BLS LLB 5 Years Sem 5 Contract I 2023-24 Question Paper with Solutions

An invitation to offer, or invitation to treat, is a statement by which a person invites others to make proposals to him. It is not a proposal within Section 2(a) of the Indian Contract Act, 1872, and therefore cannot be accepted into a contract; the response to it is itself the offer.

Examples: goods displayed in a shop with a price tag (Pharmaceutical Society of Great Britain v. Boots Cash Chemists, 1953; Fisher v. Bell, 1961); advertisements, catalogues and price lists (Partridge v. Crittenden, 1968); a tender notice; a company's prospectus inviting applications for shares; and an auctioneer's call for bids.

Section 11 of the Indian Contract Act, 1872: "Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind, and is not disqualified from contracting by any law to which he is subject."

Competence therefore has three requirements:

1. Age of majority, which is 18 years under Section 3 of the Indian Majority Act, 1875, and 21 where a guardian of the person or property has been appointed by a court;
2. Soundness of mind, defined by Section 12 as being capable, at the time of contracting, of understanding the contract and forming a rational judgment as to its effect upon his interests;
3. Not disqualified by any law, which excludes alien enemies, foreign sovereigns and diplomats, convicts, insolvents, and corporations acting ultra vires.

The Act speaks of a voidable contract rather than 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 (Section 15), undue influence (Section 16), fraud (Section 17) or misrepresentation (Section 18), which Sections 19 and 19A make voidable at the option of the party whose consent was so caused. Section 39 (refusal to perform in entirety) and Section 55 (failure to perform where time is of the essence) also produce voidable contracts.

A finder of goods is treated as a bailee. Section 71: "A person who finds goods belonging to another, and takes them into his custody, is subject to the same responsibility as a bailee."

His rights are:

1. Right of lien. Section 168. The finder has no right to sue the owner for compensation for trouble and expense voluntarily incurred in preserving the goods and finding the owner, but he may retain the goods against the owner until he receives such compensation. Where the owner has offered a specific reward for the return of the goods, the finder may sue for that reward, and may retain the goods until he receives it.
2. Right of sale. Section 169. When a thing commonly the subject of sale is lost, and the owner cannot with reasonable diligence be found, or refuses to pay the lawful charges of the finder, the finder may sell it where the thing is in danger of perishing or of losing the greater part of its value, or where his lawful charges amount to two thirds of its value.
3. Right to possession against the whole world except the true owner. Armory v. Delamirie (1722).

2. Exception 2. Arbitration of existing questions. The section does not affect any law in force as to references to arbitration of questions that have already arisen.
3. Exception 3. Bank guarantees. The section does not render illegal a contract in writing by which a bank or financial institution stipulates a term in a guarantee extinguishing rights or discharging liability on the expiry of a specified period, being not less than one year.

It depends on which of the two remedies is used.

1. Under Section 6 of the Specific Relief Act, 1963, the summary possessory suit by a person dispossessed without his consent and otherwise than in due course of law, the limitation is six months from the date of dispossession (Section 6(2)(a)). No such suit may be brought against the Government (Section 6(2)(b)), and no appeal or review lies from the decree (Section 6(3)).
2. Under Section 5 of the Specific Relief Act, the ordinary suit based on title, the limitation is twelve years from the date on which the defendant's possession became adverse to the plaintiff, under Article 65 of the Limitation Act, 1963.

Section 6(4) preserves the right of any person to sue to establish his title under Section 5 even after a Section 6 suit has been decided.

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

Appropriation of payments answers the 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? The Indian Contract Act deals with it in Sections 59 to 61, and Clayton's Rule governs a running account.

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

Section 60. Application where debt to be discharged is not indicated. Where the debtor omits to intimate and there are no circumstances indicating to which debt the payment is to be applied, the creditor may apply it at his discretion to any lawful debt actually due, including a debt barred by limitation.

For full marks, cover: the definitions and the English distinction, Section 74 in full with its Explanation and Exception, and then the four Supreme Court decisions, closing with Section 23 of the Specific Relief Act.

Liquidated damages are a sum named in the contract itself as payable in case of breach, being a genuine pre estimate by the parties of the probable loss.

A penalty is a sum fixed in terrorem, that is to frighten the party into performing, and bearing no proportion to the loss the breach would actually cause.

In English law the distinction is decisive: liquidated damages are recoverable in full, and a penalty is irrecoverable, the injured party being left to prove his actual loss.

• Fateh Chand v. Balkishan Das (1963 SC): Section 74 is a departure from the common law; the court is not bound to award the sum named, and the aggrieved party is entitled only to reasonable compensation not exceeding it.
• Maula Bux v. Union of India (1969 SC): where the loss can be proved, it must be proved; Section 74 dispenses with proof of the precise amount only where the loss is of a kind that cannot be measured. Forfeiture of a reasonable amount as earnest money is permissible; forfeiture of a large security deposit is a penalty.
• Oil and Natural Gas Corporation Ltd. v. Saw Pipes Ltd. (2003 SC): where the terms are clear and the loss is genuinely difficult or impossible to prove, the court may award the stipulated sum as reasonable compensation.
• Kailash Nath Associates v. Delhi Development Authority (2015 SC): restated the law, holding that compensation under Section 74 is payable only where damage or loss is caused by the breach, and that "reasonable compensation" is fixed by applying the principles of Section 73.

For full marks, cover: the definition and why such contracts exist, the danger, then each safeguard with its case, and the Indian unconscionability doctrine with the statutory controls.

A standard form contract, or contract of adhesion, 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. The weaker party has the freedom to contract or not to contract, but no freedom to settle the terms.

Examples: insurance policies, bank and loan documents, hire purchase agreements, railway, bus and airline tickets, electricity and telephone connections, hotel, laundry and parking receipts, employment forms, and the terms of service of online platforms, including clickwrap, shrinkwrap and browsewrap agreements.

Why they exist. They are a necessity of mass commerce. An enterprise contracting with lakhs of customers cannot negotiate with each one, and standardisation makes transactions fast, uniform and cheap.

3. The document must be contractual in character. Chapelton v. Barry Urban District Council (1940): a deck chair ticket was a mere receipt, not a contractual document.

4. Contra proferentem. Ambiguity in an exemption clause is construed strictly against the party who drafted it.

5. Fundamental breach. A party cannot rely on an exemption clause to escape liability for a breach going to the root of the contract, or where he has performed something radically different from what was contracted for. Reduced in England to a rule of construction in Photo Production Ltd. v. Securicor Transport Ltd. (1980), but Indian courts continue to use it as a control.

6. Non est factum. A person who signs a document fundamentally different in character from what he believed he was signing, without negligence, may plead that it is not his deed. The plea is narrow: L'Estrange v. Graucob (1934) holds that a signature ordinarily binds.

7. Unconscionable terms, the Indian doctrine.

9. Reform proposed, not enacted. The Law Commission of India, 103rd Report (1984), recommended a new Section 67A empowering courts to refuse to enforce unconscionable terms between parties of unequal bargaining power. It was never enacted, so the control remains judicial.

Section 26(2). If the court finds that the instrument, through fraud or mistake, does not express the real intention of the parties, it may in its discretion direct rectification so as to express that intention, so far as this can be done without prejudice to rights acquired by third persons in good faith and for value.

Section 26(3). A contract in writing may first be rectified, and then, if the party claiming rectification has so prayed and the court thinks fit, may be specifically enforced.

Section 26(4). No relief for rectification shall be granted unless it has been specifically claimed; and where a party has not claimed it, the court shall at any stage allow him to amend the pleading on such terms as may be just.

Conditions:

1. a contract or other instrument in writing;
2. which fails to express the real intention of the parties;
3. because of fraud or mutual mistake, a unilateral mistake being insufficient unless accompanied by the fraud or inequitable conduct of the other party;
4. the articles of association of a company are excluded;

This paper was set in December 2023, that is after the Specific Relief (Amendment) Act, 2018, which came into force on 1 October 2018. Section 10 now reads: "The specific performance of a contract shall be enforced by the court subject to the provisions contained in sub-section (2) of section 11, section 14 and section 16."

The court's general discretion has been removed. The only routes to refusal are Section 11(2) (a trustee acting in breach of trust), Section 14 (contracts not specifically enforceable) and Section 16 (personal bars). Hardship is not among them.

Step 2. None of the bars applies here.

• Section 14: a contract for the sale of a house does not require continuous supervision, does not depend on personal qualifications, and is not determinable in its nature. No substituted performance has been obtained.
• Section 16: Y must prove that he has performed, or has always been ready and willing to perform, the essential terms on his part, and must aver it in his plaint. On the facts he has done nothing wrong.
• Section 11(2) is irrelevant, there being no trust.

Step 3. Immovable property is the classic subject of specific performance.

2. Even under the old law the plea would have failed, because the Explanation to old Section 20(2) provided that "the mere fact that the contract is onerous to the defendant or improvident in its nature shall not constitute an unfair advantage or hardship", and the hardship had to exist at the date of the contract, not arise from the defendant's own later conduct. X knew he lived in the house when he agreed to sell it; his difficulty is self created and foreseeable, which is the plainest case in which hardship was never a defence.

Conclusion: Y is entitled to a decree for specific performance, and may also claim possession under Section 22 and compensation under Section 21, provided both are specifically claimed in the plaint.

(ii) The court's discretion in granting specific performance

The honest answer distinguishes two periods, and saying so is what earns the marks.

After the 2018 Amendment, in force from 1 October 2018. Section 10 makes enforcement mandatory subject to Sections 11(2), 14 and 16, and the general discretion is gone. The old Section 20 has been replaced by substituted performance, under which an aggrieved party may, after thirty days' written notice, have the contract performed by a third party or by his own agency and recover the cost, but cannot then claim specific performance (Sections 14(a) and 16(a)).

What survives of discretion. It has not vanished entirely. Section 12 on part performance, Section 20A on infrastructure projects, Section 21 on compensation and Section 26(2) on rectification all use the language of discretion, and Section 16(c) still requires the plaintiff to prove readiness and willingness, which is where most such suits actually fail. What has gone is the open ended power to refuse a decree because the court thinks it unfair.

• Paragraph 1. "When two or more persons make a joint promise, the promisee may, in the absence of express agreement to the contrary, compel any one or more of such joint promisors to perform the whole of the promise."
• Paragraph 2. Each promisor may compel contribution. "Each of two or more joint promisors may compel every other joint promisor to contribute equally with himself to the performance of the promise, unless a contrary intention appears from the contract."
• Paragraph 3. Sharing of loss by default in contribution. "If any one of two or more joint promisors makes default in such contribution, the remaining joint promisors must bear the loss arising from such default in equal shares."

Section 44. Effect of release of one joint promisor. A release of one joint promisor by the promisee does not discharge the others, nor does it free the released promisor from his liability to contribute to his co promisors.

(i) Can Y recover contribution from X and Z?

Yes. Y can recover Rs. 33,333.33 from each of X and Z.

• A was entitled under paragraph 1 of Section 43 to compel any one of the three to pay the whole, and chose Y. Y's payment discharged the debt.

• X's legal representatives step into his place and remain liable, both to the creditor A and to Y for contribution.
• Their liability is, however, limited to the extent of the estate of X that comes into their hands. A legal representative is not personally liable beyond the assets he has received; that is the ordinary rule of representative liability, reflected in Section 50 of the Code of Civil Procedure, 1908.
• The one exception is a contract dependent on the personal skill or qualification of the deceased, which is discharged by death under Section 37 read with Section 40. A money debt is plainly not of that kind, so this exception does not assist X's estate.

(iii) Can Y recover contribution if Z becomes insolvent?

Y may prove in Z's insolvency for whatever the estate will pay, and the shortfall is then shared equally between Y and X under paragraph 3 of Section 43.

• Z's insolvency does not extinguish his liability to contribute; it only limits what can actually be realised. Y may prove his claim as a creditor in the insolvency proceedings and will receive whatever dividend the estate pays on his Rs. 33,333.33.

(ii) What do you mean by discharge of Contract? State various modes of Discharge of Contract.

For full marks, cover: that the answer turns on whether the store had already accepted, Sections 5 and 6 if it had not, Section 62 if it had, and then the six modes of discharge.

The point on which everything turns

The facts do not say whether the General Store had accepted the order for 8 kilograms before A telephoned again. That single fact decides the case, so a complete answer takes both alternatives.

(i) What happens to the earlier order of 8 kilograms

Alternative A. If the store had not yet accepted the order.

Either way the store's consent is essential. If the store agreed to supply 10 kilograms instead, "the original contract need not be performed" (Section 62), and the 8 kilogram contract is discharged. If the store refused, the contract for 8 kilograms stands, and A's refusal to take delivery would be a breach, for which the store could claim compensation under Section 73, measured by the difference between the contract price and the market price.

In practice Alternative A is the likelier reading, since the call was made "shortly after" the order and before any delivery, and shop orders of this kind are ordinarily accepted by dispatch.

The second communication is, on either view, a fresh proposal which becomes binding only when the store signifies its assent under Section 2(b), or accepts by performing the conditions of the proposal under Section 8, that is by dispatching 10 kilograms. It is not a counter offer in the Hyde v. Wrench sense, because it comes from the same party who made the original proposal, and a proposer is free to withdraw and replace his own proposal; a counter offer is a reply by the offeree that varies the terms.

3. By impossibility of performance (Section 56). Initial impossibility makes the agreement void; supervening impossibility, that is frustration, makes the contract void. 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), and war. Not grounds: commercial hardship, difficulty, strikes, a third party's default, and self induced impossibility. Section 65 requires restitution of advantages received.

4. By lapse of time (Limitation Act, 1963). Three years for a suit on a breach of contract, and three years for specific performance under Article 54.

5. By operation of law. Death where personal skill is essential; insolvency; merger; material alteration of a written contract by one party without the other's consent; and unauthorised cancellation of an instrument.

6. By breach (Sections 39, 73 to 75). Actual breach and anticipatory breach. Section 39 entitles the promisee to put an end to the contract where the other has refused to perform, or disabled himself from performing, in entirety, unless he has acquiesced in its continuance. Hochster v. De La Tour (1853) permits an immediate suit on an anticipatory breach.

However, there was a dispute between them and Reeta wants to approach the Court for solving the dispute. (i) Can Reeta approach the Court in this matter?

Specify with proper reasons. (ii) What do you mean by void agreements?

What are the effects of such agreements?

For full marks, cover: Section 28 and that the clause is an absolute restriction and therefore void, that Section 28 avoids the clause and not the contract, the three exceptions, and then void agreements generally with Section 65.

(i) Can Reeta approach the Court?

Yes. Reeta can approach the Court. The clause is void and does not bind her.

Only the clause is void, not the whole contract. Section 28 says the agreement is void "to that extent", and the same words appear in Section 27. So the contract for the sale of the house stands, and it is the ouster clause alone that falls. Reeta may sue on the contract for specific performance under the Specific Relief Act, 1963, or for damages under Section 73.

Step 4. None of the three exceptions applies.

Section 28 does not avoid:

• Exception 1: an agreement to refer future disputes to arbitration, only the awarded amount being recoverable;
• Exception 2: a reference to arbitration of questions already arisen;
• Exception 3: a written term by which a bank or financial institution extinguishes rights under a guarantee after a period of not less than one year.

This clause is none of these. It refers the parties to no forum whatever. Had it said "all disputes shall be referred to arbitration", it would have been perfectly valid, and Reeta would have had to arbitrate rather than sue.

Step 5. Two further reasons, worth a line each.

• a contract which becomes void, Section 2(j), which was valid when made and later ceased to be enforceable, as under Section 56.

The agreements expressly declared void by the Act:

1. by persons incompetent to contract, Sections 10 and 11;
2. made under a bilateral mistake of fact essential to the agreement, Section 20;
3. with an unlawful consideration or object, Section 23, and in part, Section 24;
4. without consideration, Section 25, subject to its exceptions;
5. in restraint of marriage, Section 26;
6. in restraint of trade, Section 27;
7. in restraint of legal proceedings, Section 28;
8. uncertain in meaning, Section 29;
9. by way of wager, Section 30;
10. contingent on an impossible event, Section 36;
11. to do an act impossible in itself, Section 56, first paragraph;
12. reciprocal promises to do illegal acts, Sections 57 and 58.

1. Offer and acceptance

There must be a lawful offer by one party and a lawful acceptance by the other.

• Section 2(a) defines a proposal; Section 2(b) an acceptance.
• Acceptance must be absolute and unqualified (Section 7(1)), in a usual and reasonable manner (Section 7(2)), and communicated (Sections 3 and 4).
• A counter offer destroys the original offer: Hyde v. Wrench (1840).
• Silence is not acceptance: Felthouse v. Bindley (1862).
• No acceptance in ignorance of the offer: Lalman Shukla v. Gauri Dutt (1913 All).
• A general offer is accepted by performing its conditions (Section 8): Carlill v. Carbolic Smoke Ball Co. (1893).
• An invitation to offer is not a proposal: Harvey v. Facey (1893).

2. Intention to create legal relations

Not stated in the Act, but required by the courts.

• It need not be adequate but must be real: Explanation 2 to Section 25.
• Exceptions where none is needed: Sections 25(1), 25(2) and 25(3), Explanation 1 (completed gift), Section 185 (agency), Section 127 (guarantee), Section 63 (remission), and charitable subscriptions where a liability has been undertaken on the faith of the promise: Kedar Nath v. Gorie Mohamed (1886 Cal).

4. Capacity of the parties

Section 11: a person must be of the age of majority, of sound mind, and not disqualified by law.

• Minor: an agreement by a minor is void ab initio: Mohori Bibee v. Dharmodas Ghose (1903 PC). No ratification (Suraj Narain v. Sukhu Aheer, 1928), no estoppel, but restitution of traceable property may be ordered, and Section 68 makes the estate liable for necessaries.
• Sound mind, Section 12: capable at the time of contracting of understanding the contract and forming a rational judgment as to its effect on his interests.
• Disqualified persons: alien enemies, foreign sovereigns and diplomats, convicts, insolvents, and corporations acting ultra vires.

6. Lawful object and consideration

Section 23: unlawful if forbidden by law, if it would defeat the provisions of any law, if fraudulent, if it involves injury to the person or property of another, or if the court regards it as immoral or opposed to public policy. Such an agreement is void. Section 24: void as a whole where part of a single consideration is unlawful and not severable.

7. Agreements not expressly declared void

Sections 26 to 30, 36 and 56 declare void agreements in restraint of marriage (26), restraint of trade (27), restraint of legal proceedings (28), those uncertain (29), those by way of wager (30), those contingent on an impossible event (36), and those to do an act impossible in itself (56).

8. Certainty and possibility of performance

Section 29: "Agreements, the meaning of which is not certain, or capable of being made certain, are void." Illustration: an agreement to sell "a hundred tons of oil" without saying what kind is void; but if the seller deals only in coconut oil, his trade makes the meaning certain. Section 56, first paragraph: an agreement to do an act impossible in itself is void.

For full marks, cover: Section 36 for the meaning of preventive relief, the two classifications, Sections 37 to 42 in order, the three tests for a temporary injunction, and every clause of Section 41.

What preventive relief is

Preventive relief is relief granted by restraining a person from doing what he ought not to do, or by compelling him to undo it. It is the subject of Part III of the Specific Relief Act, 1963, Sections 36 to 42, and it is granted by injunction.

Section 36. Preventive relief how granted. "Preventive relief is granted at the discretion of the court by injunction, temporary or perpetual."

An injunction is an order of a court directing a person to do, or to refrain from doing, a particular act.

The three tests for a temporary injunction, applied cumulatively: a prima facie case; the balance of convenience in the applicant's favour; and irreparable injury which cannot be compensated in money.

Section 38. When a perpetual injunction is granted

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;

Section 40. Damages in lieu of, or in addition to, injunction

The plaintiff may claim damages either in addition to, or in substitution for, the injunction, and the court may award them if it thinks fit. The damages must be claimed in the plaint, with liberty to amend. The dismissal of the suit bars a later suit for damages for the same breach.

Section 41. When an injunction cannot be granted

• (a) to restrain any person from prosecuting a judicial proceeding pending at the institution of the suit, unless necessary to prevent a multiplicity of proceedings;
• (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;

Lumley v. Wagner (1852): a singer could not be compelled to sing for the plaintiff, but she was restrained from singing for a rival. In India, Niranjan Shankar Golikari v. The Century Spinning and Manufacturing Co. Ltd. (1967 SC) upheld a negative covenant restraining an employee from serving a competitor during his employment.

2. Anticipatory breach, occurring before the time for performance arrives, in two forms:

• express repudiation, where a party declares he will not perform; and
• implied repudiation, where a party disables himself from performing, for example by selling to a third person the very thing he had contracted to sell.

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

Hochster v. De La Tour (1853): a courier engaged from 1 June was told on 11 May that his services were not required, and was held entitled to sue at once.

The aggrieved party's election on an anticipatory breach: he may accept the repudiation, treat the contract as at an end and sue immediately, damages then being assessed at the date of repudiation; or he may keep the contract alive, in which case it remains alive for both parties, and if a frustrating event intervenes before the due date, the contract is discharged and he recovers nothing: Avery v. Bowden (1855).

• Special damages, arising from special circumstances communicated at the time of contracting: Hadley v. Baxendale; Victoria Laundry (Windsor) Ltd. v. Newman Industries Ltd. (1949).
• Nominal damages, a token sum where a right is infringed but no loss suffered.
• Vindictive or exemplary damages, not awarded in contract except 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.
• Damages for inconvenience, and in limited categories for mental distress.

Section 74. Liquidated damages and penalty. Where a sum is named in the contract as payable on breach, or there is any 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: Fateh Chand v. Balkishan Das (1963 SC); Maula Bux v. Union of India (1969 SC); Kailash Nath Associates v. Delhi Development Authority (2015 SC).

4. Suit for specific performance. Under Chapter II of the Specific Relief Act, 1963. Since the 2018 Amendment, Section 10 provides that specific performance shall be enforced, subject to Sections 11(2), 14 and 16. It is the natural remedy where damages are inadequate, typically for immovable property or goods with no market substitute. It is barred for contracts requiring continuous supervision, contracts dependent on personal qualifications, contracts determinable in nature, and where the plaintiff cannot prove readiness and willingness under Section 16(c). Section 20 now offers substituted performance after thirty days' notice as an alternative.

5. Suit for injunction. Under Sections 36 to 42 of the Specific Relief Act, temporary or perpetual, to restrain a party from doing what he promised not to do. Its most important use in contract is Section 42, which allows the court to enforce a negative covenant by injunction even where the affirmative agreement cannot be specifically enforced: Lumley v. Wagner (1852); Niranjan Shankar Golikari (1967 SC).

The word "collateral" is what separates a contingent contract from an ordinary conditional one. "I will pay you Rs. 10,000 if you deliver the goods" is not contingent, because delivery is the consideration. "I will pay you Rs. 10,000 if your house burns down" is contingent, because the fire is no part of what either party promised.

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

The rules of enforcement, Sections 32 to 36

Section 32. Enforcement of contracts 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 makes a contract with B to buy B's horse if A survives C. The contract cannot be enforced by law unless and until C dies in A's lifetime.
• A contracts to pay B a sum of money when B marries C. C dies without being married to B. The contract becomes void.

Section 35, first paragraph. Contingent on an event happening within a fixed time. Such contracts become void if, at the expiration of the time fixed, the event has not happened, or if before the time fixed the event becomes impossible.

Illustration: 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.

Section 35, second paragraph. Contingent on an event not happening within a fixed time. Such contracts may be enforced when the time fixed has expired and the event has not happened, or before the time fixed has expired, if it becomes certain that the event will not happen.

Illustration: A promises to pay B a sum of money if a certain ship does not return within a year. The contract may be enforced if the ship does not return within the year, or is burnt within the year.

Section 36. Agreements contingent on impossible events void. "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 to the agreement at the time when it is made."

Illustrations: