CONTRACT - I
No |
Particulars |
UNIT - I |
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1 |
History - Formation of contract - Agreement and contract - Definitions |
2 |
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3 |
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4 |
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5 |
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6 |
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7 |
Nudum Pactum |
8 |
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9 |
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10 |
Unlawful consideration and its effect |
11 |
Contractual ability |
12 |
Electronic Documents as web pages |
13 |
Digital certificates as entry passes |
14 |
Time and place of contract |
15 |
Secured custody of electronic records |
UNIT - II |
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16 |
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17 |
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18 |
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19 |
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UNIT - III |
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20 |
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21 |
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22 |
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23 |
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24 |
Appropriation of payments |
25 |
Discharge by agreement - By operation of law |
26 |
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27 |
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UNIT - IV |
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28 |
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29 |
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30 |
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31 |
(injunction - when granted and when refused - Restitution - specific performance when granted ) |
32 |
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UNIT - V |
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33 |
The specific Relief act |
34 |
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35 |
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36 |
Power of court to grant relief - rectification of instruments |
37 |
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38 |
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39 |
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40 |
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41 |
Government as a contracting party ; constitutional provisions |
42 |
Government powers to contract procedural requirements |
43 |
Kinds of Government contracts, their usual clauses. Performance of such contact, settlement of disputes and remedies. |
UNIT - I
Section 2 (e) of the Indian Contract Act 1872 defines "every promise and every set of promises, forming the consideration for each other, is an agreement". According to 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". Thus contract is a bilateral transaction between two or more than two parties. Unless the acceptance is communicated, the contract cannot be said to be concluded.
Section 10 of the contract Act provides "all agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void. According to section 10 says an agreement to be enforceable must fulfill the following conditions:
1.2 Proposal or offer
Section 2 (a) of the Act provides when one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal.
Essential elements of a valid proposal
1. Every proposal must be communicated
Communication need not always be express and need not be expressed in words, in so far as the proposal or acceptance of any promise is made in words, the promise is said to be express. In so far as such proposal or acceptance is made otherwise than in words, the promise is said to be implied.
A proposal can be accepted only when it comes to the knowledge of the person to whom it is intended to be made. The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made.
In Lalman Shukul v/s Guari Dutt
In that case the defendant's nephew having absconded from home, he sent his servant to find out him. Later on, he offered a reward of Rs. 501 to any one who discovered the boy. This offer came to the knowledge of the servant only after he had already discovered the boy. In a suit filed by the servant to claim the reward, it was held that he could successfully claim the reward only on the basis of contract and in this case there was no communication of proposal to him. He came to know of it after he had already discovered the boy which he was already under obligation to do by nature of his calling.
2. The proposal must be made with a view to create legal relations
It is also essential that it must be made with a view to create relations.
Ex: If a father while going out of station promises to his daughter to bring a cameral for her, it cannot be said to be valid proposal because he does not intend to bind himself legally nor does he make it with a view to obtain the assent of his daughter.
When rejecting the claim
There are agreements between parties which do result in contracts within the meaning of that term in our law. The ordinary example is where two parties agree to take a walk together, or where there is an offer and acceptance of hospitability. They are not contracts because parties did not intend that they shall be attended by legal consequences.
3. The proposal must be certain and definite
Its terms should not be so vague so as to prevent a contract being formed. It is the function of the courts of law to interpret contract, to say whether a contract is or is not reasonable, to say whether it is or is not void, but it is not the duty of courts to make contracts between the parties.
Ex: A agrees to sell to B hundred tons of oil. There is nothing whatever to show what kind of oil was intended. The agreement is void for uncertainty. Similarly, where, A agrees to sell to B "my white horse for rupees one thousand", the agreement will be void because there is nothing to show which of the two prices was to be given.
1. General and Specific Offers
An offer need not always be made to an ascertained person but it is necessary that an ascertained person should accept it.
Ex: If a person offers a reward to anyone who finds his lost diamond ring, the finder can successfully claim the reward. Where an offer is made to the whole world, acceptance of the offer and performance of the contention will be sufficient for making it an enforceable contract.
Carlill v/s Carbolic Smoke Ball Company
In this case, the defendants were proprietors and vendors of carbolic smoke ball. They advertised a reward of 10,000 to any person who contracted influenza after using the smoke ball for a certain period according to the printed directions. In order to show their sincerity, they also deposited 1,00000 in a bank for the same purposes. The plaintiff, a lady, used the smoke ball according to the printed directions yet she contracted influenza. She brought an action to claim the reward. It was held that she was entitled to claim the reward.
Finally the court held that in advertisement cases, an offer may be made to the whole world but it becomes a promise only when it is accepted by an ascertained person.
Section 8 of the Indian Contract Act provides performance of the conditions of a proposal, or acceptance of any consideration for a reciprocal promise which may be offered with a proposal, is an acceptance of the proposal.
2. Offer and invitation to offer
An offer, capable of being converted into an agreement by acceptance, must consist of a definite promise to be bound provided that certain specific terms are accepted. The offer must have completed his share in the formation of a contract by finally declaring his readiness to undertaken an obligation upon certain conditions leaving to the offer the option of acceptance or refusal. He must not merely have been feeling his way towards an agreement not merely initiating negotiations from which an agreement might or might not result in time. He must be prepared to implement his promise, if such is the wish of the other party.
A tender notice does not amount to an offer or proposal but merely an invitation to the contractors for making an offer. An advertisement for tenders is not a proposal which would bind the authority to sell to the person who makes the highest tender.
Distinction between offer and invitation to offer
In Pharmaceutical society of Great Britain v/s Boots cash chemists Ltd.
In this case the court had to decide as to at what time the sale took place in a shop of the defendant adopting 'self-service' system. It was claimed by the plaintiffs that once the customer picked up an article and put it into the basket, the contract of sale was complete: the shop-keeper then could not refuse to sell it. The court rejected this contention and held this was only an invitation to offer.
3. Standing offer
Invitation to make tenders is not an offer. A tender in response to such invitation is an offer. After its acceptance, it sometimes becomes what is known as a standing offer or continuing offer.
In Bengal co. Ltd. v/s Homee Wadia and Company
In this case the defendants entered into an agreement to supply a kind coal from time to time required by the plaintiff for a period of twelve months. The plaintiff, in pursuance of the said agreement, placed certain orders and the defendants supplied the coal. But before the lapse of 12 months they withdrew their offer and refused to supply the coal any more. The plaintiffs thereupon filed the suit against them for the breach of contract.
The court dismissed the suit on the ground that there was no contract. The court held that it was simply a continuing offer and the contract took place only when a certain quality was ordered.
According to section 5 a proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer but not afterwards.
Ex: A proposes, by a letter sent by post, to sell his house to B. B accepts the proposals by a letter sent by post. A may revoke his proposal at any time before or at the moment when B posts his letter of acceptance, but not afterwards.
Mode of Revocation
According to section 2 (b) provides 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.
Conditions for valid acceptance
1. Acceptance must be communicated
An intention to accept or even a mental resolve to accept a proposal does not give rise to a contract. There must be some overt or external manifestation of the intent by speech, writing or other act. Even if the offeree has made up his mind to a final acceptance, the agreement is yet not complete.
In Felthouse v/s Bindley
In this case the plaintiff wrote a letter to his nephew offering to buy his horse for $30, 15s. He also wrote in his letter, 'if I hear no more about him I shall consider the horse mine at $30. 15s'. the nephew did not give any reply of his letter. However, he told the defendant, an auctioneer, not to sell the horse. Thus, he intended to reserve the horse for his uncle. But the defendant sold the horse by mistake. The plaintiff, thereupon, sued the defendant, the auctioneer for conversion of property. Dismissing the action, the court held that since the nephew did not communicate his acceptance, no contract took place between the plaintiff and his nephew and consequently he had no right to complain of the sale. The court held that the communication of acceptance must be made to offerer himself or his agent. The communication of acceptance to stranger will not be a valid communication.
2. Communication of acceptance must be by a person who has authority to accept
A communication of acceptance to be valid must be either by the offeree himself or by his authorized agent. A communication of acceptance by any other person will not be valid.
In Powell v/s Lee
In this case the board of managers of a school passed a resolution selecting the plaintiff for the post of headmastership but the decision about his selection was not communicated to him. One of the managers, in his individual capacity, informed him of the said resolution. Subsequently, the board of manager's rescinded their decision and consequently the plaintiff was not appointed as headmaster. The plaintiff, thereupon, brought an action for the breach of contract.
The court held that no contract was c concluded because a communication of acceptance to be valid must be made by the offeree himself or his authorized agent. A communication of acceptance from an unauthorized person will not be valid.
3. Acceptance must also be inferred from the conduct of parties
Acceptance need not always be express; it may also be implied or inferred from the conduct of the parties.
In Brogden v/s Metropolitan Railway Co.
In this case the respondents were being supplied coal and coke for their locomotives by the appellants for sometime without any formal agreement for the same. They decided to enter into a formal agreement for the same. The respondents sent a draft agreement to the appellant leaving some blanks to be filled and signed by the appellant. The appellant filled in the blanks, changed certain words in the agreement and after signing and signifying his approval returned it to the respondents. The respondent's agent kept it in the drawer and thus no acceptance was communicated. The appellant, supplied coal on the terms and conditions of the said agreement. Subsequently, there arose some dispute between the appellants and the respondents. The court held that mere silence does not constitute acceptance but it may be implied from the conduct of the parties.
4. Communication may be waived by the offerer
An acceptance of an offer made ought to be notified to the person who makes the offer, in order that the two minds may come together. Unless this is done the two minds may be apart, and there is not that consensus which is necessary to make a contract.
In Bhagwandas v/s Girdhari Lal and Co.
In this case the Supreme Court held that "acceptance must be communicated to the offerer, unless he has waived such intimation, or the course of negotiations implies an agreement to the contrary".
5. Acceptance must be absolute and unqualified and must correspond to terms of the offer.
According to section 7 (1) of the contract Act provides that in order to convert a proposal into a promise, the acceptance must be absolute and unqualified. Acceptance must correspond to the terms of the offer.
In Hyde v/s Wrench
In this case, the defendant offered to sell his farm to the plaintiff for $ 1, 000 but the plaintiff said he would buy it for $950 only. Later on he agreed to buy the farm for $ 1,000. But the defendant refused to sell the farm. The plaintiff sued the defendant for specific performance of the contract for plaintiffs offer of $ 950 was in fact a counter-offer which destroyed the original offer.
1. Where no mode prescribed
Section 7 (2) of the Act provides where no manner is prescribed the acceptance may be expressed in some usual and reasonable manner.
Ex: If an offer is made by post and no mode is prescribed the acceptance may also be made by post. But if A in Lucknow sends a proposal to B in Calcutta and B send a man with a letter of acceptance to walk down from Calcutta to Lucknow to communicate it to A, it will not be usual and reasonable.
2. Where mode is prescribed
Where the offerer prescribes the mode or manner in which the offer is to be accepted, the acceptance must be made in the manner prescribed. The acceptance will not be valid if there is any departure or variance from the mode prescribed.
In Eliason v/s Henshaw
In this case, the plaintiff made an offer to the defendant to buy some flour. He sent his offer through a wagon and requested the defendant to send the answer by the same wagon. Instead of sending his acceptance by the said wagon, he sent the letter of acceptance by mail thinking that it would reach earlier. But the letter reached after the arrival of the wagon. The plaintiff refused to purchase the flour.
The Supreme Court held that it is an undeniable principle of the law of contract, that an offer of a bargain by one person to another imposes no obligation upon the former until it is accepted by the letter, according to the terms in which the offer was made. Any qualification of or departure from, these terms, invalidates the offer unless the same be agreed to by the person who made it.
A. Acceptance by post
In case of acceptance by post a difficult question arises as to when the acceptance is complete and the contract is concluded.
Adams v/s Lindsell
In this case, the defendants made an offer to sell wool to the plaintiff by letter dated September 2, 1817. This letter reached on September 5, 1817. The plaintiff posted his letter of acceptance on the same day, i.e., on the 5th September, which the defendants received on September, 9, 1817. But the defendants had already sold the wool to some other party having waited up to 8th September. In an action brought against them by the plaintiff for the breach of contract, the court held that defendants liable.
B. Acceptance by telephone or telex
When the parties are in each other's presence or though separated in space yet are in direct communication as by telephone, the contract is not complete until the offerer comes to know of the fact of acceptance.
In Entores Ltd. v/s Mills Far East Corporation
In this case, the plaintiff made an offer from London by telex to the agents in Holland of the defendants of purchase of certain goods, and the offer was accepted by a communication received on the plaintiff's telex machine in London. On the allegation that breach of contract was communicated by the defendant corporation, the plaintiff sought leave to serve notice of a writ on the defendant corporation claiming damages for the breach of contract. The defendant corporation contended that the contract was made in Holland.
Finally the Court held that the rule about instantaneous communications between the parties is different from the rule about the post. The contract is only complete when the acceptance is received by the offerer, and the contract is made at the place where the acceptance is received.
Acceptance is valid only when made before the offer lapses
An acceptance can be validly made only before the offer lapses. An offer may lapse in any of the following ways:
1. Failure of a condition subject to which the offer was made or not being accepted in the mode prescribed
An offer, no less than an acceptance, may be conditional and not absolute, and if the condition fails to be satisfied, the offer will not be satisfied, the offer will not be capable of acceptance.
By the failure of the acceptor to fulfill a condition precedent to acceptance
The offer does not prescribe any method; the offeree is free to communicate the acceptance in any usual and reasonable manner. In case the offerer suggests that the reply should be sent by post, it is not essential that the reply should be sent by letter only. It may be sent by telegram which may reach earlier.
2. by not being accepted within the time prescribed
An offer may also lapse if it is not accepted within the time prescribed for its acceptance. By the lapse of the time prescribed in such proposal for its acceptance, or if no time is so prescribed, by the lapse of a reasonable time, without communication of the acceptance.
3. by rejection or counter-offer
An offer may also lapses if it has been rejected or if in its reply a counter-offer has been made.
4. By the Death or Insanity of the offerer
An offer also lapses on the death or insanity of the offerer. The death of either party before acceptance may cause an offer to lapse. It would seem that, in principle, an offeree cannot accept after he is informed of the death of the offerer. An acceptance communicated to the offer's personal representatives will not bind them, unless the offer is one which could not have been revoked by the offerer during his lifetime.
5. by revocation
A proposal is revoked by the communication of notice of revocation by the proposer to the other party.
Time of revocation
An offer can be revoked at any time before the communication of acceptance is posted but not afterwards. A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards. An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards.
Notice of printed terms
1. The notice must be contemporaneous with the contract
A term of a contract can be binding only when it was brought to the notice of the contracting party at the time when he entered into the contract, that is to say, it must be contemporaneous with the contract. If the contacting party is informed or the term after the time when contract was made, he will not be bound by it.
2. The terms of the contract should be communicated to the offeree.
Unless and until he has been made aware with the nature and effects of the terms of contract he will not be bound by them. In the nature and effects of the terms of contract also, the principle relating to communication of terms applies but the principle has been adopted and modified in view of the modern needs and requirements.
Important points
3. The notice should be reasonably sufficient under the circumstances of the case
It involves the question whether the notice given was reasonably sufficient under the circumstances of the case.
In Parker v/s S.E. Railway Co.
In this case, the plaintiff on depositing his bag at the cloak-room was given a ticket which on its face contained the words "see back" and on its back number of conditions was printed, one of which being that the company would not be liable for the loss exceeding $ 10. A similar notice was hung in the cloak-room. The plaintiff's bag having been lost, he brought an action to recover the loss. He admitted that he knew that something was written on the ticket but he did not know that it contained conditions. His action failed because the court held that the notice given to him of the said terms was reasonably sufficient.
4. Strict construction of the exemption clauses
This is based on the principle that where a person is under a legal liability and wishes to exempt himself from that liability, he may do so only by using clear words to effect.
Ex: where a person excludes his liability for a warranty in respect of a sale of particular goods, he will nevertheless be liable if there is a breach of condition implied by law.
Under the law of contract consideration is necessary for all formation of contract, because without the consideration the contract is void. Section 2 (d) of the Act defines consideration. According to the section when, at the desire of the promiser, the promise 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.
1. at the desire of the promisor
An act or abstinence must be done at the desire of the promisor. An act done at the desire of a third person will not constitute a good consideration.
In Durga Prasad v/s Baldeo
In this case the plaintiff built a market at the desire of the collector of the district. The defendant who subsequently occupied one of the shops in market agreed to pay a certain commission on all goods sold through him in the market. An action brought by the plaintiff on the breach of the said promise was dismissed on the ground that the plaintiff built the market at the desire of the collector and not that of the defendant and hence the promise was without consideration and could not be enforced.
2. Promisee or any other person
The consideration may be given by the promise or any other person.
In Dutton v/s Poole
In this case, plaintiff's father decided to cut the family tree for the marriage of his daughter, the plaintiff. His son promised to pay $ 1,000 for plaintiff's marriage and asked his father not to cut the family tree. The plaintiff's father did accordingly. Subsequently, the father, the plaintiff, sued the defendant to recover the money. It was held that although the plaintiff was not a party to the contract between the father and the son, yet she was entitled to recover the promised sum from the defendant.
A contract cannot confer any rights on one who is not a party to the contract, even though the very object of the contract may have been to benefit him. As promise, he is unable to sue because there is no privity of contract between him and the promisor. The inability of one who is not a party to the contract to acquire rights under it follows from the view which our law has adopted to the operation of contract generally; it has no particular connection with the doctrine of consideration.
In Jamuna Das v/s Ram Autar
In this case, the purchaser of property contracted with the seller to pay off the mortgage debt. In an action brought by the mortgagee against the purchaser to recover the mortgage debt, it was held by the Privy Council that he was not entitled to force the contract so as to compel the purchaser to pay off the debt because he was not a party to the contract.
Exceptions to doctrine of privity of contract
1. Trust or Charge
A well-recognized exception to the doctrine of privity of contract is that of a trust or charge created in some property in favour of third person.
Khwaja Mohammad v/s Hussaini Begum
In this case, the suit was brought by a Mohammedan lady against her father-in-law to recover arrears of certain allowance called Kharcha-i-pandan under the terms of an agreement executed by the father-in-law in consideration of her marriage with his son at the time when she and her husband were minors. The defendant disclaimed liability on the following two grounds:
1. That the plaintiff was not a party to the agreement in question and hence not entitled to enforce it.
2. That she had forfeited her right to the allowance by her misconduct and refusal to live with her husband.
2. Partition of Hindu Family, Marriage Settlement, Family Arrangement etc.
The courts in India have applied the same principle regarding the maintenance of a female member of Hindu family in the partition of joint family property among the female members. If on the partition of joint-family property among the male members a provision is made for the marriage expenses of a female member then such a female member can sue to enforce the agreement.
3. Acknowledgement
Where under a contract a party undertakes an obligation to make a payment to a third party and he acknowledges it to the said third party, the third party, though not a party to the contract can enforce the contract.
4. Covenants attached or running with the Land
A person buying land is bound by covenants or agreement affecting the land although he may not be a party to the said covenants or agreements.
5. Law relating to Negotiable Instruments
It is also an exception to the doctrine of privity of contract.
Ex: A has an account in central bank. A draws a cheque of Rs. 1,000/- in favour of B. B goes to bank to encash the cheque. Although there is no contract between the bank and B, yet the bank will be liable to pay Rs. 1,000/- to B. B amy also endorse the cheque to C and then C will be entitled to receive Rs. 1,000 /- from the bank although there is no privity between bank and C. similarly the rule of privity of contract does not apply in case of promissory note and bill of exchange.
3. Has done or abstained from doing something
A consideration may be executory, a promise given for the promise, or it may be executed, an act or forbearance given for the promise: but it must not be past, for in that case it is a mere sentiment or gratitude or honour prompting return for benefits received in other words, it is no consideration at all.
4. Or does or abstains from doing something
When, at the desire of the promisor or any other person does or abstain from doing something, it will constitute a good consideration within the meaning of section 2 (d) of the contract Act.. Where the consideration is a present performance and not a promise. the determent may consists either in actually parting with something of value or in understanding a legal responsibility or in foregoing the exercise of a legal right.
5. Or promise to do or to abstain doing something
If the promise or any other person, at the desire of the promisor, promises to do or to abstain from doing something it will constitute a good consideration. It is called an executory consideration.
6. Such act or abstinence or promise is called a consideration for the promise
A. Consideration need not be adequate
The word is qualified by the word adequate it makes consideration stronger so as to make sufficient and valuable having regard to the fact, circumstances and necessities of the case. An agreement to which the consent of the promisor is freely given is not void merely because the consideration is inadequate, but the inadequately of consideration may be taken into account by the court in determining the question whether the consent of the promisor was freely given.
Ex: P agrees to sell his land worth Rs. 10,000/- for Rs. 1,000/- consent to the agreement is freely given. Later on P denies selling the land to Q for Rs. 1,000/- on the ground that the consideration is inadequate.
B. Consideration must be real
The consideration must be of some value in the eye of law. The court will not denounce an agreement merely because it seems to be unfair. The promise must, indeed, have been procured by the offer of some return capable of expression in terms of value. The Indian Contract Act does not expressly say that the consideration must be of some value in the eye of law but the courts have generally followed the English law on this point. That is to say in India also, the consideration must be valuable in the eye of law and not that must be real and not illusory.
C. Act, abstinence or promise to be good consideration, must be something more than what the promisor is already bound to do.
To do something which a person is already bound to do, is no good consideration. A person may be bound to do something in the following two different ways:
1. by law:
According to English law, performance of a legal duty is to consideration for a promise. But when a person has done something more than what he was bound by law, to do, then that would be a good consideration.
In Glassbrook Brothers Ltd. v/s Glamorgan country council
In this case due to strike in the colliery, a colliery manager requested for police protection for his colliery. For proper and efficient protection he wanted quartering a police force in the premises of the colliery. The police superintendent required the colliery manager to pay for this. The police protection was provided only when the colliery manager agreed to pay for the same. The court had to decide whether the agreement was legal or not for the colliery manager contended that the police was already bound to protect the life and property of the persons.
Finally the court held that the agreement in question was neither illegal nor void for want of consideration. Although the police was bound to protect the life and property of the people but if a person wanted any special type of protection which was usually not provided by the police, the person concerned must pay for it.
2. by contract
A person may also be already bound to do something under a pre-existing contract. This pre-existing contract may either be with a third party or with the promisor himself.
Pre-existing with the third party
There was a controversy for a long time as to whether a promise for the performance of an existing duty would constitute a good consideration.
Ex: A wife deserted her husband. He entered into an agreement by which he promised to pay her Rs. 300/- per month if she would maintain herself and undertake not to pledge his credit. He was sued by the wife when he fell into arrears with the payments, and pleaded in defence that there was no consideration for the agreement at that time. Since she was in desertion she was bound to maintain herself.
Pre-existing contract with the promisor himself
A promise to do a particular thing which the promise is already bound to do under a pre-existing contract with the promisor will not constitute a good consideration.
In Ramchandra Chintaman v/s Kalu Raju
In this case, the defendant engaged the plaintiff as lawyer in a suit and signed the vakalatnama which was accepted by the plaintiff. Later on the defendant promised to pay a certain sum as reward to the plaintiff if he won the suit. The plaintiff was able to win the suit for the defendants yet the defendant did not pay the promised reward. The plaintiff, therefore, brought the suit to recover the sum promised as reward.
Finally the court held that the promise for the reward was without consideration for the plaintiff as a lawyer of the defendant was already bound to do his best to win the suit. There being no fresh consideration for the sum promised, the agreement was void
Exceptions to consideration
1. Natural love and affection
Section 25 (1) provides that an agreement without consideration is void. Unless it is expressed in writing and registered under the law for the time being in force for the registration of documents and is made on account of natural love and affection between parties standing in a near relation to each other, the agreement will not be void for want of consideration.
Ex: A, for natural love and affection promises to give his son B Rs. 1,000/- A puts his promise to B into writing and registers it. This will not be void for want of consideration and will be a valid contract.
Essential elements
A. The agreement must be in writing.
B. It must be registered under the law for the time being in force for the registration of documents.
C. It must be out of natural love and affection
D. The parties must be standing in a near relation to each other.
2. Promise to compensate for something done voluntarily
Section 25 (2) provides an agreement without consideration is void. Unless it is a promise to compensate wholly or in part, a person who has already voluntarily done something for the promisor, or something which the promisor was legally compellable to do will not be void for want of consideration.
Ex: A finds B's purse and gives it ti him. B promises to pay A Rs. 50. This promise can be enforced. Similarly, if A has supported B's son and subsequently b promises to pay A's expenses in so doing A is entitled to sue and get the said promise enforced.
3. Promise to pay a time-barred debt
Section 25 (3) provides that agreement without consideration is void. Unless it is a promise made in writing and signed by the person to be charged therewith, or by his agent generally or specifically authorized in that behalf, to pay wholly or in part a debt which the creditor might have enforced payment but for the law for the limitation of suits.
Ex: A owes B Rs. 1,000/- but the debt is barred by the limitation Act. A signs written promises to pay B Rs. 500 on account of the debt. This will be a valid contract and shall not be void for want of consideration.
Essential conditions
1.5 LEGALITY OF OBJECT
Unlawful Agreements
Section 23 provides that the object of an agreement is lawful, unless
1. It is forbidden by law
Section 23 provides that any agreements, the object or consideration of which is forbidden by law is unlawful and therefore void.
In Pearce v/s Brooks
In this case, plaintiff agreed to supply the defendant with a brougham on hire, till the purchase money was paid by installments in a period which was not to exceed twelve months. The plaintiff had the knowledge that the defendant was a prostitute and the brougham was to be used by her as a prostitute and to assist her in carrying on her said immoral vocation. The jury found that the carriage was used by the defendant as a part of her display to attract men and the plaintiff knew that it was supplied for that purpose. In this case, Pollock C.B., observed, it is a settled law that any person who contributes to the performance of an illegal act by supplying a thing with the knowledge that it is going to be used for that purpose, cannot recover the price of the thing so supplied.
Section 23 is founded on the principle that no one shall be allowed to trade on felony. In case the accused person is innocent, the law will be abused for the extortion and in case he is guilty, the law will be eluded by a corrupt compromise screening the criminal for a consideration. The legislature did not lay down under section 23 the conditions or qualifications as to what are forbidden by law or what would default the provisions of any law. One has to go to law itself which is the subject matter of the interpretation to see if the Act contained of is prohibited by law or it would defeat the provisions of any law so as to pronounce it as void.
2. Agreements which defeat the provision of any law
Section 23 provides that if an agreement is of such a nature that if permitted, it would defeat the provisions of any law, the consideration or object of such agreement is said to be unlawful and every agreement the object or consideration of which is unlawful is void.
Ex: A promise B to drop a prosecution which he has instituted against B for robbery and B promises to restore the value of the things taken. The agreement is void, as its object is unlawful, for it defeats the provisions of criminal law. A person who is guilty of the crime of robbery must be dealt with according to law.
3. Fraudulent
Section 23 of the Act provides the consideration is unlawful if it is fraudulent.
Ex: A, B and C enter into an agreement for the division among them of gains acquired, or to be acquired by fraud. The agreement is void, as its object is unlawful.
Exceptions
4. Injury to person or property of another
Section 23 of the Act provides the consideration or object which involves or implies injury to the person or property of another is unlawful and therefore void. If parties enter into a sham transaction and their object is to deceive a third party, no legal right or duties will follow or in other words the contract would be void. Thus an agreement which involves injury to the properties of other persons is void under section 23 of the contract Act.
5. Immoral or Opposed to Public Policy
Section 23 of the Act says the object of an agreement is unlawful if the court regards it is immoral or proposed to public policy.
Meaning of Public Policy
It means an agreement which is injurious to the public or is against the interest of the society is said to be opposed to public policy.
Ex: A contract of marriage brokerage is void.
A contract enforcing bonded labour is void.
A waging contract is void.
Meaning of Immoral
What is immoral at a a material time depends on the fact and circumstances of the case and the prevailing standards of morality in the society.
In Pearce v/s Brooks
In this case, a coach builder had let out a brougham on hire to a prostitute for the purpose of enabling her "to make a display favorable to her immoral purposes." The coach builder subsequently sued the prostitute for moneys payable under the agreement. It was held by the Court of Exchequer that he could not recover the moneys. The rule which is applicable to the matter is, ex turpi causa non oritur action, and whether it is an immoral or an illegal purpose in which the plaintiff has participated, it comes equally with the terms of that maxim, and the effect is the same; no cause of action can arise out of either in the one or the other.
Various Existing Heads of Public Policy
1. By tending to the prejudice of the state
The head may further divide into the following two sub-heads.
1. Trading with the enemy
Since the bargains with the enemy help the enemy, they are clearly against the public policy; they are clearly against the public policy. A very common illustration of such contracts is the contracts with the alien enemy during the war.
2. Sale of public offices and appointments
Sale of public offices is also opposed to public policy.
Ex: If A agrees to pay some money to B, a public servant to include him to retire so as to make way for A's appointment. This is a void agreement for being opposed to public policy.
2. By tending to the perversion of or interference with the administration of justice
1. An agreement the object of which is perversion of or interference with the administration of justice is opposed to public policy and is therefore void.
Ex: P entered into a contract with Q whereby P undertook to perform "Pooja" for the success of Q in litigation with the consideration that if Q won the case, he would give one-tenth of the decree money to P. P cannot succeed against Q because the object of the agreement was to interfere with the administration of justice.
Since the object of the agreement is interference with the administration of justice, the agreement is opposed to public policy and comes under the existing and well recognized head, "by tending to the perversion of or interference with the administration of justice." Such an agreement is therefore unlawful and void. It may take the following forms:
1. Maintenance
It means providing money to another person to start litigation in which he has no interest.
2. Champerty
It means rendering assistance to other in recovering some property and he may have interest in it and is to share in the proceeds of the recovered property.
In a leading case
In this case, G an advocate entered into an agreement with his client. Under this agreement the said advocate was engaged by the client for a sum of Rs. 9,400. The agreement also provided that the advocate would get 50% of the amount recovered. This agreement was held to be void as it was opposed to public policy and amounted to professional misconduct.
2. Agreement to stifle prosecution
An agreement to stifle prosecution is clearly opposed to public policy and is therefore void. It is in the interest of the public as a whole that criminals should not go unpunished. The criminal law of this country makes a difference between various classes of offences. With regard to some it allow the parties to come to an agreement and either not to take proceedings or to drop the proceedings after institution in a few instances even without the leave of the court.
In V. Narasimha Raju v/s Gurumurthi Raju
In this case, a non-compoundable criminal case was pending in the court. The parties entered into an agreement to refer it to arbitration and for the withdrawal of the case from the court. The Supreme Court held that the agreement was void as being hit by section 23 of the Contract Act.
The Supreme Court observed in this case, if a person sets the machinery criminal law into action that the opponent has committed a non-compoundable offence by the use of this coercive criminal process he compels the opponents to enter into an agreement, that agreement would be treated as invalid for the reason that its consideration is opposed to public policy. Once the machinery of the criminal law is set into motion on the allegation that the non-compoundable offence has been committed, it is for the criminal court alone to deal with the allegation and to decide whether the offence alleged has in fact been committed or not. The decision of the question cannot wither directly or indirectly be taken out of the hands of the criminal courts and dealt with by private individuals.
3. Interference with the cause of justice
An agreement, the object of which is to obstruct justice is void as it is opposed to public policy.
Ex: If A is an accused in a criminal case filed against him by the state and B is a state witness. If they enter into an agreement that B shall not state the facts correctly in the court and in consideration of this A shall pay him some money. This agreement is void as being opposed to public policy. Besides this, B may also be prosecuted for perjury if in fact he gives the false evidence in pursuance of the said agreement.
3. Violation of Public Decency
There are two types of Agreements. Those are:
1. Marriage brokage agreement
2. Agreement against material relations.
Consequences of Illegality
1. Such a contract is void and the courts will not enforce it at the instance of either party.
2. Money paid or goods delivered in pursuance of an illegal contract cannot be recovered except in the following cases:
a) Where one of the parties is innocent, it may recover back money or goods delivered under the contract.
b) Where no more has been done that the payment of money and no part of illegal purpose has been carried out, can be recovered.
Principle of Severability
Thus if the illegal consideration constituted a subsidiary or a minor part of the total consideration and if the illegality did not involve a criminal act or one contra bonus mores, the legal part of the consideration may be enforced and in such a case the principle of severability is applied.
Section 57 of the Act provides that where persons reciprocally, promise, firstly, to do certain things which are legal, and secondly under specified circumstances, to do certain other things which are illegal, the first set of promises is a contract but the second is a void agreement.
Ex: A and B agree that A shall sell B a house for 10, 000 rupees, but that if B uses it as a gambling-house, he shall pay A 50,000 rupees for it. The first set of reciprocal promise, namely, to sell the house and to pay 10,000 rupees for it is a contract. The second set is for unlawful object, namely, that B may use the house as a gambling-house, and is void agreement.
In the case of an alternative promise, one branch of which is legal and the other illegal, the legal branch alone can be enforced.
Ex: If A and B agree that A shall pay B 1,000 rupees, for which B shall afterwards deliver either rice or smuggled opium. That is valid contract to deliver rice, and void agreement as to the opium.
UNIT - II
Section 10 of the contract Act provides all agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void. Section 11 of the Act provides 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. According to section 11, the following persons are incompetent to contract:
In India it is generally 18 years, but if a guardian of a minor's person or property is appointed, then it is 21. according to section 11, a minor is incompetent to contract but the Indian Contract Act is conspicuous by its silence about the nature of minor's contract.
Mohari bibee v/s Dharmodas Ghosh
In this case, the Privy Council held that the minor's contract is void and not merely voidable on the basis of sections 10, 11,183,184. According to section 11 should be literally construed and that only a person who is of the age of the majority is competent to contract. A minor's contract is ab initio and wholly void.
Following contracts entered into by a minor are absolutely void.
Fraudulent misrepresentation by minor and its effects
Since a minor's contract is void, a pertinent question arises as to what will happen if a minor fraudulently misrepresents himself to be a major and induces a person to enter into a contract with him or induces him to lend some money by mortgaging his property.
Mohori Bibee v/s dharmodas Ghose
In this case, the respondent, a minor executed a mortgage in favour of one Brahmo Dutt, a money lender of Calcutta to secure a loan of Rs. 20,000 on some house belonging to the respondent. While considering the proposed advance, Kedar Nath, the attorney and agent of Brahmo Dutt,received information that the respondent was a minor, yet he got the deed executed. Subsequently, the infant, by his mother and guardian as next friend, commenced action against Brahmo Dutt, stating that he was a minor when he executed the mortgage and prayed for the declaration that the said deed be cancelled. Mer. Jenkins, who presided in the court of first instance granted the relief asked. The appellate court also dismissed the appeal. Subsequently, an appeal was filed in the Privy Council. By the time of the institution of the appeal, Brahmo Dutt died and was substituted by Mohori Bibee. It was argued on behalf of the appellants that the court ought not to have decreed in the respondent's favour without ordering him to repay the sum or Rs. 10,500 received by him as part of the consideration for the mortgage.
Thus in this case, the court was of the opinion that under its discretionary power the court may order restitution by the minor but the court did not order it in the present case because the appellant had advanced the loan to Dharmodas Ghose while knowing that he was a minor.
Exceptions
A minor's agreement is absolutely void. But there are following exceptions for the benefit of the minor
1. Sales, mortgages, contracts etc., in favour of minors
A minor is incompetent to contract. Yet he may accept a benefit and be a transferee. A duly executed transfer by way of sale or mortgage in favour of a minor, who has paid the consideration, is valid. On behalf of the minor, his natural guardian or any other de jure guardian can enter into contract to purchase any property on the name of the minor.
2. Partnership
A minor may be admitted as a partner in a partner in a partnership firm to the benefits of a partnership, without personal liabilities of such minor.
3. Specific Performance
A minor's agreement being void cannot be specifically enforced. But a contract may be entered into on behalf of a minor by his guardian or by his next friend or by a legal manager of his estate, for the benefit of the minor and can specifically be enforced in a court of law.
4. Payments of debt incurred during minority
It is permissible at law for a person after attaining majority to elect to pay the debt incurred by him during his minority.
5. Necessaries
Liability in respect of necessaries supplied to person incapable of entering into a contract. A minor is an incapable person. Hence the provisions of Section 68 apply to a minor. The liability is not personal. It pertains to the estate of minor. It resembles the obligations of quasi-contractual nature.
Following are the necessaries
1. Costs incurred in defending a suit successfully as to the minor's estate.
2. Loan to a minor to avert sale of his property in execution of a decree.
3. Purchase of bull and other agricultural appliances required for agricultural operations on the minor's estate.
4. Necessary repairs required to the minor's house, and necessary clothes.
The followings are not necessaries
1. Expenses incurred in connection with minor's marriage, which is against the provisions of Child Marriage restraint Act, 1929.
2. Expenses towards pilgrimage.
3. Expenses for insurance premiums for a minor is not a necessary one.
Equitable doctrine of Restitution
If a minor obtains some property by fraudulently misrepresenting his age, he can be ordered to restore the property or goods thus obtained. This is called the equitable doctrine.
In Leslie v/s Sheill
In this case, the defendant minor by fraudulently misrepresenting himself to be a major induced the plaintiff to lend him two sums of $ 200 each. The plaintiff filed the suit to recover $ 475 being amount of advances with interest. This action was resisted by the defendant on the plea of infancy. The court dismissed the suit and pointed out that it was necessary to safeguard the weakness of the infants at large, 'even though here and there a juvenile slipped through', while dismissing the suit.
Important points
1. Equality
The Doctrine of Equity intervened the basic principle of "Minors" protection. It paved the way for the protection of parties to contracts, who were aggrieved by the fraud of the infant, to certain extent. According to it, the minors should not be allowed to retain the benefits obtained by their fraud. They are obliged to make restitution.
Ex: A minor plays ticks and misrepresents about his own age, and acts as a minor, and obtains goods from the plaintiff, and the goods are still in the possession of the minor, then the court can order the minor to restore the goods to the plaintiff. This is called "Doctrine of Restitution".
C. Only in case of goods
The doctrine of restitution is helpful to the aggrieved plaintiff only in case of the goods, that too if the goods are not converted by the minor, but not in the case of cash and particularly in case of loan.
D. Necessaries
The doctrine of restitution also extends to the cases of necessaries. Where the plaintiff incurs certain amount for the necessaries of the minor, the plaintiff is entitled to get back his amount.
Principle of Estoppel, whether applicable in case of a minor
Section 115 of the Indian Evidence Act provides that when one person has his declaration, act or omission intentionally caused or permitted another person to believe a thing to be true, and to act upon such belief, neither he nor his representatives shall be allowed in any suit or proceeding between himself and such person of his representative to deny the truth of that thing.
The question for consideration is that if a minor fraudulently misrepresents himself to be of full age and induces another person to lend him some money or to enter into a contract, can he be later on allowed to plead that such a contract is void because of the reason that when he contracted he was a minor.
When the contract itself was void the plea of estoppel must fail. No estoppel can be pleaded against a statute. If the Contract Act declares that the contract by a minor is void nothing can prevent the minor from pleading that such a contract is void on the ground of his minority.
Ratification
Since minor's contract is void, he cannot therefore validate it by ratification after attaining majority for the obvious reason that ratification relates back to the making of the contract.
In Suraj Narain v/s Sukhu Ahir
In this case, a minor borrowed some money by executing a bond. When he became major he executed a second bond for the earlier borrowed money as well as interest on it. The court held that the second bond was invalid because it was without consideration. And a minor executed a promissory note after attaining majority for the consideration he received during his minority. It was held that the promissory note was invalid because it was without consideration. But there may be also be a situation in which a minor may execute a deed for consideration received partly during his minority and partly after attaining majority.
Section 12 of the Act provides that a person is said to be of sound mind for the purpose of making a contract if, at the time when he makes it, he is capable of understanding it and of forming a rational judgment as to its effect upon his interests.
1. A person who is usually of sound mind, but occasionally of sound mind, may not make a contract when he is of sound mind.
2. A person who is usually of sound mind, but occasionally of unsound mind, may not make a contract when he is of unsound mind.
Ex: A sane man, who is delirious from fever, or who is so drunk that he cannot understand of a contract, of form a rational judgment as to its effect on his interest, cannot contract whilst such delirium or drunkenness lasts.
Persons of drunkards
Section 12 of the Act provides that a drunken person is in the same category as a person of unsound mind. A contract by a person in a state of drunkenness is absolutely void. Such contract is incapable of ratification. It must be proved that the drunkenness was excessive and created the impotence of mind at the time of so-called contract. Mere drinking is not a hindrance to the contracting of just obligations.
A Persons may disqualify from contracting by any law to which he is subject. A contract entered into with an alien enemy will be void.
Ex: A migrant from Bangladesh, Pakistan, etc., enter into the Indian Territory for live hood or to cause terrorism without visas or on visiting visas. Such a person is disqualified by law to enter into the contracts in India.
An insolvent is incompetent to contract according to insolvency laws. An insolvent is rendered incompetent for the purpose of contracting only after he has been adjudged as insolvent by the court.
Ex: an insolvent may contract after insolvency proceeding have been started and until he has been adjudged as insolvent.
2.2 FREE CONSENT
Section 13 of the Act provides that "two or more persons are said to consent when they agree upon the same thing in the same sense". This is known as consent ad idem. Unless and until the parties are at ad idem there is no contract. Section 14 of the Contract Act says definition of free consent. The 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. Consent is said to be free when it is not caused by followings:
2.2 a) Coercion
It defines section 15 of the Contract Act. According to Act coercion is the committing, or threatening to commit, any act, forbidden by the Indian Penal Code or the unlawful detaining, or threatening to detain, any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement. And it is whether the Indian Penal Code is or is not in force in the place where the coercion is employed.
Ex: A, on board an English ship on the high seas, causes B to enter into an agreement by an act amounting to criminal intimidation under the Indian Penal Code. A afterwards sues B for breach of contract at Calcutta. Here A has employed coercion, although his act is not an offence by the law of England, and although section 506 of the Indian penal Code was not in force at the time when or place where the act was done.
Essential elements of Coercion
In Keshavji v/s Harjivan
In this case, S- a son forged the signature of his father-F on certain promissory notes. Basing on them, a bank gave loan. Later the bank found the forgery. They called F, and threatened to institute criminal proceedings against S, and advised to prevent such criminal proceedings, F ought to have settled with the bank and to pay the entire amount of debt. Due to the threat, F was compelled to settle with the bank and paid the amount. Later, F sued the bank for the recovery of the amount contending that he paid the amount under the settlement due to coercion.
Finally the Privy Council set aside the settlement on the ground that the father was not a free agent, and held that Father was entitled to revoke the settlement, and to receive back the payment. It held that the bank authorities committed coercion against F and compelled him to pay the amount.
Threat to commit suicide, whether coercion
According to section 15, an offence to constitute coercion should be an act forbidden by the Indian Penal code. Under the Indian Penal Code, attempt to commit suicide is punishable and not the threat to commit suicide.
In Ammiraju v/s Seshamma
In this case, a man gave a threat to his wife and son to commit suicide if they did not execute a release bond regarding some properties which the wife and son claimed as their own. But court held that the release deed was vitiated by coercion within the meaning of section 15. the majority decision pointed that to threat to commit suicide must be deemed to be forbidden since the attempt to commit suicide was punishable under section 30 of the Indian penal Code. An act should be said to be forbidden by the Indian Penal Code only when it was punishable under it. Since the threat to commit suicide was not punishable, it could not be said to be forbidden.
2.2 b) Undue Influence
Section 16 of the Act provides
A) Where he holds a real or apparent authority over the other, or when he stands in a fiduciary relation to the other; or
B) Where he makes a contract with a person whose capacity is temporarily or permanently affected by reason of age, illness or mental or bodily distress.
Essentials of Undue Influence
1. Relationship between the parties being such that one of the parties is in a position to dominate the will of the other.
2. He uses that position to obtain unfair advantages over the other.
3. Unfair advantage is in fact obtained.
Conditions of Undue Influence
1. Where he holds a real or apparent authority over the other, or where he stands in a fiduciary relation to the other,
2. Where he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness or mental or bodily stress.
Ex: 1) A, having advanced money to his son B, during his minority, upon B's coming of age obtains, by misuses of parental influence a bond from B for a grater amount than the sum due in respect of the advance. A employs under influence.
2) A applies to a banker for a loan at a time when there is stringency in the money market. The banker declines to make the loan except at an unusually high rate of interest. A accepts the loan on these terms. This is a transaction in the ordinary course of business, and the contract is not induced by undue influence.
In Mst. Sethani v/s Bhama
In this case, the main question for consideration before the Supreme Court was whether the Registered Sale Deed dated 1-4-1963 was obtained under undue influence from a tribal woman, putlibai who was illiterate besides being old and blind. She was under the total domination of the defendant-respondent Bhana. The Supreme Court observed that it is true that the initial onus to prove undue influence was on the plaintiff-appellant, but the onus, in the facts and circumstances of the case, was easily discharged. It is the respondent who hold obtained the sale deed in his favour way back on 1-4-1963 by a registered sale deed, which was the light at a late stage of the trial. From the certified copy thereof it is evident that no consideration passed at the time of the sale.
Presumption of Undue Influence
When a person in fiduciary relationship with the plaintiff who is in his care and control, obtains advantages, a presumption of undue influence will arise that undue influence was exercised.
In Rajamani Ammal v/s Bhoorasami Pandayachi and another
In this case, the plaintiff, the sister of the defendant remained under care and control of the defendant during her minority and afterwards. Immediately after the attained majority, the defendant obtained a release deed from her. The plaintiff was unmarried and illiterate girl. She had no independent advice; she had executed the deed without knowing its nature, contents and affect. It was held that the deed was vitiated by exercise of undue influence because "the first defendant had obtained an advantage over the plaintiff when he was in a fiduciary relation to the plaintiff. Neither the first defendant nor the third defendant who claims under the first had attempted to rebut the presumption of undue influence arising out of the defendant's fiduciary relation.
Burden of proving Undue Influence
Section 16 provides that where a person who is 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 such a contract was not induced by undue influence, shall lie upon the person who is in position to dominate the will of the other.
Ex: A, being debt to b, the money-lender of his village, contracts a fresh loan on terms which appear to be unconscionable. It lies on B to prove that the contract was not induced by undue influence.
According to section 16 92) of the Act provides when a person is considered to be in a position to dominate the will of the other. It gives three illustrations of such a position, namely:
Effect of Undue Influence
Section 19-A of the Act deals with the consequences of agreements obtained by undue influence. When consent to an agreement is caused by undue influence, the agreement is a contract voidable at the option of the party whose consent was so caused. Any such contract may be set aside either absolutely or, if the party who was entitled to avoid it has received any benefit there under, upon such terms and conditions to the court may seem just.
Ex: A;
A's son has forged B's name to a promissory note. B, under threat of prosecuting A's son, obtains bond from A, for the amount of the forged note. If B sues on this bond, the court may set the bond aside.
2.2 c) Fraud
Section 17 of the Act provides that Fraud means and induces any of the following acts committed by the party to a contract, or with the connivance or by his agent, with intent to deceive another party thereto or his agent, to induce him to enter into the contract-
Mere silence as to facts likely to affect the willingness of a person to enter into contract is not fraud, unless the circumstances of the case are such that regard being had to them, it is the duty of the person keeping silence to speak, or unless his silence is, in itself, equivalent to speech.
Ex: A sells, by auction, to B a horse which A knows to be unsound. A says nothing to B about the horse's unsoundness. This is not fraud by A. but if B is A's daughter, and has just come of age, here, the relation between the parties would make it A's duty to tell B if the horse is unsound.
Essential elements of Fraud
1. A suggestion; as to a fact with the knowledge that it is not true.
2. The active concealment of a fact by one having knowledge or belief of the factor.
3. A promise made without intention to perform it.
4. Any other act fitted to deceive.
5. Any such act or omission as the law specially declares to be fraudulent.
Effect of Fraud
When consent to an agreement is caused by coercion, fraud or misrepresentation the agreement is a contract voidable at the option of the party whose consent was so caused by fraud. A party to a contract was caused by fraud or misrepresentation may, if he thinks fit insist that the contract shall be performed and that he shall be put in the position in which he would have been if the representations made have been true. But a fraud which did not cause their consent to a contract of the party, on whom such fraud was practiced, does not render a contract voidable.
Ex: B, having discovered a vein of ore on the estate of A, adopts means to conceal and does conceal, the existence of the ore from A's ignorance B is enabled to but the estate at an undervalue. The contract is voidable at the option of A.
2.2 d) Misrepresentation
Section 18 of the Act provides misrepresentation means and includes:
Essential elements of Misrepresentation
A. He can avoid or rescind the contract.
B. He can accept the contract but insist that he shall be placed in the position in which he would have been if the representation made had been true.
Effect of Misrepresentation
When the consent to an agreement is caused by misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused. A party whose consent was so caused by misrepresentation, may, if he thinks fir, insists that the contract shall be performed, and that he shall be put in the position in which he would have been if the representation made had been true. A fraud or misrepresentation which did not cause the consent to a contract of the party on whom such fraud was practiced or to whom such misrepresentation was made does not render a contract voidable.
Distinction between Misrepresentation and Fraud
1. Misarepresentation is a false statement without any intention to deceive. It is also called innocent.
But in case of Fraud is a statement deliberately or recklessly made to deceive another. It is also called intention misrepresentation.
2. Misrepresentation may be innocent, i.e., there may not be deceit or any intention to gain.
But in case of Fraud it shows that there must be in intention either to deceive or to induce the other party to enter into a contract.
3. Misrepresentation does not involve dishonest intention; i. e. the element of moral obligation is missing.
But in case of Fraud the dishonest intention is present.
4. Misrepresentation is only a vitiating element in a contract. It makes the contract voidable at the option of the party injured.
But in case of Fraud being a vitiating element in a contract, it gives rise to an independent action of tort.
2.2 e) Mistake
Classification of Mistake
Mistake may be classified into the following categories
1. Common Mistake
In common mistake, both the parties make the same mistake. Each knows the intention of the other and accepts it, but each is mistaken about some underlying and fundamental fact.
Ex: The parties are unaware that the subject-matter of their contract has already perished.
2. Mutual Mistake
In mutual mistake, the parties misunderstand each other and are at cross purpose.
Ex: A intends to offer his 8 H.P car for sale but B believes that the offer relates to another car for 10 H.P.
3. Unilateral Mistake
In unilateral mistake, only one of the parties is mistaken. The other knows or must be taken to know, of his mistake.
4. Absence of Consent
Section 13 of the Act mistake of this category may relate to
A. Mistake as to the identity of the person
Section 13 of the Act says two or more persons are said to consent when they agree upon the same thing in the same sense. that is to say there will be no contract if the parties are not at ad idem.
Ex: If the offeree is mistaken about the identity of the offeror and if he contracts on such mistaken assumption, parties cannot be said to be ad idem.
B. Mistake as to the existence of the subject-matter
If there is a mistake as to the nature of the transaction, the contract is void.
Ex: If a person signs the deed of gift being under the mistaken impression that he is simply signing a power of attorney, the deed will be invalid on the ground of mistakes as to the nature of transaction.
C. Mistake as to the nature of transaction
If there is a mistake as to the nature of the transaction, the contract is void.
Ex: If a person signs the deed of gift being under the mistaken impression that he is simply signing a power of attorney, the deed will be invalid on ground of mistake as to the nature of transaction.
5. Mistaken by ignorance or Misconception of some matters
For brining a case of mistake under this category there should be following essential elements:
1. Facts must be essential to the agreement
When both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement the agreement is void.
Ex: A agrees to sell B a specific cargo of goods supposed to be on the way from England to Bombay. It turns out that before the day of bargain, the slip conveying the cargo had been cast was, and the goods lost. Neither party was aware of these facts. The agreement is void.
2. Mistaken must be of fact not of law
Section 21 of the Act provides a contract is not voidable because it was caused by mistake as to any law in force in India, but a mistake as to a law not in force India has the same effect as a mistake of fact.
Ex: A and B make a contract grounded on the erroneous belief that a particular debt is barred by the Indian Law of Limitation; the contract will not be voidable.
3. Both the parties must have been under a mistake
Section 22 of the Act provides that a contract is not voidable merely because it was caused by one of the parties to it being under a mistake as to a matter of fact.
In A. A Singh v/s Union of India
In this case, the plaintiff was the highest bidder in an auction by the government for the right of fishery for a period of one year. He made the highest bid under the mistaken impression that the rights of fishery was for a period of three years. He tried to avoid the agreement on the ground of mistake of fact. But it was held that the mistake was unilateral and therefore he could not avoid the agreement.
Rectification of Mistake
Where a contract has been reduced to writing or a deed owing to mutual mistake, fails top express the concurrent intention of the parties at the time of its execution, the court will rectify the written instrument in accordance with their true intent.
Conditions for Rectification
1. The parties must have been in final and full agreement prior to the execution of the instrument which it is sought to rectify.
2. The party seeking to have the instrument rectified must adduced clear, unambiguous evidence that its terms do not accurately record the true intention of the parties at the time.
3. The intention of the parties as expressed in the prior agreement must have continued unchanged up to the time of the execution of the written statement, and there must be a literal disparity between the terms of the two transactions.
2.3 AGREEMENTS DECLARED TO BE VOID
Section 2 (h) defines that an agreement enforceable by law is a contract. It means every agreement must be lawful. All lawful agreements are valid and are enforceable by law. There are some agreements which have been declared to be void under the Indian Contract Act. Those are:
1. Unlawful Agreements
Section 23 provides that the object of an agreement is lawful, unless
1. It is forbidden by law
Section 23 provides that any agreements, the object or consideration of which is forbidden by law is unlawful and therefore void.
In Pearce v/s Brooks
In this case, plaintiff agreed to supply the defendant with a brougham on hire, till the purchase money was paid by installments in a period which was not to exceed twelve months. The plaintiff had the knowledge that the defendant was a prostitute and the brougham was to be used by her as a prostitute and to assist her in carrying on her said immoral vocation. The jury found that the carriage was used by the defendant as a part of her display to attract men and the plaintiff knew that it was supplied for that purpose. In this case, Pollock C.B., observed, it is a settled law that any person who contributes to the performance of an illegal act by supplying a thing with the knowledge that it is going to be used for that purpose, cannot recover the price of the thing so supplied.
Section 23 is founded on the principle that no one shall be allowed to trade on felony. In case the accused person is innocent, the law will be abused for the extortion and in case he is guilty, the law will be eluded by a corrupt compromise screening the criminal for a consideration. The legislature did not lay down under section 23 the conditions or qualifications as to what are forbidden by law or what would default the provisions of any law. One has to go to law itself which is the subject matter of the interpretation to see if the Act contained of is prohibited by law or it would defeat the provisions of any law so as to pronounce it as void.
2. Agreements which defeat the provision of any law
Section 23 provides that if an agreement is of such a nature that if permitted, it would defeat the provisions of any law, the consideration or object of such agreement is said to be unlawful and every agreement the object or consideration of which is unlawful is void.
Ex: A promise B to drop a prosecution which he has instituted against B for robbery and B promises to restore the value of the things taken. The agreement is void, as its object is unlawful, for it defeats the provisions of criminal law. A person who is guilty of the crime of robbery must be dealt with according to law.
3. Fraudulent
Section 23 of the Act provides the consideration is unlawful if it is fraudulent.
Ex: A, B and C enter into an agreement for the division among them of gains acquired, or to be acquired by fraud. The agreement is void, as its object is unlawful.
Exceptions
4. Injury to person or property of another
Section 23 of the Act provides the consideration or object which involves or implies injury to the person or property of another is unlawful and therefore void. If parties enter into a sham transaction and their object is to deceive a third party, no legal right or duties will follow or in other words the contract would be void. Thus an agreement which involves injury to the properties of other persons is void under section 23 of the contract Act.
5. Immoral or Opposed to Public Policy
Section 23 of the Act says the object of an agreement is unlawful if the court regards it is immoral or proposed to public policy.
Meaning of Public Policy
It means an agreement which is injurious to the public or is against the interest of the society is said to be opposed to public policy.
Ex: A contract of marriage brokerage is void.
A contract enforcing bonded labour is void.
A waging contract is void.
Meaning of Immoral
What is immoral at a a material time depends on the fact and circumstances of the case and the prevailing standards of morality in the society.
In Pearce v/s Brooks
In this case, a coach builder had let out a brougham on hire to a prostitute for the purpose of enabling her "to make a display favorable to her immoral purposes." The coach builder subsequently sued the prostitute for moneys payable under the agreement. It was held by the Court of Exchequer that he could not recover the moneys. The rule which is applicable to the matter is, ex turpi causa non oritur action, and whether it is an immoral or an illegal purpose in which the plaintiff has participated, it comes equally with the terms of that maxim, and the effect is the same; no cause of action can arise out of either in the one or the other.
2. Agreements without consideration
Under the law of contract consideration is necessary for all formation of contract, because without the consideration the contract is void. Section 2 (d) of the Act defines consideration. According to the section when, at the desire of the promiser, the promise 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. If without the consideration making of contract is declared to be void. So consideration is the utmost essential element of a valid contract or agreement.
3. Agreement in Restraint of Marriage
Section 26 of the Act provides every agreement in restraint of the marriage of any person other than a minor, is void. Thus the only exception recognized by Section 6 is that of an agreement to restrain minor from marriage. Section 26 (2) of the Act declares that an agreement in partial restraint of the marriage of any person, other than a minor, is void if the court regards it as unreasonable in the circumstances of the case.
4. Agreement in Restraint of Trade
Section 27 of the Act provides that an agreement in restraint of trade is void. Agreement in restraint of trade as one in which a party agrees with any other party to restrict his liability to carry on trade with other persons not parties to the contract in such manner as he choose. A contract in restraint may be described as one which unreasonably restricts the right of a person to carry on his profession. Such contracts are of three kinds:
According to section 27 of the Act every agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void. One who sells the goodwill of a business, may agree with the buyer to restrain from carrying on a similar business within specified limits so long as the buyer or any person deriving title to the goodwill from him carries on a like business therein provided that such limits appear to the court reasonable regard being had to the nature of the business.
In Madhub Chunder v/s Raj Coomar Dass
In this case, the defendant felt affected by the business of the plaintiff and agree to pay some of money to the plaintiff if he stopped his business in that locality. The plaintiff stopped business but the defendant did not pay him. The plaintiff therefore sued the defendant to recover the said money which he claimed that he had advanced to his workman. In this case, the Calcutta High Court held that the agreement was void and therefore no part of it could be enforced.
Exceptions
1. Restraint during terms of service
An agreement whereby an employee covenants to bind himself not to complete his employer during the term of his agreement is not a restraint of trade.
In Charlesworth v/s Mac-Donald
In this case, the defendant agreed to serve for three years as an assistant to the plaintiff, a physical and surgeon. The agreement contained a stipulation against practicing by the defendant within the period of the agreement but he started practicing. The court granted injunction restraining the defendant from practicing in Zanzibar during the period of agreement. The court opined that such an agreement was not covered within the meaning of section 27 of the Act.
2. Trade Combinations
Except in the cases where the contract is wholly one sided, normally the doctrine of restraint or trade is not attracted in cases where the restriction is to operate during the period the contract is subsisting and it applies in respect of a restriction which operates after the termination of the contract.
In Bholanath shankardas v/s Lachminarain
In this case, the Allahabad High Court held that a combination formed by traders of a p[particular locality to carry on business only among the members and to pay of their profits to common fund and imposing fines upon members for violation of conditions laid down by the combination was not invalid under section 27 of the contract Act even though it might have indirectly damaged their trade rivals.
3. Solus Agreements
Section 27 declares void all agreements by which any one is restrained from exercising a lawful profession, trade or business of any kind. It does not forbid contracts which are necessary for carrying on of business.
Ex: A manufacturer may either into an agreement to sell his entire product to a particular person and not to sell it to anyone else. Such agreements may be called solus agreements.
4. Agreements in restrain of Legal proceedings
Section 28 of the Indian Contract Act provides that every agreement by which any party is restricted absolutely from enforcing his rights under or in respect of any contract, by the ordinary tribunals, or which limits time within which he may thus enforce his rights is void to that extent. According to Section 28 provides:
Exceptions
1. Saving of contract to refer to arbitration dispute that may arise
This section shall not render illegal a contract by which two or more persons agree that any dispute which may arise between them in respect of any subject or class of subjects shall be referred to arbitration and only the amount awarded in such arbitration shall be recoverable in respect of the dispute so referred.
2. Saving of contract to refer questions that have already arisen
Nor this section shall render any illegal contract is writing by which two or more persons agree to refer to arbitration any questions between them which has already arise or affect any provision of law in force for the time being as to reference to arbitration.
3. Agreements void for Uncertainty
Section 29 of the Act provides that agreements, the meaning of which is not certain, or capable of being made certain, are void.
Ex: 1. A agrees to sell B a hundred tons of oil. There is nothing whatever to show what kind of oil was intended. The agreement is void fo0r uncertainty.
2. A agrees to sell to B all the grain in my granary at Ramanagar. There is no uncertainty here to make the agreement void.
4. Agreement by way of Wager
Section 30 of the Act provides that agreements by way of wager are void but it does not define the term wager. Wager means staking something of value upon the result of some future uncertain event, such as, a horse race, or upon the ascertainment of the truth concerning some past or present event, such as the population of London, with regard to which the wagering parties express opposite views.
Elements of Wager
1. Gain or loss
There must be two sides and mutual chances of gain and loss.
2. Uncertain Event
The performance of the agreement must depend upon an uncertain event as the sole condition of their contract. An event may be uncertain, not only because it is future event, but because it is not yet ascertained, at any rate to the knowledge of the parties.
3. No other interest
The parties must contemplate the determination of the uncertain event as the sole condition of their contract. The object of the wager is to make a gain purely as the decision of an uncertain event.
4. Neither party should have a proprietary interest in the event.
The stake must be the only interest which the parties have in the contract. That is to say, neither party must have a proprietary interest in the event.
Ex: If either party to a contract, under which money is payable upon the determination of an uncertain event possesses an interest in the subject-matter of the contract that will be affected in value according to the determination of the event, the contract is void as being a wager.
Lotteries
Lotteries have been defined as games of chance in which the event of either gain or loss of absolute right to a prize or prizes by the person concerned is made wholly dependent upon the drawing or casting of lots, and the necessary effect of which is to get a spirit of speculation and gaming that is often productive of serious evils.
The lotteries authorized by the state also has a sanction in law, a gambling may be raised and may be authorized for a specific purpose, but if would not attain the status of trade like other traders or becomes res commercium.
Effects of Wagering Contracts
Section 30 of the Contract Act provides
Exception
Section 30 of the Act says this section shall not be deemed to render unlawful subscription or contribution, or agreement to subscribe or contribute made or entered into for or towards 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.
Agreements to do impossible acts
Section 56 provides a contract to do an act which, after the contract is made, becomes impossible, or by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.
2.4 CONTINGENT CONTRACTS
Section 31of the Act provides contingent contract. It means 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.
Ex: A contract to pay B, Rs. 10,000 if B's house is burnt. This is a contingent contract.
Elements of Contingent Contract
1. A contract to do or not to do something.
2. If some event does or does not happen.
3. The said event must be collateral to such contract.
When can a contingent contract be enforced?
1. On the happening of an event
Section 32 provides that 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.
Ex: If A makes a contract with b to buy B's horse if A survives C. this contract cannot be enforced by law unless and until C dies in A's lifetime.
2. On the event not happening
Contingent contracts to do or not to do anything if an uncertain future event does or does not happen can be enforced when the happing of that event becomes impossible, and not before.
Ex: A agrees to pay B a sum of money, if a certain ship does not future. The ship is sunk. The contract can be enforced when the ship sinks and not before. If the future event on which a contract is contingent in the way in which a person will act at an unspecified time, the event shall be considered to become impossible3, when such person does anything which renders it impossible that he should so act within any definite time, or otherwise than under future contingencies.
3. Contingent on specified event not happening within fixed time
Contingent contracts to do anything if a specified uncertain even does not happened within a fixed time may be enforced by law 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.
Ex: A promises to pay 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 a year, or is brunt within the year.
When a contingent contract becomes void?
1. Event becoming impossible
Section 32 of the Act provides that if the event becomes impossible, contingent contract to do or not to do anything if an uncertain future event happens become void.
Ex: A contracts to pay B a sum of money when b marries C, C dies without being married to B. the contract becomes void.
2. On the happening of specified event within fixed time
Contingent contracts to do or not to do any thing if a specified uncertain event happens within a fixed time, becomes void if at the expiration of the time fixed, such event has not happened, or if, before the time fixed, such event becomes impossible.
Ex: 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 returns within the year, and becomes void if the ship is burnt within the year.
3. Agreements contingent on impossible events
Section 36 provides that contingent agreements to do or not to do anything if an impossible event happens, are void, whether the impossibility of the event is known to the parties to the agreement at the time when it is made.
Ex: A agrees to pay B Rs. 1, 0000 if two straight lines should enclose a space. The agreement is void.
UNIT - III
Discharge of contract means a contract ceases to operate. The rights and obligations created by the contract come to an end and the termination of the contractual relationship between the parties. A contract may be discharged in any of the following ways:
In England, the law regarding the discharge of contract is based on what is popularly known as the Doctrine of Frustration.
Grounds of Frustration
1. Destruction of the subject-matter of the contract
Where the performance of the contract becomes impossible by the destruction of the specific thing essential to that performance that contract is discharged.
2. Non-occurrence of a particular state of thins
The doctrine of frustration has also been applied in cases of non-performance of a particular event which is essential for the performance of the contract.
3. Death or Incapacity of the party
Where the performance of a contract depends upon the personal service of a party, the death or incapacity of such a party may be treated to be a valid ground for frustration of contract.
4. Change of circumstances
If the change of circumstances makes the performance of the contract impossible, the contract will frustrate and parties will be discharged from their obligations under the contract. If despite the change of circumstances, the performance is till possible, the contract will not be deemed to have been discharged.
5. Building contracts
Where the execution of the contract is delayed or otherwise becomes impossible by the happing of an external event, the contract is discharged. But much will depend upon the facts and circumstances and each case has to be judged on its own merits.
6. Change in Law
The performance of a contract may also become legally impossible by the change in law. If the performance becomes legally impossible, the contract will be discharged. The change in the law must be such as to strike at the root of the agreement, and not merely to suspend or hinder its operation in part.
Theories of Frustration
Following are the main theories of Frustration
1. The Theory of Implied Term
According to this theory, the courts, after examining the circumstances under which the contract was made find that it was made on the footing that a particular state of things would continue to exist though it may not be expressly written in the contract, and if such a state of things ceases to exist.
2. Criticism of the theory of implied term
3. Disappearance of the foundation of the contract
Discharge of contract means a contract ceases to operate. It also means the rights and obligations created by the contract come to an end and termination of the contractual relationship between the parties. A contract may be discharged in any of the following ways:
2. Discharge by Performance of Contract
If the foundation of the contract disappears, the contract is discharged. If the foundation of contract goes, either by the destruction of the subject-matter or by reason of such long interruption or delay that the performance is really in effect that of a different contract, and the parties have not provided what in that event is to happen, the performance of the contract is to be regarded as frustration.
3. Theory of just and reasonable solution
Section 37 provides that the parties to a contract must perform or offer to perform, their respective promises, unless such performance is dispensed with or excused under the provisions of this Act or any other law.
4. Change in the obligation of the parties
Frustration occurs whenever the law recognizes that without default of either party a contractual obligation has become incapable of being performed because the circumstances in which the performance is called for would render it a thing radically different from that which was undertaken by the contract.
Section 56 of the Act says that an agreement to do an act impossible in itself void.
Ex: A agrees with B to discover treasure by magic. The agreement is void.
A contract to do an act which, after the contract is made, become impossible, or by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.
Ex: A and B contract to marry each other. Before the time fixed for the marriage, A goes mad. The contract becomes void.
Exception to the doctrine of Impossibility of Performance
Where one person has poremised to do something, which he knew, or, with reasonable diligence, might have known, and which the promise did not know to be impossible or unlawful, such promisor must make compensation to such promise for any loss which such promise sustains through the non-performance of the paromise.
In Satyabarata Ghose v/s Mugneeram Bangur and Company
In this case, the Supreme Court held that the doctrine of frustration makes the promisor liable to pay compensation to the promise for non-performance of the promise. Thus if the promisor knew or could know with ordinary diligence that he promised to do something which was impossible or unlawful and the promise did not know, he must pay compensation to the promise for the loss sustained by him for the non-performance of the promise.
1. Discharge by Performance of Contract
Section 37 provides that the parties to a contract must perform or offer to perform, their respective promises, unless such performance is dispensed with or excused under the provisions of this Act or any other law.
The promises bind not only the promises but also their representatives if they die before performing their promises. But the representatives of the promisors shall not be bound by the promises if a contrary intention appears from the contract.
Ex: A promises to deliver goods to B on a certain day on payment of Rs. 1,000. a dies before that day. A's representatives are bound to deliver the goods to B and B is bound to pay the Rs.1, 000 to A's representatives. But if A promises to paint a picture for B by a certain day at a certain price and if he dies before that day the contract cannot be enforced either by A's representatives or by B, because in this case the intention of the contract is that the picture is to be pained by A and A alone.
By whom contracts must be performed?
1. by promisor himself of his representatives
Section 40 of the Act provides that if it appears from the nature of the case that it was intention of the parties to any contract that any promise contained should be performed by the promisor himself, such promisor must be performed by the promisor. In other cases the promisor for his representatives may employ a competent person to perform it.
Ex: A promises to pay a sum of money. A may perform this promise, wither by personally paying the money to B or by causing it to be paid to B by another; and, A dies before the time appointed for payment, his representative must perform the promise, or employ some proper person to do so.
2. Devolution of joint liabilities
Where the promise is made jointly by two or more than two persons, all the said persons must fulfill the promise during their joint lives. In case any one of them dies then the promise must be performed by his representative jointly with the survivors as the case may be. In case all the promisors die before the performance, the promise must be performed jointly by their representatives.
3. Any one of joint promisors may be compelled to perform
Section 43 of the Act says when two or more persons make a joint promise, the promise 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.
Ex: A, B and C jointly promise to pay D 3,000 rupees, D may compel either A, or B or C to pay him 3,000 rupees. In case where one of the joint promisors has been compelled to perform the whole of the promise, he may compel every other joint promisor to contribute equally with himself to the performance of the promise.
Effect of release of one joint promisor
Section 44 provides that the where two or more persons have joint made a joint promise, a release of one of such joint promisors does not discharge the other joint promisor or joint promisors: neither does it free the joint promisor so released from responsibility to the joint promisor or promisors.
Devolution of joint rights
Section 45 of the contract Act provides that when a person has made a promise to two or more persons jointly, then, unless a contrary intention appears from the contract, the right to claim performance rests, as between him and them: during their joint lives, and, after the death of any of them with the representative of such deceased person jointly with the survivor or survivors, and, after the death of the last survivor, with the representatives of all jointly.
Ex A, in consideration of 5,000 rupees, lent to him by B and C promises B and C promises B and C jointly to repay them that sum with interest on a day specified. B dies the right to claim performance rests with B's representatives jointly with c during C's life and after the death of C with the representatives of B and C jointly.
2. Discharge of Contracts by Agreement
Section 62 of the Act provides that if the parties to a contract agree to substitute a new contract for it or to rescind or alter it, the original contract need not be performed. If parties substitute a new agreement for the old, revoke it or alter it the original contract iis discharged.
Ex: A owes money to B under the contract. It is agreed between A, B and C that B shall henceforth accept C as his debtor, instead of A. the old debt of A to B is at an end, and a new debt from C to B has been contracted.
Novation
Novation may be of two types:
1. Novation Involving Changing of Parties
It contemplated in section 62 of the Contract Act involves an annulment of one debt and the creation of another. In such cases the court has to consider not only whether the new debtor has consented to assume liability but also whether the creditor has agreed to accept the liability of the new debtor in substitution of the original debtor. Novation is not consists with the original debtor remaining liable in any form, since the essential element of novation is that the rights against the original contractor shall be relinquishment and the liability of the new contracting party accepted in its place, under law one of the requires to novation is the agreement of the parties of the new contract
2. Novation Involving the Substitution of a new contract for old
Section 62 of the Act provides that novation may also involve the substitution of a new contract for the old.
Ex: A owes B 10,000 rupees. A enters into an agreement with B, and gives B a mortgage of his estate for 5,000 in place of the debt of 10,000 rupees. This is a new contract and extinguishes the old.
In Indian Bank, Madras v/s S. Krishnaswamy and others
In this case, the respondent's plaintiff gave certain securities in respect of certain financial facilities given by the appellant bank to Sree Bharathy Mills ltd. Pondicherry. Subsequently mill was taken over by government and fresh agreement was entered into between government and Mill. Surety was not informed of this agreement. The Division Bench of the madras High Court held that surety was discharged from liability.
Rescission and Alteration
A contract may also be discharged if the parties agree to alter or rescind the contract. Alteration of rescission may also be implied. Much will depend upon the facts and circumstances and the intention of the parties.
Section 63 of the Act provides that every promise may dispense with or remit wholly or in part, the performance of the promise made to him, or may extend the time for such performance or may accept instead of it any satisfaction which he thinks fit.
Important points
Ex: 1. A promise to paint a picture for B. B afterwards forbids him to do so. A is no longer bound to perform the promise.
2. A owes B, 2,000 rupees, and is also intended to other creditors. A makes an agreement with his creditors, including b to pay them a composition of eight annas in the rupees upon their respective demands. A payment to B 1,000 rupees is a discharge of B's demand.
Consequences of Rescission of Viodable Contracts
Section 64 of the Act provides that when a person at whose option a contract is voidable rescinds it, the other party thereto need to perform any promise therein contained on which he is promisor. The party rescinding a voidable contract shall, if he has received any benefit, so far as may be, to the person from whom it was received.
Section 39 of the Act provides that when a party to a contract has refused to perform, or disabled himself from performing his promise in its entirety, the promise may put an end to the contract.
Essential elements
It is true that even if time was not originally of the essence, the appellants could by notice served upon the respondent call upon him to take the conveyance within the time fixed and intimate that in default of compliance with the requisition the contract will be treated as cancelled.
In Koyana Suryanarayana Reddy v/s Chellayamma
In this case Andhra Pradesh High Court observed that once the condition is not fulfilled as contemplated by the terms of the agreement when time is made the essence of the contract originally or subsequent thereto, the failure to perform the contract within the stipulated time gives a right to avoid the contract. That is the true effect of Section 55 of the Act.
Obligation of person receiving advantage under void agreement or contract that becomes void
Under section 65 says 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.
Ex: 1. A pays B 1,000 rupees in considerations 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 the 1,000 rupees.
2. A contracts with b to deliver to him 250 maunds of rice before the first day of May. A delivers 130 maunds only before that day, and none after. B retains the 130 maunds after the first May. He is bound to pay A for them.
Section 65 provides restitution or compensation in two cases:
The word when a contract becomes void would include the contract of following categories:
Mode of communicating or revoking, rescission of viodable contract
If any promise 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. Thus any non-performance of the promise caused by the neglect or refusal of the promise to afford reasonable facilities to the peomisor shall be excused or in other words to that extent he shall be discharged from his obligations under the contract.
Ex: 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 executed for the non-performance of the contract, if it is caused by such neglect or refusal.
3. Discharge of Contract by Breach
If one of the parties to a contract breaks an obligation which the contract imposes, a new obligation will in every case arise a right of action conferred upon the party injured by the breach. Besides this, there are circumstances in which the breach not only gives rise to a cause of action but will also discharge the injured party from such performance as may still be due from him.
1. Anticipatory Breach
Anticipatory breach arises when one of the parties, to a contract repudiates the contract before the time of performance.
In Hochester v/s Dela Tour
In this case, the plaintiff was engaged by the defendant to enter into his service as a courier and go along with him on a tour. The service of the plaintiff was to start on 1st June. On 11th May he was informed by the defendant that his services were no longer required. The plaintiff brought an action even before the time of performance has arrived. It was held that plaintiff was entitled to bring action even before the time of performance
When a party to a contract has refused to perform or disabled himself from performing, his promise in its entirely the promise may put an end to contract, unless he has signified by words or conduct, his acquiescence in its continuance.
If one of the parties to a contract refuses to perform his part of the contract during performance, the other party is discharged from any further performance of his obligations under the contract and may also bring an action for the breach.
Ex: a, a singer, enters into a contract with b, the manager of the theatre, to sing at his theatre two nights in every week during the next two months, and B engages to pay her 100 rupees for each night's performance. On the sixth night A willfully absents herself from the theatre. B is at liberty to put an end to the contract. But in case of acquiescence, the promise cannot afterwards put an end to the contract although he may claim damages for the loss sustained by his through the non-performance by the promisor. Thus in the above case, if with the assent of b, A signs on the seventh night, b having signified his acquiescence in the continuance of the contract, b cannot now put an end to or although he is entitled to compensation for the damages sustained by him through A's failure to sing on the sixth night.
Discharge of Contract by Operation of Law
The instance of the discharge by operation of law are following:
1. Merger
If in the place of a lower security, a higher security is accepted, the lower security will be deemed to be merged in the higher security and the party concerned shall be discharged from its obligations in respect of the lower security.
2. Discharge by the Judgment of a Court
A contract may also be discharged by the judgment of a court of competent and appropriate jurisdiction in favour of the plaintiff.
3. Alteration or cancellation of a written instrument
A contract may also be discharged by alteration or cancellation of a written instrument. An alteration here is different than provided under section 62 of the Act. The Act says the alteration is made with the consent of the parties so as to discharge them. But alteration here is unauthorized alteration such as addition or ensure of the contract in writing. If a party erases or alters the written instrument, the other party is discharged from its obligations under the contract.
4. Bankruptcy
When a person is adjudged a bankrupt by the court, he is thereby discharged from his debts and other obligations. Thus bankruptcy may also operate to discharge the obligations of a party to a contract.
Section 37 provides that the parties to a contract must perform or offer to perform, their respective promises, unless such performance is dispensed with or excused under the provisions of this Act or any other law.
The promises bind not only the promises but also their representatives if they die before performing their promises. But the representatives of the promisors shall not be bound by the promises if a contrary intention appears from the contract.
Ex: A promises to deliver goods to B on a certain day on payment of Rs. 1,000. a dies before that day. A's representatives are bound to deliver the goods to B and B is bound to pay the Rs.; 1,000 to A's representatives. But if A promises to paint a picture for B by a certain day at a certain price and if he dies before that day the contract cannot be enforced either by A's representatives or by B, because in this case the intention of the contract is that the picture is to be pained by A and A alone.
By whom contracts must be performed?
1. by promisor himself of his representatives
Section 40 of the Act provides that if it appears from the nature of the case that it was intention of the parties to any contract that any promise contained should be performed by the promisor himself, such promisor must be performed by the promisor. In other cases the promisor for his representatives may employ a competent person to perform it.
Ex: A promises to pay a sum of money. A may perform this promise, wither by personally paying the money to B or by causing it to be paid to B by another; and, A dies before the time appointed for payment, his representative must perform the promise, or employ some proper person to do so.
2. Devolution of joint liabilities
Where the promise is made jointly by two or more than two persons, all the said persons must fulfill the promise during their joint lives. In case any one of them dies then the promise must be performed by his representative jointly with the survivors as the case may be. In case all the promisors die before the performance, the promise must be performed jointly by their representatives.
3. Any one of joint promisors may be compelled to perform
Section 43 of the Act says when two or more persons make a joint promise, the promise 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.
Ex: A, B and C jointly promise to pay D 3,000 rupees, D may compel either A, or B or C to pay him 3,000 rupees. In case where one of the joint promisors has been compelled to perform the whole of the promise, he may compel every other joint promisor to contribute equally with himself to the performance of the promise.
Effect of release of one joint promisor
Section 44 provides that the where two or more persons have joint made a joint promise, a release of one of such joint promisors does not discharge the other joint promisor or joint promisors: neither does it free the joint promisor so released from responsibility to the joint promisor or promisors.
Devolution of joint rights
Section 45 of the contract Act provides that when a person has made a promise to two or more persons jointly, then, unless a contrary intention appears from the contract, the right to claim performance rests, as between him and them: during their joint lives, and, after the death of any of them with the representative of such deceased person jointly with the survivor or survivors, and, after the death of the last survivor, with the representatives of all jointly.
Ex A, in consideration of 5,000 rupees, lent to him by B and C promises B and C promises B and C jointly to repay them that sum with interest on a day specified. B dies the right to claim performance rests with B's representatives jointly with c during C's life and after the death of C with the representatives of B and C jointly.
1. where no time specified and no application is to be made
Where, by the contract, a promisor is to perform his promise without application by the promise and no time for performance is specified the agreement must be performed within a reasonable time.
2. Time and place of performance where time is specified but no application is to be made
Section 47 provides that when a prtomise is to be performed on a certain day, and the promisor has undertaken to perform it without application by the promise, the promisor may perform it at any time during the usual hors of business on such day and at the place at which the promise ought to be performed.
3. When performance to be made on certain day at proper time and place
Section 48 of the Act provides that when a promise is to be performed on a certain day, and the promisor has not undertaken to perform it without application by the promise, it is the duty of the promisee to apply for performance at a proper place and within the usual hours of business.
4. where no place fixed and no application to be made for performance
When a promise is to be performed without application by the promise and no place is fixed for the performance of it, it is the duty of the promisor to apply to the promise to appoint a reasonable place for the performance of the promise and to perform it at such place.
Ex: A undertakes to deliver one thousand maunds of jute to B on fixed day. A must apply to B to appoint a reasonable place for the purpose of receiving it, and must deliver it to him at such place.
5. Performance to be in manner or at time prescribed or sanctioned by the promise
Section 50 lays down the promisor is to perform the promise in any manner, or at any time which the promise prescribes or sanctions.
Consequence of failure to perform at fixed time in a contract in which time is essential
Section 55 of the Act provides that when a party to a contract promises to do a certain thing at or before a specified time, or certain things at or before specified times, and fails to do any such thing at or before the specified time, the contract, or so much of it as has not been performed, becomes voidable at the option of the promise, if the intention of the parties was that time should be the essence of the contract.
Bhudra Chand v/ Betts
In this case, related to the agreement wherein the defendant undertook the responsibility to deliver an elephant to the plaintiff for capture of wild elephants. The elephant was to be delivered on October 1, 1910. Later on, the defendant requested for extension of date of delivery which was allowed to be till 6th of October but he failed to deliver even by that time. He ultimately offered to deliver the elephant on 11th October, 1910. But the buyer now rejected to accept. It was held the court that in this case time was the essence of the contract and the plaintiff was therefore justified in refusing to accept the delivery.
The law is well settled that in transactions of sale of immovable properties, time is not the essence of the contract. Even if it is not the essence the court may infer that it is too be p[performed in a reasonable time if the conditions are:
1. from the express terms of contract
2. from the nature of the property
3. from the surrounding circumstances
Ex: The objection of making the contract.
Reciprocal means in return or inversely correspondent. A contract comprising of reciprocal promises is a contract wherein there is an exchange of promise. Section 51 provides when a contract consists of reciprocal promises to be simultaneously performed no promisor need perform his promise unless the promise is ready and willing to perform his reciprocal promise.
Ex: A and B contract that A shall deliver goods to b to be paid for by B on delivery. A not deliver the goods, unless B is ready and willing to pay for the goods on delivery. B need not to pay for the goods, unless A is ready and willing to deliver them on payment.
Order of Performance of Reciprocal Promises
Section 52 of the Act provides that in the absence of any express provision in the contract to that effect, they shall be performed in the order which the nature of the transaction requires.
Section 54 of the Act provides that when a contract consists of reciprocal promises, such as that one of them cannot be performed or that its performance cannot be claimed till the other has been performed and the promisor of the promise last mentioned fails to perform it, such promisor cannot claim the performance of the reciprocal promise and must make compensation to the other party to the contract for any loss which such other party may sustain by the non-performance of the contract.
Ex: A hires B's ship to take in and convey, from Calcutta to the Mauritius, a cargo to be pro vided by A, B receiving certain freight for its conveyance. A does not provide any cargo for the ship. A cannot claim the performance of B's promise, and must make compensation to B for the loss which B sustains by the non-performance of the contract.
Reciprocal promise to do thins legal as well as illegal
Section 57 of the Act provides that where persons reciprocally promise, firstly to do certain things which are legal, and secondly, under specified circumstances, to do certain other things which are illegal, the first set of promises is a contract, but the second is a void agreement.
Ex: A and B agree that A shall sell B a house for 1,000 rupees but that, if B uses it as a gambling house he shall pay a 50,000 rupees for it. The first set of reciprocal promises namely to sell the house and to pay 10,000 rupees for it is contract and can be enforce but the second set is for an unlawful object namely, that B may use the house as gambling house and is a void agreement.
Contract shall be void to the extent of the performance of illegal branch
Ex: If in a contact A and B agree that A shall pay B 1,000 rupees, for which B shall afterwards deliver to a either rice or smuggled opium the contract shall be valid and enforceable so for as the delivery of rice is concerned but it will be void regarding the delivery of opium.
Appropriation of payments
1. where a debtor, owing several distinct debts to one person, makes a payment to him, either with express intimation, or under circumstances, implying to him, either with express intimation, or under circumstances, implying that the payment is to be applied to the discharge of some particular debt, the payment, if accepted must be applied accordingly.
Essential Elements
Ex: A owes to B, among other debts, 1,000 rupees upon a promissory note, which fall due on the 1st June. He owes B on other debt of that amount. On the 1st June a pays to B 1,00 rupees. The payment is to be applied to the discharge of the promissory note.
1. Application of payment where debt to be discharged is not indicated
In case of the debtor does not intimate the creditor either expressly or impliedly as to which the payment is to be applied, the creditor gets the discretion to apply it to any debt. He may even apply for the debts whose recovery has become barred by the law of limitation in force for the time being.
In Syndicate Bank v/s M/s. West Bengal Cements Ltd.
In this case, the plaintiff Syndicate Bank filed the suit for the recovery of rupees 33, 39,026.75p. During the pendency of the suit the defendants paid rupees 7, 40,000 to the plaintiff Bank in the year 1983-84. While paying the said amount the defendants did not give any special instructions to the plaintiff as it how the said amount was to be adjusted. The High Court held that the defendants in law cannot insist that the amount is liable to be adjusted against the principal amount in the absence of any such instructions.
2. Application of payment where neither party appropriates
A situation wherein the debtor makes the payment and does not indicate, either expressly or impliedly as to its application to a particular debt and the creditor also does not appropriate for discharge of any debt. In such a case, the payment is to be applied in discharge of the debt in the order of time and where the debts are of equal standing, the payment shall be applied in discharge of each proportionately.
Section 61 of the Act says essential elements
UNIT - IV
Contract may be classified under the following three heads
1. Damages
In order to establish a right to damages, the first thing the plaintiff must show is that the loss which he has sustained was caused by the breach. But assuming this can be proved, the law will nevertheless, not compel the defendant to assume liability for all the loss which the plaintiff may conceivably have suffered as a consequence of the breach.
Even if it is proved that the plaintiff suffered loss because of the breach of contract, the plaintiff, cannot claim all the loss which he might have suffered. In this connection the general principle is that the law will not compel the defendant to pay damages which are remote.
In Handley v/s Baxendale
In this case, the plaintiff's mill stopped due ti the breakage of the crankshaft, a vital part of the mill. The plaintiff, wanted to send the shaft to a certain maker at Greenwich as a pattern for a new one to be manufactured by them. The plaintiff delivered the shaft to the defendant, a common carrier for the purpose of being delivered to the makes at Greenwich. The only circumstances communicated by the plaintiffs to the defendant at the time of the contract were that the article to be carried by them was the broken shaft of a mill and that the plaintiffs were the millers of that mill. Delivery of the shaft to the manufacturers at Greenwich was delayed due to some negligence of the defendant. The plaintiff, could not receive the shaft for several dsys and consequently the mill could not start in time resulting in the loss of profits to the plaintiffs which they would have earned, had the shaft been received in time. The defendant resisted the claim of the plaintiff on the ground that the damages were too remote.
Finally the court held that where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e. according to the usual course of thins, from such breach of contract itself, or such as may reasonably be supposed to have been in contemplation of both parties, at the time they made the contract, as the probable result of the breach of it.
The rule in Hardly v/s Baxendale
1. The first branch deals with damages "as may fairly and reasonably be considered either arising naturally i.e. according to the usual courser of things." For the sake of brevity we may refer it as "general damages".
2. The second branch deals with damages "as may reasonably be supposed to have been in contemplation of both parties, at the time they made the contract, as the probable result of the breach of it". This may be referred as "special damages".
General damages depend on the knowledge which the parties are presumed to possess.
Ex: The plaintiff delivered to the defendant to be shipped on defendant's vessel certain cases of machinery intended for the erection of a saw-mill at Ratlam. The defendant failed to deliver one of the cases, but was unaware of the fact that it contained a material part of the machinery without which the saw-mill could not be erected at all. The plaintiff claimed as damages not only the cost of replacing the lost parts, but also the loss incurred by the stoppage of their works during the time the rest of machinery remained unless owing to the absence of the lost parts.
Special Damages
Special damages may be successfully claimed only when they 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 the breach of it.
In Simpson v/s London and North Railway Company
In this case, the plaintiff used to send specimens of his goods for exhibition to agricultural shows. After having exhibited them at Bedford he gave his samples to an agent of the defendant company to be carried to a show-ground at Nwecastle. His consignment note contained the words: "Must be a t Bwecastle Monday certain". Due to negligence of the company, the sample reached late and could not be exhibited at Newcastle show. The plaintiff brought an action to recover damages for his loss of profits at Newcastle show. The plaintiff brought an action to recover damages for his loss of profits at Newcastle show. In this case the company was held liable for its agent had the knowledge about the goods to be exhibited at the Newcastle show and hence it was in the contemplation of the company that delay in the delivery might lead to losses of such kind.
Section 73 of the Act provides that when a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it.
When an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default as if such a person had contracted to discharge it and had broken his contract.
Ex: 1. A contracts to sell and deliver 50 maunds of saltpeter to B, at a certain price to be paid on delivery. A, breaks his promise. B is entitled to receive from a by way of compensation, the sum, if any, by which the contract price falls short of the price for which B might have obtained 50 maunds of saltpeter of like quality at the time when the saltpeter ought to have been delivered.
2. A contracts to buy of B, at stated price, 50 maunds of rice, no time being fixed for delivery. A afterwards informs B that he will not accept the rice if tendered to hi. B is entitled to receive from A by way of compensation the amount, if, any, by which the contract price exceeds that which B can obtain for the rice at the time when a informs b that he will not accept it.
Measure of Damages
After the extent of loss which the plaintiff can recover has been determined, it will be necessary to evaluate it in terms of money.
Important points
1. Compensatory nature of damages
Damages for breach of contract are given by way of compensation for loss suffered, and not by way of punishment for wrong inflicted. The measure of damage is therefore not affected by the motive or manner of the breach. In fact, the object of awarding damages for breach of contract is to put the injured party into the position in which he would have been had the contract been performed.
2. Duty to mitigate damage suffered
Section 73 of the Act provides that in estimating the loss or damage arising from a breach of contract, the means which existed or remedying the inconvenience caused by the non-performance of the contract must be taken into account.
In Jamal A.K.A.S. v/s Moolla Dawood Sond and Company.
In this case, the Privy Council held that it is undoubted law that a plaintiff who sues for damages owes the duty of taking all reasonable steps to mitigate the loss consequent upon the breach and cannot claim as damages any sum which is due to his own neglect. But the loss to be ascertained is the loss at the date of the breach. If at that date the plaintiff could do something or did something which mitigated the damage, the defendant is entitled to the benefit of it.
Liquidated Damages and Penalty
Section 74 provides that when a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or as the case may be, the penalty stipulated for.
Essential elements of section 74
1. When a contract has been broken.
2. If a sum is named in the contract payable on breach or any other stipulation by way of penalty.
3. Whether or not the actual loss is proved to have been caused thereby.
4. The party complaining the breach is entitled to receive reasonable compensation from the party who has broken the contract.
5. The compensation should not exceed the amount named or the penalty stipulation for.
Ex: A and Q agreed to play a wrestling match on the condition that the party who did not appear on the day fixed for the match would give Rs. 500 to the opposite party. P did not turn up on the fixed day. Q sued P for Rs. 500. Q will succeed in his suit but he will get only reasonable compensation not exceeding Rs. 500. If the court deems firm, it may allow Rs. 500i.e. the sum named in the contract. If the court does not deed fit to award Rs. 500 in accordance of the facts and circumstances of the case, it may award any sum below Rs. 500. The Court may award any sum not exceeding Rs. 500.
Section 74 further says that in case of bail-bond when any person enters into any bail bond recognizance or any other instrument of the same nature, or under the orders of the Central Government or of any state government, the person giving the bond for the performance of any public duty or act in which the public are interested shall be liable upon such breach of the condition of any such instrument, to pay the whole sum named or mentioned therein.
A person who enters into a contract with the government does not necessarily thereby undertake any public duty, or promise to do an act in which the public are interested.
Ex: 1. A contracts with B to pay B rupees 1,000, if he fails to pay rupees 500 on a given day. A fails to pay rupees 500 on that day. B is entitled to recover from A such compensation, not exceeding rupees 1,000 as the Court considers reasonable.
2. A contracts with B that, if A practice as a surgeon within Calcutta, he will pay B rupees 5,000. A practice as a surgeon in Calcutta. B is entitled to such compensation, not exceeding rupees 5000 as the Court considers reasonable.
Exceptions to Essential elements
Compensation of Rightful Rescission of the Contract
Section 75 provides a person who rightfully rescinds a contract is entitled to compensation for any damage which he has sustained through the non-fulfillment of the contract.
Ex: A, a singer, contracts with B, the manager of a theatre, to sing at his theatre for two night in every week during the next two months, and B engages to pay her 100 rupees for each night's performance. On the sixth night A willfully absents herself from the theatre, and B, in consequence, rescinds the contract. B is entitled to claim compensation for the damage which he has sustained through the non-fulfillment of the contract.
1. Quantum Meruit
It means if the injured party, when the breach occurs, has already done, part, though not all, of what he was bound to do under the contract, he may be entitled to claim the value of what he has done. In that case he has to sue upon a Quantum Meruit, he adds, Quantum Meruit is till a remedy which is alternative to rather than a form of damages.
Conditions
1) It is available only if the original contract has been discharged.
2) The claim must be brought by the party not in default.
Compensation quantum meruit is awarded for work done or services rendered when the price thereof is not fixed by a contract. For work done or service rendered pursuant to the contract compensation quantum meruit cannot be awarded where the contract provides for consideration payable in that behalf.
In State of Rajasthan v/s Motiram
In this case, a clause in the contract provided that the contract shall not become invalid if alterations in specifications and designs were provided on the basis of quantum meruit. It was held that even if the work was materially changed outside the contemplation of the parties due to alterations or subsequent change of circumstances, the payment on the basis of quantum meruit cannot be claimed for the obvious reason that the express terms of the contract cannot be ignored. Payment on the basis of quantum meriut can be claimed only when the contract has been frustrated.
2. Specific Performance and Injunction
Discussed below
It means misnomer. It will not be like a formal contract with a promise, acceptance and reduced to writing. A legal theory propounds that it is a relation resembling those created by contract.
Features of Quazi- contracts
1. Right to sum of money
Such a right is always a right to money, and generally, though not always to a liquidated sum of money.
2. Imposed by law and does not arise by agreement of parties
It does not arise from any agreement of the parties concerned, but is imposed by the law, so that in this respect a quazi-contract resembles a tort.
3. Right available only against a particular person or persons
It is a right which is available not, like the rights protected by the law of torts, against the entire world, but against a particular person, persons only, so that in this respect, it resembles a contractual right.
Important points
1) Necessaries supplied to a person incapable of contracting
Section 68 of the Indian Contract Act says that if a person, incapable of entering into a contract, or any one whom he is legally bound to support, is supplied by another person with necessaries suited to his condition in life, the person who has furnished such supplies is entitled to be reimbursed from the property of such incapable person.
Ex: A supplies the wife and children of B, a lunatic, with necessaries suitable to their condition in life. A is entitled to be reimbursed from B's property.
Essential Elements
2) Payment made on behalf of another
A person who is interested in the payment of money which another is bound by law to pay, and therefore pays it is entitled to be reimbursed by the other.
Ex: B holds lands 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 the sale by Government. Under the revenue law, the consequence of such sale will be the annulment of B's lease. B, to prevent the sale and the consequent annulment of his own lease, pays to the Government the sum due from A. a is bound to make good to B the amount so paid.
3) Obligation of Person Enjoying benefit of Non-gratuitous act
Section 70 of the Act provides that where a person lawfully does anything for another person, or delivers anything to him, not intending to do so gratuitously and such other person enjoys the benefit thereof, the latter is bound to make compensation to the former in respect of, or to restore, the thing so done or delivered.
Essential Elements
Ex: A, a tradesman, leaves goods at B's house by mistake. B treats the goods as his own. He is bound to pay A for them.
4) Responsibility of Finder of Goods
Section 71 of the Act provides that a person who finds goods belonging to another and takes them in his custody is subject to the same responsibility as a bailee.
Important Points
When a thing which is commonly the subject of sale is lost, if the owner cannot with reasonable diligence be found, or if he refuses upon demand, to pay the lawful charges of the finder, the finder may sell it under the following situation.
5) Money paid or things delivered by mistake or under coercion
Section 72 of the Act provides that a person to whom money has been paid, or anything delivered, by mistake or under coercion, must repay or return it.
Ex: A railway company refuses to deliver up certain goods to the consignee except upon the payment of an illegal charge for carriage. The consignee pays the sum charged in order to obtain the goods. He is entitled to recover so much of the charge as was illegally excessive.
In state of Madhya Pradesh v/s Vyankatlal
In this case, the Supreme Court held that the burden of paying the amount in question was transferred by the respondents to the purchasers and, therefore the respondents were not entitled to get refund and only the persons on whom lay the ultimate burden to pay the amount, would be entitled to get a refund of the same. In this case under the Madhya Bharat sugar control Order, 1949, the supply price of sugar had been fixed higher than its ex-factory price and the sugar factories were directed to credit the difference to a fund called "Sugar Fund". The validity of the said notification could not be sustained in the Supreme Court but all the same no refund allowed on the finding that the burden in question had been transferred to the purchasers.
UNIT - V
5.1 Recovery of Possession of Immovable Property
There are two types of provisions relating to recovery of specific immovable property
1. Recovery of Specific Immovable Property
Section 5 of the Act provides that a person entitled to the possession of specific immovable property may recover it in the manner provided by the Code of Procedure, 1908.
In Prabha Manufacturing Industrial Co-operative society v/s Banwari Lal
In this case, the suit had been filed to recover possession of the land from the tenant. The concurrent finding of the two courts on facts was that only a plot of land had been allotted to the society. The Supreme Court held that ordinarily it does not interfere to re-evaluated evidence but as a specific case it is doing in this case because if the decision goes in favour of the respondent, several members of the society who are in possession of the said property will be thrown out.
2. Suit by person dispossessed of immovable property
Section 6 of the Act provides that
a) after the expiry of six months from the date of possession
b) against the Government.
Essential elements
In M. S. Jagadambal v/s Southern Indian Education Trust
In this case, the suit had been instituted regarding recover possession of property. It was contended by the appellant that the land had been purchased by her husband and after his death she was in possession of the land. According to the appellant, the respondent, who was the owner of the neighboring land, had dispossessed her by trespassing over the land. On the basis iof the facts of the case, the trial court decided that before dispossession, the suit land was in possession of the appellant on the other hand, the respondent contended that the appellant had to title to the land. The respondent denies that he had taken possession of the land by trespass. He claimed to have acquired possession by adverse possession as the land was not in possession of the appellant for twelve years before the suit. But the trail court held that respondent had not acquired the land buy adverse possession. Thus trial court decided in favvour of the appellant. But the High Court without considering the probabilities of the case, the matters which had been emphasized had taken note of by the trial court reversed the decisions of the trial court.
Finally the Supreme Court while reversing the decision of the High court held that the Division Bench of the High Court did not appreciate the important aspects of the case. The decision of the trial court was based on the reliability of the witnesses. Consequently there was no adverse possession as the possession was not continuous.
Recovery Specific Movable Property
Section 7 of the Act provides that a person is entitled to the possession of specific movable property may recover it in the manner provided by the Code of Civil Procedure.
A trustee may sue under this section for the possession of movable property to the beneficial interest in which the person for whom he is trustee is entitled.
A special or temporary right to the present possession of movable property is sufficient to support a suit under this section.
Ex: 1. A bequeaths land to B for his life, with remainder to C. a dies. B enters on the land, but C, without B's consent, obtains possession of the title deeds. B may recover from C.
2. A receives a letter addressed to him by B. b gets back the letter with the consent of A. A has such a property therein as entitles him to recover it from B.
Silent Features
5.2 SPECIFIC ENFORCEMENT
Under this Act can be divided into two categories
1. Contracts which can specifically enforced.
Ex: A agrees to buy, and B agrees to sell, a picture by a dead painter and two rare china vases. A may compel B specifically to perform this contract, for there is no standard for ascertaining the actual damage which would be caused by its non-performance.
Section 10 of the Act provides that unless and until the contrary is proved, the court shall presume that the breach of a contract to transfer immovable property cannot be adequately relieved by compensation in money. But in respect of breach of contract to transfer movable property there shall be no such presumption except in two cases, namely:
Exceptions to this rule
2. Specific Performance of Contracts Connected with Trusts Enforceable
According to Section 11 (1) provides Specific Performance of a contract may, in the discretion of court, be enforced when the act agreed to be done is in the performance wholly or partly of a trust.
Ex: 1. A is a trustee of land with power to lease it for seven years. He enters into a contract with B to grant a lease of the land for seven years, with a covenant to renew the lease at the expiry of the term. This contract cannot be specifically enforced.
2. The Directors of a company have power to sell the concern with the sanction of a general meeting of the shareholders. They contracted to sell it without any such sanction. This contract cannot be specifically enforced.
3. Specific Performance of Part of contract
A. forms a considerable part of the whole, though admitting of compensation in money.
B. does not admit of compensation in money.
Exceptions
There are two exceptions to the general principle propounded in Section 12 (1), they are following:
Rights of purchaser or lessee against person with no title or imperfect title
Section 13 of the Act provides
A. If the vendor or lessor has subsequently to the contract acquired any interest in the property, the purchaser or lessee may compel him to make good the contract out of such interest.
B. Where the concurrence of other persons is necessary for validating the title, and they are bound to concur at the request of the vendor or lessor, the purchaser or lessee may compel him to procure such concurrence and when a conveyance by other person is necessary to validate the title and they are bound to convey at the request of vendor or lessor, the purchaser or lessee may compel him to procure such conveyance.
C. where the vendor professes to sell unencumbered property, but the property is mortgaged for an amount not exceeding the purchase money and the vendor has in fact only a right to redeem it, the purchase may compel him to redeem the mortgage and to obtain a valid discharge, and where necessary, also a conveyance from the mortgage.
D. Where the vendor or lessor sues for specific performance of the contract and the suit is dismissed on the ground of his want of title or imperfect title, the defendant has a right to return of his deposit, if any, with interest thereon, to his costs of the suit, and to a lien for such deposit, interest and costs on the interest, if any, of the vendor or lessor in the property which is the subject-matter of the contract.
Contracts which cannot be specifically enforced
According to section 14 of the Act
1. The following contracts cannot be specifically enforced, namely:
2. Save as provided by the Arbitration Act, 1940 no contract to refer present or future differences to Arbitration shall be specifically enforced; but if any person, who has made such a contract and has refused to perform it, sues in respect of any subject which he has contracted to refer, the existence of such contract shall bar the suit.
3. The court may enforce specific performance in the following cases:
1. To execute a mortgage or furnish any other security for securing the payment of any loan which the borrower is not willing to repay at one: provided that where only a part of the loan has been advanced the lender is willing to advance the remaining part of the loans in terms of the contract.
2. To take up and any part for any debentures of a company.
1. The execution of a formal deed of partnership, the parties having commenced to carry on the business of the partnership.
2. The purchaser of a share of a partner in a firm.
Conditions
1. The building or other work is described in the contract in terms sufficiently precise to enabler the court to determine the exact nature of the building or work.
2. The plaintiff has a substantial interest in the performance of the contract and the interest is if such nature that compensation in money for non-performance of the contract is not an adequate relief.
3. The defendant has, in pursuance of their contract, obtained possession of the whole or any part of the land on which the building is to be constructed or other work is to be executed.
Section 14 of the Act says following contracts cannot be specifically enforced:
1. Where Compensation in Money is an Adequate Relief
Section 14 (1) (a) provides, a contract for the non-performance of which compensation in money is an adequate relief, cannot be specifically enforced.
Ex: If A agrees to supply to B within a month 1000 bags of Basmati rice and fails to supply within the stipulated period, this contract cannot be specifically enforced because for non-performance of this contract, compensation in money would be an adequate relief.
2. Contracts dependent on minute or numerous details or volition of the parties
According to Section 14 (1) (b), contract dependent on minute or numerous details or volition of the parties cannot be specifically enforced.
In Lumley v/s Wagner
In this case, the defendant agreed to sing or act at the theatre of the plaintiff for a certain period and during this period, she will not sing or act at any other theatre. After this but within the said period; the defendant entered into an agreement to sing at some other theatre and refused to sing at the theatre of the plaintiff. Thereupon the plaintiff filed the suit for specific performance of the contra ct. the court rejected the prayer for specific performance of the contract.
Exceptions
In Kayastha Pathshala, Allahabad v/s Rajendra Prasad
In this case, the respondent was a teacher in a private educational institution. He worked for only one or two years and then he was suspended. There was litigation between the parties several times which continued for 25 years and during this period the respondent started practicing as a lawyer.
The Supreme Court held that in these circumstances the reinstatement of the respondent would not be proper. The court awarded damages and the directed that he be paid salary for three years.
Section 15 of the Act provides:
Personal bars to relief
According to Section 16 of the Act provides that specific performance of a contract be enforced in favour of a person:
Explanation
The word ready and willing means that the plaintiff is willing to perform those parts of the contract which depend upon his performance. The terms of the contact which are to be performed, may be of two types:
Contract to sell or let property by one who has no title not specifically
Section 17 of the Act provides that:
1. A contract to sell or let immovable property cannot be specifically enforced in favour of a vendor or lessor.
2. The provisions shall also apply, as far as may be, to contracts for the sale or hire of movable property.
Ex: A, without C's authority, contracts to sell to B an estate which A knows to belong to C. A cannot enforce specific performance of this contract, even though C is willing to confirm it.
Power to award compensation in certain cases
Section 22 of the Act provides that any person suing for specific performance of a contract for the transfer or immovable property may, in an appropriate case:
5.4 RECTIFICATION OF INSTRUMENTS
Section 26 of the Act provides that
A. Either party or his representative in interest may institute a suit to have the instrument rectified.
B. The plaintiff may, in any suit in which any right arising under instrument is in issue, claim in his pleading that the instrument be rectified.
C. A defendant in any such suit as is referred to in clause (b) may, in addition to any other defense open to him, ask for rectification of the instrument.
Ex: A intending to sell to B his house and one of the three godowns adjacent to it, executes a conveyance prepared by B in which, through B's fraud, all three godowns are included. One of the two godowns which were fraudulently included, B gives one to C and lets the other to D for a rent, neither C nor D having any knowledge of the fraud. The conveyance may, as against B and C, be rectified so as to exclude from it the godown given to C, but it cannot be rectified so as to affect D's lease.
5.5 RESCISSION OF CONTRACTS
Section 27 of the Act provides that the situations wherein rescission of contracts may be adjudged or refused.
When rescission may be adjudged or refused
1. Any person interested in a contract may sue to have it rescinded, and such rescission may be adjudged by the court in any of the following cases, namely:
A. Where the contract is voidable or terminable by the plaintiff.
B. where the contract is unlawful for causes not apparent on its face and the defendant is more to blame than the plaintiff.
2. The court may refuse to rescind the contract:
A. Where the plaintiff has expressly or impliedly ratified the contract.
B. Where, owing to the change of circumstances which has taken place since the making of the contract, the parties cannot be substantially restored to the position in which they stood when the contract was made.
C. Where third parties have, during the subsistence of the contract, acquired rights in good faith without notice and for value.
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.
Ex: A sells a field to b. there is a right of way over the field of which A has direct personal knowledge, but which he conceals from B. B is entitled to have the contract rescinded.
Section 31 of the Specific Relief Act says
1. Any person against whom a written instrument is void or viodable, 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.
2. If the instrument has been registered under the Registration Act, 1908, the court shall 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.
Ex: 1. A, the owner of a ship, by fraudulently representing her to be seaworthy, induces B, an underwriter, to insure her. B may obtain the cancellation of the policy.
2. A conveys land to B, who bequeaths it C and dies. Thereupon D gets possession of the land and produces a forged instrument stating that the conveyance was made to B in trust for him. C may obtain the cancellation of the forged instrument.
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
According to Section 33 of the Specific Relief Act provides:
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 it him which justice may require.
2. Where a defendant successfully resists any suit on the ground:
Section 34 of the specific Relief Act provides that 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.
A trustee of property is a 'person interested to deny' a title adverse to the title of someone who is not in existence, and for whom, if in existence, he would be a trustee.
Ex: 1. A is lawfully in possession of certain land. The inhabitants of a neighboring village claim a right of way across the land. A may sue for a declaration that they are not entitled to the right so claimed.
2. A alienates to B property in which a had merely a life interest. The alienation is invalid as against C, who is entitled as reversioner. The court may in a suit by C against A and B declare that C is so entitled.
In Deepal Kumar Biswas v/s Director of Public Instruction
In this case, the appellant was a confirmed author in the office of the accountant-general. He applied for the post of a lecturer in a girls college. He was selected and appointed. But his appointment had been subject to the approval by the Director, public instructions, Meghalaya. When the appellant sought clarification in this respect, he was assured by the Principal that the approval of the Director was a mere formality and there would be no hindrance in the matter of his appointment. On the faith of this assurance the appellant resigned from his permanent post and joined as Lecturer in the college. Thereafter, after five months he received a letter from the principal that his services are being terminated because the approval of the director has not been received. The appellant filed the suit for obtaining permanent injunction and declaration that he is still in service and is entitled to all the benefits arising out of such declaration.
The Supreme Court held that non-approval by the director was erroneous yet this act of the director was not against any Act, regulation or rules.
Effect of Declaration
Section 35 of the Act provides only on the parties to the suit, persons claiming through them respectively, and where any of the parties are trustee, or the persons for whom, if in existence at the date of declaration such parties would be trustee.
Ex: A, a Hindu, in a suit to which B, his alleged wife, and her mother, are defendants, seeks a declaration that his marriage was duly solemnized and an order for the restitution of his conjugal rights. The court makes the declaration and order. C, claiming that B is his wife, there sues A for the recovery of B. the declaration made in the former suit is not binding upon C.
According to Section 36 says preventive relief is granted at the discretion of the court by injunction, temporary or perpetual
Injunction is a specific order of the court whereby it prohibits a wrongful act or enact in a wrongful course, which has already commence or cross it direct the things to be restored in their prior state. Injunction is a very effective remedy because after passing of the order of injunction, the matter becomes a matter between the court and the defendant or the person against whom injection has been issued. Consequently the non-compliance by the person against whom injection has been issued is regarded as contempt of court and the court can punish him for such contempt. Ordinarily, injection is issued in cases where compensation is not an adequate relief.
In Ececutive Committee of Vaishya Degree College, Shamli v/s Lakshmi Narain
In this case, the relief of declaratory and injection under the provisions of the Act is purely discretionary and plaintiff cannot claim it as of right. The relief has to be ranted by the court according to sound legal principles and ex debito justitiae. The court has to administer justice between the parties and cannot convert itself into an instrument of injustice or an engine of oppression. While exercising its discretionary powers the court must keep in mind the well settled principles of justice and fair play and should exercise the discretion only if the ends of justice require, for justice is an object which cannot be administered in vacuum.
There are two kinds of Injunctions
Temporary Injunction
According to Section 37 (1) of the Act provides a perpetual injunction can only be granted by the decree made at the hearing and upon the merits of the suit. The defendant is thereby enjoined from the assertion of a right, of from the commission of an act, which would be contrary to the rights of the plaintiff.
Perpetual Injunction when Granted
Section 38 of the specific Relief Act provides that
1) Perpetual injunction may be grunted to the plaintiff to prevent the breach of an obligation existing in his favour whether expressly or by implication.
2) When any such obligation arises from contract, the court shall be guided by the rules and provisions of the Act.
3) When the defendant invades or threatens to invade the plaintiff's right to, or enjoyment or, property, the court may grant a perpetual injunction in the following cases:
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.
Ex: 1. A lets certain land to B, and B contracts not to dig sand or gravel thereout. A may sue for injunction to restrain B from digging in violation of his contract.
2. A trustee threats a breach of trust. His c0-trustees, if any, should, and the beneficial owners may, sue for an injunction to prevent the breach.
Mandatory Injunctions
According to section 39 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.
Ex: 1. A, by new buildings obstructs lights to the access and use of which B has acquired a right under the Indian Limitation Act. B may obtain an injunction, not only to restrain A from going on with the buildings, but also to pull down so much of them as obstruct B's lights.
2. A builds a house with eaves projecting over B's land. B may sue for an injunction to pull down so much of the eaves as so project.
3. A is B's medical adviser. He demands money of B which B declines to pay. A then threatens to make known the effects of B's communications to him as a patient. B may sue for an injunction to restrain him from so doing. The court may also order A's letter to be destroyed.
Damages in lieu of, or in addition to injunction
According to section 40 of the Act says that:
1. The plaintiff in a suit for perpetual injunction under section 38, or mandatory injunction under section 39, may claim damages either in addition to, or in substitution for, such injunction and the court may, if it thinks fir, award such damages.
2. No relief for damages shall be granted under this section unless the plaintiff has claimed such relief in his plant.
3. The dismissal of a suit to prevent the breach of an obligation existing in favour of the plaintiff shall bar his right to sue for damages for such breach.
Injunction when refused
According to section 41 of the Act says that:
1. To restrain any person from prosecuting a judicial proceedings pending at the institution of the suit in which injunction is sought, unless such restrain is necessary to prevent a multiplicity of proceedings;
2. To restrain any person from instituting or prosecuting any proceeding in a court not subordinate to that from which the injunction is sought.
3. To restrain any person from applying to any legislative body.
4. To restrain any person from instituting or prosecuting any proceeding in a criminal matter.
5. To prevent the breach of a contract the performance of which would not be specifically enforced.
6. To prevent, on the ground of nuisance, an act of which it is not reasonably clear that it will be a nuisance.
7. To prevent a continuity breach in which the plaintiff has acquiesced.
8. When equally efficacious relief can certainly be obtained by any other usual mode of proceeding except in case of breach trust.
A. When the conduct of the plaintiff or his agents has been such as to disentitle him to the assistance of the court.
B. When the plaintiff has no personal interest in the matter.
Ex: A seeks an injunction to restrain his partner, b from receiving the partnership debts and effects. It appears that a have improperly possessed himself of the books of the firm and refused b to assess them. The court will refuse the injunction.
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