal may be revoked at any time before the
Plaintiff made an offer on Phone from Ahmedabad to the communication of its acceptance is complete as against the
Defendants at Khangaon to Purchase cotton seeds. proposer but not afterwards (sec.5)
Defendants accepted the offer on phone  i.e. A may revoke his proposal at any time before or at the
Plaintiff sued for compensation moment when B posts the letter of acceptance but not
afterwads.
Issue- Note:- (from where has the expression “or at the moment”
Whether conversation of acceptance resulted in a contract at taken- illustration to sec.5)
khangaon or at Ahmedabad.
It was held that the contract was made at Ahmedabad where Revocation of Acceptance:
the acceptance was communicated An acceptance may be revoked at any time before the
In this case the Judge endorsed the principle of the Entores communication of its acceptance is complete as against the
case of 1955 by a ratio of 3:2 acceptor but not afterwads
i.e. B may revoke his acceptance at any time before or at the
C. ACCEPTANCE BY TELEX/TELEPRINTER moment when the letter communicating it reaches A, but not
afterwads
Entores Ltd. V. Miles Far East Corpn (1955)
 Justice DENNING Sec.4- Read from bare Act Se. 4 (with illustrations)
An offer was made from London by Telex to a party in The communication of Revocation is complete
Holland  as against the person who makes it- when it is put into a
The offer was duly accepted course of transmission to the person to whom it is made, so as
to be out of the power of the person who makes it.
Issue-  As against the person to whom it is made- when it comes
Whether the contract was made in Holland or in England to his knowledge
Held that Telex is a method of instantaneous communication
therefore the contract is made at the place where the acceptance A revokes his proposal by Telegram
is received i.e. LONDON As against A when Telegram is dispatched
As against B when when A receives it
4. Acceptance may be express or Implied
External manifestation or overt act of acceptance is a must B revokes his acceptance by Telegram
Brogden v. Metropolitan Railway Co.( 1877) As against B when telegram is dispatched
Brogden had been supplying coal to a railway Co. without any As against A when it reaches him.
formal agreement.
B suggested that a formal agreement should be drawn up Illustration
Agreeemnt sent to B with some Blanks which he filled up and 1. A makes proposal to B by Post- 12 Aug 2017
gave back to the agent of the Railway company 2. Proposal reaches B -16 Aug 2017
The Agent of Co. put the agreement’s draft in his drawer and it 3. B writes letter of Acceptance sends by post- 19 Aug 2017
remained there without final approval having been signified 4. It reaches A -24 Aug 2017
B kept up his supply of coal but on new temrs and also 5. S sends revocation by Telegram to B -13 Aug 2017
received payment on the new terms 6. Reaches B -18 Aug 2017
Then was the Dispute & then Suit- 7. B sends revocation by Telegram to A- 20 Aug 2017
The court held that the subsequent conduct of the parties in 8. Reaches A - 24 Aug 2017
supplying and accepting coal on the basis of proposed
agreement was a conduct that evidenced or manifested their Sec.4 tells
intention. The communication of proposal is complete on 16 Aug
The communication of Acceptance is complete
5. Acceptance in Reasonable or Prescribed manner sec.7(2)  As against Proposer – 19 Aug
The Indian law however differs from the common law position  As against Acceptor – 24 Aug
in UK where acceptance by a mode other than the one
prescribed by the offeror would amount to a counter offer, and Sec.5 tells
would result into a contract when this is in return accepted. Proposal can be revoked at any time before – 19 Aug
But, English law is also now coming partly in line with section Acceptance can be revoked at any time before- 24 Aug
7 of ICA, 1872. The communication of Revocation is complete (of offer)
Article 7 of ULFCIS (Uniform law on the formation of  As against A 13 Aug
contract for the International sale of goods), appended to the  As against B 18Aug
ULIS (Uniform laws on International Sales Act, 1967).
The communication of revocation is complete (of
Acceptance)
English
 As against A 20 Aug 2017 2. By LAPSE OF TIME
 As against B 22Aug 2017 If any time period is prescribed, then the offer lapses on the
expiry of that time otherwise after a reasonable time
Revocation how made/Modes of Revocation What is reasonable time will depend upon the facts and
circumstances of each case.
Revocation of Proposal by following 4 modes (sec.6) Ramsgate Victoria Hotel Co. v. Montefiore (1866)
The defendant Montefiore, made an offer to purchase shares in
1. By Notice of Revocation the plaintiff company in june
A revocation is effective only when it is brought to the mind Offer accepted by plaintiff company by allotting shares to him
of the person to whom the offer is made in November
When negotiation over telephone: It is instantaneous Court held that the offer had lapsed as the same had not been
communication therefore No revocation of proposal is possible accepted within a reasonable time.
once the words of acceptance are spoken
3. By failure to fulfill a condition precedent
When Revocation by Telex Where the offer is subject to a condition precedent, it lapses if
InTenax Steamship Co v Owners of the Motor it is accepted without fulfilling the condition
Vessel Brimnes [1974] popularly known as The Brimnescase a
notice of revocation was sent by Telex and was received by the 4. By death or insanity of offeror:
plaintiff’s telex machine during normal business hours, but the Death or insanity of the offeror does not automatically make
plaintiff read the message the next day. the offer to lapse.
The court held that the plaintiff was bound by the notice when For the offer to lapse offeree must also come to know the fact
his machine received it because communication of withdrawal of death or insainitybefore he makes his acceptance
of an offer by telex is effective when it could be read, rather
than when it is in fact read. Effect of death of offeree:-
ICA, 1872 is silent over this issue
POST But as an offer can be accepted only by an offeree and not by
Henthorn v. Fraser 1892 any other person, it should not be capable of being accepted by
An offer to sell property with right to accept within 14 days the offeree’s executor also
Next day at 3:50 PM- Acceptor sent by Post his letter of In re Irvine 1928 case-It was held that where an offeree has
acceptance written his acceptance but he dies before posting, the offer
Letter received by offeror at 8:30Pm when the office got lapses and the posting of the letter after his death will not create
closed and the letter was opened next morning a contract.
But before that at about 1 PM the offeror had posted a letter
revoking his offer Other modes by which an offer is Lapsed
The Revocation and acceptance crossed in the course of post. 5. By counter – offer by the offeree:
Acceptor received letter of revocation at 5:30Pm Where, a counter – offer is made by the offeree, and then the
Revocation was held to be ineffective. original offer automatically comes to an end, as the counter –
offer amounts to rejections of the original offer.
Difference between Indian and English law
In India, the notice of revocation has to be communicated by 6. By not accepting the offer, according to the prescribed or
the proposer only, whereas in England the offer stands revoked usual mode:Read with Section 7(2)
even though the offeree comes to know about the revocation of Where some manner of acceptance is prescribed in the offer,
offer through some other source and not by a notice by the the offeror can revoke the offer if it is not accepted according to
offeror himself the prescribed manner.
Dickinson v. Dodds 1876 case 7. By rejection of offer by the offeree:

The plaintiff was informed by a 3rd person that the property in Where, the offeree rejects the offer, the offer comes to an end.
issue had already been sold to another Once the offeree rejects the offer, he cannot revive the offer by
Court held that a sale to a 3 rd person which came to the subsequently attempting to accept it.
knowledge of the person to whom the offer was made was an The rejection of offer may be express or implied.
effectual withdrawal of the offer
8. By change in law:
Revocation of General offers  Sometimes, there is a change in law which makes the
Where an offer of a general nature is published through offer illegal or incapable of performance. In such cases
newspapers, it can be withdrawn by the same media also, the offer comes to an end.
Revocation of Tenders Revocation of Acceptance

A tenderer can withdraw his tender before its final acceptance Under English law-An acceptance once made is irrevocable
by a work or supply order even if there is a clause in the tender In India- Under sec.5- An acceptance may be revoked at any
restrictring his right to withdraw time befor the communication of the acceptance is complete as
But once an order is placed that will have to be complied with. against the acceptor, but not afterwards and
As per Sec.4 the communication of an acceptance is complete
Revocation of bid against the acceptor when it comes to the knowledge of offeror
In an auction revocation can be there before it is accepted by What if both LOA and LOR reach together
the auctioneer by knocking down the hammer.
Justice Shaw in countess of Dunmore v. Alexander 1830

English
It was held that “the admission that the two letters were conduct of parties, its an implied contract (A contract may also
received together puts an end to the case” be of mixed character)
But some authors are of the view that in such a case if LOA is 3. Constructive contract/Quasi contract- Here contract does
read first then no revocation is possible. not arise by virtue of any agreement between the parties but the
law recognizes a contract under certain special circumstances
Kinds of Contracts/Agreements (sec.68-72)
I. From the the point of view of Enforceability From the point of view of extent of Execution
 Valid contract- Agreement enforceable by law u/s 2(h)
 Void contract- Sec.2(j) a contract which ceases to be 1. Executed Contract- When both the parties to the contract
enforceable by law becomes void. fulfill their respective obligations, such contract is called as
 Void agreement- Sec.2(g)- An agreement not enforceable executed contract
by law is said to be void. 2. Executory contrct: When one or both the parties to the
contract have not performed their obligations fully and
Ques. Differentiate between Void agreement and Void something is remained to be done, such contracts are called
contract. executor contracts.
A void agreement is void-ab-initio 3.Unilateral contract: It is a contract where one party has
A void agreement never amounts to a contract performed his obligations and the obligation of the other party
A void contract is valid when it is entered into, but subsequent remains to be fulfilled
to its formation something happens which makes it Also called one sided contracts or contracts with executed
unenforceable by law consideration.
A contract cannot be void-ab-initio 4. Bilalteral Contract: A contract is said to be bilateral when
A valid contract becomes void because of supervening the obligations of both the parties remain outstanding.
impossibility or illegality (sec.56) or repudiation of a voidable Also called contracts with executory consideration
contract, or when the performance in a contigent contract
becomes impossible (sec.32) From the point of view of Form of contract
 Voidable contract-section 2(i) 1. Ordinary contract: Two or more parties- mutual agreement-
It is an agreement which is enforceable by law at the option of equality of rights of parties.
one or more of the parties thereto, but not at the aption of the 2. Standard form contract: In standard form contracts the
other or others. terms of the contract are pre-drafted by one of the parties and
It is a valid contract as long as it is not avoided or rescinded the other is supposed to sign on the dotted line, without having
After it is repudiated, it becomes a void contract any time or opportunity to get the terms changed.
3.Government contracts: are contracs when one or both the
 Unenforceable Agreements:-Those agreements which parties are central or state govt. these include tenders, auction
although being valid in itself are not capable of being enforced and certain standard form contracts
in a court of law because of some technical defect such as
A. absence of writing Standard Form Contracts
B. absence of registration Where a large number of contracts have got to be entered into
C. time barred by law of limitation by a person, from a practical point of view-These pre-drafted
D. a promissory note unstamped or not sufficiently stamped contracts are used.
The party that decides the terms and condition is the offeror
 Illegal or unlawful Agreement and is in the dominating position therefore is superior party
Those agreements which are void because they are against the Other party has to accept all terms and conditions or go
law are illegal or unlawful agreements without the contract so the acceptor here is inferior or weak
party
Ques. Distinguish between Illegal and void agreements E.g. govt. tenders, airline tickets, railway tickets, insurance
An illegal agreement is narrower in scope than a void contracts etc.
agreement The moment one buys an air line ticket- he is bound by all
All illegal agreements are void but all void agreements are not terms and conditions because of his implied acceptance
necessarily illegal. Sec.3 and sec.9:Like ordinary contracts, SFCs are also
E.g. An agreement in restraint of trade is void but not illegal governed by the provisions of ICA namely Sec.3 and Sec.9 but
A void agreement is destitute of legal effects when it is proved judiciary has modified these provisions for the protection of
to be so, but an illegal one is so ab initio. weak party in case of SFCs
The distinction between a void and illegal contract is The courts and the legislature have evolved the following rules
important as regards collateral transactions, because an to protect the interest of the weaker party
agreement which is collateral to an illegal agreement cannot be 1. Reasonable Notice:
enforced, whereas transactions collateral to a void agreement If the attention of a party to the contract has been drawn to the
are not affected. terms of the contract by a sufficient notice, for example,
by printing on a ticket, “For conditions see back”, or
From the point of view of Mode of creation obtaining his signatures on the document containing terms, or
1. Express contract-Where offer and acceptance are made in otherwise explaining the terms to him,
words spoken or written it is an express contract there arises a binding contract as regards such terms.
2. Implied contract or inferred contract- Where offer and Henderson v. Stevenson 1875 case
acceptance are made otherwise than in words i.e. by acts and

English
The condition for exemption of company from liability for loss In cases where more than one kind of liability arises, exclusion
was printed on the back of the steamer ticket but on the face of of contractual liability may not negative any other kind of
the ticket nothing was written like “For conditions see back”. liability e.g. Tortious liability especially for death or personal
The court held that adequate notice is not given to the offeree injury
therefore the acceptor is not bound by the terms White v. John warwick& Co. 1953 Case
Special secy, govt of Rajastahn v. V.V.Seshaiyar 1984 case Plaintiff hired a cycle from defendants
The court held that because the terms on the ticket were in Exemption clause stated “Nothing in this agreement shall
small print and they were not brought to the notice of the render the owners liable for any personal injury”.
plaintiff either before or at the time of purchase of the ticket While riding cycle saddle tilted forward therefore plaintiff got
therefore the acceptor is not bound by the terms. injured
Court held exemption clause excluded only contractual
2. Notice should be contemporaneous with the contract: liability whereas the defendant is still liable for negligence
Notice of the terms should be given before or at the time of the under law of torts.
contract
Olley v. Marlborough court Ltd. 1949 6. Strict construction/interpretation of the exemption clause
A man and his wife hired a room in a hotel and paid a week’s Any ambiguity in the mode of expressing an exemption clause
rent in advance. is resolved in favour of the weaker party.
When they went up to occupy the room there was a notice on Refer Wallis v. Pratt 1911 and Akerib v. Booth 1961
one of the walls “The proprietors will not hold themselves
responsible for articles lost or stolen, unless handed to the 7. Statutory Protection:
managers for safe custody.” The English Law- Unfair contract terms Act, 1977 severly
Their propery was stolen due to negligence of Hotel staff limits the right of the contracting parties to exclude or limit
The defendants were held liable as notice was not part of the their liability through exemption clauses in the agreement.
agreement. India lacks such an act.
3. Terms of contract should be reasonable 8. Liability towards third parties:

If the terms formulated and impliedly accepted are so If 2 parties enter into a contract where one of the parties tries
unreasonable that no prudent man would accept it then the to exclude his liability by an exemption clause, such a clause
implied acceptance does not make the acceptor bound by the would not exempt any stranger to contract or a third party i.e.
terms. he can not take advantage of the contract between the parties to
contract.
Central Inland water transport Corpn v. Brojenath 1986 case Morris v. C.W.Martin and sons Ltd. 1966 Case
The court struck down the clause in a service agreement The plaintiff gave her fur garment to a furrier for cleaning
whereby the service of a permanent employee could be Furrier gave the garment to defendant for cleaning with the
terminated by giving him a 3 months’ notice or 3 months’ consent of plaintiff
salary. Defendant’s servant stole the garment
Lilly white v. Munuswami, 1966 Defendants sought exemption from liability on the basis of the
A saree costing Rs.220 was given for cleaning but saree was agreement between the plaintiff and the furrier
lost The defendants were not allowed exemption and they were
Printed term- only 50% of the price will be paid held liable
Court held that the term is unreasonable and against public
policy therefore unenforceable 9. There should be contractual document
The parties are bound if the tems are contained in a contractual
4. Fundamental breach of contract document
No exemption clause is allowed to permit the non compliance Chapelton v. Barry Urban Distt. Council 1940
of the basic contractual obligation i.e. obligation which is It was held that if the document is a mere receipt and does not
fundamental or core of the contract. create a contract, the terms contained in such a document are
In Davies v. Collins 1945 not binding.
An army officer gave his uniform for cleaining and repair
Cleaners gave the same to sub- contractors who lost it 10. There should be no misrepresentation
Exemption clause stated that proprietor’s liability is limited to Even if a person signs a document containing certain terms but
ten times the cost of cleaning it. there is found to be a different oral misrepresentation about the
Court held that cleaners are liable as there was a fundamental contents of the document, the document would not be a binding
breach of contract as they did not exercise reasonable care by one
getting the job done from the servants under their control Curtis v. Chemical Cleaning and Dyeing Co. 1951
avoiding sub-contractors White dress was given for dry clean
Alexander v. Railway Executive 1951 Written terms and conditions were different from oral terms
Plaintiff deposited his luggage in the defendant’s cloak room The court held that the party is not liable for written terms.
and in return received a ticket
Term on ticket stated no liability for loss or misdelivery Government Contracts
Plaintiff’s luggage was delivered to an unauthorized person These are those contracts where one or both the parties are
without the production of the ticket. Central govt. or State govt.
Court held that it is fundamental breach of contract therefore It must fulfill the conditions of sec.2 and 10
defendant is liable It can be challenged same as in case of private parties.
5. Non contractual liability:

English
Like any private party, Govt is also a party. This status is Gun Powder is equated with offer or proposal which has a
conferred by constitution itself in Art 298-(Title-power to carry potential of explosion but cannot explode itself without ignition
on trade etc.) and Art. 299-(contracts) or matchstick as used in the statement.
U/A 298 Govt. can hold property, enter into contract for any Same thing happens in case of proposal or an offer which has
purposes subject to the mode and manner provided for it in potential or chance of becoming an agreement or a contract not
Art.299 by itself but only when properly accepted.
Art.299(1)-The contract must be These 2 items are distict and separate but once they come
i. expressed to be made by the President (where C. Govt) or together explosion results the moment the flame is applied.
Governor (where S.Govt) Same thing happens in case of contract-proposal and
ii. Executed on behalf of the president (where C. Govt) or acceptance are distinct items, but once they come together
Governor (whereS.Govt) something new comes into existence which is promise or
iii. Executed by such person and manner as president or contract
Governor may direct or authorise. This can be seen in sec.2(b) (proposal once accepted becomes
Remedy by way of writ is not available for enforcing a Govt. a promise). Therefore for a contract equivalent to explosion,
contract. acceptance is the catalyst without which it can never come into
existence-similar to ignition in case of explosion of gun
Why special treatment to Govt. Contracts? powder.
Here Public Money is involved therefore it’s a delicate matter The phrase disaster in the Quotation is equivalent to serious
contractual obligations and consequences which can be averted
Is it necessary that a Govt. contract has to be in writing? by removing the gunpowder or withdrawing the flame. In the
 Yes, In state of W.B v. B.K. Mondal & Sons 1962 concept of contract, it happens either on withdrawal of proposal
PWD tender-for construction of 7 flats-plaintiff signed or revocation of acceptance as regulated by S.4 or S.5.
contract-officials satisfied-sanction of 4 more flats-information Finally a Damp gun powder looses the potential of explosion
given to Mondal by Executive Engineer. because it has not been exploded in time.
Extension of original contract is implicit-Mandal constructed 4 Samething happens in case of contract- A proposal, if not
more flats without formal written contract although accepted when a prescribed period is there for acceptance or
communication was by authorised person. within a reasonable time remains proposal but cannot become
Conflict-Trial court and High Court rejected Mondal’s claim contract even if acceptance is tried as happens to the
because there was no written contract gunpowder which is damp lying for a long time. Repeated
SC said that Art 299 is mandatory therefore the contract is not application of flame or ignition would not result in explosion.
a valid contract. It is an interesting description of the total steps, stages,
But SC tried to fix responsibility on govt. in a different way culmination of contract with consequences and how the
i.e. through sec.70 of ICA i.e. obligation of person enjoying consequences can be avoided or averted. ICA incorporates all
benefit of Non-Gratuitous act these principles and processes
A govt contract has to be a written one. However, it need
not be printed, typed, in ink and can even be written by a Points to be kept in mind
Pencil. 1. Always support
2. Who has given the statement
Effect of Non Compliance of Art 299(1) 3. Correlate with provisions of Indian law
Art 299(1) is mandatory in character and its contravention 4. Elaborate what it mentions
nullifies the contracts and make them void (State of UP v. 5. Cover all components
Murarilal 1971) 6. Give justification for all
7. Give conclusion
Ques. Acceptance to an offer is what a lighted matchstick to a
train of gunpowder. The moment they come together Ques. “The law of contracts, as contained under the Indian
explosion results. But Disaster can be averted till the last contract Act, is not the whole of the law relating to contracts,
moment either by removal of gun powder or withdrawal of nor is it the whole of the law of obligations”. Discuss this
flame. In any case nothing would happen if the gun powder is statement.
damped lying for long time. Comment.
Ans. The preamble to the Indian Contract Act, 1872 states
Ques. Acceptance is to offer what a lighted match is to a train “whereas it is expedient to define and amend certain parts of the
of gunpowder. It produces something which cannot be law relating to contracts; it is hereby enacted as follows:
recalled or undone. But the powder may have lain till it has The preamble is the introductory part of a statute or Act which
become damp or the man who has laid the train may remove it states the reason and intent of the law. The purpose for which a
before the match is applied.-Anson Sir William Reynell preamble is framed is to indicate what in general terms is the
Anson. Explain object of the legislature in passing the act.
The preamble of this Act shows that the act is not intended to
Ans. This a famous observation of well known author on deal exhaustively, with the whole branch of the law of contract
contract-Sir William Reynell Anson, who in his classic book but it ony defines and amends certain parts of the law realting
Law of Contract described the total concept of contract and its to contract.
formation in symbolic form. The Indian Contract Act, 1872 is not exhaustive and does not
The statement is a pictorial description of different stages of encompasses the whole law of contract in India.
formation of contract and its final culmination. In cases of contracts when any matter cannot be brought
Interestingly enough, the symbols used contain not only the within particular provisions of the act without doing some
form but the features they represent in corresponding stages of mischief of the languageused therein and/or without leading to
formation of contract. strange and absured results, that matter should be left to be

English
dealt with on established principles of English law which are objective bystander who read this would presume an intention
not enconsitent with justice, equity and good conscience. to contract.
But to the extent that the contract Act deals with a particular
subject, it is exhaustive upon the same and it is not permissible The rebuttable presumption
to import the principles of English Law. [Satyabrata v. The rebuttable presumption establishes a burden of proof; but
Mugneeram (AIR 1954 SC 44) the burden may be rebutted by evidence to the contrary.
Section 1 of the act provides “Nothing herein contained shall The civil standard of proof is "a balance of probabilities",
affect the provisions of any statute, Act or Regulation not while the criminal standard of proof is "beyond reasonable
hereby expressly repealed, nor any usage or custom of trade, doubt".
nor any incident of any contract, not inconsistent with the Here, different presumptions will apply, according to the class
provisions of this act”. of agreement.
Thus the contract act is not exhaustive and does not deal with For these purposes, there are four classes of agreement:
all the branches of the law of contracts. There are various other
acts which deal with certain kinds of contracs such as: A. Family agreements: a presumption of NO contract
1. The Negotiable Instumens Act, 1881 B. Social agreements (i.e. agreements between friends):
2. The Transfer of Property Act, 1882 no presumption (case decided on its merits, using the
3. The Specific Relief Act, 1963 objective test)
4. The Companies Act, 1956 C. Commercial agreements: a presumption of a VALID
5. The Sale of Goods Act, 1930 contract
6. The Partnership Act, 1932 D. Collective agreements: a presumption of NO contract
7. The Railways Act, 1890 etc. The four classes
Thus, we can say that the law of contracts is far wider than the Family agreements: a presumption of NO contract
Indian Contract Act, 1872, which is merely a branch of the Family agreements are presumed not to give rise to legal
whole plethora of laws regulating the contracts relations, unless there is clear evidence to the contrary.
The courts will dismiss agreements which for policy reasons
Intention to create legal relations should not be legally enforceable.
Intention to create legal relations', otherwise "intention to be In 1919, Lord Atkin held in Balfour v Balfour (where a
legally bound", is a doctrine used in contract law, particularly husband promised his wife to pay maintenance while he worked
English contract law and related common law jurisdictions. in Ceylon) that there was no "intention to be legally bound",
The doctrine establishes whether a court should presume that even though the wife was relying upon the payments.
parties to an agreement wish it to be enforceable at law, and it The judge stated that as a general rule, agreements between
states that an agreement is legally enforceable only if the parties spouses would not be legally enforceable:
are deemed to have intended it to be a binding contract. The matter really reduces itself to an absurdity when one
considers it, because if we were to hold that there was a
Identifying intention to create legal relations contract in this case we should have to hold that with regard to
A contract is a legally binding agreement. all the more or less trivial concerns of life where a wife, at the
Once an offer has been accepted, there is an agreement, but request of her husband, makes a promise to him, that is a
not necessarily a contract. promise which can be enforced in law.
The element that converts any agreement into a true contract is In a more modern case, Jones v Padavatton [1969], the court
"intention to create legal relations". applied Balfour v Balfour and declared that a mother's promise
It is said that Test of Contractual Intention is Objective not to allow her daughter an allowance plus the use of a house
Subjective. provided that she left the USA to study for the English Bar was
There must be evidence that the parties intended the not an enforceable contract.
agreement to be subject to the law of contract. However, if there is clear intent to be contractually bound, the
If evidence of intent is found, the agreement gives rise to legal presumption is rebutted.
obligations whereby any party in breach may be sued. In Merritt v Merritt [1970], a separation agreement between
In English law, there are two judicial devices to help a court estranged spouses was enforceable.
to decide whether there is intent: In Beswick v Beswick [1967] an uncle's agreement to sell a
A. the objective test, & coal delivery business to his nephew was enforceable.
B. the rebuttable presumption. Also, in Errington v Errington [1952], a father's promise to
Both tests are used together in combination. his son and daughter-in-law that they could live in (and
ultimately own) a house if they paid off the balance of the
The objective test mortgage, was an enforceable unilateral contract.
Counterintuitively, the best way of discovering whether the
parties intended to contract is not to ask them, as this Social agreements: NO presumption, the case being decided
"subjective test" would give the rogue an easy loophole to solely on its merits
escape liability. (He would reply, "No! I did not intend to be Although many sources consider "Social and Domestic
bound".) Agreements" to be a single class, it is better to regard "Family
Instead, just as in Carlill v Carbolic Smoke Ball Company Agreements" as a class separate from "Social Agreements", as
[1893], the court applies the "objective test" and asks whether the latter invokes no presumption, and only the objective test
the reasonable bystander, after taking into account all the applies.
circumstances of the case, thinks that the parties intended to be
bound. In Simpkins v Pays [1955], an informal agreement between a
Since the advertisement poster in Carbolic Smoke Ball case grandmother, granddaughter and a lodger to share competition
stated that the company had "deposited £1,000 in the Alliance winnings was binding.
Bank to show sincerity in the matter", the court held that any

English
Sellers J held, applying the objective test, that the facts Collective agreements : a presumption of NO contract
showed a "mutuality" between the parties. (unless parties agree otherwise in writing)
In Coward v MIB [1962], the Court of Appeal held that when A collective agreement is a special type of commercial
a motorcyclist regularly gave a friend a pillion lift in return for agreement, such as one negotiated through collective
some remuneration in cash or in kind, there was no contract. bargaining between management and trades unions.
Soon after, in Connell v MIB [1969], a case with materially "Any collective agreement shall be conclusively presumed not
similar facts, Lord Denning (violating the rule that the Court of to have been intended by the parties to be a legally enforceable
Appeal was bound by its own decisions) said, "I am not contract, unless the agreementis in writing, andcontains a
satisfied by the decision in Coward. I think that when one provision which states that the parties intend that the agreement
person regularly gives a lift to another in return for money, shall be a legally enforceable contract".
there is a contract, albeit informal".
In a similar "lifts for friends case", Albert v MIB [1971], the
House of Lords approved Denning's decision in Connell (so
that Coward may be considered bad law).
Commercial agreements: Business transactions incur a

strong presumption of a VALID contract
Business transactions are presumed to be binding contracts.
These agreements where the parties deal as though they were
strangers, are presumed to be binding.
However, "Honour Clauses" in "Gentlemen's' Agreements"
will be recognised as negating intention to create legal
relations, as in Jones v Vernons Pools [1938] (where the clause
"this agreement is binding in honour only" was effective).
One must be careful not to draft a clause so as to attempt to
exclude a court's jurisdiction, as the clause will be void, as in
Baker v Jones [1954].
If a contract has both an "honour clause" and a clause that
attempts to exclude a court's jurisdiction (as in Rose & Frank v
Crompton [1925]) the court may apply the blue pencil rule,
which strikes out the offending part.
An honour clause states that the agreement is not a contract
such as:
subject to the preparation of a formal contract.

If the parties to an agreement expressly declare that the
agreement is binding in honour only then there is no contract.
A common clause states "subject to contract" or "subject to the
preparation of a formal agreement".
Blue pencil rule is a rule which allows courts to remove
unreasonable portions of a contract in order to make the
contract enforceable
The court will then recognise the remainder, provided it still
makes sense, and remains in accord with the parties' bargain.
The offending clause was:
This arrangement is not entered into, nor is this memorandum

written, as a formal or legal agreement, and shall not be subject
to legal jurisdiction in the Law Courts either of the United
States or England, but it is only a definite expression and record
of the purpose and intention of the three parties concerned, to
which they each honourably pledge themselves with the fullest
confidence - based on past business with each other - that it will
be carried through by each of the three parties with mutual
loyalty and friendly co-operation.
When the words "and shall not be subject to legal jurisdiction

in the Law Courts either of the United States or England," are
"blue-pencilled out", the remainder becomes legally acceptable,
while staying true to the intended meaning.
The party asserting an absence of legal relations must prove it;

and any terms seeking to rebut the presumption must be clear
and unambiguous.

English
CAPACITY TO CONTRACT  Mohori Bibi(wife of money lender who died during
the pendency of ligtiagion)v. Dharmo Das Ghosh
 Sec.10 of ICA 1872 states that parties to a contract (minor)1903 PC
must be competent to contract
 Sec.11 defines who are competent to contract MAJOR ISSUES
 Therefore this section deals with personal capacity in I. ESTOPPEL
3 distinct branches:  General Rule : “No estoppel against Minor”
1. Disqualification by infancy/minority  When a minor misrepresents at the time of the
2. Disqualification by Insanity contract that he is a major the question arises does the law
3. Other special disqualifications prescribed by law of estoppel contained in Sec.115, Evidence Act, apply
against him, so as to prevent him from alleging that he
Minor Persons was a minor when the contract was made?
 Soon after enactment of ICA 1872 cases came up in  Sec.115:“When one person has, by his declaration,
which issue was if one of the parties is minor then what act or omission, intentionally caused or permitted another
sort of agreement it is-valid, void or voidable person to believe a thing to be true and to act upon such
 From 1872 to 1903: Two distinct views and opinions belief, neither he nor his representative shall be allowed
of High Courts were prevalent during this period. in any suit or proceeding between himself and such other
 There were not only two opinions but difference of person or his representative to deny the truth of that
opinions is very sharp. thing”
 Each high Court or set of High Courts justify the Nawab Sadiq Ali Khan v. Jai Kishori 1928 PC case
verdict and opinion they hold.  Bibi Jai Kishori was a young minor girl.
 She was daughter of Nawab’s friend. Friend died.
1st view-A minor’s contract can never be a valid Minor girl approached Nawab for loan. Nawab inquired.
contract therefore void therefore unenforceable because  Minor girl represented herself to be a major and
of collective reading of Sec.10 and 11. nawab relied on her statement and gave loan.
 Later on she came and told that I was not liable as I
2nd view Minor’s contract cannot be valid but it need not was minor and agreement with minor is void.
be completely void. But there is a position in law between  Nawab approached court of law
completely valid & completely void i.e voidable. Position  The court held that Principle of estoppel does not
in England is that Agreement with minor is voidable. apply to minors
Two Consequences:
 These both views led to confusion, uncertainity and 1. License to minor to commit fraud
lack of uniformity in the country. 2. This puts other party in a very awkward position
 It is anamolous situation where rights were dependent
upon where you are and not who you are. Justification : There are 2 Justifications for Non-
 One high court is not bound by the decision of Application of the principle over Minors
another high court. 1. Technical: Basic principle of law of interpretation is
 Whenever this kind of situation prevails, it should be that if there is a clash or conflict between substantive law
rectified at the earliest. (here sec.10,11 of ICA) and procedural law (here sec.115
 The process of rectification is two fold of Indian Evidence Act)-Substantive law shall prevail
1. Legislature should intervene by adding explanation (Gadigeppa v. Balagowda1931)CJ Beaumont of Bombay
or amendment making the position clear. But High Court
Legislature did not intervene to settle the controversy.
2. Once decision of these High court gets 2. Practical Reason: The very purpose of sec.10 and 11
affirmed/rejected by Apex court, whatever verdict they would be frustrated which is not to expose the minor
pronounce should be final. [privy council at that time against contractual obligations because of their chance of
was Apex court] being exploited by the other side.
 It took 30 odd years for a case to reach the Apex
court.  In Khangul v. Lakha Singh 1928 CJ Sir Shadilal of
 Courts cannot entertain dispute unless a case is Lahore High Court (Full Bench Judgement) the court
presented before them for settlement of that controversy. held that the law of estoppels, which is a rule of evidence
There are two main reasons that it took 30 years for a case is a general law and this has to be read subject to the
to reach the highest court. special law contained in the Indian Contract Act.
 Technical Reason: civil matters do not reach high
court due to pecuniary limitation II. “NO LIABILITY OF MINOR IN TORT ARISING
 Practical Reasons: expenses and dilatory procedure OUT OF CONTRACT
for these reasons, no matter reached highest court to  Generally, a minor is liable for a Tort.
determine the nature of transaction in case of minor’s  But, a minor however will not be liable for a tort
agreement till the famous case of arising out of a contract because such liability is an
indirect way of enforcing his agreement.

English
 It was held that money could not be recovered
Manby v. Scott 1659 because that would maount to enforcing the agreement to
 It was held that if a minor purchases goods on credit, repay loan, which is void under the Infants’ Relief Act
he cannot be sued to recover the value of the goods by 1874.
permitting an action for the tort of conversion.
Indian Law
Jennings v.Rundall 1799 Mohoribibi v. Dharmodas Ghose 1903 case
 A minor hired a horse for a short journey but took it Facts of the case
on a much longer journey, with the result that the horse 1. Family:
was injured  Dharmo Das Ghosh was a minor son of a very rich
 The court held that the minor is not liable for the tort Zamindar of a place near Hughli.
of negligence because that would mean making him liable  Father died leaving behind widowed mother (who
for the breach of contract of bailment. was a Pardanashin woman i.e. not having open social
accessibility)
 Exception: But where the tort is independent of the  Boy was minor son and legal descendant of
contract the mere fact that a contract is also involved, will Zamindaar (Bad Company/drinking/Smoking)
not absolve the minor from liability.
2. Minor:
Burnard v. Haggis 1863  In absence of father, mother being in Parda, minor
 A minor who was a Cambridge under graduate hires a was spoiled and as a result incurred large no. of debts as
mare for riding only with the express stipulation that it mother was strict with pocket money.
will be used for riding only, and not “for jumping and  It was embarassing situation for Dharmodas Ghosh.
larking” 3. Money Lender:
 He lent the mare to his friend who made the mare  Minor approached money lender ‘Brahmo Dutt’ to
jump over a fence. lend 20,000 as loan.
 With the result the mare fell and got injured and  Money lendor replied that it is not possible to give
finally killed. such a big amount without security.
 The court held that the minor will be liable under law  If you want to have loan, you have to martgage
of torts for negligently killing the mare, as his act is property which should be double the value of money
totally independent of the contract made by him and could lended.
not be said to be an abuse of the contract or arising out of  List of property worth Rs. 50,000 was made by
the contract. minor.
III Restitution 4. Mother’s messenger:

 Somehow mother got information.
English Law  She sent messenger to Money lender to convey
 If a minor has unjustly enriched himself, equity message that “Keep your hands off. Don’t give any
demands that such property or goods be restored. advance or money. This boy is minor.”
Leslie (R) Ltd v. Sheill 1914
 The court laid down the following 3 main 5. Money lender asked DG:
propositions (given by Lord Sumner):-  Next time when Dharmodas Ghosh reached money
1. If an infant obtains property or goods by lender, the money lender asked him his age i.e. whether
misrepresenting his age, he can be compelled to restore it, he was major or minor.
but only so long as the same is traceable in his  DG made a false representation stating he was a
possession. major
2. Where the infant has sold the goods or converted
them, he cannot be made to repay the value of goods, 6. Opportunist money Lender-Brahmo Dutt:
because that would amount to enforcing a void contract.  Money lender saw it as a great opportunity to grab
3. The doctrine of restitution is not applied where the property worth Rs. 50,000/- for just 20,000.
infant has obtained cash instead of goods, for…  He was very much interested in this transaction
 “Restitution Stopped where Repayment began”
 Since it is difficult to identify money and to prove 7. Consultation with lawyer Mr. Chaudhary:
whether it is the same money or different one, the  Brahmo Dutt, the Money lender went to Calcutta.
doctrine does not apply to money  He consulted his lawyer Mr. Choudhary and told that
mother was saying that he was minor but DG says that he
Facts of this case was major.
 An infant obtained two loans of £200 each from the  He inquired about validity of agreement with minor.
plaintiffs who were money lenders  Advocate told that position is not clear.
 Plaintiffs brought an action to recover £475 (Principal  Some High Courts say void and others say voidable.
+ Interest) But money will be refunded.

English
 There is no view of Calcutta High Court. He gave  Court held if there would have been a situation of
complete picture to money lender. fraud, we would have considered this objection. The
essential condition of fraud is misrepresentation done
8. Lawyer as an agent: with intention to deceive the other party and the other
 Lawyer Mr. Chowdhary volunteered himself to make party relies on such misrepresentation
inquiry whether DG was major or minor.  DG tried to commit fraud but he had not deceived
 Choudhary as an agent went to neighbourhood to money lender. The money lender got deceived by his own
inquire about age of DG. greed and his own lawyer who acted as his agent.
 Some said don’t know other’s say rowdy and others  DG had committed no fraud though he attempted.
may be major.
2. Principle of Estoppel: Sec.115 of Evidence
9. Loan given:  If a person makes representation of material facts, he
 2 Contracts: Loan was given to minor and two cannot change it later on.
contracts were entered into  DG claimed to be major but when he went to court,
i. Promissory note he represented himself as minor. As per legal position
ii. Mortgage deed of property worth Rs.50,000 with original representation should stand.
condition of appropriation and foreclosure. The Mortgage  This objection was rejected by Privy council as
deed was duly registered as required. Sec.115 is not applicable to the facts of the case
 Requirement is that a person made representation and
10. Two/Three years gone: other party relied on that. But he never relied.
 Money lender thought now its time to tighten screw.  These are not situations of fraud or Estoppel. If and
 Money lender called Dharmodas Ghosh and when objection arise, we will decide that issue.
threatened litigation.
(B)
11. Minor went to his family lawyer:  Arguments: DG pleaded that agreement is void
 He told entire story that money lender is threatening whereas money lender pleaded that agreement is voidable
forceclosure. as in England the law is same.
 Day on which agreement was entered into- DG was  Court has to accept either of the two issues and give
minor [evidence of mother and grandmother about reasons
credibility of birth date-also produced)
 Lawyer said that position is not clear but why should  Privy Council Confirmed the views of Calcutta
we take any chance. We will hold that agreement with High Court.
minor is void.
 1. Principle of interpretation of document and
Proceedings statute:
1. DG went to court:  Once the law is put into statute form, nothing outside
 It is minor who went to court and not money lender. such law should be taken into account if law is clear by
 He filed application for cancellation of mortgage deed itself.
under Specific Relief Act (u/s39 of the original Specific  Here, Sec.10 Capacity and Sec.11 Major.- Therefore,
Relief Act of 1877 now section 31 of SRA 1963) agreement with minor is void.
 Ultimately the matter reached from lower court to  Today law in India is what is contained in Indian
Calcutta High Court. Contract Act, 1872. English law is not binding on Indian
 Calcutta High Court held that agreement is void. It courts.
also ordered cancellation of deed and also declared
Promissory not to be invalid. 2. What is expressly mentioned in a statute and what
2. Appeal to Privy Council: is expressly included has to be interpreted to mean
 As both parties were influential and had high stakes, that what is excluded is not intended by legislature.
therefore both parties took no chance and involved best  ICA recognizes voidable contracts-Sec.19, 19A
lawyers from both sides.  If legislature wanted, It could also be included in that
 When appeal was pending before Privy Council,  Therefore Judgement of Calcutta HC was Confirmed
money lender died. In his position, wife was substituted  Agreement is void-ab-initio. Therefore, Calcutta HC
as a party. has righly cancelled that promissory note as well as
(A) mortgage deed.
 After due filing when argument opened by lawyer of (C)
money lender, He took preliminary Objections.  Final Prayer-Restitution of that amount of Rs.20,000
1. Basic issue involved was not validity of contract with  Court:-What to talk of Rs. 20,000/-. Entire
minor……….. but ……. transaction which took place is void-ab-initio i.e. in
Whether a person committing fraud is entitled to benefit Nullity which law cannot recognize.
or victim of fraud is to be protected as I happen to be.  Money lender took the following Plea

English
1. Sec.64 of ICA: Sec.64 was applicable to the case of 1. Sulaiman CJ held that minor cannot be asked to
voidable contracts. Minor’s agreement being void, Sec.64 give any relief to the other party when minor is
was not applicable to the case and therefore the minor defendant in the case
could not be asked to pay the amount under this section.  It will tantamount to enforcing the minor’s pecuniary
2. Sec.65 of ICA-It is applicable to an agreement or liability under the contract which is void.
contract between competent parties and has no application
to a case in which there never was and never could have 2. Rule laid down in Leslie v. Sheill was followed.
been any contract. It is not discovery. Everyone knows  It was held that a minor may be asked to restore back
contract with minor is void. the property if the same can be traced, but he cannot be
3. Sec.41 of SRA 1877 (Sec.33 of SRA 1963)- asked to pay money compensation because that would
Cancellation- This section gives discretion to court to amount to enforcing a void contract against minor.
order compensation but under the circumstances of this
case justice did not require the return of the money Andhra Pradesh High Court aligned itself with
advanced to the minor, as the money had been advanced Allahabad HC
with full knowledge of infancy. GokedaLatcharao v. ViswariadhamBhimayya 1956 case
 “Harsh decisions make good law”  Minor fraudulently representing his age obtained
 Now it is established that an agreement with Rs.2500 on promissory notes
minor is void  AP HC followed Ajudhia case and refused to grant a
 Section invoked by DG were: Sec. 39 of SRA, 1877 money decree against a minor.
now Sec. 31 of SRA, 1963  Subba Rao CJ said a person who had parted with his
goods can trace them into the hands of the Quondam
minor and recover them back in specie, for he has not
Liberal interpretation by LAHORE HIGH COURT lost his title to them.
Khan Gul v. Lakha Singh 1928 CASE  But he cannot seek to recover their price or damges,
 The defendant minor fraudulently concealing his age for, if allowed to do so, the court would be enforcing the
contracted to sell a plot of land to the plaintiff contract of loan.
 He received consideration of Rs. 17,500
 Then Minor refused to perform his part of bargain The law commission of Indian 9th Report preferred the
 Plaintiff prayed for view enunciated in Khan Gul case.
1. Recovery of possession or
2. Refund of consideration u/s 41 of SRA 1877 (now 33 Section 33 of Specific Relief Act 1963 came into effect
of SRA 1963) and all controversies were set at rest
 Court held that recovery of possession is not possible
as the contract is void
 Sir Shadilal CJ also admitted that sec.41 of SRA Diagram
1877 would not help the plaintiff as sec.41 is exercised
when the minor himself invokes the aid of the court.  Sec.33(1) has not changed the earlier law sec.33(2)(a)
has made the difference.
Sec.41 of SRA 1877  Through this provision [sec.33(2)(b)] parties are tried
 Minor may sue for cacellation of an instrument -> to be put to the pre-contract position as far as possible.
Pertaining to void document -> When he so goes to court  It is based on the principle that he who seeks equity
as plaintiff -> Court may ask minor to pay compensation must do equity.
to the other side  Moreover, compensation in terms of money is also
 Sir Shadilal CJ observed that“An infant cannot be permitted. (excluding interest)
allowed by a court of equity to take advantage of his  In other words, it means that rule of English law laid
own fraud.” down in Leslie v. Sheill is not applicable in India.
 Accordingly the learned Chief Justice ordered refund
of the consideration not because there is a contract, but it What is benefit to Estate?
is only the restoration of the pre-contract position  The phrase ‘estate has benefitted’ means some
 The court held that, asking minor to return ill gotten permanent benefit as opposed to a transient one (viz.
gain in the form of money is not the enforcement of entertainment, eating, gifts to friends etc.)
contract, but it is ony the restoration of the pre-contract  A minor (as a defendant) can be compelled to account
position for such portion of money or anything else received by
 This case was a departure from the decision of Leslie him as has gone to benefit him personally, such as
v. Sheill 1914 education or training, or has resulted in an accretion to his
estate (viz buying the assets, or deposit in bank account)
Allahabad HC refused to follow the enlarged view of
restitution made in Khan Gul case In the following cases Minor was not compelled for
Ajudhia Prasad v. Chandan Lal 1937 Restitution

English
1. In Kanta Prasad Singh v. Sheo Gopal 1904 case,  A minor is bound by the contract of apprenticeship
where the other party lays no material before the court for under Indian Apprenticeship Act, 1850.
coming to the conclusion that justice requires return of  In England, an infant is bound by the contract of
the money paid to the minor. apprenticeship as well as contract of service but in India
2. In K.Mungall v. Mahadavan 1969 case where though only contract of apprenticeship binds a minor.
the minor has misrepresented his age, the other party was
so zealous to enter into the transaction that the false 3. Contract of Insurance
representation exerted no influence on him.  A minor can recover insurance money when on his
behalf the goods were insured.
Ratification of Minor’s Agreement
 No Ratification of a minor’s contract after attaining 4. Contract of marriage
majority.  A contract for the marriage of a minor is also prima
 If it is necessary, a fresh contract should be made on facie for his or her benefit
attaining majority. And a new contract will also require a KhimjiKuverji v. Lalji Karamsi 1941 case
fresh consideration  Contract of marriage of a minor girl was entered into
Gobind Ram v. Piranditta 1935 by her mother on her behalf with a major boy
 It was held that Ratification relates back to the date of  The court held that girl could sue major boy for
the making of the contract and therefore, a contract, breach of contract.
which was then void, cannot be made valid by subsequent
ratification and on that a suit can not be maintained. 5. Contract of service: Not Valid
Suraj Narain v. SukhuAheer 1928 Raj Rani v. Prem Adib, 1949 case - Justice Desai
 Minor borrowed money on Pronote  Father of Raj Rani a minor entered into a contract on
 After Majority he made a fresh promise by executing her behalf with Prem Adib, a film producer.
a second bond to pay sum and interest both  Raj Rani was to act as an actress
 Court held that contract is not valid  Raj Rani was not given any work by the producer
 Court held consideration received during minority is  She sued Producer for Breach of Contract.
no consideration within the meaning of sec. 2(d)  J.Desai held that the Plaintiff being a minor, the
 U/s 2 of ICA a past consideration may be a good contract was void
consideration, but that past consideration
1. Must be an existing one One more reason why this contract is void:
2. Must be a valid one  The contract was without any consideration because
consideration moving from a third party, who is a minor,
Kundan Bibi v. Shree Narayan 1906 Calcutta HC and is no consideration.
Narain Singh v. Chiranji Lal 1924 All HC
 Where in addition to the consideration already given Why Contract of Service is invalid but contract of
during minority, a further advance is made or a fresh apprenticeship is valid?
consideration given after majority, a promise to pay the  In case of apprenticeship: Minor is not given any
whole amount becomes binding job-responsibility or liability. He works under qualified
supervisor. If he causes any loss to organization then it is
Anant Rai v. Bhagwan Das 1940 supervisor’s liability.
 The court held that a person after attaining majority  In case of contract of service an employee is given
may elect to pay a debt incurred by him during his an independent charge. In case there is some loss or
minority. damage by the employee to the employer, then he is liable
 However, if he does so, he cannot subsequently bring for damage.
a suit for refund of that amount because a contract entered
into by a minor, though void, is not unlawful OTHER ASPECTS
Ques.1. Can a MINOR draw, endorse, deliver a
NEGOTIABLE INSTRUMENT?
Exception to the General Rule-Contract with a minor is  Sec.26 of Negotiable instruments Act, 1881 says that
void-ab-initio a minor may draw, endorse, deliver and negotiate such
BENEFICIAL CONTRACTS instrument (e.g. Pronote, B/E, Cheque) so as to bind all
parties except himself.
1. Contracts relating to immovable Property
QUES.2. Can a Minor be an AGENT?
 Minor of its own cannot enter into contract but  Minor can never be a Principal
through a competent guardian a minor can do so.  However a Minor can be an Agent and an agent is
(Srikakulam Subrahmanyam v. KurraSubba Rao 1948 merely a connecting link between his Principal and the
case) third party
2. Contracts relating to Apprenticeship

English
 When a minor is appointed as an agent, he will be  B. diagram- sane man ----fever or drunk--- can not
able to create a contract between his principal and the understand…..
third person
 But due to Minority, the Minor shall not be Inder Singh v. Parmeshwardhari Singh 1957
responsible towards the Principal  On the death of father the defendant son agreed to sell
a property worth Rs. 25,000 for only Rs.7000
Relevant sections of ICA, 1872  Mother proved that he was a born idiot, incapable of
 Sec.182 authorises agent to represent his Principal understanding the transaction
 Sec.183 Principal must be 1. Major 2. Of Sound  The court held the sale to be void
Mind. Therefore Minor can’t be Principal
 Sec. 184-Minor can be an agent but can not be Ques.5. Who are the Persons Disqualified by law with
responsible to his principal. respet to ability to contract?
 As per sec.11 there are some persons “Disqualified
Ques.3. Can a Minor be a Partner? from contracting by any law e.g.
1. Alien enemies
A minor can’t be a partner because of the following two 2. Foreign Sovereigns
reasons: 3. Ambassadors and High Commissioners
1. Minor cannot enter into a contract: 4. Convicts in jail
 Partnership arises out of contract. Therfore, parties 5. Married women with respect to their husband’s
must be competent to contract. properties
 Minor is not competent to contract, Therefore, minor 6. Insolvents in certain cases
can’t be a partner. 7. Joint stock companies and corporations in certain cases
2. Minor cannot be Principal:

 A partner is both a principal as well as an agent
but as per Sec. 183 of ICA,1872 A MINOR CANNOT
BE A PRINCIPAL
 But however, a minor can be admitted to the benefits
of Partnership u/s 30 of Partnership Act, 1932.
 After attaining majority he has to decide within 6
months either to become a partner or leave the
partnership firm
What are Benefits

1. He can make an investment in partnership
2. He is entitled to receive the profits of Partnership firm
3. He is entitled to inspect books of Accounts
4. He is entitled to statements of balance sheets and
account sheets
Limitations
1. He cannot participate in conduct of
business/delegations
2. He cannot challenge the balance sheet made by
partners
3. His liability is to the extent of amount he has invested
in Partnership firm.
Ques. 4. Can a Person of Unsound Mind enter into a

contract?
Sec. 12 - Persons of Unsound Mind
 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
is capable of understanding it and of forming a rational
judgement as to its effect upon his interests
From illustrations of sec.12

 A. A patient in a lunatic asylum-who is at intervals of
sound mind-may contract during those intervals

English
Consent The question before the Madras High Court was regarding the
validity of the adoption of a boy by a widow
Free Consent On the death of her husband, the husband’s dead body was not
Free consent is an essential requirement of valid contract as allowed to be removed from her house for cremation, by the
per sec.10 relatives of the adopted boy until she adopted the boy.
It includes choice and willingness of parties themselves Finally, the widow agreed to take the boy in adoption.
When she got settled down-she denied to be bound by the
What is CONSENT-Sec.13- Bare Act agreement
3 essentials of consent 1. Subject matter of dispute-agreement i.e. the adoption deed
1. At least 2 parties must be there i.e. one offeror and other 2. Who brought the case to court-The child as he is loosing
offeree state of adopted son (Procedure in CPC)
2. They must agree upon the same thing i.e. same subject 3. Child’s claim u/s 34 of SRA-declaration adopted son
Matter-clear, certain and definite 4. Lady’s lawyer took Plea of Coercion
3. They must agree in the same sense i.e. meeting of minds As per sec.14 one can take more then one defences, but lawyer
i.e. consensus-ad-idem. took plea of coercion and not of undue influence.
Agreeability is the basis of entire agreement High Court: The Judge was shocked when he heard the entire
case and evidence on record
When consent is free? Sec.14 Here consent is GENUINELY not free but TECHNICALLY
Situation of free consent are innumerable and that cannot be its free
counted and mentioned when the consent in free. Judge was conscious of the fact that second suit is not possible
Once the person has agreed, he must have entered into contract due to Sec.11 of CPC (Res Judicata)
with free manner Not a precedent for future : Judge tried to bring the matter
Therefore the first presumption is-“consent is said to be free” under IPC though it is not
unless shown to be not free. But it is not a conclusive It was taken as “Insulting a dead Human Body” Sec. 297 of
presumption IPC
Consent is not free when it is caused by Thus plea of coercion is narrow, technical and restricted.
1. Coercion sec.15
2. Undue influence sec.16 1. Threat to commit suicide
3. Fraud sec.17 ChikkamAmiraju v. ChikhamSeshamma, 1912 Madras
4. Misrepresentation sec.18 By threat of suicide a Hindu induced his wife and son to
5. Mistake sec.20, 21, 22 execute a relaease in favour of his brother in respect of certain
properties which they claimed as their own.
COERCION Sec.15 Minority view
The corresponding phrase in England is Duress which Old field J. observed that unless an act is punishable it cannot
covers all types of criminal pressures and behavior which be said to be forbidden.
generated in obtaining consent of other party. Suicide is not an act forbidden by IPC
When legislators transplanted this principle here in India, they Only an attempt to commit suicide is punishable u/s 309 of
substituted it with coercion IPC
In General sense, coercion is a pressure not necessary Therefore Threat of suicide does not amount to coercion
criminal, it may be criminal or non criminal
But under the act, Parliament has restricted its operation only Majority view
to criminal acts forbidden by IPC. The Majority consisting of Wallis CJ and Seshagiri J believed
Thus, here the term has been used in technical, narrow or that the man who commits suicide goes unpunished, not
restricted meaning because the act is not forbidden, but because there is nobody
left to be punished.
INGREDIENTS- IDPO Therefore, threat to commit suicide amounted to coercion
1. There must be either commission or threat of commission of within section 15 and the release deed was therefore voidable
any offence mentioned under IPC or
2. There may be unlawful detention or threat of detention of 2. Threatening Prosecution
any property Askari Mirza v. Bibi Jai Kishori 1912
3. This threat of offence or detention of property could be given Where a contract was made to avoid the threatened
to the other contracting party or even strangers/ third Party. prosecution, this was held to be not coercion because to
4. Object of threat is to obtain consent of other party to contract threaten a criminal prosecution is not per se an act forbidden by
IPC
Note: Coercion is restricted to those acts, threat or behavior However such an act could be so forbidden if it amounted to a
including detaining of property punishable under IPC. threat to file a false charge.
Thus it is a very restrictive offence applicable only to criminal
behaviour punishable under IPC. 3. Threat to strike
Therefore, it should be pleaded with great care as all sorts of Threat to strike is not coercion because strike may be a lawful
threat or act is not coercion weapon for collective bargaining, but Gherao is coercion
An Agreement by coercion is voidable at the option of the
dominated party. 4. Statutory compulsion
When a contract is made under a statutory compulsion there is
1. Act Forbidden by IPC, 1860 no coercion
Ranganayakamma v. Alwar Setti 1889 Madras HC

English
5. Hunger strike 3. One party is in a position to dominate the will of the other
Hunger strike –No coercion 4. Superior party uses that position to obtain an unfair
But, Fast unto death- coercion as it becomes punishable when advantage over the other
the health starts getting critical and it becomes punishable under
IPC i.e. attempt to commit suicide. Sec.16(2)
Specific/Particular Test-
Need for amendment of sec.15 Different forms of influence without prejudice to the
Acts forbidden by other penal laws are not included in the generality of the above mentioned 4 principles of 16(1), a
definition. person can dominate the will of other in following 4 positions.
The law commission of India in its 13th report 1958 on the These 4 positions are examples to understand clause(1).
Indian contract Act at Para 32 recommended amendment of So, cl(2) is not exhaustive but only illustrative
section 15 and inclusion of other penal laws also in the 16(2) reflects particular examples and situations as already
definition. recognized by chancery courts
The explanation should also be amended to the same effect. 1. Real or apparent Authority
2. Fiduciary relationship
2. Unlawful Detention of Property 3. Mental/bodily distress
Muthia v. Karrupan 1927 Madras 4. Contract with Pardanashin lady
Example-If an outgoing agent refuses to hand over the
account looks to the new agent until the principal executes 1. Real or Apparent Authority
release in his favour,- It is coercion. Examples of Real Authority –
 Employe over servant
If the detention of property is not unlawful, there is no  Income Tax authority over assesse
coercion.  Police over accused
 Judge over accused
3. To the other Party or even to Stranger  Licensing authority over Licencee
Example: A unlawfully detains B’s son C, in order to coerce
B to enter into the agreement, the case would be covered within Apparent authority would include cases in which a person has
this section. no real authority but is able to approach the other with a show
or colour of authority e.g.
4. Object should be to obtain assent of other party. 1. Real authority was with Indira Gandhi and apparent authority
was with Sanjay Gandhi
Difference between 2. Wife of Boss has apparent authority over employees
Duress in England Coercion in India
1. Not restricted 1. Restricted by IPC 2. Fiduciary Relation
2. Duress must be directed 2. Threat may be It means a relationship of confidence and Trust.
against a party to the directed against other E.g. Solicitor and client,
contract, or his wife, child, party or even against  Trustee and cestui que trust (Beneficiary)
parent or other near relative strangers  Spiritual adviser and devotee
3. Duress is constituted by 3. Coercion may be  Medical attendant and patient
acts or threats against the directed against a  Parent and Child
person and not against his person or his property  Husband and wife
property.  Master and servant
4. Duress should proceed 4. Coercion may  Creditor and debtor
from a party to the contract proceed from a person  Principal and agent
or by anyone acting with his who is not a party to the  Landlord and tenant
knowledge and for his contract  Lover and beloved and
advantage  Guardian and ward
5. Duress must be such as 5. No such requisites
will cause immediate are necessary in Indian Note-It is not the type of relation but whether there is
violence and also unnerve a law dominance or not – It is a question of fact and a rebuttable
person of ordinary firmness presumption.
of mind.
Mannu Singh v. UmadatPande 1890
This comparison was attempted by Madras High Court in the An aged person executed a gift deed of whole of his property
case of [KaruppayeeAmmal v Karuppiah Pillai 1987 Mad.] in favour of the defendant who was his spiritual Guru.
UNDUE INFLUENCE Only reason for Gift was to secure benefits after death
 In a case,Lindley LJ oberserved “The equitable doctrine of Plaintiff applied for cancellation of the deed u/s 39 of SRA,
undue influence has grown out of and been developed by the 1877
necessity of grappling with insidious forms of spiritual tyranny Burden of Proof lies on defendant because of section 111 of
and with the infinite varieties of fraud” Indian Evidence Act, 1872 after the plaintiff proved existence
of fiduciary relationship and undue advantage to defendant
Sec.16(1) Undue Influence Generally Defendant could not prove absence of undue influence
Sec.16(1) gives the elements of undue influence i.e.(RSDU) therefore court cancelled the gift deed.
1. There must be a relationship between the parties to the
contract 3. Mental or bodily Distress
2. This relation must be subsisting at the time of contract.

English
When Mental capacity is temporarily or permanently affected - Stage 1- Relations between parties must be such that one is in a
by reason of – Age, illness or, Mental or bodily distress position to dominate the will of the other
Merci Celine D’souza v. Renie Fernandez 1998 Stage 2- The contract must be induced by undue influence
Plaintiff a mentally infirm person, incapable of protecting his
interest and totally dependent on the defendants for his Stage 3- Onus Probandi/ Burden of proof that the contract was
existence, gifted his property in favour of the defendants. not induced by undue influence to lie on dominating party.
Court held that defendants had obtained an unfair advantage.
The gift deed was also not attested by the 2 witnesses as Father and son were equal owners of vast family property over
required by law. which they had quarreled
Father instituted Criminal proceedings against son
4. Parda-nishin woman Son- the Defendant mortgaged property to money lender for
It means a woman who is totally secluded from ordinary social loan of Rs. 10,000 at 24% compound interest
intercourse; it does not mean simply a woman who observes In eleven years amount became 1,12,885 i.e. eleven fold.
‘Pardah’ Defendant contended that money lender took unconscionable
Burden of proof lies on party contracting with such woman advantage of his mental distress
That the said document was executed by her after clearly Court held that stage 1 is missing as the relations between the
understanding the nature of transaction parties had no domination of one over the other. i.e. they were
on equal footing
Ismail Musajee v. Hafiz Boo 1906 Cal
The court held that a woman who goes to court and gives Rule 3- Influence distinguished from persuasion
evidence, who fixes rents with tenants and collects rents, who Plaintiff was an illiterate widow manging her agricultural
communicates, when necessary, in matters of business with properties for over 2 decades
men other than members of her own family, could not be Defendant treated her as his mother and persuaded her to gift
regarded as a parda-nishin woman. her entire property.
She executed the gift deed out of love and affection, in favour
Sec.16(3) Burden (onus Probandi) of Proof – Presumption of defendant.
of undue Court held that influence and persuasion are different and here
defendant could not be said to be in a position to dominate her
DIAGRAM will therefore deed is valid.
Rule 4-Relationship by blood, marriage or adoption not sine

What are unconsicionable Bargains? qua non
Where dominating party makes a bargain so much to his own What is necessary to establish the presumption is not that the
advantage that, it “shocks the conscience” – Such bargains are parties should be related by blood, marriage or adopotion, but
unconscionable bargains that their relations are such that one is in a superior position
Wajid Khan v. Raja Ewaz Ali Khan 1891 over the other. (Subhas Chandra Das Mushib v. Ganga
Old illiterate woman incapable of any business conferred on Prasad Das Mushib 1967 SC)
her MD, without any valuable consideration, an important
pecuniary benefit under the guise of a trust. Rule 5- Mere preference is not a proof of unue influence
Court held agreement to be unconscionable This was held in After Shaikh v. Solemanbibi 1976 SC
Philip Luka v. Franciscan Assn. 1987 Ker Rule 5- Economic Duress

The court held the gift in favour of a religious organization by The presumption of undue influence may also arise from the
a person weak in mind and suffering in health as fact that there is such an inequality of bargaining power
unconscionable between the parties that one can cause economic duress to the
other.
Some important Rules on unconsicionable Bargains
Rule 6- No presumption of undue influence between
Rule 1- Hard Bargains not Necessarily unconscionable landlord and tenant
Example illustration (d) to sec.16  Case Promoda Nath v. Kinoo Mollali 1908 Cal
Rule 2- As between parties on equal footing the mere Distinguish between Coercion and Undue Influence
unconscionableness of the bargain does not create the Coercion Undue Influence
presumption of undue influence- 1. It is through behaviour 1. In Undue influence not
punishable under IPC so
 This observation was made by LORD SHAW in Raghunath 2. It is possible by 2. UI is possible only in
Prasad v. Sarju Prasad 1924 PC strangers as well as known and related parties.
As between parties on equal footing the mere unknown parties i.e. related Its not possible with
unconscionableness of the bargain does not create the or unrelated strangers
presumption of undue influence. 3. There is always external 3. While there is none in
In this case 3 issues/propositions were discussed which should evidence of coercion case of UI which operates
be dealt with in order. Error is almost sure if order of these invisible under the surface
propositions be changed. but is more effective
4. Coercion can be resisted 4. UI is irresistible and
invisible

English
5. In case of coercion, the 5. Under sec.19A the Loss to investors
contract becomes voidable court has the power to set Managment taken to court
under sec.19 and the party aside a contract induced Allegations of cheating and fraud for loss and damage
avoiding the contract has to by undue influence. Any Argument: Management honestly believed that permission
restore any benefit he has such contract may be set would be granted.
received under the contract aside either absolutely or, Evidence on record that Directors themselves had bought
to the other party if the party who was shares in large number.
entitled to avoid it has It is unfortunate that at last minute, permission was refused.
received any benefit there The court held that the directors had no intention to deceive
order, upon such terms therefore it is not fraud however it is negligence and
and conditions as to the carelessness on the part of company to approach board of trade
court may seem juust. at last stage and not at first stage.
6. Coercion involves 6. Under influence, According to Lord Herschell, the following elements
physical force involves moral pressure. constitute fraud.
7. In coercion, a person is 7. In UI the giver gives 1. one party must represent material facts to the other party.
forced to give his consent consent freely under the 2. Other party must rely and believe those facts as represented
belief that he is not to be 3. The represented facts must turn out to be wrong and false
put to any loss by giving 4. This must have been done with intention to deceive
such consent. 5. The other party must have suffered some loss or damage in
8. There is criminal 8. No criminal liability in consequence
liability in case of coercion UI
9. Coercion is of an 9. UI is more subtle and The above conditions can be summed up in one single sentence
avowedly violent character intangible  A fraud is a situation of a two pillar structure.
10. There is no 10. In case of UI it is “Misrepresentation of material facts done with intention to
presumption of coercion presumed in certain cases deceive”
under any circumstances like in unconscionable This statement is reflected in definition of fraud given in
transactions sec.17 of ICA.
1st Pillar (intention)
Ques. Undue influence and coercion are 2 sides of the same The words in main clause ‘with intent to’ and in cl.4 ‘any act
coin. Discuss fitted to deceive’ would mean that there must be an intention to
deceive the other party
Ans. Common features:- 2nd Pillar (misrepresentation)
Consent by one party or with his connivance or by his agent is
1. Both are factors recognized are under law u/s 14 as affecting obtained by other party by exercising any of the following
consent factors:-
2. Consequences of both transactions is voidable a. a false suggestion 17(1)
3. Pressure and compulsion is the basis affecting consent and b. by making active concealment 17(2)
making it not free c. by making false promise 17(3)
d. any act or omission which law specifically declared to be
Coercion and undue influence are 2 sides of same coin. That fraudulent 17(5)
coin is pressure and compulsion.
If there is crude pressure i.e. criminal behavior then it is Note: This clause is general and is intended to include such
Coercion. cases of fraud which would otherwise not come withing the
If it is sophisticated or non criminal pressure then it is undue perview of the earlier 3 classes
influence.
17(1) False Suggestion or statement
Mere expression of opinion is not enough to constitute fraud
FRAUD E.g. in may opinion anchorage of place of destination of ship
is safe and good-There is only expression of opinion therefore
It is very difficult to define precisely the manner in which no fraud.
fraud can be committed. A man aged 60 years thus beyond insurable age deliberately
But this concept has been beautifully explained and it makes false statement that his age is 48 years in order to take an
constitutes the basis of sec.17 of ICA by Lord Herschell in the insurance police-This is fraud
case of Derry v. Peek in which he identified pre-requisites of In Edington v. Fitzmaurice 1885
fraud. A co. needed money for pressing liabilities
Therefore raised funds throughdebendtures in the name of
Derry v. Peek 1889 development, purchasing assets and completing buildings-This
 Directors of a company issued prospectus stating that they is Fraud
had got authority to run tramways with steam or mechanigcal Example illustration (a) and (c) to section 19
power, instead of animal power. Illustration (b) to sec.19 is related to illustration (a) to 19
In fact a plan had been submitted for the same and directors
honestly believed that the board of trade who had to accord its 17(2) Active concealment
sanction for the same, would do so as a matter of course When one makes a statement with an effort to stop other party
People bought shares on faith of it. But board of trade refuses from cross checking and clarifying the truthness of the
to grant permission. Now, company has to choose horse driven statement
carriage

English
E.g – state decided piece of land owned by A as an industrial Therefore insured should not indulge himself in
area to be acquired by govt. for building industries suppressioverisuggestiofalsi by making a suggestion which is
B working in that department, proposes A to buy his land but false or suppressing a matter which is true
did not disclose decision of Govt. P. Sarojan v. LIC of India 1986
B purchased that area and subsequently govt. announced their The assured gave false answers to the questions in the
policy and prices shoot up proposal form and concealed his heart ailment
Cotnract is voidable at option of A He died of heart ailment within a few months
Examples illustration (d) and (e) to section 19 LIC was entitled to repudiate the policy and decline the
payment of claim
False promise meaning given in 17(3) itself
Example 2. Where Silence is equivalent to speech:
1. taking loan without intention to repay Similarly in case of fiduciary relationships, contracts of
2. taking loan by an insolvent arrangements/partnership after its formation, contract for sale of
3. Purchasing goods on credit without intention to pay immovable property, etc. all material facts must be disclosed.
Thus, a father, selling his horse to his son must tell him if the
Any other act fitted to deceive sec.17(4): In Smt. Asha horse is unsound, as the son is likely to rely upon his father
Qureshi v. Afaq Qureshi 2002 the wife suppressed material Illus.(b), Sec.17 reads: ‘B is A’s daughter, and has just come of
fact that she had been married earlier and she was a widow at age Here the relations between the parties would make it A’s
the time of marriage. The marriage was nullified duty to tell B if the horse is unsound., Likewise, the
concealment of the fact of annulment of first marriage of the
Any act or omission which law specifically declares to be girl on the ground of unsoundness of her mind by the girl and
fraudulent 17(5) her parents, was considered to be a fraud against the second
Example 1. Co. Act-before inviting application for shares – the bridegroom (Kiran Bala v. B.P.Srivastava AIR 1982 MP 242).
Co. must disclose its financial position Similarly, if a broker is employed to buy shares for a client and
he sells his own shares to the client without disclosing this fact,
In Akhtr Jahan Begum v. Hazarilal 1927 the client can avoid the contract.
A sold property to B stating in sale deed that he won’t be
liable to B if he suffered any loss awing to A’s defective title. 3. Specific Inquiry: Sometimes, silence is itself ‘equivalent
A had already sold the property to somebody else but did not to speech’. Where, for example, a buyer asks the seller whether
inform B about it. the horse is sound, and he remains silent. This is fraud if the
Court held that A had committed fraud and time contract was horse is unsound. Illust. (c), sec.17 reads: ‘B says to A, “if you
voidable do not deny it, I shall assume that the horse is sound.” A says
nothing. Here A’s silence is equivalent to speech.’
Mere Silence is no Fraud (explanation to sec.17)
‘Passive Concealment’ or ‘Mere Silence’ as to facts 4. Change of circumstances:Sometimes a statement is true
normally does not amount to Fraud unless there is a duty to when made but because of ‘’ it subsequently becomes false,
speak. It is for two reasons-Technical and Practical there is then a duty to disclose the truth. For example, a medical
i. Technical Reasons: The requirement of fraud is that there practitioner, who wants to sell his business, states that his
must be some misrepresentation of material facts which turned average practice is £2000 per annum, but before the transaction
out to be false. A person who keeps silence makes no is finalized his practice is considerably reduced due to his
representation, thus there cannot be any mis-representation illness, it is his duty to inform about this fact to the other party
which is an essential condition of fraud. [With v O’Flangan (1936) Ch. 575 CA]
ii. Practical reasons: Unless law imposes duty to correct 5. Half-truths- Lastly, a person may keep silence, but if he
other’s mistake, keeping silence does not amount to fraud. speaks, a duty arises to disclose the whole truth. ‘Half-truths’
There is no duty to correct other’s follies or wrong impression amount to fraud. Thus, when a person speaks of another as his
unless there is duty to speak ‘son’ he holds him out as his legitimate, natural or adopted son.
It cannot possibly include an illegitimate son. Thus, the
Rule of caveat emptor (Let the buyer beware):- representation was fraudulent when a Hindu father represented
Merely because a person does not disclose the defects in the his illegitimate son as his son (Bimla Devi v Shankar Lal AIR
goods sold by him, there is no fraud. 1959 M.P. 8)
Example illustration (a) to sec.17 and
Illustration (d) to sec.17
6. MISREPRESENTATION
Constructive Fraud- 5 situations where silence may become 3 TYPES OF MISREPRESENTATION
deceptive or where silence amounts to fraud 1. Unwarranted statements: When a person positively asserts
tht a fact is true when his information does not warrant it to be
1. Contracts uberrima fides (utmost good faith) or where so, though he believes it to be true.
there is a Duty to speak
When the person keeping silence is under ‘duty to speak’, Statement is warranted- coming from a reliable, trustworthy
which arise where one contracting party reposes trust and or person capable of giving that information
confidence in the other
For example a contact of insurance being one uberrima fides. Unwarranted statement- Unreliable statements coming from
Here insurance co. is dependent on insured for information 3rd party

English
In Mohan Lall v. Sri Gungaji Cotton Mills Co. 1899 Calcutta (innocent act)
(MACLEAN CJ) 2. Here 2 remedies available 2. Here only one remedy
Defendant Co. issued advertisement for allotment of shares a. one can avoid the contract available i.e. to avoid the
While making application plaintiff inquired about board of b. one can sue for damages for contract
director the tort of Deceit
Manager B told the plaintiff that one C would be the director 3. There is intention to Deceive 3. No intention to
B had got this information not from C direct but from an Deceive
another person L
The information proved untrue when Z became director Sec. 19 and 19A Effect of Flaw in Consent
MACLEAN CJ held that co. not liable but plantiff was entitled Sec.19 Through bare Act
to recover money because contract in voidable 1st para – illustration (a) of sec.19
[misrepresentation at not fraud] 2nd para- illustration (c) of sec.19
Exception 3rd Para – illustration (b) of sec.19 and 2 case laws as
In Oceanic Steam Navigation Co. v. SoonderdasDharamsey under
1890 Bom
Defendants chartered a ship from plaintiff Co. 1. Shri Krishan v. Kurukshetra University 1976 SC
Co. stated that ship was not more than 2800 Tonnage Shri Krishan filled up examination form of part 1 exam
Plaintiff had never even seen the ship without mentioning that her attendance was short
Ship found to be of more than 3000tonnes He was allowed to appear
Bombay court held that Defendants were entitled to avoid the Later university authorties cancelled the candidature
contrct- (Misrepresentation but not fraud)- voidable University could easily discover the infirmities
In Derry v. Peek 1889 case court heldl it is misrepresentation Therefore No fraud and university could not withdraw the
candidature
2. Breach of Duty
1. Any breach of duty 2. In Kamal Kant v. Prakash Devi 1976 Raj case
2. Which brings an advantage to person committing it Plaintiff sued his mother and others seeking cancellation of
3. By misleading the other to his prejudice trust deed on the graound that
No intention to decive His signatures were obtained by fraud by falsely telling him
 In oriental banking Corpn v. John Fleming 1879 that it was a general power of attorney.
The Plaintiff having no time to read the contents of a deed, Deed was attested by father and an advocate
signed it as he was given the impression by the defendant that it Plaintiff was an educated man and had all means to know the
contained nothing but formal matters already settled between contents of the documents
them. Court held it is not a fraud.
The deed however contained a release in favour of the
defendant. 3. In Shoshi Mohan Pal Choudhary v. N.K.Poddar 1874 case
SERGEANT J. held that the defendant was allowed to avoid Cal
the deed due to misrepresentation Facts from Ashok Jain-Rice-Quality easy access….
Justice sergent observed that second clause of S.18 is probably
intended to meet all those cases which are cases of Explanation – 4th Para- illustration (b) to sec.19
‘CONSTRUCTIVE FRAUD’
In Eyre v. Measday 1986 All Sec.19A 1st Para – illustration (a) to sec.19A
A female patient was told that her sterilization would be 2nd Para- illustration (b) to sec.19A
irreversible, but was not told that there was the minute risk (less
than 1%) of failure and of pregnancy. 2nd para is virtually a reproduction of sec. 35 and 38 of the
She conceived again, delivered a child and sued gynascologist Specific Relief Act
for this breach of contract.
The representation that the operation was ‘irreversible’ was It must be read with sec.64 of ICA
held as not amounting to an express guarantee that the
operation was bound to achieve its achnowledged object of Limits to the right of Rescission of Contract
sterilizing the plaintiff. 1. By Affirmation
Note sec. 18(2) also applies to a case where a statement is true 2. By Lapse of time
when it is made but it becomes false later on, and to the 3. By Intervention/Acquisition of Rights of 3rd parties
knowledge of maker, before it has been acted upon C with v. O’
Flangan) 1. By Affirmation: where party, after becoming aware of his
right to rescind, expressly or impliedly affirms the contract, the
3. Inducing misktae about subject matter right of rescission is lost e.g. where he appropriates to use the
No intention to deceive + Misrepresentation of material facts+ goods received under a voidable contract or has sold or
vital to the contract i.e subject matter of contract attempted to sell them.
Mere “commendatory expressions” such as men of business
will habitually make about their goods are not sufficient to In Long v. Lloyd 1958
avoid the contract.  Lorry sold with false representation “excellent condition”
Distinction between Fraud and Misrepresentation On 1st journey serious defects discovered
Fraud Misrepresentation Contract not rescinded but instead accepted half of cost of
1. Person making false 1. In misrepresentation repair.
statement knows it to be false he believes that the Court held Right of Rescission cost.
(intentional wrong) statement is true

English
2. By Lapse of time: Rescission of contract must be done
within a reasonable time Cooper v. Phibbs 1867
A agrees to take a lease of a fishery from B
In Leaf v. International Galleries 1950 It turns out that A is himself already the tenant for life and B
Picture purchased on the basis of an innocent but false has no interest which could be transferred to A
representation that it has been painted by a particular renowned It is not legally possible for B to perform this contract
artist. The agreement having been entered into under a mistake
Held-Rescission after 5years of Puchase not allowed. Therefore, contract is void.
3. By Intervention/Acquisition of Rights of 3rd Parties: Mistake may operate upon a contract in 2 ways
Right of Rescission is lost as soon as a third party, acting in 1. It may defeat the consent altogether- [falls (u/s 13) i.e.
good faith, acquires rights in the subject matter of the contract consensus ad idem therefore no contract]
[example PTO] 2. It may mislead the parties to Purpose- [falls u/s20 Error in
causa]
In Qakes v. Turquand and Harding 1867
Shareholder induced by misrepresentation to purchase shares Section 20 will come in operation
He could rescind the contract but he didn’t 1. When both parties are mistaken-Bilateral
Winding up proceedings started 2. Their mistake is as to a Matter of Fact
Shareholder loose his right to Rescind because now that would 3. That Fact is essential to the agreement
affect the interest of creditors.
Mistake as to the Subject Matter
Ques. “The right to rescind a contract is a more drastic 1. Mistake as to existence:
remedy than the right to damages and therefore some Examples illustration (a) (b) and illustration (c) to sec.20
restrictions are placed on it.” What are they? When may Galloway v. Galloway 1914
rescission be refused? A man and a woman executed a separation deed, both of them
working under a common mistaken impression that they were
MISTAKE married to each other.
Meaning Since the fact of marriage was non-existent, the deed was held
Mistake means an erroneous belief about something void.
When compared with other factors vitiating consent, there is a
difference in the language of the Act Courturier v. Hastie 1856
Mistake is not defined but there is a set of facts u/s. 20, 21 and Due to fermentation the corn on ship was sold by the master of
22 which regulates and governs the situation of mistake. ship while in transit. –
In first 4 situations, consent is defective but in the 5th situation, Parties were unaware of this.
the person never agreed. Therefore, contract to sell was held void.
It is a situation of absence or of no consent. Therefore,
transaction becomes absolutely void. Mistake as to Quantity
Section 20 is the main section in examining mistake as a factor Example
of consent During an enquiry for TV sets buyer said I might buy 11 sets
Section 21 and 22 are supplementary sections which are of Quotation Received for 11 sets
explanatory nature. In Telegram message was - supply 2 TV sets but by mistake
telegram was sent-supply TV sets
Analysis of 20,21,22 11 sets were sent
Buyer accepted only 2
Sec.21 Mistake cannot be of law as it is only of facts (implicit) Contract is void
(illustration to sec.21)
3. Mistake as to Quality: if the parties to the contract are not
Object: To prevent unnecessary litigation mistaken as to the subject matter, but only regarding its quality,
Indian law: The maxim ‘ignorantia Juris non excusat’ i.e. when the subject matter has been clearly identified although
operates its quality has not been, the agreement would be valid
Therefore mistake of Indian law is no mistake implicit u/s.20 Smith v. Hughes 1871 case
Foreign law: Indian Jurisprudence has adopted the rule of the Buyer wanted old oats
common law that foreign law is a matter of fact, and must be Seller showed the oats he had but said nothing about them
proved or admitted as such, though the strictness of the rule has Parcel of oats was sent which he refused to accept
been some what relaxed by the Indian Evidence Act section 38 Suit for Damages was filed
Judge Lord Hannenheld the contract is valid
Section 22 Unilateral mistake is no mistake
Mistake must be bilateral 4. Mistake as to Subject matter itself
But an exception emerged out of series of legal cases i.e. Raffles v. wichelhans 1864 Whichelhans
“Mistake relating to identity of Parties” Contract for supply of cargo of cotton to arrive “ex Peerless
The SC has clarified that sec.20 is concerned with common from Bombay”
rather than Mutual mistake of fact There were 2 ships of the same name i.e. Peerless and both
were to sail from Bombay one in October and the other in
Mistake as to the possibility of performance December
A contract to do something which is not possible to be The buyer had in mind Peerless sailing in October, whereas
performed legally or physically is void the seller thought of the ship sailing in December.

English
The court held that offer and acceptance did not coincide The order papers had a printed heading ‘Blenkarn& Co. 37
therefore there was no contract. wood street
There was a respectable firm, named Blenkiron& Co. in the
5. Mistake as to Price: same street.
Tarsem Singh v. Sukhminder Singh 1998 Plaintiffs believing in the respectable firm supplied a large no
Buyer believed that the land was being sold at the stated price of Handerchiefs
per Bigha and Blenkarn disposed them off to Defendants who acted in good
The seller thought the price was applicable per kanal faith
It was held that there was no agreement Court held that the contract between Blenkarn and the supplier
was void as there was no consensus ad idem
6. Mistake as to title The defendants were bound to return the goods to the plaintiffs
Cooper v. Phibbs 1867 Here the Judgment is technically right but Justice is denied. It
A agrred to take a lease of a fishery from B led to unfair consequences
Unknown to both the parties, A was already tenant for life of The negligent person was not made to suffer. Rather innocent
the fishery rights and B had no title to the same. consumers suffered
The agreement was set aside on the ground of common
mistake Rule: There can be a mistake of identity only when a person
bearing a particular identity exists within the plaintiff’s
7. Mistake as to Identity knowledge
Questions According to ANSON, the person contracting must prove not

 Ques.1 “The law of mistake is a comedy of Errors” The law merely that he did not intend to contract with the person with
of mistake is full of many contradictory decisions, at the whom the apparent contract was concluded but also that there
wisdom of which people can laugh, as they do in a comedy was a 3rd identifiable person with whom he did intend to
whether wise or unwise contract
Answer: Kenneth owenshatwell in his book-the supposed Thus in Cundy v. Lindsay ifBlenkarn& Co. was to be a non-
doctrine of mistake in contract: A comedy of errors- made this existent and a fictitious firm, the contract will not be void but
observation only voidable.
 Ques.2 “The strict adherence of the theoretical consideration
that a contract made under mistake as to the identity of parties Contract when Parties are in presence of each other (Paries
or of the subject matter is void, would lead to absurd result inter praesentes)
“Do you agree? Why? When parties negotiate in each other’s presence, the situation
is quite different
When one of the parties represents himself to be some other
person than he really is- it is called mistake as to identity. Phillips v. Brooks Ltd. 1919 (Judge HORRIDGE J.)
Such contracts are an exception to the rule that a unilateral A man, called North selected some pearls worth £2550 and a
mistake does not affect the validity of the contract ring worth £450.
Such contracts are void. He produced a cheque and while signing said: “you see who I
Lake v. Simmons, 1927 am, I am Sir George Bullough”
A woman posed as wife of a wealthy customer and made few Shopkeeper refered Directory for address
purchases from a jeweller North then told the Plaintiff, “I should like to take the ring, as
The Jeweller allowed her to take away 2 necklaces “on it is my wife’s birthday tomorrow” and offered to collect pearls
approaval” for her supposed husband after cheque was cashed.
Court held that contract was void North took away the Ring and pledged it to defendants for
£350 who took the ring in good faith
Jagannath v. Secy of state for India, 1886 Plaintiff sued defendant for return of ring contending that no
A person called S, a brother of the plaintiff, represented property in the ring had passed to north because of mistake
himself to be the plaintiff, and thereby induced a govt. agent to regarding his identity.
contract with him Horridge J. held that the agreement was not void
Court held the contract to be void. Because the Plaintiff contracted to sell and deliver the ring
to the person who was present in the shop
Contract when Parties are not in presence of each other The contract was only voidable on the ground of Fraud as
(Paries NOT inter praesentes) giving wrong identity at the time of payment subsequent to the
making of contract does not affect the validity of contract.
Boulton v. Jones 1857 The ring was pledged before the contract was avoided i.e. at
Jones used to have business dealings with Brocklehurst that time the contract was avoided i.e. at that time the contract
Jones sent an order to Brocklehurst for some goods was valid.
By this time Brocklehurst had sold his business to Boulton Therefore defendants were not bound to return the ring to the
Boulton supplied goods to Jones Jeweller.
Jones refused to pay the price
Court held that there was no contract between the 2 parties. Ingram v. Little, 1961
3 ladies, the joint owners of a car refused the deal of sale of
In Cundy v. Lindsay 1878 their car when payment was offered by cheque
The Plaintiffs received orders in writing from a fraudulent The swindler then persuaded them to believe that he was one
man, called Blenkarn HUTCHINSON a leading businessman

English
The 3 ladies verified address and telephone number from
Directory
He took away car and resold it to defendant and absconded.
Defendants were held liable
Lewis v. Averay, 1971

Lewis, the Plaintiff had a car to sell
A rogue introduced himself as Richard Green, a famous film
actor and offered a cheque
He produced a special pass of admission to a film studio with
official stamp and his photo
Plaintiff got convinced and gave him the car
Rogue sold the car to defendant
Lord Denning observed that reconciliation of the 2

contradictory decisions-Philips v. Brooks, and Ingram v. Little
was not possible
RULE- When the parties are present face to face, the
presumption is that the contract is made with the person
actually present even though there is an impersonation.
Therefore Defendants Not Liable
Limitations
1.Mistake of Both Parties: An Agreement is void on account
of mistake u/s.20 when the mistake is bilateral. Unilateral
mistake is no mistake except when there is mistake as to
identity of parties
1. A.A. singh v. UOI 1970
2. Haji Abdul Rehman v. the Bombay and Persia steam
Navigation Co.189
2. Erroneous opinion-Erroneous opinion as to value of the

thing is not a mistake as to a matter of fact-Explanation to
sec.20
3. Mistake of fact Not of law-sec.21 and its illustration

English
CONSIDERATION In Durga Prasad v. Baldeo 1880
Ques. “Though offer and acceptance bring the parties  Collector got transferred to a new District. Welcome
together and constitute the outward semblance of party was organized in his honour
contract, yet most systems of law require some further  Collector said “I am aware of problems. My wife was
evidence of the intention of the parties and in default of complaining that there is no decent market”.
such evidence refuse to recognize an obligation.”  Land was allotted for Shopping complex.
Comment and discuss the nature of evidence required to  Contract for construction given for Fixed Rate of
be supplied under the Indian contract Act-(IAS 1994) Rent + 1% of profit
 This statement was given by ANSON. The expression  One of the occupants of shops paid rent but not that
further evidence here is consideration. 1%
 Consideration is essential to a contract-Sec.10
 An agreement without consideration is void- Sec.25 Argument
 The basic human nature is selfish and therefore  Rent is in exchange of use of shop
nobody agrees to do things for others unless he has  For that 1% there is no return from the market owner.
already received a benefit or is about to receive any  But owner pleaded that what he then is getting for
benefit providing facilities of all these amenities like parking,
 A promise without return is unnatural fountains, lights etc.
 Existence of consideration becomes prima facie
evidence of free consent. Held
 Absence of consideration is seen with suspicion  JUSTICE OLDFIELD observed, The shopkeeper is
 Consideration is the cause of the promise and its getting benefit but he did not ask for it (i.e. not at the
absence would make the promise a gratuitous or bare desire of the party
promise i.e. Nudum Pactum  Therefore, this part of the agreement is not valid.
Definitions of Consideration Kedar Nath v. GorieMohd. 1886

Positive aspect only  Commissioners of Howrah Municipality invited
 BLACKSTONE-“Consideration is the recompense subscriptions for the construction of a Town Hall
given by the party contracting to the other”  Defendant was a subscriber to this fund for Rs.100
 It is a price of the promise(Source Cheshire and  Subsription received + Subscriptios promised =
Fifoot – A book) Rs.40,000
 Relying on this amount contruction contract was
Positive and Negative Aspect both given to contractor
Patterson J. in Thomas v. Thomas 1842  Defendant failed to pay and contended that there was
 Consideration means something which is of some no consideration from the other side.
value in the eyes of the law…it may be some benefit to  Court held that the plaintiff’s act of entering into
the plaintiff or some detrement to the defendant. contract with the contractor was done at the desire of the
 Best Definition- Section 2(d) of ICA 1872—From defendant (the promisor) so as to constitute consideration
Bare Act- Analysis within the meaning of sec.2(d) therefore, defendant must
 Something could be consideration pay the money
 Once it is something, it can be anything but that
anything could not be nothing DoraswamiIyer v. Arunachala Ayyar 1963
 That something may change in shape and value but it  Repair of temple was in progress
cannot be illusory.  When requested, Defendant promised to pay Rs.125
 Suit for recovery was filed
Essentials of a Valid Consideration  Plaintiffs argued that relying on the promise of the
1. Consideration must be Real and not illusory subscriber, liabilities in repairing the temple have been
2. Performance of an existing legal duty is no incurred.
consideration  No Recovery was allowed
3. Promise to perform an already existing contractual  CORNISH J observed “There was no evidence of
duty is no conseration any request by the subscriber to the plaintiff to do the
4. Consideration may be past, present or future temple repair”
5. Consideration should move at the desire of the  In Kedar Nath case construction of hall began on the
promisor faith of the promised subscriptions but in this case temple
6. Consideration may move from any person including repairs were already in progress.
promisee Abdul Aziz v. Masum Ali 1974
7. Consideration need not be adequate.  Defendant promised to pay Rs.500 to a fund started to
rebuild a mosque but nothing had been done to carry out
1. AT THE DESIRE OF PROMISOR the repairs
(PROMISSORY ESTOPPEL)  The subscribers were, thus held not liable

English
2. PROMISEE OR ANY OTHER PERSON  WHITMAN J observed “That no stranger to the
consideration can take advantage of a contrct, although
PRIVITY OF CONTRACT AND OF made for his benefit”.
CONSIERATION  Here the plaintiff was both stranger to contract and
stranger to consideration.
 In India as per Sec.2(d) of ICA, A promise is  This case laid the foundation of what subsequently
enforceable if there is some consideration for it and it is came to be known as the Doctrine of Privity of contract
quite immaterial that it moves from the promisee or any  The doctrine of ‘constructive Consideration’ was
other person. This is called ‘DOCTRINE OF finally given up in England in this case
CONSTRUCTIVE CONSIDERATION’  This rule was re-affirmed by House of Lords in
 But in England there is a privity of consideration i.e. Dunlop Pneumatic TyreCo.v. Selfridge & Co.1915
consideration must move from the promisee and promisor
only, a stranger or 3rd person can not furnish Dunlop Pneumatic TyreCo.v. Selfridge & Co.1915
consideration.  The Plaintiff (Dunlop co.) sold goods to one (Dew &
Co.) with a condition that neither they nor their customers
Chinnaya v. Ramayya 1882 Mad will sell goods below list Price.
 A, An old lady granted an estate to her Daughter (the  Dew & Co. sold goods to defendant (Selfridge and
defendant) with a stipulation that the daughter should pay Co.) who agreed to Dew & co. not to sell goods at less
an annuity of Rs.653 to A’s sister (the plaintiff). than list price
 On the same day the defendant executed in plaintiff’s  On their not doing so, the plaintiff Co. sued them for
favour an iqrarnama i.e. agreement promising to give the Breach of contract
effect to the stipulation.  Lord Viscount Haldane held that plaintiffs were
 Defendant failed to pay the annuity therefore plaintiff undisclosed principals&no consideration moved form
filed suit for recovery them to the Defendants therefore the contract was
 Defendant argued that there was no consideration unenforceable
from the plaintiff therefore they had no right of action
 Court could easily allow the plaintiff to recover the Interlinking-
annuity, as consideration given by “any other person” is  At present under the competition Act 2000 [earlier
equally effective but INNES J. allowed recovery of MRTP Act, 1969] resale price maintenance is against
annuity by equating this case with Dutton v. Poole 1677 public policy and therefore, Void.
Dutton v. Poole 1677 case Privity of Contract

 A person due to falling health intended to sell a wood  Meaning of Privy-a person having a part of interest
in order to provide his daughter a marriage portion of in any action, matter or thing
£1000 by depositing the sale proceeds  Meaning of Privity-a relation between two parties
 His son said that trees are young and wood is not that is recognized by law e.g. that of a blood, lease or
mature. If you abstain from cutting timber I promise to service.
pay £1000 to her at the time of marriage  Doctrine of Privity of Contract means a contract is
 Accordingly the father forbore but the defendant did a contract between the parties only and no third person
not pay. can sue upon it even if it is avowedly made for his
 The daughter and her husband sued the defendant for benefit. This means a stranger to contract cannot sue.
the amount.
 Though nothing coming from Daughter but son has Position in England (Source Anson on contract and
desired something which is done at his instance by father. Cheshire and fifoot)
 Father did something at the desire of promisor i.e.  The fundamental propositions are:
abstain from cutting of trees. 1. Stranger to consideration - Consideration must
 The court of King’s Bench observed that it would be move form the promisee and the promisee only. If it is
highly inequitable to allow the son to keep the wood and furnished by any other person, the promisee becomes
yet to deprive his sister of her portion. The plaintiffs stranger to consideration and therefore cannot enfore the
succeeded. promise.
2. Stranger to contract - A contract cannot be enforced
Tweeddle v. Atkinson 1861 by a person who is not a party to it eventhough it is made
 The court of Queen’s Bench refused to follow the for his benefit.
principle of Dutton v. Poole
 The plaintiff was to be married to the daughter of one Position in India
G and in consideration of this intended marriage G and  Stranger to Consideration
the plaintiff’s father entered into a written agreement by 1. The former of these 2 propositions is not all applicable
which it was agreed that each would pay the plaintiff a in India as per sec.2(d). That is 3rd Party can furnish
sum of money. consideration.
 G failed to do so and the plaintiff filed a suit

English
Stranger to contract
2. In India there has been a great divergence of opinion in 3. Executory consideration (Future consideration):
the courts as to how far a stranger to a contract can Where promisee or any other person promises to do or to
enforce it abstain from doing i.e. a simple exchange of promises and
 There is no provision in ICA either for or against the each promise is a consideration for the other.
rule.
 The privy council extended the rule to India in its Past Consideration- Diagram
Decision in Jamna Das v. Ram Avtar 1911
POSITION IN ENGLAND:
Jamna Das v. Ram Avtar 1911 1. Past voluntary service-No consideration
 A borrowed Rs.40,000 by executing a mortgage of  As per English law, consideration should be
her zamindari in favour of B. contemporaneous with the promise. Therefore the act
 Subsequently she (A) sold the property to C for done before any promise is made is no consideration and
Rs.44000 and allowed C, the purchaser, to retain the promise to pay or this is Nudum Pactum
Rs.40,000 of the price in order to redeem the mortgage if  E.g. A lost his purse and B finds it and delivers it to
he thought fit. A. In recognition of this service, A promises to pay B a
 B sued C for the recovery of the mortgage money, but sum of money. A is not bound to pay
LORD MACNAUGHTAN said that B could not succeed  The (English) Law reform committee in its 6th interim
because he was no party to the agreement between A and report, para 32 has, therefore recommended the abolition
B. of this rule.
Conclusion: In India, the stranger to contract can give 2. Past Act / Service at Request- a good consideration
consideration but cannot sue. Lampleigh v. Brath wait 1615
 Thomas Brathwait, the defendant was held guilty of
Exception to the rule of privity of Contract having committed murder
1. Trust or charge: A person (beneficiary) in whose  He requested Lampleigh, the plaintiff to make efforts
favour a charge or other interest in some property has to secure pardon for him from the king.
been created may enforce it.  The plaintiff made efforts at his own expense
 Brathwait promised to pay £100 to the plaintiff.
2. Marriage settlement, Partition or other family  Later Brathwait refused to pay
arrangements  Court held that the plaintiff had a legal right to
recover the amount.
3. Acknowledgment or Estoppel: Where by the terms of
a contract a party is required to make a payment to a 3rd POSITION IN INDIA
person and he acknowledges it to that 3rd person a binding 1. Past Voluntary Service- a good consideration as per
obligation is thereby incurred towards him [Devrajaurs v. sec.25(2) e.g. If a saves B from Drowning and B later
Ram Krishniah 1952 Mys] promises A a reward. The reward is valid and
enforceable.
4. Covenants running with land: A person who See. Illustration (c) and (d) of sec.25.
purchases a land with notice that the owner of the land is
bound by certain duties created by an agreement or 2. Past service at Request
covenant affecting the land, shall be bound by them  Requested services are not adequately covered either
although he was not a party to the agreement [Tulk v. by sec.2(d) or by sec.25(2)
Moxhay] 1919  But sec.2(d) can be construed to include an act which
has been done at request and for which a promise to pay
5. Assignee in Insurance Policy is given later.
 Even if no subsequent promise is given the courts can
infer an implied promise to pay as per the rule laid down
3. HAS DONE OR ABSTAINED FROM DOING by Upton Rural Distt Council v. Powell 1942
Section 2(d) of ICA recognizes 3 kinds of consideration
viz. 4. SUCH ACT, ABSTINENCE OR PROMISE IS
CALLED CONSIDERATION
1. Executed Consideration or Past consideration: a. Consideration must be of some value in the eyes of the
Where promisee or any other person has done or law. It must be real. It must not be physically impossible,
abstained from doing something i.e. the act has been done illegal, uncertain or illusory
before the promise was made. b. Value need not be adequate (Adequacy)
c. Inadequacy is evidence of Imposition- explanation 2 to
2. Present Consideration: Where promisee or any other sec.25 and illustration (g) of sec.25
person does or abstains from doing something. Its an act d. Abstinence etc.-Forbearance to sue is a good
which has been done in response to a positive promise. consideration- sec.2(d)

English
e. Compromise of a pending suit is a good consideration case relation between parites were not peaceful therefore
f. Performance of an existing contractual or legal duty is no relief was awarded.
no consideration but doing or agreeing to do more than
one’s duty will serve as consideration. 2. Promise to pay for past voluntary service:-sec.25(2)
a. It is a promise to compensate wholly or in part
Legal duty b. For Past voluntary service
Collins v. Godefroy 1831 c. It covers situations where promisor was legally
 A received a subpoena (summons) to give evidence in compellable to do
a case.
 Thereafter B promised to pay to A some money for  Such service should have been rendered voluntarily
the trouble which was to be taken by him in appearing in [and not at request, which is covered by past
that case. consideration under sec.2(d)
 A sued B to recover the amount promised by B.  The act must have been done for promisor only and
 The court held that A was under a public duty to give without promisor’s knowledge
evidence therefore the promise by B to pay is not a good
consideration. 3. Promise to pay time barred Debt sec.25(3)
 Similar were the facts and Judgment in the Madras a. Promise to pay wholly or in part a debt
High Court case-R.SashannahChetti v. b. Promise is made in writing and signed by parties or
P.RamaswamiChetti 1868 authorised agents
c. Debt is legally recoverable but time-barred
Contractual duty
Stilk v. Myrick 1809  In our culture, technical requirement does not fit
 Two sailors deserted in the course of vayage technically. The whole law of limitation is alien to India
 The captain of ship promised to distribute the wages  Liability means liability because concept of debt is
of those two sailors among the other members of the crew sacrosanct in Indian ethics.
if they would work the ship home.  The debt is not legally recoverable when it is for any
 It was held that the members of the crew being unlawful purpose or when the debtor is declared insolvent
already duty bound to work the ship home, there was no
consideration. 4. Other instances
i. Completed gifts: Explanation 1 to sec.25
Doing more than one’s duty Provisions and requirements regarding gifts are under
 In an American case A fireman was allowed to TPA
receive a reward offered by a husband to anyone who a. It must be in writing
would rescue his wife from a burning building, dead or b. Specific promise by donor to make it to donee
alive, because at risk of life and health he accomplished c. Object must be lawful.
the rescue of her dead body and because the court found
that as a fireman of the city he was not legally bound to ii. Promise by surety in case of contract of guarantee
risk his life in that rescue. (sec.127)
iii. In case of contract of Agency: (Sec.185) an agent
Exceptions to the Rule-NO CONSIDERATION NO who may be paid or unpaid can bind the principal
CONTRACT iv. Remission by the promisee of performance of the
 There are certain specific situations where promise (sec.63 of ICA)
consideration is not required (sec.25). These are: v. An agreement to extend time for performance of a
1. Promise made on Account of Natural love and contract
affection 25(1) vi. A promise to contribute to charity in certain
a. Parties should stand in a near relation to each other. circumstances.
Nearness means relation by blood or marriage
b. Agreement has to be written
c. Agreement has to be duly registered
d. Agreement should be on account of love and affection
RajluckyDabee v. Bhootnath Mukherjee, 1900

 The Defendant promised to pay his wife a fixed sum
of money every month for separate residence and
maintenance due to constant fights
 Agreement was in writing and registered and
mentioned therein quarrels and disagreements between
the two.
 Court held that near relation between parties does not
necessarily imply natural love and affection and in this

English
Legality of Object and Consideration The Bombay High court held that the agreement permitting the
Sec.2(d) anything can be consideration provided it is at the wife to live separately defeats the very purpose of provision of
desire of the promisor. ROCR therefore its void.
Sec.10- consideration and object must be lawful
There is a presumption that consideration is lawful unless it is Fateh Singh v. Sanwal Singh 1878, All
shown that is covered under any of the situations. An accused is required under CrPC to furnish a surety in the
Burden of proof is on the person who challenges it. sum of Rs.500 for his good behavior
He deposits the sum with the defendant and persuades him to
According to Sec. 23, the consideration or object of an become surety.
agreement are unlawful unless: After the period of suretyship is over, the accused sues the
1. Forbidden by law defendant for the amount.
2. Defeats the provisions of any law The Allahabad High court held the agreement void and the
3. Fraudulent purpose amount irrecoverable.
4. Injurious to person or property
5. Immoral Ragazzoni v. K.C.Sethia 1956
6. Opposed to public policy It was held that an agreement which defeats the law of a
friendly country would be equally void.
1. Forbidden by law Ram Sewak v. Ram charan 1982
An agreement to do what has been prohibited by IPC or by It was held that an agreement between the partners of a firm to
some other law cannot be enforced conceal income in certain respects so as to evade income tax
Law here is not confined to statutory law i.e. statute acts but it has been held to be unlawful.
covers any principle or rule which has force of law. Narayan v. Gopal Rao 1922
Nutan Kr. V. IIndAditional Distt. Judge, Banda 1994 It was held that accepting a son in adoption in consideration of
An agreement of lease between a landlord and tenant without a sum of amoney is unlawful
allotment or release order as required by the law, is void and Sukha v. Ninni, 1966
unenforceable. It was held that although in Muslim law, a man has no duty to
maintain his illegitimate child but an agreement to maintain an
Brij Mohan v. MPSRT corporation 1987 illegitimate child is not unlawful and is not void.
The respondent corporation having a permit to run a bus on a
ceratin route entered into an agreement with the petitioner to 3. Fraudulent Purpose: An agreement made for a fraudulent
allow the petitioner to run his bus as nominee of the said purpose is illegal
Corporation. Manni Ram v. Purshottam Lal 1930
It was held that the said agreement being void as violative of A knew that the railway company would not grant him a
the provisions of the Motor Vehicles Act was not enforceable contract
However, merely because a person does not observe Therefore, he entered into a contract with B that B should put
statutory requirements do not mean that the agreement is forward an application for the contract and after the contract
void, especially when the intention of the legislature is to was granted, A shall serve as the real contractor.
regulate an act i.e. rules and regulations which are for general It was held that the object of the agreement was to commit
administration. fraud upon the railway Co. therefore the agreement was void.
Abdul Jabbar v. Abdul Muthaliff 1983 Ques. Is an agreement to avoid competition with one
A rice mill was constructed with money remitted by the another fraudulent or opposed to public policy?
plaintiff in contravention of the FERA Jai Ram v. Kahna Ram 1963
It was held that although the remittances were illegal, the The forest Deptt. of H.P invited tenders for timber.
construction of the rice-mill by itself did not involve the B in consideration for A not competing with B gave a PDC to
execution of any unlawful object, and thus the plaintiff was A for Rs.15,000
entitled to enjoy possession of rice mill which defendants had A submitted a tender of very high rate.
objected. B’s tender was accepted
B got the payment of cheque stopped through his bank.
2. Defeat the provisions of any law: A filed suit for Recovery.
It covers those situations where things done are not The court held that object was not to defraud the forest deptt.
specifically prohibited or forbidden by law, But nature of therefore the agreement is valid.
transaction is such that it will defeat the provisions of some Thus an agreement not to outbid each other in an auction sale
other law. (term law in widest sense includes states, Hindu law is valid and binding.
and Muslim law and Laws of friendly countries) Illustration (g) and (e) sec.23 is an another example
Abdul Piroj Khan Nabab v. Hussenbi, 1904 4. Injurious to person or property:

Marriage soleminized under Mohammadan law If the consideration or the object of an agreement is to cause
H and W had agreed before marriage that the defendant (wife) an injury to the person or property of another, the agreement is
would be allowed to live with her parents after the marriage. unlawful and therefore void.
Wife went to her parents and refused to come back to her Ram Sarup v. Bansi Mandar 1915
husband (Plaintiff) It was held that the agreement for manual labour amounting to
He filed suit for ROCR slavery is void.
Defendant (wife) took defence of agreement made before An agreement to commit crime or civil wrong is unlawful
marriage

English
Note: To cover unexpected and unforeseen situation a general evolve a new head under exceptional circumstances of a
or residuary clause has been added to cover all those situations- changting world, it is advisable in the interest of stability of
Immoral or opposed to Public Policy society not to make any attempt to discover new heads in these
days
5. Immoral: 1. Trading with an Enemy alien
What is immoral has not been defined by ICA. During the war it is unlawful either to enter into such a
Immorality depends on the norms accepted by the society at a contract, or to perform a contract entered into before the war
particular point of time. broke out
Examples illustration (j) and (k) to sec.23 If some rights in respect of a contract have already accrued,
the outbreak of the war does not put an end to those rights but
a. Dealings with Prostitutes their enforcement is suspended until the hostilities are over.
A House was let out for running brothel-Recovery of Rent was [Daimler Co.Ltd v. Continental tyre and Rubber Co.1916]
not allowed
Advancing loan to a prostitute to carry on her profession to 2. Trafficking in Public Offices:
buy ornaments and clothes to attract customers-not recoverable An agreement by which it is intended to induce a public officer
to act corruptly is contrary to Public Policy e.g. ill (f) to Sec.23
b. Illegal Cohabitation
If object or consideration for an agreement is future illicit 3. Interference with administration of Justice:
cohabitation then the agreement is unlawful It may take any of the following forms
a. Interference with the course of Justice:
Ques. What about Past illicit Cohabitation b. Agreements stifling Prosecution
Naraini v. Pyare Mohan 1982 Raj a. Interference with the course of Justice:
Naraini a married woman lived as mistress of Gopal Lal for An agreement to delay the execution of a decree and a promise
10-11 years to give money to give false evidence are void
Before his death he gifted his house to Naraini through a gift  An agreement to perform “Puja’ to secure success to the
deed. defendant in a litigation, was held void in SaliBhagwan Das
After A’s death A’s sister’s son Pyare Mohan started living in Shastri v. Raja Ram 1927 Allahabad High Court case
that house and later refused to vacate Whereas a contrary view has been taken by Madras High
Contention by Pyaremohan was that the gift is void as object Court in BalasundaraMudaliar v. Mahomed Usman 1929
was to pay for her past co-habitation which was immoral case, where A promise of reward was made by a muslim
The court held that: litigant to a Hindu devotee in consideration of offering prayers
1. Case of gift: Gift being transfer without consideration, the for the success of his suit.
question of consideration does not arise in the case of gift.
2. Past-Cohabitation was merely a motive and not b. Agreements stifling prosecution:
consideration or object of gift. In Williams v. Bayley, 1866 Lord Westbury observed that
3. Motive was to compensate her for Past co-habitation as well “you shall not make a trade of felony”
as for further services provided by her. In India Law allows compromise agreements in respect of
Raj HC held it to be valid but Bombay and Madras HC have compoundable offences. But compromise in case of non
held it to be invalid. compoundable offence is not allowed.
P.Shivaram v. T.A.John 1975 Kerala
c. Interference in Marital relations A has a choice to bring a civil or a criminal action against B.
In Bai Vijli v. Nansa Nagar 1885 where a married woman was He procures a promissory note from B instead in satisfaction
given money to enable her to obtain divorce from her husband, of his claim and drops the idea of bringing any kind of action
the lender promising to marry her subsequently, it was held that against B.
the money could not be recovered. The Kerala High Court held that there is no stifling of
prosecution and the Pronote is valid.
d. Help given to dancing girl is not immorality An Agreement not to appear as a witness is void.
Khubchand v. Beram 1888
4. Marriage brokerage Contracts:
e. Immorality to be limited to sex outside marriage- An agreement to procure the marriage of a person in
In Gherulal v. M.Maiya 1959 case Subba Rao. Said this consideration of a sum of money is called marriage brokerage
contract and are void.
6. Opposed to Public Policy:- Agreement to pay dowry is void but once the dowry is paid as
a consideration for the marriage and the marriage is performed
Ques. “Public Policy is an unruly horse, and when once you the dowry cannot be recovered back.
astride it you never know where it will carry you (Burrough Hermann v. Charlesworth 1905 case
J.) Examine relevancy of this statement under the Indian law. Some advance was given to a person (dfdt) to procure a
[IAS-2000] marriage
Public Policy is a principle of judicial interpreatation founded Dfdt fails to do the needful.
on the current needs of the community at a stated time. The money paid as advance can he recovered by Plaintiff but
According to Subba Rao J it is an illusive concept: if the marriag has been solemnised, the money already paid
It has been described as an ‘untrustworthy guide’, ‘variable cannot be recovered.
Quality’ or ‘uncertain one’ etc.
There are 6 heads/aspects of public policy. Though the heads 5. Agreements creating on interest opposed to duty:
are not closed and though theorietically it may be permissible to

English
 An agreement- to reward parents for giving their children The promise by a man in favour of Mrs. Catherine Lowe that
in marriage or he would not marry any person other than Mrs. Lowe, and
 An Agreement-to reward (bribe) officials for doing favours would pay her £2000 if he married somebody else was held to
to a party or be against Public Policy and void
 An Agreement-by a newspaper proprietor not to comment A penalty upon remarriage may not be considered as a
upon the conduct of a particular person etc. restraint of marriage.
Are opposed to public policy and thus void because such Rao Rani v. Gulab Rani 1942 case.
agreement tend to a conflict of interests with duty An agreement between 2 Co-widows that any one of them
would lose her right to the deceased husband’s estate on re-
6. Maintenance and Champerty marriage is not a restraint on the right of re-marriage.
Maintenance consists in aiding a party in civil proceedings by
providing financial or other assistance without lawful Sec.27 Agreements in Restraint of Trade
justification. Art.19 of constitution of India provides for freedom of lawful
It is both a crime and a tort. trade, Business and profession which can not be waived off by
Champerty is a kind of maintenance in which the person an individual by an agreement.
assisting in proceeding is to receive a share in the gain made in An agreement in restraint of trade whether general or
the proceedings made by him when the assistance is without partial, unqualified or qualified is void
justification, it is unlawful.  The first case in which the scope of the section came up for
English law of Mainteance and Champerty not fully consideration before Calcutta High Court was
applicable in India. MadhubChander v. Raj Coomar 1874
A champertous agreement is not perse opposed to public A and B were rival shopkeepers in a locality in Calcutta
Policy and therefore void-It must be shown in addition that it is B agreed to pay a sum of money to A, the plaintiff, if he would
unconscionable or inequaitable close his business in that locality.
Where 3/6th , 1/4th and 1/8th share have been upheld 1/6th part A accordingly did so, but B, the defendant refused to pay.
of the property and 40% share was held to be of Champertous A sued him for money on the basis of agreement
nature. B contended that the agreement is not valid as it is hit by Sec.
27.
A made the following 2 pleading:
Consideration and object unlawful in part (sec.24)
If a part of the consideration/object which is unlawful can be 1. A pleaded that it was B who imposed restriction so he
separated from the other lawful part the court will enforce only cannot turn back
the lawful part. The question before Calcutta HC was – who can raise
If no such severance is possible, the whole of the agreement is objection u/s.27
void. Thus, due to partial illegality one may avoid the whole Calcutta HC held that objection or plea of restraint can be
agreement. taken by either side or both sides because Sec.27 is not for the
Example illustration to sec.24 protection of any party but for the sake of Public Policy
Void Agreements 2. A pleaded that the restraint in question was only partial
Sec.2(g) in terms of area and that such restraints had been upheld in
An agreement not enforceable by law is void English law.
Sec.10 COUCH J. observed that in Sec.28 the word absolutely has
Agreement must not be expressly declared to be void been used but not in Sec.27.
Following are the agreements that are expressly declared Sec.27 covers not only absolute restrictions but also partial
void restrictions.
i. Sec.23 and 24 A was not allowed to recover the amount
Agreements of which consideration/object is unlawful
ii. Sec.25 In KhemchandManekchand v. DayaldasBassarmal 1942
Agreements without Consideration It was held that an agreement to close a mill for 3 months in a
iii. Sec.26 year was void.
Agreements in restraint of marriage
iv. Sec.27 Mohammad v. Ona Mohd. Ebrahim 1922 case
Agreements in restraint of trade It was held that the agreement that A will sell beef for 14 days
v. Sec.28 in a month and the other for the rest of the month was void.
Agreements in restraint of legal proceedings
vi. Sec.29 Difference between English and Indan Law
Agreements which are uncertain and ambiguous All restraints of trade whether partial or total, are void both
vii. Sec.30 in England and in India.
Agreements by way of wager The only difference is that- in England a restriction will be
viii. Sec.56 valid if it is reasonable.
Agreements to do impossible acts In India it will be valid if it falls within any of the statutory, or
judicially created exceptions which are as under:
Sec.26 Agreement in Restraint of Marraige
According to sec.26 every agreement in restraint of marriage
of any person, other than a minor is void STATUTORY EXCEPTIONS
The restraint may be general or partial-its void 1. Sale of Goodwill: (Read exception 1 to Sec.27)
Lowe v. Peers 1768

English
After sale of goodwill, an agreement by a person not to carry b. Restrictions extended even after employee ceases to be in
on a similar business is valid provided employment-Court will examine the reasonableness of period
1. The restrictions are reasonable of restraint
2. The restrictions are within specified local limits Brahamputra Tea Co. v. E.Scarth 1885 case-5years period-
3. The restrictions are for period so long as the buyer carries Disallowed
on a similar business
The object of the agreement is to protect the right of the buyer c. When the period is for all times to come in future-VOID
of goodwill and not to prevent competition.
(for area and period-Test –Regard being had to the nature of Sec.28 Agreements in Restraint of Legal Proceedings
the business) Such agreements may be of 2 types
i. Agreement related to approaching court for enforcement of
In Nordenfelt v. Maxim Nordenfelt Guns & Ammunition co. contract or (if absolute then void)
Ltd. 1894 ii. Agreement curtailing period of limitation during which court
There occurred a sale of goodwill by a 55 years old inventor can be approached is void.
and manufacturer of guns and ammunition who agreed with the
buyer of company Approaching court-Because of the use of word ‘Absolutely’
1. Not to practice the same trade for 25 years the agreement is void if the restrictions are total i.e. absolute
2. Not to engage in any business competing or liable to compete E.g. forum selection clause: if 2 competent courts can deal
in any way with the business for the time being carried on by with a matter of litigation, the parties are free to choose any one
the company of the courts.
For approximately 2 to 4 years Mr. Nordenfelt remained idle But such clause have an express intention to exclude the
Then he joined a rival Canadian firm as adviser jurisdiction of other courts by words like only, exclusive, alone
It was held that the first part of the agreement was valid but etc.
the second part was considered to be unreasonable and void.
Period of 25 years and restriction as to in whole of world were Exceptions
held valid by the court considering the nature of the business. 1. Agreement for Partial restraint
Held 2. Agreement to refer future disputes to arbitration
ii. Partnerhsip Act sec.11(2), sec 36(2), sec.54 and 55(3) 3. Agreement to refer present disputes to arbitration
Judicial recognized exceptions Sec.29 Agreement void for uncertainity

1. Trade Combinations: Policy Reasons
Where manufacturers or traders in the same line of business 1. If such agreements are enforced then the court would be
join together making a union or association to fixing minimum making guess as to what the parties had agreed.
price, regulating the supply of goods and putting profits in a Chances of guess being more than estimating the real intention
common pool and then dividing the same amongst themselves. of parties.
Such agreements are netiher void on the ground of being It is likely to do injustice to one party by forcing terms on
opposed to Public Policy, nor are they deemed to be in restraint party which they do not want
of trade as their primary object is to regulate business.
Agreements attempting to create monopoly would be void. 2. Job of court is to ascertain what the parties want i.e.
enforcement of the intention of the parties.
2. Solus or exclusive dealing agreements: If it is allowed then it is almost acting like a broker.
Where a producer or supplier agrees to sell or supply his The job of court is not to negotiate but to implement and
produce to only one party and no one else. enforce it.
These are valid agreements although technically they put Guthying v. Lynn 1831 case £5 more if horse sold proved
restriction on buyer and seller, but subject to one condition i.e. ALucky void -void
Buyer should be bound to purchase the entire produce of seller. Agreement where price is left to be fixed by a 3rd party-valid
Where a manufacturer or supplier, after meeting all the Agreement totally silent as to price-VALID-sec.2 of SOGA
requirements of a buyer, has surplus to sell to others, he cannot applies i.e. reasonable price
be restrained from selling it to others. Agreement to agree in future is VOID because there cannot be
For monopoly-void a contract to make a contract.
For unduly long time-void
From generation to generation –void Sec.30 WAGERING AGREEMENTS
The term wager is neither defined or explained in section
3.Restrictive Covenant in Service: itself, nor in any definition under Indian Contract Act.
Where an employer and an employee enter into an agreement That creats a serious problem. The literal meaning of the term
whereby the employee is restrained from enganging in any “wager” as given in dictionary is explained as ‘Gamble’ or
activity either in competition or in conflict with the interest of ‘Bet’
employer during the period of employment or thereafter can be Lord Justice Hawkins got apportunity to explain and identify
of 3 types what constitutes wager in the famous case of Carlill v. Carbolic
smoke Ball Co.
a. Restrictions during employment- valid
Charlesworth v. Mac Donald 1898 case (Physician-3years) How this concept of wager took place in the beginning
 Niranjan Shanker v. Century Spinning and MftgCo.Ltd 1967 1. EIC Ships: The phrase wager in India has corresponding
“wagering transaction” in England. These appear to be similar.
Britishers were basically traders and not rulers.
E. I Co. came to India as a trading concern.

English
Ships of EIC started from London Harbour.
A large crowd used to stand on shore worried for the crew Speculative transactions-An agreement to settle the difference
members and goods. There was a sense of insecurity between the contract price and market price of certain goods
Some people who were neither interested in goods nor in ship on a specified day has been repeatedly held to be a wager
started betting – whether ship will come back or not therefore void. Here parties never intended any actual transfer
or delivery of goods
2. Strained relations between France and England : At the There must be from the beginning a common intention of both
end of year there used to be betting whether Nepoleaon will die the parties to make and accept no delivery and to deal only in
by 31st December or not? differences to make it a wagering agreement and hence void.
Reasons (Historically) for declaring wagering agreements 6. Neither party to have control over the event through
void personal skill, knowledge, or judgement
i. In case of EIC ships people having no interest in goods or
people intentionally used to pray for death of people and 7. Stakes may vary: Stake need not be equal
damage to property which was hghly undesirable
ii. In Napoleaon is case, people used to pray for his death which Other Aspects
affected the relations between the 2 countries. Chit fund
A ‘Chit fund’ is not a wager. It is no doubt true that gain may
Policy Reasons come to some of the members, but none of them stands to lose
1. It is recognition of human instinct which always take chance. his money, for his periodical deposits are refunded to him at the
Sometimes taking chance or risk becomes addiction which may end of the scheme
lead to very dangerous results. It’s the duty of law makers to
discourage this instinct e.g. Gambling-It is void but not Lottery
prohibited (if not in public place) Lottery is a game of chance therefore is a wagering transaction
therefore illegal under IPC
2. Uncertain subject matter can not be the basis of a valid
contract Effects of wagering Agreements and collateral transactions
Though a wagering agreement is non enforceable and void, it
Lord Justice Hawkins explained the concept of wager and is not forbidden by law and therefore transactions collateral to
identified its following ingredients: the main transaction are enforceable e.g
1. Uncertain event: The subject matter of agreement must be Loan given to pay off a gamling debt is recoverable
an uncertain event- generally a future event because future is
always uncertain. Is a wagering agreement opposed to Public Policy?
The event may be a past event if the parties are not aware of In Gherulal v. Mahadeo 1959 case The SC pointed out that a
its result or the time of its happening wager is not opposed to public policy (because it has been
recognized for centuries and has been tolerated by the public
2 . Two opposite viewsThe parties must hold opposite views on and the state alike)
the out-come or happening of that uncertain event i.e. one party In Maharashtra and Gujrat, wagering agreements have been
should say that it would happen and other it would not. declared illegal also thus in Maharashtra and Gujrat the
collateral transactions to wagering agreements are also void.
3. Putting money on stake : It should be agreed if the event
takes place A pays B if not then B pays A. It could be money or Is a wagering agreement immoral?
something also too No, it is not immoral (because immorality in law is confied to
sexual immorality)
4. Mutual Chances of Gain or Loss: There should be a chance
of one party winning and the other party losing, on the 2 Exceptions:- Horse Race and Crossword competitions
determination of the event Horse races where prize money is of Rs. 500 or more
Babasaheb v. Raja Ram 1931 case Bom Crossword competitions
2 wrestlers agreed to pay a wrestling match on the condition Because these 2 are games of mere skill
that the party failing to appear on the day fixed was to forfeit Lottery depends upon chance only therefore its wagering in
out of the gate money collected Rs.500 to the opposite party nature.
The defendant failed to appear in the ring and plaintiff sued
him for Rs.500
Defendant took plea of a contract by wager which court
rejected on the ground that neither side was to loose anything as
the sum was to be paid out of Gate money.
Diggle v. Hige 1877
The agreement was held void as being a wagering one as
stakes come out of the pocket of the looser.
5. No other interest in the event:

Neither party should have any interest in the event except the
sum or stake he will so win or loose.
This distinguishes a wagering contract from a contract of
insurance which requires an insurable interest i.e. an interest in
the existence and preservation of the thing insured.

English
time renders the contract voidable at the option of the opposite
Contingent Contracts (Sec. 31) party (Sec. 55), because time is generally considered to be of the
According to Sec. 31, a "contingent contract "is a contract to essence of the contract:
do or not to do something, if some event, collateral to such (1) Where the parties have expressly agreed to treat it as of the
contract, does or does not happen. essence,
All contracts of insurance or indemnity and guarantee are (2) Where delay operates as an injury,
contingent contracts. (3) Where the nature and necessity of the contract requires it to be
According to Pollock and Mulla, a 'collateral event' means so construed, for example, where a party asks for extension of time
for performance (if the time were not of the essence of contract, a
an event which is "neither a performance directly promised as
party need not have asked for extension of time).
part of contract, nor the whole of the consideration for a
promise". It is one which does not form part of consideration of In Wasoo Enterprises v J.J. Oil Mills AIR 1968 Guj. 57) it was
the contract, and is independent of it held that in "commercial contracts" time is ordinarily of the
A 'wagering agreement' is also a contingent contract, but it has essence of the contract.
been declared void by Sec. 30. In a wagering contract, there are
mutual chances of gain or loss, if either of the party may win InGomathinayagam Pillai v PaliniswamiMindaw AIR 1967 SC
but cannot lose, it is not a wagering contract. 868 it was held that in case of sale of immovable property, time is
generally not the essence of the contract
Enforcement of Contingent Contract- Sec. 32-36 – From
Bare Act When the time is not the essence of the contract it must be
performed within a reasonable time
Discharge of Contract
A contract may be discharged in the following ways: Even where time is of the essence, the injured party may at his
1. By Performance of the contract (Sees. 37-67); option accept the delayed performance. If he does so he cannot
2. By Breach of the contract (including anticipatory breach- afterwards recover compensation for the delay unless at the time of
Sec.39); such acceptance he gives notice to the promisor of his intention to
3. By Impossibility of performance (doctrine of frustration- claim compensation.
Sec.56);
Performance of Reciprocal Promises (Sees. 51, 52, 53, 54, 57,
4. By Agreement and Novation (Sees. 62-67).
58)- From Bare Act
5. By Operation of law. Sec. 2(f) says: "Promises which form the consideration or the part
of consideration for each other are called reciprocal promises".
[1] Performance of Contract
Sec. 37- From Bare Act Appropriation of Payments (Secs. 59-61) - From Bare Act
Offer or Tender of Performance (Sec. 38) (i) Appropriation by debtor- Sec. 59
The promisor must offer to perform his obligation under the (ii) Appropriation by creditor- Sec. 60
contract to the promisee. (iii) Appropriation by law- Sec. 61
The offer is called "tender of performance."
Sec. 38 further lays down the following conditions: [2] Breach of Contract
The breach of contract may be either
Sec. 38(1) - The tender must be unconditional.
(i) Actual or present i.e. nonperformance of the contract on the due
Sec. 38(2) - The tender must be made at proper time and place. date of performance, or
Startup v MacDonald (1843) 64 RR 810, (ii) Anticipatory i.e. before the due date of performance has come.
The defendant bought of the plaintiff ten tons of linseed oil to be breach of contract. If A informs B on 1st December that he will not
delivered within the last 14 days of the month of March. perform the contract on 20th Dec., A has made anticipatory breach
The plaintiff tendered on the last of the fourteen days at 9 O'clock of contract.
at night.
The defendant refused to accept owing to the lateness of the hour. Anticipatory Breach of Contract (Sec. 39)
He was held liable for the breach as the jury found that, though "An anticipatory repudiation occurs when, prior to the promised
the hour was unreasonable, yet there was time for the defendant to date of performance, the promisor absolutely repudiates the
have taken in and weighed the goods before midnight. contract (expressly or impliedly)."
Sec. 38(3) - If the tenderer has to deliver something to the Anticipatory breach of contract could be made by promisor in the
promisee, the latter must have reasonable opportunity of seeing
following ways:
that the thing offered is the thing which the promisor is bound by
1) either by refusing to perform the contract, or
his promise to deliver. 2) disabling himself from performing the contract in its entirety,
unless the promisee signifies by words or by conduct, his
An offer to one of several joint promisees has the same legal acquiescence in the continuance of contract."
consequences as an offer to all of them.
Read Illustration (a) to Sec. 39
By Whom Contract should be Performed (Secs. 40-41) – From
Bare Act When one person makes anticipatory breach of contract, the other
Performance of Joint Promises (Sees. 42-45) -From Bare Act party has two alternatives open to him, viz.
Time and Place for Performance (Secs. 46-50) - From Bare Act (i) He may rescind the contract immediately and may bring an
action for the breach of contract without waiting for the appointed
Effect of Failure to Perform the Contract in Time (Sec. 55) date of the performance of contract,
If the intention of the parties was that time should be of the
essence of the contract, then a failure to perform at the agreed

English
(ii) He may not put an end to the contract but treat it as still (1) Specific performance and Injunction - Specific performance
subsisting and alive and wait for the performance of the contract on of the contract means party's exact fulfilment of the obligation
the appointed date. which he has promised.
In Hochster v De La Tour (1853) 2 E&B 678, A engaged B on (2) Rescission and Damages - It is the most common remedy.
12th April, 1852 as a courier for accompanying him on a tour of (Secs. 73-75).
Europe, which was to begin on 1st June. B was to be paid £10 per
month for his services. On 11th May, 1852, A informed B that B's
services were not needed. On 22nd May, 1852, B sued A for the (3) Quantum Meruit - It literally means "as much as is earned" or
breach of contract. Held that even though B had brought an action "in proportion to the work done".
on 22nd May (i.e. before the due date of performance of the
contract), he had a right to do so and his action was successful. When the injured party has performed a part of his obligation
under the contract before the breach of contract has occurred, he is
If a man promises to marry a woman on a future day, and before entitled to recover the value of what he has done, under this
that day marries another woman, he is instantly liable to an action remedy.
for breach of promise of marriage. The principle applies to It is an action which is alternative to an action for the breach of
contingent contracts. contract.
This action in essence is one of restitution, putting the party
Where a person promises to marry a woman on the death of his injured by the breach of contract in a position in which he would
father, and during the life time of his father married another, he have been had the contract not been entered into.
was held liable [Frost v Knight (1872)LR7Exch 111]. The party in default cannot sue upon quantum meruit.
When the contract is kept alive by the promisee (aggrieved party), Damages for Breach
the promisor may perform the same in spite of the fact that he had The party who is injured by the breach of a contract may bring an
earlier repudiated it. action for damages.
'Damages' means compensation in terms of money for the loss
However, if the promisor still fails, the promisee will be entitled suffered by the injured party.
for the compensation. In every case of assessment of damages, there are two problems:
(i) Remoteness of damage and
In case the promisee has elected to keep the contract alive and (ii) Measure of damages.
subsisting it is just possible that before the due date of performance
some event happens (viz. supervening impossibility or frustration) (1) Remoteness of Damage
because of which the promisor gets excused from the performance The consequences of a breach may be endless but there must be an
of the contract. The promisor will be benefited in such a situation end to liability. The defendant cannot be held liable for all that
as he will be discharged from the performance of the contract. follows from his breach. In other words, the compensation is not to
be given for any remote or indirect loss or damage sustained by
In Avery v Bowden (1855) 5 E&B 714, A chartered B's ship at a reason of the breach.
Russian port and undertook to load the ship with the cargo within The decision in Hadley v Baxendale (1854) 9 Ex 341, laid down
45 days. Before this period had elapsed, A failed to supply the two rules:
cargo and declined to supply the same. The master of the ship
continued to insist that the cargo be supplied but A continued to (i) General damages-
refuse to load. Meanwhile, the war broke out between England and Those which arise naturally in the usual course of things from the
Russia, whereby it became illegal to load the cargo at a hostile breach itself.
port. In this case, B kept the contract alive instead of rescinding it, This rule is 'objective' as it makes the liability to depend upon a
and when the performance of the contract became unlawful, A was "reasonable man's foresight" of the loss that will naturally result
discharged and could not be made liable for non-performance of from the breach.
the contract.
(ii) Special damages- those which arise on account of the unusual
Minor Breach Not a Repudiation of Contract circumstances affecting the plaintiff.
Every minor irregularity in the performance of the contract cannot They are not recoverable unless the special circumstances are
be seized upon as a repudiation so as to put a premature end to the brought to the knowledge of the defendant so that the possibility of
contract. the special loss was in the "contemplation of the parties".
Remedies for Breach of Contract This rule is 'subjective' as the extent of liability depends upon the
A 'breach of contract' occurs when- actual knowledge of parties at the time of the contract about the
(a) a party renounces his liability under the contract, or likely result of breach.
(b) by his own act makes it impossible that he should perform his
obligations under the contract, or Victoria Laundry Ltd. v. Newman Industries Ltd. (1949) 1 All ER
(c) totally or partially fails to perform his part of the contract. 997.
The judgment emphasizes that both the rules are based upon the
The failure to perform or renunciation may take place when the principle of "forseeability".
time for performance has arrived (present or actual breach) or even Forseeability depends upon knowledge.
before that (anticipatory breach). Accordingly what was at that time reasonably foreseeable
The date for assessment of damages in case the anticipatory depends upon the knowledge then possessed by the parties.
repudiation is accepted, is the date of repudiation. Knowledge possessed is of two types:
If it is not accepted, then the date for assessment of damages is One imputed i.e. assumed to be possessed by everyone ('first
the date of performance. rule' in Hadley v Baxendale), and the other actual ('second rule').
Thus, two rules formulated in Hadley are only two different
Three remedies are available for breach of contract, namely: instances of the application of a single rule. The Victoria Laundry
case had virtually replaced the expression "contemplation of the
parties" with "reasonable man's foresight" and this being the
English
principle in the law of tort also, hardly any distinction remained Loss of Profits is a Special Loss
between tort and contract principles relating to remoteness of
damages. The loss of profits, which were to accrue upon resale, cannot be
But in Heron II, Koufos v CzarnikowLtd:. (1967) 3 All ER recovered unless it is communicated to the other party that the
686, the decision restored the distinction by again laying emphasis goods are for resale upon a special contract.
upon the "contemplation of the parties", as laid down in Hadley
case. Illustration (j) (knowledge of resale, loss of profit)-
The facts of major English cases could be summarized as below: (Where no knowledge of resale agreement, no more than market
(i) In Hadley v Baxendale (1854) 9 Ex 341. difference recoverable)- Illustration (k)
The plaintiff’s mill had been stopped due to the breakage of a
crankshaft. Market Rate Theory
The defendants, a firm of carriers, were engaged to carry the shaft Market Rate criterion - Illustration (a)
to the manufacturers as a pattern for a new one.
The plaintiff's servant told the defendants that the mill was Buyer’s breach, difference between market and control prices –
stopped, and that the shaft must be sent immediately. Illustration (h)
But the defendants delayed the delivery by some neglect, thus the
mill remained stopped for a longer time than it would have been. (a) Damages are Compensatory, not Penal
The action was brought for the loss of profits arising out of the Damages are given by way of compensation for the loss suffered
delay. by the plaintiff and not for the purpose of punishing the defendant
The defendants were held not liable for the loss of profits, for the breach (i.e. damages are not penal).
because in the great multitude of cases of millers sending off Motive for and the manner of breach is not taken into account
broken shafts for repair, it does not following the ordinary because generally "punitive damages" are not recoverable for the
circumstances that the mill is stopped (as the millers might have breach of contract.
another shaft in reserve). But the inconvenience caused by breach may be taken into
The fact that the mill was out of action for the want of shaft was a account.
'special circumstance' affecting the plaintiff's mill and the same
should have been pointed out to the defendants in clear terms. Hobbs v London & South-Western Rly. Co. (1875) LR 10 QB
111,
(ii) InBritish Columbia Saw Mills v Nettleship (1868) LR 3 CP Due to the negligence of the defendant railway company, the
499 plaintiff and his family were set down at a wrong station.
In this case also, lack of knowledge of special circumstances once Neither any nearby hotel accommodation nor any conveyance
again prevented recovery of special damages. was available to them, and they had to walk several miles in rain.
The parts of a saw mill machinery, packed in cases, were given to The plaintiff was entitled to substantial damages for
the defendant, a carrier, for carriage to Vancouver. inconvenience to the family (however, cold to the wife was
One of the cases was lost and consequently a complete mill could considered to be too remote).
not be erected and operated.
The plaintiff claimed the cost of lost machinery and the profits (b) Mental Pain and Suffering
which could have been earned if the mill had been installed in Ordinarily damages for mental pain and suffering are not allowed
time. for the breach of a commercial contract. But they may be allowed
Holding that the defendant was mere carrier having no knowledge in special cases.
of the purpose to be served by the goods to be transported by it, his Addis v Gramophone Co. Ltd. (1909) AC 488,
liability was only for the cost of lost machinery. The House of Lords listed three situations in which mental pain
and suffering can be taken into account:
(iii) In Simpson v London & North Western Railway Co. (1876) 1 1. Action against a banker for refusing to pay a customer's cheque
QBD 274 when he has in his hands funds of the customer;
It was held that if the special circumstances are already within the 2. Actions for breach of promise of marriage (now abolished in
knowledge of the party breaking the contract, the formality of England); and
communicating them to him may not be necessary. 3. Actions where the vendor of real estate fails to make title.
The plaintiff was in the habit of exhibiting samples of his
implements at cattle shows. In this case, the court did not allow damages in respect of harsh
He delivered his samples to the defendant company for and humiliating way in which the plaintiff was dismissed; it only
consignment to the show ground at New Castle. allowed wages for the period of notice and the commission which
The consignment note said: "must be at New Castle on Monday he would have earned during that period.
certain".
But no mention was made of the intention to place the goods in Nominal Damages
the exhibition. •Where the plaintiff suffered no loss the court may still award him
Due to defendant's negligence, the goods reached the destination nominal damages (small sum of money) in recognition of his right.
only after the exhibition was over. However, Sec. 73 does not give any cause of action unless and
It was held that since the defendant company was having the until damage is actually suffered.
knowledge of the special circumstances that the goods were being
sent for the New Castle show, they were liable for the loss of Exemplary or Vindictive Damages
profits resulting from late arrival of goods. These are awarded with a view to punishing the guilty party for
the breach and not by way of compensation.
Illustration (i)to Sec. 73(Delay caused by carrier) - Thus these damages have no place in the law of contract.
There are, however, certain exceptional cases, viz.
Illustration (n)to Sec. 73 Compensation is not to be given for any breach of a contract to marry,
remote and indirect loss or damage sustained by reason of the dishonour of a cheque by a banker when there are sufficient funds
breach. to the credit of the customer.

English
Comparison with English law-
(e) Duty to Mitigate (Explanation to Sec. 73) Differences:
The injured party has to make reasonable efforts to avoid the (1) Sec. 74 dispenses with the requirement of '"distinguishing
losses resulting from the breach so that his as well, as other party's liquidated damages from penalty.
loss is kept to the minimum. (2) Unlike English law where the court must either accept the
The plaintiff is debarred from claiming any part of the damage, amount in whole or reject it in whole, the court may either accept
which is due to his neglect to make such efforts. the amount or reduce it to what appears reasonable.
The onus of proof is on the defendant to show that the plaintiff (3) The named sum constitutes the maximum limit of liability. The
has failed in his duty of mitigation and the plaintiff is free from the court cannot order damages beyond that.
burden of proving that he tried his best to mitigate the loss. (4) The actual loss or 'damage suffered by the party is immaterial.
Thus even if the actual loss ' exceed the liquidated damages, the
Jamal v Moola Dawood sons & Co. [(1916) 43 IA 6] damages payable will not exceed the stipulated sum.
In this case, it was held that the proper measure of damages is the
difference between the contract price and the market price on the Similarity:
date of the breach of contract irrespective of the fact that the seller Like the English law, under Sec. 74 the amount contemplated by
does not again sell the goods on that day, but sells the same on a the parties will be reduced only if it appears to be by way of
subsequent date and the actual loss to him is different from the 'penalty'. Otherwise the whole of it is recoverable as liquidated
difference in prices on the date of the breach of contract. damages.
Liquidated Damages Exception to Sec. 74-From Bare Act

Sometimes the parties to a contract, at the time of making the Illustration (c) reads- From Bare Act
contract agreed to the amount of compensation payable in the
event of the breach of contract. Forfeiture of Earnest Money or Security Deposit
Such amount, which has been agreed beforehand, may be either Many commercial contracts involve either 'earnest money' or
liquidated damages or penalty. 'security deposit' as a way of ensuring the promisor's seriousness
If the sum to be paid on the breach of contract is the genuine pre- towards the contract.
estimate of the prospective damages, it is known as liquidated In the application of Sec. 74 to forfeiture clause in the contract, a
damages. distinction has been drawn between earnest money and security
If such sum is excessive and highly disproportionate to the likely deposit.
loss, with a view to discouraging breach of contract, it is known as The essence of the distinction is the fact that earnest money is part
penalty. payment of the purchase price while security deposit is not.
'Penalty' as a rule is never awarded as damages in the law of As a general rule it may be noted that the rule of forfeiture applies
contract (damages will then be calculated according to the ordinary to earnest money but not to security deposit.
principles); while the whole of liquidated damages is recoverable The remedies available under Secs. 73 and 74 for the breach of
(English law). contract contemplate a valid and binding agreement between the
parties.
Dunlop Pneumatic Tyre Co. Ltd. v New Garage & Motor Co. Ltd.
(1915) AC 79 Tarsem Singh v Sukhminder Singh AIR 1998 SC 1400
The court laid down the following propositions: It was held that 'Earnest money or any other kind of deposit
1. The expression used by the parties is not conclusive. The court cannot be forfeited if the underlying contract is void."
must find out whether the payment stipulated is in truth a penalty In Habit Ali v Rafik-ud-Din (1968) A. Asm 26 it was held that
or liquidated damages. earnest money cannot be forfeited if the contract has been
2. The question whether a sum stipulated is a penalty or liquidated discharged by frustration. In such cases, the vendor is entitled to
damages is a question of construction to be decided upon the terms the return of earnest money and no compensation is payable.
and inherent circumstances of each particular contract.
3. To assist this task, various tests have been suggested: In Shri Hanuman Cotton Mills v. Tata Aircraft Ltd. (AIR 1970
(a) It will be a penalty if the stipulated sum is extravagant and SC 1986)
unconscionable in amount in comparison with the greatest loss that It was held that if a contract requires the buyer to deposit 25% of
could follow from the breach. the total value of the goods (as part of the purchase price of Rs. 10
(b) It will be a penalty if the breach consists only in not paying a lacs) while placing the order, with a stipulation that the amount
sum of money and the sum stipulated is a sum greater than the sum shall be forfeited in case of default in balance payment of price, the
which ought to have been paid. term is reasonable and binding on the parties.
(c) The penalty may be presumed when a single lump sum is made The deposit in question was intended as earnest money.
payable by way of compensation, on the occurrence of one or more It was a part of the price and the seller was entitled to forfeit it.
or all of several events, some of which may occasion a serious and The contract read with the terms of business of the company
others but trifling damage. clearly referred to the earnest money being paid and to the fact of
Rs. 2.5 lacs having been paid as earnest.
Section 74, Contract Act- From Bare Act He pointed out that the Supreme Court itself had no occasion in
that case to consider the question of reasonableness or otherwise of
Compensation for breach of contract where penalty stipulated for the earnest deposit being forfeited.
In Mahabir Prasad v Durga Datta AIR 1961 SC 990 it was held The Supreme Court also laid down the following five principles
that Unless the parties have made a stipulation for the payment of regarding earnest money.
interest, or there is a usage to that effect, interest cannot be 1. It must be given at the moment when the contract is
recovered legally as damages, generally speaking. concluded;
Illustration (a)- From Bare Act 2. It represents a guarantee that the contract will be fulfilled or,
Illustration (b)- From Bare Act in other words, "earnest" is given to bind the contract;
Illustration (e)- From Bare Act 3. It is part of the purchase price when the transaction is carried
Illustration (f)- From Bare Act out;
Illustration (g)- From Bare Act 4. It is forfeited when the transaction falls through by reason of
the default or failure of the purchaser; and (5) Unless there is
English
anything to the contrary in the terms of the contract, on default by
purchaser, the seller is entitled to forfeit the earnest.

English
(3) Impossibility of Performance- Frustration of Contracts With this decision began the struggle between the two
Sec. 56 principles, namely, the principle of sanctity of contract which
supports the principle of absolute liability and the principle
Meaning that a contract be discharged when the shared contractual
Frustration is when efforts are made ineffective or discontented assumption has been destroyed by change of circumstances.
because a person is unable to achieve his desire. When the In this case the performance of the contract had become
performance of the contract becomes impossible the purpose physically impossible because of the disappearance of the
which the parties have in mind is frustrated. subject-matter. But the principle is not confined to physical
impossibilities. It extends also to cases where the performance
Section 56 first lays down the simple principle that "an of the contract is physically possible, but the object the parties
agreement to do an act impossible in itself is void". had in mind has failed to materialize.
For example, an agreement to discover a treasure by magic, The well-known coronation cases of which Krell v Henry" is
being impossible of performance, is void. one, illustrates this.
The defendant agreed to hire from the plaintiff a flat for June
Subsequent impossibility of performance - Sometimes the 26 and 27, on which days it had been announced that the
performance of a contract is quite possible when it is made, but coronation procession would pass along that place.
some event subsequently happens which renders its A part of the rent was paid in advance. But the procession
performance impossible or unlawful. In either case the contract having been cancelled owing to the King's illness, the defendant
becomes void. refused to pay the balance.
It was held that the real object of the contract, as recognised by
Where, for example, after making a contract of marriage, one both contracting parties, was to have a view of the coronation
of the parties goes mad, or where a contract is made for the procession. The taking place of the procession was, therefore,
import of goods and the import is thereafter forbidden by a the foundation of the contract. The object of the contract was
Government Order, or where a singer contracts to sing and frustrated by non-happening of the coronation and the plaintiff
becomes too ill to do so, the contract in each case becomes was not entitled to recover the balance of the rent.
void. Thus the doctrine of frustration comes into play in two types
of situation, first, where the performance is physically cut off,
Indian Contract Act 1972 provides Legal Provisions as and, second, where the object has failed.
follows :-Sec. 56. From Bare Act The Supreme Court has held that Section 56 will apply to both
Loss of Object or Frustration kinds of frustration.
INITIALLY THE LAW WAS :- ABSOLUTE LIABILITY Referring to the section, B K MUKHERJEE J observed in
Satyabrata Ghose v Mug-neeranBangur&Co :
In the first well-known English case of Paradine v Jane it was “This much is clear that the word 'impossible’ has not been
pointed out that subsequent happenings should not affect a used here in the sense of physical or literal impossibility. The
contract already made.There the defendant had taken an estate performance of an act may not be literally impossible but it
on lease from the plaintiffs. The defendant was dispossessed of may be impracticable and useless from the point of view of the
it by alien enemies for some time and, therefore, object and purpose which the parties had in view ; and if an
refused to pay the rent for the period of dispossession. It was untoward event or change of circumstances totally upsets the
held that "when the party by his own contract creates a duty, he very foundation upon which the parties rested their bargain, it
is bound to make it good, if he may, notwithstanding any can very well be said that the promisor finds it impossible to
accident by inevitable necessity, because he might have do the act which he promised to do.”
provided against it by his contract; though the land be
surrounded or gained by the sea, or made barren by wildfire, yet Explaining the concept "frustration of the contract" in
the lessor will have his whole rent". Cricklewood Property & Investment Trust Ltd v Leighton's
Investment Trust Ltd, VISCOUNT SIMON LC said that it
In the subsequent case means
Taylor v Caldwell, BLACKBURN J laid down that the above "the occurrence of an intervening event or change of
"rule is only applicable when the contract is positive and circumstances so fundamental as to be regarded by the law
absolute, and not subject to any condition either express or both as striking at the root of the agreement, and as entirely
implied". beyond what was contemplated by the parties when they
entered into the contract".
In this case the defendants had agreed to let the plaintiffs the
use of their music hall between certain dates for the purpose of
holding a concert there. But before the first day on which a This principle was applied in Parshotam Das v Batala
concert was to be given, the hall was destroyed by fire without Municipal Committee
the fault of either party. The plaintiffs sued the defendants for
their loss. It was, held that the contract was not absolute, as its A Municipal Committee leased out certain tonga stands to the
performance depended upon the continued existence of the hall. plaintiff for Rs 5,000. But no tonga driver came forward to use
It was, therefore, "subject to an implied condition that the the stand throughout the year and the plaintiff could not realize
parties shall be excused in case, before breach, performance anything. He sued for the refund of his money. It was held that
becomes impossible by the perishing of thing without "the plaintiff obtained the lease and the committee granted the
default of the contractor'. same to him on the assumption that the tonga stands would be
used by the drivers and the plaintiff would recover fees from

English
them, but for reasons which both sides could not help, the requisitioned and was released only in September, the House of
drivers did not use the stands, the doctrine of frustration applied Lords held that the charteiparty had frustrated, for a September
with full force". A contract for sale of land for non-agricultural to September term was not contemplated by the parties.
use was held to have frustrated when the application for such
use was rejected by the authorities. Where the parties can still perform their main obligation
despite the fact that the subject-matter has gone out of their
Commercial Hardship hand, frustration may not follow.
Thus, where a ship was chartered for five years and three years
The alteration of circumstances must be "such as to upset after that, it was requisitioned by the Government, the latter
altogether the purpose of the contract. paying more money than the freight agreed between the parties,
Some delay or some change is very common in all human it was held that the contract was not frustrated. The charterer
affairs, and it cannot be supposed that any bargain has been was bound to pay the freight and that he could still pay and,
made on the tacit condition that such a thing will not therefore, he was entitled to collect the money from the
happen in any degree". This makes the court rather cautious Government.
in discharging parties from their contract. Similarly, an agency for dealing with the goods "manufactured
or sold" by the principal was not frustrated when the principal's
IN CASE OF Samuel Fitz & Co v Standard Cotton Co. factory was destroyed, for the agent could still deal with the
goods sold by the principal.
The defendants placed an order with the plaintiffs for the In a contract for carriage of goods by sea, the vessel sank with
supply of tapestries of certain kind, making it clear that they cargo. There was evidence to show that the vessel started taking
intended to sell them in Australia. in water. When the vessel was discovered to be tilting, the
But the Australian Government prohibited the import of such water in the bilge was pumped out but no action was taken to
goods. go to the nearest port to have the vessel berthed and the
The defendants lost their market and cancelled their order. condition of the vessel checked. Instead of that, after pumping
It was held that the courts should not read into a contract an out water, the vessel attempted to continue on its course. The
implied term that the enforceability of the contract was court said that the sinking of the vessel could not be described
dependent upon the ability of the purchaser to find customers as an inevitable accident. Reasonable care had not been taken
for the goods. "We are unable to say that the foundation of to prevent the sinking of the vessel. The defence of
the contract was that these goods should be resold by frustration failed.
defendants to their clients in Australia."
2. Change of Circumstances
Specific grounds of frustration
A contract will frustrate "where circumstances arise which
The principle of frustration of contract or of impossibility of make the perfor-mance of the contract impossible in the
performance is applicable to a great variety of contracts. It is manner and at the time contemplated".
not possible to lay down an exhaustive list of situations in This happens when the change of circumstances has affected
which the doctrine is going to be applied so as to excuse per- the performance of the contract to such an extent as to make it
formance. The law upon the matter is undoubtedly in process of virtually impossible or even extremely difficult or hazardous.
evolution. Yet the following grounds of frustration have
become well established. Escalation.—Law has to adapt itself to economic changes.
Marginal price rise may be ignored. But when prices escalate
1. Destruction of Subject-Matter out of all proportion than could have been reasonably expected
by the parties and make performance so crushing to the con-
The doctrine of impossibility applies with full force "where the tractor as to border virtually on impossibility, the law would
actual and specific subject-matter of the contract has ceased have to offer relief to the contractor in terms of price revision.
to exist". ' The Supreme Court has recognised this in
"Taylor v Caldwel is the best example of this class."
There, a promise to let out a music hall was held to have Tcimpore& Co v Cochin Shipyard Ltd.
frustrated on the destruction of the hall.
Similarly, where the defendant contracted to sell a specified In this case there is no room for doubt that the parties agreed
quantity of potatoes to be grown on his farms, but failed to that the investment of the contractor (for import of equipment
supply them as the crop was destroyed by a disease, it was held and know-how, in foreign exchange) would be two crores and
that performance had become impossible. the tendered rates were predicated upon and co-related to this
Similarly, a contract to exhibit a film in a cinema hall was held understanding.
to have become impossible of performance when on account of When an agreement is predicated upon an agreed fact
heavy rains the rear wall of the hall collapsed killing three situation, and that situation ceases to exist, the agreement, to
persons, and its licence was cancelled until the building was that extent, becomes irrelevant or otiose.
reconstructed to the satisfaction of the chief engineer. The The rates payable to the contractor were related to the
owner was under no liability to reconstruct the hall and even if investment of Rs 2 crore by the contractor.
he did reconstruct and it took him about some time, by that time Once the rates became irrelevant on account of circumstances
the film would have lost its appeal. beyond the control of the contractor, it was open to him to make
The same result followed where a ship ran a ground. a claim for compensation.
The result would also be the same where the subject-matter of
the contract though intact has ceased to be available to the Another case of commercial hardship of this kind was before
parties. Thus, where a ship was chartered for twelve months to the House of Lords in Davis Contractors Ltd v Fareham
run from April to April and before it could be delivered, it was Urban District Council.

English
There was a contract to build certain houses for a council for a Robinson v Davison is the well-known illustration :
fixed price and to be completed within eight months.
Bad weather and labour strikes in-tervened and it took twenty-two There was a contract between the plaintiff and the defendant's
months to complete and at a cost much more than the contract wife, who was an eminent pianist, that she should play the piano at
price. a concert to be given by the plaintiff on a specified day.
The contractor claimed that the contract was discharged on On the morning of the day in question she informed the plaintiff
account of inordinate delay and, therefore, he should be paid on that she was too ill to attend the concert. The concert had to be
quantum meruit basis, that is, his actual costs should be paid. postponed and the plaintiff lost a sum of money.
But the House of Lords did not agree with him. The plaintiffs action for breach of contract failed.
It is not hardship or inconvenience or material loss itself The court said that under the circumstances she was not merely
which calls the principle of frustration into play. excused from playing, but she was also not at liberty to play, if she
There must be as well such a change in the significance of the was unfit to do so.
obligation that the thing undertaken would, if performed, be a The contract was clearly subject to the condition of her being well
different thing from that contracted for. If this is the law, the enough to perform.
appellants' case seems to be a long way from a case of frustration.
Similarly, where a 16 years old boy was engaged for five years to
Thus where there was a 400% escalation of prices owing to a war perform as a drummer for all the seven nights in a week whenever
as compared with the original price on which certain transformers the band had business and, on account of illness, he was certified
were undertaken to be supplied on a firm basis, the contract was to be able to perform only 4 nights, the contract was held to have
held to -have ended. been frustrated.
Foreknown chances of alteration.—Where the possibility of In another case :

alteration of circumstances was within the contemplation of the A person entered into service as manager for ten years, and
parties at the time of the contract, they can hardly complain of any undertook not to undertake any professional engagement without
such alteration. the consent of the employer.
Thus, where a railway company accepted goods for transport and Before the expiry of ten years he was called up for military
happened to convey them to a wrong destination, which on account service.
of partition fell in Pakistan and the railways could not bring them After the war he undertook professional engagements and was
back into India, they were not permitted to plead frustration to their sued by the employer for breach of contract.
liability to pay for the loss of the goods. It was held that the contract of service had frustrated when his
services were requisitioned for military purposes and thereafter he
3. Non-occurrence of Contemplated Event was free from the covenants of the contract.
Sometimes the performance of a contract remains entirely Application to industrial relations.—The application of the
possible, but owing to the non-occurrence of an event doctrine of frustration to industrial relations was examined by the
contemplated by both parties as the reason for the contract, the (English) National Industrial Relations Court in Marshall v
value of the performance is destroyed. Harland and Wolff Ltd.
Krell v Henry involved a situation of this kind.
There, a contract to hire a room to view a proposed coronation M was in a company's employ since 1946. In 1969 he fell ill and
procession was held to have frustrated when the procession was did not attend till April 1971 when the company retrenched him
postponed. For this result to follow it is necessary that the after giving usual benefits.
happening of the event should be the foundation of the contract. M had still to undergo an operation before he could resume work.
Even so it was held that the contract of service had not frustrated.
This is shown by Berne Bay Steam Boat Co v Hutton which also The President of the court pointed out that in considering whether
arose from the postponement of the coronation. further performance has become impossible, regard must be had to
The Royal Naval Review was proposed to be held on the the terms of the employment, the nature of the illness, its duration,
occasion. prospects of recovery, and the period of past employment.
The defendant chartered a steamboat for two days "to take out a
party of paying passengers for the purpose of viewing the naval  In a similar case before the Court of Appeal.
review and for a day's cruise round the fleet". S was employed as a works manager under a five-year contract.
But the review was cancelled and the defendant had no use of the After two years he became ill and was absent from work for five
ship. months.
Yet he was held liable to pay the unpaid balance of the hire less The employer terminated the employment after four months of
the profit which the plaintiff had made by the use of the ship in the absence and S sued for breach of contract.
ordinary course. It was held that a five-years term contract of service could not be
The court said that the contract does not differ from a case where, deemed to have frustrated by five months' illness.
for instance, a person has engaged a brake to take himself and a
party to Epsom to see the races there, but for some reason or other, 5. Government or Legislative Intervention
such as the spread of an infectious disease, the races are postponed.
A contract will be dissolved when legislative or "administrative
4. Death or Incapacity of Party intervention has so directly operated upon the fulfilment of the
contract for a specific work as to transform the contemplated
"A party to a contract is excused from performance if it conditions of performance".
depends upon the existence of a given person, if that person
perishes or becomes too ill to perform.”  Where a vendor of land could not execute the sale deed
because he ceased to be the owner by operation of law, it was held
Where the nature or terms of a contract require personal that the contract had become impossible of performance.
performance by the promisor, his death or incapacity puts an end to  A contract by the State to give a monopoly was held to have
the contract. become void on the enforcement of the Constitution. A contract
English
between certain parties for the sale of the trees of a forest was  One such case is Tsakiroglou& Co Ltd v NobleeThorl G m
discharged when the State of Rajasthan forbade the cutting of trees b H.
in the area. The appellants agreed to sell to the respondents three hundred
tons of Sudan groundnuts c.i.f. Hamburg.
A well-known English authority is Metropolitan Water Board v The usual and normal route at the date of the contract was via
Dick Ken & Co Ltd. Suez Canal. Shipment was to be in November/December 1956, but
By a contract made in July 1914, a firm of contractors contracted on November 2, 1956, the canal was closed to traffic and it was not
with a Water Board to construct a reservior to be completed within reopened until the following April.
six months. It is stated that the appellants could have transported the goods
But by a notice issued under the Defence of the Realm Act, the via the Cape of Good Hope. The appellants refused to ship goods
contractors were required to cease work on their contract and they via the Cape.
stopped the work accordingly. They claimed that the effect of the The question now is whether by reason of the closing of the Suez
notice was to put an end to the contract. route, the contract had been ended by frustration.
The House of Lords held that the interruption created by the  The appellants' argument was that it was an implied term of the
prohibition was of such a character and duration as to make the contract that shipment should be via Suez. But it was held that such
contract when resumed a different contract from the contract when a term could not be implied. The customary or usual route via the
broken off, and that the contract had ceased to be operative. Suez Canal being closed, the appellants were bound [by the Sale of
Goods Act, 1893, 32(2)] to ship the groundnuts by a reasonable
 In another case of the same kind, the contract was for the sale and practical route and, though the appellants might be put to
of a specific parcel of wheat lying in the seller's warehouse. greater expense by shipping the groundnuts via the Cape of Good
The property in the goods had not yet passed to the buyers that Hope, that did not render the contract fundamentally or radically
the Government seized the stock under its power of supervision. different, and there was not, therefore, frustration of the contract.
The buyers sued for non-delivery. But they could not succeed. If the intervention of war is due to the delay caused by the
The sellers were excused from delivering the goods because of the negligence of a party, the principle of frustration cannot be relied
Government takeover of their stock. upon.
The State Trading Organisation, though a Government monopoly, If there are more than one ways of performing a contract and the
was somewhat independent of the State. war cuts off only one of them, the party is still bound to perform by
Its export contracts were held to have frustrated by Government the other way, however inconvenienent or expensive.
intervention imposing a ban on exports. But an intervention of a
temporary nature which does not uproot the foundation of the 7. Application to Leases
contract will not have the dissolving effect.
In the leading case of Cricklewood Property & Investment
 This is shown by the decision of the Supreme Court in Trust Ltd v Leighton 's Investment Trust Ltd :
Satyabrata Ghose v MugneeranBangur&. Co.
The defendant company started a scheme for the development of A building lease was executed for ninety-nine years, more
a tract of land into a housing colony. rent being payable after erection of buildings. But, before any
The plaintiff was granted a plot on payment of earnest money. could be erected and while the lease had still 90 years to run,
The company undertook to construct the roads and drains building activity was suspended by the Government because of the
necessary for making the lands suitable for building and residential war.
purposes and as soon as they were completed, the purchaser was to  VISCOUNT SIMON LC said : "The lease at the time had more
be called upon to complete the conveyance by payment of the than ninety years to run, and though we do not know how long
balance of the purchase money. the present war, and the emergency regulations which have been
But before anything could be done, a considerable portion of the made necessary by it, are going to fast, the length of the
land was requisitioned by the State during the Second World War interruption so caused is presumably a small fraction of the
for military purposes. whole term. Here, the lease itself contemplates that rent may be
payable although no building is going on, and I cannot regard
MUKHERJEA J held that the contract was not frustrated. He the interruption which has arisen as such as to destroy the
said : "Undoubtedly the commencement of the work was delayed identity of the arrangement or to make it unreasonable to carry
but was the delay going to be so great and of such a character out the lease ac-cording to its terms as soon as the interruption in
that it would totally upset the basis of the bargain and building is over."
commercial objects which the parties had in view ? The
requisition orders, it must be remembered, were, by their very  In the subsequent case ofSushila Devi v Hari Singh, the
nature, of a temporary character...." Supreme Court held that an agreement of lease ended by frustration
where before completing it the parties had to run away and could
The court relied upon the fact that there was no time-limit agreed not go to Pakistan to give or take possession.
to by the parties within which the construction work was to be  The Jammu and Kashmir High Court allowed in Hari Singh v
finished.The effect of an administrative intervention has to be DewaniVidyawati the recovery of rent paid in advance under a
viewed in the light of the terms of the contract, and, if the terms lease which could not be completed on account of partition. The
show that the parties have undertaken an absolute obligation recovery was allowed under Section 65 as benefits received under
regardless of administrative changes, they cannot claim to be a contract which became void.
discharged.
Cases Not Govered by Doctrine of Frustration
6. Intervention of War  'Impossibility of performance is, as a rule, not an excuse
for nonperformance of a contract'.
Intervention of war or warlike conditions in the performance of a  Some of the cases where impossibility of performance is
contract has often created difficult questions. not an excuse are:
The closure of the Suez Canal following the Anglo-French war (1) Commercial hardship or difficulty- discussed earlier.
with Egypt, for instance, interrupted the performance of many (2) self-induced- The doctrine of frustration does not apply to
contracts.
cases of non-performance of the contract due to the events

English
happening because of the default of the contracting party interest and, therefore, it can never end prematurely by
himself (see Maritime National Fish v ocean Trowler Ltd. frustration i.e. when one party or the other unable to carry out
under the heading 'Frustration,). some of its obligations as landlord and tenant because of
 For example, if the intervention of war is due to the delay change of circumstances.
caused by the negligence of a party, the principle of frustration  The lease would remain or interest continues to be vested
cannot be relied upon (Gambhirmal v Indian Bank Ltd.AIR in the lessee.
1963 Cal 163).  In Amir chand v chuni Lal (AIR 1990 P&H 345), it was
held that the doctrine of frustration does not apply to contracts
(3) Act of third person- The principle of supervening creating estates or interests in land, which had already occurred.
impossibility does not extend to case of a third person on whose  In this case, the tenant of a house was evicted in terms of a
work the promisor relied (See Ganga saran v Ram charan decree but later possession was granted to him.
Gopal above).  The landlord contended that as the rented building had
been demolished by the municipality leaving only a vacant
(4) Failure of one of the objecrs- when there are several land, the tenant was not entitled to the land.
purposes for which the contract is entered into, failure of one of  Held that the contract of lease had not become impossible
the objects does not terminate thg contract. of performance because the landlord could reconstruct the
 Thus where a ship was chartered by the defendant for two premises.
days for the purpose of viewing the naval review and for a day's  In Karuna Ram Medhi v Kamakhya prasad Baruah
cruise round the fleet, but the review was cancelled, the (1997) 5 SCC 530, under the terms of the contract of tenancy,
defendant was held liable to pay the hire amount [Herne Bay the tenant was entitled to built a permanent structure on the land
Steam Boat Co. v Hutton (1903) 2 KB 683]. of tenancy for residential/ commercial purposes, within five
years from the date of contract.
(5) Completed transfers or Executed contracts-  The tenant did so with the knowledge and acquiescence of
 Sec. 56 covers cases of executory (future) contracts only, the landlord.
and does not apply to executed (present) contracts.  However, the structure was destroyed by fire.
 Thus in Raja Dhruv Dev v Raja Harmohinder Singh (AIR  The landlord sought ejectment of the tenant, pleading
1968 SC 1024) where there was a lease of land for one year and discharge of the contract on account of act of God.
the lessee was given possession, the fact that the lessee could  It was held that where the permanent structure was
not work the land (for any crops) due to partition of the country constructed within the said period of five years, the mere fact
was held not to attract Sec. 56, as it was the case of a completed that the structure was destroyed by fire would not disentitle the
transfer'. tenant to the protection from ejectment.
 The lessee's action for the refund of the rent was thus  In K. J. coal co. Ltd. v Mercantile Bank (AIR 1981Cal
dismissed. 418), the Mercantile Bank had advanced a huge amount of
 The court observed that there was no agreement, express or money to K. J. Coal Co. through overdraft.
implied, that the rent was payable only if lessee was able to  Thereafter the coal company was nationalized.
perform agricultural operations.  In an action to recover back the loan, the company pleaded
 The court also observed that Sec. 56 is not applicable when non-liability to pay on the ground of frustration of contract in
the rights and obligations of the parties arise under a transfer of view of nationalization of company.
property under a lease.  Held that such change in the management simpliciter
 On the other hand, where on account of an event beyond cannot amount to supervening of an event frustrating the
the parities' control, the lessor is not able to transfer possession contract.
to the lessee, the lessee would be entitled to take back his rent
(Gurdashan Singh v Bishen Singh AIP. 1963 Punj. 49).
 Similarly, in Sushila Devi v Hari Singh (AIR 1971 SC
1956), the frustration of contract occurs as the parties could not
go to Pakistan to give or take possession.
 Thus if the transfer of lease has not been made complete,
the doctrine of frustration applies.
 In other words, a lease (completed transfer) is outside Sec.
56, but an agreement of lease may come to an end by
frustration.
 In Raja Dhruv Dev case, regarding the question of
applicability of doctrine of frustration to a lease, Shah J.
observed: "Under a lease of land, there is a transfer of right to
enjoy that land.
 If any material part of property is destroyed or rendered
unfit for the purpose for which it was let out because of fire,
floods, violence, or other irresistible forces, the lease may at the
option of lessee be avoided [Sec. 108(c), Transfer of Properly
Act].
 Where the leased properly is not destroyed or rendered
unfit, the lessee cannot avoid the lease only because he does not
or is unable to use the land for purpose for which it is let out to
him".
 Under English law also, a lease is more than a contract and
amounts to estate i.e. creates in the lessee a vested estate or

English
(4) Discharge by Agreement and Novation (Sec. 62-67) Sec. 64 lays down that the party rescinding a voidable contract
Sections 62 and 63 deal with the contracts in which the obligation shall, if he has received any benefit thereunder from another party
of the parties to it may end by the mutual consent of the parties. to such contract, restore such benefit, so far as may be, to the
person from whom it was received.
Contracts which Need Not be Performed (Sec.62) According to Sec. 65, when the parties have entered into an
Sec. 62 allows the parties the novation, rescission and alteration apparently valid contract and some benefits have been passed
of contract. under it, and subsequently the contract is either discovered to be
void or becomes void, the party who has received the benefits must
Novation: When the parties to a contract agree to substitute the restore them to the other.
existing contract for a new contract, that is called novation. The section does not apply to a contract which the party knew at
the time of making it to be void.
In such a case the liability of the parties as regards the original The section also may not apply to a case where the benefits are
agreement is extinguished and in its place they become bound by being passed at a time when the contract has, though unknown to
the new altered agreement. the parties, already ceased to be enforceable.
No restitution of the benefit received is allowed in the case of
Novation is valid when both the parties agree to it. expressly declared void agreements (Secs. 26-30, 36, 56).
Sec. 65 also does not apply to a case where the benefits are
As the parties have a freedom to enter into a contract with any received after the contract has become void.
terms of their choice, they are also free to alter the terms of it by Communication of Rescission - According to Sec. 66, the
their mutual consent. rescission of a Voidable contract may be communicated in the
same manner and subject to the same rules as apply to
When the new contract is breached, such breach does not, by communication of proposals, etc. under Sec. 4.
itself, revive the old contract, unless the parties so agree [R.N. Compensation on Rescission- (Sec. 75).- From Bare Act
Kumar v R.K. Soral AIR 1988 SC 1205],
Short Note: Accord and Satisfaction
Novation may involve 'change of parties to the contract.  A method of discharging a claim whereby the parties agree to
give and accept something in settlement of the claim and perform
A novation of this kind usually takes place when a new partner is the agreement, the accord being the agreement and the satisfaction
admitted into an existing firm or when a partner retires from a firm its execution or performance, and it is a new contract substituted
for an old contract which is thereby discharged, or for an obligation
Alteration and Rescission of Contract or Cause of Action which is settled,and must have all of the
'Alteration' of a contract means change in one or more of the elements of a valid contract.
material terms of a contract.  To constitute an Accord and Satisfaction, there must have been a
genuine dispute that is settled by a meeting of theminds with an
The parties to the contract remain the same. intent to compromise.
 Where there is an actual controversy, an accord and satisfaction
In novation, there may be a change of parties also; may be used to settleit.
 The controversy may be founded on contract or TORT.
When the parties are not changed then to be a novation the terms  It can arise from a collision of motor vehicles, a failure to
of the contract must be altered substantially. deliveroranges ordered and paid for, or a refusal to finish
constructing an office building, etc.
A contract may be discharged by agreement between the parties  In former times, courts recognized an accord and satisfaction
that it shall no longer bind them. only when the amount of the controversy was not in dispute.
 Otherwise, the resolution had to be by Compromise and
Such an agreement amounts to 'rescission' or cancellation of the Settlement.
contract and no new contract is substituted in its place.  The technical distinction is no longer made, however,and a
compromise of amount can properly be part of an accord and
Remission of Performance (Sec. 63)- From Bare Act satisfaction.
 The amount, whether disputed or not, isusually monetary, as
According to Sec. 63, the party who has the right to demand the when a pedestrian claims $10,000 in damages from the driver who
performance of the contract may struck him.
(i) remit or dispense with it, wholly or in part, or  The amount can be avariety of other things, however, as when a
(ii) extend the time for performance, or homeowner claims that she ordered a swimming pool thirty-six
(iii) accept any other satisfaction instead of performance. (Accord feet long ratherthan thirty-five feet or when an employee insists
and satisfaction)- Accepting some other satisfaction instead of that he is entitled to eleven rather than ten days of vacation during
actual performance is known as principle of "Accord (agreement) the restof the calendar year.
and Satisfaction" under English law.  An accord and satisfaction can be made only by persons who
have the legal capacity to enter into a contract.
Law cannot force the parties to take a legal action for breach  A settlementis not binding on an insane person, for example; and
of contract. an infant may have the right to disaffirm the contract.
 Therefore, aperson, such as a guardian, acting on behalf of a
'An agreement to excuse performance' is valid, while an person incapable of contracting for himself or herself may make an
'agreement not to sue for breach' is void being an agreement in accordand satisfaction for the person committed to his or her
restraint of legal proceedings. charge, but the law may require that the guardian's actions
besupervised by a court.
Effect of Neglect of Promisee on Performance of Contract (Sec.  An executor or administrator may bind an estate; a trustee can
67)- From Bare Act accept an accord and satisfaction fora trust; and an officer can
negotiate a settlement for a corporation.
Restoring Benefits received under Voidable/ Void Contract  A third person may give something in satisfaction of a party's
(Sees. 64, 65, 66, 75)- From Bare Act debt.
English
 In such a case, an accord and satisfaction is effected ifthe A contract terminates by operation of law in the following 4
creditor accepts the offer and the debtor authorizes, participates in,
cases:
or later agrees to, the transaction. (1) Lapse of time- Legal action should be taken within a
 For example, a widower has an automobile accident but is specified period, called the period of limitation, otherwise the
mentally unable to cope with a lawsuit because his wife has promisee is debarred from instituting a suit and the contract
justdied. stands discharged. Under the Limitation Act, the limitation
 He gratefully accepts the offer of a close family friend to talk toperiod for simple contract is three years.
the other driver, who has been threatening a lawsuit.
 The friend convinces the other driver that both drivers are at
(2) Insolvency- A contract is discharged by insolvency of one
fault to some extent.
of the parties to it when Insolvency Court passes an order in
 The friend offers to pay the other driver$500 in damages in
exchange for a written statement that she will not make any claim this regard.
against the widower for damagesresulting from the accident.
 The family friend and the other driver each sign a copy of the (3) Merger- When an inferior right contract merges into a
statement for the other, and whenthe payment is made, the accord superior right contract, the former stands discharged
and satisfaction is complete. automatically.
 If the other driver then sues the widower for more money For example, when a man holding property under a contract of
onaccount of the accident, the widower could show that he agreed tenancy buys the property, his rights as a tenant are merged into
to let his friend negotiate an accord and satisfaction, andthe court the rights of ownership.
would deny relief. Similarly, where a part-time lecturer is made full-time lecturer,
 An accord and satisfaction is a contract, and all the essential the contract of part-time lecturership is discharged by merger.
elements of a contract must be present. (4) Unauthorised material alteration- A material alteration
 The agreement mustinclude a definite offer of settlement and an made in a written document/ contract by one party without the
unconditional acceptance of the offer according to its terms. consent of the other, will make the whole contract void. The
 It must be final anddefinite, closing the matter it covers and effect of making such an alteration is exactly the same as that
leaving nothing unsettled or open to question. of cancelling the contract.
 The agreement may call for fullpayment or some compromise
and it need not be based on an earlier agreement of the parties. Quasi-Contracts
 It does not necessarily haveto be in writing unless it comes The word Quasi means “As if it were”
within the statute of frauds. English Law- Unjust Enrichment
 Unless there are matters intentionally left outside the accord and French Law- Implied
satisfaction, it settles the entire controversy between theparties. Some authors call it “Notional Contract” or “Fictional
 It extinguishes all the obligations arising out of the underlying Contract”.
contract or tort. Chapter V- Sections 68 to 72 deal with those five obligations
 Where only one of two or more partieson one side settles, this which are known as "Quasi-Contracts" or "Constructive
ordinarily operates to discharge all of them. Contracts" under English law.
 The reason for this is the rule that there should be onlyone The Indian Contract Act describes these obligations as “certain
satisfaction for a single injury or wrong. relations resembling those created by the contract”.
 This rule does not apply where the satisfaction is neither given A quasi-contract (or implied-in-law contract or constructive
nor acceptedwith the intention that it settle the entire matter. contract) is a fictional contract created by courts for equitable,
 An accord without satisfaction generally means nothing. not contractual, purposes.
 With a full satisfaction, the accord can be used to defeat A quasi-contract is not an actual contract, but is a legal substitute
anyfurther claims by either party unless it was reached by Fraud, formed to impose equity between two parties.
duress, or mutual mistake. The concept of a quasi contract is that of a contract
 An accord and satisfaction can be distinguished from other that should have been formed, even though in actuality it was not.
forms of resolving legal disputes. It is used when a court finds it appropriate to create an obligation
 A payment or performancemeans that the original obligations upon a non-contracting party to avoid injustice and to ensure
were met. fairness.
 A release is a formal relinquishment of the right to enforce the Lord Mansfieldin Moses v Macfertan(1760) 2 Burr 1005, said,
originalobligations and not necessarily a compromise, as in accord that the quasi-contractual obligations are based on the principle
and satisfaction. that law as well as justice should try to prevent unjust enrichment,
 An Arbitration is a settlement of the disputeby some outside i.e. enrichment of one person at the cost of another
person whose determination of an award is voluntarily accepted by It is invoked in circumstances and is connected with the concept
the parties. of restitution.
 A Composition with Creditors is very much like an accord but
has elements not required for an accord and satisfaction. TYPES OF QUASI CONTRACTS
 It is used only fordisputes between a debtor and a certain number 1) Liability for Supply of Necessaries of Life (Sec. 68)
of his or her creditors, while an accord and satisfaction can be used Minor's agreement being void ab initio, he cannot therefore, as a
tosettle any kind of controversy—whether arising from contract or general rule, be asked to pay for the services rendered or goods
tort—and ordinarily involves only two parties. supplied to him.
 Althoughdistinctions have occasionally been drawn between an Sec. 68, however, permits reimbursement to a person, who supplies
accord and satisfaction and a compromise and settlement, the "necessaries" to a minor or a lunatic person.
twotermsare often used interchangeably. Such duty to reimburse is not there because of any valid contract
 A novation is a kind of accord in which the promise alone, rather with the minor, etc. but because the law recognises this to be a
than fullperformance, is satisfaction, and is accepted as a binding 'quasi-contractual' obligation (similarly recognized in English law).
resolution of the dispute.
Sec. 68 permits reimbursement if:
1. necessaries are supplied,
[5] Discharge by Operation of Law
English
2. to a person who is incapable of making a contract (e.g. a minor (3) the other person for whom something is done or to whom
or a lunatic), or, something is delivered must have enjoyed the benefit thereof.
3. to a person who is dependent upon such person incapable of
making contract (e.g. wife and children of a lunatic) i.e. a person Illustrations:coolie shoe-polish, bus-stand, ifs training, advocate
whom the incapable person is legally bound to support,
4. suited to that person's conditions in life. Finder of Goods (Sec. 71)
These conditions must be satisfied before Sec. 71 can be invoked:
What are Necessaries? (1) To avoid liability for criminal misappropriation of property, the
finder must try to find out the real owner of the goods and must not
Necessaries does not mean bare necessities of life (e.g. food, appropriate the property to his own use (Sec. 151, Contract Act).
cloth, shelter, etc.), but means such things as may be necessary to (2) Finder has the same responsibility as a bailee -A bailee is
maintain a person 'according to his conditions in life' (i.e. his status bound to take as much care of the goods as a man of ordinary
and requirements). prudence would, under similar circumstances, take of his own
Cultivation of the mind is as expedient as the support of the body, goods.
therefore, instruction in art or trade, or intellectual, moral and
religious education may be necessary also. Mistake or Coercion (Sec. 72)
Articles of mere luxury are always excluded, though luxurious These conditions must be satisfied before Sec. 72 can be invoked:
articles of utility are in some cases allowed. (1) Either money is paid or something is delivered
In Chappel v Cooper (1844) 13M & W 252 it was held that- what (2) It was done by mistake or under coercion
are 'necessaries' may depend upon the status of a person, and also (3) Must be repaid or returned.
his requirements at the time of actual delivery of the goods
A minor is never personally liable for the suppl of Necessaries butIn Sales Tax Officer v Kanhaiya Lai Saraf AIR 1959 SC 135), it
its his estate which is liable. has been held that the money paid under mistake is recoverable
whether the mistake be of fact or of law.
Nash v Inman (1908) 2 KB 1 And the term 'mistake' has been used without any limitation under
To render an infant's estate liable for necessaries, two conditions Sec. 72.
must be satisfied (the onus is on the plaintiff to prove them): In this case, a certain amount of sales tax was paid by a firm under
(1) the contract must be for goods reasonably necessary for his the U.P. Sales Tax laws on its forward transactions.
support in his station in life, and Subsequently to the payment the Allahabad High Court ruled the
(2) he must not have already a sufficient supply of these levy of sales tax on such transactions to be ultra vires.
necessaries at the time of sale and delivery. The firm sought to recover back the tax money.
The Supreme Court allowed it.
The following have been held to be 'necessaries':
1. Supply of racing cycle for an infant apprentice.
2. Debt incurred for performing the funeral rites of minor's
father.
3. Funeral expenses of the husband by the infant widow
[Chappel v Cooper].
4. House given to a minor on rent for living and continuing his
studies.
5. Wedding presents for a bride of minor.
6. Money advanced for defending criminal proceedings.
7. Loan given to a minor on the mortgage of his property with a
view to save that minor's property from the execution of a decree.
It may be noted that the necessaries may be supplied to someone
whom the minor is legally bound to support, such as his wife and
children.
Ornamental articles and diamonds are usually not considered
necessaries.
2) Payment by an Interested Person (Sec. 69)
The conditions of liability under Sec. 69 are:

(1) The plaintiff should be interested in making the payment.
He may not be having a legal proprietary interest in the property
but his honest belief that he has an interest to protect is enough.
(2) The plaintiff himself should not be bound to pay.
He should only be interested in making the payment in order to
protect his own interest.
(3) The defendant should be under legal compulsion (covering
obligations of contract or tort) to pay.
(4) The plaintiff should have made the payment to another person
and not to himself.
Liability to Pay for Non-Gratuitous Act (Sec. 70)

Three conditions must be satisfied before Sec. 70 can be invoked:
(1) a person should lawfully do something for another person or

deliver something to him;
(2) It must be a non- gratuitous Act; and
English
Indemnity It does not include loss caused by natural factors not involving
Definition of Contract of Indemnity human conduct, like accidental fire, etc.
According to S. 124— A contract of indemnity is a contact But in English law, the loss might be caused by a human
whereby one party promises to save the other from loss caused agency or by other natural factors also.
to him by the conduct of the promisor himself or by the Thus, Contracts of insurance, which are the commonest
conduct of any other person. examples of contracts of indemnity under the English law, are
For Example— A contracts to indemnify B against the not covered by the Indian Contract Act, according to which
consequences of any proceedings which C may take against B indemnity is restricted to those cases only in which the loss
in respect of a certain sum of 200 rupees. This is a contract of which is sought to be reimbursed is caused by the conduct of
indemnity. the promisor or any other person.
The loss must be such as the promisor has taken upon himself
Indemnity and Contingent Contract to indemnify.
It will be observed that a contract of indemnity is really a part
of the general class of contingent contracts. Rights of Indemnity holder when sued—
It is an original and direct engagement between two parties According to S. 125 the indemnity holder (i.e, the promisee) is
whereby one promises to save another harmless from the result entitled to recover from the promisor—
of the conduct of the promisor himself or of any other person. 1 All damages— which he may be compelled to pay in any suit
in respect of any matter to which the promise to indemnify
Indemnifier = The person, who gives the indemnity, is called applies.
"the indemnifier".
2. All costs— which he may be complelled to pay in any such
Indemnity-holder = The person for whose protection, the suit,—
indemnity is given, is called "the indemnity-holder". (a) if in bringing or defending it—
(i) he did not contravene the orders of the promisor, and
Essentials of Contract of Indemnity (ii) he acted as it would have been prudent for him to act in the
1. Loss to promisee essential— absence of any contract of indemnity.
It will be seen from the wordings of S.124 that the promisee (b) if the promisor authorized him to bring or defend the suit.
under a contract of indemnity must have suffered loss before he
can hold the promisor liable on the contract of indemnity. 3. All sums- which he may have paid under the terms of any
The happening of the loss is the contingency on which the compromise of any such suit,-
liability of the indemnifier springs into existence. (a) (i) if the compromise was not contrary to the orders of the
For Example- A agreed to act as a commission agent for B in promisor, and
certain transactions. B covenanted to indemnify A against any (ii) was one which it would have been prudent for the promisee
loss arising under the transactions. As a result of the to make in the absence of any contract of indemnity;
transactions, A became liable to C and D to the extent of Rs. (b) if the promisor authorized him to compromise the suit.
10, 000. A sued B to recover the said sum of Rs. 10,000
although he had not in fact paid to C or D. A is not, on the RIGHTS OF INDEMNIFIER
above ground, entitled to recover the sum of Rs. 10,000 from B. Section 125 does not say about the rights of indemnifier
(promisor). However, law implies certain rights in favour of
2. Consideration must be lawful— indemnifier, which are as follows:
It must be noted that the consideration or object of the contract 1. Sections 124 and 125 are silent with regard to the rights of
of indemnity must be lawful. indemnifier. However, the provisions pertaining to a surety can
For Example— An agreement to indemnify the printer or also be adopted in case of an indemnifier. Because an
publisher of a libel by the writer of the same cannot be legally indemnifier is analogous to that of a surety. [Refer the Topic
enforced. Defamation is both civil as well as a criminal wrong. 1.G. Rights of Surety.]
Similarly, an agreement by an accused person or any other 2. The indemnifier cannot be made liable, if the promisee
person to indemnify the person who have given bail is illegal suffers damages on account of circumstances which really do
and cannot be enforced. not come within the scope of the indemnity contract.
3. The rights of the promisor are in no way affected by the
3. Indemnity may be express or implied— provisions in Sections 124 and 125. The simple reason for this
Although S.124 section applies only to an express promise, yet is these provisions do not contain the whole of the law of
a duty to indemnify may arise by operation of law in several indemnity. The gap is supplied by judicial decisions.
circumstances.
S.69 which deals with the “Quasi contract” is one such Guarantee
example. Definition of Contract of Guarantee-
Similarly, in the case of a sale of a company’s shares, the S.126 says that a “contract of guarantee” is a contract to
transferor is bound to indemnify the transferee against future perform the promise, or discharge the liability, of a third person
calls on the shares transferred. in case of his default.
It may be either oral or written.
Scope of Indemnity Contract— For Example— A says to B, “Lend money at interest to C, if
The definition of a contract of indemnity under this section is C be unable to pay I shall pay”. This is a contract of guarantee
narrower than the one under the English law. or suretyship.
According to S.124 the loss must have been caused either by
the Thus, there are three parties is case of contract of guarantee i.e.
(i) conduct of the promisor or —
(ii) any other person.

English
1. ‘Surety’— The person who gives the guarantee is called the liability. secondarily, i.e. if
‘surety’. the debtor does not
2. ‘Principal debtor’— the person in respect of whose deault pay.
the gurantee is given is called the ‘principal debtor’. 4. Purpose of A contract of A contract of
3. ‘Creditor’— The person to whom the guarantee is given is Contract indemnity exists guarantee stands for
called ‘creditor’. for the the security of the
reimbursement of creditor.
Essentials of a Contract of Guarantee- loss.
1. Concureence of three parties is necessary— 5. Scope of The scope of The scope of
The contract of suretyship requires the concurrence of three Contract contract of contract of
persons, the principal debtor, the creditor, and surety. indemnity is Guarantee is wider
The surety undertakes his obligation at the request of the narrower than than that of contract
principal debtor. contract of of Indemnity as it
Accordingly, if A enters into a contract with B, and C, without Guarantee as it includes contract of
any comunication with B, undertakes for a consideration does not include indemnity also.
moving, from A to indemnify A against any damages that may the contract of
arise from a breach of B’s obligation, this will not make C a Guarantee.
surety for B or give him a right of action in his own name 6. Considerat In case of contract In case of contract
against B in the event of B’s default. ion of indemnity of guarantee no
valuable valuable
2. Surety’s distinct promise to be answerable is necessary— consideration is consideration is
In order to constitute a guarantee there must be a distinct available to the available to the
promise on the part of the surety to be answerable for the debt. indemnifier from surety from the very
It A goes with B to the Chandigarh Watch Co. and says to the the very beginning. It may
proprietor, “Let B have this watch, and I see you paid,” this is beginning. arise only in case of
no guarantee; but if a says, “Let B have this watch, and if he the default
does not pay you, I will,” this is a guarantee. committed by the
principal detor.
3. Liability must be legally enforceale 7. Origin of The liability of the The liability of the
Lastly, the word “liability” used in S.126 means a liability Liability indemnifier arises surety arises only
which is enforceble at law, and if that liability does not exist, only in case of the when the principal
there cannot be a contract of guarantee. actual loss debtor commits the
A surety, therefore, is not liable on a guarantee for the suffered by the default in making
payment of a debt which is barred by the law of limitation. Ind4mnity holder the payment to the
creditor.
Distinction between Contract of Indemnity and Guarantee 8. Remedy The Indemnity The creditor is
holder is not entitled to sue the
Basis of Contract of Contract of entitled to sue surety in case the
defference Indemnity Guarantee third party for principal debtor
1. Number of In case of a In case of contract whose sake the commits the default.
Parties contract of of Guarantee there loss is caused.
Indemnity there are three parties, viz.
are only two (i) Principal debtor, Bailment
parties, viz.(i) One (ii) Creditor, and Meaning of Bailment
who is (iii) Surety. The term ‘Bailment’ is derived from the French word “Bailler”
indemnified and which means to deliver.
(ii) the other the Bailment is a technical term of the common law signifying a
indemnifier. delivery of goods which are to be returned according to the
2. Number of In case of contract In case of contract orders of the giver.
contracts of Indemnity there of Guarantee there Thus, the Bailment implies a relationship in which the
is only one are three contracts; personal property of one person temporarily goes into the
contract between one is between the possession of another.
the indemnity creditor and the The ownership of the goods is in one person and the
holder principal debtor; possession is in another.
(Indemnified) and another between the For Example-Delivery of a cycle, watch or any other article
indemnifier. surety and the for repair or leaving a cycle or scooter etc. at a stand, depositing
creditor, and the luggage or books in a cloak room, delivering gold to a
third between the goldsmith for making ornaments, garments to dry cleaner etc.
surety and the create the relationship of bailment.
principal debtor.
3. Nature of In a contract of In a contract of Definition of Bailment
Liability Indemnity, the guarantee the According to S.148 “A bailment is the delivery of goods by
liability of primary liability is one person to another for some purpose, upon a contract that
Indemnifier is that of principal they (i.e. goods) shall, when the purpose is accomplished, be
primary there is no debtor, the surety is returned or otherwise disposed of according to the directions of
secondary liable only the person delivering them”.
English
There is no contract between the finder of a lost article and its
Who is Bailor and Bailee— owner; nonetheless, the finder is treated in law as a bailee of the
S.148 further says that the person delivering the goods is lost article.
called the “bailor”.
The person to whom they are delivered is called the “bailee”. 3. There must be return of specific goods—
The person to whom the goods have been delivered is to return
If a person already in possession of the goods of another the specific goods either to the bailor or to somebody according
contracts to hold them as a bailee, he thereby becomes the to the direction of the bailor.
bailee, and the owner becomes the bailor of such goods, If the thing delivered is not to be specifically returned or
although they may not have been delivered by way of bailment. accounted for, there is no bailment.
Even if the goods bailed are in the meantime altered in form,
Essentials of Bailment — e.g., corn convered into flour, cloth made into coat, etc., still the
1. There must be temporary delivery of the possession of contract is one of bailment.
goods— It is sufficient if the right to have redelivery of the same
The main characteristic of a bailment is that the delivery specific matter rests with the owner.
contemplated is for a temporary purpose.
There can be no bailment if the whole property is transferred It must, however, be noted that the bailor need not be the owner
and the thing delivered is not to be specifically returned or of the goods which he delivers, because his business is to
accounted for nor where the delivery of property is for an transfer the possession and not the ownership.
equivalent in money or other commodity, if so, it is a sale or
exchange, not bailment. Kinds of Bailment —
Delivery is of two kinds— (i) Actual and (ii) Constructive. 1. Deposit— A simple bailment of goods by one man to
Actual delivery may be made by handing over something to another to keep for the bailor’s use.
the bailee. 2. Como datum— The goods lent to a friend gratis to be used
Constructive or Symbolical delivery may be made by doing by him. (gratis means free of charge)
something which has the effect of putting the goods in the 3. Hire— When goods are delivered to the bailee for hire.
possession of the intended bailee or of any person authorised to 4. Pawn— When goods are delivered to another (pledge) by
hold them on his behalf (S.149) way of security for money borrowed.
Thus, the delivery of a document of title i.e. Railway Receipt 5. When goods are delivered to be carried or something to be
may amount to the delivery of goods contained therein. done on them for reward payable to the bailee.
It may be noted that bailment involves change of possession. 6. When goods are delvered to be carried or something to be
Mere custody without possession does not create the relation done on them without reward payable to the bailee.
of a bailor and bailee, e.g., a servant in possession of his
master’s goods or a guest using his host’s goods, cannot be Duties and Liabilities of a Bailor— S.150 classifies bailors
called a bailee. into two categories for the purpose of their duties—
(i) A gratuitous bailor and
Similaraly in KalyaPerimal vs. Visalakshi— A jeweller was (ii) A bailor for reward
engaged by a lady to melt old jewellery and make new
ornaments. 1. (i) A gratuitous Bailor is bound to disclose the faults of
This work was done at the jeweller’s house under the lady’s goods of which he is aware—
supervision. Para 1 of S.150 says, A gratuitous bailor is one who lends his
Every evening, the lady would lock the half made jewellery goods without consideration.
into a box, leave the box in the jeweller’s house, but take its key Since he receives no consideration, his duty is much less than
with her. that of a bailor for reward.
One night, the jewels were stolen. But he is liable to disclose the faults in the goods bailed.
On a suit filed by the lady, the question arose whether the But he is liable to disclose the faults of which he is aware and
jewels were in the possession of the jeweller or of the lady, and which may materially interfere with the use of them.
it was held that in these circumstances, there was a re-delivery If the bailor does not make such disclosure he will be
of the jewels to the lady every evening, and that they could not responsible for damage arising to the bailee directly from such
be said to be in the possession of the jeweller when they were faults.
stolen. It is well settled that a gratuitous bailor is not liable for faults
or defects in the goods lent of which he is not aware.
But, if a person is already in possession of the goods of
another and contracts to hold them as a bailee, he thereby (ii). A bailor for reward is responsible for faults of goods
becomes the bailee, and the owner becomes the bailor of such whether he is aware or not—
goods, although they have not been delivered to him by way of Para (2) of S. 150 provides-“if the goods are bailed for hire the
bailment. Explanation to S.148. bailor is responsible for such damage, whether he was or was
not aware of the existence of such faults in the goods bailed.”
2. The delivery of goods should be upon a contract For Example-A hires a motor car from B. The car has
In bailment, the delivery of goods is upon a contract that, defective brakes and is unsafe though B is not aware of it and A
when the purpose is accomplished, they shall be returned. is injured. B is liable to compensate A for the injury because
But it may be noted that though bailment is usually based on a according to S.150(2) a bailor for reward is responsible for such
contact, there are some exceptions, e.g., the case of a finder of damage and it is immaterial whether he was or was not aware
goods (S.168). of the existence of such faults in the goods bailed.

English
2. Bailor is bound to repay the necessary expenses to a The liability of forwarding Railway is governed by S.72 of the
gratuitous bailee— Railways Act, according to which liability for the loss of goods
According to S.158- “Where, by the conditions of the bailed to the Railwayis subject to the provisions of Railway
bailment, the goods are to be kept or to be carried, or to have Act, that of a bailee, under S.151, 152 and 161.
work done upon them by the bailee for the bailor, and the bailee The Supreme Court held the Indian Railway is guilty of
is to receive no remuneration, the bailor shall repay to the negligence for they did not take a much care of the goods as an
bailee the necessary expenses incurred by him for the purpose ordinary man would have taken of his own goods.
of the bailment.”
Finder of Goods
3. Bailor is bound to pay the loss to the bailee on account of According to Chitty “A finder of a lost chattel is not strictly a
defective title— bailee, although for some purpose he is treated as a gratuitous
According to S.164- “The bailor is responsible to bailee for bailee on the basis of an implied request from the owner to take
any loss which the bailee may sustain by reason that the bailor the chattel into his possession on behalf of the owner.”
was not entitled to make the bailment or to receive back the S.71 of the Act provides “A person who finds goods
goods or to give directions respecting them” belonging to another and takes them into his custody, is subject
to the same responsibility as a bailee.”
Duties and Liabilities of Bailee Once the finder of goods, belonging to another, takes the
1. Duty to take reasonable care— A bailee is required to take goods into his custody, he is treated under law a bailee and S.71
reasonable care of the goods bailed to him. imposes upon him the responsibility of a bailee.
For the purposes of the duties of bailee, in this connection, S.168 provides that he has no right to sue the owner for
English law divides them into two cattegories- compensation for trouble and expense voluntarily incurred by
(i) a bailee for reward and him to preserve the goods and to find out the owner.
(ii) a bailee without reward. He may, however, retain the goods against the owner until he
receives compensation; and where the owner has offered a
A bailee for reward is required to take greater care of goods specific reward for the return of goods lost, the finder may sue
bailed to him than a gratuitous bailee. for such reward, and may retain the goods until he receives it.
He will be liable for the loss of goods bailed to him on account Under certain circumstances, he may sell the goods found.
of his negligence. S.169 in this connection says-“when a thing which is
commonly the subject of sale is lost, the owner cannot with
Martin Vs. London County Council (1947) K.B.628. reasonable diligence be found, or if he refuses upon demand to
The plaintiff in this case was admitted as a patient to the paid pay the lawful charges of the finder, the finder may sell it-
hospital of the defendant. (i) When the thing is in danger of perishing or of losing the
After being admitted she entrusted a gold necklace and a greater part of its value, or
cigarette case to the officials of the hospital. (ii) When the lawful charges of the finder in respect of the thing
The said officials kept the articles in a drug room from where found amount to two thirds of its value.”
they were stolen.
The king’s Bench of England held the defendant liable 2. Duty to return the goods bailed
because they were guilty of not having taken as much care as S.160 provides— “It is the duty of the bailee, to return, or
was required from the nature and quality of articles deposited deliver according to the bailor’s directions the goods bailed
with them. without demand, as soon as the time for which they were bailed
has expired, or the purpose for which they were bailed had been
On the other hand, the duty of a gratuitous bailee is less as accomplished.”
compared to a bailee for reward. A gratuitous bailee will be S.161 further says— “In case the goods are not returned,
liable only if he is guilty of willful or gross negligence. delivered or tendered at the proper time because of the default
of the bailee, he will be responsible to the bailor for any loss,
However, now a days, the court applied the same standard of destruction or deterioration of the goods from that time.”
reasonable care as is applied in case of a bailee for reward.
Union of India Vs. Amar Singh A.I.R. (1960) S.C.233
Similarly S.151says, “In all cases of bailment the bailee is The goods received by Indian Railway as Forwarding Railway
bound to take as much care of goods bailed to him as a man of were lost, the Government was held liable because the Railway
ordinary prudence would, under similar circumstances, take of failed to return the goods.
his own goods of the same bulk, quality and value as the goods Shaw & Co. Vs. Symmons& Sons (1917) 1 K.B. 799
bailed.” Where books were given for binding and were not returned
within reasonable time and were lost due to fire, the bailee was
S.152 further provides “He will not be responsible for the held liable for loss, although he was not responsible for fire.
loss, destruction or deterioration of the thing bailed. But if there S.159 provides— “The lender of a thing for use may at any
is a special contract fixing the responsibility of the bailee for time require its return, if the loan was gratuitous even though he
such loss, destruction or deterioration of the thing bailed then lent it for a specified time or purpose.
he may be held liable for the same.” But on the face of such loan made for a specified time or
Union of India Vs. Amar Singh A.I.R. 1960 S.C. 233. purpose, the borrower has acted in such a manner that the return
Some goods were consigned from Quetta in Pakistan to New of the thing lent before the time agreed upon would cause him
Delhi. loss exceeding the benefit actually derived by him from the
After the goods were carried by Pakistan Railway, they were loan the lender must, if he compels the return, indemnify the
carried by Indian Railway as the forwarding Railway. borrower for the amount in which the loss so occasioned
The goods were lost in the transit. exceeds the benefit so derived.”

English
3. Duty to make proper use of goods bailed S.167 further says that if a person, other than the bailor, claims
According to S.153 another duty of the bailee is to make goods bailed, the proper procedure for him is to apply to the
proper use of the goods bailed to him. court to stop the delivery of the goods to the bailor, and to
A contract of bailment is voidable at the option of the bailor, if decide the title to goods. That is to say, conflicting claims for
the bailee does any act with regard to the goods bailed, the title to the goods are to be decided by the court and unless
inconsistent with the conditions of the bailment. the court grants an injunction against the delivery of goods to
For Example- A lets to B, for hire, a horse for his own riding, the bailor, the bailee is under duty to return it to bailor at proper
B drives the horse in his carriage, the bailment may be time or within the reasonable time as the case may be.
terminated at the option of A.
S.154 provides: “If the bailee makes any use of the goods 6. Duty of bailee to pay increase or profit to the bailor
bailed, which is not according to the conditions of the bailment, S.163 says that a bailee is bound not only to return the goods
he is liable to make compensation to the bailor for any damage bailed but is also under obligation to return any increase or
arising to the goods from or during such use of them.” profit which accrue from the goods bailed.
Examples- Example—
(i) A lends a horse to B for his own riding only. B allows C, a (i) A leaves a cow in the custody of B to be taken care of. The
member of his family, to ride the horse. C rides with care, but cow has a calf. B is bound to deliver the calf as well as the cow
the horse accidentally falls and is injured, B is liable to make to A.
compensation to A for the injury done to the horse. Moti Lal Hira Bhai vs. Bai Mani A.I.R. 1925 P.C. 8
(ii) A hires a horse in Calcutta from B expressly to march to In this case Privy Council held that new shares allotted in
Benares. A rides with due care, but marches to Cuttack instead. respect of old shares pledged by a person, are increase or profit
The horse accidently falls and injured. A is liable to make within the meaning of S.163 and hence the pledger can
compensation to B for the injury to the horse. successfully claim them.
4. Duty not to mix his own goods with the goods of the Rights of the Bailee
bailor A bailee has two rights—
According to S. 155 it is also the duty of bailee not to mix his 1. Right to Lien— This right can be divided into two parts
own goods with the goods of the bailer. (i) Particular Lien and
But if he does so with the consent of the bailor, then both he (ii) General Lien.
and the bailor shall have an interest, in proportion to their
respective shares, in the mixture thus produced. (1) Particular Lien
But if he does so without the consent of the bailee, and the S.170 says that where the bailee has, in accordance with the
goods are separable, the property in goods shall remain with the purpose of the bailment rendered any service involving the
parties respectively, and the bailee shall be bound to bear the exercise of labour or skill in respect of the goods bailed, he has,
expenses of separation and also any damage arising from the in the absence of a contract to the contrary, a right to retain
mixture. (S. 156) such goods until he receives due remuneration to the service he
Example- has rendered in respect of them.
A bails 100 bales of cotton marked with a particular mark to B. Example—
B, without A’s consent, mixes the 100 bales with other bales of (i) A delivers a rough diamond to B, a jeweller, to be cut and
his own, bearing a different mark. A is entitled to have his 100 polished, which is accordingly done. B is entitled to retain the
bales returned, and B is bound to bear all expenses incurred in stone till he is paid for the services he has rendered.
the separation of the bales and any other incidental damage. (ii) A gives cloth to B, a tailor, to make into a coat. B promises
According to S.157 in case the bailee mixes his goods with A to deliver that coat as soon as it is furnished, and to gie a
the goods of the bailor and the goods are then inseparable, the three months credit for the price. B is not entitled to retain the
bailee shall be liable to compensate the bailor for the loss of coat until he is paid.
goods.
Example- (2) General Lien
A bails a barrel of cape flour worth Rs. 45 to B. B without A’s S.171 deals with the general lien of bankers, solicitors,
consent, mixes the flour with country flour of his own, worth S.171 says— “Bankers, factors, wharfingers, attorneys of a
only Rs. 25, a barrel, B must compensate A for the loss of his High court and policy brokers may, in the absence of a contract
flour. to the contrary, retain, as a security for a general balance of
accounts, any goods bailed to them; but no other persons have a
5. Duty of bailee not to question the title of bailor right to retain as security for such balance, goods bailed to
S.166 provides— “If the bailor has no title to the goods and them, unless there is an express contract to that effect.”
the bailee, in good faith, delivers them back to, or according to
the directions of the bailor, the bailee is not responsible to the 2. Right against wrongful deprivation of or injury to goods
owner in respect of such delivery.” S.180 provides- “If a third person wrongfully deprives the
Where the bailor has no title to the goods the bailee is bailee of the use or possession of the goods bailed, or does them
protected from the consequences of wrong delivery, if he acts in any injury, the bailee is entitled to use such remedies as the
good faith in delivering them back or in accordance with the owner might have used in the like case if no bailment had been
instruction of the bailor. made; and either the bailor or the bailee may bring a suit
S. 165 provides with reference to the bailment several joint against the third person for such deprivation or injury.”
owners, if several joint owners of goods bail them, the bailee S.181 further says “Whatever is obtained by way of relief or
may deliver them back to or according to the directions of one compensation in any such suit shall, as between the bailor and
joint owner without the consent of all in the absence of any the bailee, be dealt with according to their respective interests.”
agreement to the contrary.
Rights of the Bailor— The bailor has the following rights—

English
1. Right to terminate the contract if the bailee acts against the 3. In pledge, a suit can 3. Hypothecation can
terms of the contract: S.153 not be brought against a be enforced even
2. Right to be indemnified if the bailee acts against the terms of third party, who obtains against bona fide
the contract: S.154 goods in good faith. purchaser without
3. Right to receive the goods back: S.160 notice.
4. Right to receive increase or growth of bailed goods: S.163 4. In a pledge, the 4.In hypothecation,
5. Right to receive damages in case of mixing the goods pledgee possesses the goods need not be in
without the consent of the bailor:S.156 & 157. goods. Generally, the the possession of the
pledger is not allowed to hypothecatee. They
Note— Above mentioned rights of bailor can be studied under possess them. may remain in the
the heading of “Duties and Liabilities of Bailee” because what actual possession of the
are the duties of bailee they are also the rights of the bailor. borrower.
5. There are specified 5.The principles of
PLEDGE legal provisions equity and justice
explaining the pledge. apply
MEANING: The word "Pawn" has the, same legal 6. There cannot be a 6. There can be a
signification as "Pledge". pledge for future goods. hypothecation of future
A Pledge is a transfer of personal property as a security for a Because pledge applies goods.
debt or other obligation. only to existing goods.
The word "Pledge" is also used to describe the article or 8. Pledge is genus. 8.Hypothecation is a
articles of personal property thus delivered by one person to species of pledge.
another as security for the debt or obligation.
The contract of pledge is a Bailment, or delivery of goods and
chattels of one man to another to be held as a security for the DISTINCTION BETWEEN BAILMENT AND PLEDGE
payment of a debt or the performance of some engagement, and BAILMENT PLEDGE
upon the express or implied understanding that the thing 1. The law of bailment is 1. The law of pledge is
deposited is to be restored to the owner, as soon as the debtis explained in Secs. 148 explained in Sees. 172
discharged or the engagement has been fulfilled. to171. to 181.
The thing deposited as a security is called a “Pawn” or 2.Object: There must be 2. Object: The goods
“Pledge”; delivery of goods upon a are delivered to pawnee
The person with whom a pledge is deposited as security is contract that they shall, as security for payment
called "Pawnee" or "Pledgee". when the purpose is of a debt or
The person who pledges is called "Pawner" or "Pledger." accomplished, be returned performance of a
or otherwise disposed of promise, and be
DEFINITION: Section 172 of the Indian Contract Act, 1872 according to the directions returned to pawner after
defines "Pledge", "Pawner",and "Pawnee". of the person delivering payment of debt.
them.
Sec. 172. "Pledge", "Pawner" and "Pawnee" defined. 3.The bailee has no right 3. The pawnee has right
The bailment of goods as security for payment of a debt of to sell the goods bailed. to sell the pledged
performance of a promise is called "Pledge". goods if the pledger
The bailor is in this case called the "Pawner". could not redeem them
The bailee is called the "Pawnee". within the time.
4.In bailment, if a thing is 4. In pledge, the
ESSENTIAL INGREDIENTS OF SECTION 172:
bailed for use of the pawnee has no right to
1. There must be goods or chattels to be pledged.
bailee, the bailee can use use.the thing pledged.
2. The goods or chattels must be delivered to the pledgee.
that thing for that purpose.
(Delivery may be actual or Constructive)
5. Examples: Tailors, 5. The creditors, banks,
3. Such delivery should secure a debt or performance of a
motor car mechanics, pawnbrokers, etc.
promise.
TV.repairers, jewellers, maybecome the
4. The person who pledges is called' "pawner" or "pledger".
etc. may become the pawnees.
5. The person with whom the goods or chattels are deposited is
bailees.
called "pawnee" or "pledgee".
6. Every bailment, there 6. Every pledge
6. The pledgee may keep the pledged goods or chattels till his
may not be a pledge. bailment. Pledge is a
debt is fully discharged or the promise is performed.
Bailment is Genus specie
7. There must be a contract between the pawner and pawnee. .
8 The contract of pledge may be written or oral.
RIGHTS OF PAWNEE (Sections 173 to 176)
DISTINCTION BETWEEN 'PLEDGE' AND Every pawnee has the following rights:
'HYPOTHECATION' 1. Right of retainer; Section 173
2. Right as to extraordinary expenses incurred Section 175; and
PLEDGE HYPOTHECATION
3. Right to sell Section 176
1. In a pledge, there must 1. In a hypothecation,
be delivery of the there need not be a
RIGHTS OF PAWNOR
property, by actual or delivery of the property.
Pawnor has two rights;
constructive.
1. Right to redeem (Section 177); and
2. Sections 172 to 181 2. These sections do not
2. Right to increase or benefit.
apply. apply.
English
Indian Law of the Indian Secruitisatio of the
Pledge, Hypothecation and Mortgage. Contract Act n and "Transfer of
Reconstructi Property
(1) Pledge on of Act 1882"
Pledge is used when the lender (pledgee) takes actual Financial
possession of assets (i.e. certificates, goods). Assets and
Such securities or goods are movable securities. Enforcement
In this case the pledgee retains the possession of the goods of Security
until the pledgor (i.e. borrower) repays the entire debt amount. Interest Act
In case there is default by the borrower, the pledgee has a right
to sell the goods in his possession and adjust its proceeds Pledge, Hypothecation and Mortgage
towards the amount due (i.e. principal and interest amount).
Some examples of pledge are Gold /Jewellery Loans, Advance Pledge : defines pledge as "The bailment of goods as a security
against goods/stock, Advances against National Saving for the payment of a debt or performance of a promise" The
Certificates etc. bailor in this case is called a Pawnor and the bailee is called
Pawnee
(2) Hypothecation
Hypothecation is used for creating charge against the security To create a valid pledge in the eyes of Law, the three important
of movable assets, but here the possession of the security points needs to be noted :
remains with the borrower itself. Thus, in case of default by (a) Delivery of Possession: As in bailment, in pledge too
the borrower, the lender (i.e. to whom the goods / security has delivery of possession is required. For exmaple, in Revenue
been hypothecated) will have to first take possession of the Authority vs Sundarsanam Pictures, AIR 1968, it was held
security and then sell the same. The best example of this type NOT to be pledge because the film producer borrowed a sum of
of arrangement are Car Loans. In this case Car / Vehicle money from a financier and agreed to deliver the final prints of
remains with the borrower but the same is hypothecated to the the film when ready. Thus, there was no delivery of the goods
bank / financer. In case the borrower, defaults, banks take at the time of agreement;
possession of the vehicle after giving notice and then sell the (b) Delivery is in return of a loan or promise to perform
same and credit the proceeds to the loan account. Other something: Therefore, if your friend gives you his Motor-
examples of these hypothecation are loans against stock and cycle to go to college, it is not pledge but can be called simple
debtors. [Sometimes, borrowers cheat the banker by partly bailment;
selling goods hypothecated to bank and not keeping the desired (c) It should be in pursuance of a contract: The delivery
amount of stock of goods. In such cases, if bank feels that must be done under a contract (oral or written). However, it is
borrower is trying to cheat, then it can convert hypothecation to not necessary that delivery and loan take place at the same time.
pledge i.e. it takes over possession of the goods and keeps the Delivery can be made even after the loan is received.
same under lock and key of the bank].
(3) Mortgage : is used for creating charge against immovable Hypothecation: was not defined under Indian Law for long
property which includes land, buildings or anything that is time and was used more on the basis of practice. However, now
attached to the earth or permanently fastened to anything under, hypothecation is defined as "a charge in or upon any
attached to the earth (However, it does not include growing movable property, existing or future, created by a borrower in
crops or grass as they can be easily detached from the earth). favour of a secured creditor without delivery of possession of
The best example when mortage is created is when someone the movable property to such creditor, as a security for financial
takes a Housing Loan / Home Loan. In this case house is assistance, and includes floating charge and crystallization into
mortgaged in favour of the bank / financer but remains in fixed charge on movable property". .
possession of the borrower, which he uses for himself or even
may give on rent.
Mortgage : is defined in. It is the transfer of an interest in
Difference Between Pledge, Hypothecation and Mortgage at specific immovable property for the purpose of securing
a Glance: payment of money advanced by way of loan.
Pledge Hypothecat Mortgage
ion Agency
Type of Movable Movable Immovable Meaning of Agency
Security The term “Agency” is no where been defined under the
Possession Remains with Remains Usually Indian Contract Act.
of the lender with Remains But according to one judicial decision “A contract of agency is
security (pledgee) Borrower with the employment of a person by another in order to bring the
Borrower later into legal relation with third person.”
Examples of Gold Loan, Car / Housing In the modern age due to commercial business a person can
Loan where Advance Vehicle Loans neither contract with another nor can be enters in to transactions
used against NSCs, Loans, Adv himself alone.
Adv against against stock He gets his works done through his servants representatives or
goods (also and debtors agents and this process or medium is called agency.
given under
hypothecation Definition of Agent and Principal
)
Under Section 172 The Section 58
English
According to S.182 an “agent” is a person employed to do any
act for another, or to represent another in dealings with third 5. Agency by Ratification or Ex-post facto agency
persons. Where an act is done in the name or professedly on behalf of a
The person for whom such act is done, or who is so person without his authority by another person purporting to act
represented, is called ‘Principal’. as his agent, the person in whose name or on whose behalf the
act is done may, by ratifying the act make it as valid and
Essentials of Agency effectual, as if it had been originally done by his authority.
1. Principal must be competent to contract The effect of ratification is to render the contract as binding on
S. 183 lays down that, “Any person who is of the age of the principal as if the agent had been properly authorised
majority according to the law to which he is subject, and who beforehand.
is of sound mind, may employ an agent,” Ratification relates back to the original making of the contract.
Thus, an agent may be appointed only by a person who is
competent to Contract. Termination of Agency
According to S. 201 the relationship of the principal and agent
2.Agent need not be competent may end in two ways-
S. 184 –From Bare Act (a) ByActs of parties and
Although a minor cannot employ an agent yet he may become (b) By Operation of Law.
an agent but since he is incometent to contract, he will not be
responsible to his principal. (a) By Acts of Parties- The agency may be terminated by the
acts of parties in following ways-
3. No consideration is necessary to create an agency 1. By Revocation by the Principal- S. 203 –From Bare Act
S. 185–From Bare Act
No consideration is immediately necessary at the time of Revocation may be expressed or implied by the conduct of
appointment of an agent. the principal (S. 207).
Forms of Contract of Agency- The contract of agency may be Notice of revocation must be given- (S. 206)
in writing under seal and it is then called a power of attorney,
or Liability to compensate each other- (S. 205)
it may be a simple writing, or
it may be by an oral agreement, or Agency coupled with interest becomes irrevocable under
it may be inferred from the conduct of the parties and the certain circumstances-(S. 202)
circumstances of the case, as in case of master and servant, or
husband and wife, or partners inter se. 2. By Renunciation by agent (S. 206)
In the first place, if the agency is for a fixed period, the agent
Modes of creation of Agency would have to compensate the principal for any premature
An agency may be created in following five ways- renunciation without sufficient cause.
1. Express agency -By Express appointment by the principal Secondly, a reasonable notice of renunciation is necessary.
2. Imlied agency- By implication of law from the conduct,
situation or relationship of the parties-
3. By Necessity- Agency of necessity is created in the (b) By Operation of Law-S. 201 the agency may be terminated
following two ways- automatically by operation of law in the following as under-
(i) Law itself creating relationship of principal and agent 1. By completion of business of agency-
In certain circumstances law itself creates a relationship of 2. By death or insanity of the principal or agent or Winding up
principal and agent between two parties without their consent. of a company or dissolution of a partnership
For Example-A husband is bound to maintain his wife; and 3. By the principal’s insolvency
if he makes no adequate provision for her maintenance, she is 4. By the expiry of the period of agency
entitled to supply her needs by pledging her husband’s credit 5. By destruction of the subject-matter of the agency
for necessaries. In such a case the wife will be treated as an
agent of necessity of the husband. Kinds of Agents
(ii) Law allowing the agent to exceed his authority in 1. Special Agent
emergency- A special agent is one who has been authorised to do a single
act, e.g., a broker employed to sell a particular house or for a
4. By Estoppel or by Holding out specific period. (Also called Specific or Particular Agent)
Where any person by words or conduct; represents or permits
it to be represented that another person has authority to act on 2. General Agent
his behalf, he is bound by the acts of such other person with A general agent is one who is authorised to do all acts
respect to any one dealing with him as an agent on the faith connected with a particular trade, business, or employment,
authority which he was so represented to have. e.g., the manager of a firm whose authority extends to the doing
For Example- Summers Vs. Solomon (1857) 26 L. Q. B. 301 of everything necessary for carrying on the business of the firm.
– A had for some years managed a shop belonging to B and
ordered goods in B’s name from C, and B had duly paid for 3. Sub-Agent
them. A absconded, called on C and bought goods in B’s name A sub-agent is a person employed by, and acting under control
and took them away. Held B was liable for the price of the of, the original agent in the business of the agency.
goods.

English
If he is properly appointed, the principal is responsible for his The relation between him and his employer is that of principal
acts to third persons, and the original agent is responsible for and agent, and not of seller, and buyer.
his acts to the principal.
 According to S. 190, “an agent cannot lawfully employ 10. Del Credere Agent
another to perform acts which he has expressly or impliedly A del credere agent is one who, in consideration of extra
undertaken to perform personally, unless by the ordinarly custom remuneration, called a del credere commission, undertakes that
of trade, a sub-agent may, or, from the nature of the agency, a sub- persons with whom he enters into contracts on the principal’s
agent must, be employed.” behalf will be in a position to perform their duties.
He gives an undertaking to his principal that the parties with
Delegatus non PotestDelegare whom the principal is brought into contractual relations will pay
This maxim means that an agent must not delegate his duties. the money which may become due under the contract into which
An agent must not, as a rule, depute another person to do that they enter.
which he has undertaken to do. The del credere agent is liable to pay the seller only if, owing to
The maxim is “Delegatus non potestdelegare,” i.e., a delegatee insolvency of the buyer, the seller is unable to recover the price
cannot delegate. from the buyer.
The rational principal underlying the rule is that the principal is He is not liable if the buyer, though solvent, has refused to pay on
supposed to have confidence in the honesty or working capacity of the ground that the seller has not duly perfomed the contract.
the agent; he may not have the same confidence in the person His liability towards his principal is, therefore, secondary; he is in
appointed by his agent. effect a surety for the person with whom he deals to the extent of
Hence, sub-agency is not generally recognized. any default by insolvency or something equivalent, but not to the
extent of a refusal to pay on a substantial dispute as to the amount
4. Co-Agent due.
When two or more persons are employed as agents jointly or
severally, or jointly and severally, they are known as co-agents. 11. PakkaAdatia and KatchaAdatia
These are a species of agents, and their transactions are known in
5. Substituted Agent the Bombay market as Katchiadat and pakkiadat.
According to S. 194, where an agent holding an express or
implied authority to name another person to act for the principal in Rights and Duties of the Agent towards the Principal
the business of the agency, has named another person accordingly,
such person is not a sub-agent, but an agent of the principal for (1) Agent's rights to do all lawful things
such part of the business of the agency as is entrusted to him. A person who is appointed as an agent by giving authority, such
agent gets the right to do every lawful thing or act which is
6. Factor necessary for the purpose, or usually done in the course of
A factor is an agent remunerated by a commission, and is conducting the business of his principal [Section 188].
entrusted with the possession of goods to sell in his own name as
an apparent owner. (2) Agent's right in emergency
He can sell them at such times and at such prices as he thinks In an emergency, an agent has an authority to do all such acts
best. He has thus complete discretionary authority to sell. which are necessary tor the purpose of protecting his principal
He can even sell on credit, and receive the price as an actual from loss as would be done by a person of ordinary prudence, in
owner and give a good discharge to the buyer. his own case, under similar circumstances. [Section 189].
7. Broker (3) Agent's right to appoint sub agent and substitute agent
A broker is an agent whose business is to bring about a An agent can appoint a sub-agent and substituted agent.
contractual relation between two parties. A sub-agent when appointed by the original agent works under
It is through his instrumentality that a contract is made between the control of the original agent in the business of agency [Section
the principal and a third party. 191].
He has no possession of goods, like a factor even if he is a broker Such sub-agent is responsible to the agent for his acts except in
for sale. cases of fraud or wilful wrong [Section 192].
He has no authority to contract in his own name. So far as substitute agent is concerned, an agent may name
He cannot also sue in his own name. another person as the substitute agent to act for his principal in the
He generally puts the terms of the contract in writing. business of agency where the agent has an express or implied
authority. [Section 194].
8. Auctioneer
An auctioneer acts in a double capacity. (4) Agent's right to renounce his agency
Primarily, he is an agent for the seller. According to the provisions of Section 201, an agent gets the
He advertises the auction sale on the seller’s behalf. right to renounce his agency by giving a reasonable notice to his
We know that the bargain in an auction sale is completed as soon principal.
as the hammer falls.
The goods are then said to have been knowked down to the (5) Agent's right to receive remuneration when due
highest bidder. An agent has a right to receive his remuneration at an agreed rate
As soon as the goods are knocked down the auctioneer becomes when he has carried out the object of his agency unless -
the agent of the purchaser also. (a) There is any contract to the contrary or
(b) He is guilty of any misconduct in the agency business [Section
9. Commission Agent 219].
A commission agent is a person employed, not to establish privity
of contract between his employer and other parties, but to buy or (6) Agent's right to receive compensation for premature
sell goods for the employer on the best possible terms, receiving revocation [Section 205]
the commission as a reward for his exertions.
(7) Agent's right of retainer

English
According to the provisions of Section 217, an agent has the right (12) Agent's duty in naming an agent for his principal [Section
to retain, out of any sums received on account of the principal in 195]
the business of the agency, all moneys due to himself in respect of
advances made or expenses properly incurred by him in conducting (13) Agent's liability in respect of damages and misconduct
or carrying on such business and also such remuneration as may be [Section 220].
payable for acting as such agent.
(14) Personal liability of an agent where fixed by trade custom
(8) Agent's right of lien on principal's property [Section 221] or usage i.e. promissory notes, bills of exchange
(10) Agent's right to be indemnified against the consequences (15) When an agent agrees expressly to be liable
of all the acts done in good faith [Section 223]
(16) Agent's liability for his wrongful acts beyond his authority
(11) Agent's right of stoppage in transit: like commits fraud or misrepresentation [Section 238]
The right of stoppage in transit can be acquired by an agent in the
following cases. (17) Liability of an agent for the acts of sub-agents if
appointment is without authority [Section 193]
(a) When the agent purchases goods on behalf of his principal
either with his own money or by incurring personal liability for the Rights, Duties and Liabilities of Principal to his Agent
price, he stands towards the principal in the position of an unpaid
seller and hence, he possesses the right to stop the goods in transit, Rights of principal against his agent
if they have been delivered to the carrier for transmission to his
principal. Thus, an agent has a right to stoppage in transit against (a) Principal's right to demand accounts (Section 213)
his principal in respect of the amount which he has actually paid or
is liable to pay. (b) Principal's right to repudiate contract when agent deals in
the business of agency on his own account [Section 215]
(b) When an agent e.g. del credere agent is personally liable to his (c) Principal's right to benefits gained by his agent dealing on
principal for the price of goods sold, he can exercise the unpaid his own account in business of agency [Section 216]
seller's right to stop the goods in transit on the insolvency of the
buyer. (d) Principal's right to recover damages [Section 211 and 212]
The principal has a right to claim compensation for any loss
(12) Agent's right of compensation for injury caused by his sustained by him or to any profits accrued and to recover damages
principal's neglect or want of skill[Section 225] -
(1) When the agent acts contrary to the instruction or directions
Duties and Liabilities of an agent to his principal- [Refer Sec. given by his principal, or
211 to 221] (2) When loss is caused as a result of his agent's neglect, want of
skill or misconduct, or
(1) Agent's duty to conduct principal's business according to (3) When the agent does not follow the trade custom in the absence
his instructions or directions [Section 211] of his principal's direction.
(2) Agent's duty of protection and preservation of interest (e) Principal's right to refuse remuneration to his agent when
entrusted to himon the termination of agency by his principal's he is guilty of misconduct [Section 220]:
death or insanity [Section 209].
(f) Principals right to revoke agent's authority [Section 203]
(3) Agent's duty to conduct or carry on the work with
reasonable care, skill and diligence [Section 212 (g) Principal's right to ratify or disown his agent's acts [Section
196]
(4) Agent's duty to render accounts properly to his principal
[Section 213] Duties and Liabilities of principal to his agent
(1) Principal's duty to pay remuneration and dues to his agent
(5) Agent's duty not to delegate his authority [Section 190] [Section 217
(6) Agent's duly to communicate with principal in cases of (2) Principal's duty to indemnify his agent against the
difficulty[Sec 214 read with Sec 189]. consequences of all legal or lawful acts [Section 222]:
(7) Agent's duty not do deal on his own account in the business (3) Principal's duty towards his agent to indemnify him against the
of agency [Section 215] consequences of all acts done in good faith [Section 223]
(8) Agent's duty not to earn or make secret profit from agency (4) Principal's duty to compensate his agent for injury caused
business [Section 216] [Section 225]:
(9) Agent's duty not to use the information obtained in the (5) Liability of the principal in respect of contracts entered by
course of the agency business against his principal: his agent with third parties [Section 226 read with Sec. 227}
(10) Agent's duty to pay sums received for the principal (6) Liability of the principal when the notice is properly given
[Section 218] to his agent [Section 229]:
(11) Agent's duty not to set up an advance adverse title: (7) Liability of the principal when he induces third parties or
persons to believe that his agent’s unauthorised acts were
authorised [Section 237]:
English
(8) Principal's liability on account of agent's misrepresentation

or fraud [Section 238]:
If misrepresentation made or frauds committed by agents acting "
(i) in the course of their agency business and for their principals
and,
(ii) within the scope of their authority, they have the same effect on
agreements made by such agents as if such misrepresentations
or/and frauds had been made or committed by their principals.

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Krishna IASAn Academy to prepare for Judiciary, IAS-PCS, CLAT- LAW Entrance & Spoken

1 Krishna IAS, SCO 161,(Corner Showroom),Sec.24-D,Chandigarh 9988003622, 9417193622

7] Offer can be Specific or General In Jones V. Padavatton (1969)1WLR 328,[ Justice

2 Krishna IAS, SCO 161,(Corner Showroom),Sec.24-D,Chandigarh 9988003622, 9417193622

3 Krishna IAS, SCO 161,(Corner Showroom),Sec.24-D,Chandigarh 9988003622, 9417193622

Price list/Quotation of Price 9] Offer may be Positive or Negative

4 Krishna IAS, SCO 161,(Corner Showroom),Sec.24-D,Chandigarh 9988003622, 9417193622

5 Krishna IAS, SCO 161,(Corner Showroom),Sec.24-D,Chandigarh 9988003622, 9417193622

6 Krishna IAS, SCO 161,(Corner Showroom),Sec.24-D,Chandigarh 9988003622, 9417193622

7 Krishna IAS, SCO 161,(Corner Showroom),Sec.24-D,Chandigarh 9988003622, 9417193622

Dickinson v. Dodds 1876 case 7. By rejection of offer by the offeree:

Revocation of Tenders Revocation of Acceptance

9 Krishna IAS, SCO 161,(Corner Showroom),Sec.24-D,Chandigarh 9988003622, 9417193622

10 Krishna IAS, SCO 161,(Corner Showroom),Sec.24-D,Chandigarh 9988003622, 9417193622

3. Terms of contract should be reasonable 8. Liability towards third parties:

5. Non contractual liability:

11 Krishna IAS, SCO 161,(Corner Showroom),Sec.24-D,Chandigarh 9988003622, 9417193622

12 Krishna IAS, SCO 161,(Corner Showroom),Sec.24-D,Chandigarh 9988003622, 9417193622

13 Krishna IAS, SCO 161,(Corner Showroom),Sec.24-D,Chandigarh 9988003622, 9417193622

Commercial agreements: Business transactions incur a

subject to the preparation of a formal contract.

This arrangement is not entered into, nor is this memorandum

When the words "and shall not be subject to legal jurisdiction

The party asserting an absence of legal relations must prove it;

14 Krishna IAS, SCO 161,(Corner Showroom),Sec.24-D,Chandigarh 9988003622, 9417193622

15 Krishna IAS, SCO 161,(Corner Showroom),Sec.24-D,Chandigarh 9988003622, 9417193622

III Restitution 4. Mother’s messenger:

16 Krishna IAS, SCO 161,(Corner Showroom),Sec.24-D,Chandigarh 9988003622, 9417193622

17 Krishna IAS, SCO 161,(Corner Showroom),Sec.24-D,Chandigarh 9988003622, 9417193622

18 Krishna IAS, SCO 161,(Corner Showroom),Sec.24-D,Chandigarh 9988003622, 9417193622

2. Contracts relating to Apprenticeship

19 Krishna IAS, SCO 161,(Corner Showroom),Sec.24-D,Chandigarh 9988003622, 9417193622

2. Minor cannot be Principal:

What are Benefits

Ques. 4. Can a Person of Unsound Mind enter into a

From illustrations of sec.12

20 Krishna IAS, SCO 161,(Corner Showroom),Sec.24-D,Chandigarh 9988003622, 9417193622

21 Krishna IAS, SCO 161,(Corner Showroom),Sec.24-D,Chandigarh 9988003622, 9417193622

22 Krishna IAS, SCO 161,(Corner Showroom),Sec.24-D,Chandigarh 9988003622, 9417193622

Rule 4-Relationship by blood, marriage or adoption not sine

Philip Luka v. Franciscan Assn. 1987 Ker Rule 5- Economic Duress

23 Krishna IAS, SCO 161,(Corner Showroom),Sec.24-D,Chandigarh 9988003622, 9417193622

24 Krishna IAS, SCO 161,(Corner Showroom),Sec.24-D,Chandigarh 9988003622, 9417193622

25 Krishna IAS, SCO 161,(Corner Showroom),Sec.24-D,Chandigarh 9988003622, 9417193622

26 Krishna IAS, SCO 161,(Corner Showroom),Sec.24-D,Chandigarh 9988003622, 9417193622

27 Krishna IAS, SCO 161,(Corner Showroom),Sec.24-D,Chandigarh 9988003622, 9417193622

Questions According to ANSON, the person contracting must prove not

28 Krishna IAS, SCO 161,(Corner Showroom),Sec.24-D,Chandigarh 9988003622, 9417193622

Lewis v. Averay, 1971

Lord Denning observed that reconciliation of the 2

2. Erroneous opinion-Erroneous opinion as to value of the

3. Mistake of fact Not of law-sec.21 and its illustration

29 Krishna IAS, SCO 161,(Corner Showroom),Sec.24-D,Chandigarh 9988003622, 9417193622

Definitions of Consideration Kedar Nath v. GorieMohd. 1886

30 Krishna IAS, SCO 161,(Corner Showroom),Sec.24-D,Chandigarh 9988003622, 9417193622

Dutton v. Poole 1677 case Privity of Contract

31 Krishna IAS, SCO 161,(Corner Showroom),Sec.24-D,Chandigarh 9988003622, 9417193622

32 Krishna IAS, SCO 161,(Corner Showroom),Sec.24-D,Chandigarh 9988003622, 9417193622

RajluckyDabee v. Bhootnath Mukherjee, 1900