Contract

Legal Obligation
Example
"Please, come to my house", says P to D, "and we shall go out for a walk together". D came to the house P but
P could not leave the house because of some important engagement. D cannot sue P in damages for his not
fulfilling the promise, the reason being that there had been no intention between D and P to create any legal
obligation by the engagement as made between them.
In the circumstances, there was, in the eye of law no contract between P and A Contracts must not be the
sports of an idle hour, or mere matters of pleasantry, never intended by the parties to have any serious effect
whatever.

The Leading case on this point is Balfour v. Balfour

(a) Agreements, which do not create legal relations are not contracts.
(b) Agreement between husband and wife in domestic affairs is not a contract.
Mr., Balfour was employed in Ceylon. Mrs. Balfour owing to ill health, had to stay in England and could
not accompany him to Ceylon. On the occasion of leaving her in England for medical treatment Mr. Balfour
promised to send her 30 per month while he was abroad. But Mr. Balfour failed to pay that amount. So Mrs.
Balfour filed a suit against her husband for recovering the said amount. The court held that it was a mere
domestic agreement and that the promise made by the husband in this case was not intended to be a legal
obligation. Hence the suit filed by Mrs. Bal loin- was dismissed since there was no contract enforceable in a
court of law. In Balfour v. Balfour, the intention not to create a legal obligation was clear from the conduct (if the
parties. On the other hand the parties may make this intention clear by an express statement in the contract.

Legal relationship
Example
Three friends joined to enter a newspaper competition and agreed to share any winnings. It was held that they
intended to create legal relations and their agreement was therefore a binding contract.
Consensus ad idem:
Example
if A who owns two cars, one Ambassador and the other Fiat, offers to sell B one car, A intending it to be the
Ambassador, B accepts the offer thinking that it is the Fiat, there is no consensus and hence no contract.
Lawful consideration
Example
A promises to obtain for 6 an employment in public service and B promises to pay Ks 1,000 to A. The
agreement is void as the consideration for it is unlawful.
Distinction between voidable contract and void agreement
Example
A borrows Rs. 1,000 from B and makes a promissory note and a 10 paise stamp is pasted on the pronote. The
agreement though complete is unenforceable because of the technical defect i.e; promissory note being
understamped.
Example
X borrows Rs. 5,000 from Y for the purpose of smuggling goods. Y knows the purpose of the loan. The
agreement between X and Y is collateral to the main agreement which is illegal. The collateral agreement is
also illegal.
Bilateral contract.
A promises to paint a picture in return for which B promises to pay Rs. 500. Here A promises to paint the
picture and B promises to pay. Each party is thus both a promisor and a promisee.

OFFER and Acceptance

Example
A offers to sell his motorcycle to B for Rs. 3,000. B agrees to pay A Rs. 3,000 for the motor cycle.Here A is
culled the offerer or promisor and B the offeree or promisee.
To whom an offer can be made
Where A promises to give Rs. 100 to B if he brings back his missing dog, this is a specific offer and can only be
accepted by B; but if A issues a public advertisement to the effect that he would give Rs. 100 to anyone who
brings hack his missing dog, such an advertisement amounts to a general offer and any member of the public
can accept the said offer by searching for and bringing back A's missing dog. The leading case on this point is
Carlill v. Carbolic Smoke Ball Co.
CARLILL V. CARBOLIC SMOKE BALL CO. (1893)
Points decided are
(a) An offer may be made to the world at large
(b) A contract is made only with that person who comes forward and performs the conditions of the offer.
(c) In a general offer the communication of acceptance is not necessary.
Facts of the case are
In this case. the Carbolic Smoke Ball Co. offered by advertisement a reward of 100 to any person who should
contract influenza after having used the smoke ball three times daily for two weeks according to the printed
directions. It also added that 100 were deposited in the bank showing its sincerity in the promise. The plaintiff
Mrs. Carlill used the smoke-ball according of the directions of the company but contracted influenza. It was
held that she could recover the reward because advertisement was not a mere invitation to offer but an offer at
large. Performance of the conditions is a sufficient
Essentials of a valid offer
The leading case on this point is Taylor v. Porting ton
A agreed to let out his house to B for three years at tin' rate of 85 per annum. B stated that he would agree to
take the house for the above rent if the house was put into thorough repair and the drawing rooms were
decorated "according to Present style, in this case. Through putting the house into through repair is definite
term, decorating the drawing rooms according to the "present style" is not a definite term. It is a vague term,
because the term "present style" may mean one thing to A and another So B. Hence in this case the court held
that the agreement was void on the ground that the promise cold not be enforced.
-Example
A purchased a horse from B and promised that if the horse was lucky to him, he would give Rs. 50 more or he
would purchase another horse. Held that such a promise was too loose and vague to be considered in a court
of law.
Example
T, who could not read, took an excursion ticket on the railway. On the front of the ticket was printed for
conditions see back'. One of the conditions was that the railway company would not be liable for personal
injuries to passengers. T was injured by a railway accident. Held T was bound by the conditions and could not
recover any damages.
Where a condition attached to an offer is against public policy, it will not be enforced merely because it had
been impliedly accepted by the offeree.
Example
M delivered one new saree to a laundry for washing . On the back of the printed receipt it was stated that the
customer would be entitled to recover only 15% of the market price of the article in case of loss. The saree was
lost owing to the negligence of the laundry. In a suit by M, it was held that the term was unreasonable. Such a
term would give a premium on dishonesty and is against the public interest.

HYDE V. WRENCH (1840)

Point decided is
A counter offer is a rejection of original offer.
Facts of the case are
A offered to sell a farm for 1.000. X said he would give 950. A refused .and X then said he would give
1,000, and when A declined to adhere to his original offer, fried to obtain specific performance. Held there was
no contract as X's offer to pay 950 was a refusal of (he offer and a counter-offer ; and that when he later said
he would pay 1.000. he was making a new offer, which would have to be accepted by A before a binding
contract could come into existence.

HENDERSON V. STEVENSON (1875)

Point decided is
Where the acceptor or the promisee had no knowledge of special terms before or at the time of the contract,
they are not binding upon the acceptor.
Facts of the case are
P bought a steamer ticket on the face of which were these words only, "Dublin to Whitehaven". On the back
were printed certain conditions one of which excluded the liability of the company for loss, injury or delay to the
passenger or his luggage. P had not seen the hack of the ticket, nor was there any indication on the face about
the conditions on the back. P's- luggage was lost on the way due to the negligence of the company's servants.
It was held that P was entitled to recover his loss from the company. The result in the above case would have
been different if words like "for conditions, see back", had been printed on the face of the ticket to draw the
passengers' attention to the place where the conditions were printed. If a person receives a document which he
knows or ought to have known, contains the terms, of the offer he is bound by the contents whether he has
read it or not.
The leading case on this point is Porker v. S.E. Riy Co.
PARKER V. S.E. RLY. CO. (1877)
Point decided is
If any special condition is attached with the offer, then the offeree cannot take the stand that he did not see the
special conditions.
Facts of the case are
P deposited his bag at the cloak room at a railway station and received a ticket containing on its Face the
words "see back". On back of the ticket there was a condition that. "the company will not be responsible for any
package exceeding the-value of 10". A notice to the same effect was hung up in the cloak room. P's bag was
lost and he claimed the actual value of the lost bag. 24, 10 s. The claim was negatived and only 10 was
awarded. That P did not read the conditions was his fault us the railway company had done what was
reasonably expected of it.
Where the acceptor does not know the language in which [he ticket is printed, he will be bound unless he asks
for a translation of it. The acceptor cannot plead that lie was illiterate or blind, provided his attention was drawn
to the conditions by suitable words on the document.
The document containing the terms should be an integral part of the original contract itself. If it is not a term of
the contractual document, the latter cannot govern the contract. Moreover the terms should be brought to the
notice of the offeree before the contract is concluded and not afterwards.
Example
P and her husband hired a room at a hotel and paid a week's rent in advance. When they went up to occupy
the room there was a notice on one of the walls disclaiming the owners liability for damage, loss or theft of
articles in the room. -A thief entered the room due to the negligence of the hotel servants. The owner of hotel
was held liable since the notice was not a part of the agreement as it came to the knowledge of the client after
the contract had been entered into.
Cross Offers :
Example
D wrote to P on 18th November, 1971. offering to sell SCO ions of iron at Rs. 6900 Per ton. On the same day P
wrote to D offering to buy 800 tons of iron Rs. 6900 Per ton. The two fetters crossed in Post and neither of
them knew any thing about the offer to the other. P contended that there was a good comma. It was held that D
was not hound as a result -of the simultaneous offers, each being made in ignorance of life other.
2. ,ACCEPTANCE
example
A offers to sell his horse to B for Rs. 500. B accepts the offer to purchase the horse for Rs. 500.
Example
A company informed the proposer that if he submitted the proposal and the half-yearly premium his proposal
would be accepted. He did the same. The company encashed She cheque but had not yet replied to him their
acceptance of the proposal, in (he meantime the proposer died. The encashment of the cheque was held to be
an implied acceptance.
BOULTON V. JONES. (1857)
Point decided is
Acceptance must be given by the person to whom the proposal is made.
Facts of the case are
D sent an offer to a firm with whom he had accounts. P who had just taken over the said firm got the letter
addressed to the old firm, accepted the offer and sent the goods. P sued for the price of goods. The court held
that there was no contract since the order was to the old firm and the acceptance, was by the new firm.
Essentials of a valid acceptance
Example
An offer of land by M for 280 Was accepted by N, who enclosed 80 with his letter of acceptance and
promised to pay the balance by monthly installments of SO. M is bound by the acceptance of N because it
has not 'been unqualified.
The leading case on the point is Felthouse v. Bindley
FELTHOUSE V. BINDLEY (1862)
Point decided is
Silence cannot be prescribed as a mode of acceptance.
Facts of the case are
F offered to buy his nephew's horse for 30-15s, adding, "If I hear no more. I shall consider the horse is mine
at 30- 15s". The nephew did not reply, but told his auctioneer not to sell the horse, as it was sold to his uncle.
But the auctioneer sold it by mistake to a third party, F sued him for conversion of his property. It was held that
there was no communication of acceptance. Mental acceptance or uncommunicated assent does not result in a
contract.
The leading case on this point is Rarnsgate Victoria Hotel Co. v. Monte/lore
RAMSGATE VICTORIA HOTEL CO. V. MONTEFIORE (1866)
Point decided is
Acceptance roust be made within the time stipulated or within a reasonable time
Facts of the case are
A person applied/or shares in a company in June. He cannot be bound by an allotment made late in November.
Example
An offer was made in the/allowing terms. "I intend to sell my house/or Rs. 1.000. I/you are willing to have it
write to F at his address". Instead of writing to F, the purchaser sent an agent to F and agreed to purchase. It
was held that the seller was bound by the acceptance and there was no violation of section 7 when the
purchaser, instead of writing to the particular person, met him personally to communicate his acceptance.
Example
A sold his business to his manager B without disclosing the fact to his customers. 'C'. a customer, who had a
running account with A, sent an order/or the supply of goods to A by name. B received the order and executed
the same, C refused to pay the price. It was held that there was no contract between B and C because C never
made any offer to B and as such C was not liable to pay the price to B.
Effect of silence on acceptance
The leading case on this point is Brogdon v. Metropolitan Railway Co.
BROGDON V. METROPOLITAN RAILWAY CO. (1877)
Points decided are
(a) Acceptance must be communicated.
(b) Mental acceptance which is not evidenced by words or conduct is no acceptance.
Facts of the case are
A draft agreement relating to the supply of coal was sent to the manager of a railway company for his
acceptance. The manager wrote the word 'approved' on the agreement but by an oversight the document
remained in his drawer. Held there was no contract as it was only mentally accepted and there was no
expression of his mental determination.
COMMUNICATION OF OFFER, ACCEPTANCE AND REVOCATION
Communication of an offer
Example
A proposes by letter to sell a house to Bat a certain price. The communication of the proposal is complete when
B receives the letter.
Communication of acceptance (Section 4)
The leading case on the point is Dunlop v. Higgins
DUNLOP V. HIGGINS (1848)
Points decided are
(a) Acceptor is not responsible for the delay in the course of transit.
(b) When the letter of acceptance is posted, acceptance becomes complete on the part of the acceptor
Facts of the case are
D in an answer to an enquiry as the price of pig iron wrote to H, "We shall be glad to supply you with 2000 Ions
of pig iron at 65s per ton", and after further correspondence wrote on the 28 th January, that the price was 65s
net. ff received this on the 30th January and on the same day wrote "We will take the 2000 tons pig iron you
offer us". The post was then delayed and the acceptance was received six hours later than the scheduled hour.
D refused to sell the iron. It was held that the posting of the letter was an acceptance of the offer and that D
could not refuse to supply the iron.
REVOCATION OF PROPOSAL
A applied for shares in a company. On October 26th he withdrew his offer. His letter of withdrawal was received
by the company at 8.30 A.M. on October 27th. On 27th October at 7:30 AM. The company had already
resolved to allot the shares to A and the letter of allotment was given to a postman to post hut the letter was not
actually posted till 8.30 A.M. It was held that the revocation was good. The acceptance was too late. But if the
letter of acceptance had been actually posted before the letter of revocation reached the company, the
acceptance would have been binding as against the proposer.
REVOCATION OF OFFER AND ACCEPTANCE
By notice of revocation
Example
At an auction sale, A makes the highest bid for B's goods. He withdraws the bid before the fall off the hammer.
B knocked down the goods in favour of A. B sued A for the price of goods. It was held that A's bid was no more
than offer and he was entitled 10 withdraw the same before it was accepted
By lapse of time
Example
D offered to sell wool to H on Thursday and agreed to give him three days time to accent. H accepted the offer
on Monday, but by that time D had sold the wool. It was held that the offer had lapsed.
By non-fulfilment of condition precedent
Example
X may offer in sell certain goods to Y on a condition that Y pays a certain amount before a certain date. The
proposal is revoked if Y fails to pay the requested amount within the given time.
By Counter offer
Example
A offers to sell his house to B for Rs. 1,0110. B replies offering to pay Rs. 950. A refuses. Subsequently B
writes accepting the original offer. But the original offer has lapsed.
Revocation of acceptance
Example
X proposes by a letter sent by post to sell his house to Y. Y accepts the proposal by a letter sent by post. The
letter of acceptance is in the course of transmission to X. Y may revoke his acceptance at any time before the
letter communicating the acceptance reaches X but not afterwards.
Example
X by a letter dated October 5, 1975 accepted the offer of Y. The teller did not reach Y. X on October 10, 1975
revokes the acceptance by a letter which reaches Y on 12th The acceptance is revoked.
Offer and acceptance through telephone or telex
Example
a) A young boy ran away from his father's home. The father issued a pamphlet offering a reward in these
terms. "Anybody who finds a trace of the boy and brings home will gel Rs 500". P was at the dharmsala of a
railway station. There he saw a boy, overheard pan or a conversation, realised that the boy was-the missing
boy and promptly Cook him to the railway police station, where he made a report and sent a telegram to the
boy's father saying that he had found his son. It was held that the handbill was an offer open to the whole world
and capable of acceptance by any person who fulfilled the condition, P performed the condition and was
entitled to (he amount offered.
b) A lady invited her niece to slay with her in the same house and promised to settle on her an immovable
property. The niece stayed with her in her residence till the lime of her death. Niece was held to be entitled to
property because she had accepted the offer by going to her house and slaying with her as desired.
Example
D offered the payment to P on the condition that it should be in full satisfaction of the claim. P accepted the
payment. P cannot subsequently say that he accepted it in port satisfaction and sue for the balance.

Consideration
Example
(a) A agrees to sell his horse to B for Rs. 1,000. Here A's promise to sell his horse is for B's consideration to
Pay Rs. 1,000. Similarly, B's promise to pay Rs. 1,000 is for .4's consideration to sell his horse to B.
(b) A agrees to give Rs. 1,000 to B as a voluntary donation for a temple building. This promise is not binding
on A because there is no reciprocal consideration for his promise. However, if B has undertaken any liability on
the faith of A's promise, the contract is binding on A.
ESSENTIALS OF VALID CONSIDERATION
Facts of the case are
D had agreed to subscribe Rs. 100 towards the construction of a Town Hall at Howrah. P the secretary of the
committee, on the faith of the promise called for plans and entrusted the work to contractors and undertook
liability to pay them. D refused to pay the promised amount and P brought a suit against him. It was held that
though the promise was to subscribe to a charitable institution and there was no benefit to ), yet it was
supported by consideration in that P, the promisee suffered a detriment in having undertaken a liability to the
contractors on the faith of the promise made by D.
The leading case on this point is Abdul Aziz v. Mazurn Ali
ABDUL AZIZ V. MASUM ALI (1914)
Point decided is
Where the promisee has done nothing, there is no consideration
Facts on the case are
D promised Rs. 500 to a fund started to re-build a mosque. Nothing had been done so carry out repairs and
reconstruction. The secretary of the mosque filed a suit for the recovery of Rs. 500. It was held that the promise
was not enforceable because D who made the promise gained nothing in return for the promise made. The
secretary of the committee to whom the promise was made suffered nothing as nothing had been done to carry
out the repairs.
The promisee or any other person.
Example
X, Y and Z enter into an agreement under which X pays Rs. 1,000 to Y and Y agreed to build a house for Z.
Here Z is a party to the contract but stranger to consideration and can enforce the contract.
Point decided is
Consideration may move from the promisee or any other person.
Facts of the case are
An old lady made a gift of her property to her daughter with a direction to pay a certain sum of money to the
maternal uncle by way of annuity. On the same day, the daughter executed a writing in favour of the maternal
uncle agreeing to pay the annuity. The daughter did not. however, pay the annuity and the uncle sued to
recover it. It was held that there was sufficient consideration for the uncle to recover the money from the
daughter.
It will be observed in the above case that there was no contract between the daughter and the maternal uncle,
but as a result of the agreement between the old lady and her daughter, the uncle was the beneficiary and was
entitled to the consideration though he was a stranger to the contract. Therefore, consideration need not move
from the promisee, but can move from any other person.
Consideration may be past, present or future.
Example
A promises to deliver goods to B when the ship arrives and B promises to pay A Rs. 500 against the receipt of
goods. This is a case of future consideration, which is to be performed by both the parties when the ship
arrives.
It need not be adequate
Example
A agrees to sell his house worth Rs. 10,000 to B for Rs. 1,000. A's consent to the agreement was freely given
the agreement is a contract not withstanding the inadequacy of the consideration.
Example
A agrees to sell a horse worth Rs. 1,000 for Rs. 10. A denies that his consent to the agreement was freely
given. The inadequacy of the consideration is a fact which the court should take into account in considering
whether or not A's consent was freely given.
Consideration must be real
Example
A promise not to sue for a reasonable time is a good consideration. Similarly if a person compromise and
agrees to accept a smaller sum in settlement of his claim, this would he sufficient consideration for the opposite
party's promise to pay sum.
Consideration must. be lawful
Example
(a) A promises to maintain B's child and B promises to A Rs. 1,000 yearly for the purpose. Here the promise
for each party is the consideration for the promise of the other party. These are lawful considerations.
(b) A promises to obtain for B an employment in the public service and B promises to pay Rs. 1,000 to A.
The agreement is void as the consideration for it is unlawful.
It must be something which the promisor is not already bound to do
Example
A promised to pay B, who had received summons to appear at a trial in a civil suit, a certain sum of money
being a compensation for the loss of time during his attendance. It was held that the promise was without
consideration, for B was under on obligation imposed by law to appear and give evidence.
Stranger to Contract (Privity of Contract)
Example
A sent an insured parcel to B by post. The parcel was misplaced and did not reach the addressee. B filed a suit
for compensation for non-delivery of the parcel. It was held that B was entitled to have the compensation as a
trust had been created in favor of the addressee.
Example
D agreed with P's father that he would pay P Rs. 500 per month as kharch-i-pandan if P marries D's son. The
allowance was stopped sometime after the celebration of marriage. P sued D, her father-in-law for Rs. 1,500 as
arrears of allowance. It was held that P could recover the money even though she was not a party to the
contract.
Example
Two brothers in a partition deed agreed to pay Rs. 300 in equal shares to their mother for maintenance. The
brothers subsequently refused to pay the amount. On a suit it was held that the mother could enforce the
promise even though she was a stranger to the contract.
Natural love and affection
Example
(a) A for natural love and affection, promises to give his son B, Rs. 1,000. A puts his promise to B into writing
and registers it.
This is a contract.
(b) A, by registered agreement on account of love and affection for his brother B undertook to discharge a
debt due by B to C. Actually A did not fulfil the promise. So B paid the debt. It was held that B could recover the
amount of debt from A.
Facts of the case are :
B promised to pay his wife a certain sum of money every month for her separate residence and maintenance.
The agreement was contained in a registered document, which mentioned certain quarrels and disagreement
between the two. The wife filed a suit for the recovery of the amount. The suit was rejected by the court, which
held the view that quarrels made the couple separate.
There was thus no love and affection between the parties.
Compensation for services rendered
Example
(a) A finds B's purse and gives it to him, B promises to give A Rs. 50. This is a contract-
(b) A supports B's infant son. B promises to pay A's expenses in so doing. This is a contract.
Time-barred debt
Example
(a) D owes P Rs. 1,000 bill the debt is barred by the limitation Act. D signs a written promise o pay Rs. 500
on account of the debt. This is a contract.
(b) A owes Rs. 1,500 to B. The debt is barred by limitation. C promises to pay the debt to B. B cannot
enforce the payment against C as the promise to pay time-barred of a third person is not covered by Section
25.
CAPACITY OF PARTIES
Effects of minor's agreement
An agreement with or by a minor is void
Facts of the case are
A, a minor borrowed Rs. 20,000 from B and as a security for the same executed a mortgage in his favour. He
became a major a few months later and filed a suit for the declaration that the mortgage executed by him
during his minority was void and should he cancelled. It was held that a mortgage by a minor was void and B
was not entitled to repayment of money.
Example
In order to pay-off the promissory note and the mortgage debt of his father, the minor son and his mother sold a
piece of land to the holders of the promissory note in satisfaction of the note and mortgage debt. Later the
minor brought an action to recover back the land. The action was rejected on the ground that the sale of the
land in question was valid as it was done by the mother for her minor son and on his behalf.
Minor can be a promisee or beneficiary
Example
X, a minor, insured his goods with an insurance company. The good', were damaged. X filed a suit for claim-
The insurance company took the plea that the person on whose behalf the goods were insured was a minor.
The court rejected the plea and allowed the minor to recover the insurance money.
Liability for necessaries
Example
Inman an infant undergraduate in Cambridge bought eleven fancy waistcoats from Nosh. He was at that time
adequately provided with clothing. Held the waistcoats were not necessary and the price could not be
recovered.
Certain services rendered to a minor have been held to be 'necessaries'. These include education, medical
advice, a house given to a minor on rent for the purpose of living and continuing his studies, etc.
Goods necessary when ordered might have ceased to be necessary by the time they are delivered, e.g., where
a minor orders a suit from a tailor but buys other suits before that ordered is actually delivered. Here the minor
could not be made to pay the tailor.
PERSONS OF UNSOUND MIND
Example
A property worth about Rs. 25,000 .was agreed to be sold by a person for Rs. 7000 only. His mother proved that he was a
congenital idiot, incapable of understanding the transaction. The sale was held to be void.
PERSONS DISQUALIFIED FROM CONTRACTING BY ANY OTHER LAW
Alien enemies
Foreign sovereigns and ambassadors
Example
E, who was a diplomat and was on the stuff of a foreign embassy, rented a house belonging In M. M sued him
for arrears of rent. It was held that no action could be brought against him as he was protected by diplomatic
privileges.

FREE CONSENT
CONSENT
Example
An illiterate woman executed a deed under the impression, that she was executing a deed authorising her
nephew to manage her lands, while in fact it was a deed of gift in favor of her nephew. The evidence showed
that the woman never intended to execute such a deed of gift nor was the deed read or explained to her. It was
held that the deed was void and inoperative.
COERCION
Example
A, on board an English ship on the high seas, causes B to enter into an agreement by an act amounting to
criminal intimidation under the Indian Penal Code. A afterwards sues B for breach of contract at Calcutta. A has
employed coercion although his act is not an offence by the law of England, and although Section 506 of the
Indian Penal Code was -not in force at the time when or where that act was done.
Facts of the case are
A girl of 18, lost her husband and her husband's relatives refused to have the husband's corpse removed
unless she adopted one of their choice. It was held that the adoption was not binding on her as her consent
was obtained under coercion within the meaning of Section 18 since any person: who obstructed a dead body
from being removed would be guilty of an offence.
Example
An agent refused to hand over the account books of the business at the end of his term of office to a new agent
sent in his place, unless the principal gave him a release from all liabilities and such a release had to be given
before the new agent could get the books. It was held that the release deed was voidable at the instance of the
principal who was made to execute the release deed under coercion.
Example
A, threatens to shoot B, a friend of C, if C does not let out his house to him. C agrees to do so. The agreement
has been brought about by coercion.
Effect of Coercion
Example
A railway company refuses to deliver certain goods to the consignee, except upon the payment of illegal charge
for carriage. The consignee pays the sum charged in order to obtain the goods. He is entitled to recover so
much of the charges as was illegally excessive.
UNDUE INFLUENCE
Example
1. D was a young man addicted to smoking. Sri Ram was his Guru to whom he sold property worth Rs. 1,380
for Rs. 70. The sale was set aside on the ground of undue influence
2. A applies to a banker for a loan at a time, when there is tightness in the money market. The banker declines
to make the loan except at an unusually high rate of interest. A accepts the loan on these terms. This is a
transaction in the ordinary course of business and the contract is not induced by undue influence.
Example
A having advanced money to his son, B, during his minority, upon B's coming of age obtains, by misuse of
parental influence, a bond from B for a greater amount than the sum due in respect of the advance. A employs
undue influence.
Example
A lady gifted all her property worth Rs. 7,000 to P a medical man who was altendinu on her. The lady disputed
the gift deed as soon as she recovered from illness, P's suit for possession was set aside.
Example
1. A cane grower had the freedom to offer cane to the factory of his area or nor, but if he made an offer, the
factory was bound under an Act to accept. The Supreme Court held that in such a case the consent though
compulsory, is not caused by undue influence. The compulsion of law is not coercion.
2. A, a man enfeebled by disease and age is induced by B's influence over him as his medical attendant to
agree to pay B an unreasonable sum for his professional services. P employs undue influence.
Example
A being in debt to B, the moneylender of his village, contracts afresh loan on terms, which appears to be
unconscionable, it lies on B to prove that the contract was not induced by undue influence.
Effect of undue influence
Example
A, a money-lender, advances Rs. 100 to B, an agriculturist and by undue influence induces R to execute a
bond for Rs. 200 with interest at 6 per cent per month. The court may set the bond aside ordering B to repay
Rs. 100 with such interest as may seem just.
Unconscionable bargains
Example
A youth of 18 years of age, spendthrift and a drunkard, borrowed Rs. 900 on a bond hearing compound interest
at 2% per annum. It was held by the court that the transaction is unconscionable. the rate of interest charged
being so exorbitant.
FRAUD
Example
A sells by auction to B. a horse, which A knows to be unsound. A says nothing to B about the horse's
unsoundness. This is not fraud in A. But if B is A's daughter and had just come of age, here the relation
between the parties would make it A's duty to tell B if the horse is unsound.
Elements of fraud
Example
The director of a company issued a prospectus containing false representation, on the faith of which Z agreed
to buy some shares from the company. Z may avoid the contract because the directors are deemed to be the
agents of the company.
Example
A, a horse dealer sold a mare to B. A knew that the mare had a cracked hoof. Which he filled up in such a way
as to defy detection. The defect was subsequently discovered by B. It was held that the agreement could be
avoided by B as his consent was obtained by fraud.
Example
A man and a woman went through a ceremony of marriage, the husband having no intention to regard it as a
real marriage. It was held that the consent of the wile was obtained by fraud and that the marriage was just a
pretence.
Example
T bought a gun from H. The gun being defective H lugged the hole. T" did not examine the gun and on using it,
it burst. T refused to pay on the ground that H was guilty of fraud. Held as the plug had not deceived T he could
not refuse to pay for the gun.
Mere Silence Is Not Fraud
Example
H sold to W some pigs, which were to his knowledge suffering from fever. The pigs were sold with all faults' and
// did not disclose the fact of fever to W. Held there was no fraud.
Effect of Fraud
Example
A fraudulently informs B that A's estate is free from encumberance. B thereupon buys the estate. The estate is
subject to a mortgage. B may avoid the contract or may insist on its being carried out and the mortgage debt
repaid by A.
MISREPRESENTATION
Example
A sold a mare to B. In answer to an enquiry by B, before the sale, A wrote to B that I think your queries would
be satisfactorily answered by a friend if you have one in the station: All I can say is that the mare is thoroughly
sound. It was held that this was a positive assertion of soundness.
Example
D desiring to sell his medical practice got into touch with P in January 1934 and stated that his practice was
worth 2000 per annum and he had a penal of 1480 persons. This statement was true when made.
Negotiations lasted until May I, when the contract of sale was signed. During the period D was ill and was
forced to absent himself from the practice with the result that this practice dwindled to 5 per week. These facts
were not disclosed to P. It was held that no disclosure having been made, P was entitled to rescind the
contract.
Example
D agreed to sell and deliver a boiler to P at Rajghat and at P's suggestion through road. There was an innocent
mistake as to the roadway, there being a suspension bridge at one point which cannot bear the weight of the
boiler. The contract was avoided by D because P had caused D to make a mistake as to the substance of the
thing which was the subject of the agreement.
Consequences of misrepresentation
Example
A by misrepresentation leads B erroneously to believe that 500 maunds of indigo are made annually at A's
factory. B examines the accounts of the factory, which show that only 400 maunds of indigo have been made.
After this B buys the factory. The contract is not voidable on account of A's misrepresentation, because A had
the means of discovering the truth with ordinary diligence.
MISTAKE OF FACT
Example
A man and a woman made a separation deed under which the man agreed to pay a weekly allowance to the
woman under a mistaken assumption that they were lawfully married. It was held that the agreement was void
as there was-common mistake on a point of fact which was material to the existence of the agreement.
Example
X buys a painting believing it to be worth Rs. 2,000, while actually it is worth Rs. 200 only. The agreement
cannot be avoided on the ground of mistake.
The cases falling under bilateral mistakes are discussed below.
Mistake as to the subject-matter
Mistake as to the existence of the subject- matter
Example
1. There is an agreement between A and B for the purchase of a certain horse. But the horse is dead at
the time of the contract. The agreement is void.
2. A agrees to sell to B a specific cargo of goods supposed to be on its way from England to Bombay. It
turns out that before the day of the bargain, the ship carrying the cargo had been cast away and the goods lost.
Neither party was aware of the facts. The agreement is void.
Mistake as to the identity of the subject- matter.
Example
A agreed to buy from B 125 bales of cotton "to arrive ex pearless from Bombay".
There were two ships of that name sailing from Bombay, one of which was in the mind of A and the other in the
mind of B. It was held that there was a bilateral mistake and there was no contract.
Example
D wrote to P asking for a quotation of 50 rifles. Later he telegraphed "Send three rifles". The telegraph clerk by
mistake sent the message wrongly as "Send the rifles". P sent 50 rifles and upon D's refusal to accept, filed a
suit for damages. The contract was held void and it made no difference even if the mistake was caused by the
negligence of a third party.
Mistake as to the title of the subject-matter
Example
There was a contract for lease between X and Y. The rent was inadvertently mentioned as Rs. 130 though the
agreement was to pay rent of Rs. 230. The contract was held to be void.
Unilateral mistake
Example
H contracted with the N Corporation to build a number of houses. In calculating the cost of the houses H by
mistake deducted a particular sum twice and submitted his estimates accordingly. The Corporation agreed to
the terms, which were naturally lower than actual cost. It was held that the agreement was binding even though
it was based upon erroneous estimates.
Mistake as to nature of the contract
Example
A, an illiterate old man, was made to put his signature on a document which was a pronote. A thought the
document to be a will where his signature was required as a witness. Under this presumption he signed the
document which was in fact a pronote. Subsequently H endorsed the pronote to C who paid value for it in good
faith. C sued A on the pronote. It was held that A was not bound by it.
Example
A solicitor's clerk fraudulently induced a client to sign a mortgage by representing the document to be a deed
transferring some of his property. It was held that the mortgage was binding since the client was aware that the
document dealt with his property. His mistake was simply as to its effect.
Mistake as to the identity of the person contracted with
Example
A fraudulent person named Blenkarn by imitating the signature of a respectable firm Blenk & Co., sent an order
for goods, which were duly delivered to him by Lindsay. Blenkani sold the goods to Cundy who acted bonafide.
It was held that Cundy must return the goods to Lindsay, as, although Cundy was an innocent purchaser, he
had no 'title to them: The Contract between Lindsay and Blenkarn being void.
Example
Boulton had taken over the business of Brocklehurst, with whom Jones had been in the habit of dealing and
against whom he had a set off. Jones sent an order for goods to Brocklehurst. Boulton executed the order
without notifying Jones of the change in the ownership of the business. It was held that Jones was not liable to
pay for the goods as the contract was void.
Example
X falsely representing herself as the wife of a wellknown millionaire takes a ring from a jewellers shop for the
approval of her husband. She pledges it with a pawn broker, who is in good faith and without notice of the first
transaction pays her Rs. 10,000. It was held that the jeweller could recover the ring from the pawnbroker, as
there was no contract between the jeweller and the lady.
Example
N entered P's shop, selected jewellery and wrote out a cheque for 3000 representing himself to be Sir
George Bullough (a name known to Pas a man of good credit). N pledged the jewels with D for 350. P sued D
for the return of the jewels pleading that no title passed to N as he was not Sir George Bullough. It was held
that there was no mistake as to the identity of the person and hence the contract was not void.
Example
S was a cinema critic, who always wrote adverse criticisms about all the pictures he saw A. the owner of a
theatre advertised a new picture in the theatre and gave instructions that no ticket should be issued to S. S
obtained ticket for a First night performance through a friend. But at the gate S was refused admission. S sued
for breach of contract. It was held there was no contract between the theatre owner and S.
MISTAKE OF LAW
Example
X, a widow is entitled to certain occupancy rights. X remarries and believing that she has lost her occupancy
rights by reason of her second marriage, agrees to take the land from Y, her zamindar on an increased rate of
rent. Both X and Y honestly believes that X has lost her occupancy rights. The contract is not voidable

LEGALITY OF OBJECT AND CONSIDERATION

If it is forbidden by law
Example
(a) A promises to obtain for B an employment in the public service and B promises to pay Rs.lOOO to A. The
agreement is void as the consideration for it is unlawful.
(b) A promises B to drop a prosecution which he has instituted against B for robbery, and H promises to restore
the value of the things taken. The agreement is void as the consideration for it is, unlawful.
If it is of such a nature that if permitted it would defeat the provisions of any law
Example
(a) A's estate if, sold for arrears of revenue under the provision of an Act of the legislature by which the
defaulter is prohibited from purchasing the estate. B, upon an understanding with A becomes the purchaser,
and agrees to convey the estate to A upon receiving from him the price, which B has paid. The agreement is
void, as it renders the transaction, in effect a purchase by the defaulter and would so defeat the object of the
law.
(b) A let a flat to B at a rent of 1200 a year. To reduce the municipal taxes he entered into two agreements with
B. One, by which the rent was stated to be 450 only and the other by which, B agreed to pay 750 for
services in connection with the flat. In a suit filed against B, to recover 750, it was held that the agreement
was made to defraud the municipal authorities and was void. A cannot recover the money.
If it is fraudulent
Example
(a) A, B and C enter into an agreement for the division among them of gains acquired or to he acquired by
them by fraud. The agreement is void as its object is unlawful.
(b) A, being an agent for a landed proprietor agrees for money without the knowledge of his principal to obtain
for B a lease of land belonging to his principal. The agreement between A and B is void as it implies a fraud, by
concealment by A, on his principal.
If it involves or implies injury to the person or property of another
Example
(a) A asks an editor of a newspaper to publish a defamatory article against B and promises to pay Rs. 4000 for
the work. The agreement is void as it involves injury to the person of H and therefore, a suit cannot be brought
to recover Rs. 4000 by the editor.
(b) A debtor who owned Rs. 100 executed a bond by which he was required to put forth manual labor until the
amount was repaid and in case of default, he had to pay exorbitant interest. The court held that the contract
contained in the bond is indistinguishable from slavery and as such, the contract involved injury to the person
of the debtor.
If the court regards it as immoral
Example
(a) A agrees to let her daughter to B for concubinage. The agreement is void because it is immoral.
(b) P advanced money to D a married woman to enable her to obtain a divorce from her husband and D agreed
to marry him us soon as she obtained a divorce. It was held that P was not entitled to recover back the amount
as the agreement had for its object the divorce of D from her husband.
Stifling prosecutions
Example
A bank found that the goods in a godown, which was pledged to it against a loan, were either fraudulently
overvalued or withdrawn in collusion with bank officials. The borrower agreed to make up for the deficiency by
hypothecating more property. Some delay having taken place in the hypothecation, the bank filed a complaint,
which was withdrawn after the hypothecation was completed. It was held that the agreement was valid.
Maintenance and Champerty
Example
G, an advocate entered into an agreement with his client, which was embodied in his client's letter to him. The
letter read, "I hereby engage you with regard to my claim against the Baroda Theatres Ltd. for a sum of Rs.
9400. Out of the recoveries you may take fifty per cent of the amount recovered". The Supreme Court held that
a contract of this kind was highly objectionable for a lawyer and void.
Traffic relating to public offices
Example
A paid B, a public servant a certain amount inducing him to retire from service, thus paving the way for A to be
appointed in his place. The agreement was held to be void.
Agreements to influence elections to public offices
Example
A promises B, the owner of a newspaper Rs. 500 in consideration of the publication by B, in his newspaper of
false statements in regard to a candidate for election. B published them. The agreement is void as opposed to
public policy.
Agreement in restraint of personal liberty
Example
A borrowed money from a moneylender and agreed that he would not without the lender's written consent
leave his Job, borrow money, dispose of his property or move from house. It was held that the contract was
illegal as it unduly restricted the liberty of A.
VOID AGREEMENTS
AGREEMENT IN RESTRAINT OF MARRIAGE
Example
A promised to marry none else except Miss B, and in default to pay her a sum of 2,000. Miss B sued
A for the recovery of that sum on the ground that A married someone else. It was held that the
agreement was in restraint of marriage and as such void.
In English law, a partial restraint on marriage is tolerable if it is reasonable, unlike Indian law where
even partial restraint is, not permitted.
AGREEMENT IN RESTRAINT OF TRADE
Example
a. A, a lawyer employs B a young lawyer as his clerk who as part of the bargain promises not to
engage in the practice of law within the State after the termination of his employment. Although A's
practice extends throughout the State, the covenant is illegal since it imposes undue hardship upon
B.
b. D agreed with P, not to carry on the same business of dress makers on the expiry of the period of
his service anywhere within 800 miles of Madras. The agreement was held void.
Exceptions
I- Statutory Exceptions
a. Sale of goodwill.
Example
1. A contracts to sell to B the goodwill of a business. A then sets up a similar business close-by B's shop and
solicits his customers. This is contrary to I lie contract and B may obtain an injunction to restrain A from
soliciting customers.
2. X a seller of imitation jewellery sells his business to Y and promises not to carry on business in imitation
jewellery and real jewellery: It was held that the restraint was valid as regards imitation jewellery only.
Exceptions under the common law
a. Service agreements.
Example
A agreed to become assistant for 3 years to B who was a doctor practicing at
Zanzibar. It was agreed that during the term of the agreement A was not to practice on his own account in
Zanzibar. At the end of the year, A ceased to act as Bs assistant and began to practice on his own account. It
was held that the agreement was valid and A could be restrained by an injunction from doing so.
Example
An agreement of service provided that on termination of employment the tailor would not carry on similar
business within 10 miles of the place of his employer. The agreement was held to be void.
Example
A company manufacturing special yarn was offered collaboration by a foreign producer on the condition that
the company shall maintain secrecy of all the technical information and that it should obtain corresponding
secrecy arrangement from its employees. One employee was appointed for five years with the condition that
during this period he would not take service anywhere even if he left this service. The agreement was held to
be valid and the employee was restrained from serving anywhere else during the currency of the agreement.
Uncertain agreements
Example
(a) A agrees to sell to B "a hundred tons of oil". There is nothing whatever to show what kind of oil was
intended. The agreement is void for uncertainty.
(b) A agrees to sell to B one thousand maunds of rice at a price to be fixed by C. As the price is capable of
being made certain, there is no uncertainty here to make the agreement void.
Example
The buyer of a horse agreed to pay 5 more, if the horse proved lucky. The agreement was held to be void for
uncertainty.
Essentials
Example
(a) There is an agreement between A and B which provides that if it rains on a particular day, A will pay B Rs.
100 and if it does not rain B will pay the same amount to A. It is a wagering agreement.

(b) A promises B to pay him Rs. 100 if the X football team beats Y football team, in consideration of which B
promises A to pay Rs. 50, if the Y football team beats the X football team. The agreement is a wager.
(c) Two wrestlers R and B agreed to play a match on condition that the party failing to appear on the date of
the match was to forfeit Rs. 500 to the opposite party and winner was to receive Rs. 1,000 out of gate money.
R failed to appear at the match and B sued him for 500. It was held that the agreement was not of wagering
nature. In a wagering agreement each party should stand to win or lose according to the result of an uncertain
event. In the present case, the stakes had not to be given out of the pocket of the party it had to be paid from
the money provided by the public. As such, neither side stood to lose according to the result of the wrestling
match.
Effect of transactions collateral to wager
Example
A lost Rs. 8,500 to B on horse races. Subsequently A executed a Hundi for same amount in favour of A to
prevent B being declared as a defaulter in his club. B filed a suit on the Hundi. A pleaded that it was a wagering
transaction and the consideration was unlawful. It was held that a wagering agreement is void but does not
affect the collateral transactions.
Wager and insurance contracts
Example
On 15.1.1951 M, the deceased uncle of A made an application for insurance for Rs. 35,000. In that application
M stated his occupation as landlord and mill-owner. On the basis of the application, M company issued a policy
to M on 19.1.1951. In the policy A was mentioned as nominee. The first two quarterly premiums on the policy
were paid by A, M died on the night of 19th August 1951. and the notice of his death, and that of the claim was
sent to the company on 15.9.1951. After making enquiries the insurance company refused claim. A brought a
suit for the recovery of Rs.35,000. It was held that the policy in question was affected by A in the name of M for
his own use and benefit and further A had no insurable interest in the life of M. Thus the contract of insurance
was in the nature of a wagering contract and thus void.

Contingent Contract
Example
A makes a contract with B to buy B's house, if A survives C. This contract cannot he enforced by law unless
and until C dies in A's life time.
If the contingent event becomes impossible of performance, the contract becomes void.
Example
A contracts to pay B a sum of money when B marries C. C dies without being married to H.
The contract becomes void.
Example
A agrees to pay B a sum of money, if a certain ship does not return. The ship is sunk. The contract can be
enforced after the ship sinks, because the return of the ship is no longer possible.
Example
a) A agrees to pay B a sum of money; if B marries C. C marries D. The marriage of B to C must now be
considered impossible. Therefore, the contract by A to pay B a sum of money is discharged.
b) B agreed to take shares in a company provided the company appointed him as a sole agent, at a certain
place. Before appointing him as the agent, the company went into liquidation. A was entered on the list of
contributories and the liquidator demanded of him the share amount. It was held that the contract to take
shares was contingent on the company appointing him as his agent.
Example
a) A promises to pay B a sum of money, if a certain ship returns within a year. The contract may be enforced if
the ship returns within the year, and becomes void if the ship is burnt within the year.
b) F borrowed money from D, at a certain rate of interest and agreed to pay the amount in two months and that
in case he failed to do so, the land in Khasra No. 93 is sold to D in discharge of the said amount. P sued for the
redemption of the land treating the document as a mortgage. It was held the document evidenced a contingent
contract. It was a virtual sale subject to the condition that it will not be enforceable if the money is paid within
the stipulated two months.
Example
A promise to pay B a sum of money if a certain ship does not return within a year. The ship does not return
within a year. The contract can be enforced. The contract also becomes enforceable when the ship is sunk or
burnt within the year because its return has been rendered impossible for all time to come.
Example
a) A agrees to pay B Rs. 1.000 if two straight lines should enclose a space. I lie agreement is void.
b) A agrees to pay B Rs. 1000 if B will marry A's daughter C. C was dead at the time of the agreement. The
agreement is void. This section is based on the principle that persons cannot contract to do impossible things
or make their contracts depend on the happening of an' impossible event.

QUASI CONTRACTS
Example
If A pays a sum of money to B believing him to be his creditor. Men as a matter of fact he was not. B is bound
to return the money to A on the assumption that the above sum given to him was by wiry of loan.
Claims for necessaries supplied
If a person incapable of entering into a contract or any one whom he is legally bound to support, is supplied by
another person with necessaries suited to his condition in life. The supplier is entitled to recover the price from
the property of the incapable person.
Example
a) A supplies to B. a lunatic, with necessaries suitable to his condition in life. A is entitled to be re-imbursed
from B's property.
b) A supplies the wife and children of B, a lunatic with necessaries suitable to their condition in life. A is entitled
to be reimbursed from B's property.
Payment by an interested person
Example
B holds land in Bengal on a lease granted by A, the Zamindar. The revenue payable by A to the Government
being in arrear, his land is advertised for sale by the Government. Under the revenue law, the consequence of
such sale will be the annulment of B's lease. B to prevent the sale and the consequent annulment of his own
lease pays to the government the sum due from A. A is bound to make good to B the amount so paid.
Example
a) A's goods were wrongfully attached to realise the arrears of Government revenue due by B. A pays the dues
to save his property. He is entitled to recover the amount from B.
b) The consignee suffered loss due to fire in the wagon during transit. The insurer made good the loss. The
insurer claimed the money from the railway. The claim was allowed under section 69.
(c) In a case E left his carriage at P's house. P's landlord seized the carriage as distress for rent. E paid the
rent to obtain the release of his carriage. It was held that E could recover the amount from P
Obligation of a person enjoying benefit of non-gratuitous act
Example
a) A, a tradesman leaves goods at B's house by mistake. B treats the goods as his own.
He is bound to pay A for them.
b) A saves B's property from fire. A is not entitled to compensation from B, if the circumstances show that the
he intended to act gratuitously.
Example
a) The provincial Government in the wrongful exercise of their authority asked the railway company to widen
the culvert for the benefit of private owners of property in the neighborhood. The railway company agreed to
widen the culvert at its own cost. On completion of the work a suit was filed by the railway company against the
municipality. It was held that although the railway company did not intend to do the work gratuitously, the
municipality did not benefit, from it and therefore section 70 could not be applied.
b) A contractor on the request of an officer of the state of West Bengal constructed a katcha road, office,
kitchen, storage sheds for the use of the civil supplies department of the Government. The State accepted the
works but tried to evade liability because no contract had been concluded according to the formalities of the
Government of India Act. Since the State had enjoyed the benefit of the works, the Supreme Court held the
State Government liable.
Example
X supplied spare motor parts to the Poona Muncipal Corporation. The Corporation tried to escape liability on
the ground that the contract was not made in accordance with the Bombay Municipal Corporation Act. It was
held that the Corporation was liable under Section 70.
Responsibility of finder of goods
Example
H picked up a diamond from the floor of Fs shop and handed over to F to keep it till the owner is found. Inspite
of best efforts the true owner could not be reached. After some time H tendered to F the lawful expenses
incurred by him for finding the true owner and asked him (F) to hand over the diamond to him (H). F refused. It
was held that F must return the diamond to H as H was entitled to retain it against the whole world except the
true owner.
Money paid by mistake or under coercion
Example
a) A and B jointly owe 100 rupees to C. A alone pays the amount to C and B not knowing of this fact, pay 100
rupees over again to C. C is bound to repay the amount to B.
b) A railway company refuses to deliver certain goods to the consignee, except upon the payment of illegal
charge for carriage. The consignee pays the sum charged in order to obtain the goods. He is entitled to recover
so much of the charges as was illegally excessive.
Example
a) A lessee in a mining lease paid higher rates though he was bound to pay royalties at a lower rate. The
money was paid under the belief that it was legally due. The Privy Council held that money paid under mistake
of law can be recovered under Section 72.
b) A person purchased a car at a price which it was represented by the seller to he controlled price, but
afterwards the vendee came to know that he paid more than the controlled price, upon the false representation
of the seller. It was held that the excess payment was a payment made by mistake and the vendee could
recover it.
Example
A had obtained a decree against B but obtained an attachment against C's property and took possession of it
to obtain satisfaction for the amount of the decree. C on being ousted from the property paid the sum under
protest-C then sued for refund of the money. It was held that C having paid the money under coercion within
the meaning of Section 72 was entitled to recover the sum.
PERFORMANCE OF CONTRACTS
OFFER OF PERFORMANCE OR TENDER
Essentials of a valid tender
Example
P sent a single cheque for two items, only one of which was due at the time, while the other was payable after
sometime. The cheque being one and indivisible could be accepted as whole or not at all. It was held that the
promisee was within his right in rejecting cheque.
Example
A owes B Rs 1000 payable on 1st June with interest. B offers to pay on 1st May the amount with interest up to
1st may. It is not a valid tender as it is not made at the appointed time.
Example
A contracts to deliver to B at his warehouse on the 1st March 1996, 100 bales of cotton of a particular quality.
In order to make a valid offer of performance, A must bring the cotton to B's warehouse on the appointed day
under such circumstances that B may have a reasonable opportunity of satisfying himself that the thing offered
is cotton of the quality contracted for and that there are 100 bales.
BY WHOM CONTRACTS MUST BE PERFORMED
Example
A promises to paint a picture for B, the promise must be performed by A himself.
Example
(a) A promises to deliver goods to B on a certain day on payment of Rs.lOOO. A dies before that day. A's
representatives are bound to deliver the goods to B, and B is bound to pay Rs. 1000 to A's representatives.
(b) A promises to paint a picture for B, by a certain day at a certain price. A dies before the day. The contract
cannot be enforced either by A's representative or by B.
WHO CAN DEMAND PERFORMANCE?
Example
A promises B to sell his house to C for Rs. 20,000. A does not perform the contract. C cannot sue A. It is only B
who can enforce the promise against A.
TIME AND PLACE OF PERFORMANCE
Example
A promises to deliver goods at B's warehouse on the first January. On that day A brings the goods to B's
warehouse, but after the usual hour for closing it, and they are not received. A has not performed his promise.
Example
A undertakes to deliver a thousand maunds of jute to B on a fixed day. A must apply to H to appoint a
reasonable place for the purpose of receiving it and must deliver to him at such place.
Example
(a) A desires B who owes him Rs. 100 to send him a note for Rs. 100 by post. The debt is discharged as soon
as B puts into the post a letter containing the note duly addressed to A.
(b) B owes A 2,000 rupees. A desires B to pay the amount to A's account with C a banker. B who also banks
with C orders the amount to be transferred from his account to A's credit and this is done by C. Afterwards, and
before A knows of the transfer C fails. There has been a good payment by B.
(c) A owes B 2,000 rupees. B accepts some of A's goods in reduction of the debt. The delivery of the goods
operates as a part payment.
TIME AS THE ESSENCE OF THE CONTRACT
When time is of the essence of the contract
Example
(a) D agreed to sell and deliver 6 bales of cotton to P on 12"' July 1974. But he failed to deliver the cotton by
that time. The contract was voidable at the option of P.
(b) There was an agreement with the railway administration for the transportation of oranges. The agreement
provided that the goods are to be carried by special type of train, which is faster than the ordinary goods train.
The railways failed to deliver the goods within the stipulated period. It was held that the railway was liable as
time was of the essence of the contract.
Example
P stipulated with D to engage his elephant for the purpose of kheda operations (to capture wild elephants). The
contract provided that the elephant would be provided on the 1 st October; but D obtained an extension of time
till the 6th of October and yet did not deliver the elephant till the 11th. P refused to accept the elephant and
sued for damages for the breach. It was held that P was entitled to recover as the parties intended that time
should be of essence of the contract
When time is not of the essence of the contract
Example
The lessee of a petrol pump had to apply for the renewal of the lease within a time fixed by the contract. The
lessee was late by 10 days in his application for renewal. The landlord refused to renew. It was held that the
time so fixed was of the essence of the bargain.
DEVOLUTION OF JOINT RIGHTS AND LIABILITIES
Example
(a) A, B and C jointly promise to pay D Rs. 3000. D may compel either A, or B or C to pay him Rs. 3000.
(b) A, B and C jointly promise to pay D the sum of Rs. 3000. C is compelled to pay the whole. A is insolvent but
his assets are sufficient to pay one half of his debts. C is entitled to receive Rs. 500 from A's estate and Rs.
1,250 from B.
Example
A, B and C, are under ajoint promise to pay D Rs. 3000. A and B being only sureties for C. C fails to pay. A and
B are compelled to pay the whole sum. They are entitled to recover it from C.
Example
A, B and C are under a joint promise to pay X Rs. 3000. X may release C from liability: but A and B remain
liable to pay to X. C is not released from the responsibility to A and B. If X recovers the amount from A and B,
they have a right of ratable contribution from C.
Example
A in consideration of 5000 rupees lent to him by B and C, promises B and C jointly to repay them that sum with
interest on a day specified. B dies. The right to claim performance rests with B's representative jointly with C
during C's life and after the death of C with the representatives of B and C jointly.
PERFORMANCE OF RECIPROCAL PROMISES
Simultaneous reciprocal promises
Example
A and B contract that A shall deliver goods to B at a price to be paid by installment, the first installment to be
paid on delivery. A need not deliver unless B is ready and willing to pay the first installment on delivery.
B need not pay the first installment unless A is ready and willing to deliver the goods on payment of the first
installment.
Conditional reciprocal promises
Example
A and B contract that A shall build a house for B at a fixed price. A's promise to build the house must be
performed before B's promise to pay for it.
Example
A and B contract that B shall execute certain work for a thousand rupees. B is ready and willing to execute the
work accordingly, but A prevents him from doing so. The contract is voidable at the option of B, and if he elects
to rescind it. lie is entitled to recover from A compensation for any loss which he has incurred by its non-
performance.
Example
(a) A contracts with B to execute certain builder's work for a fixed price, B supplying the timber necessary for
the work. B refuses to supply any timber and the work cannot be executed. A need not execute the work and B
is bound to make compensation to A for any loss caused to him by the non- performance of the contract.
(b) A promises to B to sell him one hundred bales of merchandise to he delivered next day and B promises A
to pay for them within a month. A does not deliver according to his promises. B's promise to pay need not be
performed and A must make compensation.
Reciprocal promises one legal and the other illegal
Example
A and B agree that A shall sell a house for 10,000 rupees but that if B uses it as a gambling house, he shall pay
A 50, 000 rupees for it. The first set of reciprocal promises namely to sell the house and to pay 10,000 rupees
for it is a contract. The second set is for an unlawful object namely that B may use the house as a gambling
house and is a void agreement.
Alternative promise one branch being illegal
Example
A and B agree that A shall pay B 1000 rupees for which B shall afterwards deliver to A either rice or smuggled
opium. This is a valid contract to deliver rice and a void agreement as lo the opium.
APPROPRIATION OF PAYMENTS
i. Appropriation by debtor.
Example
A owes to B among other debts the sum of 567 rupees. B writes to A and demands payment of this sum. A
sends to B 567 rupees. This payment is to be applied to the discharge of the debt of which B had demanded
payment.
Example
A owes B, among other debts, Rs. 1,000 upon a promissory note which falls due on the first June. He owes B
no other debt of the amount. On the first June, A pays to B 1000 rupees. The payment is to be applied to the
discharge of the promissory note.
2. Appropriation by creditor
Example
(a) A owes several debts to B, one of them of Rs. 5,000 is time barred. A sends Rs. 10,000 to B without
indicating to which debt the amount is to be appropriated. B may appropriate Rs. 5000 against the time barred
debt if he so chooses.
(b) 5 was an unregistered dentist who could not recover any fee for performing a dental operation but could sue
for the materials supplied, 5"s bill against P was 45, 20 for services and 25 for materials supplied. P paid
20 without appropriating it. In an action by S it was held that S could appropriate 20 towards the payment of
his professional fees because it was a lawful debt although irrecoverable.
3. Appropriation by law
Example
(a) A owes two debts of Rs. 2000 each which are time barred and another debt of Rs.4,000 to B. A sends Rs.
2000. Neither party makes any appropriation. Rs. 2000 would be appropriated ratebly against the two debts of
Rs. 2000 each, which are time barred i.e., Rs. 1000 would be appropriated against each debt.
(b) X guarantees Ys accounts with the bank. When Y has "over-drawn upto 1000 X revokes his guarantee as
to future, transactions. The bank keeps the old account going and F pays in various sums amounting to 1000
but draws out equal to that amount. As soon as Y has paid in 1000 the liability of X to the bank will be
extinguished.
DISCHARGE OF CONTRACT
Novation
Novation may occur in two ways
Example
(a) A owes money to B under a contract. It is agreed between A, B and C that B shall thenceforth accept C as
his debtor instead of A. The old debt of A to Bs at an end and a new debt from C to B has been contracted.
(b) On an amalgamation of two companies into a new company, the creditors of the old companies can
enforce their claims against the new company. The new company is substituted for the old companies.
(c) A owes B Rs. 10,000. A enters into an arrangement with B and gives B a mortgage of his estate for Rs.
5,000 in place of the debt of Rs. 10,000. This is a new contract and extinguishes the old.
1.3 Essentials of novation
Example
A owes B Rs. 1,000 under a contract. B owes C Rs. 1,000. B orders A to credit C with Rs.l.OOO in his books,
but C does not assent to the arrangement. B still owes C Rs. 1.000 and no new contract has been entered
into.
1.4 Novation after breach
Example
The plaintiff sued to recover the sum of Rs. 1,173 due on a bond. After the due date of the bond the plaintiff
agreed to pay Rs 400 in cash and a new bond of Rs 700 payable by instalments. Subsequently the defendant
neither gave Rs 400 nor the bond.
Example
A enters into a contract with B for the supply of a 1,000 bales of cotton at his warehouse on 1st July 1980.
Later both A and B agree to postpone the date of delivery to 1st September 1980. This change amounts to
alteration of the contract.
Example
Rescission: A promises to supply certain goods to B on certain date. Before the actual date of performance A
and B mutually agree that the contract will not be performed. The contract is rescinded.
Example
1. X was induced to enter into an agreement by coercion. He can rescind the agreement.
2. A promises to deliver a horse in consideration of 5's promise to pay Rs. 150. The contract if rescinded by an
agreement will mean that A will waive his right to Rs. 150 and B the right to deliver the horse.
Suit for rescission
Example
(a) A owed large sums of money to B. C offered to pay lesser sum in satisfaction of B's claim on A. B accepted
it. It was held that the acceptance was in full satisfaction and B cannot claim balance from A after receiving
payment in full satisfaction
(b) A owes B 5000 rupees. C owes to B Rs. 1000 and B accepts them in satisfaction of his claim of A. This
payment is a discharge of the whole claim.
(c) A owes B under a contract a sum of money the amount of which has not been ascertained. A without
ascertaining the amount, gives to B and B in satisfaction thereof accepts the sum of Rs. 2,000. This is a
discharge of the whole debt. whatever may be its amount.
Example
A promises to paint a picture for B. B later on forbids him to do so. A is no longer bound to perform the promise.
Example
A owes B Rs. 1,000. B agrees to accept Rs. 750 in full satisfaction. The agreement to pay Rs. 750 is an accord
and the actual payment is the satisfaction.
3 DISCHARGE BY OPERATION OF LAW
Example
i) A holds certain property under a lease. Subsequently he buys the property. His rights as a lessee is merged
into his right of ownership now acquired.

(ii) If X and Y enter into an oral contract and afterwards make an identical contract under seal, the oral contract
is merged or lost in the formal contract.
Example
A promises to paint a picture for B by a certain day, at a certain price. A dies before the day. The contract
cannot be enforced either by A's representative or by B.
4 DISCHARGE BY BREACH
Example
P agrees to deliver to Q 100 tons of sugar on 1st June. On 1st June he tenders the sugar but Q refuses to
accept delivery. There is breach of contract by Q.
Breach during the performance of the contract:
Example
(i) C agreed to supply to a railway company with 3,900 tons of railway chairs. After 1,787 tons had been
delivered the company told C that no more will be required. This is breach of contract by company.
(ii) In a charter party a vessel is chartered to go from England to Trieste and there load a cargo. It is further
agreed that the vessel must sail from England on or before 4th of February next. The ship started from England
some days after the 4th of February and when it reached Trieste the defendant refuses to load a cargo and
repudiates the contract. The defendant is justified in doing so i.e. refusing to load the cargo as there is a breach
of contract by the ship company.
4.1 Anticipatory Breach of Contract
Example
(a) P was engaged as D's courier on a continental tour to last from June I for 3 months at $10 per month.
Before June I, D, cancelled the appointment and informed P of the same. It was held that it was a clear case of
anticipatory breach of contract and P may sue D for damages without waiting till June I.
(b) A contracts with B on 1st January to sell 500 maunds of wheat and to deliver it on 1st May. On 15th April
A writes to B and says that he is not going to deliver the wheat. B may immediately treat the contract at an end
and file a suit for damages without waiting till it May, the scheduled date for performance.
(c) A agrees to marry B. Before the agreed date of marriage he marries Z
(d) W agrees to sing at L's theatre on and from a certain date. Before the date she enters into a long term
contract to sing at a different theatre.
4.2 Consequences of anticipatory breach
Example
(a) A, a singer enters into a contract with B, the manager of a theatre to sing at his theatre two nights in every
week during the next two months and B engages to pay her at the rate of 100 rupees for each night. On the 6th
night A wilfully absents herself. With the assent of B. A sings on the seventh night. B has signified his
acquiescence in the continuance of the contract and cannot now put an end to it, but is entitled to
compensation for the damage sustained by him through A's failure to sing on the sixth night.
(b) D promised to marry P, as soon as the D's father should die. During the father's life time D absolutely
refused to marry P. Although the time for the performance of the contract had not yet arrived. P was held
entitled to sue for breach of promise of marriage.
5 DISCHARGE BY IMPOSSIBILITY OF PERFORMANCE
Example
(a) A and B contract to marry each other. Before the time fixed for the marriage, A goes mad. The contract
becomes void.
(b) A contract to act at a theatre for six months in consideration of sum paid in advance by B. On several
occasions A is too ill to act. The contract on those occasions becomes void.
5.1 Destruction of the subject-matter
Point decided as
If the subject matter of the contract is destroyed the contract is discharged.
Facts of the case are
A music hall was agreed to be let out on certain dates, but before those dates it was destroyed by fire, it was
held that the owner was exonerated from liability to let the-building as promised.
Example
(a) The owner of a theatre agreed with the producer of a film to exhibit the same until the earnings ran thin.
During the course of the run, due to very heavy rains a wall of a theatre fell. The municipal authorities
prohibited the shows. It was held that further performance was excused.
(b) A person contracted to deliver 200 tons of potatoes from a particular field. The potatoes were destroyed by
a pest though no fault of the party. The contract was held to he discharged.
(c) The contract has been held to be void on the ground of impossibility i.e. destruction of the subject matter,
where the premises in which machinery was to installed had been destroyed by fire.
5.2 Death or personal incapacity
Example
(a) An artist undertook to sing at a theatre on a particular day. But the artist being too ill could not sing on the
day fixed for performance. It was held that the artist was not liable to pay damages.
(b) G contracts to act at a theatre for six months in consideration of a sum paid in advance by H. On several
occasions G is too ill to act. The contract to act on these occasions becomes void.
(c) An artist undertook to paint a picture for a certain price. Before he could do so, he met with an accident and
lost his right arm. Held the artist was discharged due to disablement.
5.3 Change of law
Example
(a) There was a contract to supply oil- seeds. But the Government rendered the sale and purchase of oil-seed
illegal under the Defence of India Rules. Both parties were discharged from the performance of such contract.
(b) A while purchasing a plot of land from B, agreed not to construct buildings on the site. Subsequently by an
Act of Parliament, the site was acquired by a railway company and buildings were raised thereon. In a suit by B
against A for the agreement it was held that A was discharged from liability as compliance with the agreement
became impossible by subsequent legislation
(c) M sold to N a specified parcel of wheat in a warehouse. Before delivery, the wheat was requisitioned by the
Government under statutory powers. The delivery being now legally impossible the contract was discharged.
(d) A, who was governed by Hindu Law and who already had a wife promises to marry B. in the meantime the
special Marriage Act is passed prohibiting polygamous marriage. The contract to marry becomes void.
5.4 Non-existence or non-occuring of a particular state of things
Example
A and B contract to marry each other. Before the time fixed for the marriage A goes mad. The contract
becomes void.
5.5 Declaration of war
Example
A merchant of London had agreed to deliver sugar of o.b. Hamburgh. War broke out between England and
Germany. It was held that the contract was dissolved by the out break of war.
5.6 Exceptions
1. Difficulty of performance
Example
(a) D agreed to supply coal within certain time. Due to Government restrictions on the transport of coal from
collieries there was a failure of delivery in time. But since coal was available in the open market from where D
could have obtained it, it was not a case of impossibility of performance.
(b) A sold B a certain quantity of Finaland Timber to be supplied between July and September. Before any
timber was supplied war broke out in the month of August and transport was disorganised so that A could not
bring any timber from Finland. It was held that the difficulty in getting the timber from Finland did not excuse A
from performance
(c) The appellants agreed to sell to the respondents a quantity of groundnuts to be
shipped from Sudan to Hamburg during November or December 196. On November 2nd, the Suez canal was
closed and remained closed for the next Five months. The appellants refused to perform the contract claiming
that it had been frustrated by the closure of the canal. The House of Lords held there was no frustration since it
would be possible to ship the nuts to Hamburg around the Cape of Good Hope.
2. Commercial impossibility
Example
(a) There was an agreement between D and P to repair certain machinery. D failed to repair the machine due
to strike of the workmen. It was held that a strike of workmen is not a sufficient reason to excuse performance.
(b) A promised to send certain goods, from Bombay to Antwerp in September. Before the goods were sent war
broke out and there was a sharp increase in the shipping rates. Held the contract was not discharged.
(c) A undertakes to supply certain goods to the government. Due to outbreak of war. the market price of the
goods suddenly shoots up. This does not discharge 'A' from the performance of the contract.
3. Impossibility due to the failure of a third person on whose work the promisor relied
Example
D agreed to sell goods to P as and when they got the same from the mills with whom they had placed orders.
The mills failed to supply. There is no impossibility of performance.
5. Failure of one of the objects
Example
X agreed to let out a boat to Y for the purpose of viewing a naval review to be held on the occasion of the
coronation of Edward VII and to cruise round the fleet. Owing to the king's illness the naval review was
abandoned but the fleet was assembled and the boat could have been used to cruise round the fleet. It was
held that the contract was not terminated.
6. Strikes, Lock-outs and civil disturbances
Example
X agreed to supply certain goods to Y. The goods were to be procured from Algeria.
Owing to riots and civil disturbances in that country goods could not be brought. It was held that this was no
excuse for the non-performance of the contract.
Effect of impossibility
Benefit to be restored
Example
(a) Lessee of municipal tonga stand sued the lessor (municipality) for refund of money paid by him on the
ground that the tongawallas did not use the municipal stand with the result that the plaintiff earned nothing. It
was held that the lessee was entitled to claim the refund of the amount, which he had paid.
(b) P entered into a contract with D for cutting babool trees on D's land. Before the expiry of
the term of the contract an ordinance came into force, which rendered the cutting of trees
without license unlawful. P could not obtain the license and he therefore, filed a suit for
refund of the amount of consideration and compensation. It was held that P could recover
the amount.
Compensation for non-performance
Section 56(3) provides that, "where a person has promised to do something which he knew or with
reasonable diligence he might have known to be impossible or unlawful and which the promisee did
not know to be impossible or unlawful such promisor must make compensation to such promisee foi-
any loss which such promisee sustains through the non-performance of the promise. Thus, this
clause provides that a contract may be void and yet compensation may be payable by the person
who is unable to perform it.
Example
A contracts to marry B. A is already married to C. Being forbidden by law to which he is subject to
practise polygamy. A must make compensation to B, for the loss caused to her by the non-
performance of his promise.
6 DISCHARGE BY LAPSE OF TIME
Example
A borrowed Rs. 5,000 from B a moneylender and agreed to repay the loan on 31st March, 1986. On 31st
March, 1986 A failed to repay the loan. But B cannot recover the amount of loan from A as the limitation period
for the recovery of loan is three years from the date of default, which has expired. And thus A is discharged
from his liability to pay the loan.
REMEDIES FOR BREACH OF CONTRACT
CANCELLATION OR RESCISSION
Example
(a) A singer contracts with B, the manager of theatre to sing at his theatre for two nights in every week during
the next two months and B engages to pay her Rs. 100 for each night performance. On the sixth night A
willfully absents herself from the theatre and B in consequence rescinds the contract. B is entitled to claim
compensation for the damage, which he has sustained through the non -fulfillment of the contract.
(b) C promises to deliver 5 tons of sugar to B on a certain date and B promises to pay the price on receipt of
the goods. C does not deliver the goods on the appointed day. B need not pay the price.
2.1 When may rescission be refused?
1. Restitution. '
Example
(a) A pays B Rs. 1000 in consideration of B'& promising to marry C A's daughter. C is dead at the time of
promise. The agreement is void but B must repay A Rs. 1000.
(b) A, a singer contracts with B, the manager of a theatre to sing at his theatre for two nights in every week
during the next two months and B engages to pay her Rs. 100 for each night's performance. On the sixth night
A willfully absents herself from the theatre and B in consequence rescinds the contract. B must pay A for the
five nights on which she had sung. (B can of course claim damages against A for breach of contract).
2. Specific performance.
Example
A agrees to sell two rare China vases to B. B may compel A to perform the contract specifically, because there
is no standard for ascertaining the actual damage which would be caused by the non- performance of the
promise.
Injunction.
Example
(a) G agreed to buy the whole of the electric energy required for his house from a certain company. This was
interpreted as a promise not to buy electricity from any other company.
He was therefore restrained by an injunction from any other company.
(b) N, a film actress agreed to act exclusively for Warner Bros for one year. During the year she contracted to
act for X. It was held that she could be restrained by an injunction from acting for X.
(c) A hotel keeper who obtained a lease of premises with a covenant that he would buy beer exclusively of
the lessor and his assigns was compelled to carry out his covenant by injunction restraining him from buying be
elsewhere.
5. Damages:
1. General damages
Example
(a) A contracts to sell and deliver 50 maunds of salt to B at a certain price to be paid on delivery. A breaks his
promise. B is entitled to receive from A by way of compensation the sum, if any by which the contract price
folds short of the price for which B might have obtained 50 maunds of salt of like quality at the time when the
salt ought to have been delivered.
(b) A tailor had delivered a sewing machine and some cloth to a railway company to be sent to a place where
he expected to earn special profits by reason of a forthcoming festival. But the railway was not aware of this
fact. The goods arrived at the destination long after the festival. It was held that the tailor could not claim
damages for loss of profits.
2. Special damages
Example
(a) A, a builder contracts to erect and finish a house by the 1st of January, in order that
B may give possession of it at that time to C, to whom B has contracted to let it. A is informed of the contract
between B and C. A builds the house so badly that, before the 1st January, it falls down and has to be rebuilt by
B, who in consequence loses the rent which he was to have received from C and is obliged to make
compensation to C for the breach of his contract. A must make compensation to B for the cost of rebuilding the
house, for the rent lost and for the compensation made to C.
(b) A having contracted with B, to supply B with 1000 tons of iron at 100 rupees a ton, to be delivered at a
stated time, contracts with C for the purchase of 1000 tons of iron at 80 rupees a ton, telling C that he does so
for the purpose of performing his contract with B. C fails to perform his contract with A, who cannot procure
other iron and B in consequence rescinds the contract. C must pay to A 20,000 rupees being the profit which A
would have made by the performance of his cataract with B.
(c) The plaintiff company contracted to supply a quantity of shoes at an unusually high price. Shoes were for
the use of the French Army and were to be delivered on 3rd February. They consigned the shoes with the
defendant, the Railway Company with instructions that the consignment must reach or, 3rd February, Owing to
delay in reaching the consignment the consignee the army authorities refused to take delivery and the plaintiff
sold them in the market at reduced rates. The plaintiff sought to recover, in addition to ordinary loss for delay,
the difference between the contracted price and the price with they fetched by selling the shoes in the market.
It was held that this damage was not recoverable. They could do so only if the railway company had been
informed of the exceptional loss which the plaintiff might suffer from an unusual delivery.
3. Vindictive or exemplary damages
Example
(a) A libel was committed by an author and its publisher against a distinguished naval officer. The officer sued
for damages. He was awarded 115000 compensatory and 25000 examplary damages against both
defendants.
(b) The bank disobeyed the customer's order to stop payment of a particular cheque and as a consequence
another cheque for 215.s 8d was dishonoured as a result of inadequate funds. The court awarded 250 as
damages to the plaintiff.
4. Nominal damages
Example
D contracted to purchase a Vespa Scooter from a dealer. But he failed to purchase the scooter. However, the
demand for Vespa scooters for exceeded the supply, and the scooter dealer could sell the scooter agreed to be
purchased without loss of profit. The dealer is entitled only to nominal damages.
2.2 Measure of Damages
Point decided is
Where the special circumstances are not brought to the notice of the parties, special damages cannot be
claimed.
Facts of the case are
Example
In the case, the crankshaft of P's flour mill became broken. He gave it to D a common carrier who promised to
deliver it to the foundry in two days, where the new shaft was to be made. The mill stopped working. D delayed
and so the mill kept idle for another 5 days. P received the repaired crankshaft seven days later than they
would have otherwise received. P brought a suit for damages not only for the delay in the delivery of the broken
part but also for the loss of profits suffered by the mill for not having been worked. In this case, no doubt D was
informed that the mill was stopped but he was not made aware that for want of that part the whole mill would
remain idle. The court held that P was entitled only to ordinary damages and /) was not liable for the loss of
profits caused by the stoppage of the mill during other period of additional delay due to M negligence as D was
not told of the existence of the special circumstances.
2. General damages
Example
(a) X was to provide Y with ship on a certain day to take a cargo of coal to Calcutta. X failed in this. So Y had
to charter another ship and advanced freight. He had also to buy coal at a higher price. Y was entitled to
recover from X both the increase in freight as well as increase in the price of coal.
(b) A contracts to sell and deliver 50 maunds of saltpetre to fiat a certain price to lie paid on delivery. A breaks
his promise. B is entitled to receive from A by way of compensation the sum if any by which the contract price
fails short of the price for which B might have obtained 50 maunds of saltpetre of like quality at the time when
the saltpetre ought to have been delivered.
(c) A contracts to pay a sum of money to B in a day specified. A does not pay the money on that day. B in
consequence of not receiving the money on that day is unable to pay his debts and is totally ruined. A is not
liable to make good to R anything except the principal sum he contracted to pay together with interest up to the
date of payment.
3. Special damage
Example
(a) P dealing in cattle food sent samples by train for being exhibited at a particular agricultural show which fact
was made known to the railway company. The goods reached the destination after the show was over. It was
held that the special circumstances having been brought to the notice of the railway company, special damages
namely the loss of profits were recoverable.
(b) A parcel of books was sent by the consignor to himself as the consignee. In transit through the railways
three volumes were lost. That rendered these whole set of reports useless. The consignor Filed a suit for the
recovery of the price of the whole set. As the railway had absolutely no notice that loss of three volumes would
render the whole set useless. They were held to be liable only for the loss of three volumes.
(c) P bought from L some copra cake. P sold the cake to B. who sold it to various dealers who in turn sold it to
farmers, who used it for cattle feeding. The copra cake was poisonous and the cattle fed on it died. The various
buyers filed suits against their sellers and obtained damages. The various sellers filed suits against P and
obtained damages. P claimed from L the damages and costs he had to pay. Held as it was within the
contemplation of the parties that the copra cake was to be used for feeding cattle. L was liable to pay damages.
4 Remote damages
Example
Mr. Hobbs and family travelled from Hampden to Wimbledon but the train went in a wrong direction and the
family had to get down at a place where there was no conveyance and no shelter. The result that they had to
walk at mid-night for about four or five miles. Mrs. Hobbs got ill. Mr. Hobbs filed a suit (i) for damages for
inconvenience and(ii) For damages for illness. The court awarded damages in respect of first claim but as
regards second, the court that it did not arise in the usual course of things and was too remote a
consequence.
6. Mitigation of Loss
Example
(a) P's car was damaged due to D's negligence. P got the car repaired at a cost. Which was double the value
of a new equally good substitute car. Court did not allow P to recover the difference between the insurance
money and the cost of repair but allowed the difference between the insurance money and market value of the
car.
(b) The plaintiff took a shop on lease and paid an advance. The defendant could not give him possession: and
the plaintiff chase to do no business for 8 months though there were other shops available in the vicinity. Held
he was entitled only to a refund of his advance as his duty was to minimize damages and he could have done
so by taking another shop.
7. Liquidated damages
Example
A contracts with B to pay B Rs. 1000 if he fails to pay B Rs. 500 on a certain day. A fails to pay B Rs. 500 on
that day. B is entitled to recover from A such compensation not exceeding Rs. 1000 as the court considers
reasonable.
8. Vindictive damages
Example
Mrs. G paid a cheque for 9 drawn on W. Bank, to her landlord in payment of rent. The
cheque was wrongfully dishonoured by the bank. She was awarded only 40 sh. As nominal damages, reason
being a non-trader cannot get heavy damages, unless the damages are proved.
10. Difficulty of assessment
Example
H organised a beauty competition in which 50 ladies were to be selected by voles of the readers of certain
newspapers. H would select 12 out of 50 and secure theatrical jobs for them. C was one of the 50 and by H's
breach of contract was prevented from being present when the final selection was made. Held C was entitled to
damages even though it was difficult to calculate them.
2.3 Penalty and liquidated damages
Example
(a) A contract with B, that if A practises as a surgeon in Calcutta, he will pay B. Rs. 5000. A practices as a
surgeon at Calcutta, B is entitled to such compensation not exceeding Rs.5000 as the court considers
reasonable.
(b) A contracts with B to pay B Rs. 1000 if he fails to pay B Rs. 500 on a given day. A fails to pay B Rs. 500
on that day. B is entitled to recover from A such compensation not exceeding Rs. 1000 as the court considers
reasonable.
(c) A borrows Rs. 100 from B and gives him a bond for Rs. 200 payable by live yearly installments of Rs. 40
with a stipulation that in default of payment, the whole shall become due. This is a stipulation by way of penalty.
(d) A undertakes to repay B. a loan of Rs. 100 by five equal monthly installments with a stipulation that in
default of payments of any installment, the whole shall become due. This stipulation is not by way of penalty
and the contract may be enforced according to its terms.
INDEMNITY AND GUARANTEE
1 CONTRACT OF INDEMNITY
Example
(a) contracts to indemnify B against the consequences of any proceedings, which C may take against B in
respect of certain sum of Rs. 200. This is a contract of indemnity.
(b) A promises to indemnify B, a banker for any loss that he may sustain by reason of the dishonesty of the.
cashier appointed by B at the request of A. The contract between A and B is a contract of indemnity. Here A is
the indernnifier and B the indemnity holder.
Example
P. an auctioneer sold certain cattle on the instruction of D. It subsequently turned out that the cattle did not
belong to D but to another person who made P liable. The auctioneer in turn sued D for the indemnity of the
loss he had thus suffered by acting on D's directions. It was held that D had to indemnify P.
Example
X asks Y to burn the house of Z promising to compensate Y against the consequences. Y sets the house of 2
on fire and is fined Rs. 10,000. Y cannot recover the amount from X as the object of the contract is not lawful.
2 CONTRACT OF GUARANTEE
Example
(a) P advances loan of Rs. 10,000 to Q and R promises to P that if Q does not repay the loan. R will do so.
This is a contract of guarantee. Here Q is the principal debtor. R is the surety and P, the creditor.
(b) P deposited a sum of money in a branch of a bank having its head office at Dacca. D gave a guarantee to
P that he would be personally liable for any loss that P might sustain. Due to political happenings as a result of
partition of India, the branch of bank was closed. No payments were made to the depositors at that bank from
that date. The head office of the bank being at Dacca, in Pakistan, communication between India and Pakistan
became difficult. D pleaded frustration of the contract by reason of the partition of India. It was held that section
56 did not apply and that D's liable as surety.
Essentials of a valid guarantee
1. Existence of a principal debt
Example
A bank made an overdraft to a customer. The overdraft was guaranteed by D. The overdrafts were contrary to
a statute, which not only imposed penalty upon the parties to such drafts but also made them void. The
customer having defaulted, D was sued for the loss. It was held that D was not liable. The court observed, "If
no debt is due, if the banker is forbidden from having any claim against his customer, there is no liability
incurred by the surety."
2. Consideration for a contract of guarantee
Example
(a) B requests A to sell and deliver to him goods on credit. A agrees to do so provided C will guarantee the
payment of the price of the goods. C promises to guarantee the payment in consideration of A's promise to
deliver the goods. This is a sufficient consideration for Cs promise.
(b) A sells and delivers goods to B. C afterwards requests A to forebear to sue B for the debt for a year, and
promises that, if he does so, C will pay for them in default of payment by B. A agrees to forebear as requested.
This is a sufficient consideration for C's promise.
(c) A sells and delivers goods to B. C afterwards without consideration, agrees to pay for them in default of B.
The agreement is void.
3. There should be no misrepresentation or concealment
Concealment
Example
(a) D was invited to give a guarantee for the fidelity of a servant. The employer had earlier dismissed the
servant for dishonesty, but did not disclose this fact to D. The servant committed another embezzlement. The
surety was held not liable. "the surety believed that he was making himself answerable for a presumably
honest man, not for a known thief. "
(b) G guarantees to C payment for iron to be supplied by him to B to the extent of 2000 tons. B and C have
privately agreed that B should pay five rupees per ton beyond the market price, such excess to be applied in
liquidation of an old debt. This agreement is concealed from G. G is not liable as a surety.
KINDS OF GUARANTEE
Example
(a) A in consideration that B will employ C in collecting the rents of B's zamindari. promises B to be
responsible, to the amount ofRs. 5,000 for the due collection and payment by C of those rents. This is a
continuing guarantee.
(b) A guarantees payment to B of the price of five sacks of flour to be delivered by B to C and to be paid for in a
month. B delivers five sucks to C. C pays for them. Afterwards B delivers four sacks to C, which C does not pay
for. The guarantee given by A was not a continuing guarantee and hence he is not liable for the price of four
sacks.
(c) A guarantees payment to B, a tea dealer to the amount of Rs. 1000 for any tea he may from time to time
supply to C. B supplies C with tea to the value of Rs. 1000 and C pays B for it. Afterwards B supplies C with tea
to the value of Rs. 2000. C fails to pay. The guarantee given by A was a continuing guarantee and he is
accordingly liable to B to the extent of Rs. 1000.
Revocation of continuing guarantee
(a) By notice of revocation by the surety '
Example
A, in consideration of B's discounting at A's request, bills of exchange for C guarantees to B for twelve months,
the due payment of all such bills to the extent of Rs. 5000. B discounts bills for C to the extent of Rs. 2000.
Afterwards at the end of three months A revokes the guarantee. This revocation discharges A from all liability to
B, for any subsequent discount. But A is liable toff for Rs. 2000, on default of C.
4 NATURE OF SURETY'S LIABILITY
Example
(a) A gives a loan of Rs. 5000 to B and C agrees to stand as a surety for repayment to the extent of Rs. 2000.
B fails to pay the whole amount. C is liable only to the extent of Rs. 2000.
(b) A guarantees to B the payment of a bill of exchange by C the acceptor. The bill is
dishonoured by C. A is liable not only for the amount of the bill but also for any interest and charges which may
have become due on it.
5 RIGHTS OF SURETY
1 Rights of the surety against the creditor
Example
(a) C advances to B, his tenant Rs. 2000 on the guarantee of A. C has also a further security for the 2000
rupees by a mortgage of B's furniture. C cancels the mortgage. B becomes insolvent, and C sues A on his
guarantee. A is discharged from liability to the amount of the value of the furniture.
(b) C, a creditor whose advance to B is secured by a decree receives also a guarantee for that advance from
A. C afterwards takes B's goods in execution under the decree and then without the knowledge of A withdraws
the execution. A is discharged.
(c) A as surety for B makes a bond jointly with B to C to secure a loan from C to B.
Afterwards C obtains from B a further security for the same debt. Subsequently C gives up the further security.
A is not discharged.
Rights of surety against the principal debtor
Rights of subrogation
Example
A mortgages a house to B. C offers himself as a surety for B. A fails to pay. B recovered the amount from C. C
can get into the shoes of the creditor B and enforce the mortgage itself against A.
2. Right to indemnity
Example
(a) B is indebted to C and A is surety for the debt, C demands payment from A and on his refusal sues him for
the amount. A defends the suit having reasonable grounds for doing so, but he is compelled to pay the amount
of the debt with costs. He can recover from B the amount paid by him for costs, as well as the principal debt.
(b) C lends to B a sum of money and A at the request of B accepts a bill of exchange drawn by B upon A to
secure the amount. C the holder of the bill demands payment of it from A and on As refusal to pay, sues him
upon the bill. A not having reasonable grounds for so doing defends the suit and has to pay the amount of the
bill and costs. He can recover from B the amount of the bill but not the sum paid for costs as there was no real
ground for defending the action.
(c) A guarantees to C, to the extent of Rs. 2000, payment for rice to be supplied by C to B. C supplied to B
rice to a less amount than Rs. 2000 but obtains from A payment of the sum of Rs. 2000 in respect of the rice
supplied. A cannot recover from B, more than the price of the rice actually supplied.
5.3 Rights of surety against co-sureties
Example
(a) A, B and C are sureties to D for a sum of Rs. 3000 lent to E. E makes default in payment. A, B and C are
liable as between themselves to pay Rs. 1000 each.
(b) A, B and C are sureties to D for a sum of Rs. 1000 to E. and there is a contract between A, B and C that A
is to be responsible to the extent of one quarter. B to the extent of one quarter and C to the extent of one half.
E makes default in payment.
As between the sureties, A is liable to pay Rs. 250, B Rs. 250 and C Rs. 500.
Example
(a) A, B and C as sureties for D, enter into three several bonds, each in a different penalty namely A in the
penalty of Rs. 10,000, B in that of Rs. 20,000 and C in that of Rs. 40,000 conditioned for D's duly accounting to
E. D makes default lo the extent of Rs. 30,000. A, B and C are each liable to pay Rs. 10,000.
(b) A, B and C are sureties for a debt by D to E. A undertakes to be liable for
Rs. 10,000, B for Rs. 20,000 and C for Rs. 40,000 D makes default to the extent of Rs. 30,000. A, B and C are
each liable to the extent of Rs. 10.000. But the position would be different if D makes default to the extent of
Rs. 40.000. In that case A shall be liable to pay Rs. 10,000 and B and C for Rs. 15,000 each.
6 DISCHARGE OF SURETY
6.3 Discharge by variation in terms of contract
Example
(a) A becomes surety to C for the payment of rent by B under a lease. Afterwards. B and C contract, without
A's consent that B will pay rent at a higher rate. A is discharged from suretyship in respect of the arrears of rent
accruing subsequent to such variance.
(b) C contracts to lend B Rs. 5000 on 1st March. A guarantees repayment C pays Rs. 5000 to B on the 1st
January. A is discharged from his liability as the contract has been varied in as much as C might sue B for the
money before the 1st March.
(c) C agrees to appoint B, as his clerk to sell goods at a yearly salary, upon A's becoming surety to C, for B's
duly accounting for moneys received by him as such clerk. Afterwards, without A's knowledge or consent C and
B agree that B should be paid by a commission on the goods sold by him and not by a fixed salary. A is not
liable for subsequent misconduct of B.
(d) A gives to C a continuing guarantee to the extent of Rs. 3000 for any oil supplied by C to B on credit.
Afterwards B becomes embarrassed and without the knowledge of A, B and C contract that C shall continue to
supply B with oil for ready money and the payments shall be applied to the then existing debts between B and
C. A is not liable on his guarantee for any goods supplied after this new arrangement.
(e) D guaranteed the conduct of a bank manager. The bank after wards raised the managers salary on the
condition that he would be liable for one fourth of the losses on discounts allowed by him. No communication of
this new arrangement was made to D. The manager allowed a customer to overdraw his account and the bank
suffered a loss. It was held that D could not be called upon to compensate as the fresh agreement was not
communicated to him.
6.4 Release or discharge of principal debtor
Example
A contracts to build a house for B, and C stands guarantee to B for the due performance of the contract by A.
Thereafter if B releases A from the performance of the contract, the liability of C as a surety shall come to an
end.
Example
(a) A contracts to build a house for B, on the condition that B will supply the necessary timber. C guarantees
A's performance of the contract. B fails to supply the timber. It would discharge C as a surety.
(b) A contracts with B to grow a crop of indigo on A's land and to deliver it to fiat a fixed rate and C
guarantees A's performance of this contract. B diverts a stream of water, which is necessary for irrigation of A's
land and thereby prevents him from raising the indigo. C is no longer liable on his guarantee.
6.5 Discharge of surety on composition, or extension of time or promise not to sue
Example
C the holder of an overdue bill of exchange drawn by A as surety for B and accepted by B, contracts with M to
give time to B, A is not discharged.
Example
B owes to C a debt guaranteed by A. The debt becomes payable. C does not sue B for a year after the debt
has become payable. A is not discharged.
6.6 By creditor's act or omission impairing surety's eventual remedy
Example
(a) A puts M as apprentice to B, and gives a guarantee to B for M's fidelity. B promises on his part that he will,
at least once a month see M make up the cash. B omits to see this done as promised, and M embezzles. A is
not liable to B on his guarantee.
(b) B contracts to build a ship for C for a given sum, to be paid by installments as the work reaches certain
stages. A becomes surety to C for due performance of the contract. C without the knowledge of/i prepays to B
the last two installments. A is discharged by this prepayment.
(c) C lends money to B on the security of a joint and several promissory note made in C's favour by B and by A
as surety for B together with a bill of sale of B's furniture which gives power to C to sell the furniture and supply
the proceeds in discharge of the note.
Subsequently C sells the furniture but owing to his misconduct and willful negligence only a small price is
realised. A is discharged from liability on the note.
6.7 By the creditor losing his security
Example
(a) C advances to B his tenant Rs. 2000 on the guarantee of A. C has also a further security for a sum of Rs.
2000 by a mortgage of B's furniture, C cancels the mortgage. B becomes insolvent and C sues A on his
guarantee. A is discharged from liability to the amount of the value of furniture.
(b) C a creditor whose advance to B is secured by a decree receives also a guarantee for that advance from A.
C afterwards -takes B's goods in execution under the decree and then without the knowledge of A withdraws
the execution. A is discharged.
(c) A, as surety for B, makes a bond jointly with B and C to secure a loan from C to B. Afterwards C obtains
from B a further security for the same debt. Subsequently C gives up the further security. A is not discharged.
6.8 By concealment or misrepresentation
Example
A engages B as clerk to collect money for him. B fails to account for some of his receipts and A, in
consequence calls upon him to furnish security of his duly accounting. C gives his guarantee for Bs duly
accounting. A does not acquaint C with B's previous conduct. B afterwards makes default. The guarantee is
invalid.