COURSE MANUAL

LAW OF CONTRACT I

Course Instructors
Animesh Bordoloi
Amalesh Prasad
Arunima Saraf
Dolashree Mysoor
Jayanti Singh
Rubanya Nanda
Dr. Shivprasad Swaminathan
Srishti Telang
Swasti Gupta

B.A; LL.B; B.B.A; LLB; B.Com; LL.B 2021

(Semester B –2023)

1
 Course Manual for Law of Contract - I

The following information contains the official record of the details of the course.

PartI

Course Title: Law of Contract I

Course Code:
Course Duration: One
Semester
No. of Credit Units: 4 credits
Level: LL.B
Medium of Instruction: English
Pre-requisites: Nil
Pre-cursors: Nil
Equivalent Courses: Nil
Exclusive Courses: Nil

The above information shall form part of the University database and may be uploaded
to Dspace into the KOHA Library system and catalogued and may be distributed
amongst students.

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 PART II

A. Course Description

For most of you this is your first introduction to the world of contracts. Accordingly, you will
study the elements of a standard contract, how it is formed, its terms, the manner of
performance, and the various legal challenges to the enforcement or performance of any
agreement. This subject-matter will hold you in good stead throughout your law career and
beyond, as contracts permeate our personal, professional and commercial lives. As and
when appropriate, the course will also attempt to weave in readings from a literary,
historical, philosophical and economic perspective to allow us to get a more holistic sense of
the theories behind contract law.

B. Course Aims

This course will:

 Provide students with the basic principles of the Indian Contract Act, 1872, such as
offer, acceptance, agreement, void contracts, voidable contracts, competency to
contract, breach of contract, frustration of contract, remedies and damages.
 Demonstrate the interpretation and application of said principles by Indian courts,
and the courts in other common law countries.
 Explore the policy underpinnings of the core doctrines of Indian contract law, and
how these policies have evolved, including through reference to contract law in
Commonwealth countries such as the United Kingdom.
 Illustrate the relationship between contract law and actual commercial practice by
businessmen, consumers, and others in contemporary society

C. Intended Learning Outcomes

Intended Learning Teaching and Learning Assessment

Outcomes and Weightage Activities Tasks/Activities

By the end of the course, students should be able to:

(i) Demonstrate knowledge (i) Reading of relevant cases, Students’ ability to grasp
and understanding of the statutes, and other legal and critically evaluate
relevant aspects of contract 40% materials: the topics/issues
law; state relevant rules and discussed in the syllabus
3
sources of law and be able to will be tested in the
discuss their effect Students are expected to read following ways:
the wide range of materials (i) End-semester
(ii) Demonstrate an interest in included in the Course Manual examination (50%).
the operation of day- to-day 30% or in handouts. (ii) Internal assessment
commercial transactions. (50%). Each Course
Students will be able to (ii) Lectures: Instructor will advise the
distinguish between the students separately as to
operation of various types of Students will acquire basic the methods by which
commercial contracts such as knowledge on how to read the students will be
indemnity contracts, cases, statutes, scholarly internally assessed.
guarantee, pledge, bailment, writings and other legal
etc. material, and formulate
arguments for or against a
legal proposition.

(iii) Apply the legal principles 30% Students will learn how to
to understand and appreciate comprehend a legal issue and
legal problems in the field of to find and apply legal rules to
commercial contracts a given situation/case through
background readings and case-
law analysis.

(iii) Tutorials:
Each Course Instructor will
advise the students separately
as to the specific tutorials that
will be conducted in class.

D. Grading of Student
Achievement

Students will be assessed based on a common final examination, as well internal

assessment modes, determined by each instructor individually. The common final
examination will constitute 50% of your overall grade. The remaining 50% will be based
upon the internal assessment, as determined by your course instructor.

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Please note the grades and their values below:

Letter Percentage Grade Definitions

Grade Of marks
O 80% and above Outstanding Outstanding
work with strong
evidence of
knowledge of the
subject matter,
excellent
organizational
capacity, ability
to synthesize and
critically analyse
and originality in
thinking and
presentation.
A+ 75 to 79.75% Excellent Sound
knowledge of the
subject matter,
thorough
understanding of
issues; ability to
synthesize
critically and
analyse.
A 70 to 74.75% Good Good
understanding of
the subject
matter, ability to
identify issues
and provide
balanced
solutions to
problems and
good critical and
analytical skills.
A- 65 to 69.75% Adequate Adequate
knowledge of the
subject matter to
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 go to the next
level of study and
reasonable
critical and
analytical skills.
B+ 60 to 64.75% Marginal Limited
knowledge of the
subject matter,
irrelevant use of
materials and
poor critical and
analytical skills.
B 55 to 59.75% Poor Poor
comprehension
of the subject
matter; poor
critical and
analytical skills
and marginal use
of the relevant
materials.
B- 50 to 54.75% Pass “Pass” in a pass-
fail course. “P”
indicative of at
least the basic
understanding of
the subject
matter.
F Below 50% Fail Fails in the
subject

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E. A Word of Caution on Online Readings

Students are encouraged to access online resources for research and preparation for
next class. However, online sources can be classified into reliable, unreliable and
outright bogus, and students are cautioned from depending on unreliable and bogus
materials. Internet is an open domain in which all can create web pages and indulge in
propaganda, falsification or misrepresentation of events. The few sources that can help
you with basic information and which are fairly unbiased are: websites of
established newspapers, magazines and journals.

Student should always consult with the instructor about the veracity and authenticity of
a particular website and its suitability for researching topics covered in this syllabus.

F. P lagiarism

Any idea, sentence or paragraph you cull from a web source must be credited with the
original source. If you paraphrase or directly quote from a web source in the exam,
presentation or essays, the source must be explicitly mentioned. You should not feel free
to plagiarize content, be it from scholarly sources (i.e. books and journal articles) or from
the internet. This is an issue of academic integrity on which no compromise
will be made, especially as students have already been trained in the perils of lifting
sentences or paragraphs from others and claiming authorship of them.

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Part III

A. Readings:

Please consult the topic-wise syllabus below for specific weekly readings. Additionally,
instructors may assign readings from any of the following.

1. AVTAR SINGH, CONTRACT AND SPECIFIC RELIEF (Eastern Book Company)

2. AKHILESHWAR PATHAK, CONTRACT LAW, 1ST ED. (OXFORD UNIVERSITY

PRESS, 2011)

3. EWAN MCKENDRICK, CONTRACT LAW: TEXT, CASES & MATERIALS ( 5TH EDN,
OXFORD UNIVERSITY PRESS, 2012)[ENGLISH CASEBOOK]

4. NILIMA BHADBHADE, POLLOCK & MULLA INDIAN CONTRACT AND SPECIFIC

RELIEF ACTS, (14TH ED. LEXIS NEXIS BUTTERWORTHS WADHWA, 2013)

5. ADRIAN BRIGGS AND ANDREW BURROWS, THE LAW OF CONTRACT IN

MYANMAR (OXFORD UNIVERSITY PRESS 2017) (COMMENTARY ON A COPY OF
THE INDIAN CONTRACT ACT IN FORCE IN MYANMAR)

https://www.law.ox.ac.uk/sites/files/oxlaw/briggsburrowsbook_-
_thelawofcontractinmyanmar.pdf

6. G. TREITEL/E.PEEL, THE LAW OF CONTRACT (SWEET & MAXWELL, 13TH EDN,

2011)

7. S. SMITH, ATYAH’S INTRODUCTION TO THE LAW OF CONTRACT (CLARENDON

PRESS, OXFORD 2005)

8. SCOTT BURNHAM, DRAFTING AND ANALYZING CONTRACTS (CAROLINA

ACADEMIC PRESS 4TH ED. 2016)

9. POLLOCK AND MULLA LAW OF CONTRACT (2ND ED. 1909) Note: this is the second
edition of 1909.

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 https://archive.org/details/indiancontractac00polliala/page/n4

The students should familiarize with the following legislations during the progress of this
Course.

1. THE INDIAN CONTRACT ACT, 1872

2. SPECIFIC RELIEF ACT, 1963

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B. Class Format

The class will cover between one and two topics each week as per the lecture
program. The instructor will tell students at least a week before how far ahead to
read in the required readings for the next week, and if there are any changes in the
readings. Students are expected to attend all classes and to complete all the required
readings and case laws. If you are unable to attend a class you should contact the
course instructor in advance.

The class format will combine lecture and discussion along with on the spot Q&A
sessions. Students are expected to prepare for and participate in class discussion on a
regular basis.

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 PART IV

Syllabus and Required Readings:

The following information is subject to modifications as per the progress of the course.

Teaching Plan

Week Topic

1-2 Introduction & Offer

3 Acceptance

4-6 Consideration, Intention to Create

Legal Relations and Privity

7-8 Capacity & Consent

9 Illegality

10 Contingent Contract

11 Discharge

12-14 Remedies- Damages and Specific

Relief

15 Quasi Contracts

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 OFFER

The Indian Contract Act treats ‘offer’ and ‘acceptance’ as the basis of an agreement and
the rest of the statute is built upon its edifice. It is quite likely that students come into
this module with the unarticulated presupposition that something as foundational as
“offer” and “acceptance” must be too straightforward to require any critical inquiry. But
this is where one has to be on one’s guards. The law relating to ‘offer’ and ‘acceptance’ is
tantalizing simple when it comes to stating it, but can be rather challenging when it
comes to applying. The reasoning in this area of law is often found to be artificial,
contrived and ‘backwards’. Rather than deductively applying the definitions of ‘offer’
and ‘acceptance’ to real world scenarios, courts seem to be deciding cases first by
deliberating upon a host of considerations specific to the domain in which the case
arises—and seem to stick the labels ‘offer’ and ‘acceptance’ on to the fruits of these
deliberations afterwards (this is what is meant by backwards reasoning). The cases in
this area, therefore, require a careful reading—rather than being gleaned second hand
from textbooks—in order to tease out the aforesaid host of considerations.

Please keep the following questions in the back of your mind as you go through your
reading. This will help you glean the most pertinent information from your reading
materials:

(1) What is an offer?

(2) How is the offer communicated?
(3) What is the difference between a general offer and a specific offer?
(4) What is the difference between offer and an invitation to make offer (also known
as invitation to treat)?
(5) How does an offer lapse?

Compulsory Readings:

Statutory Provisions:

Contract Act, 1872: Sections 2-4, 8-10

Cases:

Invitation to Make Offer/Invitation to Treat

Pharmaceutical Society of Great Britain v. Boots Cash Chemists (Southern) Ltd., [1952]
2 QB 795

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McPherson v. Appana, AIR 1951 SC 184

Revocation of Offer

Dickinson v. Dodds [1876] 2ChD 463

Advertisements as Offers

Carlill v. Carbolic Smoke Ball Co., [1893] 1 QB 256

Lefkowitz v Great Minneapolis Surplus Store Inc (1957) 86 NW 2d 689
Leonard v. Pepsico, 88 F. Supp. 2d (1999)

Articles:

S. Swaminathan, ‘Travails of Teaching Offer and Acceptance in Indian Contract Law’

https://indiacorplaw.in/2020/02/the-travails-of-teaching-offer-and-acceptance-in-
contract-law.html

A.W.B. Simpson, ‘Quackery and Contract Law: The Case of the Carbolic Smoke Ball’
(1985) Journal of Legal Studies 345-389.

Patricia Williams, Alchemical Notes, 22 Harv. C.R.-C.L. L. Rev. 401 (1987) (Extracts)

ACCEPTANCE

S. 4 of the Indian Contract Act 1872, provides that an offer is complete when it comes to
the knowledge of the offeree and that an acceptance is complete as against the offeror
when it is put in the course of transmission by the acceptor so as to be out of his power
and as against the acceptor when it comes to the knowledge of the offeror. S. 5 provides
that the offer can be revoked at any time before the acceptance is dispatched and that an
acceptance can be revoked at any time before it comes to the knowledge of the promisor.
S. 5 ostensibly departed from the English law as it allowed for the acceptance to be
revoked by a more expeditious means than the one used to communicate it. But when
the question arose as to moment of contract formation envisaged by a combined reading
of ss. 4 & 5, following the English law—that has orbited around Adams v Lindsell (1818)
—the courts in India found the provisions to support the ‘dispatch rule’: that the
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contract is formed at the moment the acceptance is dispatched, or put out of the power
of the acceptor. Could it be that it be, however, that moment of contract formation
applied by the courts in India rests on a mistaken understanding of ss. 4 & 5 of the
Indian Contract Act, 1872?

Please keep the following questions in the back of your mind as you go through your
reading. This will help you glean the most pertinent information from your reading
materials:

(1) Who may accept an offer?

(2) How must the offeree accept an offer?
(3) What is a counteroffer, and when do courts deem acceptance to actually constitute a
counteroffer?
(4) How must an offeree communicate his acceptance?
(5) How may an acceptance be revoked?

Compulsory Readings:

Statutory Provisions:

Contract Act, 1872: Sections 2-7

Cases:

Acceptance

Harvey v. Facey, [1893] 3 App. Cas. 459

How to accept

Butler Machine Tool Co. Ltd. v. Ex-Cell-O Corpn (England) Ltd., (1979) 1 WLR 401 CA

How to accept: Acceptance by Conduct

Brodgen v Metropolitan Railway [1877] 2 App Cas 666

Pro CD v Zeidenberg, 86 F. 3d 1447 (7th Cir. 1996)

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Acceptance in Ignorance of offer

R V Clarke (1927) 40 CLR 227 (Australia)

Communication of Acceptance and Moment of Contract Formation

Adams v Lindsell, (1818) 1 B & Ald. 681 [Communication of Acceptance]

Entores v. Miles Far East Corporation, [1955] 2 QB
Bhagwandas Goverdhandas Kedia v. Girdharilal Parshottamdas & Co., AIR 1966 SC
543

Articles:
S. Swaminathan, ‘The Will Theorist’s Mail Box: Misunderstanding the Moment of
Contract Creation in the Indian Contract Act’ (2018) 39 Statute Law Review 14-26.

Suggested Additional Reading

Hyde v Wrench, (1840) 3 Beav. 334

Felthouse v Bindley, (1862) 11 CBNS 869
Errington v Errington, [1952] 1 KB 290
Badrilal v. Indore Municipality, AIR 1973 SC 508
Perala Krishnayyam Chettiar v. G. Paimanathan Chettiar, AIR 1917 Mad 63
Haridwar Singh v. Bagum Sambrui, AIR 1972 SC 1242

CONSIDERATION

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The standard definition of consideration in English Law uses the language of ‘benefit’
and ‘detriment’. The Indian Contract Act doesn’t use those words. How far from the
English position does this really take the Indian law?

Courts and academics alike have held that the Indian Contract Act reproduces the
consideration requirement of English law. But is there any warrant for this assumption?
Could it be argued instead that although the Indian Contract Act uses the term
consideration, it means something completely different from the English law

Please keep the following questions in the back of your mind as you go through your
reading. This will help you glean the most pertinent information from your reading
materials:

(1) What is consideration?

(2) What is privity of contract? What is privity of consideration?
(3) Does consideration have to be adequate? If so, how is such adequacy measured?
(4) What is promissory estoppel?
(5) Is past consideration valid consideration?

Statutory Provisions:

Contract Act, 1872: Sections 2(d), 25 and 63.

Reading:

S. Swaminathan, ‘Eclipsed by Orthodoxy: The Vanishing Point of Consideration and the

Forgotten Ingenuity of the Indian Contract Act’ (2017) 12 Asian Journal of
Comparative Law 141-165.

Cases:

Pinnel’s Rule

Pinnel v Cole (1602) 5 Co Rep 117

Fokes v Beer (1884) 9 App Cas 605

Pre-Existing Duty Rule

Stilk v Myrick (1809)2 Camp 317

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Williams V Roffey Brothers [1991] 1 QB 1

Lalman Shukla v. Gauri Dutt, (1913) 11 ALJ 489

Firm Offer Rule

Bank of India v O P Swarankar (2003) 2 SCC 721 (Supreme Court of India)

Somasundaram Pillai v Provincial Government of Madras [1947] AIR Madras 366

(Madras High Court)

Past consideration and its limits

Lampleigh v. Brathwaite [1615] Hob 105.

Eastwood v. Kenyon (1840) 11 Ad & El 438.

Consideration cannot be Illusory

White v Bluett (1853) 23 LJ Ex 36

Hamer v Sidway (1891) 124 NY 538 (American Case to be contrasted from White)

Adequacy of Consideration

Chappel & Co V Nestle [1960 AC] 87

Promissory Estoppel

Hughes v. Metropolitan Railway Co., (1877) 2 App. Cas. 439 [Promissory Estoppel]

Central London Property Trust V High Trees House Ltd [1947] 1 KB 130

Kedarnath Bhattacharji v. Gorie Mahomed. (1866) ILR 14 Calcutta 64

Doraswami Iyer v. Arunachala Ayyar, AIR 1936 Mad 135

M.P. Sugar Mills v. State of U.P., AIR 1979 SC 621

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Intention to Create Legal Relations

Cases:

Balfour V Balfour [1919] 2 KB 571

Lucy v. Zehmer, 84 S.E.2d 516

Suggested Additional Readings:

Coward V Motor Insurers’ Bureau [1963] 1 QB 259

Kleinwort Benson V Malaysia Mining Corporation [1989] 1 All ER 785 (involving the
legal status of comfort letters)

Is ‘intention to create legal relations’ a requirement under Indian Contract Law?

Banwari Lal V Sukhdarshan Dayal (1973) 1 SCC 294

CWT Vs Abdul Hussain (1988) 3 SCC 562

PRIVITY

The ICA ostensibly does not have a provision stipulating a privity of contract requirement at all.

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In fact, it could not have had one. In the 1860s, when the Act was being drafted, a person from
whom consideration did not move did not have the right to sue at English law (see Tweddle v
Atkinson: privity of consideration rule). This was an offshoot of the consideration requirement
rather than free-standing rule of its own. The rule that only a ‘party’ to a contract can sue upon it
(i.e. privity of contract rule) came into English contract law only much after the drafting of the
Indian Contract Act (i.e. in the mid-1870s) and was retrospectively projected onto Tweddle v
Atkinson. At the time the Indian Contract Act was drafted, therefore, privity of consideration rule
was the only barrier the drafters of the Indian Contract Act envisaged—and dismantled with
section 2(d). The provision allowed consideration to move from the ‘promisee’ or ‘any other
person’. But oculd it be argued that its effect was also to preempt any putative ‘privity of
contract’ based barrier? Could it be argued therefore that as long as the promisor got the desired
consideration, not only the ‘promisee’ but ‘any other person’—whether or not a party—could sue
upon the contract. This should have meant that the Indian law ought never to have been
encumbered by the restrictive privity of contract rule.

Readings:

S. Swaminathan, ‘The Great Indian Privity Trick: Hundred Years of Misunderstanding

Nineteenth Century English Law’ 2016 (16) Oxford University Commonwealth Law
Journal 160-182

Cases:

Bourne v Mason (1669) 1 Ventr 6, 86 ER 5

Dutton v Poole (1678) 2 Lev 211

Tweddle v Atkinson, [1861] 1 B & S 393

Dunlop Pnuematic Tyre Company V Selfridge Co [1915] AC 79

Chinnaya v. Venkataramaya (1881) ILR 4 Madras 137

Debnarayan Dutt vs Chunilal Ghose (1914) ILR 41 Cal 137

Khirodbehari Dutt v Mangobinda AIR 1934 Cal 682

Kepong Prospecting Ltd v Schmidt [1968] AC 810

Iswaram Pillai v Sonivaveru Taragan 61[1914] AIR Mad 701

Krishna Lal Sadhu and Anr. vs Pramila Bala Dassi 114 Ind Cas 658

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The National Petroleum Company vs Popatlal Mulji (1936) 38 BOMLR 610, 165 Ind
Cas 338

M.C.Chacko v. The State Bank of Travancore (1969) 2 SCC 343

Exceptions to Privity

Early Exception on Grounds of Love and Affection

Dutton v Poole (1678) 2 Lev 211
Family Arrangements (India)
Nawab Khwaja Muhammad Khan v. Nawab Husaini Begam (1910) 37 I.A. 152

Covenants Running with Land

Renals v Cowlishaw (1879) 11 Ch D 866
Rogers v Hosegood [1900] 2 Ch 388
Rambriksh Prasad vs Shyamsunder Prasad Sahu And Ors AIR 1958 Pat 467

Trust
Les Affréteurs v Walford [1919] AC 801
Re Schebsman [1944] Ch 83
N. Devaraje Urs vs M. Ramakrishniah AIR 1952 Kant 109, AIR 1952 Mys 109

Assignment
Tolhurst v. Associated Portland Cement Manufacturers Ltd [1902] 2 KB 660
Trendtex Trading Corporation v. Credit Suisse [1982] AC 679
Dawson v. Great Northern & City Railway Co [1905] 1 KB 260

Agency
Wakefield v. Duckworth [1915] 1 KB 218
Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd

CAPACITY

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Section 10 of the Indian Contract Act, 1872 stipulates that all agreements made with the ‘free
consent’ of parties who are ‘competent’ to contract are enforceable as contracts. Section 11
declares that minors are not competent to contract. While the Act goes on to specifically set out
the consequences of vitiated ‘consent’ in ss. 19, 19A and 20, it omits spelling out the
consequences of contracting with a minor. Nevertheless, a decision of the Privy Council, Mohori
Bibee v. Dharmodas Ghose (1903) read the Act as having given a definitive answer to this
question and took the view that minors’ contracts were void ab initio (not voidable or void)
which meant that neither party could enforce it; nor could they seek to be restituted to their
original positions under provisions stipulating restitution in the case of either voidable (s.64) or
void (s.65) contracts. Indian courts have since invoked Mohori Bibee in bloodless abstraction, as
if it were an unquestionable axiom of Indian contract law—a tendency exhibited even in a recent
judgment of Supreme Court of India in Mathai v Joseph Mary (2015). Courts have over the years
tried to find pathways around Mohri Bibee in limited situations. But is this reading of the Act by
the Privy Council justified? Does the notion of “void ab initio” hold up?

Please keep the following questions in the back of your mind as you go through your
reading. This will help you glean the most pertinent information from your reading
materials:

(1) Who is competent to contract?

(2) What is sound mind for the purposes of contracting?
(3) What are the consequences of a lack of capacity in contracting?

Compulsory Readings:

Statutory Provisions:

Contract Act, 1872: Sections 10, 11, 12, 65, 68

Reading

S. Swaminathan, ‘Minors’ Contracts: A Major Problem with the Indian Contract Act, 1872’
(2021) 42 Statute Law Review 101-115. (with Ragini Surana)

Cases:

General Rule

Mohori Bibee v. Dhuromdas Ghose, 1903 30 IA 114

Raj Rani v. Prem Adib AIR 1949 Bom 215
Mathai v. Joseph Mary (2015) 5 SCC 622

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Nash v. Inman, [1908] 2 KB 1

Circumventing the General Rule

A.T. Raghava Chariar v. O.A Srinivasa (1916 ) 31MLJ 575

Fernandez v. Gonsalves AIR 1925 Bom 97

Suggested Additional Readings:

Gadigappa Bhimappa v. Balangowda, AIR 1931 Bom. 561 (FB)

Ajudhia Prasad v. Chandan Lal, AIR 1937 All. 610

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 CONSENT

In this module, we will discuss the ways in which the Contract Act seeks to intervene
when the fact of consent to a contract might have been influenced by (i) coercion, (ii)
undue influence, (iii) fraud, (iv) misrepresentation, and (v) mistake.

Please keep the following questions in the back of your mind as you go through your
reading. This will help you glean the most pertinent information from your reading
materials:

(1) What is consent? And under what circumstances is such content vitiated?
(2) How are coercion, undue influence, misrepresentation, fraud and mistake
defined, and what is their effect on a contract?
(3) What is the difference between coercion and undue influence?
(4) What is the difference between misrepresentation and fraud?
(5) What is the effect of a mistake of fact and a mistake of law?

Coercion, Undue Influence and Unconscionability

Statutory Provisions:

Contract Act, 1872: Sections 13-23, 64, 65, 66

Readings:

S. Swaminathan, ‘Coercion, Undue Influence and Unconscionability in Indian Law’ in Mindy

Chen-Wishart, Stefan Vogenauer and Hiroo Sono (eds.) Studies in the Contract Laws of Asia
IV : Validity (Oxford University Press 2022).

Hugh Beale, ‘Unconscionability and Undue Influence’ in Andrew Dyson, James

Goudkamp and Fred Wilmot Smith eds. Defences in Contract (Hart 2016) 87-110.

Cases:

Threat of self-harm and coercion

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 Chikham Amiraju v. Chikham Sesamma, 1917 41 Mad. 33

Threat of criminal prosecution and coercion

Williams v Bayley (1866) LR 1 HL 200

Askari Mirza v. Bibi Jai Kishori, 1912 16 IC 344

Economic Duress

Universe Tankships Inc of Monrovia v International Transport Workers’

Federation [1982] 2 All ER 67
Atlas Express Ltd. v Kafco [1989] 1 QB 833
Daiichi Karkaria v ONGC AIR 1992 Bom 309
Kishan Lal v NMDC AIR 2001 Delhi 402

Undue Influence

Allcard v Skinner (1887) 36 Ch D 145

Subhash Chandra Mushib v. Ganda Prasad Mushib, AIR 1967 SC 878

Unconscionability
Central Inland Water Transportation Ltd. v. Brojo Nath Ganguly, AIR 1986 SC
1571
Pioneer Urban Land and Infrastructure Ltd. v Govindan Raghavan [2019] 5 SCC
725

‘Inequality of bargaining power doctrine’

Lloyds Bank v. Bundy, [1975] 1 QB 326 (close analysis of the judgment of Lord
Denning)

Fraud and Misrepresentation

Readings:

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K.V. Krishnaprasad, ‘Fraud, Mistake and Misrepresentation in Indian Law’ in Mindy Chen-
Wishart, Stefan Vogenauer and Hiroo Sono (eds.) Studies in the Contract Laws of Asia IV :
Validity (Oxford University Press 2022).

Fraud

Vokes v. Arthur Murray, 212 So. 2d 1906 (1968)

Misrepresentation

Bhagwani Bai v. LIC, Jabalpur, AIR 1984 MP 126

Esso Petroleum v Mardon, [1976] QB 801

Mistake

Tarsem Singh v. Sukhminder Singh, 1998 3 SCC 471

Suggested Additional Readings:

Derry v. Peek, 1899 14 App Cas 337 [Fraud]

Ramesh Kumar v. Furu Ram, 2011 8 SCC 613 [Fraud]
Bisset v Wilkinson, [1927] AC 177 [Misrepresentation]
Esso Petroleum v Mardon, [1976] QB 801 [Misrepresentation]
Union of India v. Benode Kumar, AIR 1926 Cal 48 [Misrepresentation]
K.R. Raghavan v. Union of India, Delhi High Court, May 4, 1979
[Misrepresentation]
Cundy v Lindsay, (1878) 3 App. Cas. 459 [Mistake]
Bell v Lever Brothers, [1932] AC 161 [Mistake]
Smith v Hughes, (1871) LR 6 QB [Mistake]
Couturier v Hastie, (1856) 5 HLC 673 [Mistake]
King’s Norton Metal Co. Ltd v Edridge, Merrett & Co Ltd, (1897) 14 TLR 98
[Mistake]
Philips v Brooks Ltd., [1919] 2 KB 243 [Mistake]

Raghunath Prasad v. Sarju Prasad, 1923 51 I.A. 101 [Undue Influence]

Redgrave v. Hurd, (1881) 20 Ch D 1.

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 LEGALITY AND CONTINGENT CONTRACTS

Please keep the following questions in the back of your mind as you go through your
reading. This will help you glean the most pertinent information from your reading
materials:

(1) When is the consideration or the object unlawful?

(2) What is an agreement in restraint of trade, and an agreement in restraint of legal
proceedings?
(3) What are agreements by way of wager?
(4) What is the difference between an unlawful agreement and an illegal agreement?
(5) What is the difference between an absolute restraint and a partial restraint?

Compulsory Readings:

Statutory Provisions:

Contract Act, 1872: Sections 23-30

Cases:

Niranjan Shankar Golikari v. Century Spinning & Manufacturing Co. Ltd., AIR 1967
SC 1098
Percept D’Markr v. Zaheer Khan, (2006) 4 SCC 277

Article:

Umakanth Varottil and Zhong Xing Tan, ‘Restrain of Trade in India’ in K.

Krishnaprasad, S. Swaminathan, V. Umakanth & V. Niranjan (eds.) Handbook of
Indian Contract Law (forthcoming)

Suggested Additional Readings:

Patel v Mirza [2016] UKSC 42[restatement of the principle of ex turpi causa]

BOI Finance Ltd. v. Custodian and Ors., AIR 1997 SC 1952

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 DISCHARGE OF CONTRACT

Discharge of a contract refers to termination of a contract where it ceases to operate

and the rights and obligations of the parties created by the contract, come to an end.

A contract may be discharged in mainly in one of the following manners:

1. By performance
2. By agreement or consent
3. By impossibility of performance
4. By breach of contract

Contractual obligations may also be discharged by lapse of time and/or operation of

law.

Please keep the following questions in the back of your mind as you go through your
reading. This will help you glean the most pertinent information from your reading
materials:

(1) What is the difference between actual performance and attempted performance?
(2) What are the various ways in which contracts are discharged by way of agreement?
(3) What is the doctrine of frustration?
(4) What are the different grounds for impossibility of performance?
(5) What is the difference between actual breach and anticipatory breach?

Statutory Provisions: Sections 37-67, 73

Attempted performance

Cutter v Powell, (1795) 101 ER 573

Impossibility, Illegality and Frustration.

Compulsory Readings:

Shivprasad Swaminathan, ‘Frustration: Navigating the Bramble Bush’ (2022) 43

Liverpool Law Review 501-515.

27
Shivprasad Swaminathan, ‘Frustration and Force Majeure: A Guide for the Perplexed—
Part 3’
https://indiacorplaw.in/2020/05/frustration-and-force-majeure-a-guide-for-the-
perplexed-part-iii.html

Illegality (subsequent) of Performance

Metropolitan Water Board v Dick Kerr and Co Ltd [1918] AC 119

Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1942] UKHL 4

Impossibility of performance

Taylor v. Caldwell, QB (1863) 3 B & S: 122 ER 309

Howell v Coupland (1876) 1 QBD 258
Bank Line Ltd v Arthur Capel & Co [(1919) A.C. 435]

Frustration of object or purpose

The point of departure for the law on frustration in India is section 56 of the Indian Contract Act,
1872. Section 56 is nominally a section on ‘impossibility’ and ‘illegality’ and has nothing to say
about ‘frustration of purpose’. Why is it that the section does not speak about ‘frustration of
purpose’? History is of some importance here. In 1872 when the Act was being drafted, the idea
of ‘frustration of purpose’ was still some time away from blipping the radar—it came into
English law only in 1874 in Jackson v Union Marine Insurance. Unsurprisingly, the Indian
Contract Act (drafted before this decision) does not provide for it. However, it has become de
riguer after the Supreme Court decision in Satyabrata Ghose v Mugniram Bangur (1954) to
claim that everything in the modern doctrine of frustration (including frustration of purpose) is
contained in section 56 and that English law on the point is of ‘persuasive value only’. Is this a
proper understanding of the provision and its drafting history?

Cases on Frustration of object:

Jackson v Union Marine Insurance (1874) LR10CP 125
Krell v Henry [1903] 2 KB 740
Hernebay Steam Navigation Co. v Hutton [1903] 2 KB 683
Davis v Fareham Urban District Council [1956] AC 696
Tsakiroglou v Noblee Thorl [1962] AC 93
Satyabrata Ghose v. Mugneeram Bangur, 1954 SCR 310
Energy Watchdog v. CERC, 2017 SCC Online SC 378

28
Frustration and Contingent Contracts

The received wisdom since Satyabrata Ghose v Mugniram Bangur (1954) has been that
sections 31-36 of the Indian Contract Act (contingent contracts) deals with force
majeure clauses and section 56 of the Act deals with frustration. This, therefore, is the
most convenient place to study contingent contracts. One might legitimately question,
however, if section 31-36, which seem to borrow ‘suspensive’ conditions can be
extended to ‘resolutory’ conditions—which is what force majeure clauses appear to be.

Please keep the following questions in the back of your mind as you go through your
reading. This will help you glean the most pertinent information from your reading
materials:

(1) What are contingent contracts?

(2) How are contingent contracts enforced?

Statutory Provisions:

Contract Act, 1872: Sections 31-36

Readings: Shivprasad Swaminathan, Force Majeure Clauses and Contingent Contracts:

A Link that Wasn’t.
https://indiacorplaw.in/2022/11/force-majeure-and-contingent-contracts-a-link-that-
wasnt.html

Cases:

Ramzan v. Hussaini, AIR 1990 SC 529

Ganga Saran v. Firm Ram Charan Ram Gopal, AIR 1952 SC 9

Discharge by agreement: novation

Ram Khilona & Ors. v. Sardar & Ors., AIR 2002 SC 2548

Discharge by agreement: alteration

Kalianna Gounder v. Palani Gounder, (1970) 2 SCR 455

M. Sham Singh v. State of Mysore, AIR 1972 SC 2440

29
Discharge by agreement: accord and satisfaction

Kapur Chand Godha vs. Mir Nawab Himayatali Khan, (1963 AIR 250/ 1963 SCR (2)
168)

Discharge by breach
Murlidhar Chatterjee v. International Film Co., AIR 1943 PC 34

Anticipatory breach

Hochster v De La Tour, (1853) 2 E & B 678

Discharge of joint liabilities

Devilal v. Himat Ram, AIR 1973 Raj. 39

Suggested Additional Readings:

Krishna and Co. v. The Government of A.P. & Ors., AIR 1993 AP 1 (Frustration of
Object)
Re Moore & Co. Ltd v. Landauer & Co., [1921] 2 KB 519 (Actual Performance)
Shipton, Anderson & Co v Weil Bros & Co., [1912] I KB 574 (Actual Performance)
Ralli Bros. v. Compania Nautera, (1920) 2 K.B. 287
Rash Behary Shaha v. Nrittya Gopal Nundy, (1906) ILR 33 Cal 477 (Anticipatory
Breach)
V.L. Narasu v. Iyer, ILR [1953] Mad. 831
Wasoo Enterprises v. J.J. Oil Mills, AIR 1968 Guj. 57 (Time of Performance)

30
 REMEDIES

Please keep the following questions in the back of your mind as you go through your
reading. This will help you glean the most pertinent information from your reading
materials:

(1) What are the various remedies available to the aggrieved party?
(2) What are direct versus indirect damages? And what are the several ways that courts
measure the amount of damages owed?
(3) What is the difference between a liquidated damages provision and one that imposes
an impermissible penalty?
(4) When can a party require specific performance of a contract?

Damages

Rules concerning the ‘measure of damages’ seek to answer the question—how to assess or
quantify loss. Rules concerning ‘remoteness of damage’ seek to determine which type of losses
might be compensated. The received wisdom is that section 73 is based on the English common
law and accordingly, Indian courts have by and large tended to follow the English jurisprudence
on damages. The idea underlying the basic measure of damages in English law is aptly captured
by Parke B’s famous statement in Robinson v Harman.

The rule of the common law is that where the party sustains a loss by reason of a breach of contract, he is,
so far as money can do it, to be placed in the same situation, with respect to damages, as if the contract had
been performed.

Although this goes in the literature as ‘the’ measure of damages, it is when properly understood,
one of the interests protected by award of damages, albeit the principal one, namely, the
‘expectation interest’ or ‘performance interest’. Other interests also protected by common law
courts by payment of damages to varying degrees include: a) the ‘reliance interest’; b)
‘restitution interest’; and e) non-pecuniary losses or ‘mental distress’ (in exceptional cases). If
the claimant suffers no loss with reference to one of the aforesaid interests, she may be able to
recover nothing more than just nominal damages. English law does not recognize punitive or
exemplary damages. There is no provision in the Indian Contract Act which specifically deals
with ‘measure of damages’. S.73, which is the only provision relating to payment of damages
upon breach of contract is based instead, on the leading English case on ‘remoteness of damage’,
namely, Hadley v Baxendale.

Compulsory Readings:

31
Statutory Provisions:

Contract Act, 1872: Sections 73-74

The Specific Relief Act: Sections 9-19

Readings:

Katy Barnett, ‘Damages’ in K. Krishnaprasad, S. Swaminathan, V. Umakanth & V.

Niranjan (eds.) Handbook of Indian Contract Law (forthcoming).

Niranjan Venkatesan, ‘The Contract Remoteness Rule: Exclusion, Not Assumption of

Responsibility’ in Andrew Dyson, James Goudkamp and Fred Wilmot Smith eds.
Defences in Contract (Hart 2016) 186-213.

M.V. Swaroop, ‘Money Remedies in India’ in Mindy Chen-Wishart, Alexander Loke, &
Burton Ong eds. Studies in the Contract Laws of Asia: Remedies for Breach of Contract
(Oxford: Oxford University Press 2016)

Cases:

Measure of damages

Section 73 of the Indian Contract Act is substantially based upon Hadley v Baxendale which,
is an authority on remoteness of damage. Consequently, there is no provision in the Indian
Contract Act specifically dealing with ‘measure of damages’. What the drafters’ intentions
might have been relating to measure of damages could, at best be gleaned from the
eighteen illustrations (a) to (r) appended to the Section which merit a careful reading.

Robinson v Harman (1848) 154 ER 363.

Murlidhar Chiranjilal v. Dwarkadas, [1962] 1 SCR 653

Remoteness of damage

Consequences of a breach of contract are potentially open-ended. But the law must draw a line
beyond which damages will not be awarded. Losses on the other side of such a line are termed
remote or indirect losses for which the law does not award compensation. The locus classicus on
this is Hadley v Baxendale ( on which s.73 is based). The second limb of Hadley v Baxendale
(which is also the second limb of the first para of section 73) undoubtedly goes quite some
distance towards filtering out remote or indirect losses. It, however, seems to be leave open the
possibility of losses which might be in the knowledge or contemplation of parties and yet might

32
otherwise be thought too remote. The English decision of Transfield Shipping v Mercator
(assumption of responsibility test) deals with this issue. How might Indian courts go about
addressing this problem?

Hadley v. Baxendale (1854), 9 Ex 341

Transfield Shipping Inc v Mercator Shipping Inc [2008] UKHL 48
Karsandas H. Thacker v M/s The Saran Engineering Co. Ltd AIR 1965 SC 1981
Pannalal Jankidas v. Mohanlal, AIR 1951 SC 144

Cost of Cure

The point of the ‘cost of cure’ measure is to award the claimant compensation which will allow
him to obtain the performance he was promised rather than pay him the difference between the
promised performance and the diminished one (which is the point of the standard expectation
measure1 While in most cases the two would coincide, there are cases where they could come
apart, such as in the case of Ruxley Electronics and Constructions Ltd v Forsyth. The English
law allows for cost of cure when the defendant’s performance is so defective that it is of no use
to the claimant for its designed purpose. However, cost of cure would not be allowed when doing
so would be unreasonable and the expenditure would be out of all proportion to the benefit to be
obtained.

Ruxley Electronics and Constructions Ltd v Forsyth [1996] AC 344.

Nikhera v Chitnavis AIR 1941 Nag 111.

Duty to Mitigate

The English law on mitigation revolves around three rules: a) the claimant cannot recover for
any losses he could have avoided by taking reasonable measures; b) if the claimant does mitigate
losses, he cannot recover those merely because he took measures beyond what was reasonably
expected of him; c) the claimant may recover any additional loss he incurs in the course of
mitigation. The explanation to Section 73 is seen as incorporating the English rule on mitigation
of loss

M. Lachia Setty v. The Coffee Board, Bangalore AIR 1981 SC 162.

Stipulated Sums: Liquidated Damages and Penalties

1
Ewan McKendrick, Contract Law: Text, Cases and Materials (6th ed. 2012) 823.

33
Traditionally, English law on stipulated sums (this changed in 2015 in Cavendish Square
Holdings) revolved around the fulcrum of a dichotomy between liquidated damages and
penalties. If a stipulated sum was a genuine pre-estimate of damages expected to follow breach,
it was a liquidated damages clause and hence was to be enforced in its entirety. If a clause did
not meet the criteria for being designated as a liquidated damages clause, it was deemed to be a
penalty which was wholly unenforceable (it was said to be “in terrorem” or a sum meant to
terrorize the party into performance and hence unenforceable). Through Section 74, the drafters
did away with the liquidated damages-penalties dichotomy. It was closer to the French civil code
(which literally enforced stipulated sums) albeit with the addition of a sliding scale for the court
to adjust the compensation to a ‘reasonable’ amount. The provision was amended (‘slightly
extended’ as the draftsman put it) in 1899 to bring within the ambit of the section some types of
case which fell outside the remit of the original section. This was primarily done by the addition
of the words ‘any other stipulation by way of penalty’. The term penalty in section 74 was not
therefore used in the same sense as English law. Section 74 has come down to us, as amended in
1899. Gradually, with passage of time, the liquidated damages-penalties dichotomy has crept
back into Indian law. This has come about primarily because the word ‘penalty’ in section 74 has
been understood as ‘penalty’ in the sense that English law understand it. Is this superimposition
of the liquidated damages-penalty distinction justified?

Statutory Provision

Section 74, ICA.

Readings:

S. Swaminathan, ‘De-Inventing the Wheel: Liquidated Damages, Penalties and the Indian
Contract Act,1872’ (2018) 6 Chinese Journal of Comparative Law 103-117.

Cases:

Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd, (1915) AC 79 (Lord
Dunedin’s opinion)
Cavendish Square Holdings v Talal El Makdessi [2015] UKSC 67
Fatehchand v Balkishan Das [1964] 1 SCR 515
Maula Bux v Union of India [1969] 2 SCC 554
ONGC v. Saw Pipes [2003] 5 SCC 705

Suggested additional reading:

Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528

C Czarnikow Ltd v Koufos [1967] UKHL 4
Anglia Television Ltd. v. Reed, [1971] 3 All E.R. 690
34
Sylvia Shipping Co Limited v Progress Bulk Carriers Limited [2010] EWHC 542
Kailash Nath Associates v Delhi Development Authority [2015] 4 SCC 136
Jamaal v. Moola Dawood, (1916) ILR 43 Cal 493

Specific Relief

Specific Relief Act, 1963 and Specific Relief Amendment Act 2018.

Niranjan Venkatesan, ‘Specific and Agreed Remedies for Breach of Contract in Indian
Law: A Code of English Law?’ in Mindy Chen-Wishart, Alexander Loke, & Burton Ong
eds. Studies in the Contract Laws of Asia: Remedies for Breach of Contract (Oxford:
Oxford University Press 2016) 59-83.

Adequacy of Damages (The general limitation)

Beswick v. Beswick [1968] AC 58.

QUASI-CONTRACTS

This module will study the provisions in the Indian Contract Act pertaining to: section
68 (necessities supplied to person incapable of contracting); section 69 (reimbursement
of person paying money due by another); section 70 (obligation to compensate for
enjoyment of non-gratuitous act); section 71 (responsibility of finder of lost goods); and
section 72 (restitution of anything received under mistake or coercion). It would
perhaps be fair to say that the most neglected area of Indian contract law. The Indian
Contract Act had a chapter dedicated to quasi-contracts (Chapter V: Of Relations
Resembling Those Created by Contract running from sections 68 to 72) well before
English contract law recognized such a concept. However, while restitution is now a
flourishing branch of private law in England and elsewhere in the common law world, it
remains an obscure corner of Indian contract law without a well-developed
jurisprudence and suffering scholarly neglect.

Please keep the following questions in the back of your mind as you go through your
reading. This will help you glean the most pertinent information from your reading
materials:

(1) What is a quasi-contract?

(2) What are the elements of unjust enrichment?
35
Statutory Provisions:

Contract Act, 1872: Sections 68-72

Cases:

State of W.B. v. B.K. Mondal, AIR 1962 SC 779

Articles:
Alvin See, ‘Recovery of Non-Gratuitously Conferred Benefit under Section 70 of the Indian
Contract Act’ in Andrew Robertson, Michael Tilbury (eds), Divergences in Private Law (Hart
Publishing 2016)

36