BLS LLB 5 Years Sem 5 Contract I 2017-18 Question Paper with Solutions

Section 2(b) of the Indian Contract Act, 1872: "When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promise."

So a promise is an accepted proposal. Section 2(c) adds that the person making the proposal is the promisor and the person accepting it the promisee.

Section 2(e) then builds on it: "Every promise and every set of promises, forming the consideration for each other, is an agreement", and Section 2(h), "an agreement enforceable by law is a contract".

Section 13 first defines consent: two or more persons consent when they agree upon the same thing in the same sense, that is consensus ad idem.

Section 14: "Consent is said to be free when it is not caused by (1) coercion (Section 15), (2) undue influence (Section 16), (3) fraud (Section 17), (4) misrepresentation (Section 18), or (5) mistake, subject to the provisions of Sections 20, 21 and 22.

Consent is said to be so caused when it would not have been given but for the existence of such coercion, undue influence, fraud, misrepresentation or mistake."

Free consent is an essential of a valid contract under Section 10.

Section 29: "Agreements, the meaning of which is not certain, or capable of being made certain, are void."

So such an agreement is void: it creates no rights and no obligations, and no suit lies upon it. Certainty of terms is an essential of a valid contract under Section 10, because a court cannot enforce a promise whose content it cannot ascertain.

Illustrations: an agreement to sell "a hundred tons of oil", with nothing to show what kind, is void; but where the seller is a dealer in coconut oil only, the nature of his trade makes the meaning certain and the agreement is good.

Section 67. Effect of neglect of promisee to afford promisor reasonable facilities for performance. "If any promisee neglects or refuses to afford the promisor reasonable facilities for the performance of his promise, the promisor is excused by such neglect or refusal as to any non performance caused thereby."

Illustration: A contracts with B to repair B's house. B neglects or refuses to point out to A the places in which his house requires repair. A is excused for the non performance of the contract if it is caused by such neglect or refusal.

So the promisor is not liable for a failure to perform which was caused by the promisee's own neglect or refusal.

Section 39 of the Specific Relief Act, 1963: "When, to prevent the breach of an obligation, it is necessary to compel the performance of certain acts which the court is capable of enforcing, the court may in its discretion grant an injunction to prevent the breach complained of, and also to compel performance of the requisite acts."

A mandatory injunction is positive in form: it orders the defendant to do something, ordinarily to undo a wrong already committed, for example to demolish a wall built across the plaintiff's right of way. An ordinary injunction merely forbids.

Two conditions: the acts must be such as the court is capable of enforcing, and the court must think it necessary to compel them to prevent the breach.

Illustrations: a warehouseman who agrees to store goods and instead sells them; a carrier who agrees to carry goods by a stated route and deliberately takes another; a seller of a car "in perfect condition" who delivers a wreck towed on a rope.

The English retreat. In Photo Production Ltd. v. Securicor Transport Ltd. (1980) the House of Lords held that fundamental breach is not a rule of law but a rule of construction: a sufficiently clear clause can exclude liability even for a serious breach, and the question is always what the clause, properly construed, covers. That followed Suisse Atlantique (1967).

The Indian position. Indian courts have continued to use the doctrine as a control on unfair standard terms, and it sits alongside the stronger domestic control of unconscionability: Central Inland Water Transport Corporation v. Brojo Nath Ganguly (1986 SC) struck down an unfair and unreasonable clause in a contract between parties of unequal bargaining power under Section 23 as opposed to public policy. Section 73 also limits its practical reach, since an exemption clause cannot convert a breach into lawful conduct.

Statutory exceptions, Indian Partnership Act, 1932: Section 11(2), restraint on a partner during the partnership; Section 36(2), an outgoing partner, if the restrictions are reasonable; Section 54, restraint on or in anticipation of dissolution; and Section 55(3), on the sale of the firm's goodwill.

Judicial exceptions: trade combinations that regulate rather than restrain; exclusive dealing and sole selling agency agreements; and, most importantly, restraints operating during employment, which are valid: Niranjan Shankar Golikari v. The Century Spinning and Manufacturing Co. Ltd. (1967 SC). Restraints operating after employment are void: Superintendence Company of India (P) Ltd. v. Krishan Murgai (1980 SC); Percept D'Mark (India) Pvt. Ltd. v. Zaheer Khan (2006 SC). A covenant protecting confidential information and trade secrets survives, because that is not a restraint on exercising a trade.

Contrast with English law. England applies a reasonableness test, upholding a restraint reasonable in duration, area and scope and in the public interest (Nordenfelt v. Maxim Nordenfelt, 1894). India has no such test: Section 27 avoids every restraint, partial or total, reasonable or unreasonable, except those expressly saved. Madhub Chunder v. Rajcoomar Doss (1874 Cal).

Section 16(3). Burden of proof. Where a person in a position to dominate the will of another enters into a contract with him, and the transaction appears, on the face of it or on the evidence adduced, to be unconscionable, the burden of proving that the contract was not induced by undue influence lies upon the person in a position to dominate.

Presumed relationships: parent and child, guardian and ward, trustee and beneficiary, advocate and client, doctor and patient, spiritual adviser and disciple. Mannu Singh v. Umadat Pande (1890 All), a gift by a disciple to his guru, set aside; Wajid Khan v. Raja Ewaz Ali Khan, an old illiterate woman and her confidential manager.

No presumption: husband and wife (except a pardanashin lady), landlord and tenant, creditor and debtor, and friends. There undue influence must be pleaded and proved: Subhas Chandra Das Mushib v. Ganga Prasad Das Mushib (1967 SC).

Pardanashin woman: the person relying on the deed must affirmatively prove that it was explained to and understood by her, that it was her free and intelligent act, and that she had independent advice.

For full marks, cover: what the problem is, Sections 59, 60 and 61 in order with an illustration, Clayton's rule, and why it matters.

Appropriation of payments answers a single question: where a debtor owes several distinct debts to the same creditor and pays a sum insufficient to discharge them all, which debt is discharged? Sections 59 to 61 of the Indian Contract Act, 1872, answer it.

Section 59. Where the debt to be discharged is indicated. Where a debtor owing several distinct debts makes a payment with an express intimation, or under circumstances implying, that it is to be applied to a particular debt, the payment, if accepted, must be applied accordingly. The debtor has the first right to appropriate.

Illustration: A owes B, among other debts, Rs. 1,000 upon a promissory note falling due on 1 June, and owes B no other debt of that amount. On 1 June A pays B Rs. 1,000. The payment is to be applied to the promissory note, the circumstances implying it.

For full marks, cover: Sections 5 and 6 in full, the table, and the policy against self help.

The Specific Relief Act, 1963, provides two routes, in Sections 5 and 6.

Section 5. Recovery of specific immovable property. "A person entitled to the possession of specific immovable property may recover it in the manner provided by the Code of Civil Procedure, 1908."

• Founded on title; the plaintiff recovers on the strength of his own title.
• An ordinary suit; the decree is appealable.
• Limitation twelve years from the date the defendant's possession became adverse: Article 65, Limitation Act, 1963.

Section 6. Suit by person dispossessed.

• 6(1): a person dispossessed without his consent of immovable property otherwise than in due course of law may sue to recover possession, notwithstanding any other title that may be set up.

Where the plaintiff is still in possession and is being interfered with, the remedy is an injunction under Sections 38 and 39, or a temporary injunction under Order XXXIX of the Code of Civil Procedure.

• (b) where the performance would involve some hardship on the defendant which he did not foresee, whereas its non performance would involve no such hardship on the plaintiff;
• (c) where the defendant entered into the contract under circumstances which, though not rendering it voidable, make it inequitable to enforce specific performance.

Explanation 1: the mere inadequacy of consideration, or the mere fact that the contract is onerous to the defendant or improvident in its nature, shall not constitute an unfair advantage or hardship. Explanation 2: the question whether the performance involves hardship is to be determined as at the time of the contract, except where the hardship results from the plaintiff's own act.

Old Section 20(3): the court may properly exercise its discretion TO decree specific performance where the plaintiff has done substantial acts or suffered losses in consequence of a contract capable of specific performance.

Old Section 20(4): the court shall not refuse specific performance merely because the contract is not enforceable at the instance of the other party.

(i) Reasonable notice of terms

A standard form agreement is one whose terms are drawn up in advance by one party and offered to the other on a take it or leave it basis. Because the customer does not negotiate and often does not read the terms, the party relying on them must show he gave reasonable notice.

The rule. Parker v. South Eastern Railway (1877). He must show that he took reasonable steps to bring the conditions to the notice of the other party before or at the time the contract was made. Three questions:

1. Did the customer know there was writing or printing on the document?
2. Did he know that the writing contained conditions?
3. Did the party delivering it do what was reasonably sufficient to give notice of the conditions?

If the answer to the third is no, the conditions do not form part of the contract.

The rules that follow:

1. A term hidden on the back, with nothing on the face to point to it, is not reasonable notice. Henderson v. Stevenson (1875).

Step 1. Henderson v. Stevenson (1875) is directly in point. The plaintiff bought a steamer ticket from Dublin to Whitehaven. On the face were only the names of the ports; on the back was a condition that the company would not be liable for loss, injury or delay to the passenger or his luggage. He never looked at the back, and nothing on the face directed him to it. The ship was wrecked through the fault of the company's servants and his luggage lost. Held, he was entitled to recover: the condition did not bind him for want of reasonable notice.

Step 2. Apply the Parker test. There was a printed condition, but on the back; the face carried no indication whatever that conditions were printed on the back, which the problem states expressly; so the company did not do what was reasonably sufficient, and fails the third limb. The clause never became part of the contract.

Step 3. The company's liability. Having received the luggage for carriage it is a bailee, owing the duties in Sections 151 and 152 of the Indian Contract Act, to take as much care of the goods as a person of ordinary prudence would take of his own goods of the same bulk, quality and value. The loss was caused by the negligence of the crew member, so the duty was broken. A may recover damages under Section 73, and may also complain of deficiency in service under the Consumer Protection Act, 2019.

(i) What is 'consideration' as defined under Indian Contract Act? (ii) Is B bound to pay the amount of reward to A?

For full marks, cover: Section 2(d), then the rule that performance of a pre existing contractual duty is no consideration, the professional conduct objection, and the conclusion that B is not bound.

(i) What is consideration?

Section 2(d) of the Indian Contract Act, 1872: "When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise."

A had accepted the Vakalatnama to represent B in the suit, at a fee already fixed. He was therefore under a subsisting contractual duty to conduct the case, and to conduct it competently. Winning it, so far as it lay in his power, was part of that very duty.

Step 2. Performance of a pre existing contractual duty is no consideration.

This is a settled limb of Section 2(d): the act relied on must be something the promisor was not already bound to do. Where a party merely does what he was already obliged to do, the other party receives nothing he was not already entitled to, and there is no detriment on the one side or benefit on the other. The classic authority is Stilk v. Myrick (1809), where sailors who agreed to sail home short handed after two deserted could not enforce a promise of extra wages, since they were already bound to meet the ordinary emergencies of the voyage. Contrast Hartley v. Ponsonby (1857), where so many deserted that the remaining voyage was an entirely different and more dangerous undertaking, and the promise was enforceable.

Step 3. Applying it. A did nothing beyond his existing obligation. He conducted the suit he had already contracted to conduct, for the fee already fixed. The promise of Rs. 50,000 is therefore without consideration and, under Section 25, void. B is not bound to pay it.

For full marks, cover: the definition and the 2018 Amendment, then Section 7 of the Partnership Act, Section 43, and Section 14(d) of the Specific Relief Act, with the remedies that remain.

(i) What is specific performance?

Specific performance is an equitable remedy by which the court directs a party to a contract to perform it according to its terms, instead of leaving the aggrieved party to a claim for damages. It is governed by Chapter II of the Specific Relief Act, 1963.

It exists because damages are not always an adequate substitute: money will buy another consignment of wheat, but not the particular plot of land or the particular painting.

Step 2. A partnership at will can be dissolved at any moment. Section 43 of the Partnership Act: "Where the partnership is at will, the firm may be dissolved by any partner giving notice in writing to all the other partners of his intention to dissolve the firm." So even if the court compelled A and B to become partners today, either could dissolve the firm tomorrow, and the decree would be worthless.

Step 3. Section 14(d) of the Specific Relief Act. As substituted in 2018, the following cannot be specifically enforced: "... (d) a contract which is in its nature determinable." A partnership of unspecified duration is the standard illustration, and was the express illustration to the old Section 14(1)(c).

Step 4. Two further grounds. Section 14(c): a partnership is a relation of mutual trust and confidence, delectus personae, so it is a contract so dependent on the personal qualifications of the parties that its material terms cannot be enforced. Section 14(b): carrying on a business together is a continuous duty which the court cannot supervise.

Conclusion: the contract cannot be specifically enforced, on any of three grounds, of which Section 14(d) is the direct answer.

The agreements expressly declared void

1. By persons incompetent to contract. Sections 10 and 11. Mohori Bibee v. Dharmodas Ghose (1903 PC): a minor's agreement is void ab initio. So is one by a person of unsound mind (Section 12) or one disqualified by law.

2. Made under a bilateral mistake of fact. Section 20. Where both parties are mistaken as to a matter of fact essential to the agreement, it is void. The Explanation excludes an erroneous opinion as to value. Contrast Section 21 (mistake as to Indian law: not voidable) and Section 22 (unilateral mistake: not voidable).

3. With unlawful consideration or object. Section 23. Unlawful if forbidden by law; if it would defeat the provisions of any law; if fraudulent; if it involves or implies injury to the person or property of another; or if the court regards it as immoral or opposed to public policy. The settled heads of public policy include trading with an enemy, stifling a prosecution, maintenance and champerty, interference with the course of justice, marriage brokage agreements, restraint of parental rights or personal liberty, and the sale of public offices.

• Indian Partnership Act, 1932: Section 11(2) (during the partnership), Section 36(2) (outgoing partner), Section 54 (on or in anticipation of dissolution), Section 55(3) (sale of the firm's goodwill).
• Judicial: trade combinations that regulate rather than restrain; exclusive dealing and sole selling agencies; and restraints during employment (Niranjan Shankar Golikari, 1967 SC). Restraints after employment are void (Superintendence Company of India v. Krishan Murgai, 1980 SC; Percept D'Mark v. Zaheer Khan, 2006 SC).
• India has no reasonableness test, unlike Nordenfelt (1894): Madhub Chunder v. Rajcoomar Doss (1874 Cal).

8. In restraint of legal proceedings. Section 28. Void to the extent that an agreement restricts a party absolutely from enforcing his rights by the usual legal proceedings, limits the time for enforcement, or extinguishes rights or discharges liability on the expiry of a specified period.

• Exception 1: arbitration of future disputes. Exception 2: arbitration of existing questions. Exception 3: a written term by which a bank or financial institution extinguishes rights under a guarantee after a period not less than one year.

13. Reciprocal promises to do illegal acts. Sections 57 and 58. Under Section 57 the lawful set is a contract and the unlawful set a void agreement; under Section 58, in an alternative promise one branch of which is legal and the other illegal, the legal branch alone can be enforced.

Effect: Section 65

"When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under it is bound to restore it, or to make compensation for it." The words "discovered to be" matter: the section does not assist a party who knew of the invalidity from the outset.

1. An uncertain event. Usually future, but it may be a past event whose result is unknown to the parties.
2. Mutual chances of gain and loss. If only one party can win, it is not a wager.
3. Neither party has any interest in the event beyond the stake. This is the decisive element.
4. Neither party has control over the event.
5. The promise must be to pay money or money's worth.

Section 30

"Agreements by way of wager are void; and no suit shall be brought for recovering anything alleged to be won on any wager, or entrusted to any person to abide the result of any game or other uncertain event on which any wager is made."

Two limbs: the agreement is void, and no suit lies either for the winnings or for anything entrusted to a stakeholder.

Exception 1. Horse racing. The section does not render unlawful "a subscription or contribution, or agreement to subscribe or contribute, made or entered into for or toward any plate, prize or sum of money, of the value or amount of five hundred rupees or upwards, to be awarded to the winner or winners of any horse race".

3. Collateral transactions are enforceable, because a wager is void but not illegal under Section 23. Gherulal Parakh v. Mahadeodas Maiya (1959 SC): a partnership formed to enter into wagering transactions in gunny bags was lawful, and a partner could recover his share, the Supreme Court holding that wagering agreements, though void, are neither forbidden by law nor immoral nor opposed to public policy within Section 23.
4. Maharashtra and Gujarat are the exception. Under the Bombay Wagers (Amendment) Act, 1865, wagers are illegal, and collateral transactions fall with them.

Distinguished from a contingent contract

Speculative transactions

A contract for the sale of shares or commodities is valid if delivery is intended, and a wager if the parties intend only to settle differences in price. The test is the intention of the parties, and the burden lies on the party alleging a wager.

Contracts of insurance, indemnity (Section 124) and guarantee (Section 126) are the standard commercial examples.

The rules of enforcement

Section 32. Contingent on an event happening. "Contingent contracts to do or not to do anything if an uncertain future event happens cannot be enforced by law unless and until that event has happened. If the event becomes impossible, such contracts become void."

Illustrations: A contracts to buy B's horse if A survives C; unenforceable unless C dies in A's lifetime. A contracts to pay B when B marries C; C dies unmarried to B; the contract becomes void.

Section 33. Contingent on an event not happening. Enforceable "when the happening of that event becomes impossible, and not before". Illustration: A agrees to pay B if a certain ship does not return; enforceable when the ship sinks.

Section 36. Contingent on an impossible event. "Contingent agreements to do or not to do anything, if an impossible event happens, are void, whether the impossibility of the event is known or not to the parties at the time when it is made." Illustrations: A agrees to pay B Rs. 1,000 if two straight lines should enclose a space: void. A agrees to pay B Rs. 1,000 if B will marry A's daughter C; C was dead at the date of the agreement: void.

The scheme in one view

Two special cases sit outside the grid: Section 34, the future conduct of a living person, and Section 36, an event impossible from the outset.

Distinguished from a wagering agreement

For full marks, cover: the meaning of breach and its two kinds with Section 39, then Section 73 and the two rules in Hadley v. Baxendale, the kinds of damages, Section 74, and the duty to mitigate.

What breach of contract means

A breach of contract occurs when a party, without lawful excuse, fails or refuses to perform what he has promised, performs defectively, or disables himself from performing. The duty arises from Section 37. A failure that is excused, by frustration under Section 56 or by refusal of a valid tender under Section 38, is not a breach.

Actual breach occurs at or during the time for performance. Anticipatory breach occurs before it, by express repudiation or by a party disabling himself. Section 39: where a party has refused to perform, or disabled himself from performing, his promise in its entirety, the promisee may put an end to the contract, unless he has signified acquiescence in its continuance. Hochster v. De La Tour (1853) allows an immediate suit.

The principles the court applies

1. Remoteness. Only loss within the two rules is recoverable.

2. Notice of special circumstances. Special damages are recoverable only if the special circumstances were communicated at the time of contracting.

3. Compensation, not punishment. Exemplary damages are not awarded in contract, save for breach of a promise to marry and wrongful dishonour of a cheque by a banker, where damages are inversely proportionate to the amount of the cheque.

4. Actual loss must be shown, or only nominal damages are awarded.

5. The duty to mitigate. The injured party must take reasonable steps to minimise his loss, cannot recover a loss he could have avoided, and may recover the reasonable expenses of mitigation.

6. Measurement. In a sale of goods, the difference between the contract price and the market price at the date of breach. On an anticipatory breach accepted at once, damages are assessed at the date of repudiation.

For full marks, cover: what rescission is under both Acts, then Section 27 in both its halves, Sections 28, 29 and 30, and the consequences under Sections 64, 65 and 75.

What rescission is

Rescission is the setting aside or cancellation of a contract, so that it is treated as if it had never been made and the parties are restored, so far as possible, to the position they occupied before it. It is the opposite of specific performance: one unmakes the contract, the other enforces it.

Under the Indian Contract Act, 1872:

• a contract is voidable at the option of the party whose consent was caused by coercion, undue influence, fraud or misrepresentation (Sections 19 and 19A);
• Section 39: where a party refuses to perform, or disables himself from performing, in entirety, the promisee may put an end to the contract;

The Act's illustration to clause (b): A, an attorney, induces his client B, a Hindu widow, to transfer property to him for the purpose of defrauding B's creditors. Here the parties are not equally in fault, and B is entitled to have the instrument rescinded.

When rescission may be refused. Section 27(2)

"Notwithstanding anything contained in sub-section (1), the court may refuse to rescind the contract:

• (a) where the plaintiff has expressly or impliedly ratified the contract; or
• (b) where, owing to the change of circumstances which has taken place since the making of the contract (not being due to any act of the defendant himself), the parties cannot be substantially restored to the position in which they stood when the contract was made; or
• (c) where third parties have, during the subsistence of the contract, acquired rights in good faith without notice and for value; or
• (d) where only a part of the contract is sought to be rescinded and such part is not severable from the rest of the contract."

Section 30. Court may require party rescinding to do equity. On adjudging rescission, the court may require the party to whom the relief is granted to restore, so far as may be, any benefit which he may have received from the other party, and to make any compensation to him which justice may require.

The three conditions:

1. the instrument must be void or voidable against the plaintiff;
2. the plaintiff must have a reasonable apprehension of serious injury if it is left outstanding; and
3. the court must think it reasonable, in its discretion, to cancel it.

Section 32. What instruments may be partially cancelled. "Where an instrument is evidence of different rights or different obligations, the court may, in a proper case, cancel it in part and allow it to stand for the residue."

Section 33. Power to require benefit to be restored or compensation to be made when instrument is cancelled or is successfully resisted as being void or voidable.

• 33(1): on adjudging the cancellation of an instrument, the court may require the party to whom such relief is granted to restore, so far as may be, any benefit which he may have received from the other party and to make any compensation to him which justice may require.

Relation to rescission

Cancellation and rescission are also distinct, though they often go together. Rescission (Sections 27 to 30) sets aside the contract; cancellation (Sections 31 to 33) destroys the instrument which evidences it. A party who rescinds a contract embodied in a registered deed will usually seek both: rescission of the contract and cancellation of the deed, so that the register no longer shows a transaction that has been undone. Section 29 even allows a plaintiff suing for specific performance to pray in the alternative that the contract be rescinded and delivered up to be cancelled.

Section 2(e) of the Indian Contract Act, 1872: "Every promise and every set of promises, forming the consideration for each other, is an agreement."

Since a promise is an accepted proposal (Section 2(b)), the formula is Proposal + Acceptance = Promise, and Promise + Consideration = Agreement.

Section 2(h) completes the chain: "an agreement enforceable by law is a contract." So Agreement + Enforceability = Contract, and, as Anson put it, all contracts are agreements, but all agreements are not contracts.

The Act speaks of a voidable contract, not a voidable agreement. Section 2(i): "An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable contract."

It is a valid and binding contract until the party entitled to avoid it sets it aside. That party has an election: he may rescind it, or affirm it and hold the other side to it.

The standard instances are contracts where consent was caused by coercion (15), undue influence (16), fraud (17) or misrepresentation (18), made voidable by Sections 19 and 19A; and contracts under Section 39 (refusal to perform in entirety) and Section 55 (failure where time is of the essence).

2. Where silence is equivalent to speech. Illustration (c) to Section 17: B says to A, "If you do not deny it, I shall assume that the horse is sound." A says nothing. Here A's silence is equivalent to speech.

Section 65. Obligation of person who has received advantage under void agreement, or contract that becomes void. "When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it, to the person from whom he received it."

Illustrations: (a) A pays B Rs. 1,000 in consideration of B's promising to marry C, A's daughter. C is dead at the time of the promise. The agreement is void, but B must repay A the 1,000 rupees. (c) A, a singer, contracts with B, the manager of a theatre, to sing at his theatre for two nights a week during the next two months, and B engages to pay her Rs. 100 for each night's performance. On the sixth night A wilfully absents herself, and B rightfully rescinds the contract. B must pay A for the five nights on which she had sung.

This asks about the old Section 20 of the Specific Relief Act, 1963, as it stood when the paper was set.

Old Section 20(1). "The jurisdiction to decree specific performance is discretionary, and the court is not bound to grant such relief merely because it is lawful to do so; but the discretion of the court is not arbitrary but sound and reasonable, guided by judicial principles and capable of correction by a court of appeal."

Old Section 20(2) gave three cases in which the court might properly refuse: (a) where the terms of the contract or the conduct of the parties give the plaintiff an unfair advantage; (b) where performance would involve hardship on the defendant which he did not foresee, and non performance no such hardship on the plaintiff; (c) where the defendant contracted in circumstances which, though not making the contract voidable, make it inequitable to enforce it.

Section 39 of the Specific Relief Act, 1963: "When, to prevent the breach of an obligation, it is necessary to compel the performance of certain acts which the court is capable of enforcing, the court may in its discretion grant an injunction to prevent the breach complained of, and also to compel performance of the requisite acts."

A mandatory injunction is positive in form: it orders the defendant to do something, ordinarily to undo a wrong already committed, such as demolishing a wall built across the plaintiff's right of way. An ordinary injunction merely forbids.

Two conditions: the acts must be such as the court is capable of enforcing, and the court must think it necessary to compel them to prevent the breach.

2. it must be executed on behalf of the President or the Governor;
3. it must be executed by a person duly authorised by them.

Consequence of non compliance. The requirements are mandatory, not directory, and a contract that fails them is void and unenforceable against the Government.

• Chatturbhuj Vithaldas Jasani v. Moreshwar Parashram (1954 SC): Article 299 is mandatory in form.
• Bhikraj Jaipuria v. Union of India (1962 SC): contracts made by a railway officer not authorised in the manner required were void.
• K.P. Chowdhry v. State of Madhya Pradesh (1967 SC): there can be no implied contract with the Government, and neither ratification nor estoppel can get round Article 299.

The relief that remains. Section 70 of the Indian Contract Act, 1872: where a person lawfully does anything for another, not intending to do so gratuitously, and the other enjoys the benefit, the latter must make compensation. State of West Bengal v. B.K. Mondal and Sons (1962 SC): a contractor whose agreement failed Article 299 recovered compensation under Section 70, the obligation being independent of contract.

For full marks, cover: what past consideration is, that Section 2(d) recognises it, the contrast with English law, the distinction from a past VOLUNTARY act under Section 25(2), and the exception for services rendered at request.

Past consideration is an act already done before the promise is made, which the promisor then promises to pay for. Indian law recognises it as good consideration, provided it was done at the desire of the promisor.

Section 2(d): "When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise."

The words "has done or abstained from doing" are in the past tense, and they are what make past consideration good in India. So the section covers all three: past, present or executed, and future or executory consideration.

For full marks, cover: the definition and essentials, Section 30 in both limbs with both exceptions, the effect on collateral transactions with the Maharashtra position, and the stakeholder rule.

A wager is a promise to pay money or money's worth on the determination of an uncertain event, where each party stands to win or lose and neither has any interest in the event other than the sum he will win or lose.

Section 30: "Agreements by way of wager are void; and no suit shall be brought for recovering anything alleged to be won on any wager, or entrusted to any person to abide the result of any game or other uncertain event on which any wager is made."

Essentials: an uncertain event, which may be past if its result is unknown to the parties; mutual chances of gain and loss; no interest in the event beyond the stake, which is the decisive element; no control by either party; and a promise to pay money or money's worth.

Exceptions in the section: a subscription or contribution of five hundred rupees or upwards towards a prize for a horse race; and laws relating to lotteries are unaffected.

For full marks, cover: what appropriation is, Sections 59, 60 and 61 in order, Clayton's Case with a worked illustration, and the limits of the rule.

Appropriation of payments answers a single question: where a debtor owes several distinct debts to the same creditor and pays a sum insufficient to discharge them all, which debt is discharged? Sections 59 to 61 of the Indian Contract Act, 1872, answer it, and Clayton's Rule governs a running account.

Section 59. Where the debt to be discharged is indicated. A payment made with express intimation, or under circumstances implying, that it is to be applied to a particular debt must be applied accordingly. The debtor has the first right to appropriate.

Section 60. Where it is not indicated. The creditor may apply it at his discretion to any lawful debt actually due and payable, whether or not its recovery is barred by limitation.

Section 61. Where neither party appropriates. The payment is applied in order of time, whether or not the debts are barred by limitation, and if the debts are of equal standing, proportionately.

For full marks, cover: Section 34 with its conditions and proviso, Section 35 on the effect, what "legal character" means, and the discretionary nature of the relief.

A declaratory decree is a decree by which the court declares the plaintiff's legal character, or his right to any property, without ordering any consequential relief. It is dealt with in Chapter VI of the Specific Relief Act, 1963, Sections 34 and 35.

Section 34. "Any person entitled to any legal character, or to any right as to any property, may institute a suit against any person denying, or interested to deny, his title to such character or right, and the court may in its discretion make therein a declaration that he is so entitled, and the plaintiff need not in such suit ask for any further relief:

Provided that no court shall make any such declaration where the plaintiff, being able to seek further relief than a mere declaration of title, omits to do so."

Explanation. A trustee of property is a "person interested to deny" a title adverse to that of a person not in existence for whom, if in existence, he would be a trustee.

For full marks, cover: Section 16 in all three clauses with the Explanations, then Section 17, the contrast with Section 14, and why Section 16(c) matters most.

"Personal bars to relief" is the heading of Section 16 of the Specific Relief Act, 1963. The section bars specific performance because of something about the plaintiff himself, as distinct from Section 14, which bars it because of the nature of the contract.

Section 16. Personal bars to relief. Specific performance of a contract shall not be enforced in favour of a person:

(a) who has obtained substituted performance of contract in accordance with the provisions of section 20;

(b) who has become incapable of performing, or violates any essential term of the contract that on his part remains to be performed, or acts in fraud of the contract, or wilfully acts at variance with, or in subversion of, the relation intended to be established by the contract;

• (a) A agreed to purchase the horse at an agreed price; and
• (b) A further agreed to pay Rs. 1,000 over and above that price if the horse proves to be lucky to him.

Step 2. Promise (a) is a complete and valid contract. There is an offer and acceptance, a fixed price, an identified subject matter, capacity, free consent, a lawful object, and consideration on both sides. It satisfies Section 10 in every respect. A's refusal to buy is therefore an actual breach, and B may:

• rescind and claim compensation under Section 75; and
• claim damages under Section 73, measured by the difference between the contract price and the market price of the horse at the date of the breach, subject to his duty to mitigate by selling the horse elsewhere. If the market price equals or exceeds the contract price, B has suffered no loss and will recover only nominal damages.

Step 3. Promise (b) is void for uncertainty. Section 29: "Agreements, the meaning of which is not certain, or capable of being made certain, are void."

Conclusion: B succeeds on the contract of sale and recovers damages under Section 73 for A's refusal to buy. The claim for the extra Rs. 1,000 fails, that promise being void under Section 29.

(ii) The effect of an agreement whose meaning is not certain

Section 29: such an agreement is void. It creates no rights and no obligations, and no suit lies upon it. Certainty of terms is an essential of a valid contract under Section 10, because a court cannot enforce a promise whose content it cannot ascertain.

The Act's own illustrations:

• (a) A agrees to sell to B "a hundred tons of oil". There is nothing to show what kind of oil was intended. The agreement is void for uncertainty.
• (c) A, who is a dealer in coconut oil only, agrees to sell to B "one hundred tons of oil". The nature of A's trade affords an indication of the meaning, and the agreement is good.
• (d) A agrees to sell to B "all the grain in my granary at Ramnagar". There is no uncertainty here to make the agreement void.

(i) What is a lawful consideration? (ii) Will A succeed in the above case?

For full marks, cover: Section 23 for lawful consideration, then the two readings of the facts, and give both: on the ordinary reading A recovers the money as his own, and on the stricter reading the arrangement may be opposed to public policy and A may be met by in pari delicto.

(i) What is a lawful consideration?

Consideration is defined by Section 2(d), and Section 10 requires it to be lawful. Section 23 tells you when it is not.

Section 23. What considerations and objects are lawful, and what not. The consideration or object of an agreement is lawful unless:

1. it is forbidden by law;

(ii) Will A succeed?

The facts admit of two readings, and a complete answer takes both, because the examiner has not said whether the court was told where the money came from.

Reading 1: the ordinary reading. A succeeds.

On the face of it, the money was A's own. He handed Rs. 15,000 to B for a single, limited purpose, namely to enable B to stand surety and deposit the amount with the court. When the period of surety expired and the deposit was refunded to B, that purpose was exhausted. B holds money that was never his.

A therefore has a claim on three independent footings:

1. Section 70. B has enjoyed the benefit of money lawfully delivered to him by A, who plainly did not intend to do so gratuitously. B is bound to make compensation, or to restore the thing so delivered. Illustration (a) to the section is close: goods left by mistake and treated by the recipient as his own must be paid for.

A bond of surety under the Criminal Procedure Code requires a solvent surety who binds his own means to secure the accused's attendance. If B stood surety with A's money, and the court was not told, the arrangement was designed to satisfy the court with a surety who was in substance no surety at all. That is a consideration or object which, if permitted, would defeat the provisions of the law, and which is opposed to public policy as an interference with the course of justice, both within Section 23. The agreement between A and B would then be void.

On that reading two further consequences follow:

• Section 65 would not help A, because it applies where an agreement is "discovered to be void", and both parties would have known the arrangement from the outset; and
• A would be met by in pari delicto potior est conditio defendentis: where both parties are equally at fault, the defendant is in the stronger position, and the court will not assist either.
• A could escape only by showing that the parties were not equally in fault, which is the exception in Section 27(1)(b) of the Specific Relief Act, 1963, and nothing on these facts suggests that B was the more culpable. If anything A, who provided the money and "persuaded" B, is the moving party.

For full marks, cover: what rescission is under both Acts, then that concealment when asked is active fraud under Section 17(2) and not merely silence, and B's remedies under Section 19.

(i) What is rescission of contract?

Rescission is the setting aside or cancellation of a contract, so that it is treated as if it had never been made and the parties are restored, so far as possible, to their former position.

Step 1. This is active concealment, not mere silence.

The facts say A "conceals this fact from B when asked". That takes the case out of the Explanation to Section 17 and puts it inside the section itself.

Section 17(2) defines fraud to include "the active concealment of a fact by one having knowledge or belief of the fact", where done with intent to deceive or to induce the other to enter into the contract. A had direct personal knowledge of the right of passage, was asked about it, and concealed it. A false answer to a direct question would equally fall under Section 17(1), the suggestion as a fact of that which is not true.

Step 2. Even treated as silence, the duty to speak applies.

The Explanation to Section 17 makes mere silence fraud where it is the duty of the person keeping silence to speak, or where his silence is equivalent to speech. Both exceptions apply:

3. Because this is fraud and not innocent misrepresentation, B may also sue in tort for deceit, and may claim on the seller's covenant for title under Section 55(2) of the Transfer of Property Act.
4. Section 75 entitles him to compensation for damage sustained on a rightful rescission.

Step 4. The proviso to Section 19 does not save A. It bars avoidance where the party had the means of discovering the truth with ordinary diligence, but it applies to misrepresentation, or fraud consisting of silence. It does not protect a party guilty of active fraud, and a person who conceals a fact when directly asked cannot say his victim should have checked.

For full marks, cover: Section 2(d) and the essentials, then the three situations the question names in turn, each with its own section: absent under Section 25, inadequate under Explanation 2, and partly unlawful under Section 24.

What consideration is

Section 2(d): "When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise."

Currie v. Misa (1875): "some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other." It is the price for which the promise of the other is bought.

4. Completed gift. Explanation 1 to Section 25.
5. Agency. Section 185: no consideration is necessary to create an agency.
6. Guarantee. Section 127: anything done for the benefit of the principal debtor is sufficient consideration to the surety.
7. Remission. Section 63: no consideration is needed to remit or extend performance.
8. Gratuitous bailment. Section 148.
9. Charitable subscriptions where the promisee has undertaken a liability on the faith of the promise: Kedar Nath v. Gorie Mohamed (1886 Cal); contrast Abdul Aziz v. Masum Ali (1914 All).

Effect: the agreement is VOID unless it falls within an exception.

2. Where consideration is INADEQUATE

Explanation 2 to Section 25: "An agreement to which the consent of the promisor is freely given is not void merely because the consideration is inadequate; but the inadequacy of the consideration may be taken into account by the Court in determining the question whether the consent of the promisor was freely given."

3. Where consideration is PARTLY UNLAWFUL

Section 24. Agreements void, if considerations and objects unlawful in part. "If any part of a single consideration for one or more objects, or any one or any part of any one of several considerations for a single object, is unlawful, the agreement is void."

Illustration: A promises to superintend, on behalf of B, a legal manufacture of indigo, and an illegal traffic in other articles. B promises to pay to A a salary of 10,000 rupees a year. The agreement is void, the object of A's promise and the consideration for B's promise being in part unlawful.

Effect: the WHOLE agreement is void, provided the unlawful part cannot be severed. Where it can be separated, the lawful part may stand: Section 57 enforces the lawful set of reciprocal promises, and Section 58 enforces the legal branch of an alternative promise. Section 23 supplies the meaning of "unlawful": forbidden by law, defeating the provisions of any law, fraudulent, involving injury to the person or property of another, or immoral or opposed to public policy.

Summary

For full marks, cover: Section 31 with its three essentials and illustration, Sections 32 to 36 in order with the Act's own illustrations, the grid, and the comparison with a wagering agreement.

Definition

Section 31: "A contingent contract is a contract to do or not to do something, if some event, collateral to such contract, does or does not happen."

Illustration: A contracts to pay B Rs. 10,000 if B's house is burnt.

Essentials: performance depends on the happening or non happening of a future event; the event must be uncertain; and it must be collateral to the contract, being neither the performance promised by either party nor the consideration for it.

Contracts of insurance, indemnity (Section 124) and guarantee (Section 126) are the standard commercial examples.

Section 35, first paragraph. Happening within a fixed time. The contract becomes void if the time expires without the event, or if it becomes impossible before. Illustration: payment if a ship returns within a year; void if the ship is burnt within the year.

Section 35, second paragraph. Not happening within a fixed time. Enforceable "when the time fixed has expired and such event has not happened, or before the time fixed has expired, if it becomes certain that such event will not happen".

Section 36. Contingent on an impossible event. "Contingent agreements to do or not to do anything, if an impossible event happens, are void, whether the impossibility of the event is known or not to the parties." Illustrations: payment if two straight lines should enclose a space: void. Payment if B will marry A's daughter C, C being dead at the date of the agreement: void.

The scheme in one view

For full marks, cover: Section 56 in all three paragraphs, the grounds of frustration each with its case, the situations that do NOT frustrate, the Indian theoretical basis in Satyabrata Ghose, and the effect under Section 65.

What frustration is

Frustration is the discharge of a contract by supervening impossibility or illegality: an event occurs after the contract is made which destroys the foundation on which it rests, and the contract is brought to an end without either party being in breach.

Section 56 of the Indian Contract Act, 1872, contains the whole of the Indian law, in three paragraphs.

Paragraph 1. Initial impossibility. "An agreement to do an act impossible in itself is void." The act is impossible when the agreement is made, and no contract ever comes into being.

2. Death or personal incapacity, where the contract depends on the personal skill or presence of a party. Robinson v. Davison (1871): a pianist engaged to perform on a particular day fell ill and could not play; the contract was held conditional on her being well enough, and she was excused.

3. Supervening illegality, or a change of law. Where performance becomes unlawful by legislation or government order after the contract is made. In India this arose repeatedly with requisition and control orders.

4. Non occurrence of a state of things forming the basis of the contract. Krell v. Henry (1903), the coronation cases: a room was hired to view the coronation procession, which was cancelled by the King's illness; the contract was frustrated, the procession being the foundation of the bargain even though it was not mentioned in the contract. Contrast Herne Bay Steam Boat Co. v. Hutton (1903), where the hire of a boat to view the naval review and to cruise round the fleet was not frustrated by the cancellation of the review, the cruise remaining possible.

5. Outbreak of war, which makes performance unlawful or renders the other party an alien enemy.

What does NOT frustrate a contract

• the word "impossible" in Section 56 is not used in the sense of physical or literal impossibility, but means that the performance has become impracticable and useless from the point of view of the object and purpose the parties had in view; and
• on the facts the requisition was temporary and did not strike at the root of the bargain, so the contract was not frustrated.

Frustration also operates automatically: the contract becomes void whether or not either party elects to treat it as at an end.

Effect

Section 65: "When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it, to the person from whom he received it."

Both parties are discharged from future performance, and neither is liable in damages, because there has been no breach.

For full marks, cover: the meaning of breach and its two kinds with Section 39, then Section 73 and the two rules in Hadley v. Baxendale, the numbered principles, the kinds of damages, Section 74, and the duty to mitigate.

What breach of contract means

A breach of contract occurs when a party, without lawful excuse, fails or refuses to perform what he has promised, performs defectively, or disables himself from performing. The duty arises from Section 37, under which the parties must perform, or offer to perform, their promises. A failure that is excused, by frustration under Section 56 or by the promisee's refusal of a valid tender under Section 38, is not a breach.

Actual breach occurs at or during the time for performance. Anticipatory breach occurs before it, either by express repudiation or where a party disables himself from performing, for example by selling to a third person the very thing he had contracted to sell.

Hadley v. Baxendale (1854): the crankshaft of the plaintiffs' mill broke, the defendant carriers delayed its delivery to the makers, and the mill stood idle. The lost profits were irrecoverable, because the carriers had not been told the mill was stopped for want of the shaft. Two rules were laid down: damages should be such as may fairly and reasonably be considered as arising naturally, or such as may reasonably be supposed to have been in the contemplation of both parties at the time of contracting as the probable result of the breach.

Victoria Laundry (Windsor) Ltd. v. Newman Industries Ltd. (1949) applies both: the ordinary loss of profit on the late delivery of a boiler was recoverable; the exceptional profits from dyeing contracts the sellers knew nothing of were not.

The principles the court applies

1. Remoteness. Only loss within the two rules is recoverable; remote and indirect loss is not.
2. Notice of special circumstances. Special damages are recoverable only if the special circumstances were communicated at the time of contracting, not afterwards.

7. A named sum is a ceiling. Section 74: where a sum is named, or there is a stipulation by way of penalty, the aggrieved party is entitled to reasonable compensation not exceeding the amount so named, whether or not actual damage is proved. India abolishes the English distinction between liquidated damages and a penalty: Fateh Chand v. Balkishan Das (1963 SC); Maula Bux v. Union of India (1969 SC), where a loss capable of proof must be proved; Kailash Nath Associates v. Delhi Development Authority (2015 SC), where no compensation is payable if no loss was caused.
8. Compensation on rescission. Section 75: a party who rightfully rescinds is entitled to compensation for damage sustained through the non fulfilment of the contract.

Kinds of damages

Ordinary or general, arising naturally; special, on communicated circumstances; nominal, where a right is infringed but no loss suffered; vindictive or exemplary, in the two exceptional cases; liquidated damages and penalty under Section 74; and damages for inconvenience and, in a narrow class of contracts whose object is enjoyment or peace of mind, for mental distress.

For full marks, cover: Section 31 in both sub-sections with its three conditions, Section 32 on partial cancellation, Section 33 on restoration of benefits in both its sub-sections, and the contrast with rectification and rescission.

Section 31. When cancellation may be ordered

31(1). "Any person against whom a written instrument is void or voidable, and who has reasonable apprehension that such instrument, if left outstanding, may cause him serious injury, may sue to have it adjudged void or voidable; and the court may, in its discretion, so adjudge it and order it to be delivered up and cancelled."

31(2). "If the instrument has been registered under the Indian Registration Act, 1908, the court shall also send a copy of its decree to the officer in whose office the instrument has been so registered; and such officer shall note on the copy of the instrument contained in his books the fact of its cancellation."

The three conditions:

The principle is severability: cancellation in part is possible only where the instrument embodies rights or obligations of distinct and severable kinds, so that the objectionable part can be removed without altering the character of the transaction. A deed conveying two distinct properties may be cancelled as to one; a single conveyance of one property obtained by fraud cannot be cancelled "partly". The words "in a proper case" leave the matter to the court's discretion.

Section 33. Power to require benefit to be restored or compensation to be made

33(1). On adjudging the cancellation of an instrument, the court may require the party to whom such relief is granted to restore, so far as may be, any benefit which he may have received from the other party and to make any compensation to him which justice may require.

33(2). Where a defendant successfully resists any suit on the ground:

• (a) that the instrument sought to be enforced against him in the suit is voidable, the court shall require him to restore, so far as may be, such benefit as he has received, and to make compensation for it as justice may require; or

Cancellation distinguished from rescission

Rescission (Sections 27 to 30) sets aside the contract; cancellation (Sections 31 to 33) destroys the instrument which evidences it. A party who rescinds a contract embodied in a registered deed will usually seek both, so that the register no longer shows a transaction that has been undone. Section 29 even allows a plaintiff suing for specific performance to pray in the alternative that the contract be rescinded and delivered up to be cancelled.

• 37(2). A perpetual injunction "can be granted only by the decree made at the hearing and upon the merits of the suit; the defendant is thereby perpetually enjoined from the assertion of a right, or from the commission of an act, which would be contrary to the rights of the plaintiff."

By form.

• Prohibitory, which forbids an act; and
• Mandatory, under Section 39, which compels a positive act: "when, to prevent the breach of an obligation, it is necessary to compel the performance of certain acts which the court is capable of enforcing, the court may in its discretion grant an injunction to prevent the breach complained of, and also to compel performance of the requisite acts."

38(3). "When the defendant invades or threatens to invade the plaintiff's right to, or enjoyment of, property, the court may grant a perpetual injunction in the following cases, namely:

• (a) where the defendant is trustee of the property for the plaintiff;
• (b) where there exists no standard for ascertaining the actual damage caused, or likely to be caused, by the invasion;
• (c) where the invasion is such that compensation in money would not afford adequate relief;
• (d) where the injunction is necessary to prevent a multiplicity of judicial proceedings."

Explanation. For the purpose of this section, a trespass to property occasioning or likely to occasion irreparable injury, or where compensation in money would not afford adequate relief, shall be deemed an invasion within clause (c).

Section 40 permits damages in addition to, or in substitution for, an injunction, provided they are claimed in the plaint, with liberty to amend; and the dismissal of the suit bars a later suit for damages for the same breach.