Judicial Services Exam (PCS-J) Law of Contract and Specific Relief Syllabus

Under Section 23, when is the consideration or object of an agreement unlawful?

When it is (1) forbidden by law; (2) of such nature that, if permitted, it would defeat the provisions of any law; (3) fraudulent; (4) involves or implies injury to the person or property of another; or (5) the court regards it as immoral or opposed to public policy. In each case the agreement is void.

List the agreements expressly declared void by the Indian Contract Act.

Agreements: in restraint of marriage (S.26), in restraint of trade (S.27), in restraint of legal proceedings (S.28), with uncertain meaning (S.29), by way of wager (S.30), agreements without consideration (S.25), agreements with unlawful object/consideration (S.23-24), and impossible acts (S.56).

State the general rule on agreements in restraint of trade (Section 27) and its exception.

Every agreement by which anyone is restrained from exercising a lawful profession, trade, or business is void to that extent. Exception: one who sells the goodwill of a business may agree with the buyer to refrain from carrying on a similar business within specified local limits, so long as the limits appear reasonable to the court.

Define a 'wagering agreement' (Section 30) and state its legal status.

A wager is an agreement between two parties on the outcome of an uncertain future event, where each stands to win or lose depending on the outcome, neither party having any interest other than the stake. Wagering agreements are void; no suit lies to recover anything won or for non-payment of the wager. (Collateral transactions are not necessarily void in most states.)

What is a 'contingent contract' under Section 31?

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 and indemnity.)

State the rules for enforcement of contingent contracts (Sections 32-36).

S.32: contracts contingent on an event happening cannot be enforced until the event happens; void if the event becomes impossible. S.33: contingent on event not happening can be enforced when it becomes impossible. S.34: future conduct of a living person—event deemed impossible if the person does anything making it impossible within a definite time. S.35: contingent on event happening/not happening within fixed time. S.36: agreements contingent on impossible events are void.

What are 'quasi-contracts', and which sections of the Act deal with them?

Quasi-contracts are obligations resembling those created by contract, imposed by law to prevent unjust enrichment even though no actual agreement exists. They are covered by Sections 68-72: (68) necessaries to incompetent persons, (69) payment by interested person, (70) benefit of non-gratuitous act, (71) finder of goods, (72) money/thing delivered by mistake or coercion.

What is the liability of a 'finder of goods' under Section 71?

A person who finds goods belonging to another and takes them into his custody is subject to the same responsibility as a bailee: he must take reasonable care of the goods, find the true owner, and not appropriate them. He has a lien (right to retain) for expenses incurred in preserving the goods and finding the owner.

What does Section 37 require regarding performance of contracts?

The parties to a contract must either perform, or offer to perform, their respective promises, unless such performance is dispensed with or excused under the Act or any other law. Promises bind the representatives of the promisor in case of his death before performance, unless a contrary intention appears (or the contract is personal in nature).

What is a 'valid tender' (attempted performance) under Section 38?

A tender (offer of performance) must be: (1) unconditional; (2) made at a proper time and place; (3) give the promisee a reasonable opportunity to ascertain the offered thing matches the contract; and (in case of goods) made to a person able and willing to perform. A valid tender refused discharges the promisor from liability and preserves his rights under the contract.

Who must perform a contract, and can a third party perform (Sections 40-41)?

If the contract shows the parties intended performance by the promisor personally (contracts involving personal skill), it must be performed by the promisor. Otherwise, the promisor or his representatives may employ a competent person to perform (S.40). Where the promisee accepts performance from a third person, he cannot afterwards enforce it against the promisor (S.41).

What are the modes of discharge of a contract?

A contract may be discharged by: (1) performance (actual or attempted); (2) mutual agreement/consent (novation, rescission, alteration, remission, waiver - Ss.62-63); (3) impossibility/frustration (S.56); (4) lapse of time (Limitation Act); (5) operation of law (death, insolvency, merger); and (6) breach (actual or anticipatory).

Explain the doctrine of frustration / supervening impossibility under Section 56.

An agreement to do an act impossible in itself 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. If the promisor knew or could have known of the impossibility while the promisee did not, he must compensate the promisee.

What is the difference between novation, rescission, and alteration under Section 62?

Novation: substitution of a new contract for the old (between the same or different parties), discharging the old. Rescission: cancellation of the contract by mutual agreement without substituting a new one. Alteration: change in one or more terms of the contract with mutual consent (parties remain the same). In all three, the original contract need not be performed.

Distinguish 'actual breach' from 'anticipatory breach' of contract.

Actual breach occurs when a party fails to perform when performance is due, or during performance. Anticipatory breach (S.39) occurs when a party repudiates the contract or disables himself from performing before the due date; the aggrieved party may either sue immediately or wait until the date of performance (rule in Hochster v. De La Tour).

What is the rule in Hadley v. Baxendale, and how is it reflected in Section 73?

Damages recoverable for breach are: (1) those arising naturally in the usual course of things from the breach (general/ordinary damages), and (2) special damages which the parties knew, when making the contract, were likely to result from breach. Remote or indirect losses are not recoverable. Section 73 codifies this, allowing compensation for loss/damage naturally arising or known to be likely.

What is the rule on liquidated damages and penalty under Section 74?

Where a sum is named in the contract as payable on breach (or a stipulated penalty), the aggrieved party is entitled to reasonable compensation not exceeding the named amount, whether or not actual damage is proved. Indian law makes no rigid distinction between liquidated damages and penalty; the court awards only reasonable compensation up to the stipulated sum.

What is the duty to mitigate damages?

Though not expressly stated, the Explanation to Section 73 requires that the aggrieved party take all reasonable steps to minimize the loss resulting from the breach. He cannot recover for any loss he could have avoided by such reasonable steps; damages are reduced accordingly.

Define a 'contract of indemnity' under Section 124.

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

Define a 'contract of guarantee' under Section 126 and name its 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 (to whom the guarantee is given). It may be oral or written.

Distinguish a contract of indemnity from a contract of guarantee.

Indemnity: two parties; one contract; indemnifier's liability is primary and arises on a contingency (loss occurring). Guarantee: three parties; three contracts; surety's liability is secondary/collateral and arises only on the principal debtor's default. In guarantee there is an existing debt/duty; the surety, on paying, can recover from the principal debtor.

What is the nature 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. This means the surety is liable to the same extent as the principal debtor for the whole amount/obligation guaranteed.

How may a surety be discharged from liability?

A surety is discharged by: (1) revocation of a continuing guarantee (S.130) or by surety's death (S.131); (2) variance in the terms of contract without surety's consent (S.133); (3) release or discharge of the principal debtor (S.134); (4) creditor's compounding with, giving time to, or agreeing not to sue the principal debtor (S.135); and (5) creditor's act/omission impairing the surety's eventual remedy or loss of security (Ss.139, 141).

Define 'bailment' under Section 148 and name the parties.

Bailment is the delivery of goods by one person to another for some purpose, upon a contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them. The deliverer is the bailor; the receiver is the bailee.

Define a 'pledge' (pawn) under Section 172 and distinguish it from bailment.

Pledge 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. Pledge is a special kind of bailment where the purpose is specifically to provide security; the pawnee gets a right to sell the goods on default after notice, whereas an ordinary bailee generally has only a right of lien.

What are a pawnee's rights on default by the pawnor (Section 176)?

If the pawnor defaults, the pawnee may either (1) sue upon the debt and retain the goods as collateral security, or (2) sell the pledged goods after giving the pawnor reasonable notice of the sale. If the sale proceeds are less than the debt, the pawnor remains liable for the balance; if more, the surplus must be paid to the pawnor.

Define 'agent' and 'principal' under Section 182, and state the essential of an agent's power.

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, or who is so represented, is the principal. The agent has the power to create contractual relations between the principal and third parties (S.226: acts of agent bind the principal as if done by himself).

What are the modes of creation and termination of agency?

Creation: by express/implied agreement, by ratification (S.196), by necessity, or by estoppel/holding out. Termination (Ss.201-210): by revocation by principal, renunciation by agent, completion of business, death/insanity of either party, insolvency of principal, or expiry of time. An agency coupled with interest cannot be terminated to the prejudice of that interest (S.202).

What conditions must be satisfied for valid ratification of an agent's acts (Section 196-200)?

Ratification requires: (1) the agent acted on behalf of an identifiable/named principal; (2) the principal was in existence and competent to contract both at the time of the act and at ratification; (3) ratification is of the whole act, not part (S.199); (4) the act is lawful; and (5) ratification is made within a reasonable time before the position of the third party is prejudiced. Valid ratification relates back to the date of the original act.

Under the Specific Relief Act, 1963, how does Section 5 and Section 6 differ in recovering possession of immovable property?

Section 5: a person entitled to possession of specific immovable property may recover it based on title, by ordinary suit under the Code of Civil Procedure (suit on title). Section 6: a person dispossessed without his consent and otherwise than in due course of law may recover possession by a summary suit based merely on prior possession (not title); such suit must be filed within 6 months of dispossession, not against the Government, and no appeal/review lies (only the dispossessed party, not the true owner via S.6, can later assert title under S.5).

Under Section 10 (post-2018 amendment) of the Specific Relief Act, when is specific performance granted?

After the 2018 amendment, specific performance of a contract shall be enforced by the court subject to Sections 11(2), 14, and 16. Specific performance has shifted from a discretionary remedy to a general/mandatory rule (court 'shall' enforce), no longer depending on the inadequacy of damages or judicial discretion as a default.

Which contracts cannot be specifically enforced under Section 14 of the Specific Relief Act?

Contracts that cannot be specifically enforced include: (1) those where a party has obtained substituted performance under S.20; (2) contracts involving continuous duty the court cannot supervise; (3) contracts so dependent on personal qualifications that the court cannot enforce material terms; and (4) contracts of a determinable nature.

Define 'rectification of instruments' under Section 26 of the Specific Relief Act.

Where, through fraud or mutual mistake of the parties, a contract or written instrument does not express their real intention, either party (or his representative/principal) may sue to have the instrument rectified. The court may rectify the instrument to express the true intention, provided it does not prejudice rights acquired by third parties in good faith and for value.

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

Rescission 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 ratified the contract, third parties have acquired rights in good faith for value, or the parties cannot be restored to their original positions.

What is the difference between a 'declaratory decree' (Section 34) and 'preventive relief' (injunction) under the Specific Relief Act?

A declaratory decree (S.34) is a court declaration of a person's legal character or right to property, granted without consequential relief unless the plaintiff, being able to seek further relief, omits to do so (proviso to S.34). Preventive relief is granted by injunction—temporary or perpetual (S.36-37)—to prevent the breach of an obligation; it restrains a party from doing (prohibitory) or compels undoing (mandatory injunction, S.39) of a wrongful act.

When can a perpetual injunction be granted under Section 38 of the Specific Relief Act?

A perpetual injunction may be granted to prevent the breach of an obligation existing in favour of the plaintiff, especially where: (a) the defendant is trustee of the property; (b) there is no standard for ascertaining actual damage; (c) compensation in money would not afford adequate relief; or (d) the injunction is necessary to prevent a multiplicity of judicial proceedings.

When will a court refuse to grant an injunction 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 a person from applying to a superior court; restrain instituting proceedings in a court not subordinate; restrain a breach of contract not specifically enforceable; prevent a continuing breach the plaintiff has acquiesced in; where equally efficacious relief is obtainable by other usual means; or where conduct of the plaintiff disentitles him to assistance of the court.