MAHARASHTRA STATE ELECTRICITY BOARD, BOMBAY vs. STERKITE INDUSTRIES (IND.) LTD. AIR 2000 BOM 204

FACTS OF THE CASE:

Maharashtra State Electricity Board, Bombay, (hereinafter as M.S.E.B.) a statutory corporation established under Electricity (Supply Act, 1948) to provide, distribute and supply electricity within the state of Maharashtra. To explore the state schemes to distribute the electricity throughout the rural area of the state of Maharashtra, the M.S.E.B. Bombay required materials for the same, which includes conductors, wires, etc. the M.S.E.B. had floated tenders in the year 1983, and the respondents i) Sterlite Industries and ii) Pravin Trading Corporation accepted the tenders and contracted to supply the necessary materials by end of June in 1985. A general term, Clause 14(ii), of the contract, was that in the matter of termination of the contract by the purchaser, the purchaser reserves the right to purchase upon such terms and in such manner as he may deem appropriate and has the right to claim compensation for damages caused due to non-delivery of fixed contract material and reserves the right of the appellant to purchase the material from the open market. In both the contracts the i) Sterlite Industries ii) Pravin trading defaulted in the delivery of the subject material and did not deliver the sufficient material by the end of the time period of the contract. When the appellant came to know that the respondents were unwilling to perform their contractual obligation, they served demand notice of Rs. 77,66, 280/- and Rs. 52,16,945/- to Sterlite Industries Ltd. and Pravin Trading Corporation respectively for damages caused by respondents to the appellant. The matter went to Arbitration Bench according to Section 30 of the Arbitration Act where the majority gave judgment in favor of respondents by 2-1 and dismissed the application. Later appellant filed an appeal against the said decision of the Bench.

ISSUE:

Whether the appellant was entitled to invoke Section 73 of the Indian Contract Act, if yes, whether the appellant proves that they suffered the loss?

RULE OF LAW:

Section 73 of the Indian Contract Act
Section 62 of Sales of Goods Act
Section 30 of the Arbitration Act

JUDGEMENT:

The observation of the Hon’ble High Court was that the appellant has failed to prove any damage caused due to the non-performance of Sterlite Industries and Pravin Trading Corporation. The court relied on the judgment of Sitaram Bindraban vs. Chiranjilal Brijlal in which it was held that “the parties may exclude or implies any term and conditions which law attaches to contracts for the special rights and obligations that they please such as providing their own measure of damages in case of breach of contract and indeed the terms of Section 62 of the Indian Sale of Goods Act recognizes the right of parties to vary the ordinary incidence of a contract by express terms of the contract of sale of goods between them. Section 62 gives the right to parties of the contract to exclude the term and conditions according to them for the please of the parties. So, the view taken by the High Court was that Clause 14(ii) of the contract makes special provision for the appellants by reserving to the appellant’s rights to purchase materials and equipment from the open market and to claim damages from the respondents thus, the right to claim damages under section 73 of the Contract Act has been excluded. The appellant did not purchase any said material on account of the respondent from the open market after the termination of the contract as mentioned in Clause 14(ii) of the Contract signed between parties. Further-more the court mentioned that section 73 of the Contract Act does not give any cause of action otherwise if there is actual damage due to breach of contract.
The Hon’ble High Court reserved the decision of the Arbitration bench and dismissed the appeal of the appellant.

The post To invoke section 73 of the Indian Contract Act, the claimant must have to prove that damage is caused due to the respondent’s breach of contract appeared first on LexForti .

FRAUD – DEFINITION

In simple terms, “Fraud” under section 17 of the Indian contract act, has been defined to include false representation of a material fact related to the contract—regardless of whether by words or by conduct, by bogus or misleading allegations, or by non-disclosure of what ought to have been revealed—that is intended to deceive and deceives the other in such a way that the person acting on such misrepresentation, acts to his own injury. Furthermore, it includes promises made without the intent of performing them and any other act/omission declared fraudulent by law.
Fraud is of infinite variety and is thus hard to define. The use of the phrase “includes” indicates the intent of the drafters to enlarge the definition of the phrase to include even those matters which would not be included within its ordinary meaning. The essential features of fraud include –

1. Fraud must be committed by a party to the contract directly or indirectly or by his agent. However, where the contract was a result of a 3rd person being instrumental for his own ulterior motives, the contract cannot be avoided;
2. Intention to deceive or inducing the other party to contract is a must.
3. In a suit against fraud, to claim relief, the plaintiff has to show that the defendant made fraudulent representations and the plaintiff was in fact deceived and acted to his prejudice. In lay terms, a plaintiff cannot claim any right to redress in cases of both deceit without damage and damage without deceit.

WHAT CONSTITUTES FRAUD?

Based on the definition of fraud under section 17, the circumstances that constitute fraud are:

1. ASSERTING FACTS WITHOUT BELIEF IN THEIR TRUTH

In the widely referred to the English case of Derry vs peek, a company had made a false representation. However, they honestly believed in the truth of the representation conveyed. This, it was observed by the court that “Fraud is proved when it is shown that a false representation has been made – (1) knowingly, or (2) without belief in its truth, or (3) recklessly careless whether it be true or false.” Therefore intentional misrepresentation is the essence of fraud and it is dealt with under the first three clauses of section 17. The ingredients contemplated under this clause of Fraud are – “(a) There should be a suggestion as to a fact, (b) the fact suggested should not be true (c) the suggestion should have been made by a person who does not believe it to be true, and (d) the suggestion should be found to have been made with intent either to receive or to induce the other party to enter into the contract in question.” However, if the plaintiff has the means to discover the truth by ordinary diligence, no fraud is proved.

2. ACTIVE CONCEALMENT

Active concealment is a situation where one party conceals material information related to the contract despite having a duty to disclose such information. In simpler words, it refers to failure in disclosing private information. It is more than mere passive concealment, that is to say, it requires an overt act for concealment. It is crucial to note here that passive concealment referred to above means silence. The section makes it clear that though mere silence doesn’t amount to fraud, it may constitute fraud under situations where the party has a duty to speak or where such silence is equivalent to speech.

WHEN DOES SILENCE AMOUNT TO FRAUD?

a. Where there arises a Duty to Speak – Duty to speak arises when a party reposes trust and confidence in the other party and the other party accepts the confidence reposed. Duty to speak may also arise in case of a contract that is uberrima fides or where one party is short of resources required to discover the truth and thus, has to depend on the information conveyed by the other party. Thus, where the parties share no such fiduciary relation, there is no duty to speak and mere silence will not amount to fraud, even if it is considered to be a misrepresentation. For example, in insurance contracts, the insurance company has no way to determine the truth of details given by the insured. Thus, it has to solely rely on the information provided by the insured. In situations where a party specifically enquires about a material fact related to the contract property, a duty to speak arises.
b. Where silence is deceptive – In some cases, silence itself becomes equivalent to speech. Where a person, despite the knowledge of his silence being deceptive, stays silent, is equally liable for fraud. For example, if the buyer comes to know about certain material facts of the seller’s property, which affects the value of the property, yet he decides to remain silent about it. Such silence may be considered fraud.
c. Change of Circumstances – It may sometimes happen that an assertion when made may be true; however, on account of change in circumstances, it may become false at the time when it is actually acted upon by the other party. In such cases, it is the duty of the person who originally made the representation, to inform the other party about the change in circumstances.
d. Half-Truths – Whenever a person discloses something, whether out of his duty to speak or not, he must disclose the information in toto. The informing party may be held guilty of fraud if he discloses something voluntarily and then stops halfway through. A half-truth is a lie. Suppressio very may amount to suggestio falsi.

3. PROMISE WITHOUT INTENTION OF PERFORMING THE CONTRACTUAL OBLIGATIONS

What has been contemplated under this clause is that the initial intention of not performing the promise that is made is a necessary element to constitute fraud and the existence of such an intention cannot be inferred. The fraud that has been contemplated under this clause is a one which is at the very inception, a fraud vitiating the transaction itself and not any subsequent conduct or representation on the part of the party or his representative. Various types of situations that fall under this clause include – where a person contracts with another without the intent to perform, only to prevent the other from contracting with some third person; contracting without the intending to pay the agreed consideration; one party promising the other, something which he is certain of not being able to accomplish in the given contractual period.

4. ANY OTHER ACT FITTED TO DECEIVE

Since fraud can be of an infinite variety, it is futile to make an attempt to define fraud precisely and exhaustively to cater to all the contingencies because it is highly likely that many loopholes may become available to escape liability. Human innovation and creativity know no bounds and thus, this clause has been drafted as a tool to enable the judiciary in doing effective and true justice. This clause may include all those acts which may be used to trick or cheat someone by unfair means to cause wrongful loss to the one cheated or wrongful gain to the one cheating. The intent of the person cheating must be to deceive the other person.

5. ANY ACT OR OMISSION SPECIALLY DECLARED TO BE FRAUDULENT BY LAW

For instance, concepts of “fraudulent transfer” under the Transfer of Property Act and “fraudulent preference” in Insolvency laws
NOTE – In the case of Avitel Post Studioz Limited and Ors. vs. HSBC PI Holdings (Mauritius) Limited and Ors. , the Supreme Court reiterated that “Section 17 of the Contract Act only applies if the contract itself is obtained by fraud or cheating. However, a distinction is made between a contract being obtained by fraud and the performance of a contract (which is perfectly valid) being vitiated by fraud or cheating. The latter would fall outside Section 17 of the Contract Act, in which the remedy for damages would be available, but not the remedy for treating the contract itself as being void”.
EVIDENCE AND BURDEN OF PROOF – The circumstances which comprise fraud have to be pleaded by the plaintiff by furnishing the specific details of the case. A case of fraud (irrespective of whether civil or criminal suit) has to be proved beyond a reasonable doubt. It is to be noted that every allegation of fraud must be specific and fraud of a type other than the one alleged cannot be proved. Fraud may not be directly proved but may have to be deduced from the surrounding circumstances and the conduct of parties prior to the agreement and post-contract. The conclusive decision of the commission of fraud cannot have its basis on mere speculation; such a conclusion must be based on some constructive and worthwhile material placed on record. The burden of proof in case of an alleged fraud is upon the plaintiff. However, where a party stands in a fiduciary relation to the other party, the former party is required to exercise extreme good faith and honesty in his dealings with the latter party and examine those transactions with vigilance and caution higher than that ordinarily required. In situations where the parties do not stand on the same level, an appropriate presumption of fraud is raised by law. However, where both parties to a contract stand in pari delicto, none of them can take advantage of such a transaction. The court shouldn’t insist on direct proof in case of fraud as fraud has been by its very nature – discreet, thereby leaving a higher unlikelihood of finding direct proof. Thus, fraud can be deduced from such circumstantial evidence that overcomes the natural presumption of good faith and fair transaction and convinces a reasonable person that such a presumption has been negated satisfactorily.
EFFECT OF FRAUD – When consent has been obtained by fraud, the contract becomes voidable u/s 19 of the Indian Contracts act. Thus, the party defrauded has an option either to rescind the contract or insist that the contract be performed to place him in such a position as he would have been if the misrepresentation had been true. If the defrauded party chooses to avoid the contract, he is liable to restore the benefit received (if any) back to the fraudulent party u/s 64 and may claim damages. In order to ascertain damages for fraud, the court ought to refer to certain principles which were laid down in Doyle v. Olby (Ironmongers) Ltd. and reiterated by the Hon’ble Supreme court in Avitel Post Studioz Limited and Ors. vs. HSBC PI Holdings (Mauritius) Limited and Ors. –
“(1) the Defendant is bound to make reparation for all the damage directly flowing from the transaction; (2) although such damage need not have been foreseeable, it must have been directly caused by the transaction; (3) in assessing such damage, the Plaintiff is entitled to recover by way of damages the full price paid by him, but he must give credit for any benefits which he has received as a result of the transaction; (4) as a general rule, the benefits received by him include the market value of the property acquired as at the date of acquisition; but such general Rule is not to be inflexibly applied where to do so would prevent him obtaining full compensation for the wrong suffered; (5) although the circumstances in which the general Rule should not apply cannot be comprehensively stated, it will normally not apply where either (a) the misrepresentation has continued to operate after the date of the acquisition of the asset so as to induce the Plaintiff to retain the asset or (b) the circumstances of the case are such that the Plaintiff is, by reason of the fraud, locked into the property; (6) In addition, the Plaintiff is entitled to recover consequential losses caused by the transaction; (7) the Plaintiff must take all reasonable steps to mitigate his loss once he has discovered the fraud.”
The right of rescission may however be lost, when – 1. The party affirms the contract even after becoming aware of his/her right to rescind; 2. The party doesn’t exercise his right of rescission within a reasonable period of time, i.e., by lapse of time ; 3. A third party, in good faith, has acquired rights in the subject matter of the contract. However, if the defrauded party rescinds/shows an intention to rescind the contract by doing an overt act before the 3rd party acquires any rights in the contract property, rescission shall be granted. For instance, in Car & Universal Finance Co. Ltd. v. Caldwell, the plaintiff gave possession of his car in return for a cheque, which later turned out to be worthless. He was unable to get the defendant to rescind the contract. Thus, he filed a plaint with the police and Automobile Association to tract his car. This overt act showed his intention to rescind the contract and he was granted relief.

The post Fraud under Indian Contract Act appeared first on LexForti .

WHAT IS A “TIME IS OF ESSENCE” CLAUSE?

The phrase “time is the essence of contract” is an expression that implies that performance by one party within a contractually determined period is crucial to enable that party to require performance. The significance of making time the substance of a contract is that parties have consented to perform their contractual obligations at a given time which shall not be extended. Section 55 of the Indian Contract Act states that mere failure to perform the contractual obligations before the specified time makes the contract voidable at the option of the promisee if time is of the essence. The promisee is only entitled to compensation for any loss incurred by him on account of such failure but he cannot avoid the contract if time is not intended to be of the essence. Moreover, if the contract becomes voidable at the option of promisee yet he accepts performance at any other time, no compensation for any loss caused by the non-performance within the stipulated time can be claimed unless notice of such intention is given to the promisor. Courts look into various factors such as express clause, circumstances, nature of the contract, type of goods, and services involved – to determine whether the time is of essence or not. It is a well-settled principle that the mere fact of a date being mentioned for the performance of the agreement does not conclusively prove that time was intended to be the essence of the contract.

HISTORY OF PRESUMING TIME NOT TO BE OF ESSENCE IN IMMOVABLE PROPERTY CONTRACTS

With the developments in common law, a distinction between immovable property contracts and other contracts arose around the 19th-century Common law. This distinction hasn’t been drawn by Section 55 of the Contracts Act or any other related law. This distinction has been created by the Indian courts, following the English law. The Supreme Court of India has long been presuming that time is not of the essence in real estate transactions and specific performance may be granted in case of default if having regard to express clauses, nature of the property, and case facts, it is not inequitable to grant such relief.
In the cases of Gomathinayagam Pillai v. Pallaniswami Nadar and Govind Prasad Chaturvedi v. Hari Dutt Shastri the Supreme Court held that even if time is not the essence of immovable property contracts, it may be inferred that performance should be within a reasonable period of time depending upon the contractual terms, nature of property and circumstances. The court can, thus, after having examined the relevant facts and factors even hold that time is of the essence in that particular contract.
The Hon’ble Supreme Court, in the case of Chand Rani v. Kamal Rani, reiterated the statement of the Judicial Committee of the Privy Council in Jamshed Khodaram Irani v. Burjorji Dhunjibhai, which observed that “Under the law equity, which governs the rights of the parties in cases of specific performance of contracts to sell real estate, looks not at the letter but the substance of the agreement in order to ascertain whether the parties, notwithstanding that they named a specific time within which completion was to take place, really and in substance intended more than that it should take place within a reasonable time.”
In N. Srinivas v. Kuttukaran Machine Tools Ltd, the Supreme Court held that in a contract for the sale of immovable property, it is generally presumed that time is not of the essence. The aforesaid presumption can be rebutted even when there is an explicit stipulation to that effect. In order to ascertain whether or not time is of the essence, the terms and conditions of the contract should be looked into.
In the case of Saradamani Kandappan & Ors. v. S. Rajalakshmi & Ors. , the Hon’ble Supreme Court held that where a contract relates to the sale of immovable property and a specific time is agreed for payment of sale consideration but no specific time is fixed for the execution of sale deed, time will become the essence only with reference to payment of sale price but not with respect to the execution of the sale deed. Though the court reiterates that time is not generally of essence in contracts of an immovable property unless such an intention can be gathered, the court raised certain important questions for consideration. It further held that “In a contract relating to the sale of immovable property if time is specified for payment of the sale price but not in regard to the execution of the sale deed, time will become the essence only with reference to payment of sale price but not in regard to the execution of the sale deed.” A crucial inference that can be drawn from the aforementioned dictum is that the contracting parties should insert “time is of the essence” clause along with every contractual stipulation where they consider the time to be of the essence.

DOES THE AFOREMENTIONED PRESUMPTION REQUIRE A RE-VISIT?

The presumption of time not being of the essence in contracts related to immovable property was adopted by the Indian courts during a time when the market prices of immovable properties were quite stable and there wasn’t any marked change in property prices even over a span of few years. Therefore, the time agreed to in the contract for performance was presumed to be not so material, or after having considered all the factors, it was presumed that the contract should be performed within a reasonable period. The then logic was that granting the relief of specific performance would not prejudice the vendor. This principle was logically sound until the third quarter of the 20th century after which there occurred a drastic change in the economy. Inflation levels rose and the market value of properties shot up steeply, by leaps and bounds. Property worth a few lakhs of rupees became worth crores especially in urban areas and this is a reality.

Therefore, it seems inequitable and unjust to grant relief of specific performance to a vendee, who is the defaulter and where the vendor isn’t responsible for any delay caused whatsoever. However, in cases where the vendor causes a substantial delay in performance of his contractual obligations (for example, satisfying the vendee about his legally valid title to the property) due to which the vendee was unable to perform his contractual obligation, it is in the interests of justice that relief of specific performance is granted to the vendee.

This holding of the Hon’ble Court is valid in my opinion. Today, development and infrastructure projects undertaken are much more in number and more frequent than those undertaken in earlier decades due to rapid advancement in science and technology. Therefore, whenever a new developmental project is undertaken in an area, the market value of the properties in that area, and those surrounding that area, rise exponentially. Furthermore, the inflation rate in the country has on average been around 7% in the 2010-2019 decade. According to the property consultant Anarock, property rates have increased by an average of 38% and 52% across 7 major cities in the decades of 2010-2020 and 2000-2010 respectively. Therefore, where the vendor has received consideration partly and the vendee delays the payment of the remaining consideration, the vendor will be unjustly constrained by cases related to specific performance as suits and appeals therefrom normally take a decade or two to attain finality. During that period of a decade, the market value of that property may have arisen from lakhs to crores. Ordering the vendor to execute a sale deed in favor of the vendee for the original low consideration (despite no fault of the vendor) is highly inequitable.

Furthermore, the Hon’ble Supreme Court has consistently been holding that laws and principles which may be reasonable, valid, and logical when made and applied, can, with the passage of time and changes in the circumstances, become arbitrary and unreasonable. (Rattan Arya v. State of Tamil Nadu, Motor General Traders v. the State of A.P., MalpeVishwanath Acharya v. the State of Maharashtra, Anuj Garg and Ors. v. Hotel Association of India and Ors., John Vallamattom v. Union of India) Furthermore, the constitution bench of the Supreme Court, in the case of Modern Dental College and Research Centre and Ors. V. State of Madhya Pradesh and Ors. , observed: “69. …It is rightly said that the law is not an Eden of concepts but rather an everyday life of needs, interests, and the values that a given society seeks to realize in a given time. The law is a tool that is intended to provide solutions for the problems of a human being in a society…. 92. …Law is not static, it has to change with changing times and changing social/societal conditions.” The same logic of laws getting outdated can, thus, be applied to principles and presumptions evolved through judicial activism, keeping in mind the socio-economic and political changes over a span of time.
An apt view over the issue of whether the time is or is not of the essence of the contract in immovable property contracts was given by the Hon’ble Supreme Court in the case of K.S. Vidyanadam and Ors. v. Vairavan, where the court observed that – “In the case of urban properties in India, it is well-known that their prices have been going up sharply over the last few decades particularly after 1973. …. We cannot be oblivious to the reality and the reality is a constant and continuous rise in the values of urban properties – fuelled by a large-scale migration of people from rural areas to urban centers and by inflation…. Indeed, we are inclined to think that the rigor of the rule evolved by courts that time is not of the essence of the contract in the case of immovable properties – evolved in times when prices and values were stable and inflation was unknown – requires to be relaxed, if not modified, particularly in the case of urban immovable properties. It is high time, we do so.”
The court in the aforementioned case, further opined that: Where parties stipulate a time for the completion of certain contractual obligations, such limit cannot be ignored; a tougher test to check the readiness and willingness of the purchaser to perform his contractual obligations should be adopted; every suit for specific performance may not be decreed merely because it has been filed within the period of limitation, having ignored the contract-stipulated time limits.

CONCLUSION

It is apparent that the presumption of time not being of essence is subject to a few reasonable and recognized exceptions: (i) where the court is of the opinion that decree of specific performance may lead to injustice; (ii) where one party is guilty of undue delay in performance and the other party has given a notice requiring performance within a reasonable period of time ; (iii) where non-performance within the time stipulated causes loss to the other party, or, in other words, operates as an injury and the defaulter was reasonably expected to be aware of / informed about well in advance.
According to India Brand Equity Foundation (IBEF), a trust established by the Department of Commerce, Ministry of Commerce and Industry, Government of India, the market size of the real state sector is said to rise to a whopping US$1 trillion by 2030 from US$120 billion in 2017. Some major investments and developments in the economy would be as follows – 100 new malls likely to open by 2022 (69 in top 7 metropolis and 31 in Tier 2 and 3 cities), TCS and DLF have been permitted to develop SEZs for the IT sector in Haryana and Uttar Pradesh, numerous housing projects by builders and Government – are among the few. Besides these new projects, inflation will play a major role in the rise in prices of real estate property. IMF’s estimated inflation rate in India till 2025 is around 4-4.5% every year. Thus, in today’s world, prices of real estate property have become unstable and there is a dire need for the courts to consider the current socio-economic conditions before presuming that time is not of the essence in immovable property contracts. Furthermore, the parties should be more watchful and express their intention of making time the essence of the contract explicitly as far as possible, feasible, and negotiable.

The post Does the presumption “Time is not of essence in the Contracts of immovable property” require a re-visit? appeared first on LexForti .

INTRODUCTION

Contract law was the first Business law to emerge as trade and commerce developed. Refining the contract law of Britain, British India got its Indian Contract Act, 1872. With this as a foundation, specialized laws have developed over time in India. The process of contract involves offer, acceptance, consideration but more importantly with the meeting of minds. Both the parties to a contract need to be on the same page for it to be legitimate. If no, the parties have been mistaken about the aspect of the contract. There are various reasons and scenarios where such a “mistake” would arise. Here cases of mistake would be based on law, facts, etc. There are similar provisions of this mistaken part of the Indian Contract Act, 1872 in the Indian Penal Code, 1860. In the penal code mistake is criminal defense. The act proves efficient if one wants to seek remedy for an unjust contract.

ANALYSIS

With the development of trade and commerce, Contract law was the first Business law to emerge. British India, in order to facilitate the same, borrowed the contract law of Britain and improved upon it. Refining it, British India got its Indian Contract Act, 1872. As a common law system, the principles were laid down by the British Courts. With Contract law as general law and foundation, specialized laws have developed over time in India.
The process of contract involves offer, acceptance, consideration but more importantly with the meeting of minds. Both the parties to a contract need to be on the same page for it to be legitimate. If no, the parties have been mistaken about the aspect of the contract. There are various reasons and scenarios where such “mistake” would arise.’
The concept of mistake is mentioned in Chapter II of the Indian Contract Act, which deals with voidable contracts and voidable agreements. Consent is defined in the Act as where two people agree upon the same thing. Whereas “free consent’’ would be where the said consent is not influenced by any factor or caused by coercion, undue influence, fraud, misrepresentation, a mistake. So, a mistake would generally be an exception to free consent in a contract. It is further explicitly mentioned in Sections 20, 21, and 22.
Agreement void where both parties are under mistake as to the matter of fact— Where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void.
Explanation —An erroneous opinion as to the value of the thing which forms the subject-matter of the agreement is not to be deemed a mistake as to a matter of fact.”
“As to matter of fact” here would signify that the parties to the case have consent but a subject matter/ fact has misled them or they weren’t aware of it.
For example, A agrees to buy a Persian kitten from B. It later turns out that the kitten was dead at the time of the agreement talks and neither of the party was aware of the fact.
Therefore, the agreement is void.
Effect of mistakes as to law—A contract is not voidable because it was caused by a mistake as to any law in force in India, but a mistake as to a law not in force in India has the same effect as a mistake of fact.
Illustration
A and B make a contract grounded on the erroneous belief that a particular debt is barred by the Indian Law of Limitation; the contract is not voidable.
Here, it is emphasized that — mistake as to the law, pertaining to India or outside India does not make it voidable. Mistake as to fact would be considered, not mistake that regards to the law.
Contract caused by the mistake of one party as to the matter of fact—A contract is not voidable merely because it was caused by one of the parties to it being under a mistake as to a matter of fact.
This section deals with a scenario where only one party is mistaken. The contract does not become voidable if only one party is at a misapprehension of the facts of the contract.
There are similar provisions of this mistaken part of the Indian Contract Act, 1872 in the Indian Penal Code, 1860. Here mistake is criminal defense. In certain instances, a criminal gets a defense that he/she had no intention of the crime and the act had happened was due to mistake of facts around the crime or there was a mistake at point of law. Sections 76 and 79 of Chapter-IV of the Indian Penal Code, 1860 has general defenses when a crime is committed and in sections 76 and 79 there’s a description of the provisions related to “Mistake of Fact” & “Mistake of Law”. “Mistake of Fact” as in when the defendant misinterpreted some essential facts, that defeats the whole commission of the crime. “Mistake of Law” where the defendant was not aware of the law or misunderstood it. However, the second case is very limited, only to certain rare instances.
After looking into the provisions provided for in cases of mistake in the Indian Contract Act, it is clear that it arises in two situations. First being consent and second, being the purpose of the contract. While looking at the facts that need to be furnished, it is also necessary to consider only the essential ones, that would be with regards to the very nature of the contract, identity of the parties, and the nature of the subject matter.
Further categorizing the types of mistakes that could occur during a contract with the existing act, would be Identity
There would be a mistake to identify when one of the parties presents to be some other person, then who that person actually is. An example of such a case would be where the person assumes a false name, by business takeovers, different identities by fraud, etc. The significance
of identity to the offeror will change according to the nature of promise in different cases.

Subject-matter

It is essential to have a valid subject- matter. Further looking into the categories of the subject-matter, it could be its existence. It would become void if the subject matter doesn’t exist whilst the contract being made. Other instances would be where one of the parties could be at error as to the title and ownership of the subject matter, or the parties have different subject-matter in their minds, even the substance of it, being nature, quality, or quantity.

Mistake on part of the law

As Section 21 of the Act clearly states that a mistake on part of the law would not make it voidable, this would not be a valid limitation to the contract.

Mistake on the premise of facts

Section 20 of the Act mentions if essential facts of the contract were interpreted as an error, then it becomes voidable. This could further be considered unilateral and bilateral, i.e., one of the parties and both the parties. But section 22 mentions it is not voidable in case of one party was at the mistake of the fact of the contract. In the case of mutual mistake, with regards to facts, it becomes voidable.

JUDICIAL PRONOUNCEMENTS

These concepts and essentials can be best understood with cases that have in fact had these mistaken points of contracts as issues in them.

Gallaway vs. Gallaway
This was a case of both the parties were under the mistake that they were married. The two of them agreed to separate and thus made an agreement. Then it was found out that the man’s first wife was still alive which was actually unknown to both of them. The court held that the separation deed was void. It was on the grounds that the agreement had been done on the belief that they were married to each other, but turned out otherwise with the first wife being alive.’

Phillips vs. Brooks
A person named North purchased some items- pearls, and rings from Philip, who owned a jewelers shop. He claimed to be Sir George Bullough. He paid by cheque and signed it saying “You see who | am, I am Sir George Bullough”. He told that it was his wife’s birthday the next day and convinced the jewelers so that he can take them immediately. He gave Sir George’s address which the jewelers also verified with a directory. He then pledged the ring for money at Brooks limited, a pawnbroker company. He had pawned the ring in the name of Mr. Firth. He then disappeared without a trace. The plaintiff brought a claim based on a mistake as to identity- unilaterally.
It was held that the contract was not void for mistake as the law assumes there is an intention to deal with the person in front of them where there is a face to face transaction. The jewelers were not able to prove that they would only exceptionally have sold the ring to one Sir George Bullogh.

Ayekpam Angahl Singh and Another vs. Union Of India and Ors.
The plaintiff, in this case, was the highest bidder in a fishery auction. The rent was 40,000 per year and the said rights were auctioned for three years. The plaintiff sought that he assumed the rent amount to be for all the three years together. Thus, he claimed that he was under the same mistake. Since the mistake, in this case, wad unilateral, the contract couldn’t be avoided.”

CONCLUSION

After looking at the provisions of the Indian Contract Act, 1872, a comparative analysis with another country would throw more light. New Zealand, with regards to a mistake in contract, has a stand-alone act for itself. The statute is called the Contractual Mistakes Act, 1977.
It has various sections with regard to the matter of facts and matter of law. Codification of Contract law has both its advantages and disadvantages. Codification would mean that the various provisions with instances to various types of contracts would be explicitly mentioned. But on the other side, codification has been limited to three sections. It not necessary as such for a mistake in contracts to have an act on its own, but non-conventional instances should be included over time. It is still efficient as it provides remedies if one feels that their contract was carried un-justly.

The post Mistake under the Indian Contract Act, 1872 appeared first on LexForti .

INTRODUCTION

Contract of Indemnity

The Indian Contract Act, 1872 provides for “specific contracts” from Sections 124 — 238. Among them is the Contract of indemnity under Sec. 124 according to which:
“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, is called a contract of indemnity.”
E.g., K agrees to indemnify H counter to the costs of any events which say G may take against H with regards to a certain amount of money.
In simpler words indemnity means refuge or safety against compensation or loss and the aim of entering into an indemnity contract is to guard the indemnity holder against unanticipated losses.
Section 125 of the Act also provides certain rights to the indemnity-holder against the indemnifier given that the indemnity-holder acted within the scope of their authority. These include the right to:
• recover damages paid in a lawsuit
• recover costs suffered in defending such a lawsuit
• recover any amount paid under a negotiation

Insurance Indemnity

Almost every insurance other than that of the personal accident and life insurance are contracts of indemnity. A case can be filed right away upon non-fulfillment of performance, regardless of any actual loss. If the indemnity holder suffered any liability and it was absolute, he would be permitted to call upon the indemnifier to safeguard him from the liability by paying it off.
The study of the principle of indemnity in relation to insurance is of much significance as insurance is a means of social security and indemnity in this case reimburses the beneficiaries of the policies for their actual economic losses, within the limit of the policy’s amount.
Insurance cover and its need are growing with the growing complexity of life, and as a consequence, there is now a variety of insurance covers. One such insurance is for Mental health care.
Mental health issues have been disregarded in Indian society for the longest time. To date, the masses do sympathize when a famous personality speaks out with regards to their mental health, but it still is a stigma that is yet to be normalized through awareness and education. Or even when it is normalized, all they receive is unsolicited advice from their acquaintances on their issues rather than being referred to a professional. Thus it is very evident that mental ailments, unlike physical illnesses, are complex and are not very easily diagnosable. So, how does the law provide recourse for the affected? How does it play a vital role and guides treatment in an appropriate direction?

ANALYSIS

Background

Mental illnesses and treatments have been speculated throughout history, and there were instances where some of them were treated with compassion but generally just with stigma, marginalization, and injustice. In India, different legislations regarding mental health were shaped by the British. Pre-independence, many parts of legislations were combined to form the Indian Lunacy Act, 1912, which borrowed a lot of its components from the English Lunatics Act, 1845. Post-independence, there was an aim to draft an updated mental health care act, but there was a delay and the statute took many years to be embraced. Conclusively, the Mental Health Act (MHA), 1987 came into force. Due to the lapse in the passage of the Act had a lot of loopholes in its provisions.
The Convention on the Rights of Persons with Disabilities (CRPD) was approved by UNGA in 2006 which India signed and ratified in the year 2007. The CPRD demanded the existing legislation be revised and replaced. This was eventually responsible for the passing of the Rights of Persons with Disabilities Act, 2016 and Mental Health Care (MHC) Act, 2017, respectively.

The National Mental Health Survey of India, 2015-16

Another key reason that the MHC Act, 2017 came into force is the National Mental Health Survey of India. This was executed by the National Institute of Mental Health and Neuro Sciences (NIMHANS), Bengaluru. The National Mental Health Survey of India-2016 was conducted on persons who were a part of 12 states of India. It included 34802 individuals and the response rate at households was 91.9%. The age distribution was akin to that of India’s 2011 Census. The objectives were to assess the occurrence and pattern of mental disorders, recognize the gap in treatment, and assess the effectiveness of the current mental health services.
The key takeaways were:
• Mental health issues were associated with a residence with the case in urban metros was more than in urban non-metro and rural areas.
• 1 out of 20 people in India suffers from depression.
• 1% of the population shows a high risk of suicide.
• The ones common among men were bipolar disorders and alcohol use disorders; meanwhile, depressive, stress-related, and neurotic disorders were common among women.
• Despite the works in providing mental health care, the research showed that a massive gap in treatment exists for all kinds of psychological problems. It ranges from 28% to 83% for mental health disorders and around 86% for alcohol use disorders.
• Despite the illness being present for more than 12 months, individuals suffering from such mental illnesses had not obtained any treatment. This was reported at 80%.
The stigma towards the mentally affected persons affects their access to work, education, and marriage and also affects their family members. Thus, the survey posed as a wakeup call and which needed immediate attention from the socio, political and legal spheres.

Mental Health Care (MHC) Act, 2017

The MHC Act received President’s assent on 7 April 2017 and initiated on 29 May 2018. The aim is to provide healthcare for individuals who suffer from mental illness and also to see that they have the right to live their life without being discriminated against.
• Definition
Section 2(s) of the Act defines mental illness as “a substantial disorder of thinking, mood, perception, orientation or memory that grossly impairs judgment, behavior, capacity to recognize reality or ability to meet the ordinary demands of life, mental conditions associated with the abuse of alcohol and drugs, but does not include mental retardation which is a condition of arrested or incomplete development of mind of a person, especially characterized by subnormality of intelligence”.’
• Human Rights of people suffering from mental illness
Chapter V of the MHC Act, 2017, consists of the rights of those with mental affliction. Firstly, it ensures every individual has the right that enables them to access mental health treatment. The Act secures free treatment for persons who are Below Poverty Line or homeless. Every person with mental illness is guaranteed the right to live with dignity, equality, and non-discrimination. They shall also have the right to legal aid, right to information, right to privacy in terms of their mental healthcare, mental health, and treatment
• Advance Directive
Section 5, talks about an Advance Directive where an individual with mental ailment has the right to make a directive in advance, in writing that expresses how the person wants to be/not to be treated for the disease. It also states whom do they appoint as their nominated representative. The directive demands to be qualified by a medical practitioner or a professional listed with the Mental Health Board.
• Mental Health treatment
The Act requires the method to be adhered to for admission and treatment of mentally affected patients. For example, individuals suffering from mental illness cannot be endangered to electro-convulsive therapy without using anesthesia muscle relaxants. This therapy can also not be performed on minors. Anybody with mental illness cannot be chained in any manner under any instance, nor can they be put to solitary confinement.

IRDAI Guidelines

The Insurance Regulatory and Development Authority of India (IRDAI) protects the interest and ensure impartial dealing to policyholders of the country. It also steps in to take action where insurance standards are ineffective or inadequate.
Thus, in 2018 the IRDAI ordered all insurers to conform with the MHCA, 2017’s provisions. Again, on 27 September 2019, the IRDAI issued a guiding principle and highlighted that the “treatment of mental illness, stress or psychological disorders and neurodegenerative disorders” are not allowed to be excluded in Health Insurance Policies.
On the surface level, few insurers have acted in accordance with the IRDAI procedures.
Recently, a PIL was filed in the Supreme Court on insurance coverage for mental illness treatment. The petitioner, Adv. Gaurav Kumar Bansal claimed that the delay of the IRDA to implement the provisions of the Act has hindered the rehabilitation process of thousands of persons with mental illness. The apex court asked insurance regulator IRDA to explain why insurers do not cover mental health under their regular schemes.
Mental Health Care Gap
There are a few explanations as to why the concept of Mental Health Insurance is very non-compliant regardless of legislation and guidelines.
• Assessment of risk — the concept of mental health insurance is very nascent and so the insurers struggle with guaranteeing and actuarial problems. The confusion is here is a loop, insurers have no idea about the costs involved and unless they don’t start providing it and people avail the same, they would remain not knowing the price and the process. Even though they cannot deny coverage, due to the guidelines, they haven’t standardized such policies yet.
• No standalone plans — the other reason is that there are no specific plans for specific mental illnesses, only exceptions.

CONCLUSION

Mental health issues, as said before, are really sensitive, and especially during unprecedented times like now, they cannot be side-lined. Living through a global pandemic can be very demanding. The coronavirus disease 2019 (COVID-19) epidemic may cause fear and anxiety due to the uncertainty about a novel disease. The thought about what can happen can be overwhelming for everyone. Public health measures, like social distancing, can make folks feel detached and lonely and can intensify stress. Ultimately these acts are obligatory to reduce the spread of COVID-19. But for one to reach out, they should be in a self-diagnosable situation where they realize they’re not alright. This is not the case with every mentally affected person, and the 2016 survey proves the same. India’s increasing mental health crisis can no longer be denied.
The ignorance towards mental health care is very evident as it is rarely mentioned in any election manifestos of political parties in India. On the other hand, ensuring the good health of citizens is a fundamental right guaranteed by the constitution.
The current need of the hour is to aggravate the common people to understand mental health. They need to know that they can insure themselves when it comes to mental illnesses as well.

The way forward

• Law reforms should go beyond papers and should provide actionable ideas that make the mental health care system all-inclusive within the public health care system umbrella. The mental health care gap should be filled. Until then, it can only be relied upon a time to tell the long-standing outcome of this MHC Act, 2017 and its functioning.
• There should be evidence-based tailoring for the next set of mental health policies, not leaving any kind of illness unnoticed.
• There should be a well accessible one-stop portal for mental healthcare so that people are well aware of their rights.
• Development in Health Information technology will provide for a decent scope for mental health policies in the country.

In order to do all the above, there is a need for a constant stream of funds. These will be used for enlightening, educating, and establishing awareness on matters concerning mental health and its long-lasting issues. The accessibility of professional help and timely intervention is very important. This demands a collaborative effort from all branches of the functioning society to change things over time.

The post Contract of Indemnity and Mental Health Care in India appeared first on LexForti .

ABSTRACT

Contracts are promises enforceable by law. Whereas, a quasi-contract can be defined as a contract that resembles relations created by a contract. This assignment will look into how the quasi-contracts evolved over time, its history and closely looking into its aspect in the Indian Contract Act, 1872 in detail. Various sections that are dealt with regarding Quasi contract in this assignment are as follows:
● Section 68
● Section 69
● Section 70
● Section 71

Several case laws are also discussed for a better understanding of all the sections. The similarity between a quasi-contract and a contract is also provided for better clarity on the subject matter. Quasi-contract with respect to the English Law is also discussed in between the sections for a better distinction between the applicability in the Indian laws and the English law. The keywords provided below will also help in understanding certain concepts much better.

INTRODUCTION

The history of quasi-contract can be dated back to the Middle Ages, where there was a practice known as indebitatus assumpsit. Under this, the law imposed that the defendant would give a sum of money to the complainant, in an amount directed by the courts of justice, as if the accused always agreed to pay the complainant for the goods or the services.
The courts used the method called indebitatus assumpsit whereby one party pays another as if the contract had already been created between the parties. It is already implied by the law that the defendant is bound by the agreement
Quasi Contract is not defined in the Indian Contract Act, it refers to them as a relation resembling those created by a contract. However, a quasi-contract can be defined as a contract that is initiated by the court when there is no such formal contract that exists between the parties. Quasi-contracts created by the court help to prevent “unjust enrichment” of one party at the cost of the other party.
For example, Altaf gets unjust enrichment at Bairam’s cost, Altaf is bound to compensate Bairam for the same. If for instance, Altaf and Bairam together owe some amount of money to Anand. Altaf pays the amount of money to Anand and Bairam, not knowing about this fact, pays the money again to Anand. Here Anand is bound to repay the money back to Bairam.

ESSENTIALS AND JUDICIAL ANALYSIS UNDER VARIOUS SECTIONS 4&5

The following essentials are to be proved, in an action for any kind of unjust enrichment:

1. The defendant has been enriched by the receipt of some kind of benefit.
2. The enrichment of the defendant is at the complete expense of the plaintiff.
3. The holding on of the enrichment is completely unjust.

Various sections that deal with quasi-contractual obligations under the Indian Contract Act are as follows-

SECTION 68 – Necessities supplied to a person who is incapable of contracting

If the “necessities” for a person who is incompetent of contracting (for example a mentally disabled person or a minor) or anyone who is a dependent of such a person is taken care of by someone, such a person has the right to be compensated back from the property of such incompetent person. The term “necessities” has not been defined in the Act, but it implies necessities to sustain life, fundamental things like food, education, clothing, etc.
For example, if a person X supplies another person Y (a lunatic) or anyone who is dependent on him, with necessities for life, such a person is entitled to be compensated from the property of person Y.

SECTION 69 – Reimbursement of a person paying money due by someone, in the payment of which he is interested

Following are the two essentials-

1. The individual paying the dues of another individual is interested in the payment.
2. The individual whose payment was due was in fact obligated by the law to pay.

For example, X is a landlord. Y holds one of X’s land on a lease in Mumbai. The revenue of X’s land is in arrears, payable to the government. The land ends up being advertised for sale by the government. Under the revenue law, if the land is sold, it will result in the annulment of Y’s lease. To stop the sale, Y pays X’s dues. In such a situation X is bound to pay back Y.
A similar action is permitted under English Law, as an action for money reimbursed by the plaintiff to the defendant.

Making of payment where one party(defendant) has an interest in it
When one person makes a payment and then claims for compensation or reimbursement, must show that he/she has an interest in making such a payment. The payment made by the defendant should be bona fide or genuine protection of the interest by the plaintiff. According to English law, the person making the payment should have been compelled by the law to discharge off the debt in favor of the other person.
In one of the popular English cases Brook’s Wharf v. Goodman Brothers, the defendants had imported certain goods from Russia and warehoused them with the plaintiff. According to the customary laws, the customs duty on the goods could be recovered from the owners or the warehouseman. Unfortunately, the goods were stolen and the warehouseman (plaintiff) was called upon to make the payment of the customs duty, which the owners (defendant) were bound to pay. The plaintiff claimed the amount paid from the defendant. It was held that the plaintiff was entitled to recover the money paid.

Another person bound by the law to pay
For this section to be applicable, the plaintiff should have some interest in the payment and the defendant be bound by the law to pay the same. If the plaintiff is not interested but is bound by the law to pay, such a person cannot have an action against the defendant. In the case of Port Trust, Madras v. Bombay Company, an employee of the Port Trust was injured when on duty. The employers (plaintiff) paid him the compensation amount, under the Workmen Compensation Act, 1923. After the payment was made to the workman, the plaintiff brought a suit against the defendant, due to whose negligence the accident happened. The claim was dismissed under Section 69 for the following reasons:
i. The plaintiff was not merely interested in the payment but was rather bound by the law to make the payment (an inescapable liability) under the Workmen Compensation Act, 1923.
ii. The liability of the defendant under the law of torts was not yet determined when the plaintiff made the payment.

SECTION 70 – Obligation to pay for non-gratuitous acts.

When any person does anything lawfully for another person or delivers something to him not intending to do it gratuitously and the other person enjoys the benefit of it, the latter is bound to restore, the things done or delivered to the former.
For example, if X saves Y’s property from fire. If the circumstances show that if X intended to do the act gratuitously, then he is not entitled to compensation.
Following are the conditions that need to be satisfied with the application of this section:

1. The act must have been done lawfully.
2. The act done by the person should not have been done gratuitously by the person.
3. The other person for whom the act was done should have enjoyed the benefit of the act.

Doing an act of delivering something to another person
When any person does an act non-gratuitously for another, he is entitled to claim compensation. In the case of Indu Mehta v. the State of U.P., Miss Indu Mehta was a practicing advocate at the District Court of Kanpur. She was appointed as an Asst. District Government Council, whereof she provided her services. After some time it was found out that her appointment violated Section 24(2) of the Criminal Procedure Code, 1973. Her appointment was held to be void but since the State had enjoyed the benefit of her services, the government could not recover back the fees already paid for the services.

The act done must be positive
If the plaintiff has done nothing positive but abstains from doing something, it is not sufficient for him to claim anything under Section 70. In the case Kirorilal v. the State of M.P., an incompetent mining engineer executed a lease in favor of the plaintiff, which was invalid because of non-compliance with a section of the constitution. A huge quantity of sand was required for a joint project between the states of Rajasthan and M.P. The plaintiff was refused to remove the sand and brought a suit against both the states to recover compensation as he was deprived of the sand. The plaintiff’s claim was unsuccessful as he had not done anything positive to confer any benefit.

Unjust benefit of the defendant at the cost of another.
It is a necessary condition for the application of Section 70. In the case C.I. Abraham v. K.A. Cheriyan, X collected rent on behalf of Y, who resided abroad and deposited in Y’s account but often delayed in making the deposits. Thereafter X demanded remuneration for the services provided. It was held that the services so provided was could not be proved that they were provided non-gratuitously.

Application of Section 70 against the Government
If the services provided and result in unjust enrichment of the government or some organization, the government can still be made liable to compensate. In the case State of West Bengal v. B.K. Mondal and Sons, the plaintiff constructed certain structures at the request of government officers i.e. State of West Bengal. The plaintiff demanded payment for the same which was refused by the government on the ground that the contract was invalid. It was held that since the government did receive a benefit at the expense of the plaintiff, therefore they were liable to pay for the same.

SECTION 71 – Responsibility of the finder of goods

If a person finds goods belonging to another and takes them in his custody, in such a situation the person is subject to the same responsibility as a bailee. The person is bound to take care of the goods any prudent man would take. If the person does not do so, he/she would be liable for the conversion of the goods.
For example, if X finds a gold ring on the floor of Y’s shop. X hands it over to Y until the true owner is found. No one claims it even after newspaper advertisements. X claims the ring back from Y, who refuses to return. It was held that Y was entitled to retain the ring against everyone but the true owner.

SECTION 72 – Unjust benefit under mistake or coercion

Unjust benefit under a mistake
If a person receives anything by mistake or under coercion, it must be returned to the person who paid by mistake or under coercion. In the case Sales Tax Officer, Banaras v. Kanhaiya Lal, X paid sales tax on the transaction of bullion. The court declared this tax as ultra vires and therefore X could retrieve back this amount. There is no distinction drawn between mistake of law and mistake of fact under Section 72.
In another case Municipal Corporation of Greater Bombay v. Bombay Tyres International Limited, the municipal corporation collected water taxes which were declared to be invalid under the regulations. It was held that that payment made could be recovered back.

Unjust benefit under coercion
Anything paid or delivered either under coercion or mistake can be recovered back. The term “coercion” is used in a general sense and not according to the definition. It simply means any kind of compulsion.
In the case of T.G.M. Asadi v. Coffee Board, the plaintiff’s firm purchased coffee from the coffee board and made all the necessary payments and taxes. The coffee board demanded payment of extra payment of taxes or said that they will not return the deposit money. The plaintiff complied and filed a suit. It was held that that the plaintiff was made to make the payment under coercion and was therefore entitled to recover back the amount.

SIMILARITIES BETWEEN CONTRACTS AND QUASI CONTRACTS

The most basic similarity between a contract and quasi-contract is that the final outcome is the same as that of a contract. As far as damages are concerned, it is very similar to that of a contract because Section 73 of the Indian Contract Act, 1872 extends remedies for the breach of the quasi-contract as it provided for the breach of an express contract in different sections of the Indian Contract Act, 1872

CONCLUSION

There is a significant difference between a contract and a quasi-contract. Quasi-contracts are not contracts but are obligations imposed by law to prevent or stop any undue advantage of a person at the cost of another. Hence it can be said that the very foundation of quasi-contracts is based on justice, a good conscience, and equity. Nobody shall benefit unjustly at someone else’s cost. This is also known as the Principle of Unjust Enrichment.

The post Quasi Contracts under the Indian Contract Act appeared first on LexForti .

ABSTRACT-

In today’s society, minors are appearing in public life at a greater speed than ever before. A minor has to travel, to visit cinema halls or deal with educational organizations and buy so many products by himself. Thus, any party can manipulate the minor or brush him aside on the ground that the agreement is null and void. Therefore, legal protection for or against the minor and signifying his position under the Indian Contract Act, 1872 is essential. This article talks about the capacity of a minor to contract, the nature of a minor’s agreement, and its consequences along with highlighting the important case laws.

INTRODUCTION-

According to the Indian Contract Act, 1872, competency is a requisite condition for any party before entering into any agreement. Section 11 of the Contract Act says- “Every person is competent to contract who is of the age of majority according to law to which he is subject, and who is of sound mind, and is not disqualified by law to which he is subject.”
Thus, the section asserts the following persons who are unable to enter into a contract-
1) Minors
2) Persons of unsound mind
3) Persons disqualified by law
A minor and contract law does not go hand in hand and the majority is a requisite condition for a valid contract.

WHO IS A MINOR?

A minor is a person who has not yet completed the age of majority by law to which he is subject. The age fixed by the law can be different for various legal jurisdictions. In India, according to the Indian Majority Act, 1875- the age of majority is attained after the completion of 18 years except in the case of a person where a guardian has been appointed by the Court, the age fixed is 21 years. However, it is to be noted that the Indian Majority Act, 1875 has been amended and the age of the majority is considered to be 18 years, irrespective of the fact that a guardian has been appointed of that minor. The bill in this regard has been passed by both the Houses of Parliament but the President’s assent is yet to be attained.

WHETHER MINOR’S AGREEMENT IS VOIDABLE OR VOID ALTOGETHER?

Section 10 of the Contract Act talks about the competency of the parties and Section 11 talks about persons who are not allowed to enter into a contract. But neither section makes it certain, what will be the consequences of a minor entering into an agreement, whether it would be voidable at his option or altogether void. Thus, these provisions had created a legal conundrum about the nature of a minor’s agreement. The Privy Council finally resolved this controversy in the year 1903 through the landmark case of Mohori bibi vs Dharmodas Ghose where Dharmodas Ghose, a minor, mortgaged his house for Rs. 20,000 to a money lender. At the time of the contract the legal representative, who acted on behalf of the moneylender was aware that the party was a minor. The minor brought a suit against the moneylender stating that he was a minor at the time of the contract and, therefore, the contract was void and incompetent. But at the time of Appeal to the Privy Council, the defendant died and the Appeal was filed by his wife, Mohori Bibi.
The Privy Council by clearing the air in the above case said that the minor’s agreement is void ab initio i.e. void from the beginning. The general belief that “every man is the best judge of his own interest” is excluded in the case of a minor.

WHAT WILL BE EFFECTS OF MINOR’S AGREEMENT?

A minor’s agreement is considered void thus, there should be no duty to perform any part of the contract from either party and the effects of the same are also void. But suppose that a minor by misrepresenting his age to mislead another to contract with him, will there be any estoppel against him?

No Estoppel against a minor-

The question of estoppel against the minor raised a legal difficulty among the authorities. But was settled by the pertinent authority that there is no such estoppel against a minor. Estoppel means, if a person makes a statement that misleads another person, he cannot deny the same statement in the future when his obligation in respect of his statement arises. The doctrine of estoppel prevents a party to state something which contradicts his previous statements. Thus, the minor is not estopped from presenting the defense of infancy. The reason is, there can be no estoppel against a statutory provision given by law. But in the Mohori bibi case, the defendant misrepresented his age in order to mortgage his house but the moneylender was already aware of the fact that the defendant was a minor. Therefore, the Privy Council did not consider the doctrine of estoppel as the plaintiff was not misrepresented or mislead by the statement of the minor.
Considering the various decisions of different High Courts of India, it is to be noted that the minor can plead minority as a defense even though at the time of making the agreement, he falsely stated that he is not a minor.

Doctrine of Restitution-

If a minor has gained a property or any goods by falsely representing his age, he can be compelled to restitute it, but only if the same is traceable. The Courts may, on the ground of equity, ask the minor to return his ill-gotten gains as he cannot have under the guard of infancy liberty to cheat. Where the minor has sold the property or goods, he cannot be made to repay or restore the value of goods, because that would amount to enforcing a void contract. The doctrine of restitution cannot be applied in cases where it becomes difficult to trace the goods or the minor has acquired cash instead of goods.
A well-known case of Leslie (R) Ltd v. Sheill where a minor tricked some money-lenders by misrepresenting his age and got them to lend him the amount of £ 400 thinking of him being an adult. The plaintiff attempted to recover the principal amount and interest as damages for fraud but failed as there is no estoppel against the minor. Further, the money-lenders relied upon the doctrine of restitution, contending that the minor should be liable under the equitable grounds to restore the money. Lord Sumner rejecting this contention held that the money paid to the defendant (minor) was used for his own use. There is no way of tracing the money and no option of restoring it as this would lead to enforcing a void contract.
However, where a minor moves the court for cancellation of his contract, the court may grant relief with a condition that he shall restore all the gains obtained by him under the contract, or make suitable compensation to the opposite party under Section 30 and Section 33 of the Specific Relief Act, 1963.

No liability in tort arising out of contract-

A minor’s agreement is invalid of all its effects. A minor is not capable of giving consent and thus there being no good consent, it could be laid down no change in the position or status of the parties. It is to be noted that a minor cannot be held liable for anything which would indirectly enforce his agreement. Therefore, one cannot convert a contract into a tort to enable the suit against a minor. The Calcutta High Court in a case said- “If the tort is directly connected with the contract and is the means of effecting it and is a parcel of the same transaction, the minor is not liable in tort”. Thus, under this principle, the minor is not held liable in tort.
However, when the tort committed is free from the contract and which is not directly connected with the contract, the fact that a contract is also involved will not release the minor from his liabilities. This can be explained through the case of Burnard v. Haggis. The facts of the are as follows- The defendant who was an undergraduate and a minor lent a horse for the purpose of going for a ride. He clearly stated that he did not want a horse for jumping. The defendant then gave the horse to his friend who used the horse for jumping, with the result that it fell and was injured. The defendant was held responsible under tort as the act resulting in injury to the horse was outside the purview of the contract, and in indirect relation with the contract.

WHAT ARE BENEFICIAL CONTRACTS?

A minor’s agreement as laid down in the Mohori Bibi case is absolutely void. However, a contract for the benefit of a minor is enforceable. Under Section 30 of Indian Partnership Act, 1932- “a person who is a minor according to the law of which he is a subject may not be a partner in a firm, but with the consent of all the partners, for the time being, he may be admitted to share the benefits of the partnership.” This can be done through an agreement with his guardian and other partners. Thus, the minor is only liable for the benefits and not for liabilities or debts of the partnership firm. A minor will have the option of retiring from the contract of this nature on completion of 18 years of age within a reasonable time. Apart from a beneficial contract under the Indian Partnership Act, contracts of marriage or marriage of Muslim minor girl, contracts of apprenticeship are all considered under beneficial contracts.

WHAT WILL BE THE LIABILITY OF A MINOR FOR NECSSARIES?

A minor will have liability for necessaries. The word “necessaries” is not defined in the Act but an illustrative explanation of the meaning of the term is given by Alderson B in his judgment in Chapple v Cooper “Things necessary are those without which an individual cannot reasonably exist. In the first place, food, raiment, lodging, and the like. Articles of mere luxury are always excluded, though luxurious articles of utility are in some cases allowed.” A minor is also accountable for the necessary services rendered to him like- provision to education, medical facilities or legal advice. Thus, “necessaries” is a relative factor and may be determined according to the circumstances and facts of the case.
According to Section 68 of the Contract Act, “If a person incapable of entering into a contract, or anyone whom he is legally bound to support, is supplied by another person with necessaries suited to his condition in life, the person who has furnished such supplies is entitled to be reimbursed from the property of such incapable person” Therefore, two conditions are required to prove the liability of a minor-
(1) the contract must be for goods necessary for his support or his standard of living.
(2) he must not already have an adequate supply of these necessaries.
If a minor is provided with the necessaries and if he already has an ample amount of supply of that necessary item, then the minor is not liable to reimburse the supplier and the price is irrecoverable. In India, the liability of the minor does not depend upon the minor’s consent. It arises out of quasi-contractual nature, which means the liability is only that of the minor’s estate.

CONCLUSION-

The position of minor under the Indian Contract Act, 1872 is to be concluded as that a minor cannot enter into a contract and the same would be void ab initio. The minor cannot on attaining majority rely on ratification of the contract made by him during his minority. The reason is that ratification relates back to the past when the person was still a minor thus, a contract that was void cannot be made legitimate subsequently. If it is necessary, a new contract can be made after attainment of the age of majority with a fresh consideration. Further, a minor’s agreement cannot be called for specific performance as it would result in performing a void agreement. However, a minor will be held liable only for the claim of necessaries.

The post What is the position of minor under Indian Contract Act, 1872? appeared first on LexForti .

Introduction

 The term ‘contingent’ suggests that every other thing or reality relies on an event or situation. The ‘contingent contract’ implies that the enforceability of that contract is directly dependent on an occasion occurring or not occurring. In the Indian Contract Act , 1872, the term was used to mean conditional.

A sign of the future is ambiguity. Contingent contracts are all about predicting the probabilities of an uncertainty being probable, determining the effects if the occurrence does not occur, and evaluating the ability to change the implications.

The Contracting Parties can provide that the success of a contractual obligation depends on a contingency, even if the contract is validly established. The parties agreeing to the terms accept that the rights will be upheld and therefore the obligations will be attributed to the event of the contingency of a legal business contract being signed.

Contingent Contracts- Section 31 of the Indian Contract Act defines contingent contract as a contract to do or not to do something, if some event, collateral to such contract, does or does not happen. It is a sort of a conditional contract and the condition is of an uncertain nature.

A contract which is subject to a certain or an absolute type of condition cannot be regarded as a contingent contract. When the condition is of uncertain nature, then only the contract can truly be regarded as truly contingent.

Contingent Contracts- Section 31 of the Indian Contract Act defines contingent contract as a contract to do or not to do something, if some event, collateral to such contract, does or does not happen.

It is a sort of a conditional contract and the condition is of an uncertain nature. A contract which is subject to a certain or an absolute type of condition cannot be regarded as a contingent contract. When the condition is of uncertain nature, then only the contract can truly be regarded as truly contingent.

Contingency To Be Collateral To Contract

The section emphasizes that the contingency contemplated by the contract must be collateral to the contract. It means that a contract has already arisen or a subsisting contract is there, but its performance cannot be demanded unless the contemplated event happens or does not happen.

Such a contract has to be distinguished from a proposal which does not result in a contract unless the condition is first fulfilled. For example- an offer to pay a sum of money on the discovery of a missing dog is not a contract at all. It becomes a contract only when the dog is searched out and then it is no more contingent. While, a contract to pay a sum of money on the loss of a ship is a contingent contract. The contract is already there, but the performance can be demanded only on the loss of the ship.  

A contract to buy land which is under dispute made with a party to the dispute and to become operative; if he wins the case is a contingent contract, its performance being wholly dependent upon the result of the litigation.

A contingent contract failed because permission was required (environmental permission) from the authority concerned but was not granted. The necessity of such clearance was clearly anticipated in the contract as a prerequisite to its performance.

The Supreme Court held that; consequent restoration of the parties to the position in which they were before the contract was proper.^[1] The court distinguished such failure from impossibility of performance.

The failure of a contingent contract is due to non-happening of an anticipated event. Where as impossibility is due to happening of an unanticipated event. A contract for sale of property was subject to the condition that it would be approved by the seller’s labour. No such approval became available. The contract failed. Earnest money directed to be refunded with 18% interest.^[2]

Contingency Depending Upon Will Of A Person

A contract will be no less contingent where the happening or non happening of the contingency depends upon the will of a party. In the case of Secy of State of India v. A.J. Arathoon.^[3] The case involved supply of timber to a Government Department.

The timber was to be approved by the superintendent of the factory. He did not approve the timber was to be approved by the superintendent of a factory. He did not approve the timber actually supplied. The supplier sued the government for breach of contract contending that the timber corresponded with its description in the contract and, therefore, it should have been approved. 

The fact of approval being collateral to the performance of the contract, its performance could not be demanded till such approval. The Madras High Court adopted this approach of regarding the contract as contingent. The contingency was not fulfilled and hence there was no question of any action for breach. 

The position would be different where the goods have already been supplied and the only thing that the contract says is that buyer shall pay when he is in a position to pay. This is not a contingent contract. The liability to pay has already arisen. The making of payment at one’s ease was only a personal concession and it would have been an abuse of this concession to prolong the payment for an unreasonable time.

A contract for the sale of goods prescribing the condition that the goods would be inspected before dispatch was held to be a firm contract. The import of materials pursuant to such a contract was valid.^[4]

Contingency To Be Condition Precedent 

Generally, the condition which is collateral to the performance of a contract is a condition precedent, that is, it has to be satisfied first and then performance can be demanded. It has to be distinguished from a condition subsequent, namely, a condition which has to be satisfied after the formation of the contract.

Where, for example, a person applied for shares in a company subject to his being appointed as a cashier in the company,  it was held that shares could not be allotted to him without first making him a cashier.

On the other hand, where the application for shares was subject to the condition that the applicant would pay nothing until the company paid dividends, the contract was held to be not a contingent contract. A valid contract had arisen already; only the payment under it was deferred to the fulfillment of a condition.   

Section 32- Enforcement of contracts contingent on an event happening

Contingent contracts to do or not to do anything if an uncertain future event happens, cannot be enforced by law unless and until that event has happened. If the event becomes impossible, such contracts become void. 

For example, 

• A makes a contract with B to buy B’s horse if A survives C. this contract cannot be enforced by law unless and until C dies in A’s lifetime.
• A contract to pay B a sum of money when B marries C. C dies without being married to B. The contract becomes void.

The section lays down two basic principles. First, a contract to do an act on the happening of a future uncertain condition cannot be enforced unless and until that event happens.^[5] Second, if the happening of that event has become impossible, the contract becomes void. The examples appended to the section clarify both the principles.

Section 33- Enforcement of contracts contingent on an event not happening

Contingent contracts to do or not to do anything if an uncertain future event does not happen, can be enforced when the happening of that event becomes impossible, and not before. 

For example, A agrees to pay B a certain sum of money if a certain ship does not return. The ship is sunk. The contract can be enforced when the ship sinks. 

Where the performance of a contract depends upon the non happening of that event becomes impossible. When such circumstances come to pass that show that the event can no more happen, then only the performance of the contract can be demanded. The example appended to the section makes the sense of the section clear. 

Section 34- When the event on which contract is contingent is to be deemed impossible, if it is the future conduct of a living person.    

If the future event on which a contract is contingent is the way in which a person will act at an unspecified time, the event shall be considered to become impossible when such person does anything which renders it impossible that he should so act within any definite time, or otherwise than under further contingencies. 

For example,

A agrees to pay B a sum of money if B marries C. C marries D. The marriage of B to C must now be considered impossible, although it is possible that D might die, and then C may afterwards marry B.   

When the event for which the parties are waiting is linked with the future conduct of a person, that is so say, where the contract is enforceable if a certain person is to act in a certain way, the event shall be considered to have become impossible if that person does something which makes it impossible that he should act in that way in any definite time or without further contingencies being fulfilled. For example, in Frost v Knight,^[6] the defendant promised to marry the plaintiff on the death of his father. While the father was still alive he married another woman. It was held that it had become impossible that he should marry the plaintiff and she was entitled to sue him for the breach of the contract.        

Section 35- When contracts become void, which are contingent on happening of specified event within fixed time-     

Contingent contracts to do or not to do anything if a specified uncertain event happens within a fixed time, become void if, at the expiration of the time fixed, such event has not happened, or if, before the time fixed, such event becomes impossible.

When contracts may be enforced, which are contingent on specified event not happening within fixed time- Contingent contracts to do or not to do anything, if a specified uncertain event does not happen within a fixed time, may be enforced by law when the time fixed has expired and such event has not happened, or before the time fixed has expired and such event has not happened, or, before the time fixed has expired, if it becomes certain that such event will not happen. 

• For example, A promises to pay B a sum of money if a certain ship returns within a year. The contract may be enforced if the ship returns within the year, and becomes void if the ship is burnt within the year. 
• A promises to pay B a sum of money if a certain ship does not return within a year. The contract may be enforced if the ship does not return within the year, or is burnt within the year.   

Section 36- Agreements contingent on impossible events are void

Contingent agreements to do or not to do anything, if an impossible event happens, are void, whether the impossibility of the event is known or not to the parties to the agreements at the time when it is made. 

For example, 

• A agrees to pay B 1000 rupees if B will marry A’s daughter C. C was dead at the time of the agreement. The agreement is void.

Differences between contingent contract and wagering agreement:

1. The wagering is an agreement, contingent is a contract.
2. The wagering agreement is void from the beginning, the contingent contract is valid from the beginning. 
3. Whereas it is certain that wagering agreement will not be enforced, the contingent contract is enforced on happening of the precedent condition.

Findings

The advantages that contingent contracts provide are that they encourage the parties to deliver above or above the contractually defined standards. In all kinds of incentive agreements, from sales fees to equity options, that’s the force behind the use of contingent contracts. In order to motivate athletes and artists, sports teams and entertainment companies routinely use contingent contracts. Yet dependent contracts are not only good for inspiring citizens. They can inspire enterprises as well. Contingent contracts motivate outstanding performance by rewarding outstanding results.

Conclusion

Any basic aspects need to be there for a deal to be a contingent deal. These components form a contingent contract and a contract won’t be contingent without them. To do or not to do anything, there must be a legitimate contract. The accomplishment of the deal must be conditional. The event should be collateral for those transactions, and the event should not be at the mercy of the promisor. These are some rules that need to be followed for the enforceability of a contingent contract. For eg,  on the occurrence of an occasion, on the event not occurring, and on the event not occurring within a specified time.

References

1.  Abhay pandey: Contingent Contracts Under Indian Contracts Act, ipleaders.( 21^st September,2018), Available at https://blog.ipleaders.in/contingent-contract/ .

2. Pon Staff : Contingency Contracts In Business Negotiations, Harvard Law School Daily blog. (22^nd September, 2020) Available at https://www.pon.harvard.edu/daily/business-negotiations/contingency-contracts-in-business-negotiations-agreeing-to-disagree/ .

3. James Chen : Contingency Clause, Investopedia ( 1^st August,2020). Available at https://www.investopedia.com/terms/c/contingency-clause.asp .

4. Contingency Contracts. (12^th March 2017), Available at https://www.upcounsel.com/contingency-contracts.

5. Zakiya: Contingency Contracts , Lawordo (19^th October, 2019), Available at https://www.lawordo.com/contingent-contracts/ .

6.Avatar Singh, Law of Contracts and specific relief. (13^th Edition,2018)

7. The Indian Contract Act 1872

8. The law of Contract-1 By R.K Bangia.

^[1] SAIL v. Tycoon Traders, (2015) 5 SCC 767

^[2] Nandkishore Lalbhai Mehta v. New Era Fabrics (P) Ltd, (2015) 9 SCC 755

^[3] Secy of State of India v. A.J. Arathoon

^[4] Collector of Customs v. Rakesh Press, (1997) 10 SCC 457

^[5] Rojasara Ramjibhai Dahyabhai v. Jani Narottamdas Lallubhai,  AIR 1986 SC 1912.

^[6] Frost v. Knight, 1872 LR 7 Exch 111.

The post Contingent Contracts under Indian Contract Act appeared first on LexForti .

Sonia Tourism Pvt. Ltd. Vs Ranvir Singh And Anr.

FACTS:

Sonia tourism Private Limited is a tourism company which is engaged in tours and travels, it also provides cars to people as a loan. The defendant was given a car on a rental basis for a period of 3 years after which the car would be returned back to the plaintiff company- Sonia Tourism. According to the agreement the defendant had to pay back the amount in monthly installments on a regular basis for a period of 3 years. This contract was accepted and signed by both the parties. Despite sending a Legal Notice, the Defendant did not return the car or pay the loan. Thus, the petitioner had to file a case in the district court of delhi.

RULES:

Under section 7 and 8 of the Specific Relief Act, 1963 and under section 148 and 153 of the Indian Contract Act, 1872

ISSUES:

Whether the defendant was liable to pay compensation to the plaintiff? And whether there was a breach of contract on the part of the defendant?

PETITIONER CONTENTION:

The petitioner contended that there was a breach of contract on the part of the defendant as the defendant did not comply with any of the terms of the agreement and never paid the monthly instalments which were supposed to be paid by him and also never responded to the calls done to him for reminding him to pay the loan. Furthermore, the defendant also failed to return the car after completion of three years. Despite sending a Legal Notice, the Defendant did not return the car or pay the loan.

RESPONDENT CONTENTION:

Even after several Legal Notices were sent to the defendant, he failed to show up at the court for his case, so the court had to proceed Ex-Parte.

OBSERVATIONS BY THE COURT:

The court observed that the petitioner was entitled for the compensation of her loan as the defendant had failed to pay it back despite several legal notices sent to him. The court found that the plaintiff had proved the legal notice sent by him to the defendants asking for delivery of the vehicle; which the plaintiff was duly entitled under section 153 of the Indian Contract Act, 1872. Also, Suit for recovery of the said goods could be filed under section 7 of Specific Relief Act, 1963. But, the court acknowledged that there were no written documents of the agreement and it was only an oral contract between the two parties.

JUDGMENT:

The court gave the judgement that the defendant should duly return the car to plaintiff immediately. The plaintiff is entitled to receive relief in the form of compensation as the defendant had defaulted on the loan. The plaintiff would also receive an amount as a settlement of the case- the court directed but the claim of obtaining relief in accordance to the damage caused by the defendant was refused as there was no evidence supporting it.

The post Tourism Company granted relief as defendant ordered to pay compensation for default of loan appeared first on LexForti .