Principles of Law of Contract
By Dr. P.P. Ramayya, M.A., LL.M, Ph.D (Law)
- Nature of Law of Contract
- Communication of Offer
- General Offers
- Rejection of Offer
- Termination of Offer
- Consensus Ad Idem
- The terms of contract
- Innocent Misrepresentation
- Contracts of Uberrimae fidei
- Assignment and Negotiability
- Performance and Discharge
- Discharge of contract
- Discharge by breach
- Remedies for breach of contract
- Privity of contract
- Coerciion, undue inflence and fraud
- Quasi contract
Chapter - 1
NATURE OF LAW OF CONTRACT
Law of Contract is entirely created by English courts by precedent. Legislature played very little role in development of Law of Contract. It is developed during the last 200 years by way of decisions made by English courts. It is different from other branches of law because it does not lay down a number of rights and duties which the law enforces. It consists of a number of limiting principles within which the parties may create rights and duties binding them. These rights and duties the law upholds; when parties enter into a contract they make law for themselves binding them, so long as they do not overstep legal limitations.
In a contract there are two persons, one making the promise (offer), the other receiving the promise (acceptance). They are called Promisor and Acceptor, two identifiable persons. The rights and duties they create under their contract is confined to those two persons only.
Requirements of a contract
A valid contract consists of the following ingredients.
- The promise
- The acceptance
- Conses ad idem (Free will)
- Capacity to contract
If any of these requirements is lacking then the contract is not enforceable.
Chapter - 2
Promise means to commit to something or action. It is also called offer in legal parlance. It means a proposal.
For example, A has a vacant site. He wants to construct a building on it but he does not have the expertise in construction. So he asks ‘B’, a contractor, who is having experience, men and materials in construction by making a offer to him to construct a building on his site, and to be rewarded for that. The offer made by ‘A’ is the promise and he is called ‘Offeror’ or ‘Promisor’ and if the offer is accepted by ‘B’, then he is called ‘Acceptor’ or ‘Promisor’, and the reward is called consideration.
When A and B enter into an agreement basing on their offer and acceptance, then the agreement entered into between A and B is called a contract.
Law of Contract requires the parties to make their own contract under their own terms and conditions. Promise is the terms and conditions under which a contract is made between the two parties. But the terms and conditions of the promise should not be indefinite or illusory.
Guthing Vs Lynn (1831) and Barewell and Adolphas
A bought a horse from B and promised that if the horse was lucky to him then he would give five pounds more or buy another horse.
It was held that such a promise was too vague to be considered by the court of law.
Davis vs. Davis (1887)
C covenanted with D to retire from trade partnership and not to compete with continuing partners as far as the law allows.
As far as the law allows is vague and undeterminable. It was held that parties must fix the limits of their contracts.
Nicolene Ltd. vs. Simmonds
The Plaintiff ordered from the defendant a quantity of steel bars of specified sizes and a fixed price. The defendant accepted the order by a letter in which he stated “I assume that we are in agreement that the usual conditions of acceptance apply”. When sued for breach of contract, he pleaded that no definite contact had been concluded between him and the plaintiff.
The court of appeal held that there being no usual conditions of acceptance, the phrase was meaningless and could be struck without prejudice to the agreement. It was use of a clause which was incapable of any precise meaning and which could clearly be severed from the rest of the contract. The plaintiff were entitled to succeed.
If some terms of promise are vague but contract is workable without such terms then the court would upheld such a contract.
Chapter - 3
When an offer is made by A to B, under certain terms and conditions, B has to accept that offer, then only a contact is concluded between A and B. There should be definite offer on one side and definite acceptance of that offer by the other side.
It has to be noted that no promise is binding unless promisee has furnished something called consideration in return for the promise.
When a person offers a reward for doing of certain things, which being done, he is bound to make good his promise to doer.
A man who has lost his passport offers by an advertisement a reward of Rs. 1,000/- to anyone who found his passport and brings to him. X who found the passport knows about the reward, gives it to the owner of passport. The man making the advertisement is bound to the reward to X.
In the above illustration X has not made any promise to the promisee. But in some cases there may be a promise for promise; the contract consists of obligation on both sides.
A asks B an auto-driver to take him to certain destination for a promised sum of money. B agrees to the proposal, carries A in his auto to the destination asked by A. Here there is a promise for promise and both the parties are bound.
In the first illustration, obligation does not come into existence until one party has done all that he required to do. In the second, each party has an obligation.
Inference from contract
Sometimes terms and conditions of a contract are not reduced to writing. In such cases offer and acceptance has to be drawn from the conduct of the parties.
A person who boards a public bus, thereby undertakes to pay the fare to his destination, even though he makes no express promise to do so.
Steven vs Bromley and Sun
There was an agreement between the shipowner and the plaintiff, whereby the shipowner agreed to load a cargo of billets at certain rate of freight. Nearly half of the cargo tendered by the plaintiff was accepted for shipment. Plaintiff, after that, tendered general cargo for which current rate of freight was substantially higher than rate for steel billets agreed on under the charter. The plaintiff contended that same rate is applicable for general cargo also.
It was held that same rate is not applicable for general cargo. From the conduct of parties it can be inferred that a fresh contract is made with respect to general cargo.
Clarke vs Earl of Dunravew
Regatta was Yacht club, which conducts Yacht races. The rules of Regatta says while in competition one Yacht sinks other Yacht by fouling, then the fouling Yacht owner has to make good the loss of Yacht sinked. Satanita Yacht fouled and sank Valkirie which is also in the same race.
It was held that even though there is no privity of contract between the two Yacht owners, they are bound by rules of Yacht club and the owner of fouling Yacht has to compensate Valkirie owner.
By entering into race, each participants undertakes to be bound by rules, which bind each and every participant, to create a contractual obligation to discharge that liability.
Intention to create Legal Relationships
Unless in the contract parties create legal relationships, the contract is not binding on them.
Balfour vs. Balfour
A husband working in Ceylon came to England along with his wife on leave. His wife could not return along with him due to medical reasons. The husband promised him orally to give her every month ￡30 till she joins him. He did not make payment as promised. She sued him. Her suit was dismissed. It was held there was no legally enforceable contract between parties.
Invitation to treat
Some offers are not intended to bind and are known as “invitation to treat’.
Goods marked with price are displayed on the cup board of a shop. His display is merely an invitation to treat. He may not sell those goods even though you are interested to purchase them. You can not compel the shopkeeper to sell them.
A statement of fact made merely to supply information can not be treated as an offer, so as to create a valid contract.
Harvey vs Facey
Bumper Hall Pen was a plot of land. A telegraphed to B “Will you sell “Bumper Hall Pen. Inform lowest price.”. B replied by telegram “Lowest price for Bumper Hall Pen ￡900.
A telegraphed “We agree to buy Bumper Hall Pen for ￡900 asked by you. B refused to sell the piece of land. A sued B. His actions failed. It was held B in his reply only intimated the lowest price for Bumper Hall Pen. He did not indicate that he is going to sell that land. By stating lowest price for property is not an offer but only supplying information.
Chapter - 4
COMMUNICATION OF OFFER
Section 4 of the Indian Contract Act says “The communication of proposal is complete when it comes to the knowledge of the person to whom it is made”.
Offer and Proposal are one and the same. In English law, it is called “Offer”. In Indian Law, it is called “Proposal”.
An offer is not effective till it is communicated to the acceptor.
Bhagwandas Goverdhan Dass Kedia Vs. M/s. Girdhari Lal Purushottam
When an offer is accepted by acceptor and acceptance is intimated by the method suggested by the offeror, then the contract becomes complete.
Eliasen Vs. Henshaw
Elisun offered to buy flour from Henshaw and sent the offer by a wagon which brought the offer. Henshaw sent the letter of acceptance by mail; thinking it will reach faster. But the acceptance reached after the time of expected reply lapsed. Supreme court of U.S.A held that Elisen was entitled to refuse to purchase because any departure from mode of acceptance invalidates the offer.
Chapter - 5
There is no necessity to made an offer to ascertained person; it may be made to a number of unascertained persons at the same time. This type of offers are called “General Offers”. Usually general offers are made by an advertisement, radio announcement, television advertisement or displaying the offer at public places, etc. A general offer is made when a person lost some valuable thing or document, or lost his pet, etc. The advertisement describes the thing lost, with a request to handover it so that the finder will be suitably rewarded.
A insurance company offers a reward to any person, who finds and returns a valuable diamond insured by them. X who knows the offer finds the diamond and returns it. He can claim the reward.
Carlill vs. Carbolic Smoke Company
Carbolic smoke company made an offer by means of an advertisement in a newspaper by saying he who uses the ball according to instructions given therein, three times daily for two weeks, does not contract influenza cold or any other disease caused by cold. The advertisement says that they have deposited £ 1000 in Alliance Bank showing their sincerity in the matter. Mrs. Carlill used the smoke ball as per directions, she afterwards suffered from influenza. She sued the company for promised reward. The company was held liable.
It was held that this was one of the classes of cases in which as in case of a reward offered for information or for recovery of lost property, there need not be any acceptance of the offer other than performance.
It was argued on behalf of the company that no prudent person takes seriously the advertisements. But the court held that the statement they have deposited £1000 in the bank, shows their sincerity.
Chapter - 6
REJECTION OF OFFER
When an offer is made it should be accepted in toto without any ambiguity; if not, the acceptance is not a valid acceptance.
The following are such acceptances.
Rejection with counter offer
- Rejection and counter offer
- Acceptance with variation of terms
- An acceptance of general characters
A counter offer is not acceptance but a fresh offer, it amounts to rejection of original offer.
Hyde vs. Wrench
A offered to sell his farm land for £ 1000. B said he would give £ 900. A refused. B then said he would give £ 1,000. A declined. B sued A for specific performance. It was held that B’s offer to buy the farm for £ 900 is a counter offer and is not binding on A.
Acceptance with variations
Any acceptance with varied terms and conditions of original offer is no acceptance at all.
James Vs. Daniel
A offered £ 1,450 for a property belonging to B. B accepted the offer and along with his letter of acceptance, he enclosed a document containing various terms as to payment. This acceptance was rejected by A. It was held that as there was change in terms of acceptance, there was no contract.
Acceptance in general terms
When an offer is made in general terms but reference is made to some other contract with precise terms and conditions, then there is no contract.
Chapter - 7
TERMINATION OF OFFER
Until the offer is accepted, no contract is concluded. When a contract is concluded, legal obligations are created.
An offer may be terminated:
By the death of an offeror
- By the death of an offeror
- By revocation
- By lapse of time
When an offeror dies before acceptance, the offer is terminated. Acceptance communication to personal representatives will not bind them.
An offer may be revoked at any time before acceptance. But the revocation should reach the acceptor before the acceptance. But once an offer is accepted, it is irrevocable.
Termination of offer by lapse of time
Owing to lapse of time an offer may be considered to be terminated.
Ramsgate Victoria Hotel Co vs. Monte Fort
Montefore offered to Ramsgate Victoria Hotel Co, by a letter dated 8th June to purchase shares in their company. On Nov 23, it was informed to him that shares were allotted to him. He refused to accept. It was held that the offer lapsed by delay in acceptance and he was not bound to accept the shares.
Chapter - 8
Best definition of consideration was given by Lush J in the case of Currie vs Misa, 1875: “A valuable consideration is in the sense of law may consist either in some right, interest, profit or benefit accruing to the one party or some forbearance, detriment, loss or responsibility given, suffered, or undertaken to the other.”
In this case, Lizardi & Co. sold a number of bills of exchange to Mr. Misa, drawn on a banking firm owned by Mr. Currie. The bills were sold on 11th Feb. Brokers were to be paid post day following the day of sale. The first day was 14th Feb. Lizardi & Co. was much in debt to his banking firm. On 14th Feb Misa gave a cheque for the amount of order, Lizardi & Co. failed. It was held that pre-existing debt did not form any consideration. So there was absence of consideration for payment of the cheque to Misa.
Consideration is necessary for formation of every contract. An informal promise made without consideration is not actionable.
Eastwood vs. Kenyan
After the death of John Sutcliffe, his infant daughter Sarah, became sold heiress to his property. The plaintiff is the guardian to the girl. He spent money on her education and for benefit of the estate. When the girl became major, she promised to reimburse him. She married defendant. The plaintiff sued for the promise made by Sarah. Lord Denman dismissed the action as there was no consideration. He said moral obligation cannot be a consideration.
Consideration must not be past
A promise given for a promise, the consideration is executory. It may be executed, as an act or forbearance given for a promise. But it must not be past, because in that case it is a sentiment of gratitude. An honour prompting a return for benefit received is no consideration at all.
Roscorla vs. Thomas
Plaintiff purchased a horse from the defendant. After some days of the sale, the defendant warranted that the horse was sound. But it was vicious. Court held that at the time of the sale no warranty was given that the horse was sound. After some days after the sole defendant only said that the horse was sound. The consideration was past and not enforceable. It was held that the warrant was independent of the sale.
Consideration need not be adequate
Consideration need not be adequate but it must be some value in the eyes of law. When two persons enter into a contract, it is not for the courts to enquire whether it was equivalent for the promise.
The consideration may be benefit to the promisor or to a third party, it may not be any benefit to any person, it may be merely a determinant to the promise. It is for the parties to consider adequacy of consideration but not for courts.
Bainbridge Vs. Firmstone
Two boilers were owned by Bainbridge. The defendant wanted to weigh them. They cannot be weighed unless dismantled. The plaintiff allowed the defendant to dismantle them and weigh on the condition that after weighing they would be brought to their original working condition. The defendant dismantled the boilers and weighed them but he could not restore them. The plaintiff sued the defendant. It was held that the defendant was liable. The court held that the defendant might thought that there was some benefit to him by weighing. Similarly there is detriment to the plaintiff by parting his boilers for some time.
Consideration must move from the promisee
It is said that he who enters into a contract has to show that he himself has furnished consideration for the promise of the other party. The consideration need not benefit the other party.
If two persons enter into a contract to benefit a third person, that third person who is not a party to the contract, cannot get any rights under the contract.
Tweddle Vs. Atkinson
M and V married. Afterwards their respective fathers entered into a contract each agreeing to pay certain sum of money to M. After the death of the fathers of bride and bridegroom, M sued for the executors of bride for money promised. It was held that no action would like because no consideration moved from M.
Consideration must be real
Consideration must have some value in the eyes of law, even though it need not be adequate. It must not be illusory.
Thomas vs. Thomas
A widow sued the executors of her husband property to allow her to occupy his house, because during his lifetime her husband wished that after his death, she should occupy his house. He did not execute any will to that effect. The widow contended that executors of her husband's property shall carry out the wishes of her late husband. The court held that desire to carry out wishes of the deceased would not amount to consideration. Motive is not the same as consideration.
Consideration must be lawful
Section 10 of Indian Contract Act says “All agreements are contracts if they are made by the free consent of the parties, competent to contract, for a lawful consideration, with lawful object and are not hereby expressly declared void.”
Section 23 of Contract Act describes what consideration and objects are lawful and what are not.
The consideration and object of an agreement is lawful unless:
- It is forbidden by law; or
- If it is of such nature that if permitted, it would defeat the provisions of any other law; or
- Involves or implies injury to the person or property of another; or
- The courts regards it as immoral or opposed to public policy.
Chapter - 9
CONSENSUS AD IDEM
In Latin, consensus Ad Idem means “meeting of the minds.”
When two parties enter into a contract they must both agree as to the terms and conditions contained in the contract.
Ron Ghitter Property Consultants Ltd. Vs. Beaver Lumber Company Limited
Justice Fraser of the Alberta Court of Appeal said: “The parties will be found to have reached a meeting of minds, in other words Ad Idem, where it is clear to the objective reasonable bystander in light of all the material facts, that the parties intend to contract and essential terms of that contract can be determined with a reasonable degree of certainty.”
In order for a contract to be valid the parties must agree as to the terms and conditions. Then only it is enforceable. The contract must contain all essential terms agreed upon by the parties. If there is no agreement between the parties then the contract is not enforceable. Essence of a contract is the meeting of the minds of the parties in full and final agreement.
Chapter - 10
THE TERMS OF THE CONTRACT
Many simple contracts have simple terms of offer and acceptance, which are easily understandable. But some other contracts such as building agreements, loan agreements, tender contracts, work agreements are covered in very difficult terms, which can be understood by legal practitioners only. During negotiations, each party to a contract give assurance to the other party, which make them to enter into a contract. But when the contract fails due to disagreement, the court has to decide whether a statement of fact made by party is a representation or a condition binding on the party.
Oscar Chen Ltd. Vs. Williams
A second hand motor car was sold by a private seller to firm. He told them that it was 1948 model, but it was 1939 model. The log book had been altered by some unknown person. The court of appeal held that statement made by seller was not a term of contract but merely a representation which does not give rise to any action for breach of contract.
Bannerman Vs. White
White wanted to purchase some Hops flowers from Bannerman. Hops are flowers which are dried and used to make beer. He asked Bannerman whether any sulphur had been used in treatment of that years crop, because brewers were refusing Hope contaminated with sulphur. Bannerman replied that so sulphur was used in treatment of flowers. Then there was negotiations about price and White purchase Hops by sample. Latter, White repudiated the contract on the ground that Hops contained sulphur. It was proved that out of 350 acres on which Hops was grown, sulphur was used on 5 acres. The court of common pleas said that Bannerman’s assurance was a condition, upon which parties contracted and breach of it discharged White from liability to take the Hops.
Before entering into a contract each party makes a statement or existence of a fact basing on which the other party enters into a contract. These statements and promises form the terms of contract. Some of these statements or representations are very vital to the contract, any breach of them gives a right to the other party to repudiate the contract. If these statements are reduced to writing they are express terms. If the parties regard these terms as essential to the contract, then they are regarded as conditions. If they do not regard them as essential but only subsidiary or collateral, then it is a warrant; its failure gives a right to the party to sue for damages but not to repudiate the contract. On the other hand, if the conditions are violated, the injured party can repudiate the contract.
Conditions are the terms of contract which are very vital to the contract. A condition may be a statement of fact or a promise. When a condition is violated, the injured party may treat it as breach of contract and can repudiate the contract. The injured party is discharged from further performance of contract.
Glanholm Vs. Hays
A vessel was chartered to go from England to Trieste and load a cargo there. One of the conditions of charter party is that the vessel should sail from England on or before 4th day of February next. The vessel sailed from England some days after 4th Feb and when it arrived at Trieste, the charterer refused to load the cargo and repudiated the contract. It was held that charterers were entitled to be discharged.
Warranties are those terms in a contract, the breach of which does not entitle the injured party to repudiate the contract but could be compensated for damages. They are not vital for performance of contract.
Bettini Vs. Gye
Gye was the director of the Royal Italian Opera in London. Bettini, a singer, entered into a contract with Gye to use his services in a concert for a period of three months. One of the conditions was that he would be in London at least six days before the beginning of concert for rehearsals. Gye refused to abide by the contract. He was sued by Bettini for breach of contract.
Blackburn J, delivering the judgement said “Parties may think some matters apparently of very little importance, essential, is not really vital, and may be compensated for in damages and if they think performance of some matter essential, important and prima facie a condition precedent.”
The court held in the present case that it was not a condition but a warrant; its breach did not discharge the parties and could be compensated for damages.
Implied means suggested without being stated directly, implicated on hinted at.
Sometimes parties to contract fail to insert some terms because they have forgotten to insert them as express terms or due to bad drafting. Certain terms and conditions even though contemplated by parties, may not find their way into agreement due to inadvertence. In such a case, courts have to imply such terms in order to give effect to the contract.
The Moor Cock
The defendants were wharfingers and owners of a wharf and jetty on the river Thames. The plaintiff was owner of the steamship “Morcock”. It was agreed between them that the vessel should be loaded at defendants jetty. Hire being paid for the use of cranes and other facilities on the wharf. While Moorcock was lying there, the tide ebbed, she came to rest on a ridge of hard ground and was substantially damaged. The court of appeal held that parties must have intended to contract on the basis that the ground was safe for the vessel at low tide and therefore a term would be implied that the berth was reasonably safe for the purpose of loading and unloading, for the breach of this implied term the defendants were liable.
Notice of Printed Terms
A person who signed a document containing terms and conditions is bound by them even though he did not read them and he did not know the legal effects of those terms and conditions. But if the document is not signed but simply delivered to him, is he bound by the terms contained therein?
Olley Vs. Marl Borough Ltd.
The plaintiff and her husband were invited as guests of defendant hotel. They paid charges for weekly boarding and lodging in advance. When they entered into their hotel room there was a notice there, a clause of it speaks that management is not responsible for articles lost or stolen, unless handed to the manager. Due to negligence of the staff a thief entered into their room and stole some of their properties. It was held that the notice do not form a part of the contract, since the plaintiff could not see them unless he entered into the room, so the defendant was liable for the loss.
Westminster Bank Case
The rules laid down by the court in the above case is as to whether a traveller is bound by the terms and conditions contained in the tickets.
Parker vs. South Eastern Railway Co.
- If the person receiving the ticket did not see or know that there was any writing on the ticket, then he is not bound.
- If the person receiving the tickets knew that there was writing and contains terms and conditions then he is bound by the conditions, even though he did not read them.
- If he knew that there was writing on the ticket but he did not know that they contains conditions, he is bound by conditions.
The plaintiff deposited a bag in the cloak room of a railway station belonging to the defendant. He received a paper ticket, on its face was written “See back”. On the back side of the ticket there were a number of printed conditions, including a clause limiting liability to £ 10 for any package lost. The bag was lost. Plaintiff claimed £ 24, its value. The court held that the liability of the defendant is only £ 10. The plaintiff even though did not read the exemption clause is bound by it, as the defendant had done what was reasonably sufficient to give notice of its existence.
Construction of Exemption Clause
Construction in legal parlance means the meaning or interpretation.
L. Estrange vs. F. Graucob Ltd.
The plaintiff the owner of a cafe agreed to buy from the defendant an automatic slot machine for cigarettes. The agreement was to pay the price by installments. It contained an exemption clause excluding liability for breach of warrants or condition. The plaintiff signed the agreement without reading its terms. The machine was faulty, the plaintiff wanted to terminate the contract for breach of condition. It was held that the plaintiff could not terminate the contract, as the exemption clause excluded all liability for breach of condition.
Gilbard vs. Great Eastern Railways
The plaintiff deposited his bicycle with defendant in one of their stations. He received a ticket which exempted the defendant from liability in case of theft. The bicycle was not kept in the cloak room but left in the booking hall, where it was stolen. It was held that defendant was liable. Had the defendant put the bicycle in the cloak room, he would have been protected by exemption clause. Since he kept the bicycle outside the cloak room, he is liable for the loss of bicycle.
Chapter - 11
Law prohibits certain persons to enter into a contract. This is called incapacity to enter into a contract. Incapacity tends to defeat contractual liability. The person incapacitated by law to enter into a contract are:
- Mentally disordered and drunken persons
Persons who are minors and have not attained the age of majority prescribed by law are incapable of entering into a contract. Even if they enter into a contract, such a contract is void ab initio.
Mori Bibee and another vs. Dharmodas Ghose
In the above case, it was held by the court that “A contract by a minor is void”.
Facts of the case
The plaintiff Dharmodas Ghose, while he was a minor, mortgaged his property in favour of the defendant Brahmo Dutt, who was a money lender to secure a loan of Rs. 20,000/-. At the time of transaction, the attorney of the defendant was fully aware that the plaintiff was incompetent to a contract. Dharmodas paid only Rs. 8,000/- and refused to return rest of the money. With his mother as next friend, Dharmodas commenced an action against Brahmo Dutt, stating that at the time of the contract he was a minor, so the contract is void and he is not bound to return the money. The court granted relief to the plaintiff. An appeal was filed but the same was dismissed by the appellate court. After this appeal, Brahmo Dutt died. An appeal was filed in the Calcutta High Court by his executors.
Issues in the case
Contentions by Plaintiff
- Whether the mortgage was void?
- Whether the plaintiff should return the money received by him under such mortgage?
- Plaintiff was a minor when mortgage was executed by him, and therefore the mortgage was void and the same should be cancelled.
- The plaintiff falsely represented his age, the law of estoppel should apply against him and he should not be allowed to content that he was a minor.
- If the plaintiffs claim to order the cancellation is allowed, the plaintiff should be asked to refund the loan taken by him. According to Section 64 and 65 of the Indian Contract Act, 1872.
- The defendant claimed the refund of the mortgage money under Section 41 of teh Specific Relief Act, 1877.
It was held that unless the parties are competent to contract, no agreement is contracted and hence is not enforceable by law and is void.
Since minor is not competent to contract, every such agreement entered into by a minor is void ab initio. The privy council found that the plaintiff was a minor at the time of making the agreement was known to the defendant's attorney, therefore the law of estoppel as stated in Section 115 of the Indian Evidence Act was not applicable to this case. When the statement about age was made to a person, who knew the real facts and was not misled by the untrue statement. Minors agreement being void, Section 64 of the act was not applicable to the case and therefore the minor could not be asked to pay back the loan amount.
As regards the application of Section 65, it was observed that Section 65 starts on the basis that there being a contract or an agreement between the parties and has no application in which there never was and never could have been any contract. Further, it was held that Section 41 of Specific Relief Act 1877 gave discretion to the courts to order compensation but under the circumstances of this case Justice did not require the return of money advanced to the minors as money had been advanced with the full knowledge that plaintiff was as a minor.
Valentini vs. Canali
An infant took lease of a house and agreed to pay the landlord £ 100 for the furniture. He paid £ 68 and gave a promissory note for the balance. After some months of use of the house and furniture, he took proceedings to get the lease set aside and recover the money, which he had paid.
Lord Coleridge CJ ordered that the lease should be cancelled and promissory note delivered upon but be continued: “It is now contended that in addition to this relief, the plaintiff was entitled to an order for the repayment of the sum paid by him to defendant. This contention would involve a violation of natural justice. When an infant had paid for something and has consumed or used it, it is contrary to natural justice that he should recover back the money which he has paid.”
Contracts for Necessity
Contracts for Necessary Goods
Where necessaries are sold and delivered to an infant or to a person who is by reason of mental incapacity or drunken, incompetent to contract, he must pay a reasonable price therefore. Necessities are goods required by an infant suitable to the condition of life at the time of sale or delivery.
Ryder vs. Wombwell
The infant with an income of £ 500 per year, bought from the plaintiff a pair of crystals, ruby and diamond solitaires and goblet in silver gilt. It was held that neither of these articles could be a necessary even though the defendant was the son of a deceased Baronet and moved in the highest society.
Nash vs. Inman
A cambridge undergraduate was supplied with clothing which included eleven fancy waistcoats at one guinea each, by a tailor. It was proved that although he was an infant, he had already sufficient supply of clothing according to his position in life. It was held by court of appeal that the tailor had failed to prove that the clothing he had supplied were requirements needed by the infant at the time of sale and delivery.
Contracts of service, apprenticeship and other beneficial contracts
“An infant may bind himself for necessary meat, drink, apparel and other necessaries and likewise for his good teaching or instructions, whereby he may profit himself afterwards.”
Doyle vs. White city stadium
A professional boxer, who was infant, wanted to get license from The British Boxing Board of Control. He agreed to abide by the rules of the Board in all its professional engagements. A purse of £ 300 was withheld from him by the Board in accordance with its rules, on the ground that he had been disqualified in context, for hitting below the belt. It was held that the agreement was binding on him despite being an infant. The ground of this decision was that the license was practically essential in order to enable him to become proficient in his profession, and when the condition attached to the issue of the license were incorporated in a particular contract of employment. The contract was binding on the infant because it was for his benefit.
Roberts vs. Gray
The defendant an infant entered into a contract with the plaintiff a famous billiards player, in a world tour as professional player. The plaintiff incurred certain expenses in preparing for the tour but before the tour began, the defendant repudiated the contract. The court of appeal held that to play in company with a noted billiard player like the plaintiff was instruction of the most valuable kind for the infant, who wished to make billiard playing his occupation and they upheld an award of £ 1,500 damages for the breach.
Liability of infant in tort
Bernard vs. Haggs
An infant hired a mare (female horse) for riding. He was given strict instructions not to jump or lork (behome in a playful and mischievous way). He lent her to a friend who jumped and killed her. It was held that the infant is liable.
Fraudulent misrepresentation of full age
When an infant represents him to be of full age and induces another person to enter into a contract with him, that contract is not enforceable. Representing him to be a major, even though he is a minor, is a fraudulent act. Despite fraud the contract is not enforceable; but equity does not stand idle.
It intervenes and prevents the infant from taking advantage of his own fraud.
Lord Chancellor Hardwick said “Minors are not allowed to take advantage of infancy to support a fraud.”
Stocks vs. Wilson
The defendant an infant falsely representing to be of full age, induced the plaintiff to sell and deliver to him certain furniture and other articles. He promised to pay £ 300 for that. The goods were not necessary for him. He subsequently sold the goods for £ 130. The plaintiff claimed by way of equitable relief, the value of the goods. It was held that the plaintiff was not entitled to recover the value of the goods from the infant as this would be enforcing a void contract. But since the infant fraudulently obtained £ 130 by selling the furniture, he is liable to return that money to the plaintiff.
Mentally disordered and drunken persons
When drunken person or mentally disordered person enters into a contract it is binding on him, unless he shows that at the time of entering into a contract, he was unable to understand what he was doing and the other person knows his condition.
Mattes vs. Barter
The defendant, at an auction, agreed to purchase from the plaintiff certain houses and land. At that time he was drunken. He affirmed the contract, when he gained his soberness afterwards. Later he wanted to avoid the contract. When sued on the contract, he contended that at the time of entering into contract, he was in a drunken state. The court held, the contract is binding on him, because after he was sober, he could have avoided the contract, but he affirmed it, so it is binding on him.
Chapter - 12
Misleading statements made at the time of entering into a contract are called misrepresentations. When the other party enters into contract on the strength of such statements but later it is proved that such a statement is false, then the party misled is entitled to claim damages for breach of contract or he can avoid the contract altogether.
Four things are necessary before a contract is avoided or claim damages for breach of contract. They are:
There must be false representation
- There must be a false representation.
- The representation must be one of fact.
- The misrepresentation is addressed to the party misled.
- The representation must induce the contract.
There is a duty on party to a contract to apprise the other party all the facts which are unknown to him and which might affect his inclination. There must be some position statement or conduct in order to operate as misrepresentation.
Keates vs. Lord Cadogan
Plaintiff wanted a house for rent for his immediate occupation. Defendant offered him his house to the plaintiff for lease, without disclosing that it was in a ruinous condition. Plaintiff without seeing the house enter into a lease agreement with the defendant. Later when he saw the house, it was in a ruinous condition, not fit for habitation. The plaintiff sued the defendant for damages on account of fraud. It was held that no such action would lie. The plaintiff has not done what any man in his senses would have done i.e. make proper investigation by personally visiting the house to satisfy himself of the condition of the house before entering the contract. There is nothing amounting to deceit. Mere silence does not therefore constitute a misrepresentation.
The representation must be one of fact
When a person gives his opinion which later turns to be unfounded or wrong, will not invalidate a contract.
Anderson vs. Pacific fire and marine
The master of a vessel in a letter to the insurer stated that in his opinion the place where the vessel is going to be anchored is good. Basing on that letter a marine policy was issued to the plaintiff, The ship was lost there. It was held that the insurer knew the route of voyage. The letter of the master was not a representation of fact but mere opinion on which the insurer could not act upon. So the contract is binding.
Addressed to the party misled
Peek vs. Gurney
The appellant purchased shares on the faith of statements contained in a prospectus issued by promoters of a company. The shares were not issued to the appellant but to another person from whom the appellant purchased shares. The shares were worthless. The appellant sued the promoters. The House of Lords held that the prospectus was addressed to the first allottee not to the appellant, that it could not be supposed to extend to other than allottee and that on the allotment the prospectus had done its work, it was exhausted.
The representation must induce the contract
When a representation is made to one party, basing on which such party should enter into a contract.
Horsfall vs. Thomas
Horsfall manufactured a cannon, it had a defect. Horsfall concealed the defect by plugging it with a metal plug. Thomas never inspected the gun. He purchased the gun from Horsfall. When used it bursted at the weak point. It was held that he could not successfully set up a plea of fraud, because he did not inspect the gun.
Chapter - 13
Misrepresentation could be divided into two categories: 1) Fraudulent misrepresentations; and 2) Innocent misrepresentation.
When in a misrepresentation fraud is lacking then it is called innocent misrepresentation. The remedies available for an innocent misrepresentation are not only recession but also claim for damages.
Red Grave vs. V.V. Hard
The plaintiff induced the defendant to enter into a contract for the purchase of his house together with his practice as a solicitor. He misstated the value of his practice and the defendant refused to complete the purchase of house. When sued for specific performance, the defendant counter claimed for recession of contract and for return of the deposit which he had paid.
The court of appeal held that specific performance should be refused and the contract rescinded; the depositor accordingly received his deposit.
When a contract is rescinded each party is entitled to receive his obligation under the contract and to recover any benefit which he may have conferred upon either party. Recession restores the status quo.
Solicitor: In Britain, a solicitor is a lawyer who gives legal advice, prepares legal documents and represents clients in lower courts. In USA, a solicitor is a chief lawyer in Government department.
Chapter - 14
CONTRACTS OF UBERRIMAE FIDI
“Uberrimae Fidi” means utmost good faith. When a party to a contract does not disclose certain facts known to him, which may effect the judgement of other party, it does not amount to misrepresentation because silence is not misrepresentation. There is no general duty to disclose all the material facts unless the other party specifically asks for them.
But in some contracts, full disclosure of all the material facts are required. Because such contracts are based on utmost good faith. These contracts are (1) Insurance contracts, and (2) Family settlements. These contracts can be avoided if full disclosure of all the material facts relating to the contract are not revealed. In these contracts certain material facts known to one party are not accessible to other party, whose knowledge may effect the judgement of other party.
In contracts like family settlement special relationship exists between the parties so one party is bound to disclose all the material facts which are not known to other party.
Gordon Vs. Gordon
- Contracts of Insurance
An insurer contracts with the insured and gives the policy basing on all material facts revealed by the insured. It is an implied condition that discloses all the material facts which effects the judgement of the insurer.
- Family Settlement
In family settlement, there should not be any misrepresentation by the parties but also there should be disclosure of all material facts within the knowledge of the parties.
A family settlement entered into without a secret marriage being disclosed by one side to the other was set aside under this principle.
Chapter - 15
If there is some misunderstanding or misapprehension of the terms of the contract either by both the parties or by one party, it is called mistake as to terms of the contract. If there is a mistake, parties can take the plea that had they known the true facts they would not have entered into the contract.
Mistake at common law
When both the parties enter into a contract on the belief that some facts which lies at the root of the contract is true.
In these cases, outwardly there seems to be an agreement but there is no genuine agreement between the parties. The mistake is one sided only.
Mistake at common law may be due to:
Mistake as to existence of the subject matter of the contract
Couturier vs. Hastie
- Mistake as to existence of the subject matter of the contract.
- Mistake as to the title
- Mistake as to the quality of thing contracted for
- False and fundamental assumption going to the root of the contract
Parties entered into a contract for sale of corn, which both the parties believed to be on a ship on its voyage from Salonica to England. But by the time they enter into contract the corn was already unloaded at Tunis and sold for whatever it fetched because the weather was so hot, the corn may spoil. The buyer contended that he was not bound by the contract and he need not pay the price. The seller contended that it was for sale of ascertained good, so the buyer is bound, as he took the risk.
The House of Lords held the purchaser is not liable to pay the price because the contract is void due to mistake as to the existence of subject matter of the contract.
Mistake as to quality of thing contracted for
Smith vs. Bluges
C agreed to purchase from D, a certain quantity of oats, which both believed to be old but in fact they are new, not suitable for the purpose for which C wants them. The court held that the contract is void.
Chapter - 16
Section 10 of the “Indian Contract Act, 1872” states that “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.”
One that utites a contract is illegality. Certain limitations are placed on the freedom to contract, one such limitation is illegality. Anson’s Law of Contract says “Public policy imposes certain limitations upon freedom to contract. Certain objects of contract are forbidden or discouraged by law and though all other requirements for the formation of a contract are complied with, yet if these objects are in contemplation of the parties when they entered into the agreement the law will not permit them to enforce the rights under it.”
Money paid under a illegal contract cannot be recovered
It is well settled law that money paid under an illegal contract cannot be recovered.
Parson vs. College of Ambulance, Ltd.
The Secretary of the charitable organisation promised the plaintiff that he would secure for him Knighthood if he would make sufficient donation to the organisations funds. In consideration of this promise, the plaintiff paid over 3000 pounds and promised more, when he should receive the honour. The Knighthood never materialised and the plaintiff sued for return of his money. It was held that the action must fail as it was found upon a transaction which was illegal at common law.
Indian case law - Delhi High Court
In this case, the complainant paid to the accused, for procurement of a job in the Government, Rs. 6,00,000. The accused failed to provide a job to the complainant. Then there was a settlement between the complainant and the accused whereby the accused issued a cheque for Rs. 1,00000 drawn on Jain Cooperative Bank, Delhi. The complainant deposited the cheque in his bank for collection. It was returned dishonoured with remarks “funds insufficient”. The complainant filed a case against the accused u/s 138 of Negotiable Instruments Act.
It was held by the Honourable Judge of Delhi High Court that “As the agreement itself is ab-initio, the settlement arrived between the parties basing upon the original agreement does not sustain in the eye of law and the money transferred cannot be recovered through court of law. Hence, it is clear that the present transaction does not come within the purview of N.I. Act and the same will not attract this case. In view of the above discussion, I need not require to decide upon other issues like service of legal notices, etc. As the consideration and object of the agreement is unlawful, the settlement based upon such agreement does not attract the provisions of Negotiable Instruments Act. In view of the above circumstances, the complaint is liable to be dismissed, accordingly the same stands disposed off.”
Chapter - 17
ASSIGNMENT AND NEGOTIABILITY
In a contract, the rights, duties and performance is between the two parties only i.e. promisor and the promisee (offeror and acceptor). But yet times, parties to a contract withdraw and others take their place. This is called “assignment”. A contract can be assigned to third parties only if both the parties to the contract agree to that.
Sharp vs. Drummond
Sharp hired a carriage from Drummond at a yearly rent for five years, undertaking to paint it every year and to keep it in repair. Robson and Sharp are partners in business but Drummond entered into contract with Sharp only. After three years, Sharp retired from business and informed Drummond that henceforth Robson would be responsible for repair and maintenance of the carriage and would receive the payment. Drummond refused to deal with Robson and asked him to return the carriage. It was held that he is entitled to do so.
But in some cases a contract may be performed by a nominee of one of the contracting party. This may be inferred from the terms of the contract, subject matter and surrounding circumstances; if there is no difference if the contract is performed by the contracting party or his nominee.
British Waggon Company vs. Lea and Co.
Parkgate company agreed to let a number of railway wagons to the defendant and keep them in repair. The parkgate waggon company went into liquidation and assigned both the benefits and liabilities under the agreement to British Wagon Company. The defendant claimed the contract as at an end and refused to accept the services of British Company. It was held that the contract could be vicariously performed to British Company. The court distinguished Sharp vs. Drummond on the ground that here defendant could not have attached any specific importance to the repairs being done by the Parkgate. It was a rough description of works which ordinary workmen conversant with the business would be perfectly able to execute and quite unlike the painting and repairs of a gentleman’s carriage.
Assignment of contractual rights and liabilities by operation of law
Effect of Death
On the death of one of the parties to a contract, the rights and liabilities under the contract pass on to his personal representatives. But if the contract depends upon personal skill, talent, experience and personal abilities of a party to a contract like singing, acting, painting, etc., on his death, the other party cannot demand the performance by legal representatives of the deceased. Contracts of agency and of personal services expire with the death of either of the parties to a contract.
Chapter - 18
Performance of a contract should be in toto, precise and exact. If there are any deviation from the terms of the contract, the injured party will be entitled to say that the contract has not been performed.
Re Moore and Co. vs. Landaver and Co.
The defendant agreed to buy from the plaintiff 3,000 tonnes of canned fruit from Australia packed in 30 tins. When goods were tendered, they were found to be packed in 24 tins. It was held that the defendant was entitled to reject the whole consignment even if the consignment is not less valuable than what it was promised. There is a default in performance.
Partial performance of entire contract
What happens when a contract is performed partially. Party who performed partial work of entire contractual work can receive any consideration for his partial performance.
The general rule is that no claim can be made in respect of partial performance of an entire contract. This principle if rigorously applied can result in great injustice. One party to a contract may be enriched at the cost of another party. As a equitable relief in these cases, law prescribes that the injured party cannot treat himself as discharged from his obligation to pay.
Dakin Chi & Co. Ltd. vs. Lee
The plaintiff were builders who had contracted to execute certain repairs to defendant’s premises for certain sum. They carried on substantial part of the contract but failed to perform it exactly in three important aspects. It was held that work was done badly does not mean that it had not been performed at all. The plaintiff was accordingly entitled to receive the price less a reduction for the defective work.
Sumpter vs. Hedges
The plaintiff agreed to erect certain buildings on the defendants land for 565 pounds. He failed to complete the contract. The defendant himself completed the building himself using materials left on the site by the plaintiff. The plaintiff brought an action to recover the value of the work done and also claimed in respect of materials used. It was held that he could to recover for the work he had not done but he was entitled to recover the value of the materials used.
Time of performance
Time is the essence of a contract. When contracting parties fix a time within which the contract work has to be done, the law says that if the condition as to performance of a contract is not fulfilled, the other party might treat the contract as broken and discharged.
Chapter - 19
DISCHARGE OF A CONTRACT
A contract is discharged when both the parties to a contract have satisfied their obligations under the contract. Discharge means to relieve, accomplish or complete. This happens when a contract is performed completely.
Apart from that a contract may be discharged in the following ways.
Discharge by Agreement
- Discharge by agreement
- Accord and Satisfaction
- Discharge by frustration
A contract is formed by an agreement. If the parties want themselves to be relieved from the obligations under the contract, they can do so by another agreement to that effect. This is called release.
Accord and Satisfaction
Discharge from performance of a contract from original obligation in return for a consideration is called accord and satisfaction.
When a contract is executory on both sides, it may be discharged by an agreement between them. Executory on both sides means each party to contract have an obligation or duty to perform. Recission releases both the parties from their obligations under the contract. Such an agreement is formed by mutual promises and the consideration for each promise is abandonment of their rights under the contract.
Rescission may be by
Charles Richards vs. Oppenhim
- Warrier; or
The defendant ordered from the plaintiff a Rolls Royce car chassis, which was delivered to him. He asked the plaintiff to built a body on it, which was accepted by the plaintiff. The condition was that it had to be completed by March 20, 1948, at the latest. The body could not be constructed by that date. The defendant asked for deliver at best on June 29. Even that date the body was not completed. The defendant told the plaintiff he would not take delivery after July 25. The plaintiff failed to deliver the car still on that date. The contract was repudiated by the defendant. The court of appeal held that he was entitled to do so, although he had waived the original stipulation as to the time.
Discharge by frustration
After a contract is formed, a change in circumstances may make it impossible to perform the contract physically or legally. Such a situation is called frustration. In English law, that is called “Doctrine of Frustration”.
Taylor vs. Caldwell
The defendant agreed with the plaintiff to hire him a musical hall and a garden for the purpose of entertainment. Before the day of performance arrived the musical hall was destroyed by fire. The plaintiff sued the defendant for damages for breach of contract, which the defendant though not fault of his own, could not be performed. It was held that the defendant was not liable. The contract not to be construed as a positive contract but subject to implied condition that the parties shall be excused in case, before breach, performance becomes impossible.
Instances of frustration
Krell vs. Henry
- When a specific thing essential to performance of a contract is destroyed, so performance of contract is impossible.
- Non-occurence of particular incident.
The defendant agreed to hire a flat of plaintiff, so as to watch a procession of coronation of King Edward VII, from the window of the flat for June 26 and 27, 1902. The contract contains no reference to the coronation but they were to take place on those days and pass that flat. The procession was cancelled owing to sudden illness of King Edward VII. Two thirds of the rent had not been paid when the procession were abandoned. The court of appeal held that the plaintiff could not recover it. The court considered that the procession and the relative position of the flat lay foundation of the agreement. The contract is frustrated and therefore discharged.
Herne Bay Steamship Co. vs. Hutton
The defendant chartered from the plaintiff the S.S. Cynthia for June 28 and June 29, 1902, for the purpose of taking paying passengers to coronation naval review at Spithead and to tour the fleet. The review was cancelled but the fleet remained. The court of appeal refused to hold the defendant discharged because a tour of the fleet was still possible.
Robinson vs. Dovison
The defendant wife an eminent piano player promised to perform at a concert but was prevented from doing so by a dangerous illness. An action was brought against the defendant claiming damages for breach of contract. The court held the action would fail because continued good health of defendant wife was condition annexed to the agreement.
Howell vs. Coupland
The defendant agreed to sell to the plaintiff 200 tonnes of potatoes to be grown on a particular field. The crop failed. The plaintiff brought action against the defendant for non delivery of potatoes. It was held that the contract was frustrated because there was no contract for sale of specific goods; therefore neither party is liable for the performance, as it becomes impossible.
Tsrkiroglow and Co vs. Noble Thore
The appellant agreed to sell to the respondent a quantity of groundnuts to be supplied from Sudan to Hamburg during November or December 1956. On November 2, the Suez Canal was closed and remained closed for next five months. The price of groundnuts at Hamburg was calculated on the basis of shipment via Canal, but the contract contained not term to that effect. The appellant refused to perform the contract claiming that it had been frustrated by the closure of the canal. House of Lords held there was no frustration since it would still be possible to ship nuts to Hamburg around the Cape of Good Hope. Such a journey was not fundamental or commercially different but merely expensive.
Chapter - 20
DISCHARGE BY BREACH
A contract contains many obligations. If an obligation is failed by one party, the other party have a right of action for breach of obligation. In some cases, breach not only give rise to cause of action but also entitles the injured discharge from such performance due from him.
Cort vs. Ambergate Railway Company
The plaintiff contracted with defendant company to supply them 3,900 tons of railway chairs at certain price to be delivered in certain quantities at specific dates. After delivery of 1789 tons, the company requested him to deliver no more, as they do not need any more as they would not be wanted. The plaintiff brought an action against the defendant saying that he was ready and willing to perform his part of the contract but was prevented from doing so. It was held that since contract had been renounced, he could maintain an action without manufacturing and tending rest of the goods.
Hong Kong fir Shipping Co Ltd., vs. Kawasak Kisen Kaisha Ltd.
The plaintiff chartered to the defendant the M.V. Hong Kong for a period of twenty four months. The vessel was an old one and needed maintenance by an experienced, competent , careful and adequate engine room staff. This the plaintiff did not provide. The chief engineer was addicted to drink and inefficient. The engine room staff was inadequate. In the first seven months of charter, the ship was only eight and half weeks at sea, the rest of the time being spent in breakdowns and repairs to make it sea worthy. The defendant repudiated the contract. It was held that he can do so.
Chapter - 21
REMEDIES FOR BREACH OF CONTRACT
The remedies available to an injured party when a contract is discharged by breach are:
Hardley vs. Baxendale
- The injured party can claim damages for loss he has suffered; and
- If the injured had done party of, not all, what he was required under the contract, he is entitled to claim the value of work he had done. He can sue upon a quantum merit.
The plaintiff mill stopped due to breakdown of crankshaft. It was to be replaced by a new one. The defendants were carriers. Plaintiff sent the shaft to the manufacturer, as to a model, to make a new shaft. Other than that a new shaft has to be made, no information was conveyed to the defendants. Due to some neglect on the part of the defendant, the delivery of shaft was delayed. In consequence, the mill could not be started until some time. The plaintiff lost profits, which otherwise they would have made. They sued the defendant for damages. The court held that the defendant did not know that delay in delivery of shaft would cause loss of profits to the plaintiff. The plaintiff might have another shaft or there might be some other defect in the machinery to cause stoppage. Accordingly, they could not recover for their loss.
Barrow vs. Arnold
A promises to sell and deliver to B 10,000 tons of coal at 20 pounds per ton on 8th Feb. He failed to carry out his contract on 8th Feb. The market price of coal of that quality is 22 pounds per ton on that day. It was held that B can recover any damages for non delivery, the difference between the contract price and the market price on that day, i.e. 2 pounds per ton.
Chapter - 22
PRIVITY OF CONTRACT
The general rule of common law is that no one but the parties to a contact can be bound by it or entitled under it. This is called the privity of contract.
Privity of contract can be studied under two heads:
Mc Gruther vs. Pitcher
- Two persons entering into contract impose liabilities upon a third party.
- Whether a third party acquire any rights under a contract.
The plaintiff, owners of licenses by patent owner, manufactured revolving heel pads under this license. Inside the lid of each of box they pasted a label which says that it was a condition of sale that they were not to be sold, less than a specified price. Any purchaser is deemed to acknowledge that condition. A purchaser of funds from a wholesale agent of plaintiff sold them at less than the specified price; the plaintiffs sought to restrain him from doing so. It was held that the action failed because the plaintiff could not show that any contract existed between themselves and the retailer.
A third party does not acquire any right under a contract entered in between A and B, even though for the benefit of a third party.
Price vs. Easton
W.P. was indebted to Price to the sum of 13 pounds. He promised one Easton to work for him and in return Easton would discharge his debt to Price. The work was done but W.P., but Easteon did not pay the money to Price. Price sued Easton. It was held that Price could not recover because he was not a party to the contract.
Chapter - 23
CONTRACTS ENTERED BY COERCION, UNDUE INFLUENCE AND FRAUD
Any contract entered into by coercion, undue influence or fraud are illegal and void.
Section 15 of the Indian Contract Act defines coercion as “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.
It may be aimed against any person, even a stranger and also against goods i.e. unlawful detention. Coercion is exercised against the person whose consent is sought to be received forcing him to enter into a contract. It may be exercised by a person even against the members of his own family. Consent obtained by such an act amounts to coercion under the Indian Contract Act.
People’s Union for Democratic Rights vs. Union of India
The word force must be construed to include not only physical or legal force but also force arising from compulsion of economic circumstances which leave no choice or alternative to a person in want and compel him to provide labour or service even through remuneration received much less than the minimum wages.
Section 16 of the Indian Contract Act defines undue influence as “A contract is said to be induced by undue influence where the relation subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfavourable advantage over the other.”
Undue influence means:
Morley vs. Laoughman
- When one person dominates another person due to his power, relationship, position or superiority.
- Where there is a abuse of the duties of care and confidence which may be imposed on one party towards another as a result of particular relationship, which emerges from the special circumstances of their association.
An action was brought by the executors of the deceased to recover 1,40,000 pounds paid by the deceased to a member of the “Exclusive Brethren”, in whose house he had lived for some years.
The judgement was given for plaintiff. It was held that gifts given by deceased were not a result of his own free will but due to effect of influence and domination.
Section 17 of the Indian Contract Act defines Fraud as “means and includes any of the acts following acts committed by a party to a contract, or with connivance, or by his agent, with intent to deceive another party thereto or his agent or to introduce him to enter into the contract.
- The suggestion as to the fact that which is not true by one who does not believe it to be true.
- The active concealment of a fact by one having knowledge or belief of that fact.
- A promise made without any intention or performing it.
- Any other act fitted to deceive
- Any such act or omission as the law specially declares to be fraudulent.
Fraud is deception practiced in order to induce another to give up possession or surrender a right, a deliberate deception, trickery or cheating intended to gain an advantage.
Chapter - 24
Quasi contract is not a contract at all. It is a claim distinct from contract or trust or tort, based on the principle that the defendant not to be enriched at the cost of plaintiff. It is an obligation created by law.
A supplies B, a lunatic, with necessities suitable to his condition in life. A is entitled to be reimbursed from the property of B.
House of A is on fire when he was away. B, his neighbour, tenders fire brigade, spends money to put off fire and saves property of A. B is entitled to reimbursement of money from A, which he himself would have spent to save his property.
The feature of Quasi contract obligation is that it is without an agreement, without delict or any breach of duty, a person receives some benefit from another, the law considers it as an obligation parallel to obligation created by contract and the person receiving the benefit has to pay for it.
Section 68 of the Indian Contract Act deals with Quasi contracts liability of a minor or lunatic. Under this section, if anyone supplies required necessities suited to the life of a person incapable of entering into a contract, then he is entitled to reimbursement from the property of such incapable person.
Brooks Wharf and Ball Wharf Ltd., vs. Goodman Brothers
The plaintiffs were warehouse men who had undertaken to store certain animal skins for defendant. He was called upon to pay customs duty on them. This liability to pay customs duty is on defendant but not on the plaintiff. Nevertheless, the plaintiffs paid the duty and sought to recover it from the defendant. It was held that they were entitled to recover.
END OF NOTES