LAW OF CONTRACT*

I.C. SAXENA**

I. OFFER, ACCEPTANCE AND CONSIDERATION

TWO CASES dealt with the retraction of offer in tender cases.1 In one of
them,2 government invited tenders for purchase of fresh tendu leaves. It
opened the tender forms and despatched the acceptance letters to certain
tenderers. Meanwhile, however, the following situations had developed :
(a) Two tenderes had separately sent withdrawal notices to the govern­
ment which the latter had received before it despatched acceptance
to the former. On its files, however, acceptances had been
made earlier to receipt of withdrawal notices;
(b) One tenderer had despatched revocation which the government
received many days after it had posted acceptance.
Withdrawal was held effective in (a) but not in (b) in view of the clear
law under section 4 of the Indian Contract Act. In (a), acceptance was
made subsequent to receipt of notice of revocation. In (b), the decision was
rightly reversed because acceptance was posted before the revocation of
proposal was received. The court emphasised that the material time is
the date of communication of acceptance and not the date on which the
decision for acceptance is made on file. The tender was regarded as a
standing offer. The court drew support from a Bombay case.3
In the other case,4 concerning tender for purchase of tendu leaves, the
petitioner withdrew his tender (offer) before the tenders were even opened.
The court held that there was nothing to accept, since the offer had already
been withdrawn. Jt also stated that the petitioner's right to revoke his

♦This survey is limited to sections 1 to 75 of the Indian Contract Act.

** M. A., LL. M , J. S. D. (Cornell), Reader in Law, University Studies in Law, Jaipur
(Rajasthan).
- 1. Sadhoo Lai v. State of M. P., A.I.R. 1972 All. 137; Rajendra Kumar v. State,
A.I.R. 1972 M. P. 131.
2. Sadhoo Lai v. State of M. P., ibid.
3. Baroda Oil Cakes Traders v. Parshotam, A. I. R. 1954 Bom. 491. Although the
judgment does not point it out, this Bomaby case was approved by the Supreme Court
\nBhagwan Das v. GirdharLal, A.I.R. 1966 S. C. 543 at 54£.
4. Rajendra Kumar y. State, supra note J.

www.ili.ac.in The Indian Law Institute

2 Annual Survey of Indian Law 1972
offer could not be extinguished by a provision in the tender form forbidding
the withdrawal in the absence of consideration.
Fact situation in these cases involved application of well established
codified law.
A Supreme Court case concerned auction sale.5 Here there was a reserved
price and the sale was subject to confirmation by the authorities. The
appellant petitioner made the highest bid, which was, however, below the
reserve price. The divisional forest officer, nevertheless, provisionally
accepted the bid and communicated it to the higher authorities. Meanwhile,
the appellant expressed his desire to pay the reserve price, in lieu of his
earlier highest bid, but later withdrew this offer. The higher authorities
communicated to the divisional officer the consent to accept the petitioner's
new offer. But now the government received a still higher offer from
another person which it accepted. It, therefore, instructed the officer not
to communicate acceptance to the appellant.
The question before the Supreme Court was whether there was a concluded
contract with the highest bidder. This court by Justice Mathew answered
the question in the negative. In fact, the bidder had withdrawn his new
offer. The court affirmed the following propositions of law on the subject;

(0 Provisional acceptance is not a substitute for confirmation of a

bid;
(it) A communication of acceptance by government to its department
is not a communication to (an outside) party;
(HI) Until confirmation, each party has a locus penitentiae and can
resile from the affair.

These principles, already established, now acquire authoritative reassertion

by the Supreme Court.
The two cases, discussed below, concerned qualified acceptance. In one
of them,6 the petitoner (government) accepted the respondent's tender. This
required a formal agreement to be executed between the parties. The
petitioner called upon the tenderer to execute an "agreement, Mbeing prepared
on the basis of the tender conditions read with the conditions embodied in
in this letter of acceptance, and in case of discrepancy between tender pojidi*
tions and conditions of acceptance, the latter will prevail."?

5. Haridwar Singh v. Bagun Sumbrui, A.I.R. 1972 S. C. 1242.

6. Union of India v. U. S. Dugalfr Co., A. I. R. 1972 Delhi U0?
7. Id. at 113,

www.ili.ac.in The Indian Law Institute

 Law of Contract 3

Respondent refused to execute the said formal agreement because the

draft contained new conditions which were not acceptable to him. The
court held that there was a counter offer by the petitioner which the respon­
dent had never accepted. Thus, qualified acceptance did not create a
binding contract. It also held that under the circumstances of the case, the
execution of a formal agreement was an essential term of the contract.
Since the contemplated agreement did not come into existence, no contract
was concluded.
In another cases,8 there were negotiations between the parties : offer
of one was matched by a counter-offer of the other. However, the original
offeror, in accordance with the counter-offer of the other party, supplies
him the goods. The court held that although the letter of acceptance
detracted from the offer, the original offeror by acting upon the qualified
acceptance had accepted it (i.e., the counter-offer). The court closely
analysed the facts and did not consider it necessary to discuss in detail the
law on the subject.

In both these cases, the courts applied the already established law.
One case concerned application of exception to the doctrine of consi­
deration, contained in section 25 (3) of the Indian Contract Act.9 This sub­
section deals with the validity of a promise to pay a time-barred debt, even
if it be without consideration. Here the defendant, son of the deceased
debtor, had applied to a certain bank for a loan to pay off to the plaintiff and
some other creditors the amounts due to them. The court held that this
did not constitute a promise in writing to pay the time-barred debt to the
plaintiff. The bank was a third party and not an agent of the creditor. This
decision is a sound application of the requirements of the sub-section. The
court refused to follow its earlier decision where the negotiations were made
directly between the debtor and the creditor.10

II. PROMISSORY ESTOPPEL

This is a new branch of contract law, which has during the course of the
last few years attained great importance and has been accepted by the highest
judiciary in the country.
In J. M. & Co. v. H. L Trust Ltd.11 the Supreme Court had occasion
to consider the applicability of promissory estoppel to the facts of the case.

8. H. E. Corpn. v. C. (7. Ltd., A.I.R. 1972 Cal. 217.

9. H. D. Setty v. Vedavathamma, A. 1. R. 1972 Mys. 283.
10. See Ranganna v. Mallikarjuna Society, (1964) Mys. L. J. (Supp.) 299,
11. A. I. R. 1972 S. C 1311.

www.ili.ac.in The Indian Law Institute

4 Annual Survey of Indian Law 1972

Here there were two companies (abbreviated as the Turner Compkny

and the Investment Company) both of which were owned by Turner
brothers. The Investment Company held 100 per cent shares in the Turner
Company, which was prosperous. However, it did not distribute the
dividends to the Investment Company; instead it used the profits as its
working capital during the assessment years 1939 to 1955. Year aftef year
since 1939, plaintiff (Turner) company had resolved :
That it would be inequitable to ask Hungerford (Investment Company)
to pay the tax levied and that Turner Morison itself should discharge
that liability.12

Accordingly, the plaintiff company paid off the income*tax liability of

the defendant company all these years. In the year 1955, Mundhra
purchased 49 percent shares of the plaintiff company, with option to purchase
the remaining 51 per cent shares. This option was later exercised. The
plaintiff company claimed from the defendent company the tax amount
which it had paid.13
The trial court at Calcutta non-suited the plaintiff on the ground that
the claim was barred by "estoppel, waiver or acquiescence."14 The Supreme
Court had to consider whether the defendant could succeed under "the rule
of estoppel, or waiver or abandonment."15
The court realised that the resolutions must have been within th$
knowledge of the defendant company which held 100 per cent shares. Also
the latter's nominees must have been on the board of directors, etc. It
concluded (in the absence of any formal communication of the resolution)
by a course of conduct of the plaintiff company and the circumstances of
the case that :
The arrangement regarding the non-distribution of dividends as well
as the payment for the tax due...must have been with the consent of
of Hungerford as well as of Turner brothers.16

These arrangements benefited both the parties. The plaintiff had never
demanded the tax amounts from the defendant company. If. however, it
would have done so, the latter would have counter-claimed the dividends,
The court held that under the circumstances of the case, the plaintiff company

12. Id. at 1314; parenthesis supplied,

13. See id at 1317-18
14. Id. at 1314.
15. Id. at 1318.
16. Id. at 1319.

www.ili.ac.in The Indian Law Institute

 Law of Contract 3

had Waived its lien over the shares. As to promissory estoppel, it referred
to English decisions and its earlier decision in Union of India v. Indo-
Afghan Agencies,11 and said :
A new class of estoppel, i.e., promissory estoppel has come to be re­
cognised by the courts in this country as well as in England. The full
implication of 'promissory estoppel' is yet to be spelled out.18
The court applied the rule of promissory estoppel because it "undoubtedly
advances the cause of justice.19 The plaintiff had made a reference to sec­
tion 63 of the Indian Contract Act. Since the defendant had not raised the
plea of release, the plaintiff was disallowed ta discuss its scope. The former*
however, had pleaded for the application of promissory estoppel and also
that there was consideration for the resolutions because it abstained from
exercising its right to dividends.

While in the Indo-Afghan Agencies case, the doctrine of promissory

estoppel was invoked to help the plaintiff, here it was applied in aid of the
defendant. Its exact scope, however, is yet to be determined. This case,
therefore, provides another facet of the doctrine.
In one case the Madhya Pradesh High Court referring to the case at
hand said that "this was not a case which was amenable to the law of
contracts...."20 In other words, the decision in this case was given on
equitable principles.

III. UNDUE INFLUENCE

Law requires that a transaction, whether it be a gift under the Transfer

of Property Act or a contract under the Indian Contract Act, should be
free from undue influence. Section 122 of the former Act uses this term
ip the sense of section 16 of the latter Act. The latter section states as to
what constitutes undue influence.
Three cases dealt with the question of undue influence.21 In one of
these cases22 the plaintiff filed a suit for cancellation of a certain gift-
deed on the ground that the defendants23 had obtained if from her old,

17. (1968) 2 S. C. R. 366; A. I. R. 1968 S. C. 718.

18. Supra note 11 at 1318. The judgment was delivered by Justice Hegde.
19. Id. at 1321.
20. Supra note 4 at 132.
21. Kartariv. Kewal Krishan, A.I.R. 1972 H. P. 117; S. Rathnam Naidu v. Kanni
Amntal, A.I.R. 1972 Mad. 413; Bath v. Paras Ram, A. I. R. 1972 H. P. 33.
22. Kartari v. Kewal Krishan, supra note 21.
23. These defendants were "collaterals in the fourth degree." Id. at 118,

www.ili.ac.in The Indian Law Institute

6 Annual Survey of Indian Law 1972

illiterate and ailing mother, since deceased. The important facts, leading
to undue influence, were:

(a) That the plaintiff's widowed mother (donor) was old, illiterate
and ailing at the time when the gift-deed was obtained from
her;

(b) That the plaintiff being the only (issueless) widowed daughter
used to look after her mothor and was out of town at the husband's
place when the gift-deed was made;

(c) That the defendants had taken away the plaintiff's mother to some
other place allegedly for her medical treatment;

(d) That the plaintiff's mother signed a document prepared by the

defendants;

(e) That the plaintiff upon arrival at her mother's residence at the
latter's instance lodged a complaint to the police, charging undue
influence and fraud against the defendant; and

(/) That one defendant was a "principal beneficiary."24

The court held that ex facie the transaction was unconscionable; the
mother's (donor's) real affection would have been for her only widowed
and poor daughter. The onus lay on the defendants who were in a domi­
nant position in relation to the deceased donor and had abused that position
to gain an undue and unfair advantage to themselves to discharge the burden
of proof cast upon them under section 16. But they failed to do so. The
court concluded that the law of pardanashin ladies applies equally "to illi­
terate and ignorant women though not 'pardanashin.'"25 It followed the
Supreme Court and Privy Council decisions to support its conclusion.28

In a Madras case, reported during the survey period,27 the facts were
similar to the above case. The executant was an ailing widow of old age
who had been taken to Madras from her village where she was living.
The court there held that the defendant (number one) had exercised undue
influence and referred to numerous judicial precedents in support.

24. Id. at 119.

25. Id. at 120.
26. Subhash Chandra v. Ganga Prasad, A.LR. 1967 S.C. 878 ; Velaswamy Serval
v. L. SUaraman Senai, A.I.R. 1930 P. C. 24 .
27. S. Rathnam Naidu v. Kanni Ammal, supra note 21.

www.ili.ac.in The Indian Law Institute

 Law of Contract 7

In another case28 theplantiff's pleadings had vaguely raised the question

of undue influence along with allegations of fraud and misrepresentations
in the execution of the gift-deed by an old man aged 70. The latter was
being looked after by the defendent since the plaintiff's sons had not taken
care of their father. The court found that the particulars of undue influence
were provided by the written statement and remanded the case to the trial
court for making a separate issue of undue influence.
These cases provide commonplace situations and the courts in the
first two cases had no difficulty in applying the well-established law of undue
influence, fortified by the decisions of the Supreme Court and the Privy
Council.
IV. FRAUD
In a Bombay case,29 during the stage of negotiations for marriage,
relations of the girl, but not she herself, had represented to the father of the
petitioner that the girl was healthy, though she was suffering from (curable)
epilepsy. After marriage, the petitioner (husband) found that the respon­
dent suffered from epileptic fits. The question before the court was
whether under the circumstances of the case the petitioner's consent had
been procured by fraud under section 12 (1) (c) of the Hindu Marriage Act,
1955. Under this provision, marriage may be annulled by a decree of
nullity on the ground, inter alia, that "consent of the petitioner...was
obtained by force or fraud."
The court after discussing numerous cases and textual authorities con­
cluded that here the word "fraud" does not have the same meaning as under
section 17 of the Indian Contract Act. It emphasised that since a marriage
under the Act is "essentially a sacrament (samskara)"™ the concept of
contractual fraud cannot apply to it. It compared and contrasted this
position with marriage under the Special Marriage Act, 1954, where marriage
is a contract and section 25 (Hi) of that Act specifically imports the defi­
nitions of coercion and fraud from the Indian Contract Act. The Hindu
Marriage Act, on the other hand, neither defines fraud nor alludes to the
Indian Contract Act for its meaning. The court noted a Madhya Pradesh
decision, which held to the contrary, but differed from it.31 It, however,
did not mention the case of Babul Panmato v. Ram Agya Singh,32 decided

28. Ballo v. Paras Ram, supra note 21.

29. Raghunath v. Vijaya, A. 1. R. 1972 Bom. 132. Facts are given on p, 135. See also
P. 133.
30. Id. at 136.
31. Simla Bai v. Shanker Lot, A, I. R. 1959 M. P. 8. This case is noted at p. 138 of the
instant case.
32. A. I. R. 1968 Pat. 190.

www.ili.ac.in The Indian Law Institute

8 Annual Survey of Indian Law 1972

by the Patna High Court. This latter court approvingly quoted section 17
of the Act which defines fraud, and said:
But here the relevant facts were suppressed from her knowledge,
although it was the duty of her father to convey the true position to her.
This \iew receives ample support from illustration (b) to section 17 of
the Contiact Act.a3

It also made interesting comments34 on a Calcutta case,35 which had found

approval of the instant court.36 The above case points out a conflict of
judicial opinion as to the precise meaning of the term "fraud" used in section
12 (1) (c) of the Hindu Marriage Act.

V. MISREPRESENTATION

During the survey period, one case dealt with the effect of non-disclosure
of certain facts in an insurance policy.37 In the proposal form, the plaintiff
had stated that the licensed carrying capacity of the vehicle (to be insured
against loss by accidents for a specified period) was 5 tons, although it was
5.392 tons. The company accepted the proposal and issued the insurance
policy. During the policy period, the weight capacity of the vehicle was
raised to 6.1742. This fact was not required to be communicated to the
insurer and was not communicated to it. A (special) clause in the insur­
ance policy stated :

Warranted that the weight of the goods carried by the within

described vehicle shall at no time exceed five tons or the licensed
carrying capacity of the vehicle whichever is less.38

The vehicle met an accident, when its goods' weight was below 5 tons.
The insurance company repudiated the claim of the plaintiff on the grounds
of mis-statement of actual licensed weight and non-disclosure of the later
increase in weight capacity of the vehicle.

The court accepted the established view that insurance contracts are
contracts uberrimae fidei and that every material non-disclosure would
effect the validity of contract. Tt, however, held the misstatement and non­
disclosure as immaterial in view of the above clause. The company had

33. Id. at \9Z

34. Ibid.
$5. Anath Nath De v. Lajjabati Devi, A.I.R. 1959 Cal. 778.
36. Supra note 29, at 137.
37. S. Subramaniam v. H. G. /. Soc, A.I.R* 1972 Mad. 196.
38. Id. at 197,

www.ili.ac.in The Indian Law Institute

 Law of Contract 9

fixed the insurance premium on the basis of the 5-ton clause. It, therefore,
could not avoid the contract or its liability arising under the policy. The
court did not refer to the Indian Contract Act, nor to any judicial decision.
The case made a judicious application of the uberrimae fidei doctrine
under the terms of the policy.
VI. UNLAWFUL AGREEMENTS
The question of determination of illegality of agreement was not too
intricately involved in the two cases, reported during this survey year.3&
In one of these cases,40 the donor had made a gift for recompensating the
plaintiff for "past cohabitation as well as other services rendered by her as
a mistress....41 The object of the gift was not to secure future cohabitation.
The court, therefore, held that the object of the gift was not illegal. It
noted several decisions to arrive at this conclusion. In the other case42
the court held that the agreement of parties in inches instead of in metric
system did not make it unlawful under section 23. For inch-size could
well be converted into centimeter-size. The court did not consider it necessary
to treat this point at length.

VII. LIMITATION OF TIME

In a Delhi case,43 the court was called upon to determine whether the
following clause in an insurance agreement was in restraint of legal pro­
ceedings under section 28 of the Indian Contract Act :

In no case whatever shall the company be liable for any loss or

damage after the expiration of twelve months from the happening of
the loss or damage unless the claim is the subject of pending action
or arbitration.44

Here the petition was made more than 12 months after the loss had hap­
pened. Such a provision was held to be valid and not against public policy
in the interest of availability of evidence to determine the question of loss or
damage. The court rested its judgment on a full bench decision of the
Punjab High Court.45

39. Naraini v. P. Mohan, A.T,R. 1972 Raj. 25; Yogendra Kumar v. Union of India,
A.I.R. 1972 Delhi 234.
40. Naraini v. P. Mohan, ibid.
41. Id. at 30.
42. Yogendra Kumar v. Union of India, supra note 39.
43. M. Singh v. Vulcan Insurance Co., A.I.R. 1972 Delhi 182.
44. Id. at 185.
45. Pearl Insurance Co. v. Atma Ram, A. I. R. 1960 Punj. 236.

www.ili.ac.in The Indian Law Institute

10 Annual Survey of Indian Law 1972
VIII. AMBIGUOUS AGREEMENTS
Law requires an agreement to be unambiguous and certain so as to be
enforceable. In a Madras case46 the promissoiy notes executed by a
party embodied that the borrower would pay the stipulated rate of interest
"or such other rate as may from time to time be fixed by the directors of
the said Nidhi and notified by them at the office of the said Nidhi"*1
In two promissory notes, the rates of interest specified were 6J per cent
and 6f per cent per annum. The directors demanded the enhanced rate
of 10J per cent. The question before the High Court related to the
enforceability of this clause. In other words, whether a clause was valid
if it provided for a unilateral exercise of powers by one of the parties. The
court held against the ambiguity of these provisions. For the rate of in­
terest was, by consensus of both parties, specified in the promissory notes
and also could be specified by action of the directors. Support for this
was diawn from illustration (e) to section 29, where the price of goods may
be fixed by a third party.
The court did not cite any decisional authority in support. Nor did it
distinguish between a provision which fixed a fair and reasonable criterion
for determining the price and the one which gave unbridled power to one of
the contracting parties in the matter. Perhaps the court could well point
out that the exercise of powers by the directors had to be reasonable vis-
a-vis the contractual rates. In other words, the fixation of rates of interest
under the clause was impliedly subject to reasonable limitations and
judicial review. For, had the directors notified an exorbitant rate of
interest, which per se was not illegal, it could hardly be sustained on
the theory of consensus ad idem.^
Again, no guidance can be drawn from illustration (e), for the facts
therein and in the case are entirely different. The former refers to fixa­
tion of price by a third party; the instant case, on the other hand, refers
to fixation by one of the contracting parties at his own sweet will. In
other words, while a third party could act as an arbitrator, a party to the
contract cannot be conferred limitless powers.
IX. JOINT PROMISEES
49
An Orissa case involved the question of liability of a promisor who
performed his contractual duties in favour of one of the joint promisees only.

46. D. Lohiah Chetty v. M. P. H. J. 5. Nidhi, A. I. R. 19^2 Mad. 407.

47. Id. at 408.
48. Supra note 46 at 408.
49. A. P. Dey v, Lokendranath Maulik, A. I. R. 1972 Ori. 269.

www.ili.ac.in The Indian Law Institute

 Law of Contract 11
This attracted the application of section 45 of the Indian Contract Act
which, in part, reads :
When a person has made a promise to two or more persons jointly,
then, unless a contrary intention appears from the contract, the right to
claim performance rests as between him and them, with them during
their joint lives....
In this case, the tenant paid the rent for a certain period to one of
the two co-owners of property. The other co-owner claimed payment
of his share. The court quoted this section and held that it clearly provides
that only the''joint promisees acting jointly"50 can give a valid discharge
to a promisor. The only exceptions are a contrary contract between the
parties or authority in a co-owner to receive the performance on behalf of
all. The court drew support from its earlier decision,51 and also from a
Mysore decision,52 wherein the facts were similar to the instant case.
It disagreed with the contrary decision in a Madhya Pradesh case53 where
it was held that it would be inequitable to hold the tenant liable twice and
that the proper remedy of the co-owner lies in a suit to claim his share from
the other co-owner.
It appears that an injured promisee has a right either to claim his share
from a receiving co-owner or to proceed against an erring promisor.
Perhaps whichever way he chooses, he would succeed.
The actual difficulty arises where performance is impartible and the pro­
misor, unable to arrange a common performance, has performed his promise
wholly in favour of one or some of the promisees, as the case may be.
Equitable considerations suggest that the promisor's liability be extinguished
in toto in such cases.
X. TIME AS ESSENCE
The question has arisen whether time is of the essence in cases of contracts
relating to reconveyance of land. Thus in one case,54 the agreement of
parties provided :
If within the stipulated period you do not take back the land by paying
the consideration money, you will have no claim at all in the lands ..after
the end of the stipulated period.55

50. Id. at 270.

51. Gosta Gopal Dey v. Bholanath Das and others, (1968) I.L.R. Cut. 306.
52. C. Venkatasetty v. Rangasetty, A. I. R. 1952 Mys. 68.
53. Hiralal Neksi v. Agarchand Gorelal, A.I.R. 1957 M. P. 5.
54. Mangal Ram v. Premananda, A.I.R. 1972 A. & N. 8.
55. Id, at 10.

www.ili.ac.in The Indian Law Institute

It Annual Survey of Indian Ldw 1972

The plaintiff sought to enforce the option. Since the defendant refused to
accept the amount, the plaintiff, as reqired under the contract, deposited it in
the court., Had the court passed the challan on the day of the suit, the
deposit would have been within time. But the challan was passed the next
day and hence the deposit was delayed beyond stipulation. The time
was held not to be of the essence of the contract. The court said that
mere prescribing of a penalty for non-performace did not make the time as
of the essence. Also th^t the* time could be made vital for performance by
the defend^pt by giving notice to the plaintiff (subsequent to contract)
calling upon the letter to exercise the option of reconveyance within the
prescribed period or "else the contract would be treated as cancelled."56
The court thought that the matter was clinched by the decision of the
Supreme Court in Gomathinayagam Filial v. Palaniswami Nadar.b7

It is submitted that a reconveyance provision as to time-limit being either

in itself a strict condition of the contract or a concession from the purchaser,
it ought to be enforced strictly and faithfully. In the instant case, the plain­
tiff was ready and willing to deposit the money on the day of filing of the
suit and to all intents and purposes he had honoured the reconveyance
condition in the contract. It was the defendant who had refused to accept
the money which compelled the plaintiff to deposit the amount in the court
as provided in the agreement.

XL IMPOSSIBILITY OF PERFORMANCE
Section 56 of the Indian Contract Act deals with two kinds of impossi­
bility: (i) initial.and (it) supervening. An Andhra Pradesh case58 involved
the question whether the contract had become impossible of performannce.
Here Markapur Municipal Committee gave the right to collect and appro­
priate pig dung from roads to a contractor for a specified amount for one
year. He paid part of the amount and balance was to be paid later. Since
the pig owners themselves were collecting the dung in baskets and not leaving
any for the contractor the latter cpuld not enjoy the fruits of the contract.
He, therefore, claimed to recover the payment from the municipal
committee.

The court held that the contract between the parties related to the sale
of future goods under section 2 (6) of the Sale of Goods Act, 1930 which
did not come into existence. The contract, therefore, became impossible,
of performance. It followed the historic decision of the Supreme Court

56. Ibid.
57. A.I.R. 1967 S. C 868 (majority, Judgment).
58. Markapur Municipality v. Dodda Ramireddi, A.I.R. 1972 A. P. 299.

www.ili.ac.in The Indian Law Institute

 Law of Contract 13
in Satyabrata v. Mugneeram59 as to the meaning of the word impossible.
But it did not refer to a case decided by the East Punjab High Court where
also the contractor was unable to collect any fee from the tonga owners
because they boycotted the use of tonga stand.60 The Batala Municipal
Committee had to refund the payment since the agreement had become
impossible of performance.

XII. ADJUSTMENT OF PAYMENT

There may be several transactibns on credit between a creditor and a

debtor. In course of time, the question of payment would arise. This leads
to the problem of adjustment of payments under sections 59 to 61 of the
Indian Contract Act. If neither the debtor, nor the creditor has made
adjustment of payment towards any specific debt, the task of adjustment
under section 61 falls to the court.

A Madras case61 during the survey period dealt with the application of
the above rule. Here the plaintiff financed, by way of loan, import of goods
by the defendant and also gave him cash loans. The latter sold these goods
to the former at an agreed rate, and gave credit for them. Evidence
showed that neither party had made any specific appropriation of these
credits. The court applied section 61 to the simple facts of the case with­
out much difficulty.

XIII. NOVATION

The question whether or not there is novation under the circumstances of

a case essential for fixing the liabilities of the parties thereto. Though the
rules on the subject are well-settled, the facts may be complicated and may
not lead to an easy solution.

Thus, in a Rajasthan case,62 the plaintiff loaned to the defendant No. 3

a total amount of Rs. 8,000/- for purchase of a house. This defendant,
instead invested it in a firm, consisting of defendants Nos. 1 and 2. There­
upon the plaintiff demanded his amount back. Then these two defendants
proposed to the plaintiff that if he abandoned his claim for the amount of
Rs. 2,000/- and agreed not to file a suit against the defendant No.3 they
would pay Rs. 6,000/- to him.63

59. A.I.R. 1954 S.C. 44.

60. Parshotam v. Batala Municipal Committee, A. I. R. 1949 E. P. 301.
61. S. M. Misrimallv. K. Radhakrishnan, A.I.R. 1972 M&d. 108.
62. Jethmal v. Hiralal, A. I. R. 1972 Raj. 220,
6?. Id. at 222.

www.ili.ac.in The Indian Law Institute

 14 Annual Survey of Indian Law 1972

The plaintiff agreed to this and took a cheque for the amount from
these defendants, which, however, was dishonoured. Thereafter, he sued all
the defendants (Nos, 1, 2 and 3). But he did not clearly state that defen­
dant No. 3 (the original borrower) remained liable "under the original
Rukka."6*
Upholding the decision of the trial court, the Rajasthan High Court held
that there was novation, which meant that liability of the borrower was
extinguished, And, furthermore, defendants 1 and 2 were not guarantors.
Nor was their liability contingent upon the plaintiff not suing the borrower.
The court, through Justice Chhangani, said :

In a case of completed contract the plaintiff could not be permitted

unilaterally to invalidate or alter the contract and to review the
liability which had once been extinguished.65

Thus novation substitutes an old contract by a new contract.

XIV. REMISSION AS DISCHARGE

Under section 63 of the Indian Contract Act a party may accept a less
amount in full and final settlement of his bill. In such a case, he cannot
claim the balance of the amount from the other contracting party. There
is, thus, full discharge of the contractual liability. The difficulty, however,
arises where a party receives an amount under protest. Such a situtation
arose in an Allahabad case.66 There the plaintiff had done some construction
work for Messrs Heavy Electricals Limited. The company sent a final
printed bill which mentioned the amount due to the plaintiff and also a
clause that the bill was in final settlement of all his claims under the contract.
He signed the bill and gave on it (an advance) receipt for the amount. But
he added the words: under protest. The plaintiff received the cheque after
nine months and got it encashed. However, he did not give a fresh receipt
for it. The court held that there was "no accord and satisfaction in the sense
of bilateral consensus of intentions."67

Section 63 postulates a consensual agreement and a discharge in praesentu

Here the claimant had imposed a condition which was (impliedly) accepted
by the company. So there was no remission of the shortfall of the plaintiff's
claim.

64. Ibid.
65. Id. at 224.
66. Amar Nath v. B, H. Electrical^ A.I.R, 1972 All. 176,
67. Id. al J7&

www.ili.ac.in The Indian Law Institute

 Law of Contract 15
The Supreme Court decision in Kapurchand Godha v. Himayatalikhan
Azamjalfi* was held inapplicable, and lightly so, because in that case the
creditor in the first instance gave a conditional (advance) receipt and upon
refusal by authorities to make payment to him, he gave an unconditional
receipt in full satisfaction of his claim. The court in the case at hand,
referred to various decisions for ascertaining the legal implications of the
words under protest and accepted the judicial opinion as expressed
therein.

XV. REFUND AND RESTITUTION

There are several situations when questions of refund or recompense arise

in law. Sections 64 and 65 of the Indian Contract Act deal with refund in
cases of voidable and voicl agreements respectively. Sections 68 to 72,
however, deal with recompense or restitution under quasi-contractual
liability.

In a Madras case,60 the court found that both the contracting parties
had committed a breach of contract. The vendee was held entiled to refund of
his amount under section 64 in view of the Privy Council decision in
Muralidhar Chaterjcc v. International Film Co. Ltd.70

The question of refund arose, during the survey period, in cases concern­
ing accounts of illegal partnership. The law on the subject has exhaustively
and authoritatively been laid down by the Supreme Court in Kedar Nath
v. Prahlad Rai71 and Sita Ram v. Radha Bai.72 One of the principles, stated
in these cases, is that if the illegal purpose has not been carried out nor
partly performed, the court would order the defendant to refund the
amount. In other words, the court would not help a plaintiff if the illegal
object has been executed even in part. In the following cases, this rule
applies.

In one case,73 the license-holder of cotton entered into a partnership

with a non-license-holder in contravention of the Cotton Control Order,
1955. It was held that the agreement was hit by section 23 of the Indian
Contract Act. But the suit for rendition of accounts of the dissolved
partnership was held maintainable because "the parties are not in pari

68. A.I.R. 1963 S. C. 250.

69. G.G. Chettiar v. N.G. Gowder, A.I.R. 1972 Mad. 36.
70. A.I.R. 1943 P. C. 34.
71. A.I.R. 1960S. C. 213.
72. A.I.R. 1968 S. C. 534.
7?. fipdh Ram v. Dhuri Co-op. Socy,, A. I. R. 1972 Punj. & Hary. 185.

www.ili.ac.in The Indian Law Institute

16 Annual Survey of Indian Law 1972
delicto."7* In another case,75 "the plaintiffs approached the defendant to
exercise influence over the officers and the Director of the Churk Cement
Factory in procuring the agency for the plaintiff"76 (firm), and paid him
Rs. 1500/- in this connection. The court held that the purpose of the
agreement was illegal and opposed to the public policy. But since the illegal
purpose (of exercising influence over the company authorities) had neither
partly nor completely been carried out, the plaintiff was entitled to the
refund of his money.
In a case77 the mortgagee, to raise the attachment order on his tenant's
crops, paid off the amount to the government which the mortgagor was
bound to pay under the terms of loan. It was held that the mortgagee
was interested in the payment of money under section 69 of the Act and hence
he was entitled to recover it from the mortgagor. Here all the ingredients
of this section were satisfied.
A few cases concerned application of the rule laid down in section 70
thus :
Where a person lawfully does anything for another person, or
delivers anything to him, not intending to do so gratuitously, and
such other person enjoys the benefit thereof, the latter is bound
to make compensation to the former in respect of, or to restore,
the thing so done or delivered.
It has been held that the onus lies on the plaintiff to prove not only that
he did the act or delivered something to the defendant lawfully but also
that he did not intend to do so gratuitously.78 Section 70 applies in the
absence of a (valid) contract. Thus, where a contractor did some extra
rock-cutting work, not provided for in the contract-deed, he was held
entitled to compensation on the basis of quantum meruit. There was a
statutory obligation on the defendant to recompense the plaintiff for the
extra work.79
Two cases concerned the meaning of the word "lawfully", used in the
above section,80 and referred to the Supreme Court case of State of West
Bengal v. B.K. Mondal & Sons.*1

74. Id. at 189.

75. Amresh Chandra v. K.hf.D.N. Saraf, A. I. R. 1972 All. 130. For detailed facts,
refer to the report.
16. Id. at 131.
77. Sami Pillai v. R. Naidu, A.I.R. 1972 Mad. 4.
78. Bhagwandas v. P. S. S. Iyer, A.I.R. 1972 Ker. 259.
79. Gttjrat E. Board v. S. A. Jais & Co., A.I.R. 1972 Guj. 192.
30. R. Mamkyam v. M. Satyanarayana, A.I.R. 1972 A. P. 367; L. I. C. v.K.A. Madhavq
Rao, A.I.R. 1972 Mad. 112.
81. AJ.R. 1962 S. C. 779,

www.ili.ac.in The Indian Law Institute

 Law of Contract 17
In one of these cases,82 the plaintiff sold to the defendant 64 bales of
cotton at a price which exceeded the Andhra Pradesh Maximum Price
Control Order. This Order provided punishment for its contravention.
The plaintiff sued to recover the price (under section 70).83 Since the
agreement was unlawful under sections 10 and 23 of the Indian Contract
Act, the question before the court was whether reimbursement could be
allowed under section 70.
The court noted numerous judgments of the Supreme Court concerning
compensation to plaintiffs for defendents' failure to observe constitutional
formalities under article 299 of the Constitution. The instant court
distinguished voidness under this article from voidness (on account of
unlawful consideration) under section 23. It maintained the well-recognised
distinction between a void agreement and an illegal agreement. In other
words, compensation could be allowed in the former case but not in the
latter. The counsel for the plaintiff-appellant supported his case for the
price by quoting the following lines from the judgment of Gajendragadkar
J. in the Mondal case :
Therefore, in our opinion, all thac the word "lawfully" in the con+ext
indicates is that after something is delivered or something is done
by one person for another and that thing is accepted and enjoyed by
the latter, a lawful relationship is born between the two which under
the provisions of section 70 gives rise to a claim for compensation.84
The court held that in the context in which these words were spoken,
the Supreme Court did not intend to extend the operation of section 70 to
unlawful agreements. It is pertinent that immediately after the above
words, Justice Gajendragadkar, in the next paragraph, cautioned : "There
is no doubt that the thing delivered or done must not be delivered or done
fraudulently or dishonestly...."85
In a Madras case,86 the plaintiff claimed a certain amount of commission
from the defendant for effecting an insurance policy on the assured between
the date of application for license to act as an insurance agent and the grant
of license. He also alleged an agreement by an insurance officer to pay the
commission. Sin^e under the Insurance Act, it is criminal to act as an
insurance agent without a license, section 70 was held inapplicable. The
court said : "By giving the benefit of section 70 of the Contract Act...,

82. R Manikyam v. M. Satyanarayna, supra note 80.

83. See id. at 368.
84. Discussed, id at 369,
85. Supra note 81 at 788.
86. L. I. C. v. K. A. Madha\a Rao, supra note §Q,

www.ili.ac.in The Indian Law Institute

18 Annual Survey of Indian Law 1972
the court will be acting against the provisions of...the Insurance Act."87
Thus, both the Andhra and the Madras cases, rightly, did not extend the
scope of section 70 to unlawful agreements. In the latter case, the plaintiff's
claim could not succeed under section 65 either, because it does not apply
to agreements void ab initio and further that the unlawful nature of the
agreement (if any) was known to both the parties.
In a Calcutta case88 it was held that money paid under mistake of law
that sales tax was payable on construction contracts was recoverable under
section 72. The law on the subject is already well-established.89

XVI. DAMAGES

The cases, on the subject, state the following propositions of law :

(i) Where both the contracting parties have committed breaches
of contract, no party is entitled to damages from the other.90
This is in line with a Privy Council decision;91
(ii) The proper remedy for breach of an ordinary contract of service
is a suit for damages for contractual breach and not a writ;92
(hi) The measure of damages for failure to pay instalment of a hire-
purchase contract is the difference between the contract price
minus the amounts of instalments paid.93
The Supreme Court has held94 that where a plaintiff claims damages
on the basis of difference between the contract price and the lowest
market rate on the date of breach, there is nothing "illegal or unreasonable
about the process by which the damages were computed."95
These cases cement th§ already established principles of law on the subject.

87. id. at 115.

88. Calcutta Corpn. v. H. C. Co., A. I. R. 1972 Cal. 420,
89. Sales Tax officer v. Kanhaiyalal, A.I R. 1959 S.C. 135; Shiha Prasad Singh v. Srish
Chandra Nandi, A.I.R. 1949 P. C. 297. For the proposition that sales tax is not pa>able
in case of constiuction contracts, *ee State of Madras v. Gannon Dunkerley & Co., A.I.R
1958 S. C. 560.
90. G. G. Chettiar v. H. G. Gowder, supra note 69.
91. Murlidhar Chaterjee v. International Film Co. Ltd., supra note 70.
92. Vidya Ram v. S. J. N. College, A. 1. R. 1972 S. C. 1450. The court also pointed
out the categories where reinstatement couM be ordered.
93. P.M. AH v. P.R. Marudappaw, A.I.R. 1972 Mad. 152.
94. M.N. Gangappa v. A. N. Setty & Q>.? A, I. R. 1972 $.G 696,
£5. Id. at 700r

www.ili.ac.in The Indian Law Institute

 Law of Contract 19
XVII. PENALTY
Two cases involved the intricate question whether the clauses in agree­
ments amounted to penalty under section 74 of the Indian Contract Act,
so as not to be enforceable.96

In one of these cases,97 the compromise decree-holder had originally

filed a suit against the judgment-debtor for ejectment from three portions
of land and also for arrears of rent. The suit ended in a compromise
decree, which required the judgment-debtor (i.e., defendant) (i) to vacate
the two portions of land within one month and (//) to pay the arrears within
three months. The latter was allowed to remain in possession of the
(specific) third portion. But if the first two conditions were not satisfied
within the time stipulated in each of them, the whole decree was to be
executed with costs including the portion over which the defendant appellant
was allowed to remain as a tenant.98

The decree was challenged in execution on the grounds, inter alia, that
this clause, being penal, was not enforceable under section 74. The court
noted "preponderance of authorities"99 for the view that this section applies
to compromise decrees. It held that the clause was not penal because
the decree-holder had given up his "prima facie just claim"100 over a portion
of land which enabled the defendant to remain tenant over it. It was another
matter if he lost the advantage by its non-observance.
In the court's view, the determination of penalty depends upon the
answer of certain queries: First, "whether the decree-holder was claiming
something more than what he claimed in the suit...."101 Second, "whether
the just part of the claim was conceded by the defendant judgment-
debtor...."102 Last, whether the failure to compliance by the judgment-
debtor resulted "without any just and proper cause...."193 These tests
crystallise the law and supply a ready-made formula in many cases to judge
the penal nature of a default clause under section 74.
In another case,104 an agreement between the subscribers and the stake-

96. K.S. Raghavan v. Iswara Pattar, A.I.R. 1972 Ker. 21; Jhurai Lai v. Mohin Das,
A.I.R. 1972 All. 457.
- 91. Jhurai Lai v. Mohin Das, ibid,
98. Id. at 458.
99. Ibid.
100. Ibid.
J01. Ibid.
}02. Ibid.
t03. Ibid.
J04. K.S. Raghavan v. Iswara Pattar, supra note 96,

www.ili.ac.in The Indian Law Institute

20 Annual Survey of Indian Law 1972
holders of a chit fund provided, inter alia, the following default clauses :
(a) "collection of all the future instalments in a lump"105 (on default
of any one instalment);
(b) "the denial to the [defaulting] subscribers in the reduction of
dividend."106
(c) interest at 12 per cent,
The defendants, who had received the amount of two draws failed to
pay some future instalments. The plaintiff sought to enforce these pro­
visions. The court stated that stake-holders took extra risks and, therefore,
they were entitled to extra precautionary clauses. But the entire document
must be considered as a whole to judge the nature and effect of the terms
of the bargain. Applying this yardstick, it was held that the above pn>
visions were unconscionable and hence penal. The court decried this
system of chit fund and called upon the legislature to pass necessary legisla­
tion in the matter.

The above courts exhaustively examined the existing law on the subject
and laid down definite criteria in each case. This has surely developed the
law in the right direction.
XVIII. MISCELLANEOUS
The following propositions may be noted :
(0 The Supreme Court has held that a party to a contract may by
a subsequent conduct waive his contractual right. However,
the whole circumstances of the case should be looked into to
arrive at this conclusion.107
(«) The agreement is not uncertain if the fixation of salary depends
upon the sole discretion of the government.108
(HI) "The consideration can assume three forms, namely, (a) debt or
(b) money or (c) stock. A sale in consideration of payment
of money is said to be subject to the payment of money."109
(jv) "Where a document is proposed to be executed by several parties

105. Id. at 25,

106. Ibid; parenthesis supplied.
107. M. Sham Singh v. State of Mysore, A. I. R. 1972 S. C. 2440.
108. Ibid.
}09. Dayal Singh v. Collector of Stamps, A. I. JL 1972 Delhi 131, l?3 t

www.ili.ac.in The Indian Law Institute

 Law of Contract 21
and only some of them execute and others do not, whether the
document is binding on those at least who have executed it
depends upon the intention of the parties."110
(v) "[T]he contract between the parties was not extinguished by
the passing of the decree, that it subsisted nothwithstanding the
decree. It was an implied term of the contract, and, therefore,
of the decree passed thereon that the parties would perform
the contract within a reasonable time."111
(vi) It has been opined112 that the Union of India v. Mjs Indo-Afghan
Agencies11^ has not been overruled by Mulamchand v. State
of Madhya Pradesh.1U
XIX. CONCLUSION
The only notable developments, during the survey period, have been
in the fields of promissory estoppel and law of penalty. The Supreme
Court has expressed the view that the full implications of promissory estoppel
are yet to be spelt out.

110. S. Parvathy Ammal v. B. K. S. Chettiar, A. I. R. 1972 Mad. 222.

111. H. L Trust v. Haridas Mundhra, A. I. R. 1972 S.C. 1826.
112. RajKumariv. State, A. I. R. 1972 H. P. 1. See the judgment of Justice Beg.
113. A.I.R. 1968 S.C. 718.
114. A.I.R. 1968 S.C. 1218.

www.ili.ac.in The Indian Law Institute