CONTRACT LAW PROBLEM & SOLUTION

2020 FINAL
1. Mr. Larsen and Mr. Toubro good friends for over 15 years were working in
France and had been to England for vacation. On expiry of his leave Mr. Larsen
was keen to return to France but Mr. Toubro was not interested to return back.
Mr Toubro insisted that Mr. Larsen provide for his maintenance with a written
promise to pay him 500 pounds every month. Mr Larsen agreed on the same
but clearly specified that the deed was not binding, and it was a moral
Obligation. Mr. Larsen returned to work and paid 500 pounds for 6 months
after which he refused to fulfil his obligations. Mr Toubro has now filed a case
for breach of Contract. Decide on the following issues:

a. Whether the promise of Mr. Larsen was made with an Intention to create a
legal relationship?

b. Whether between social relation such as the above there can be an

enforceable and binding contract? Explain the same with the help of Case
Laws.

c. What are the essential differences between social and legal agreements?

ANS: a) Yes/No – Reasoning more important b) Cases: Balfour v. Balfour; Jones

v. Padavatton; Parker v. Clark; Merritt v. Merrit c) Social obligation v. Legal
obligations; Personal interest v. Commercial interest; Exceptions under section
25 of the Indian Contract Act, 1872.

2. Romeo, the pet dog of Mrs. Lakhpatni, the wife of a wealthy businessman,
went missing in the at a business conference hall she attended. Her personal
Attendant Bhola, was immediately sent in search of Romeo. Bhola, went in
search of the pet outside the conference hall as he felt Romeo would have run
away from overcrowded areas and maybe needed fresh air. Meanwhile, Mrs.
Lakhpatni, announced in the Conference Hall that whoever returns Romeo,
will be paid a sum of Rs. One Lakh as Reward. Bhola, in his sincerity found
Romeo across the street from the Conference Hall. Bhola after returning

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Romeo to Mrs. Lakhpatni, learns that there was an announcement of a reward
and seeks to claims the same.

a. Decide the case as to whether Bhola can claim the reward.

b. Elucidate the Rules of a Valid General Offer?

c. Describe the conditions of a valid Acceptance.

ANS. a) Offer has to be communicated before acceptance. Bhola cannot claim

the reward.

b) Rules of a valid offer i. It should be an expression of willingness to do or

abstain from doing something. ii. (two parties) - It must be made to another
person. There can be no proposal by a person to himself. iii. It must be made
with a view to obtain the assent of that other (person) to such an act or
abstinence. iv. It must be communicated; Certain and definite; v. Cases: Harvey
v. Facey; Carlill v. Carbolic Smoke ball co.;

c) Conditions of a valid acceptance:

i. It must be given by the Offeree: An offer can be accepted only by the person
to whom it is made

ii. It must be Absolute & unqualified

iii. It must be in a Prescribed Manner

iv. It must be Communicated to the Offeror

v. Cases: Felthouse v. Bindley;

Powel v. Lee;

Entros Ltd. v. Miles Far East Corpn.

3. a. Raghu, age 17, wanted to buy a motorcycle. He did not have the money
to pay cash but persuaded the dealer to sell a motorcycle to him on credit. The
dealer did so partly because Raghu said that he was 21 and showed the dealer
an identification card that falsely stated his age as 21. Raghu drove the
motorcycle away. A few days later, he damaged it and then returned it to the

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dealer and stated that he wants to avoid the contract because he was a minor.
The dealer said that he could not do so because

(i) he had misrepresented his age and

(ii) the motorcycle was damaged. Can Raghu avoid his contractual obligations?
Argue.

b. Justify whether Software are goods under the Sale of Goods Act with
relevant case law.

ANS. a) Raghu can avoid contractual obligations, unless it is shown as a

contract of Necessity; Case law: Mohiri Bibi v. Dharmodas Ghose

b) Case Law: TCS v. State of AP: “Software is a good when sold in storage
device”; “Software is a service when delivered otherwise”.

4. Javed drove his car to a car parkin a shopping mall. Outside the car park, the
prices were displayed and a notice stated cars were parked at their owner’s
risk. An automatic ticket machine provided a ticket, a barrier was raised and
Javed parked his car inside the shopping mall. In small print on the ticket it was
stated to be issued subject to conditions displayed on the premises. On a pillar
opposite the machine was a notice stating the ‘Parking at Owners risk-owner
of the shopping mall would not be liable for any injuries occurring on their
premises’. On his return from shopping inside the mall, Javed finds that his car
has been damaged. Javed seeks your opinion to file a suit against the shopping
mall for breach of contract and damages. Advise Javed.

ANS. Hotel is liable for damage. It is not liable only if it proves that the damage
was caused on a ground other than Negligence or want of care from the Hotel.
Cases: Thornton v. Shoe Lane Parking Ltd; Parker v. South Eastern Railway Co.

2020 SUPPLEMENTARY
5. Mr. and Mrs. Dixit were enjoying leave in Agra, their home town. When the
time came for Mr. Dixit to return to Bengaluru where he was employed, the
wife stayed back in Agra for health reasons. Mr. Dixit promised to pay her
allowance every month for her maintenance. The same promise was recorded

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in writing. Mr. Dixit stopped paying when the differences arose and the wife
sued her husband for allowance as per the written contract.

Decide the matter citing relevant provisions and case laws. Would your
decision differ if the written promise was registered?

ANS. Based on the case Balfour v balfour and johns v. padavatton

 Domestic agreements are presumed not to be legally binding unless there is

clear intention.

 There is a presumption to consider a fact to be true unless rebutted against

an intention to create a legally enforceable agreement if it is in domestic
nature.

 Since enforceability of domestic contract is uncertain it being registered will

still be invalid.

6. Mr. Mahendra Sodi was elected as the Prime Minister of India. He decided
to hold the oath taking ceremony in the historic Ramleela Maidan in Delhi. Mr.
Desai’s apartment nearby had the prime view of the oath taking ceremony.
Mr. Desai leased the apartment to N.L.S.I.U. Mr. and Mrs. Bandani who
wanted to watch the oath taking ceremony. However, due to security reasons
it was decided that the ceremony will be held at the Rastrapati Bhavan. The
Bandanis refused to pay the balance of the rent. Decide the matter.

ANS:  Krell v. Henry – frustration of purpose

 Sec 56 of Indian Contract Act

 Taylor v. Caldwell – frustration of subject matter – Sec 56 of Indian Contract

Act  Underlying condition that was essential to the performance of the
contract, rather than simply being a necessary condition, ceases to exist.

 Both parties recognised that they regarded the taking place of the oath
taking ceremony on the days originally fixed as the foundation of the contract,
the words of the obligation on the defendant to pay for the use of the flat for
the days named were not used with reference to the possibility that the
processions might not take place.
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 The plaintiff will not be entitled to recover the balance of the rent fixed by
the contract.

7. Mr. A decides to purchase Mr. B’s Car and negotiate the price thereafter.
Meanwhile, it was informed that the Car was due to be auctioned by Mr. R.
On November 10, 2019 Mr. A wrote a letter to Mr. B, “If I hear no more, I
consider the car to be mine”. Neither any consideration nor communication
moved between Mr. A and Mr. B after the said letter. However, Mr. B
communicated to Mr. R to withdraw the car from auction. But Mr. R fails to do
the same and the car is sold to Mr. T. Mr. A brings a suit for conversion,
claiming the car to be his property by virtue of the contract. In this context,
discuss the following:

a. Whether there was a contract between Mr. A and Mr. B?

b. What is the Legal Position on the communication and acceptance of the

offer given by Mr. A?

c. Can Mr. T retain the possession and ownership of the car?

ANS:  Felthouse v. bindley – silence cannot amount to acceptance

 S. 3,4,5 of Indian contract act

 There was no contract for the car between the parties. There had not been
an acceptance of the offer; silence did not amount to acceptance and an
obligation cannot be imposed by another. Any acceptance of an offer must be
communicated clearly. Although there was an intention to sell the car to the
complainant, there was no contract of sale. Thus, failure to respond to the
complainant did not amount to an acceptance of his offer.

8. Mr. B is the owner of a periodical publication called X. He engages Mr. W to

write a volume on a particular topic for his publication. For this work it was
agreed that the plaintiff would receive Rs. 10,000/- on completion. When Mr.
W finishes a part of the volume Mr. B abandons the series and refuses to pay.
Mr. W seeks your legal advice on the course of action to be taken. Advice Mr.
W citing the relevant provisions and case laws.

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ANS:  Based on case Plinche v. Colburn - Quantum Meruit case

 As claimed under:

Void agreements – agreements that become void (Sec 6c)

Gratituous act (S. 70)

In case of act preventing the completion of contract by other parties act

Divisible contract

Liable to pay the according to the principles of Quantum Meruit

9. MRF Marine Racing Club organizes yacht racing every year. The participants
of the race have to abide by the rules of the race which were written in the
form of an agreement. The agreement is entered between the respective
participant and MRF Marine Racing Club. One of the clauses of the agreement
reads:

“Any yacht that disobeyed the rules would be liable for all consequential
damages resulting from the breach”

Mr. A and Mr. B owners of yachts X and Y participated in the race and signed
the agreement with MRF Marine Racing Club. Yacht X disobeyed the rules and
eventually collided with yacht Y and sank the same. Mr. B brought an action
of breach of contract against Mr A and claiming consequential damages?
Decide the matter.

ANS. The Satanita case

 Exception to offer and acceptance rule to contract

 Held the whole transaction was a binding contract
 Implied offer and acceptance – each of them had the knowledge that
the race is to be run under the ruled and they deliberately enter the race
upon the same terms

2019 FINAL

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 10. Microhard a Software Company incorporated under the Laws of Delaware,
USA sells Software Products across the World, including India. Wiz Guru
purchased a Software from Microhard Authorised Dealer Retail Outlet in
Bengaluru, and sought to install the same on his Laptop. While he clicked the
Icon “I AGREE” to Install the Software, he viewed the following Terms and
Condition:

“Clause 47. In case of any Dispute, the user shall abide by the laws of
Delaware, USA, and shall seek to have the matter arbitrated accordingly,
with the place of Arbitration at New York, USA.”

It was realized that the Software had defects in the programme that was
promised, and he sought to initiate a refund. Advise on the following:

a. Comment on whether Clause 47 is binding on Wiz Guru. Provide Case-Laws.

b. What is the nature of the E-Contract in discussion?

c. Differentiate the types of E-Contracts.

ANS. Microhard Case:

a. Rule of Contra Proferentum. Standard Form of Contracts. Interpretation in

favor of Software Purchaser.

b. Click Wrap Agreements

c. Click Wrap Agreements; Shrink Wrap Agreements; E-Mail or Electronic Data

Interchange (Section 11-13 of Information Technology Act)

11. Mangoman decides to start a business of sale of Mangoes, and avails a loan of Rs.
6,00,000/- for his business needs, Pulpy Orange had consented to act as Surety for
the Loan. Mangoman couldn’t make much profits as the Mangoes got rotten, while
they were stored in his warehouse. The Banker agrees to settle the loan with
Mangoman for a sum of Rs. 1,00,000/-

a. What is the effect of such settlement on a Surety?

b. Describe the various Rights of a Surety under the Indian Contract Act, 1872.

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ANS. Mangoman Case

a. The Liability of the Surety is coextensive with that of the Principal Debtor.

b. Rights of Surety:

 Rights of surety on payment or performance(Section 140)

 Surety's right to benefit of creditor's securities (Section 141)

 Right of Indemnity(Section 145)

 Right against Co-Sureties (Section 146)

 Right to Request for Subrogation

12. Rocky, the pet dog of Mrs. Karodpatni, the wife of a MLA, went missing in one
of her husband’s political rally. Her personal Attendant Bhola, was immediately sent
in search of Rocky. Bhola, went in search of the pet to areas in and around the Rally,
as he felt Rocky would have run away from overcrowded areas. Meanwhile, Mrs.
Karodpatni, announced in the Rally that whoever returns Rocky, will be paid a sum
of Rs. One Lakh as Reward. Bhola, in his sincerity found Rocky about a Mile away
from the place of Political Rally. Bhola after returning Rocky to Mrs. Karodpatni,
learns that there was a reward and claims the same.

a. Advice Bhola on whether he can file a suit for claiming the reward.

b. Elucidate the Rules of a Valid Offer?

c. Describe the conditions of a valid Acceptance.

ANS. Rocky Bhola Case:

a. Bhola has no claim, as there was no knowledge of offer, and effective
communication of offer was not complete. [Lalman Shukla v. Gauri Dutt]
b. Rules of Valid Offer:
 Expectation to create legal relationship
 Certain and clear terms
 Different from Invitation to Offer
 Proper & Valid Communication of Offer

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c. Conditions of a valid Acceptance:
 Knowledge of Offer before Acceptance
 Acceptance must be absolute and unqualified
 Acceptance must be in prescribed manner
 Acceptance must be communicated
 Only authorised person should communicate about the acceptance
 Acceptance should be made within the time prescribed or within a reasonable
time
 Acceptance should be given before the offer lapses or is withdrawn

13. Pretty agreed to procure certain goods branded “Nesswadia” from Ness, under
the condition that the same will be sold to Retailers at a Price not lesser than Rs.100/-
each or its equivalent foreign currency. The Liquidated Damages Clause, provided
that Rs. 10/- shall be penalty for each breach of the selling condition. It was later
realized that Pretty had sold “2000 Nesswadia” for a price of Rs. 80/- each across
India and in London. Ness decides to sue Pretty and the other retailers for Breach of
Contract.
a. Advice Ness on the law on Liquidated Damages.
b. Discuss the Rule of Privity of Contract.
c. Analyse the law on the Retail Price/Sale Maintenance Agreements.
ANS. Pretty Ness Case:
a. Section 73 and 74 deal with the law of Liquidated Damages and Penalty in India.
Compensation for Actual Loss alone will be made, and not penalty.
b. Rule of Privity of Contract: In the given place Rule of Privity has an exception.
Dialmer v. Dunlop Pneumatic Tyre Company Case
c. Retail Price/Sale Maintenance Agreements:
 Anti-Competitive Aspects of Retail Price/Sale Maintenance.
 Section 3 of Competition Act, 2002
2018 SUPPLEMENTARY
14. ABC Pvt. Limited is a private limited company incorporated under the
Companies Act, 1956, that carries on the business of “manufacture and sale of
Cement, Cement Bricks, etc”. Mr. A, Ms. B and Mr. C, Resident Indian Citizens are
the Directors and Shareholders of the Company. C Private Limited, a private

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limited company incorporated in China with Mr. C and Mrs. C, Resident Citizens
of China as its Shareholders, and Mr. X and Ms. Y, Resident Indian Citizens as its
Directors. ABC Pvt. Limited, represented by Mr. A, executes a contract with C
Private Limited (represented by Mr. Y) for the supply of construction materials,
and the construction of a Building in Bangalore, as on January 15, 1962 for the
Contract to be performed on October 30, 1962.

a. Comment on the Validity of the Contract in light of capacity of parties.

b. Given the fact that ABC is a construction company, on October 20, 1962, a
war breaks between India and China. What is the effect of war on Contract?

c. It comes to the knowledge of ABC Pvt. Limited that Mr. A was insolvent, as
on January 15, 1962. Advice whether ABC Pvt. Limited can avoid the contract
on ground of incapacity.

ANS. A. Validity of the contract:

 An agreement (Sec 2(b))

 Enforceability by law (Sec 10)

 An offer (2a) and Acceptance (Sec 2(b))

 Sec 10

 Parties are required to be legally competent (Sec 11&12)

 Capacity of Parties: Directors are acting in representative capacities:

Insolvency of a Director, does not affect the validity of the Contract as the
Company is solvent; Nationality of the Director, does not affect the Nationality
of the Company, as the company does not become Indian.

1B. Effect of war: Grounds of frustration (Sec 56)

 Intervention of war

1C. Ground of incapacity: Ground of frustration

 Death or incapacity for personal service

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 Stubbs v. Holyvel Railway company

 Storey v. Flulham steel works comp. Ltd.

15. Rajiv is a Super Model who promotes wye-gears manufactured and

Marketed by Luxotica. Cool Baba, is a spiritual Guru, who is often spotted to
be wearing branded eye-gears while preaching his principles. Rajiv is
enthralled by this fact, and starts attending the sessions of Cool Baba, and
thereby gets impressed with his preaching, and decides to gift half of his
Networth amounting to Rs. 67 Crores to Cool Baba’s Trust. Rajiv after transfer
starts working as a Volunteer in one of the Ashrams run by the Trust.

a. Comment on the validity of the Contract

b. Can the Contract be repudiated?

c. On a case filed for repudiation, Cool Baba refutes saying, a Consideration of

Rs. 65 Crores was given for the transfer, on account of a valuation certificate
received by a Chartered Accountant. IF Cool Baba can prove this argument,
Comment on the validity of the Contract.

ANS. a) Validity of Contract:

 Voidable Contract

 Section 19 dealing with Undue Influence. Fiduciary Relationship of Parties.

b) Repudiation by Party that relies in Trust and Confidence: Spiritual Leader

and Disciple.

c) Effect of Valuation Certificate: Justification by Party: can withhold the

repudiation of contract- Valuation Certificate, if not fraudulent, can make the
contract valid.

16. Amphi and Bian, two good friends decide to carry on the business of
Fisheries in the form a Partnership Firm. As they are good friends, they decide
to not go for registration of the Firm. The agreed terms were that each Partner
would be entitled to a Salary of Rs. 15,000/- per month, in addition to a Share

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in Profit. Amphi puts in a capital of Rs. 60,000, and Bian contributes Rs.
40,000/-. However, Bian is not given his salary for four months.

a. Amphi and Bian, decide to sue Mr. D, a customer who owes a sum of Rs.
8,50,000/- for sale of fishes. Advice

b. Advice Ambphi and Bian on the sharing of profits by an Unregistered Firm.

c. Amphi and Bian agree to give Salam and Anders, a share in the profit for
their services to the Firm. Comment with reasons on who are the Partners in
the Firm. Can Salam and Anders sue the Firm for the share in Profit?

d. Bian seeks to sue the Firm for the Salary. Advice.

ANS. a) They can not sue Mr. D as the firm is not registered.

 Partnership Act, 1932

b) Sharing of profits by an unregistered firm: Rights to profit (Sec (13b))

c) Test of determining existence of partnership

 Sec 6: Sharing of Profits Not the Key

 M.P. Davis v. Commisioner of agricultural income tax AIR 1959 SC 719

d) Bian can not sue the firm for the Salary

 Sec 69 of Partnership Act

Effects of non-registration

17. ABC Limited, is a company that manufactures and maintains Lifts and
Escalators. Bill and Ding Developers purchased from ABC Limited, in January
2018, 10 Lifts and 6 Escalators for its Mall in Bengaluru. On December 15, 2018
Lift 5, 6 and 7 at the Mall started mal-functioning, and as such they were kept
under-maintenance by ABC Limited, with assurance that generally, the Lifts
get repaired within 2-3 working days, but would be repaired in due course for
the Bill and Ding Christmas Shopping Festival, that is held every year at Bill and
Ding Mall. However, the Lifts were repaired only on December 27, 2018. The
Mall cumulatively generated a total-revenue of INR 45 Crores at the Shopping

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Festival, in its comparison to the Last three year Average of INR 88 Crores, with
75 Crores being the lowest revenue in the last three years, during the Three
Day Shopping Festival. The Shop-keepers, refused to pay the Additional-
Premium payable in the Month of December, amounting to a total of Rs. 3
Crores of revenue to Bill and Ding Developers.

a. Bill and Ding Developers were aggrieved that the fall in revenue was due to
the problem of the Lifts being in Maintenance, on account of which Customers
did not prefer to go to the other floors, as the other lifts were too over-
crowded. Advice

b. What is the amount of Compensation payable by ABC Limited?

c. Decide the matter in light of the rule in Hadley v. Baxendale.

ANS. a) Concept of Remoteness of Damage. Discussion whether the loss

accrued to Bill and Ding is remote. Cases in which Special Damages may be
awarded.

b) Compensation may be paid upto Rs. 3 Crores, as the Lift management

company was aware of the urgency. The Facts being silent as to there being no
unforeseen event, Special Damages upto Rs. 3 Crores may be claimed

c) Hadley v. Baxendale: Remoteness of Damage: Exception to the rule is laid

down in Victoria Laundery Case: Claim for Special Damages, where special
facts were disclosed to the other party. Lift Maintenance personnel were
aware of the Bill and Ding Shopping Festival, and promised to deliver the same
before the festival.

2018 FINAL
18. Mr. Jacob makes up his mind to purchase Mr. Adam’s Car and negotiates
the price thereafter. Meanwhile, it was informed that the car was due to be
auctioned by Mr. Rob. On January 4, 2018 Mr. Jacob writes a letter to Mr.
Adam, “If I hear no more, I consider the car to be mine.” Neither any
consideration nor communication moved between Mr. Adam and Mr. Jacob
after the letter dated January 4, 2018. However Mr. Adam communicates to

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Mr. Rob to withdraw the car from auction. But, Mr. Rob fails to do the same
and the car is sold to Mr. Terrain. Mr. Jacob brings a suit for conversion,
claiming the Car to be his property by virtue of the contract. Answer the
following:

a. Whether there was a contract between Mr. Jacob and Mr. Adam?

b. Analyse the legal position of Offer given by Mr. Jacob?

c. What are the rules of communication of Offer and Acceptance?

d. Can Mr. Terrain retain the possession and ownership of the Car?

ANS. a) There was no contract between Mr. Jacob and Mr. Adam as according
to landmark case- Felthouse v Bindley, 1863 offer cannot impose burden of
refusal. An offeror cannot impose upon the offeree the burden of refusal. It is
not open to an offeror to stipulate against an unwilling offeree that the latter’s
silence will be regarded as equivalent to acceptance. Moreover, a
communication to a stranger, like the auctioneer in this case, has no value. It
should be communicated to the offerer himself.

b) The offeror can prescribe the mode of acceptance but not the mode of
rejection. Moreover, in case of Bank of India v. Rustum Farirji Cowasjee (1955),
it was held that mere silence will not constitute acceptance. Therefore the
offer given by Mr. Jacob is not valid.

c) Pursuant to section 4, the communication of a proposal is complete when it

comes to the knowledge of the person to whom it is made. The communication
of an acceptance is complete,— as against the proposer, when it is put in a
course of transmission to him, so as to be out of the power of the acceptor; as
against the acceptor, when it comes to the knowledge of the proposer.

d) Yes, terrain can retain the possession and ownership of the car as he got the
car legally. Moreover, there was no contract between Mr. Adam and Mr. Jacob
in the first place.

19. On January 15, 2013 Centurion Services Private Limited appointed Mr.
Arjun as its Managing director with a salary of Rs. 1, 50,000/- per month. The

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Contract of Employment signed by Mr. Arjun had the following clauses: 1.
“15.2. On account of termination of employment, the employee shall for a
period of 6 months neither carry on business, nor be associated with any entity
in Karnataka carrying on the same business as that of Centurion Services
Private Limited.”; 2. “15.3. In case of Breach of Clause 15.2., Centurion Services
Private Limited may seek for liquidated damages of Rs. 9,00,000/-(being six
months’ Salary Payable), along with such remedies to deter the employee
from taking any such employment for a period of 6 months from the date of
termination.” On February 20, 2018, Mr. Arjun’s employment was terminated
by resignation, and thereafter on April 1, 2018, Mr. Arjun decided to join a
competitor Ventures Services Private Limited for a salary of Rs. 2,75,000/- per
month. Centurion Services Private Limited filed a suit for injunction and seeks
for the liquidated damages.

a. Whether the Contract is valid?

b. In what circumstances can restrictions be declared invalid?

c. Can Mr. Arjun continue his employment in Ventures Services?

d. Is Mr. Arjun liable to pay the liquidated damages of Rs. 9,00,000/-?

ANS. a - Section 27 of Indian contract act, 1872 deals with restraint of trade.
According to this section every agreement by which any one is restrained from
exercising a lawful profession, trade or business of any kind, is to that extent
void. The terms business, trade and profession have been explained by the
Supreme Court in Sodan Singh v. New Delhi Municipal Committee, (1989) case
as follows-

‘Profession’ means an occupation carried on by a person by virtue of his

personal and specialized qualifications, training or skill….. ‘Trade’ in its wider
sense includes any bargain or sale, any occupation or business carried on for
subsistence or profit, it is an act of buying and selling goods and services. It
may include any business carried on with a view to profit whether manual or
mercantile. ‘Business’ is a very wide term and would include anything which
occupies the time, attention and labour of a man for the purpose of profit. It
may include in its form trade, profession, industrial and commercial

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operations, purchase and sale of goods, and would include anything which is
an occupation as distinguished from pleasure.

b. Section 27 has labeled all restraints as void. But the common law principle
and judicial interpretation have split restraints into two halves; restraints
applicable during employment and those applicable post-employment. The
abovementioned problem is related to restrain applicable post-employment.

Supreme Court of India in Superintendence Co. of India Pvt. Ltd. v. Krishan

Murgai, 1980 held that Section 27 will have to be interpreted literally and no
two meanings can be attributed to it. According to the Court, all restraints on
an individual’s liberty to practice any trade, profession or business of one’s
choice is void and against public policy and the concept reasonableness &
fairness will be not be applicable to agreements in India as compared to the
United Kingdom.

c. All covenants that restricts anyone post-employment is void, i.e., if the

breach of contract or service even if committed post the termination or
cessation of one’s employment cannot be a ground to challenge as the same
is hit by Section 27 and it is an individual’s fundamental right to practice any
trade, profession or business.

d. No. Mr. Arjun is not liable to pay the liquidated damages of Rs. 9,00,000.
Delhi High Court in Wipro Ltd. v. Beckman Coulter International SA.,2006 (3)
ARBLR 118 (Delhi), ...

(1). Negative covenants between employer and employee contracts pertaining

to the period post termination and restricting an employee’s right to seek
employment and/or to do business in the same field as the employer would
be in restraint of trade and, and, therefore, a stipulation to this effect in the
contract would be void. In other words, no employee can be confronted with
the situation where he has to either work for the present employer or be
forced to idleness.

(2). The question of reasonableness as also the question of whether the

restraint is partial or complete is not required to be considered at all whenever

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an issue arises as to whether a particular term of a contract is or is not in
restraint of trade, business and profession.

20. Mr Him and Ms. Her, decide to get married on January 26, 2018, and
thereby booked the Cathedral Chapel for the same. Over four requests to book
the cathedral on January 26, 2018 was received, however, owing to the
marriage, the management turned down all such requests. On January 20,
2018, due to unfortunate turn of events, the marriage is called off. The
Management sues Mr. Him and Ms. Her for damages.

a. Identify the nature of the agreement from the following: Void Agreement;
Void Contract; Voidable Contract; Illegal Agreement

b. Explain the nature of the contract based on your choice above

c. Elucidate the numerous grounds of frustration?

d. Decide the matter.

ANS. a )As per Section 2(j) of Indian Contract Act a contract which ceases to be
enforceable by law becomes void when it ceases to be enforceable. At the time
of formation of the contract, the contract is valid as it fulfills all the necessary
conditions required to constitute a valid contract, i.e. free consent, capacity,
consideration, a lawful object, etc. But due to a subsequent change in any law
or impossibility of an act, which are beyond the imagination and control of the
parties to the contract, the contract cannot be performed, and hence, it
becomes void. In void contract, no party can claim damages for non
performance of contract.

Section 56 of the Act provides that an agreement to do an act impossible in

itself is void. A force majeure clause in a contract is an express provision of
circumstances in which performance under the contract will be excused. The
purpose behind inserting such clauses is to save the performing party from the
consequences of anything over which the party has no control. The landmark
decision interpreting section 56 is Satyabrata Ghose v. Mugneeram Bangur &
Co. The Court observed that section 56 allowed for discharge of obligations on
grounds of impossibility if an untoward event or change of circumstance

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totally upsets teh very foundation upon which the parties entered their
agreement. The Supreme Court’s recent decision in Energy Watchdog v.
Central Electricity Regulatory Authority (“Adaní”) has clarified the law on
contractual impossibility in India. The case was concerned with the
interpretation and application of force majeure clauses in certain power
purchase agreements (PPA). Adani Power had agreed to supply power to state
utilities in Gujarat and Haryana. Subsequent to the conclusion of the contracts,
a change of law in Indonesia, from where Adani sourced much of its coal,
resulted in a significant increase in the export prices of coal from Indonesia.
Because of this change, Adani sought relief on grounds of force majeure under
the contract, and in the alternative, on grounds of frustration under section 56
of the Contract Act. The Court observed that force majeure clauses are to be
narrowly construed, and that a mere price rise rendering the contract more
expensive to perform would not constitute a force majeure event. Court
declined to address Adani’s alternative argument under section 56, holding:
“When a contract contains a force majeure clause which on construction by
the Court is held attracted to the facts of the case, Section 56 can have no
application

b. Specific grounds of frustration

 Destruction of Subject-Matter : The doctrine of impossibility applies with full

force where the actual and specific subject-matter of the contract has ceased
to exist. Taylor v Caldwel There, a promise to let out a music hall was held to
have frustrated on the destruction of the hall.

 Change of Circumstances : A contract will frustrate "where circumstances

arise which make the performance of the contract impossible in the manner
and at the time contemplated. Alopi Prashad v Union of India the plaintiffs
were acting as the agent to the Government of India for purchasing ghee for
the use of army personnel. They were to be paid on cost basis for different
items of work involved. The performance was in progress when the Second
World War intervened and the rates fixed in peace time were entirely
superseded by the totally altered conditions obtaining in war time. The agents
demanded revision of rates but received no replies. They kept up the supplies.

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The Government terminated the contract in 1945 and the agents claimed
payment on enhanced rates. They could not succeed.

 Non-occurrence of Contemplated Event : Sometimes the performance of a

contract remains entirely possible, but owing to the non-occurrence of an
event contemplated by both parties as the reason for the contract, the value
of the performance is destroyed. Krell v Henry involved a situation of this kind.
There, a contract to hire a room to view a proposed coronation procession was
held to have frustrated when the procession was postponed. For this result to
follow it is necessary that the happening of the event should be the foundation
of the contract

 Death or Incapacity of Party : A party to a contract is excused from

performance if it depends upon the existence of a given person, if that person
perishes" or becomes too ill to perform. Robinson v Davison There was a
contract between the plaintiff and the defendant's wife, who was an eminent
pianist, that she should play the piano at a concert to be given by the plaintiff
on a specified day. On the morning of the day in question she informed the
plaintiff that she was too ill to attend the concert. The concert had to be
postponed and the plaintiff lost a sum of money. The plaintiffs action for
breach of contract failed.

 Government or Legislative Intervention: A contract will be dissolved when

legislative or "administrative intervention has so directly operated upon the
fulfilment of the contract for a specific work as to transform the contemplated
conditions of performance. Supreme Court in Boothalinga Agencies v VTC
Poriaswami Nadar the defendant had a license to import chicory for
manufacturing coffee powder. The licence was subject to the condition that he
would use it only in his factory. He agreed to sell the whole shipload. Before
the arrival of the ship, the sale of such imported goods was banned. The
contract was accordingly held to have become void.

 Intervention of War: If the intervention of war is due to the delay caused by

the negligence of a party, the principle of frustration cannot be relied upon. If
there are more than one ways of performing a contract and the war cuts off

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only one of them, the party is still bound to perform by the other way, however
inconvenienent or expensive.

 Application to Leases : The Supreme Court in Raja Dhruv Dev Chand v Raja
Harmohinder Singh at once observed that the courts in India have generally
taken the view that Section 56 of the Contract Act is not applicable when the
rights and obligations of the parties arise under a transfer of property under a
lease. Sushila Devi v Hari Singh the Supreme Court held that an agreement of
lease ended by frustration where before completing it the parties had to run
away and could not go to Pakistan to give or take possession

c. In the given problem the contract becomes void in view of section 56 of the
Act. As the marriage turned down due to unfortunate events, the whole
purpose of the agreement collapsed. It is because the subject matter of the
agreement was itself based upon the marriage of the parties and if that failed
the agreement is frustrated and becomes void.

21. Mr. Suresh, the employer of Mr. Ramesh seeks to buy the latters’ land. Mr.
Ramesh did not wish to sell the land, however decides to sell the same to Mr.
Suresh. The sale deed is executed on April 30, 2018, and the consideration is
also moved accordingly. On May 15, 2018, Mr. Ramesh seeks to avoid the
Contract.

a. Decide the matter

b. Explain the meaning and nature of Fiduciary Relationships.

c. Is the ground of “economic duress” explicitly covered under the Indian

Contract Act, 1872.

d. What are the various grounds in which Consent can be vitiated?

ANS. a) Mr. Suresh is the employer of Mr. Ramesh hence he stands at a

position where he can dominate the will of his employee and derive benefit
out of it. It appears on the face that Mr.Ramesh did not want to sell his land
but still he executed the sale deed under the influence of Mr. Suresh. Mr.
Suresh occupies a superior position and obtained consent to which Mr.
Ramesh would not have consented.

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b. The word fiduciary is derived from the Latin fiducia, meaning "trust," a
person who has the power and obligation to act for another under
circumstances which require total trust, good faith and honesty. A fiduciary
relationship encompasses the idea of faith and confidence and is generally
established only when the confidence given by one person is actually accepted
by the other person. Mere respect for another individual's judgment or general
trust in his or her character is ordinarily insufficient for the creation of a
fiduciary relationship. The duties of a fiduciary include loyalty and reasonable
care of the assets within custody. All of the fiduciary's actions are performed
for the advantage of the beneficiary. A fiduciary relationship extends to every
possible case in which one side places confidence in the other and such
confidence is accepted; this causes dependence by the one individual and
influence by the other. Fiduciary relationship usually arises in one of the four
situations:

(1) when one person places trust in the faithful integrity of another, who as a
result gains superiority or influence over the first

(2) when one person assumes control and responsibility over another,

(3) when one person has a duty to act or give advice to another on matters
falling within the scope of the relationship, or

(4) when there is specific relationship that has traditionally been recognized as
involving fiduciary duties, as with a lawyer and a client, employer-employee,
doctor-patient.

c. Economic duress is not explicitly covered under Indian Contract but Section
15 of the Act recognises coercion which is correlated to duress. It also
recognises the concept of duress to goods. Section 72 of Act provides that
person to whom money has been paid, or anything delivered, by mistake or
under coercion, must repay or return it. Section 72 of the Act is more relevant
to economic duress stating that no person shall unjustly enrich himself at the
expense of the other and recognising the relief of restitution where such
enrichment is the consequence of coercion.

INDIAN SCENARIO

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In Kanhaiya Lal vs National Bank of India, held that the term coercion used in
Section 72, is not controlled by the Section 15 definition and must be used in
its general and ordinary sense.Indian courts have provided parameters for
determination of economic durIess e.g. actual or threatened pressure against
which the victim registers protest and a party must also have had no
reasonable alternative to the action it seeks to set aside In the case of M/s
gunjam Cement Pvt. Ltd v Rajasthan State Industrial Development &
Investment Corporation ltd., a loan of rs. 9 lakhs was issued to the plaintiff by
RIICO subject to the terms that IDBI and SIDBI would refinance the loan to the
defendant corporation. On a later date, a deed of modification was signed by
the petitioner agreeing to pay an interest of 18.75%. But the plaintiff unable
to perform this, filed a claim against the defendant stating that his consent
was obtained by economic duress. The Court held that the plaintiff not being
an illiterate person had the knowledge and reasonableness and he could have
avoided signing of deed of modification. Hence where there is a chance of
‘reasonable alternative’ the complainant cannot take the protection under the
doctrine of economic duress.

d. Under the Contract Act consent can be vitiated by coercion, fraud, undue
influence, misrepresentation and mistake. Coercion can be correlated to
duress. Coercion is caused with intention to cause a person to enter into an
agreement by:

 Committing or threatening to commit an act forbidden under IPC

 Unlawfully detaining or threatening to detain any property to the interest of

the person

Muthta v Muthu Karuppa, (1927) 50 Mad 786 an agent refused to handover

the account books of business to the new agent unless the principal released
him from all liabilities. The principal had to release the deed as demanded. It
was held that the release deed was given under coercion. In case of Karnal
Distillery Co. Ltd v Ladli Prasad 1963 SC 1279 , the elder brother was shown to
have exercised undue influence on younger brother in respect of compromise
arrangement, the transaction was held to be voidable at the instance of the
younger brother.

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