BLS LLB 5 Years Sem 5 Contract I 2018-19 Question Paper with Solutions

Section 2(g) of the Indian Contract Act, 1872: "An agreement not enforceable by law is said to be void."

A void agreement is a nullity from the beginning, void ab initio. It creates no rights and no obligations, and no suit lies upon it by either party. It can never be ratified.

Distinguish it from a voidable contract under Section 2(i), which is enforceable at the option of one party and is valid and binding until avoided; and from a contract which becomes void under Section 2(j), which was valid when made and later ceased to be enforceable, as under Section 56.

Section 29 of the Indian Contract Act, 1872: "Agreements, the meaning of which is not certain, or capable of being made certain, are void."

So an uncertain 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.

The doctrine of privity of contract means that only a person who is a party to a contract can sue or be sued upon it. A stranger acquires no rights under it and incurs no liabilities, even if the contract was made for his benefit.

Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge and Co. Ltd. (1915); in India, M.C. Chacko v. State Bank of Travancore (1970 SC).

It must be distinguished from privity of consideration, which is not required in India, since Section 2(d) allows consideration to move from "the promisee or any other person": Chinnaya v. Ramayya (1882 Mad).

Exceptions: a beneficiary under a trust or charge on immovable property (Khwaja Muhammad Khan v. Husaini Begum, 1910 PC); a marriage settlement or family arrangement; acknowledgement or estoppel; agency; and covenants running with land (Tulk v. Moxhay, 1848).

Section 15 of the Specific Relief Act, 1963, headed "Who may obtain specific performance", lists, besides a party to the contract:

• (a) the representative in interest, or the principal, of a party, unless the contract depends on his personal skill or volition;
• (b) where the contract is a settlement on marriage, or a compromise of doubtful rights between members of the same family, any person beneficially entitled under it;
• (c) a remainderman, where the contract was made by a tenant for life in due exercise of a power;
• (d) a reversioner in possession entitled to the benefit of a covenant;
• (e) a reversioner in remainder, where the covenant relates to the subject matter of the reversion and its breach would injure him;
• (f) the new company on an amalgamation;

Section 32 of the Specific Relief Act, 1963. 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."

So an instrument may be cancelled in part only where it embodies rights or obligations of distinct and severable kinds, so that the objectionable part can be removed while the rest continues to have effect.

It is read with Section 31, under which a person against whom a written instrument is void or voidable, and who has reasonable apprehension that it, if left outstanding, may cause him serious injury, may sue to have it adjudged void or voidable and delivered up and cancelled.

Section 6(2)(b): "No suit under this section shall be brought against the Government."

Section 6(1) gives a person dispossessed without his consent and otherwise than in due course of law a summary remedy to recover possession, notwithstanding any other title that may be set up. Section 6(2) limits it in two ways: the suit must be brought within six months of the dispossession, and it cannot be brought against the Government.

A person dispossessed by the Government must proceed by an ordinary suit on title under Section 5, or by a writ petition under Article 226 of the Constitution.

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

Section 31 of the Indian Contract Act, 1872: "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 a future event; the event is uncertain; and it is collateral to the contract, being neither the performance promised nor the consideration.

The rules of enforcement

Section 32. Contingent on an event happening: cannot be enforced unless and until that event has happened, and becomes void if the event becomes impossible. Illustration: A contracts to buy B's horse if A survives C; unenforceable unless C dies in A's lifetime.

Section 36. Contingent on an impossible event: void, whether the impossibility was known to the parties or not. Illustration: A agrees to pay B Rs. 1,000 if B marries A's daughter C; C was dead at the date of the agreement; the agreement is void.

Distinguished from a wager

Effect:

1. The agreement is void, and no suit lies for anything won.
2. No suit lies against a stakeholder for the winnings, but a depositor may recover his own stake if he demands it back before it has been paid over, because as between depositor and stakeholder there is no wager, only a revocable authority.
3. A wager is void but not illegal, so collateral transactions are enforceable: Gherulal Parakh v. Mahadeodas Maiya (1959 SC), where a partnership formed to enter into wagering transactions was held lawful.
4. In Maharashtra and Gujarat, the Bombay Wagers (Amendment) Act, 1865, makes wagers illegal, and collateral transactions fall with them.

Distinguished from insurance: the insured has an insurable interest and the contract is one of indemnity; a wagerer has none. From a contingent contract: the parties to a contingent contract have a real interest and only performance is postponed. From a speculative transaction: a share or commodity contract is valid if delivery is intended, and a wager if the parties intend only to settle differences in price.

Explanation. A stipulation for increased interest from the date of default may be a stipulation by way of penalty.

Exception. Where a person enters into a bail bond, recognizance or other instrument of the same nature, or gives a bond under any law or under the orders of the Government for the performance of a public duty, he is liable on breach to pay the whole sum mentioned.

The Indian position. Section 74 abolishes the English distinction. Whatever the clause is called, the court awards only reasonable compensation, and the named sum is a ceiling, not an entitlement.

• Fateh Chand v. Balkishan Das (1963 SC): the court is not bound to award the sum named.
• Maula Bux v. Union of India (1969 SC): where the loss can be proved, it must be proved; forfeiture of a reasonable earnest money is permissible, of a large security deposit is not.
• Kailash Nath Associates v. Delhi Development Authority (2015 SC): compensation is payable only where damage or loss is caused.

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. 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."

The Explanation provides that 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: the 2018 Amendment as the framework, then Section 14, Section 11(2), Section 16, Section 17, Section 19's protection of a transferee, Section 9 and limitation.

This paper sits on the dividing line, so fix the date first. The Specific Relief (Amendment) Act, 2018, came into force on 1 October 2018, and this paper was set in the 2018-19 session. Everything below states the law as amended, which is the law a student answering today must give.

Since that amendment, Section 10 provides that specific performance shall be enforced by the court subject only to Sections 11(2), 14 and 16. The court's general discretion is gone, so the defences are now the statutory bars and nothing else. That framework should open the answer.

2. The contract was made by a trustee in breach of trust. Section 11(2).

3. Personal bars against the plaintiff. Section 16. Relief shall not be enforced in favour of a person who (a) has obtained substituted performance; (b) has become incapable of performing, or violates an essential term, or acts in fraud of the contract, or wilfully acts at variance with the relation intended; or (c) fails to prove that he has performed, or has always been ready and willing to perform, the essential terms on his part. Explanation (ii) requires readiness and willingness to be averred and proved.

4. Want of title in the plaintiff. Section 17. A vendor or lessor who knew he had no title, or who cannot give a title free from reasonable doubt, cannot enforce.

5. The defendant is a protected transferee. Section 19(b). Relief cannot be enforced against a transferee for value who has paid his money in good faith and without notice of the original contract.

For full marks, cover: Section 42 with the death rule, then Sections 43, 44 and 45, and the departure from English law.

Section 42 of the Indian Contract Act, 1872. Devolution of joint liabilities. "When two or more persons have made a joint promise, then, unless a contrary intention appears by the contract, all such persons, during their joint lives, and, after the death of any of them, his representative jointly with the survivor or survivors, and, after the death of the last survivor, the representatives of all jointly, must fulfil the promise."

So joint liability does not die with a joint promisor: it devolves on his legal representatives, who are liable jointly with the survivors, though only to the extent of the estate that comes into their hands.

Section 43. Any one of joint promisors may be compelled to perform.

• Paragraph 1: the promisee may, in the absence of express agreement to the contrary, compel any one or more of the joint promisors to perform the whole of the promise.

• Section 62: the parties may rescind by mutual agreement;
• Section 64: the party rescinding a voidable contract must restore any benefit received;
• Section 66: rescission may be communicated or revoked in the same manner as a proposal;
• Section 75: a party who rightfully rescinds may claim compensation.

Under the Specific Relief Act, 1963:

• Section 27(1): rescission may be adjudged where the contract is voidable or terminable by the plaintiff, or where it is unlawful for causes not apparent on its face and the defendant is more to blame;
• Section 27(2): it may be refused on the four grounds of ratification, impossibility of restoration, third party rights, and non severability;
• Section 30: the court may require the party rescinding to do equity.

(ii) Can B get the contract rescinded?

Yes. B can rescind the sale. A's conduct is fraud, and this case is stronger than ordinary non disclosure because A concealed the fact when he was ASKED.

• Section 55(1)(a) of the Transfer of Property Act, 1882, obliges a seller "to disclose to the buyer any material defect in the property or in the seller's title thereto of which the seller is, and the buyer is not, aware, and which the buyer could not with ordinary care discover". An existing right of passage, that is an easement, is exactly such an encumbrance.
• Silence in the face of a direct question is equivalent to speech: it tells the questioner that there is nothing to report.

Step 3. B's remedies. Section 19 gives him an election:

1. Rescind the contract, return the field and recover the price, subject to Section 64, restoring any benefit received. He may sue under Section 27(1)(a) of the Specific Relief Act to have the rescission adjudged, and under Sections 31 to 33 to have the sale deed cancelled and delivered up, the cancellation being noted by the registering officer under Section 31(2).
2. Or affirm the contract and insist on performance, in which case he is entitled, under the closing words of Section 19, to be "put in the position in which he would have been if the representations made had been true", that is to compensation for the difference in value between land free of the right of passage and land subject to it.

Due to negligence of the crew member 'A' lost his luggage. (i) What is 'reasonable notice of terms' under Standard Form Agreements?

(ii) Can the company be held liable for the loss?

For full marks, cover: the rule of reasonable notice with the four cases, then apply Henderson v. Stevenson, which is this exact fact pattern, and conclude that the company is liable.

This problem is Henderson v. Stevenson (1875) with the names removed. Naming it is worth a mark on its own.

2. Notice must be given before or at the time of contracting, not afterwards. Olley v. Marlborough Court (1949).
3. The document must be one a reasonable person would expect to contain contractual terms. Chapelton v. Barry Urban District Council (1940), where a deck chair ticket was a mere receipt.
4. The more onerous the term, the greater the notice required. Thornton v. Shoe Lane Parking (1971), and Lord Denning's image of a clause needing to be printed in red ink with a red hand pointing to it.
5. Ambiguity is construed against the party who drafted the clause, contra proferentem.
6. An unfair and unreasonable term may be struck down where the parties are of unequal bargaining power: Central Inland Water Transport Corporation v. Brojo Nath Ganguly (1986 SC).

(ii) Can the company be held liable?

Yes. The company is liable for the loss of A's luggage. The exemption clause does not bind him.

• Having received the luggage for carriage, the company is a bailee, and owes 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 for the loss naturally arising from the breach.
• He may also complain to a consumer commission under the Consumer Protection Act, 2019, for deficiency in service, which in practice is the faster route.

Step 4. Two arguments the company might raise, and why they fail.

• "He accepted the ticket and is bound by its terms." That is L'Estrange v. Graucob (1934), which applies to a signed document. A ticket is not signed, and the ticket cases require notice instead.

(ii) Will 'B' succeed in the above circumstances?

For full marks, cover: Section 2(b) and the essentials of acceptance, then the general offer under Section 8, the rule that there can be no acceptance in ignorance of the offer, Lalman Shukla, and the contrast with Harbhajan Lal.

(i) What is acceptance to a proposal?

Section 2(b): "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."

The essentials of a valid acceptance:

1. It must be absolute and unqualified. Section 7(1). A variation is a counter offer, which destroys the original offer: Hyde v. Wrench (1840).

(ii) Will B succeed?

No. B will not succeed. He cannot claim the Rs. 5,00,000.

Step 1. The newspaper announcement is a general offer. An offer may be made to the world at large and is accepted by whoever performs its conditions, under Section 8. Carlill v. Carbolic Smoke Ball Co. (1893) is the foundation.

Step 2. But there can be no acceptance without knowledge of the offer. Section 2(b) requires the acceptor to "signify his assent", and a person who does not know an offer exists cannot assent to it. Under Section 4, the communication of a proposal is complete only when it comes to his knowledge, so until B knew of the reward there was nothing to accept.

Step 3. The case is directly covered by Lalman Shukla v. Gauri Dutt (1913 All).

Facts. The defendant's nephew absconded. The defendant sent his servants, including the plaintiff Lalman Shukla, to search for him. After the plaintiff had left, the defendant issued handbills offering a reward of Rs. 501 to anyone who traced the boy. The plaintiff found the boy, learnt of the reward only afterwards, and sued for it.

B might also attempt Section 70, which allows a person who lawfully does anything for another, not intending to do so gratuitously, and where the other enjoys the benefit, to be compensated. The claim is weak, since returning a child is not readily valued, and it would yield only reasonable compensation, never the promised sum.

If B had known of the reward

The position would reverse entirely. Harbhajan Lal v. Harcharan Lal (1925 All) decides it on almost identical facts: a father issued handbills offering a reward for finding his absconding son; the plaintiff found the boy with knowledge of the offer and was held entitled to the reward, the handbill being a general offer accepted by performance.

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, the duty to mitigate, and the rules of measurement.

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 to perform arises from Section 37. A failure that is excused, for example 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 entitles the promisee to put an end to the contract where the other has refused to perform, or disabled himself from performing, his promise in its entirety, unless he has acquiesced in its continuance; and Hochster v. De La Tour (1853) allows an immediate suit.

This codifies Hadley v. Baxendale (1854): damages should be such as may fairly and reasonably be considered as arising naturally from the breach, or such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract as the probable result of its breach.

The facts: the crankshaft of the plaintiffs' mill broke, the defendant carriers delayed its delivery, 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.

Victoria Laundry (Windsor) Ltd. v. Newman Industries Ltd. (1949) applies both rules: ordinary loss of profit on the late delivery of a boiler was recoverable; the exceptional profits from unknown dyeing contracts 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.

7. A named sum is a ceiling. Section 74: where a sum is named, or there is a stipulation by way of penalty, the 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); Kailash Nath Associates v. Delhi Development Authority (2015 SC).

8. 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, mental distress.

2. By mutual agreement or consent (Sections 62 to 67). Novation, rescission and alteration under Section 62; remission under Section 63, needing no consideration in India; waiver; merger; and Section 67, excusing a promisor whom the promisee has not afforded reasonable facilities for performance.

3. By impossibility of performance (Section 56). Initial impossibility makes the agreement void; supervening impossibility, that is frustration, makes the contract void; and a promisor who knew or might with reasonable diligence have known of the impossibility must compensate a promisee who did not. Grounds: destruction of the subject matter (Taylor v. Caldwell, 1863); death or personal incapacity (Robinson v. Davison, 1871); supervening illegality; non occurrence of the basis of the contract (Krell v. Henry, 1903); war. Not grounds: commercial hardship, difficulty, strikes, a third party's default, self induced impossibility. Section 65 requires restitution. Satyabrata Ghose v. Mugneeram Bangur and Co. (1954 SC) holds Section 56 to be a positive rule of law.

4. By lapse of time (Limitation Act, 1963). Three years for a suit on a breach of contract; three years for specific performance under Article 54. A written and signed promise to pay a time barred debt is enforceable under Section 25(3).

For full marks, cover: the heading of Chapter V and what a quasi contract is, then each of Sections 68 to 72 with its conditions and illustrations and a case, and finish with the theoretical basis and the distinction from a true contract.

What the expression means

"Of certain relations resembling those created by contract" is the heading of Chapter V of the Indian Contract Act, 1872, and it covers Sections 68 to 72. These are what English law calls quasi contracts.

A quasi contract is an obligation imposed by law, not created by agreement, on a person who has been unjustly enriched at another's expense. There is no offer, no acceptance and no consideration; the law creates the obligation and gives the same remedy as if there had been a contract.

Key points: the claim lies against the property, not the person, so if there is no property there is no claim; "necessaries suited to his condition in life" is a relative standard and requires that the person be not already sufficiently supplied; and the amount recoverable is a reasonable sum, not any agreed price. Nash v. Inman (1908).

Section 69. Reimbursement of a person paying money due by another

"A person who is interested in the payment of money which another is bound by law to pay, and who therefore pays it, is entitled to be reimbursed by the other."

Illustration: 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. Under the revenue law, the sale will annul B's lease. B, to prevent the sale and the consequent annulment of his own lease, pays the Government the sum due from A. A is bound to make good to B the amount so paid.

Conditions: the payer must be interested in the payment; he must not himself be bound to pay; the other must be bound by law to pay; and the payment must be made to another person and not to himself.

Section 71. Responsibility of a finder of goods

"A person who finds goods belonging to another, and takes them into his custody, is subject to the same responsibility as a bailee."

His duties are those of a bailee under Sections 151 and 152; his rights are a lien for expenses (Section 168), a right to sue for an advertised reward, and a right of sale (Section 169) where the owner cannot be found with reasonable diligence, or refuses to pay the lawful charges, and the thing is perishing or the charges reach two thirds of its value. His title is good against all but the true owner: Armory v. Delamirie (1722).

Section 72. Liability of a person to whom money is paid, or thing delivered, by mistake or under coercion

"A person to whom money has been paid, or anything delivered, by mistake or under coercion, must repay or return it."

The essentials

1. Offer and acceptance. A lawful offer (Section 2(a)) and a lawful acceptance (Section 2(b)), the acceptance being absolute and unqualified (Section 7(1)) and communicated (Sections 3 and 4). Hyde v. Wrench (1840) on counter offers; Felthouse v. Bindley (1862) on silence; Lalman Shukla v. Gauri Dutt (1913 All) on knowledge; Carlill v. Carbolic Smoke Ball Co. (1893) on general offers; Harvey v. Facey (1893) on invitations to offer.

2. Intention to create legal relations. Not in the Act, but required by the courts. Balfour v. Balfour (1919); rebuttable, Merritt v. Merritt (1970); commercial agreements are presumed to be intended to bind.

3. Lawful consideration. Section 2(d) and Section 25. It must move at the desire of the promisor (Durga Prasad v. Baldeo, 1880 All); may move from the promisee or any other person (Chinnaya v. Ramayya, 1882 Mad); may be past, present or future; and need not be adequate but must be real (Explanation 2 to Section 25). Exceptions where none is needed: Sections 25(1), 25(2), 25(3), Explanation 1, Section 185, Section 127, Section 63, and charitable subscriptions (Kedar Nath v. Gorie Mohamed, 1886 Cal).

9. Legal formalities. The Act generally requires no writing, but the saving in Section 10 preserves any law requiring writing, attestation or registration, as in Sections 25(1) and 25(3), the Transfer of Property Act, 1882, and the Registration Act, 1908.

Section 6. Suit by person dispossessed of immovable property

6(1). "If any person is dispossessed without his consent of immovable property otherwise than in due course of law, he or any person claiming through him may, by suit, recover possession thereof, notwithstanding any other title that may be set up in such suit."

6(2). No suit shall be brought (a) after six months from the dispossession, or (b) against the Government.

6(3). No appeal and no review lies from any order or decree in such a suit.

6(4). Nothing bars any person from suing to establish his title and recovering possession on that basis.

• Possessory, not proprietary: the only issues are previous possession and wrongful dispossession.
• Title is no defence at all.
• The possession protected must be settled possession.

The two compared

• Krishna Ram Mahale v. Shobha Venkat Rao (1989 SC): a person in settled possession, even assuming he had no right to remain, cannot be dispossessed except by recourse to law.
• Rame Gowda v. M. Varadappa Naidu (2004 SC): explains settled possession, which must be effective, undisturbed and to the knowledge of the owner; a trespasser in the process of entering may still be resisted.

Related protection by injunction

Where the plaintiff is still in possession but is being interfered with, the remedy is an injunction: a perpetual injunction under Section 38(3), a mandatory injunction under Section 39 to undo an encroachment, and a temporary injunction under Order XXXIX, Rules 1 and 2, of the Code of Civil Procedure. Section 22 allows possession to be claimed in a suit for specific performance, if specifically claimed.

When it is granted. Section 38

38(1). To prevent the breach of an obligation existing in favour of the applicant, whether expressly or by implication.

38(2). Where the obligation arises from contract, the court shall be guided by the rules and provisions contained in Chapter II, that is by the law of specific performance.

38(3). Where the defendant invades or threatens to invade the plaintiff's right to, or enjoyment of, property, the court may grant a perpetual injunction where:

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

The Explanation deems a trespass to property occasioning or likely to occasion irreparable injury to be an invasion within clause (c).

• (b) to restrain proceedings in a court not subordinate to that from which the injunction is sought;
• (c) to restrain a person from applying to any legislative body;
• (d) to restrain criminal proceedings;
• (e) to prevent the breach of a contract the performance of which would not be specifically enforced;
• (f) to prevent, on the ground of nuisance, an act of which it is not reasonably clear that it will be a nuisance;
• (g) to prevent a continuing breach in which the plaintiff has acquiesced;
• (h) when equally efficacious relief can certainly be obtained by any other usual mode, except in case of breach of trust;
• (ha) if it would impede or delay the progress or completion of any infrastructure project, inserted in 2018;
• (i) when the conduct of the plaintiff or his agents disentitles him to the assistance of the court;
• (j) when the plaintiff has no personal interest in the matter.