Delhi Judicial Services Exam Law of Contract & Specific Relief Syllabus

What is the effect of an agreement where consideration or object is unlawful in part (Section 24)?

If any part of a single consideration for one or more objects, or any one or any part of several considerations for a single object, is unlawful, the agreement is void in toto (entirely void).

State the general rule and exceptions for agreements in restraint of trade under Section 27.

Every agreement restraining anyone from exercising a lawful profession, trade or business is void to that extent. Exception: sale of goodwill (seller may agree to refrain from carrying on a similar business within specified local limits, so long as reasonable). Also statutory exceptions under the Partnership Act.

Define a 'contingent contract' under Section 31 of the Contract Act.

A contingent contract is a contract to do or not to do something if some event, collateral to the contract, does or does not happen. (e.g., contracts of insurance, indemnity, guarantee.)

Under Sections 32 and 36, when can contingent contracts dependent on the happening or non-happening of an event be enforced?

Contracts contingent on a future uncertain event happening cannot be enforced until that event happens; they become void if the event becomes impossible (S.32). Contracts contingent on an impossible event are void whether or not the impossibility was known (S.36).

What are 'quasi-contracts' and on what principle are they based? Name two examples from the Act.

Quasi-contracts (Sections 68-72) are 'certain relations resembling those created by contract' imposed by law to prevent unjust enrichment. Examples: S.68 (necessaries supplied to incompetent persons), S.69 (reimbursement of one paying money another is bound to pay), S.70 (liability for non-gratuitous acts), S.71 (finder of goods), S.72 (money paid or thing delivered by mistake or coercion).

What is the obligation of a 'finder of goods' under Sections 71 and 168-169?

A finder of lost goods is bound to take care of them as a bailee (S.71). He has a right to retain them against the owner until he receives compensation for trouble and expense, and may sue for any specific reward; he may sell the goods in limited circumstances (S.168-169).

Who must perform a contract, and what is the position of a tender (offer of performance) under Sections 37-38?

The parties to a contract must perform or offer to perform their respective promises (S.37). Where a promisor makes a valid offer of performance (tender) which is not accepted, he is not responsible for non-performance, nor does he lose his rights under the contract (S.38).

What is the rule on time and place for performance, and what is the effect of time being 'of the essence' (Sections 46-55)?

Where a time is specified and the promisor fails, the contract becomes voidable at the promisee's option if time was of the essence; if time was not of the essence, the contract is not voidable but the promisee may claim compensation for loss caused by delay (S.55).

What is meant by 'reciprocal promises' and what does Section 51 provide about their performance?

Reciprocal promises are promises forming the consideration for each other. Where they are to be simultaneously performed, no promisor need perform unless the other is ready and willing to perform his reciprocal promise (S.51).

List the modes by which a contract may be discharged.

By (1) performance, (2) agreement/consent (novation, rescission, alteration, remission, waiver – S.62-63), (3) impossibility/frustration (S.56), (4) lapse of time, (5) operation of law, and (6) breach.

Explain 'novation, rescission and alteration' under Section 62 of the Contract Act.

If the parties agree to substitute a new contract for the old, or to rescind or alter it, the original contract need not be performed. Novation = substituting a new contract (or new parties); rescission = cancellation; alteration = changing terms with mutual consent.

What does the doctrine of frustration / supervening impossibility under Section 56 provide?

An agreement to do an impossible act is void. A contract to do an act which, after the contract is made, becomes impossible or unlawful by an event the promisor could not prevent, becomes void when the act becomes impossible/unlawful. (Satyabrata Ghose v. Mugneeram Bangur explained its scope.)

What is 'remission' of performance under Section 63?

A promisee may dispense with or remit, wholly or in part, the performance of the promise made to him, or extend the time for performance, or accept any satisfaction instead of performance. No fresh consideration is needed for remission.

Define 'anticipatory breach' of contract and the promisee's options.

Anticipatory breach occurs when a party repudiates the contract before the due date of performance. The aggrieved party may either (1) treat the contract as discharged and sue immediately for damages, or (2) keep it alive, wait for performance, and sue at the due date (Section 39).

State the rule in Hadley v. Baxendale on remoteness of damages, as embodied in Section 73.

Damages recoverable are those arising naturally in the usual course of things from the breach, or those which both parties knew, when making the contract, to be likely to result from its breach. Remote or indirect loss is not recoverable; the aggrieved party must mitigate.

What is the difference between 'liquidated damages' and a 'penalty', and how does Section 74 treat them?

Liquidated damages are a genuine pre-estimate of loss; a penalty is a sum stipulated in terrorem to compel performance. Under Section 74, Indian law makes no rigid distinction: the aggrieved party gets reasonable compensation not exceeding the named sum, whether termed penalty or liquidated damages, irrespective of actual proof of loss.

Define a 'contract of indemnity' under Section 124 of the Contract Act.

A contract of indemnity is one by which one party (indemnifier) promises to save the other (indemnity-holder) from loss caused to him by the conduct of the promisor himself or of any other person.

Define a 'contract of guarantee' under Section 126 and name the three parties.

A contract of guarantee is a contract to perform the promise, or discharge the liability, of a third person in case of his default. The three parties are: the surety (who gives the guarantee), the principal debtor (in respect of whose default the guarantee is given), and the creditor.

Distinguish a contract of indemnity from a contract of guarantee.

Indemnity: two parties; one contract; indemnifier's liability is primary and contingent on loss. Guarantee: three parties; three contracts; surety's liability is secondary/collateral and arises only on the principal debtor's default; the debtor's primary liability subsists.

What is the nature and extent of a surety's liability under Section 128?

The liability of the surety is co-extensive with that of the principal debtor, unless otherwise provided by the contract. It is secondary (arises on default) but, once it arises, is as extensive as the debtor's.

How is a surety discharged from liability? Name key modes (Sections 133-139).

By (1) revocation (S.130, continuing guarantee for future transactions), (2) variance in terms of contract without surety's consent (S.133), (3) release/discharge of principal debtor (S.134), (4) compositions/promise to give time/not to sue the debtor (S.135), (5) creditor's act/omission impairing the surety's eventual remedy (S.139), (6) loss of security held by creditor (S.141).

What rights does a surety have on payment under Sections 140-141?

Right of subrogation (S.140): on paying, the surety steps into the creditor's shoes and gets all the creditor's rights against the principal debtor. Right to securities (S.141): the surety is entitled to the benefit of every security the creditor has against the principal debtor, whether or not the surety knew of it.

Define 'bailment', 'bailor' and 'bailee' under Section 148 of the Contract Act.

Bailment is the delivery of goods by one person (bailor) to another (bailee) for some purpose, upon a contract that the goods shall, when the purpose is accomplished, be returned or otherwise disposed of according to the bailor's directions.

What degree of care must a bailee take of the goods bailed (Section 151)?

In all cases of bailment, the bailee is bound to take as much care of the goods as a person of ordinary prudence would, under similar circumstances, take of his own goods of the same bulk, quality and value.

Distinguish a 'particular lien' from a 'general lien' in bailment (Sections 170-171).

Particular lien (S.170): right to retain only those specific goods on which labour/skill was bestowed, until paid. General lien (S.171): right to retain any goods of the debtor for a general balance of account; available to bankers, factors, wharfingers, attorneys of High Court, and policy brokers.

Define 'pledge', 'pawnor' and 'pawnee' under Section 172 of the Contract Act.

Pledge (pawn) is the bailment of goods as security for payment of a debt or performance of a promise. The bailor is the pawnor; the bailee is the pawnee. The pawnee gets a special property/interest and right of retainer and sale on default.

What are the pawnee's rights on default of the pawnor under Section 176?

On default the pawnee may either (1) sue for the debt and retain the goods as collateral security, or (2) sell the pledged goods after giving reasonable notice of sale. If sale proceeds exceed the debt, surplus goes to pawnor; if less, pawnor remains liable for the balance.

Define 'agent' and 'principal' under Section 182, and state when consideration is necessary to create an agency.

An agent is a person employed to do any act for another or to represent another in dealings with third persons; the person for whom such act is done is the principal. No consideration is necessary to create an agency (Section 185).

What is 'ratification' of an agent's act, and what are its essential conditions (Sections 196-200)?

Ratification is the principal's subsequent adoption of an unauthorized act done on his behalf, which relates back to the date of the act. Conditions: the act must be done on behalf of an identifiable principal who was in existence and competent at the time; ratification must be of the whole act, with full knowledge, within reasonable time, and must not injure a third person.

When is a principal bound by an agent's act exceeding authority, and what is 'ostensible/apparent authority' (Sections 227, 237)?

Where an agent does more than authorized and the authorized part is separable, the principal is bound by the authorized part only. Under S.237, a principal is bound by acts within the agent's apparent (ostensible) authority where the principal, by words or conduct, induced the third party to believe such acts were authorized.

How may an agency be terminated under Sections 201-210, and when is it irrevocable?

Agency terminates by: revocation by the principal, renunciation by the agent, completion of business, death/insanity of either party, or insolvency of the principal. It is irrevocable where the agent has an interest in the subject-matter (agency coupled with interest) or where authority has been partly exercised.

Under Sections 5 to 8 of the Specific Relief Act, 1963, how may a person recover possession of specific immovable property?

Section 5: a person entitled to possession of specific immovable property may recover it in the manner provided by the CPC (i.e., a title suit based on ownership). Section 6: a person dispossessed without his consent otherwise than in due course of law may, within 6 months, sue to recover possession without proving title.

What are the special features and bar regarding a suit under Section 6 of the Specific Relief Act?

Suit must be filed within 6 months of dispossession; not maintainable against the Government; no appeal or review lies from any order/decree under S.6 (only revision); and it does not bar a person from filing a separate suit to establish title and recover possession. It is a summary remedy based on possession, not title.

Under Section 7 and 8 of the Specific Relief Act, how may movable property be recovered?

Section 7: a person entitled to possession of specific movable property may recover it as per CPC. Section 8: any person having possession or control of a particular article of movable property, of which he is not the owner, may be compelled to deliver it specifically to the person entitled to immediate possession (where money compensation is not adequate, etc.).

What is 'specific performance' of a contract, and what is the position after the 2018 Amendment to the Specific Relief Act?

Specific performance is a decree directing a party to actually perform the contract as agreed. After the 2018 amendment, specific performance is a general rule/right (no longer discretionary) under Section 10, enforceable except where barred under Section 11(2), 14 or 16; substituted performance (S.20) is also available.

Which contracts cannot be specifically enforced under Section 14 of the Specific Relief Act, 1963 (post-2018)?

Contracts where a party has obtained substituted performance under S.20; contracts involving continuous duty the court cannot supervise; contracts so dependent on personal qualifications that the court cannot enforce material terms; and contracts which are in their nature determinable.

Who may obtain, and against whom may specific performance be enforced (Sections 15 and 19)?

S.15: it may be obtained by a party to the contract, his representative-in-interest/principal, beneficiaries under marriage settlements, etc. S.19: it may be enforced against the party, his representative-in-interest/principal, a subsequent transferee for value with notice (not a bona fide purchaser for value without notice), and a person claiming under a void title.

What personal bars to relief of specific performance exist under Section 16 of the Specific Relief Act?

Specific performance cannot be granted to a person who: (a) has obtained substituted performance under S.20; (b) has become incapable of performing/violates an essential term, or acts fraudulently; or (c) fails to prove that he has performed or has always been ready and willing to perform the essential terms of the contract (the 'readiness and willingness' requirement).

What is 'rectification of instruments' under Section 26 of the Specific Relief Act, and when is it allowed?

Where, through fraud or a mutual mistake of the parties, a written instrument does not express their real intention, either party may sue to have the instrument rectified. The court may rectify it to express the real intention, provided this does not prejudice rights of bona fide third parties for value without notice.

When may a contract be rescinded under Section 27 of the Specific Relief Act?

Rescission of a contract in writing may be adjudged where (a) the contract is voidable or terminable by the plaintiff, or (b) the contract is unlawful for causes not apparent on its face and the defendant is more to blame than the plaintiff. The court may refuse rescission where the plaintiff has expressly/impliedly ratified it or where third parties have acquired rights in good faith.

When may a written instrument be cancelled under Sections 31-33 of the Specific Relief Act?

Any person against whom a written instrument is void or voidable, who has reasonable apprehension that it may cause him serious injury if left outstanding, may sue to have it adjudged void/voidable and cancelled. The court may order delivery up and cancellation; partial cancellation is allowed where the instrument affects several rights (S.32).

What relief does Section 34 of the Specific Relief Act provide (declaratory decree), and what is its proviso?

Any person entitled to any legal character, or to any right as to property, may sue for a declaration that he is so entitled; the court may make such declaration. Proviso (bar): no court shall make a declaration where the plaintiff, being able to seek further relief than mere declaration, omits to do so (he must claim consequential relief, e.g., possession, if entitled).

What is the effect of a declaration under Section 35 of the Specific Relief Act?

A declaration made under the Act is binding only on the parties to the suit, persons claiming through them respectively, and (where any party is a trustee) the persons for whom that party would be a trustee. It operates as res judicata between them but not against the world at large (it is a judgment in personam, not in rem).

What is 'preventive relief', and how is it granted under Section 36 of the Specific Relief Act?

Preventive relief is granted to prevent a party from doing a wrongful act. It is granted at the discretion of the court by injunction, which may be temporary or perpetual.

Distinguish a 'temporary' injunction from a 'perpetual' injunction under Sections 37-38 of the Specific Relief Act.

Temporary injunction (S.37): continues for a specified time or until further order of the court; may be granted at any stage of a suit and is regulated by Order 39 CPC. Perpetual injunction (S.38): granted by the decree at the final hearing on the merits, perpetually restraining the defendant from asserting a right or committing an act contrary to the plaintiff's rights.

In what cases may a perpetual injunction be granted under Section 38 of the Specific Relief Act?

Where the defendant invades or threatens to invade the plaintiff's right to, or enjoyment of, property, a perpetual injunction may be granted especially where: there exists no standard for ascertaining actual damage; compensation in money would not afford adequate relief; the injunction is necessary to prevent a multiplicity of judicial proceedings; or there is an obligation existing in favour of the plaintiff (express/implied).

What is a 'mandatory injunction' under Section 39 of the Specific Relief Act?

When, to prevent the breach of an obligation, it is necessary to compel the performance of certain acts which the court is capable of enforcing, the court may grant a mandatory injunction to prevent the breach complained of and also to compel the performance of the requisite acts.

When will an injunction be refused under Section 41 of the Specific Relief Act?

An injunction cannot be granted, inter alia, to: restrain pending judicial proceedings (except to prevent multiplicity); restrain proceedings in a court not subordinate to the one before which the application is made; restrain a person from applying to a legislative body; restrain proceedings in a criminal matter; prevent breach of a contract not specifically enforceable; prevent a continuing breach the plaintiff has acquiesced in; or where equally efficacious relief is available, etc.