Volume – II

 

Study Material on The Indian Contract Act – Vol II

 

Unit 3

 

Section 18:          “Misrepresentation” means

1. Positive assertion of that which is not true, where such assertion is not warranted by the information available with the person making it.

Such assertion is misrepresentation even if the person making it believes it to be true.

1. Breach of duty which gives an advantage to the person committing it by misleading another to his prejudice.

Such breach of duty is misrepresentation even when there is no intention to deceive.

• Causing a party to an agreement to make a mistake as to the subject matter of the agreement.

Such an act is misrepresentation howsoever innocently it might have been done.

 

Mistake of Fact

Both parties are under mistake                  Only one party is under mistake

Agreement is void                                          Agreement is not voidable

Section 20                                                       Section 22

 

 

 

Mistake of Law

As to any law in force in India                              As to a law not in force in India

Agreement not voidable                                         Same effect as a mistake of fact

Section 21                                                                  Section 21

 

Section 23:   Unlawful Consideration and Objects

Consideration or object of an agreement is unlawful if:

• It is forbidden by law
• It would defeat the provisions of any law
• It is fraudulent
• It involves injury to any person or his property
• It is immoral
• It is opposed to public policy

Every agreement for an unlawful consideration or with an unlawful object is void.

 

Section 25:       An agreement made without consideration is void.

However, such an agreement is not void if

• It is expressed in writing and is registered, and is made on account of natural love and affection between parties standing in a near relation to each other.
• It is a promise to compensate a person who has already voluntarily done something for the promisor.
• It is a promise made in writing and signed to pay a debt barred by limitation.

Note:   This section does not apply to any gift actually made.

 

Inadequate Consideration

An agreement to which consent of the promisor is freely given is not void merely because the consideration is inadequate. However, inadequacy of consideration maybe a relevant factor in determining whether the consent of the promisor was freely given or not.

 

Case Study

Tarsem Singh     v.    Sukhminder Singh     1998 SC

Facts:

1. Tarsem Singh, owner of 48 kanals of land, entered into a contract for sale of that land to Sukhminder Singh who made part payment as earnest money.
2. Sale deed was not executed in favour of Sukhminder who filed a suit for specific performance against the owner.
3. The High Court declined to pass a decree for specific performance. However, a decree for refund of the earnest money was passed.
4. There was a stipulation in the agreement: if the purchaser failed to make the balance payment, the earnest money shall stand forfeited.

Issues:

1. Whether the parties to the contract were suffering from a mistake of fact as to the area of the land agreed to be sold and the rate thereof?
2. What is the effect and impact of a mistake of fact on the agreement?

 

Decision:

1. Section 20 provides that an agreement would be void if both parties to the agreement were under a mistake as to a matter of fact essential to the agreement.
2. The two requirements of this section are:
   1. the mistake should be by both parties
   2. it should be in respect of a matter which is essential to the agreement.
3. In this case, the mistake was regarding the area of the land which was the subject matter of agreement for sale and the area of the land was essential to the agreement because the price was to be calculated on the basis of area.
4. For forfeiture of earnest money section 74 of the Contract Act is not applicable in this case because that section contemplates a valid and binding agreement between the parties, which is not the case here.
5. Since the forfeiture clause is contained in an agreement which is void on account of the fact that the parties were not ad idem and were suffering from a mistake of fact in respect of a matter which was essential to the contract, it cannot be enforced. When an agreement is void, all its terms are void and none of its terms can be enforced.

 

 

UNIT 4

 

Meaning of “discovered to be void”

It may happen that parties may realise after having signed the contract that a matter essential to the agreement was not understood by them in the same sense. Such realisation would invalidate the agreement u/s 20. On such realisation, it can be said that the agreement was “discovered to be void”. This phrase is applicable when the parties were suffering from a mistake of fact from the very beginning but realised the same only later. The agreement is such a case would be void from its inception, though discovered to be so at a much later stage.

For agreements held void for reasons set out in sections 23 and 24, refund of the amount already paid under the agreement may not be ordered. However in this case, one party had received an advantage under an agreement which was discovered to be void on account of section 20, refund of the earnest money is ordered on the principle contained in section 65 of the act.

 

Distinction between void and voidable agreements

1. As per House of Lords in Director of Public Prosecutions v. Head, 1959:

A void order would be a nullity in law. There would be no need for an order to quash it. It would be automatically null and void without more ado. But if the order was only voidable, then it would not be automatically void. Something would have to be done to avoid it. A court would have to be approached.

2. There are two kinds of invalidity. One kind is where the invalidity is so grave that it is a nullity altogether. The other kind is where it is only voidable in which case it remains good until it is set aside.
3. What is void is invalid, what is voidable is valid until declared to be invalid.
4. As per Supreme Court in Dhurandhar Prasad Singh v. Jai Prakash University   2001 SC, the expression void has several facets:

• Those acts, transactions, decrees which are wholly without jurisdiction are void ab initio and for avoiding the same no declaration is necessary.
• Acts such as transactions against a minor are good transactions against the whole world, but so far as the minor is concerned, if he decides to avoid the same and succeeds, the transaction becomes void from the very beginning.
• Acts which are not a nullity but for avoiding the same, a declaration has to be made.

 

A voidable act is that which is a good act unless avoided. These are of two types:

• There may be a voidable transaction which is required to be set aside and the same is avoided from the day it is so set aside, and not any day prior to it.
• The transaction becomes void from the very beginning: for example in a case where the document forming the basis of the transaction is found forged and fabricated and a declaration to that effect is given.

 

Agreements which are void

The following types of agreements are void, i.e. not enforceable by law:

• Agreements executed by a minor: Section 11
• Agreements executed by a person not of sound mind: Section 11
• Agreements where the parties are not ad idem: Section 13
• Agreements where both parties are under mistake as to a matter of fact: Section 20
• Agreements where both parties are under a mistake as to a law not in force in India: Section 21
• Agreements having unlawful consideration or object: Section 23
• Agreements made without consideration with certain exceptions: Section 25
• Agreements made in restraint of marriage of any person other than a minor: Section 26
• Agreements by which anyone is restrained from exercising a lawful profession, trade or business of any kind, with certain exceptions: Section 27
• Agreements by which any party thereto is restricted from enforcing his rights under any contract: Section 28(a)
• Agreements which limit the time within which a party thereto may enforce his rights under any contract: Section 28(a)
• Agreements which extinguish the rights of an party thereto under any contract on expiry of a specified period: Section 28(b)
• Agreements the meaning of which is not certain or capable of being made certain: Section 29
• Agreements by way of wager with the exception of certain prizes for horse-racing: Section 30

 

Case Study

Case 1:   Kedarnath Batthacharji   v.   Gorie Mohammad   1886 Cal.

Facts:

• Gorie Mohd promised to make a subscription of Rs. 100 towards construction of a building for the Howrah Town Hall.
• The plaintiff entered into a contract with a contractor for the purpose of constructing the building.
• Gorie Mohd failed to pay the subscribed amount.

Issue:

Whether the plaintiff, as one of the persons who made himself liable under the contract to the contractor for the cost of the building can sue on behalf of himself and all those in the same interest with him, to recover the amount of the subscription from the defendant?

Decision:

• Suit would lie for the recovery of a promised subscription where on the faith of the promise the promisee entered into a contract with a contractor.
• On the faith of the subscription an obligation was incurred to pay to the contractor. In consideration of your agreeing to enter into a contract to erect a building I undertake to supply the money to pay for it upto the amount for which I subscribe my name.

Case 2:    Abdul Aziz   v.   Masoom Ali 1914 All.

Decision:

A promise founded on motive of generosity, prudence and natural duty is a promise without consideration.

 

Case 3:   Venkata Chinnaya Rau   v.   Venkataramaya Garu 1881 Mad.

Facts:

• The plaintiff’s sister made a gift of certain lended property to her daughter, the defendant.
• Terms of the deed provided for payment of an annuity to the plaintiff by the donee which had hitherto been paid by the donor.
• The donee executed a Kararnama promising to give effect to this stipulation of the deed of gift.
• The donee failed to pay the annuity and the plaintiffs sued to recover it.

Issue:

Whether the plaintiffs who were strangers to the consideration for the promise have a right to sue?

Decision:

• The kararnamas executed by the donee in pursuance of the deed of gift with a view that she might take the benefit of that deed.
• The plaintiff’s sister ceased to pay plaintiffs the annuity herself because the source from which it had been derived was now placed in the hands of the donee.
• Through the deed of gift the donee gained a large estate and the plaintiffs lost the yearly sum which the donor would otherwise have paid them.
• Thus a consideration indirectly moved from the plaintiffs to the defendant, and if there was consideration moving from the plaintiffs for the promise contained in the kararnama, the agreement can be enforced by the plaintiffs.
• Case relied upon: Dutton v. Poole

A person not a party to the contract can sue on it.