The Indian Contract Act - 2 | Civil Law for Judiciary Exams PDF Download

M/s. Alopi Parshad & Sons Ltd. v. Union of India, AIR 1960 SC 588

• This case involves the Indian Contract Act and specifically the concept of frustration of contract.
• Section 56 of the Indian Contract Act, 1872 states that a contract becomes void if the parties cannot perform due to unforeseen circumstances.

Facts of the Case

• The Union of India hired the plaintiffs to supply Ghee to army personnel.
• During World War II, after three years, the government agreed to change the price of Ghee, lowering it.
• A year later, the plaintiffs asked for a price increase due to the difficulties they were facing in fulfilling their obligations.
• The government said they would consider the request but did not take any action while the plaintiffs continued to supply Ghee.

Key Issues

• Should the contract be based on the original price or the reduced price agreed upon later?
• Did the contract become impossible to perform due to the increased burden on the plaintiffs that they did not foresee when they entered into the contract?

Court Observations

• The court stated that if both parties agree to change a contract, the original terms are no longer needed for performance.
• In this case, since the price was mutually changed, the government was required to pay the new price, not the original.
• The court highlighted that the government could not change the contract based on unfulfilled assurances.
• Even though the plaintiffs faced losses, they were still paid according to the modified contract, so they could not demand more money.
• The court concluded that a contract does not automatically become void just because circumstances change.
• The focus should be on properly interpreting the contract rather than the intentions of the parties involved.

Conclusion

• The court ruled that a party cannot escape fulfilling a contract simply because it has become difficult or burdensome to do so.

Khan Gul v. Lakha Singh, AIR 1928 Lah. 609

This case addresses situations involving minor contracts where the minor deceptively hides their true age.

Facts

• The first defendant engaged in negotiations to sell a piece of land to the plaintiff, while being a minor and fraudulently concealing his age.
• A sum of Rs. 17,500 was received as payment, with Rs. 8,000 paid in cash to the Sub-Registrar and the remaining Rs. 9,500 secured through a promissory note payable on demand.
• The plaintiffs claimed that the Rs. 17,500 was legally paid to the first defendant. This included the promissory note of Rs. 9,500, which was discharged by another promissory note issued by the plaintiffs to the defendant’s brother-in-law, Muhammad Hussain, as requested by the defendant.
• The plaintiffs further asserted that they had already paid Rs. 5,500 of the Rs. 9,500 to Muhammad Hussain and were willing to settle the remaining amount.
• Despite receiving the payments, the first defendant refused to transfer ownership of the property.
• The plaintiffs sought either possession of the property or a decree for Rs. 17,500, along with interest or damages for breach of contract at a rate of 1% per month, totaling Rs. 1,050. This amounted to a total claim of Rs. 19,000, to be imposed against the defendant’s properties.

Issues Involved

• Whether a minor who fraudulently misrepresents their age to induce someone to enter into a contract is barred from arguing their minority to escape the contract?
• Can a minor who made a false representation about their age, either as a defendant or plaintiff, decline to fulfill the contract while still retaining the advantage gained from it in future disputes?

Observation

• Prior to 1903, there were doubts regarding the contractual capacity of minors, particularly about the validity or voidability of their contracts.
• The Privy Council's decision in Mohori Bibee v. Dharmodas Ghose (1903) clarified that a person incompetent to contract due to minority cannot create a legally binding contract.
• The law of estoppel, which usually applies generally, becomes more specific in contract law, where legislative intent determines exceptions.
• Indian High Courts align on the view that minors' contracts are invalid, rejecting the principle of estoppel in cases of minor contracts.
• The Mohori Bibee case did not clarify how Section 115 of the Indian Evidence Act, 1872 (IEA) applies to minors.
• The prevailing view in India is that minors who misrepresent their age can avoid contracts without being subject to estoppel.
• Equity may compel minors to restore benefits gained through misrepresentation.
• Stocke v. Wilson (1913) is an example where a minor, though immune from contract obligations, was still required to repay the benefits received through misrepresentation.
• Dissenting opinions argue that minors may bear equitable obligations for misrepresentation.

Conclusion

• In conclusion, a minor who enters into a contract by making a false representation about their age, though not liable under the contract, may be required to return the benefit received through this misrepresentation, whether the minor is the defendant or the plaintiff.

Raghunath Prasad v. Sarju Prasad (1923) 51 I.A. 101

• This case examines the three steps used to determine the concept of undue influence under Section 16 of the Indian Contract Act, 1872 (ICA).
• The Court discussed that the burden of proof lies with the party in a dominant position. Section 16 of the ICA states that a contract is considered induced by undue influence when the relationship between the parties is such that one party has the power to dominate the will of the other and uses that power to gain an unfair advantage.

Facts

• The defendant, Sarju Prasad, and the plaintiff, Raghunath Prasad, are part of the same Joint Hindu Family (JHF).
• There was a dispute over property, and the father (plaintiff) had filed a criminal case against his son (defendant).
• To defend himself, the defendant mortgaged his property for Rs. 10,000 at an interest rate of 24% compound interest with the plaintiff.
• Over a period of eleven years, the interest increased 11 times.
• The defendant argued that the plaintiff took undue advantage of his mental state to raise the interest rate and invoked Section 16 of the ICA.

Issues Involved

• Would the plaintiff be protected under Section 16(3) of the ICA?
• Is the contract between the parties induced by undue influence?

Observations

The Bombay High Court outlined a three-step process to determine whether the contract was induced by undue influence:

• Assess the relationship between the parties to see if one is in a position to dominate the other.
• Determine if the contract was induced by undue influence.
• Onus probandi: If the transaction appears to be unconscionable, the burden of proving that the contract was not induced by undue influence rests on the party who was in the position to dominate the will of the other.

Conclusion

• The Court found that the plaintiff failed to prove that the defendant had dominated his position. Thus, the contract was found to be induced by undue influence, and the three-step process was not satisfied. The Court allowed the interest rate to be applied from the date of execution.

Hadley v. Baxendale (1843-60) All ER Rep. 461

• This case, Hadley v. Baxendale, addresses the issue of consequential damages in breach of contract situations.
• It emphasizes that the party at fault must compensate for damages that were foreseeable at the time of the contract, rather than unforeseen losses.

Facts of the Case

• The plaintiff owned a mill with a damaged crankshaft and hired the defendant to transport it for repairs.
• The crankshaft was returned one week late, causing the mill to be unable to operate during that time.
• As a result, the plaintiff claimed compensation for the profits lost due to the delay.

Issues Raised

• Was the defendant liable for breaching the contract?
• Is the plaintiff entitled to compensation for the loss of profit due to the late delivery?

Court's Observations

• The Court of Exchequer ruled that only losses that are natural and reasonable should be considered in breach of contract cases.
• Loss of profits cannot be claimed unless both parties could have anticipated it when they entered into the contract.
• The court stressed that a party can seek damages only for losses that were foreseeable when the contract was made.

Conclusion

• The court decided in favor of the defendant, concluding that he was not aware of the potential losses and that the damages claimed were not a natural result of the contract breach.

State of West Bengal v. B.K. Mondal & Sons, AIR 1962 SC 779

This case revolves around the concept of a Quasi Contract as outlined in the Indian Contract Act, 1872 (ICA). A quasi contract arises when one person benefits from something without compensating for it, or when another person bears the expense or burden for it.

Facts

• The Plaintiff made an offer for the temporary storage godowns in the District of Hooghly at Arambagh for the Civil Supplies Department of the State of Bengal.
• The respondent accepted the offer, completed the construction, and raised a bill which was duly paid.
• The Additional Deputy Director of Civil Supplies visited the site and instructed the respondent to proceed according to the submitted estimate for the construction.
• The respondent completed the construction as per the instructions, and a bill of Rs. 23,228/- was submitted to the Assistant Director of Civil Supplies.
• Another letter was issued by the Assistant Director asking the respondent to proceed further with the construction, leading to the completion of the work and submission of a Rs. 17,003/- bill.
• The respondent claimed that both bills of Rs. 23,228/- and Rs. 17,003/- remained unpaid.

Issues Involved

• Whether the plaintiff can claim it as a valid contract?
• Was there any contract between the plaintiff and respondent for building the warehouse?

Observation

• The court identified three conditions for invoking Section 70 of the ICA.
• The person must lawfully do something or deliver something for another person.
• In doing so, the person must not intend to act gratuitously.
• The other person must enjoy the benefit of the work or delivery.
• The court noted that the person (Plaintiff) liked the work but chose not to use the warehouse. If the person later decides to accept and use the warehouse, Section 70 of ICA could apply, and they may use it.
• The court emphasized that this section does not prevent the government from accepting work without a formal contract. However, it does not make it illegal for the government to benefit from work done for it without an existing contract.

Conclusion

• The court ruled that there was no justifiable contract between the parties under Section 70 of the ICA.
• Therefore, the High Court dismissed the appeal.

Mohori Bibee v. Dharmodas Ghose (1903) 30 I.A. 114

This case is a significant legal matter involving the concept of a minor's agreement, which is considered void ab initio, meaning it is void from the very start.

Facts

• Dharmodas Ghose, a minor, mortgaged his property to secure a loan from his uncle Brahmo Dutt.
• The mortgage was later sold to the plaintiff, Mohori Bibee.
• At the time of the contract, Dharmodas Ghose was a minor (under the age of 18).
• The representative of Brahmo Dutt was fully aware that Dharmodas was legally incompetent to enter into contracts or mortgage his property.
• Dharmodas Ghose, along with his mother, filed a legal suit against Brahmo Dutt, arguing that the mortgage entered during his minority was void and should be annulled.
• Brahmo Dutt passed away during the legal proceedings, and his executors continued the appeal.
• The plaintiff argued that no leniency should be given, claiming the defendant had knowingly misrepresented Dharmodas's age.
• The Trial Court ruled that the mortgage contract was void due to the minor's lack of legal capacity.
• Brahmo Dutt, unhappy with the decision, appealed to the Calcutta High Court.
• The Calcutta High Court upheld the Trial Court's decision, ruling that the mortgage was void and dismissing the appeal.

Issues Involved

• Whether the deed was void under Sections 2, 10, and 11 of the Indian Contract Act, 1872 (ICA).
• Whether the defendant was liable to return the loan amount received under the mortgage deed.
• Whether the mortgage initiated by the defendant was voidable or not.

Observation

• The Privy Council ruled that the contract was void ab initio (from the beginning) because a minor cannot contract according to Section 11 of the ICA.
• The court emphasized that a contract with a minor is void and cannot be ratified, even once the minor attains majority.

Conclusion

• The court decided that if the other party knew about the minor's status, the agreement is void from the moment of its execution.

Kedarnath Bhattacharji v. Gorie Mahomed (1886) 7 I.D. 64 (CAL.)

Bhagwandas Goverdhandas Kedia v. M/s. Girdharilal Parshottamdas & Co., AIR 1966 SC 543 17

• This case involves the communication and acceptance of an offer under the Indian Contract Act, 1872.
• It specifically focuses on Section 3, which discusses how proposals can be communicated and accepted.

Facts

• The appellant, Bhagwandas Goverdhandas Kedia Oil Mills, agreed to supply seeds to the respondent, M/s. Girdharilal Parshottamdas and Co., via a telephone conversation.
• The contract was accepted over the phone in Khamgaon, where both delivery and payment were also arranged.
• The appellant filed a lawsuit in Ahmedabad after the respondent failed to provide the goods.
• The respondent argued that the Civil Court of Ahmedabad did not have jurisdiction because the acceptance occurred in Khamgaon.
• The Ahmedabad court ruled it had jurisdiction, leading to the appellant's appeal to the High Court of Gujarat, which was dismissed, prompting a special leave petition to the Supreme Court.

Issues Involved

• Did the Ahmedabad Court have jurisdiction over the case?
• Was the contract formed at the place where it was accepted or at the place where the acceptance was received?

Supreme Court Observations

• The Supreme Court noted that Section 4 of the Indian Contract Act governs when communication and acceptance occur.
• The communication is complete when the person receiving the proposal knows about it, and acceptance is complete when it is sent to the proposer and comes to their knowledge.
• Telephone conversations are similar to in-person discussions, where agreements are made through direct speech.
• The majority opinion stated that when an offer is made by telephone, the place of acceptance is where the offeror (the person making the offer) receives the acceptance.

Conclusion

• Instantaneous communication (like phone calls) is treated differently from postal communication.
• In postal communication, acceptance is considered complete when the letter is mailed.
• For phone conversations, a contract is formed when the acceptance is received by the offeror, and the contract is considered to be formed at the offeror’s location.

Balfour v. Balfour (1918-19) All ER 860 (CA) 11

• This case is significant as it established the intention to create a legal relationship in contract law.
• The court determined that agreements between husbands and wives are considered domestic contracts and are not enforceable by law.

Facts of the Case

• Mr. and Mrs. Balfour went on vacation, during which Mrs. Balfour fell ill and required medical care.
• They agreed that Mrs. Balfour would stay in England while Mr. Balfour would remain in Ceylon, with Mr. Balfour agreeing to pay her $30.
• This agreement was made while their relationship was good.
• As their relationship deteriorated, Mr. Balfour stopped making payments.
• Following their separation, Mrs. Balfour sued to enforce the agreement.

Key Issues

• Did Mr. Balfour intend to create a legal agreement with his wife?
• Is the agreement valid?
• Can a contract between spouses be enforced in court?

Court's Observations

• The court ruled that contracts between spouses are domestic contracts and are not legally enforceable.
• There was no intention to create a legal relationship in this case, meaning Mr. Balfour was not legally obliged to pay.
• If courts allowed enforcement of such agreements, they would be overwhelmed with frivolous cases.
• The case highlighted that these agreements are based on social arrangements rather than legal commitments.

Conclusion

• Agreements made within personal family relationships, like those between spouses for financial support, do not have legal binding authority. Typically, spouses arrange personal and household expenses without any intention of legal enforcement.

Lalman Shukla v. Gauri Dutt (1913) XL ALJR 489 (All.)

• This case pertains to the validity of a contract and the communication of proposals.
• It is a landmark judgment decided by the Allahabad High Court.

Facts

• The defendant’s nephew had gone missing, and the defendant sent his servants to search for him.
• The plaintiff, one of the defendant’s servants, found the nephew accidentally and brought him home.
• After the plaintiff left the house, the defendant announced a reward of Rs 501 for anyone who found his nephew.
• The plaintiff was unaware of the reward when he found and returned the nephew.
• Six months later, the defendant, Gauri Dutt, dismissed the plaintiff from service.
• The plaintiff, Lalman Shukla, filed a case demanding the reward, claiming entitlement.

Issues Involved

• Is the plaintiff entitled to the reward offered by the defendant?
• Was there valid acceptance by the plaintiff to form a contract with the defendant?

Observations

The court highlighted the following essentials of a valid contract:

• Knowledge of the offer or proposal: The offeree must be aware of the offer.
• Acceptance of the offer: The offeree must communicate their assent to the offer.

Application to the Case:

• The plaintiff lacked knowledge of the offer when he returned the nephew.
• No acceptance of the offer was given by the plaintiff.
• As these essentials were absent, no valid contract existed between the plaintiff and the defendant.

Conclusion

• There is no contract if the offeree has no knowledge of the offer and does not communicate acceptance.
• In this case, the plaintiff is not entitled to the reward, as the essentials of a valid contract were not satisfied.