Tag: #contractlaw

S.no	Contents
1.	Introduction
2.	Definition of Section 74 of the Indian Contract Act
3.	Time Aspects and Other Dispositions
4.	Importance of Penalties
5.	Jurisdiction of Section 74 of the Act
6.	Analysis of Section 74 of the Act
7.	Principal of Mitigation
8.	Conclusion

Introduction

Since the passage of the colonial Indian Contract Act of 1872 (ICA)¹, much has changed or developed in the manner that commerce is done. Due to the act’s age, there are a few flaws that need to be reviewed and fixed to ensure efficient corporate operations. Unliquidated losses, which apply where a contract lacks a section addressing liquidated damages, are discussed in Section 74 discusses liquidated damages.

This clause deals with liquidated damages, however, the act doesn’t define them, and the courts have frequently issued contradictory rulings in various circumstances. These decisions are frequently viewed incorrectly or differently. This study aims to clear up any ambiguity about significant liquidated damages rulings. It is far more difficult to assert the liquidated damages since you have to demonstrate the extent of the losses the harmed party produced.

There are very few contracts where the damages in the event of a breach cannot be determined. In these kinds of circumstances, it might be challenging to assert liquidated damages that equal the actual harm. The ‘genuine prior estimate of losses’ provision, which the party who breaches the contract attempts to exploit, is given weight by the courts in determining whether liquidated damages are appropriate or not. Additionally, there is no distinction between a penalty and liquidated damages under Indian contract law because the awarded compensation cannot exceed the contract’s maximum value.

Definition of Section 74 of the Indian Contract Act

“The complaining party is entitled to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named, or the case may be, the penalty stipulated for when a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty,”² according to the law.

Exception of Section 74

Any person who signs a bail bond, recognizance, or another similar document, or who offers a bond by law, a directive from the [Central Government] or a 3[State Government] for the accomplishment of a public duty or act in which the public is interested, is liable to pay the full sum specified therein if the condition of the document is broken.

Illustrations

1. In exchange for failing to pay B Rs. 500 on a specific day, A has agreed to pay B Rs. 1,000. On that day, A fails to pay B the sum of Rs. 500. A must pay B the amount of money the court finds appropriate, up to a maximum of Rs. 1,000.
   
2. A signs a recognizance obligating him to appear in court on a particular day in exchange for a fine of Rs. 500. His recognizance is lost. He is responsible for paying the entire fine.
   
3. A and B have an agreement that if A works as a surgeon in Calcutta, he would pay B Rs. 5,000. A is a surgeon who works in Calcutta. B is entitled to compensation that the Court deems appropriate, up to a maximum of Rs. 5,000.

Time Aspects and Other Dispositions

Time is a crucial component of this specific Section 74 of the ICA 1872. The Indian Contract Act of 1872 has significant repercussions that follow a delay, making it difficult for the party in default to immediately breach the contract. The important aspect of these actions is their profound philosophy. The contractual provision of a penalty is meaningless in the absence of any loss. 

The idea of taking advantage of rewards coming from a violation of a contract is mentioned in the Indian Contract of 1872. The bare act states that “When the vendor sells to the defaulting vendee is not eligible to receive the benefits of the later contract if the price is higher than the market price on the day of delivery.” This is accurate even if the vendor received the advantages of a different contract that was desirable to him in return for the loss of the contract that the defaulting vendee had breached.

Importance of Penalties

The essence of a penalty is the payment of the agreed-upon monetary recompense to the party who was wronged. The fundamental idea behind compensation is that the aggrieved party should regain its prior position before the contract’s performance. The landmark case Tata Iron & Steel Co Ltd v. Ramanlal Kandoi³ established this rule, stating that it is important to be aware of the events that caused the plaintiff’s loss of income. The innocent person needs to comprehend the damages.

A comprehensive analysis of the types of fines and damages is necessary. The mere use of terms like “loss” or “damages” does not make the defaulting party liable. A sequence of events must occur for the loss brought on by the contract’s breach to be fairly assessed. Section 74 of the Indian Contract Act abolishes the rather convoluted differences established under English Common Law between provisions allowing for the payment of liquidated damages and clauses in the form of penalties.

Jurisdiction of Section 74 of the Act

Bal Kishan Das v. Fateh Chand⁴, the Court explained the application of Section 74 by dividing situations involving damages into two categories:

1. First, whether the sum to be paid in the event of contract violation has been predetermined and 
2. Any further penalty clauses that may be included in the contract.

Analysis of Section 74 of the Act

When considering the application of Section 74 in Fateh Chand v. Bal Kishan Das⁵, The Court stated that it handles issues involving damages, which are divided into two categories. when the compensation due in the case of a contract violation is predetermined. Where penalties in the form of extra provisions may be included in the contract.

The Supreme Court noted that the expression is meant to embrace several sorts of contracts in Maula Bux v. Union of India⁶, It might not be practicable for the court to determine compensation in cases of contract breaches. If the sum agreed upon by the parties is a real pre-estimate and not a penalty, then it may be used in some circumstances as the benchmark for appropriate compensation.

The party seeking compensation must establish the loss incurred in cases when a monetary loss may be identified. In these situations, the courts must consider whether the amount sought is reasonable. The courts will do this while using the Section 73 principles. The magnitude of the damage incurred by a party must thus be shown in every instance. The obligation to establish the level of loss was waived in some instances, however, where the harm was difficult or impossible to demonstrate.

In Indian Oil Corporation vs. Messrs Lloyds Steel Industries Ltd⁷, the Delhi Court ruled that IOC was unable to receive liquidated damages since it had not experienced any losses as a result of the contractor’s construction and commissioning delays at the terminal in Jodhpur.

The court determined that the pipeline arrived at the Jodhpur port significantly later than the construction project’s completion date and that the terminal could not have been used for commercial purposes without the pipeline.

According to the Supreme Court’s decision in Oil & Natural Gas Corporation Ltd vs Saw Pipes Ltd⁸, when evaluating whether the party seeking damages is entitled to them, the conditions of the contract must be taken into account. unless it is determined that such an estimate of losses or compensation is excessive or acceptable, allowing for liquidated damages in the case of a contract violation.

The person who was harmed by a breach of contract may now obtain a decree without having to show that he experienced loss or damage thanks to Section 74. Even if no real loss is demonstrated to have been experienced as a result of the contract violation, the court is nonetheless permitted to award appropriate damages in such a situation.

If the damages are a true pre-estimate by the parties as the standard for fair damages, the court may nevertheless award them even if they are not a punishment or are reasonable. The court may find it challenging to determine the appropriate damages in some contracts.

Principal of Mitigation

According to the idea of mitigation, the complaint must make a concerted effort to accomplish considerably more in the typical court of commerce. The efforts he takes to remove himself in the case of a contract breach shouldn’t be measured on a high-tech scale. The complainant doesn’t need to endanger his assets, his reputation, or that of his business to reduce the damages that the defendant will be compelled to cover. In M Lachia Setty & Sons Ltd. v. Coffee Board Bangalore⁹, the Supreme Court decided that the mitigation principle should be the only consideration made while calculating damages rather than granting any rights to a party that violated the contract. In this case, it was determined that the complainant was required to do all reasonable efforts to limit the loss and that he was barred from pursuing claims for avoidable losses if he failed to do so.

According to the decision in Esso Petroleum Co. Ltd. v. Mardon¹⁰, the court has the jurisdiction to treat a prediction made concerning the subject of a contract at the pre-negotiation stage as more than just an expression of opinion and as a continuing guarantee. This is because the prognosis was provided to sway the other party into signing a contract. The person who produced the prediction may be held accountable for a breach of warranty if the estimate is subsequently found to have been prepared with complete negligence.

 In Murlidhar Chiranjilal v. Harishchandra Dwarkadas¹¹, according to the Supreme Court, there are two criteria used to determine damages when a contract for the sale of commodities is broken. The first step is to place the party that can prove the other party did not provide what they were promised in a position financially equivalent to what would have happened if the contract had been completed. The plaintiff is also not entitled to any damages resulting from failure to take reasonable efforts to mitigate the loss resulting from the breach.

Conclusion

Thus, it follows that the requirement that the loss sustained be shown violates the entire reason why liquidated damages provisions are included in contracts. The Act’s Section 74 emphasizes the need for fair pay. If the contract’s compensation was offered as a penalty, The consideration would be altered, and the party would only be eligible for damages reimbursement. However, if the compensation provided in the contract is a true pre-estimate of loss, which the party recognized at the time of contracting, there is no doubt as to how to prove such loss. In actuality, it is the opposing party’s responsibility to provide evidence that no loss is anticipated to result from such a breach.

---

Endnotes:

1. Indian Contract Act 1872
2. Section 74 of the Indian Contract Act 1872
3. Tata Iron & Steel Co Ltd v. Ramanlal Kandoi, (1971) 2 Cal. Rep. 493, 528
4. Bal Kishan Das v. Fateh Chand, AIR 1963 SC 1405
5. Fateh Chand v. Bal Kishan Das, AIR 1963 SC 1405
6. Maula Bux v. Union of India, (1969) 2 SCC 554
7. Indian Oil Corporation vs. Messrs Lloyds Steel Industries Ltd, 2007 (144) DLT 659)
8. Oil & Natural Gas Corporation Ltd vs Saw Pipes Ltd, (2003) 5 SCC 705
9. M Lachia Setty & Sons Ltd. v. Coffee Board Bangalore, (1981) SCR (1) 884
10. Esso Petroleum Co. Ltd. v. Mardon, [1976] QB 801
11. Murlidhar Chiranjilal v. Harishchandra Dwarkadas, 1962 SCR (1) 653

This article is authored by Animesh Nagvanshi, a student at ICFAI University, Dehradun.

Citation

1979 AIR 621, 1979 SCR (2) 641

Date of Judgment

12/12/1978

Court

Supreme Court of India

Bench

• Justice P.N. Bhagwati
• Justice V.D. Tulzapulkar

Introduction

According to the Promissory Estoppel doctrine, the promisor will refrain from breaking the promise if it would be unfair for him to do so whenever an unambiguous promise is made with the intent to establish a legal relationship or affect one that will arise in the future, knowing or intending that it would be acted on by the other party and is in fact acted on. This is the main referred law in this present case. If parties who had already agreed to clear-cut terms involving specific legal outcomes later engage in negotiation, it may be assumed that Promissory Estoppel only applies to situations in which the parties are already bound by a legal or contractual relationship and one of them promises the other that strict legal rights under the contract won’t be enforced. However, the court found that the theory of promissory estoppel, even as it was originally stated by Lord Denning in the High Trees case, did not contain any such limitation, and thus it cannot apply in the current case, Motilal Padampat Sugar Mills.

Background of the Case

The appealing party in this instance was a limited sugar production company. His main line of work was producing and selling sugars. On October 10th, 1968, news broke that the respondent (In this case- The state of Uttar Pradesh) had decided to exempt all new modern units in the State of Uttar Pradesh from the Tax charges for a period of three years under Section 4-A of the Uttar Pradesh Sales Tax Act, 1948. On October 11th, 1968, the appealing party spoke with the Director of Industries, stating that the party sought confirmation of the exemption and wished to establish a factory to produce vanaspati in light of the business charge occasion given by the administration. The appointment was confirmed by the director of industries. The Chief Secretary of the Government of Uttar Pradesh made an affirmation with a similar effect too.

The appealing party went ahead and built up the processing plant after receiving these certifications. The Uttar Pradesh State government reexamined the issue of exclusion in May 1969 and suggested the litigant attend a gathering. The representative of the appealing party testified at the meeting that the plaintiff had continued constructing the manufacturing facility on the affirmation and assurance of the respondent (the legislature of Uttar Pradesh). He took out a sizable loan and began to pay it back under the impression that the government had exempted him from paying taxes. But after some time, the government reconsidered its tax exemption strategy. It requested the petitioner attend a meeting discussing this matter and called for one to be held. To attend the meeting, the petitioner dispatched a representative. In any case, the State Government of Uttar Pradesh made the strategic decision on January 20th, 1970, to grant a small reduction in the deals charge to new vanaspati units that began operations by September 30th, 1970. Once again, however, the State govt. went back even on this promise denying any concession to be given. Plaintiff sued the government on account of promissory estoppel.

Issues Raised

The issues raised in this case are-

1. Whether the plaintiff’s acceptance of a partial exemption rendered his entitlement to have a cause of action?
2. Whether the plaintiff has a claim based on promissory estoppel?
3. Is it possible to take such action against the government when it is functioning in such capacities as government, sovereign, or administrative?
4. Given that the plaintiff did not experience any harm, would the theory of Promissory Estoppel apply in the current situation?

Contentions of Parties

Arguments of Petitioner- The main defence put forth on behalf of the appellant was that the respondent had made a categorical assurance on behalf of the State Government that the appellant would be exempt from payment of sales tax for a period of three years from the date of commencement of production. This assurance was made knowing or intending that the appellant would act on it, and in fact, the appellant did act in reliance on it and the State Government changed its position. The appellant argued that since waiver was a factual issue that needed to be pled and since it wasn’t addressed in the affidavit submitted by the State Government in opposition to the writ petition, the State Government was ineligible to rely on the waiver argument. It was claimed by the appellant that even if the waiver defence was allowed to be raised, despite the fact that it had no mention in the pleadings, no waiver had been established because there was no evidence to support the circumstances under which it had sent the letter. It was also impossible to claim that the appellant, with full knowledge of its right to claim complete exemption from payment of sales tax, had sent the letter.

Arguments from Respondent side- On the other hand, the State Government vigorously advanced the waiver argument, arguing that by addressing the letter dated June 25, 1970, the appellant had expressly forfeited its entitlement to full exemption from payment of sales tax. The State Government further argued that, even in the event of a waiver, the appellant would not be permitted to enforce the assurance provided by the fourth respondent because the State Government was not a party to the assurance, and that, in addition, in the absence of notification under section 4A, the State Government could not be prevented from enforcing the appellant’s obligation to pay sales tax under the terms of the Act. The State Government argued that there could not be a promissory estoppel against the State Government in order to prevent it from developing and carrying out its policies in the public interest. These were essentially the opposing arguments put out on behalf of the parties, and we will now analyse them.

Judgement

Though the division bench of the High Court rejected the plea for seeking promissory Estoppel against the respondents, the honourable Supreme Court held that-

1. The decision of the High Court of not granting Promissory Estoppel on the ground that the petitioner has waived that right and so can not have his course of action was wrong.
2. The waiver is a factual issue that needs to be adequately argued and proven. No plea of waiver may be raised unless it is pleaded and the facts supporting it are set forth in the pleadings.
3. Waiver is the act of giving up a right; it can be expressed or inferred from behaviour, but it must be “an intentional act with knowledge” in order to be considered valid. There can be no waiver unless the individual who is supposed to have done so is fully aware of his rights and intentionally gives them up while doing so.
4. ‘Promissory estoppel’ is a legal theory that was developed by equity to prevent injustice when a promise is made by someone who knows that it will be carried out and who is the person to whom it is made and in fact it is so. It is unfair to permit the party making the promise to break it after it has been acted upon. Despite being known as promissory estoppel, this legal doctrine has nothing to do with contracts or estoppel. The interposition of equity, which has always acted in accordance with form to lessen the burdens of strict law, serves as the foundation of the concept.
5. The true meaning of promissory estoppel is that when one party makes a clear and unambiguous promise to another party through words or conduct that is intended to forge a future legal relationship, knowing or intending that the other party will act on the promise, and that the other party actually does act on the promise, the promise will be enforceable against the party who made it and he will be bound by it whether there is a pre-existing relationship between those parties or not. In a situation when justice and fairness call for it, equity will prevent a person from insisting on stringent legal rights even when they originate from his own title deeds or from legislation rather than under any contract.
6. The same limiting estoppel in the strict meaning of the word cannot prevent the notion of promissory estoppel. It is an equitable concept that the Courts developed for the purpose of upholding justice, thus there is no reason why it should only be applied sparingly as a form of defence or used as a shield rather than a sword to establish a claim. It might serve as the impetus for legal action.
7. The Government would be held bound by the promise and the promise would be enforceable against the Government at the request of the promisee even though there is no consideration for the promise and the promise is not recorded in the form of a formal contract as required when the Government makes a promise knowing or intending that it would be acted on by the promisee and the promisee, acting in reliance on it, changes his position.
8. The doctrine of promissory estoppel must give way when equity demands it since it is an equitable doctrine. The Court would not raise equity in favour of the promisee and enforce the promise against the Government if the Government could demonstrate that, given the facts as they have developed, it would be unfair to hold it to the promise it made.
9. The moral standards of the society must be in accordance with the law for it to be legitimate and win social approval. Closing the gap between morality and law and achieving as close to a match as feasible between the two should be the constant goal of legislatures and courts. A key judicial advancement in that direction is the promissory estopped concept.
10. The distinction between a private person and a public body cannot be made in terms of the promissory estoppel theory.  This idea also applies to a government entity like a city council. This approach, however, cannot be used to circumvent a legal responsibility or liability. It cannot be used to force the government or even a private person to carry out an unlawful act. Additionally, promissory estoppel cannot be used to prevent the exercise of legislative power. By using the promissory estoppel concept, the Legislature can never be prevented from doing its legislative duties.

Conclusion

The case turned out to be very important in other cases. The court attempted to define promissory estoppels in this instance. This case did a good job of demonstrating how promissory estoppel could be a defence. However, it must be used with the doctrine of consideration if it is to be used as a weapon. This case demonstrated how important it is for society to stop fraud and injustice. This certificate appeal brings up a significant issue in the area of public law. Although it is a relatively new doctrine, it has the potential to be so prolific and packed with development opportunities that traditional attorneys are concerned it could upend established doctrines, which are viewed almost reverently and have held the line for decades.

This article is authored by Dibyojit Mukherjee, a student at the Institute of Law, Nirma University.

RELEVANT POST:

Doctrine of Estoppel

Case Number

158 Ind Cas 554

Equivalent Citation

(1935) 37 BOMLR 461

Bench

The Bombay High Court

Decided On

12.03.1935

Relevant Act / Section

• The Indian Contract Act, 1872
• The Insurance Act, 1938

Brief Facts and Procedural History

Introduction

This legal case centres around a minor named Madanlal Sonulal, who initiated legal proceedings against The Great American Insurance Co. Ltd. for failing to fulfil a contractual promise. The agreement was made between the minor’s guardian and the insurance company and was deemed valid. Madanlal was the only surviving son of a joint Hindu family that operated a business in Devalgaum. The family had taken out a fire insurance policy with the defendant company to cover their cotton bales. However, when the cotton bales were destroyed in a fire, the plaintiff sued the defendant company for the recovery of their loss. The defendant company, which was incorporated in New York, USA, was conducting business in Bombay, India. To represent him in the case, Madanlal was aided by his next friend, Goverdhandas Mohanlal, who was the husband of the plaintiff’s sister and with whom the plaintiff was living.

The case raises several legal issues, including the enforceability of contracts entered into by minors, the obligations of an insurance company under a fire insurance policy, and the jurisdiction of foreign companies operating in India. The court had to determine whether the contract was binding on the minor, whether the insurance company had fulfilled its obligations, and whether the court had jurisdiction to hear the case. The case has significant implications for Indian contract law, particularly in relation to minors and the obligations of insurance companies. Ultimately, the court’s ruling would have a profound impact on the rights of Indian citizens in similar legal disputes.

Facts

This is an appeal case regarding a point of law arising from Mr Justice Kania’s decision. The plaintiff, Madanlal Sonulal, is represented by Goverdhandas Mohanlal, his next friend, and has filed a lawsuit against The Great American Insurance Co., Ltd. This company is based in New York, USA, but operates in Bombay at Apollo Street within the Fort of Bombay. According to the lawsuit, the plaintiff is the only surviving coparcener of a joint Hindu family that carries on a joint family business in Devalgaum under the name Surajmal Sonulal. The plaintiff lives with his sister’s husband, Goverdhandas Mohanlal, who oversees the firm’s operations. The plaintiff had effected an insurance policy against fire with the defendant company on certain cotton bales Nevertheless, at the precise moment when the ultimate insurance was granted to the plaintiff’s company, the bales were set on fire, prompting the plaintiff to file a lawsuit seeking compensation for the resulting loss through the insurance policy. The defence raised in the written statement is that there was collusion between the agent of the defendant company and the persons who affected the insurance and that the insurance was affected after the fire. The defendants did not plead that the plaintiff was a minor and that the insurance policy was void. However, during the proceedings, the defendant’s counsel drew the attention of the learned Judge to the fact that the plaintiff was a minor and invited the Court to raise an issue as to whether the contract was void on the ground of a minority of the plaintiff. The learned Judge raised such an issue, but at the trial, he came to the conclusion that it was not necessary to answer the issue since the minority had not been pleaded.

The defendants have appealed the judgment of the learned Judge. They have not challenged the findings of fact. However, they contend that the insurance policy is void because the plaintiff is a minor, relying on the well-known decision of the Privy Council in Mohori Bibee v. Dhurmodas Ghose^[1]. The Privy Council held that any contract by a minor is wholly void under the Indian Contract Act since the Act requires that parties to a contract should be persons competent to contract, and if one of the parties is a minor, he is not competent to contract, and therefore, no contract results.

The learned Judge had found that the contract was valid and negatived the case of fraud and collusion set up by the defendant company, and gave judgment for the plaintiff. The only answer raised by the defendants is that the insurance is void because the plaintiff is a minor. This contention is alarming since it means that the property of minors cannot be insured 

In numerous joint family enterprises, minors inherit ownership rights, and typically an adult member of the family manages the business under the minor’s name. However, if this family member is unable to secure insurance on behalf of the minor, it can create a highly precarious situation. Nonetheless, the evidence indicates that the agreement was actually established by Goverdhandas, who acted as a representative through his agent Trimbaksha. In other words, the minor who entered into the contract did so through the agent Trimbaksha, who was serving as the minor’s guardian. The Court need not delve into the principles of the previous cases since the answer to the defendants’ contention is a simple one. The contract was made by the guardian of the minor, and not by the minor himself. Thus, the insurance policy is not void.

Before this case, in Mohori Bibee and Ors. Vs. Dharmodas Gosh (1903), the Privy Council had held that a contract by a minor is void-ab-initio. Yet, the Privy Council ruled in Sri Kakulam Subrahmanyam Vs. Kurra Subba Rao (1948)^[2] that an agreement made by a guardian on behalf of a minor for their advantage is considered legally binding. In Suraj Narain Dube v. Sukhu Aheer and Anr (1928)^[3], the Allahabad High Court held that the old consideration by the minor is not valid consideration for a fresh contract. In the case of Kunwarlal Daryavsingh vs Surajmal Makhanlal And Ors. (1963)^[4], the Madhya Pradesh High Court held that a minor is liable to pay rent for the property given to him on rent due to necessities for living and continuing study.

The case of General American Insurance Co v/s Madanlal Sonulal^[5] thus stands in line with the legal precedents established by the above cases, where the validity of a contract made on behalf of a minor or involving a minor was challenged and resolved.

Issues Of The Case

• Validity of the insurance made by the minor: An important matter to be addressed in this case pertains to the validity of the insurance policy made by the minor. As the minor is not legally competent to enter into a contract, the enforceability of the policy is uncertain. Thus, the court must decide whether the policy is binding or whether it should be rendered void on account of the minor’s legal incapacity.
• Liability of the insurance company to pay losses under the policy: A second matter for the court to consider is whether the insurance company is responsible for covering the losses under the policy. In the event that the policy is deemed valid, the court must then decide whether the insurance company is legally required to fulfil the terms and conditions outlined in the contract. In making this determination, the court may need to evaluate various factors such as the nature of the loss, the degree of damage incurred, as well as any provisions or restrictions included in the policy.

The case of Madanlal Sonulal v. The Great American Insurance Co. Ltd. dealt with several legal issues, including:

1. Whether a policy of insurance is void if entered into on behalf of a minor by an adult member of their family.
2. Whether the defendant could raise the defence that the contract was void on the ground of the minority of the plaintiff, citing the well-known decision of the Privy Council in Mohori Bibee v. Dhurmodas Ghose.
3. Whether the contract was actually made by the minor’s guardian acting through an agent, or whether it was made directly by an adult member of the minor’s family.
4. Whether the defendant could use technical defences to policies, especially in cases involving minors and joint family businesses.
5. Whether the law strikes an appropriate balance between protecting the rights of minors and ensuring the smooth functioning of businesses and transactions involving minors.

Decision Of The Court

In the case at hand, Defendant had raised a claim in their written statement that there was collusion between Plaintiff and the agent of Defendant’s company. According to Defendant, the insurance came into effect after the occurrence of the fire, and therefore, they were not liable for the damages. The Plaintiff’s minority was not pleaded, and as a result, the learned judge concluded that since the issue of the minority was not raised, it was not necessary to address it. The judge further held that the insurance was valid and ruled in favour of the Plaintiff in the case of collusion and fraud.

However, Defendant appealed this decision on the grounds that Plaintiff was a minor at the time the insurance was taken out, and therefore, the insurance should be considered void ab initio. The court analyzed the circumstances surrounding the insurance policy and found that it had been entered into by Goverdhandas on behalf of the minor through the agent Trimbaksha with Puranmal on behalf of the Defendant’s company. The court further noted that Puranmal had knowledge of the Plaintiff’s minority, which made the Defendant’s company aware of the Plaintiff’s status as a minor.

The court then considered whether Goverdhandas could be considered a guardian within the meaning of the relevant Act. The Act defines a guardian as a person who has the care of the person of a minor or of their property, or both. In this case, the insurance was made for the benefit of the minor and their property, and Goverdhandas had acted on behalf of the minor in entering into the insurance agreement. Therefore, the court held that the insurance was valid and dismissed the Defendant’s appeal with costs.

In light of the court’s decision, the parties agreed that the insurance company would pay Rs. 7000 to the Plaintiff. This decision reflects the court’s careful consideration of the legal issues at play, including the definition of a guardian under the relevant Act and the circumstances surrounding the insurance policy in question.

Conclusion

The case of Madanlal Sonulal v. The Great American Insurance Co. Ltd. serves as a reminder of the importance of understanding the legal implications of contracts entered into on behalf of minors and the role of guardians in such transactions. In this case, the defendant raised the defence that the contract was void on the grounds of the plaintiff’s minority, citing the decision of the Privy Council in Mohori Bibee v. Dhurmodas Ghose (1903).

However, the court ultimately ruled that the contract was not made by the minor but by Goverdhandas, acting through his agent Trimbaksha. Thus, it was the person acting as the guardian for the minor who entered into the contract through the agent. This ruling underscores the importance of understanding who the contracting parties are and whether the person entering into the contract has the legal authority to do so on behalf of the minor.

Furthermore, this case highlights the need for insurance companies to carefully consider technical defences to policies, especially in cases involving minors and joint family businesses. Insurance companies must be diligent in their review of the policy and ensure that the person who enters into the contract on behalf of the minor has the legal authority to do so.

In conclusion, while the law seeks to protect minors from entering into contracts that may be detrimental to their interests, it is essential to balance the need to protect their rights with the smooth functioning of businesses and transactions involving minors. It is important to take into account the role of guardians in such transactions and to ensure that all parties understand the legal implications of the contract before entering into it. Overall, this case serves as a valuable reminder to all parties involved in contractual relationships to be aware of the legal implications of their actions and to seek legal advice where necessary.

---

Endnotes:

1. Mohori Bibee v. Dhurmodas Ghose, (1903) 30 Cal. 539 (India).
2. Sri Kakulam Subrahmanyam v. Kurra Subba Rao, AIR 1948 Mad 207 (India).
3. Suraj Narain Dube v. Sukhu Aheer and Anr, AIR 1929 All 210 (India).
4. Kunwarlal Daryavsingh v. Surajmal Makhanlal and Ors., AIR 1964 SC 193 (India).
5. Madanlal Sonulal v. The Great American Insurance Co. Ltd., AIR 1962 SC 439 (India).

This case is analysed by Sohini Chakraborty, a first-year law student at RGNUL Patiala.

RELATED POST: When Age Matters: Examining the Implications of Minors Entering into Contracts

S.no	Contents
1.	Introduction
2.	What is an E-Contract?
3.	Legal Validity of E-Contracts
4.	Essentials
5.	Validity of E-Contracts under the Indian Evidence Act
6.	Roles of Parties in an E-Contract
7.	Kinds of E-Contracts
8.	Challenges Associated with E-Contracts
9.	Present Dilemmas
10.	Conclusion

Introduction

As we enter the era of digitization, technology has become the backbone of almost everything, from our means of communication to attendance tracking in offices is now seamlessly integrated with technology. It’s no secret that in this day and age, technology is the driving force behind the advancements we see around us. As more companies continue to expand and agreements become increasingly complex, it’s only natural that the contracts themselves should become digitized as well.

Here in India, the rise of online transactions has led to a surge in the use of electronic contracts. These cutting-edge agreements are created and executed through electronic communication and digital signatures, bypassing the need for physical documents or signatures. With this new level of convenience and efficiency, we can now close deals with ease, without having to deal with tedious paperwork or signatures.

What is an E-Contract?

The Indian Contract Act, of 1872^[1], defines a contract as an agreement that is enforceable under the law. Section 2(h) of the Act states that for an agreement to be considered a contract, it must meet certain legal requirements. Interestingly, electronic contracts, also known as E-Contracts, adhere to the essence of Section 2(h) while changing the mode of contract formation. In simple terms, E-Contracts are digital agreements that are created, negotiated, and executed without the need for physical paperwork. The parties involved communicate through electronic means, such as the internet or telephonic media, allowing for a meeting of the minds to take place.

E-Contracts save time and are a step ahead of traditional pen-and-paper contracts as they are entirely paperless and created through digital mediums. Through the use of electronic means, such as the internet or telephonic media, the parties involved in E-Contracts are able to communicate effectively, leading to a meeting of the minds. This not only streamlines the negotiation process but also reduces the need for physical meetings, saving time and resources. Unlike traditional pen-and-paper contracts, E-Contracts are created through digital mediums and are completely paperless, making them environmentally friendly and cost-effective. They are a step forward from traditional contracts, as they are efficient, secure, and authentic.

Legal Validity of E-Contracts

Section 10A of the Information Technology (IT) Act, 2008^[2] is a significant provision in the Indian legal framework that acknowledges the legitimacy and enforceability of electronic contracts. The IT Act was amended to include this section as a response to the increasing use of digital contracts in commercial dealings.

The introduction of Section 10A of the IT Act clarifies that electronic contracts cannot be considered invalid merely because they exist in electronic format. These contracts hold the same legal value and enforceability as traditional paper contracts. This means that parties entering into an electronic contract have the same legal rights and duties as those in a contract executed on paper. The Act not only recognizes the legality of electronic contracts but also sets out certain conditions for their validity. These conditions include making the contract accessible for future reference and using a reliable and secure electronic signature or authentication method. Additionally, it clarifies that any law which requires a contract to be in a particular form or written shall be deemed satisfied if the contract is in electronic form and meets the requirements specified under Section 10A.

Essentials

1. There must be a proposal – one party must offer to enter into a contract.
2. There must be acceptance – the other party must agree to the proposal.
3. Legal consideration must be there – there must be something of value exchanged between the parties.
4. Parties must be able to contract – they must have the legal capacity to enter into a contract.
5. Free consent by the parties – the parties must enter into the contract freely and voluntarily without any coercion or undue influence.
6. Lawful objective – the purpose of the contract must not be illegal or against public policy.

It is essential for an e-contract to fulfil these criteria in order to be valid and enforceable under the law. Therefore, if all the necessary elements of a contract are present in an electronic agreement, it cannot be invalidated solely on the basis of its digital form, making E-Contracts legally binding and valid. It is crucial to establish the legal validity of an E-Contract to ensure that legal action can be taken in case of any violation of the agreement.

Validity of E-Contracts under the Indian Evidence Act

According to Section 65B^[3], any information contained in an electronic record that is either printed on paper, stored, recorded, or copied in an optical or magnetic media produced by a computer, can be deemed to be a document. However, this is subject to certain conditions, including that the electronic record is produced in court in compliance with the provisions of the Indian Evidence Act, and that it is accompanied by a certificate identifying the electronic record containing the statement of the person who had control over the creation of the record.

In essence, Section 65B ensures that electronic records are given the same evidentiary value as physical documents. This provision is particularly significant in the context of electronic contracts, as it reinforces their legal validity and provides parties with a means of proving the existence and terms of an electronic contract in court.

Roles of Parties in an E-Contract

An e-contract usually involves two parties: the originator and the addressee. The originator is responsible for initiating, sending, or creating the electronic message, while the addressee is the intended recipient of the message. The originator could be an individual, a business, or any other organization that initiates electronic communication. They can send an e-contract proposal to the addressee through various electronic channels such as email, messaging platforms, or an online contract management system.

The addressee, on the other hand, may also be an individual, a business, or any other entity that receives the proposal from the originator. Once the addressee receives the proposal, they may choose to accept, reject, or make a counterproposal based on the terms and conditions of the e-contract and the negotiation process between the parties.

Kinds of E-Contracts

The main types of contracts are:

• Shrink Wrap contracts – Contracts that are agreed upon by the end user by opening the product packaging.
• Click Wrap contracts – Agreements that are agreed upon by the end user by clicking on an “I agree” or similar button on a website or software.
• Browser Wrap contracts – Contracts that are agreed upon by the end user by using a particular website or software.

In addition to these, there are also other types of contracts, such as:

• Electronic Data Interchange – It is the type of e-contract that is used in the business-to-business (B2B) context for the automated exchange of business documents.
• E-Mail contracts – Agreements that are formed through the exchange of e-mails between the parties.

Comparing Traditional and E-Contracts

Within the legal domain, it is imperative to recognize the fundamental disparity between conventional contracts and electronic contracts. The former entails a tangible signature and is produced on paper, whereas the latter involves the utilization of digital signatures and is created digitally. In addition, the formation of conventional contracts demands the presence of the involved parties in a physical setting, culminating in elevated transaction costs and protracted processes. Conversely, electronic contracts obviate the need for physical presence, resulting in diminished transaction costs and enhanced expediency.

Challenges Associated with E-Contracts

• AUTHENTICITY AND SECURITY

E-contracts pose various challenges in their formation and enforcement, including concerns about the authenticity and security of electronic documents. Although the use of electronic signatures and digital certificates can ensure authenticity and security, there is always a risk of fraud, hacking, and unauthorized access to electronic documents. As technology advances and individuals become more knowledgeable about it, there is a risk of malicious use that can compromise the privacy of the public. Parties to e-contracts must take adequate measures to protect their electronic documents from such risks, including but not limited to using secure communication channels, employing encryption techniques, and regularly updating their security protocols.

• ENFORCEABILITY

The enforceability of electronic contracts in India hinges on their adherence to the requirements set forth in the Contract Act. Under the Contract Act, parties to a contract must possess the contractual capacity and the agreement must not violate any laws or public policies. Moreover, the contract terms must be lucid and explicit, and the contract must have consideration.

In India, there have been several instances where the enforceability of e-contracts has been challenged in courts of law. One such example is the Trimex International FZE Limited v. Vedanta Aluminum Limited (2010)^[4] case, in which the court upheld the enforceability of an electronic contract, despite the absence of a physical signature. The court declared that the usage of digital signatures and the presence of a valid offer and acceptance satisfied the prerequisites laid out in the Contract Act.

• JURISDICTION

One of the most significant challenges in the realm of electronic contracts pertains to jurisdiction and choice of law. Electronic contracts are frequently established across different jurisdictions, with the involved parties potentially operating under distinct legal systems. Therefore, the clauses regarding jurisdiction and choice of law must be meticulously crafted to ensure that the parties agree on the applicable law and forum for dispute resolution. Failure to properly address these clauses could result in one party being subjected to laws with which they are unfamiliar, potentially leading to non-compliance and undesirable legal ramifications. As such, it is imperative for parties involved in electronic contracts to engage in thoughtful deliberation regarding jurisdiction and choice of law clauses to minimize potential conflicts and disputes.

Present Dilemmas

• AUTOMATED CONTRACTS IN E-COMMERCE

The proliferation of artificial intelligence and machine learning in e-commerce has led to the formation of contracts through automated systems, raising pertinent legal questions regarding their enforceability. The primary concern revolves around whether contracts formed without any human intervention are legally binding and enforceable. With the increasing use of automated systems, it is essential to evaluate the validity of these types of contracts and determine if they adhere to the requirements set forth by contract law. The development of these automated systems has also prompted the need for a clear legal framework to ensure that parties involved in such contracts are adequately protected. Thus, there is a pressing need for legal guidelines and regulations to facilitate the formation, validity, and enforcement of contracts through automated systems.

• ONLINE DISPUTE RESOLUTION

One of the challenges in the enforcement of e-contracts is the possibility of disputes arising between the parties involved. In order to address this issue, there is a need for a mechanism for online dispute resolution, similar to the physical systems that exist for resolving disputes. With the increasing use of technology in e-commerce, the use of online dispute resolution can provide a cost-effective and timely solution to resolve disputes in the same medium in which the contract was formed. This would not only save time and money for the parties involved but also promote trust and confidence in the use of e-contracts.

• DATA PRIVACY

E-contracts often entail the collection and processing of personal data, which can potentially be accessed by individuals with sufficient technological expertise. It is essential that the use of such data complies with applicable data protection laws, including the General Data Protection Regulation (GDPR)^[5] in the European Union and the Personal Data Protection Bill in India, to safeguard the privacy and security of individuals. Adherence to such laws can help ensure that personal data is processed lawfully and transparently, and that appropriate measures are taken to protect against unauthorized access, theft, or misuse of personal data.

• FORCE MAJEURE

It is imperative to update the force majeure clause in e-contracts to account for unforeseeable events that could impede contract performance. Traditionally, force majeure provisions applied to uncontrollable events, such as natural disasters, wars, or labour strikes that were unforeseeable at the time of contract formation. However, given the increasing reliance on technology in conducting business, it is vital to include potential disruptions caused by cyber-attacks, technology failures, or similar events. Thus, it is necessary to include provisions in the force majeure clause that explicitly describe the effect of such events on contract performance, to ensure that e-contracts remain valid and enforceable in these scenarios.

Conclusion

In the contemporary era, the prevalence of e-contracts has become ubiquitous, making it arduous to avoid or anticipate their eventual dominance over traditional contracts. The digital age has witnessed the widespread adoption of e-contracts as a customary mode of contracting. The legal framework governing the formation and enforcement of e-contracts is underpinned by legal principles and statutory provisions. Provided that they satisfy legal requisites, e-contracts are enforceable to the same degree as paper-based contracts. However, the realm of e-contracts poses distinctive challenges, including concerns related to the legitimacy and security of electronic documents, as well as issues related to jurisdiction and choice of law. To ensure the enforceability and validity of e-contracts, parties must implement appropriate measures to mitigate these challenges. Although e-contracts offer notable advantages in terms of expediency and efficiency, parties must remain vigilant to address unconventional challenges. Given that technological progress is inevitable, it is vital for parties to e-contract to be cognizant of these challenges and take appropriate steps to address them.

---

Endnotes:

1. The Indian Contract Act, 1872, Act No. 9 of 1875
2. The Information Technology (Amendment) Act, 2008, Act No. 10, Acts of Parliament, 2009 (India).
3. The Indian Evidence Act, 1872, Act No. of 1872
4. Trimex International Fze Limited v. Vedanta Aluminium Limited, 2010 (1) S.C.C. 574 (India)
5. General Data Protection Regulation (GDPR), https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32016R0679

This article is authored by Sohini Chakraborty, a first-year law student at RGNUL Patiala.

Read more about E-Contracts:

• Laws Governing Online Contracts, http://lexpeeps.in/laws-governing-online-contracts/
• Validity and Challenges of E-Contracts, http://lexpeeps.in/validity-and-challenges-of-e-contracts/
• Evidentiary Value of E-Contracts, http://lexpeeps.in/evidentiary-value-of-e-contracts/

S.no	Contents
1.	INTRODUCTION
2.	WHO IS A MINOR?
3.	CAN MINORS ENTER INTO A CONTRACT?
4.	CONTRACTS OF BENEFICIAL NATURE
5.	BENEFICIARY TO A CONTRACT
6.	RESTITUTION
7.	NO ESTOPPEL AGAINST MINOR
8.	RATIFICATION BY A MINOR
9.	VOIDABLE AT THE OPTION OF A MINOR
10.	CONCLUSION

INTRODUCTION

The capacity to contract is a crucial aspect of contract law, which refers to the ability of a person to enter into a legally binding agreement. In other words, it is the legal competence or power of an individual or entity to enter into a contract that creates enforceable rights and obligations between the parties involved.

To be bound by a contract, the parties must have the legal capacity to agree. This means that they must have the mental capacity and legal status required to form a legally binding contract. The law recognizes that certain individuals or entities may not have the necessary capacity to enter into a contract, and therefore, any agreement they make may not be legally binding.

For example, minors, individuals with mental incapacities, and individuals under the influence of drugs or alcohol may not have the legal capacity to enter into a contract. In such cases, any contract they enter into may be deemed void or unenforceable. Similarly, corporations and other legal entities must also have the capacity to contract. This means that they must have the legal authority and power to enter into a contract, as well as the necessary authorization from their board of directors or shareholders.

Overall, the capacity to contract is a fundamental element of contract law, as it ensures that contracts are entered into freely and voluntarily by parties who have the legal competence and power to be bound by them.

WHO IS A MINOR?

According to Section 3^[1] of the Indian Majority Act, of 1875, an individual is considered to have achieved the age of majority once they turn 18 years old, with the exception of two scenarios

• If a guardian has been appointed for a minor’s person or property under the Guardians and Wards Act, of 1890, then the minor will remain a minor until they complete the age of 21 years.
• If a Court of Wards has assumed the superintendence of a minor’s property, then the minor will also remain a minor until they complete the age of 21 years, even if they have already turned 18 years old.

Under the act, minors enjoy a privileged position whereby they can bind others to contracts, but cannot themselves be held accountable for any breaches. This means that a minor cannot be held personally responsible for any wrongdoing they may commit.

CAN MINORS ENTER INTO A CONTRACT?

According to Section 11^[2] of the Indian Contract Act, of 1872, it is explicitly prohibited for a minor to enter into a contract. This prohibition means that any contract entered into by a minor, regardless of whether the other party was aware of their age, will be considered void-ab-initio, or invalid from the outset. This means that even if a minor is just one day away from turning 18, they will still be considered a minor in the eyes of the law, and any contracts they enter into will be deemed void.

Let’s take an example to understand the legal concept of minors and contracts;

In this case, Mr D, a minor, mortgaged his house for Rs.20,000 to a moneylender, who paid him only Rs.8,000. Subsequently, Mr D filed a lawsuit to set aside the mortgage agreement.

The court held that as per Section 11 of the act, a minor is not capable of entering into a contract, and any contract entered into by a minor is void. Therefore, the mortgage agreement between Mr D and the moneylender was void-ab-initio, as Mr D was a minor at the time of the agreement. The court further held that since the contract was void, Mr D was not liable to repay the moneylender any amount of the mortgage. The court allowed Mr D’s request to set aside the mortgage agreement, and the moneylender was not entitled to claim any rights on the property mortgaged by Mr D.

It is a well-established legal principle that minors are generally unable to enter into contracts, given their lack of legal capacity. However, there are two notable exceptions to this rule;

CONTRACTS FOR NECESSARIES

These are goods and services that are necessary for the minor’s support and maintenance. In such cases, a minor can enter into a contract for necessities, and the contract will be binding on the minor to the extent that it is reasonable and necessary.

CONTRACTS OF BENEFICIAL NATURE

 This type of contract is entered into for the benefit of the minor and is therefore binding on the minor. Examples of such contracts may include contracts for education or to advance the minor’s business interests. It is important to note that in both cases, the contracts must be entered into for the benefit of the minor in order to be legally enforceable. These exceptions to the general rule regarding minors and contracts serve to protect the best interests of minors and ensure that they can enter into necessary and beneficial agreements. The principle that a minor cannot enter into a legally binding contract has been firmly established in various landmark cases. One such notable case is Mahori Bibi v/s Dharmodas Ghose^[3], where the court held that a minor’s contract is void ab initio and unenforceable, even if the minor has misrepresented their age or misled the other party into believing that they were of age. The case has been widely cited and has played a pivotal role in shaping contract law in India, reaffirming the principle that minors cannot be held liable for obligations under a contract and can seek to have the contract set aside if necessary.

BENEFICIARY TO A CONTRACT

It is recognized that a minor can serve as a promisee or beneficiary in a contract and that a contract that is advantageous to a minor can be enforced by them. Notably, there are no limitations on a minor serving as a beneficiary, such as in the role of a payee or promisee within a contract. In light of these considerations, it follows that a minor possesses the ability to purchase real property and may initiate legal action to recover possession of the property after tendering payment for its purchase.

RESTITUTION

Where a minor has received benefits under a contract, he is bound to make restitution or return the benefits received. For instance, if a minor enters into a contract to purchase a car and has paid some amount of money, the seller is required to return the money to the minor and take back the car. If a promissory note is executed in favour of a minor, they have the right to enforce it accordingly.

Furthermore, a minor who has extended a loan to someone and experiences a refusal by the borrower to repay the loan based on the voided agreement has the entitlement to reclaim the loaned funds. In a legal context, these principles are crucial for contracts in which minors are involved. It is important to note that this legal principle regarding the capacity of minors in contracts has been demonstrated in various legal cases. For instance, the case of General American Insurance Co v/s Madanlal Sonulal^[4] illustrates how a minor was able to recover insurance funds after a loss, despite the fact that the goods in question had been insured on behalf of the minor. Such cases serve to affirm the legal rights and entitlements of minors in contractual matters.

NO ESTOPPEL AGAINST MINOR

The legal principle of estoppel is intended to stop a person from arguing something or asserting a right that refutes what they formerly said or agreed to by law. However, it is important to note that this principle does not apply to minors in the context of contractual agreements. Specifically, an infant or minor is not estopped from setting up the defence of incompetence due to minority. This is because the law of contract is designed to protect minors from incurring contractual liability, given their limited legal capacity. As such, the defence of estoppel cannot be used against minors in contractual matters.

In situations where a minor misrepresents their age and induces another party to enter into a contract with them, the minor cannot be held liable for the resulting contract. Specifically, no estoppel can be asserted against a minor in such cases. This means that the minor cannot be prevented from pleading their infancy as a defence in order to avoid the contractual obligation.

This is because the law recognizes the limited legal capacity of minors and aims to protect them from the consequences of their contractual agreements. As such, a minor cannot be held responsible for a contract that they entered into while still legally considered a minor, regardless of any misrepresentation that may have occurred. Ultimately, the principle of no estoppel against a minor serves to safeguard the rights and interests of minors in contractual dealings.

According to the ruling in Vaikuntarama Pillai v. Athimoolom Chettiar (1915 Madras H.C.)^[5], “There is a clear statutory provision that minor being incompetent to contract is incapable of incurring any liability for any debt, the law of estoppel cannot overrule this provision to make him liable.” This statement emphasizes that minors are not legally responsible for debts incurred through contracts and that the doctrine of estoppel cannot be used to make a minor liable for a contractual debt. The ruling underscores the importance of protecting minors in contractual matters and ensuring that they are not unfairly subjected to legal liabilities.

RATIFICATION BY A MINOR

Ratification refers to the act of confirming or validating a contract that was entered into while the person was a minor, after they have attained the age of majority. Once a minor attains majority, he or she has the option to either affirm or disaffirm the contract. If the minor chooses to affirm or ratify the contract, then the contract becomes binding and enforceable. By doing so, the minor becomes bound by the terms of the contract and can be held liable for any breach of the contract. It is essential to note that once a contract has been ratified, the right to disaffirm the contract is lost and cannot be exercised again. Ratification can be expressed or implied, and it can be done through words or actions. For example, if a minor purchases a car and continues to use it after attaining the age of majority, then it can be considered an implied ratification of the contract.

VOIDABLE AT THE OPTION OF A MINOR

In cases where a minor enters into a contract that is not for necessaries or of a beneficial nature, the contract is considered voidable at the option of the minor. This means that the minor has the option to either ratify the contract or repudiate it. If the minor chooses to repudiate the contract, then he or she is not bound by the terms of the contract and is not liable for any breach of the contract.

This provision is based on the understanding that minors are not legally competent to enter into binding contracts. Therefore, if a minor is to be held responsible for a contract, it must be a contract that is for necessaries or of a beneficial nature, or one that has been ratified after the minor has attained the age of majority. If a minor decides to repudiate a contract, he or she must do so before attaining the age of majority. Once the minor attains the age of majority, he or she can no longer repudiate the contract. If the minor does not repudiate the contract before attaining the age of majority, then the contract will be considered valid and enforceable.

It is important to note that if the minor ratifies the contract after attaining the age of majority, then the contract becomes binding on the minor, and he or she can be held liable for any breach of the contract. Therefore, it is essential for minors to carefully consider the consequences of their actions when entering into contracts, and to seek legal advice if necessary.

CONCLUSION

It is crucial to recognize that strict rules must be applied to contracts made by minors. It is often questioned why a minor who is one day away from attaining majority and has committed a breach in the contract should get away with it. However, it is important to understand that the law exists to provide a reliable framework to protect individuals’ rights when they have been infringed. Minors are considered to lack the capacity to make informed decisions as they are not yet fully accustomed to the complexities of the real world. Therefore, it is essential to ensure that minors are provided with adequate protection until they reach the age of majority. By adhering to these strict rules, we can create a consistent legal system that protects everyone’s interests, including minors who may be vulnerable in contractual relationships.

---

Endnotes:

1. The Majority Act, 1875, Act No. 9 of 1875
2. The Indian Contract Act, 1872, Act No. 9 of 1875
3. Mahori Bibi v/s Dharmodas Ghose, UKPC 12, (1903) LR 30 IA 114 (India).
4. General American Insurance Co v/s Madanlal Sonulal, (1935) 37 BOMLR 461, 158 Ind Cas 554 (India).
5. Vaikuntarama Pillai v. Athimoolom Chettiar, (1914) 26 MLJ 612 (India).

This article is authored by Sohini Chakraborty, a first-year law student at RGNUL Patiala.

INTRODUCTION

An organization is a fake individual running for the satisfaction of a reason, however, on occasion, there are circumstances that could prompt its defeat and when an organization wraps up it is possibly removing the work of everybody related to it and is likewise influencing the economy of the country in a negative manner. Thusly, every conceivable step is taken to stay away from this from occurring yet when it couldn’t be stayed away from and indebtedness procedures of an organization are going to initiate, the exchanges made and the agreements went into by the organization preceding the initiation of such bankruptcy procedures are judged and the ones that are viewed as unsafe for the organization and individuals related with it or are violative of the interests of the debt holder or the lender are proclaimed to be void. The cycle is known as evasion of pre-insolvency procedures. The indebtedness and chapter 11 regulations have sorted out an approach to adjusting the privileges of both borrowers as well as lender. Lenders of the element reserving an option to guarantee the levy from the home of the debt holder can not maneuver the borrower toward auctioning off the resources like land, shares and different resources or going into an agreement that isn’t leaning toward the interests of the indebted person and is in any case violative of his privileges or interests.

UNCITRAL MODEL

The Uncitral model under section 2 of its regulative aide accommodates the evasion of specific exchanges with respect to an indebted person to guarantee the equivalent treatment of the multitude of lenders and insurance of the privileges of the borrowers in order to not get controlled by any of the leaders to go into an agreement for the exchange of any of the resources at a worth lower than that of its genuine worth. One more point of view on the equivalent is keeping away from bias with respect to the borrower, the debt holder could favour a lender over the others and could go into an agreement with him in regards to the exchange of a resource when they become mindful of the forthcoming bankruptcy procedures. Consequently, these exchanges that are placed preceding the initiation of the bankruptcy procedures are dropped or are considered to be incapable to guarantee the security of freedoms of each and every elaborate party. Various purviews have put together their indebtedness regulations with respect to the Uncitral model anyway there are qualifications that could be tracked down between the laws of various nations. The Indebtedness and Chapter 11 code, 2016 arrangements with the avoidable, otherwise called weak exchanges under sections 43 to 51. The kinds of exchanges that are avoidable under the IBC are:

• Preferential transactions
• Undervalued transactions
• Extortionate credit transactions.

The previously mentioned exchanges are to stay away from the debt holder during the significant period which is two years in the event of a connected party and one year in different conditions going before the bankruptcy beginning date according to section 46 of the IBC, 2016.

EVASION PROCEDURES

The Uncitral Model Regulation is intended to help States to outfit their bankruptcy regulations with a cutting-edge legitimate system to all the more really address cross-line indebtedness procedures concerning debt holders encountering extreme monetary misery or insolvency. The regulative aide is reliable of 4 sections on indebtedness regulation covering the goals, primary issues, components accessible for the goal of the debt holder’s monetary challenges, the beginning, the disintegration of the indebtedness procedures, evasion of procedures, cross-boundary bankruptcy regulations, other like arrangements that require consideration exhaustively. The regulative aide section 2 accommodates the privileges of a borrower, wherein it is expressed that where the debt holder is a characteristic individual, certain resources are for the most part prohibited from the bankruptcy domain to empower the debt holder to protect its own freedoms and those of its family and it is positive that the option to hold those barred resources be clarified in the indebtedness law.

CRITERIA

• Objective Rules: The emphasis is on the goal questions, for example, whether the exchange occurred inside the suspect period and whether the exchange proved any of various general qualities set out in the law.
• Emotional Rules: Emotional methodology is more case explicit, the inquiries that would emerge would resemble whether the expectation to conceal the resources from the loan bosses was there, and when did the borrower become indebted whether it was at the hour of the exchange or whether it was after the transaction.
• Mix Of The Two: The bankruptcy laws of greater parts of the states are more emotionally driven, but it is joined with a time span inside which the exchange probably happened. In India, for instance, the significant period is 2 years in the event of a connected party and 1 year if there should arise an occurrence of some other loan boss.

CONVENTIONAL COURSE OF BUSINESS

A differentiation is drawn between what might be considered as an everyday practice or normal exchange in a business and what is remarkable and ought to be stayed away from as a piece of avoidable exchange. An earlier lead of the debt holder could assume a part here alongside customs and ordinary practices as continued in the business. The states are allowed to take both of the standards as a base to accommodate the avoidable exchanges as referenced previously mentioned.

EVASION ACTIVITIES ALL OVER THE PLANET

As expressed over, the Uncitral model is just giving a manual for the states to form legitimate evasion activities, various purviews follow the different arrangements of staying away from power, and after ordering them comprehensively we can come to an end result that there are single set and twofold arrangement of staying away from powers, common regulation nations, for example, France and Spain are devotees of a single bunch of keeping away from powers, while customary regulation nations follow two-fold arrangement of staying away from powers, nations, for example, UK and USA, the twofold arrangement of keeping away from powers are underestimated exchanges and unlawful inclinations.

INDIAN PERSPECTIVE

The indebtedness and insolvency code is a moderately new regulation and is impacted by the precedent-based regulation nations with regard to evasion abilities. sections 43-51 arrangement with the evasion procedures wherein agreements on the move of resources or property could be the subject of aversion procedures. Aversion of exchanges and statements of agreements went into the gatherings as invalid and void could be of any agreement, in regards to the exchange of any property or resource. A land contract is no exemption, the instance of Jaypee Infratech Restricted Versus Pivot Bank Restricted is the ideal illustration of evasion of an exchange that depends on the move of an unflinching property.

In the very recent case, Jaiprakash Partners Restricted (JIL), which is the holding organization of Jaypee infratech restricted set up the previously mentioned auxiliary as a particular reason vehicle for the development of a freeway and went into a concurrence with the Yamuna Turnpike Modern Improvement Authority. For this reason, advances were taken from different banks altogether, selling the land and 51% shareholding of JIL. Later on, JIL was pronounced to be a non-performing resource by a portion of its loan specialists and NCLT passed a request under section 7 of the IBC, 2016 to start the indebtedness procedures after the appeal was recorded by IDBI bank with respect to something similar. The selected IRP documented an application in regards to the exchanges went into by the corporate borrower that has made a responsibility on the steady property possessed by the corporate debt holder and in that application such exchanges were professed to be special, underestimated, and fake. The application was tended to and permitted. An allure was documented by the lenders to save the NCLT orders. The issues in this way, looked at by the high court were as follows:

• Whether the exchanges went into by the account holder underestimated, special and fraudulent?
• Whether the respondents were monetary leaders given the way that the property was sold to them?

SECTION 43 COMPLIANCE

The NCLT saw that the land was sold to dupe the moneylenders. At the hour of entering the exchanges, the borrower was at that point confronting a monetary crunch and the lenders knew about the indebted person’s situation at the hour of going into the home loan contract. In this manner, the settling authority was of the view that the borrower was attempting to make a deceitful exchange during the sundown time frame and the sole target of the debt holder was to produce some money, consequently not falling inside the classification of customary course of business. The re-appraising expert then again, held that section 43(2) was not drawn in and the home loan was made in the common course of business. Likewise, the exchanges were not underestimated or particular and the arbitrating authority has no ability to make orders in regards to something similar. Taking everything into account, the peak court held that the debt holders had gone into a special exchange. The high court maintained the choice of NCLT and held that Section 43 hit the current case. The three overlay test is expected to be passed by an interpretation to turn into a particular exchange under this section, i.e,. Satisfying the prerequisites of sections 43(4) and 43(2), and shouldn’t fall under the special cases referenced in section 43(3). Subsection 2 section 43 discusses the exchanges in which the corporate debt holder will be considered to have been given an inclination.

SECTION 45 COMPLIANCE

One more kind of exchange that can be stayed away from is given under section 45 of the code is the underestimated exchange. In the aforementioned instance of Jaypee infratech, the IRP was of the view that the exchanges are special as well as underestimated, it was eventually held that the exchange was truth be told underestimated. An underestimated exchange is one in which the corporate debt holder has paid a sum lesser than the real worth of the resource. The referenced case is additionally an illustration of exchanges that could be kept away from on the ground that they are duping the loan bosses. section 49 of IBC manages the arrangement of swindling the loan boss. In the event that the corporate account holder has made an underestimated exchange deliberately, this arrangement would be drawn in.

IBC ACCOMMODATION

Finally, the IBC accommodates one more sort of avoidable exchange, which is exploitative credit exchange. section 50 discusses exploitative exchanges. Any exchange that is negative to the corporate account holder and is made when the indebted person was helpless is considered an exploitative exchange. There can be circumstances like the agreement was either endorsed by the borrower without pursuing or it was intentionally made to incline toward the loan boss as the account holder would sign the agreement being defenseless at that point.

CONCLUDING REMARK

We have laid out that specific exchanges are avoidable and consequently announced void assuming the topic of interest of either the indebted person or some other bank the firm is involved. The locales across the world have chosen various perspectives in regard to the regulations overseeing such procedures. Notwithstanding, the exchanges and agreements that went into are to be judged cautiously. The chance of them being made as a standard course of business exists. Land contracts particularly, the land is one of the most significant resources of any business that could turn into an obvious objective by the loan bosses who wish to hurt the indebted person by removing it at a lower cost simultaneously the borrower likewise could go into an exchange including land with hostility. In this way, the aversion procedures are to be painstakingly analyzed and afterward kept away from to save the interests of the multitude of involved parties.

REFERENCES

1. UNCITRAL Model Law on Cross-Border Insolvency available at https://uncitral.un.org/en/texts/insolvency/modellaw/cross-border_insolvency
2. https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/05-80722_ebook.pdf page 136 point 151
3. https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/05-80722_ebook.pdf page 138 point 158
4. https://staging.hcourt.gov.au/assets/publications/judgments/1948/012–Downs_Distributing_Co._Pty._Ltd._V._Associated_Blue_Star_Stores_Pty._Ltd._(In_Liquidation)–(1948)_76_CLR_463.html
5. https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/05-80722_ebook.pdf page 137 point 157
6. UNCITRAL legislative guide on insolvency law part 2 https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/05-80722_ebook.pdf page 167 point 20

This article is written by Saumya Tiwari, Student of Graphic Era University, Dehradun.

INTRODUCTION

Section 10 of the Indian Contract Act prescribes the essentials for the formation of a valid contract which includes free consent of the parties, competency of the parties, lawful consideration, lawful object and ultimately entering into agreements that are not expressly declared void by the Act.

After the abovementioned ingredients of a valid contract are fulfilled and the object of the contract is served, it is said that the contract is discharged. There are four distinct ways by which the contract may be discharged which are as
follows:

1. Discharge by Performance
2. Discharge by Impossibility
3. Discharge by Agreement
4. Discharge by Breach

The article in hand seeks to uncover the details for the discharge of a contract by the breach and elucidates the required remedies.

MEANING OF BREACH

Breach of a contract is said to occur when either of the party to the contract renounces his liability or contractual obligations under the terms and conditions of the contract or makes the total or partial performance of the contract impossible due to his own act/ failure. The breach of a contract can be of two types:

1. Anticipatory Breach
2. Present Breach

ANTICIPATORY BREACH

Section 39 of the Indian Contract Act deals with the doctrine of anticipatory breach. The anticipatory breach is basically said to occur when the promisor rejects to perform the contract by announcing his intention of not fulfilling the contract prior to the actual date of the performance of the contract or disables himself from the performance of the contract in part or in its entirety.

• Features:

Anticipatory breach absolves the innocent party from the obligation to further perform the contract and brings an end to the obligations of the original contract.

Anticipatory breach further entitles the aggrieved party to either sue the defaulting party immediately for the breach of the contract or wait till the time when the act was supposed to be done. The above principle was famously laid down in the landmark case of Hochester v De La Tour¹.

Further, anticipatory breach of a contingent contract i.e. performance of contracts on happening of any conditional event also gives a scope of action for damages.

If the defaulting party announces his intention of default and the aggrieved party decides to wait until the actual date of performance of contract so as to sue the promisor, then the contract is deemed to be alive, subject to the obligations of the contract, thereby implying that repudiation of the contract by the promisor has not been accepted by the promisee. In order to ascertain what constitutes repudiation, the entire conduct and the words of the party have to be objectively assessed on the anvil of refusal or abandonment to performance of the contract. The breach must strike the root of the contract. Silence of the aggrieved party does not lead to acceptance of repudiation.

Such condition of unaccepted repudiation enables the defaulting party either to complete the contract, thereby binding the promisee to accept the same, or else to take advantage of any supervening situation i.e. discharge by means other than repudiation. And if so happens that due to the supervening situation performance of the contract becomes impossible, then the defaulting party is absolved from his contractual obligations and stipulations.²

The date for assessment of the general damages in cases of anticipatory breach shall be the date on which the repudiation took place. If the aggrieved party does not accept the anticipatory breach of the contract, then the damages will be assessed from the date of the actual performance of the contract. In the meantime, the promise shall take all the reasonable steps to mitigate the losses to the minimum.³

It is to be noted that there lies a remedy of damages for the losses suffered due to non-performance of the contract even if the contract has been acquiesced by the promisee thereon (usually in the cases of anticipatory breach wherein the promisor is later allowed by the promisee to fulfill the contract).

Further, as per the mandate of Section 64 Indian Contract Act, the aggrieved party, on bringing an action for damages, shall be bound to restore the benefits or advantages that he might have received under the terms of the contract.

PRESENT BREACH

Present breach is said to occur when the defaulting party breaches the contract on the actual date of the performance of the subject matter of the contract. The aggrieved party, in such cases, shall be entitled to sue the defaulting party for the breach of the contract in a competent court of law and extract the requisite monetary damages.

DAMAGES FOR BREACH

Damages refer to the monetary compensation that is claimed by the injured or aggrieved party for the breach of contract. The burden of proof of the breach of contract lies upon the plaintiff. The action for damages is mainly assessed on the twin criterion of “remoteness of damages” and “measure of damages”.

The fundamental principle behind awarding damages is to place the plaintiff in the same position in which he would have been if the contract had been fulfilled or if the breach had not occurred. The damages are hence compensatory in nature and not penal. Motive and manner of a breach are not taken into account in order to ascertain the compensation.

1. Remoteness of Damages:
It was in the landmark case of Hadley v. Baxendale, that the first acceptable criteria for assessing the quantum of damages were evolved. As per it, only such damages should be considered for the purpose of computing compensation as may be fairly or reasonably be considered as arising from the natural or the usual course of actions or such as may be reasonably in contemplation of both parties while entering into a contract. The given case laid down two distinct rules for the purpose of computing damages.

• General Damages: These damages are awarded in such cases of a breach that may arise naturally due to the usual course of things.
• Special Damages: These arise on account of unusual or special circumstances on the part of the plaintiff and in order to recover these damages, the special circumstances should be brought to the notice of the defendant. The knowledge of special circumstances should be within the contemplation of both parties.

Provisions in Indian Contract Act:
Section 73 of the Indian Contract Act deals with monetary compensation or damages to be awarded in cases of breach of contract. The underlying principle behind the concept of damages is that the party breaching the contract must compensate the aggrieved party in respect of the direct, reasonable consequences, flowing from the breach of contract.

Section 73 of the Act underscores the twin principle laid down in the case of Hadley v Baxendale, i.e. losses that arise in the natural course of things and the losses that are within the contemplation of the parties thereto. Any such losses sustained due to remote or indirect causes shall not fall within the scope of the claim for compensation under Section 73.

It is to be noted that Section 73 casts a duty to mitigate the losses which might accrue due to the breach of the contract. The aggrieved party is expected to undertake reasonable efforts to avoid the losses and keep them to the minimum. Any unreasonable conduct on the part of the plaintiff that leads to an aggravation of the losses shall disentitle him from such aggravated losses.⁴

In the case of Madras Railway Co. v Govind Rao⁵, the court held that extent of liability in ordinary cases is what may have been foreseen by the spectrum of a reasonable man.

2. The measure of Damages:

A. Pecuniary Losses
After the determination of the general or special nature of damages, comes the next step of monetary evaluation of damages. As far as the mantra for calculating or measuring damages is concerned, the difference between the contract price and the market price forms the base for the award of damages (usually in sales transactions). For the loss of profits that may accrue upon resale, the court held that such loss was a special loss that was not recoverable unless it was communicated to the other party.⁶

The court may award nominal damages so as to recognize the rights of the plaintiff even if he suffered no losses. Besides this, the pre-contractual expenditure may also be recovered as damages if it was within the contemplation of the parties.

B. Non Pecuniary Losses
Initially the Victorian and the Indian courts were hesitant in awarding damages for non-pecuniary losses, but however slowly and gradually, it became a cult practice for the courts to award such damages. In the case of Farley v Skinner⁷, the House of Lords pointed out there was no such absolute reason as to why the non-pecuniary damages shall not be awarded. The Indian courts too made a popular practice to award damages for non-pecuniary losses such as distress and mental trauma.

Section 74
Section 74 stipulates that if the number of liquidated damages to be paid in case of breach is stated in the contract, then the aggrieved party is entitled to such compensation even if the actual loss or damage is proved or not. The party claiming compensation shall not be entitled to receive any greater amount than such stated in the contract. The compensation so awarded by the court shall be a reasonable one. In Maula Bux v Union of India⁸, SC affirmed the words of Section 74 by stating that the section dispenses the proof of actual loss or damage. However, the presence of loss or legal injury remains necessary so as to claim the monetary damages.

Section 75
Section 75 further reinstates the mandate of Sections 39, 73, and 74 by elucidating that the aggrieved party who rightfully rescinds the contract is entitled to compensation that is sustained due to the non-fulfillment of the contract.

CONCLUSION

The Indian Contract Act systematically lays down the detailed provisions for addressing the ensuing nuances of monetary compensation out of the contractual relationship. Section 39, 73, 74, and 75 provide the in-hand remedy to address the aspect of anticipatory breach, remoteness of damage, and measure of compensation.

Citations:

1. Court of Queen’s Bench, (1853) 2 Ellis and Blackburn 678
2. Avery v Bowden (1855)
3. Heyman v Darwins Ltd 1942 AC 356, 361
4. Derbishire v Warran 1963 1 WLR 1067
5. ILR 1898 21 Mad 172
6. Karandas H Thacker v Saran Engg Co Ltd AIR 1965 SC 1981
7. 2001 4 UKHL 49 HL
8. 1969 2 SCC 554

This article is written by Riya Ganguly, 2 nd year BBA LLB student at Bharati Vidyapeeth New Law College, Pune.

INTRODUCTION

Whatever is given under power is a writ. Orders, warrants, headings, and so forth given under power are instances of writs. Any individual whose central freedoms are disregarded can move the High Court (under article 226 of the Indian constitution) or the Supreme Court (under article 32) and the court can give bearing or orders or writs. Accordingly, the ability to give writs is principally an arrangement made to make accessible the Right to Constitutional Remedies to each resident. Notwithstanding the abovementioned, the Constitution likewise accommodates the Parliament to give on the Supreme Court ability to give writs, for purposes other than those referenced previously. Additionally, High Courts in India are likewise engaged to give writs for the requirement of any of the freedoms presented by Part III and for some other reason.
In India, both the Supreme Court and the High Court have been engaged with Writ Jurisdiction. Further, Parliament by law can stretch out the ability to give writs to some other courts (counting neighborhood courts) for nearby constraints of the locale of such courts.

WRIT OF QUO WARRANTO

The word Quo-Warranto in a real sense signifies “by what warrants?” or “what is your power”.The Writ of Quo-warranto in the writ is given guiding subordinate specialists to show under the thing authority they are holding the workplace. If an individual has usurped a public office, the Court might guide him not to do any exercises in the workplace or may report the workplace to be empty. Consequently, High Court might give a writ of quo-warranto assuming an individual holds an office past his retirement age.
The Writ of Quo-Warranto can’t be given to an individual working in a private field. This writ is given to an individual in an office, the lawfulness of which is being addressed.

CONDITIONS FOR ISSUE OF THE WRIT OF QUO-WARRANTO

1. The workplace should be public and it should be made by a sculpture or by the actual constitution.
2. The workplace should be a considerable one and not only the capacity or work of a worker at the will and during the joy of another.
3. There more likely than not be a negation of the constitution or a rule or legal instrument, in naming such individual to that office.

CASE LAWS FOR WRIT OF QUO WARRANTO

In the University of Mysore v. Govinda Rao, A.I.R. 1965 S.C. 491(1) case, the Court believed that the writ of quo warranto calls upon the holder of a public office to show to the court under the thing authority he is holding the workplace being referred to. On the off chance that he isn’t qualified for the workplace, the court might limit him from acting in the workplace and may likewise announce the workplace to be empty.

In Amarendra v. Nartendra, A.I.R. 1953 Cal.114. (2) case, the Court held that the writ lies in regard of a public office of a meaningful person and not a private office, for example, participation of a school overseeing panel.

In Mohambaram v. Jayavelu, A.I.R. 1970 Mad.63 (3); Durga Chand v. Organization, A.I.R 1971 Del.73. cases, the Court thought that an arrangement to the workplace of a public examiner can be subdued through quo warranto if in repudiation of significant legal guidelines as it is a considerable public office including obligations of public nature of essential interest to the public.

In K. Bheema Raju v. Govt, of A.P., A.I.R. 1981 (4) A.P. case, the Andhra Pradesh High Court suppressed the arrangement of an administration pleader as the technique endorsed in the significant standards, for this reason, had not been kept.

BUSINESS LAWS

Every one of the laws which relate to how what and why of how organizations are legitimately permitted to and expected to work are included by what is business law. Business law significance incorporates contract laws, assembling and deals laws, and recruiting practices and morals. In straightforward words, it alludes to and relates to the legitimate laws of business and trade in people in general just as the private area. It is otherwise called business law and corporate law, because of its tendency of directing these universes of business.

IMPORTANCE OF BUSINESS LAW

Business law is a significant part of law overall because, without the equivalent, the corporate area, producing area, and the retail area would be in oppression. The point of assembling business and law is to keep up with protected and utilitarian working spaces for all people associated with the business, regardless of whether they’re running it or working for individuals running it.

KINDS OF BUSINESS LAW

There are a few kinds of business laws that are perceived and pursued by nations all over the planet. A portion of these are:

• Contract Law – An agreement is any record that makes a kind of legitimate commitment between the gatherings that sign it. Contracts allude to those worker contracts, the offer of products contracts, rental contracts, and so on
• Employment Law – Employment law is the place where business and law should meet. These laws uphold the standards and guidelines that oversee representative boss connections. These cover when, how and for how much, and how long representatives should function.
• Labour Law – Labour law likewise shows the suitable connection between worker and manager, and pay grades and such. Notwithstanding, an extra component to work laws is the relationship of the association with the business and representative.
• Intellectual property Law – Intellectual property alludes to the immaterial results of the working of the human brain or mind, which are under the sole responsibility for a single substance, as an individual or organization. The approval of this possession is given by intellectual property law, which consolidates brand names, licenses, proprietary advantages, and copyrights.
• Securities Law – Securities allude to resources like offers in the financial exchange and different wellsprings of capital development and gathering. Securities law precludes businesspersons from leading false exercises occurring in the protections market. This is the business law segment that punishes protections extortion, for example, insider exchanging. It is, accordingly, additionally called Capital Markets Law.
• Tax Law – As far as business law, tax assessment alludes to charges charged upon organizations in the business area. It is the commitment of all organizations (aside from a couple of expense excluded humble organizations) to pay their duties on schedule, inability to finish which will be an infringement of corporate duty laws.

BUSINESS LAWS IN INDIA

In the Indian setting, there are a few business law areas vital to the country’s business area. A portion of these are:

• Complete acceptance of the contract by both parties.
• Lawful consideration from both parties.
• Competent to contract:
• Neither party should be a minor.
• No party should be of unwell mind.
• Free consent: neither party should have been pressurized into signing.
• Agency: when one party engrosses another party to perform in place of it.
• Final enforcement of contracts

Sales of Goods Act 1930 –
The exchange of responsibility for substantial, enduring ware between a purchaser and a dealer for a concluded measure of cash warrants an offer of products contract, whose particulars are described by the Sale of Goods Act 1930.

Indian Partnership Act 1932 –
An association in business alludes to when at least two business elements meet up to make another endeavor together. The speculation and benefits are parted equally between the elaborate gatherings. The Indian Partnership Act gives the laws under which associations in India can work.

Limited Liability Partnership Act 2008 –
This Act is separated from the IAP of 1932. A Limited Liability Partnership is a different legitimate element, which proceeds with its business with no guarantees, regardless of whether an organization breaks down, just experiencing the responsibility as referenced in the agreement.

Companies Act 2013 –
This is a definitive business law, which administers and gives the principles relating to every part of creation just as the disintegration of organizations set up in India.

This article is written by Sara Agrawal student at Sinhgad Law College, Pune.

CITATION

(1862) 11Cb (NS) 869, EWHC CP J35; 142 ER 1037

APELLANT

Bindley

RESPONDENT

Paul felthouse

DECIDED ON

8 th July 1862

COURT

Court of Exchequer chamber

JUDGES

Willies, byles and Keating JJ

AREA OF LAW

Acceptance

BACKGROUND

Uncle felthouse was quite interested with his nephew’s horse. So, he sends a letter to his
nephew as a proposal to buy the horse which stated: “if I hear no more about him, I’ll
consider the horse is mine for 30.15 shilling”. The nephew received the letter of Mr Felthouse
and decided to sell his horse to him. But he failed to respond to the offer. Suddenly, the
nephew faced an auction of the property and told the auctioneer, Mr.bindley to auction all his
property except the horse. On the day of auction, Bindley forgot to spare the horse from the
auction. As the horse was a good breed it had a great demand in the auction and Mr. Bindley
accidently sold the horse to another person for 33 shillings. When felthouse came to know
about the incident he sued the auctioneer under the tort of conversion (usage of someone
else’s property inconsistently with their right). This made felthouse to prove the contract
valid by showing that the horse was his property. Bindley stated that Mr. Felthouse doesn’t
have any ownership over the horse even though the nephew had an interest to sell the horse.

Since it wasn’t communicated properly, the contract doesn’t seem to be valid. The major
issue raised in this case was whether the silence or failure to reject an offer amounts to
acceptance. The court finally ruled that felthouse did not have any ownership over the horse
as there was no acceptance from his nephew’s side. This is a landmark case in the history of
contract law which states that no one can necessitate anyone to make a decision on to reject
or accept an offer and it also states that mere silence does not amounts to acceptance.

FACTS

1 Paul felthouse send a proposal to his nephew John felthouse in the form of a letter to
buy his horse, which stated: “if I hear no more about him, I’ll consider the horse is
mine for 30.15 shilling”.
2 Despite having the intention to sell the horse, the nephew never had accepted the
proposal. So, he told the auctioneer, Bindley to exempt the horse from the auction.
3 Mr. Bindley forgot about the condition and sold the horse for 33 shillings to another
person.
4 Paul felthouse sued Bindley under the tort of conversion by stating the horse as his
own.

ISSUE

1. Whether there exists any valid contract between the uncle felthouse and his nephew.
2. Whether the silence or failure to convey the rejection of an offer amounts to acceptance of the proposal.

JUDGEMENT

It was held by the court was there wasn’t any valid contract existed between felthouse and his
nephew. Despite having an intention to sell the horse, there wasn’t any acceptance to the
proposal from his nephew’s side. A proposal will only get emanated as a contract where there
is an acceptance to the proposal. Hence it was stated that silence or failure to convey the
rejection of a proposal will not amounts to acceptance of the offer.

RATIO DECENDI

1. You cannot exert your decisions on an unwilling party.
2. Silence or failure to convey rejection of an offer will not amounts to acceptance.
3. You cannot assume acceptance if there is no notification of acceptance or implied acceptance through action present.

CONCLUSION

The case Felthouse v. Bindley was a turning point in the history of contract law. In this case it
was proved that there wasn’t any contract between the uncle and his nephew.it thus proved
that silence will not amount to an acceptance to a contract.

This article is written by Nourizen Nizar, student of Government Law College, Ernakulam, Kerala

Introduction:

Section 2 (b) of the Indian Contract Act, 1872 characterizes acceptance in these words: When one individual to whom the suggestion is made means his assent thereto, the recommendation should be recognized. An idea when perceived changes into an affirmation. In the declarations of Sir William Anson, Acceptance is to offer what a lit match is to a train of hazardousness. It produces something which can’t be checked on or fixed. However, the powder might have been laid till it has become moist or the person who laid the train might have pulled out everything except a lit match stick.

Definition:

Section 2(b) of the Indian Contract Act, 1872, defines an acceptance as “when the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted becomes a promise”.

Communication of Acceptance

Method of Acceptance: 

For the present circumstance of communication of acceptance, there are two factors to consider, the technique for acceptance and a short time later the situation of it. Permit us first to examine the technique for acceptance. Acceptance ought to be conceivable two, to be explicit 

Communication of Acceptance by an Act: This would consolidate communication through words, whether or not oral or created. So, this will join communication through calls, letters, messages, sends, etc 

Communication of Acceptance by Conduct: The offeree can moreover pass on his acceptance of the proposal through some activity of his, or by his direct. So say when you board a vehicle, you are enduring to pay the vehicle cost through your direct. 

Timing of Acceptance: 

The communication of acceptance has two sections. Permit us to explore 

As against the Offeror: 

For the proposer, the communication of the acceptance is done when he places such acceptance over the range of transmission. After this it is out of his hand to renounce such acceptance, so his communication will be done then. 

As against the Acceptor: 

The communication in the event of the acceptor is done when the proposer acquires information on such acceptance. 

Revocation of Acceptance: 

Section 5 moreover communicates that acceptance can be disavowed until the communication of the acceptance is done against the acceptor. No repudiation of acceptance can happen after such date.

Again, from the above model, the communication of the acceptance is finished against A (acceptor) on the fourteenth of July. So, till that date, A can renounce his/her acceptance, however not after such date. So actually, somewhere in the range of tenth and fourteenth July, A can choose to disavow the acceptance.

Lawful standards with respect to valid acceptance and related cases

1. Acceptance must be given to whom the offer was made.

An offer can be acknowledged simply by the individual or people to whom it is made and with whom it’s anything but an expectation to contract; it can’t be acknowledged by someone else without the assent of the offeror. 

Law and order are evident that “assuming you propose to make an agreement with A, B can’t substitute himself for A without your assent.” An offer made to a specific individual can be legitimately acknowledged by him alone.

Related Case:  Boulton vs. Jones

2. Acceptance should be absolute and unqualified: 

To be authentically amazing it’s everything except an absolute and unqualified acceptance of a large number of terms of the offer. Surely, even the littlest deviation from the states of the offer makes the acceptance invalid. Basically, a wandered acceptance is seen as a counteroffer in law.

3. Acceptance should be communicated in some standard and sensible way, except if the proposal endorses the way wherein it is to be acknowledged:

In case the offeror suggests no strategy for acceptance, the acceptance ought to be passed on by some norm and reasonable mode. The standard techniques for correspondence are by catching individuals’ discussions, by post, and by direct.

Exactly when acceptance is given by words communicated or formed or by post or wire, it’s everything except an express acceptance. Right when acceptance is given by the lead, it’s everything except a proposed or gathered acceptance. 

Recommended acceptance may be given either by doing some fundamental show, for example, following the lost items for the announced honor or by enduring some benefit or organization, for example, stepping in a public vehicle by a voyager. 

If the offeror embraces a strategy for acceptance, the acceptance given properly will probably be a significant acceptance, whether or not the suggested mode is entertaining. Thus, if an offeror underwrites lighting up a match as a strategy for acceptance and the offer as necessities be lights up the match, the acceptance is reasonable and complete. 

Regardless, what happens if the offeree gets sidetracked from the suggested mode? The reaction to this inquiry is given in Section 7(2) which communicates that in examples of diverged acceptances “the proposer may, inside a reasonable time after the acceptance is passed on to him, request that his recommendation will be recognized in the suggested way, and not something different; regardless, if he fails to do thusly.

Related case: Brogden v Metropolitan Railway

4. Acceptance must be communicated:

For a proposition to transform into an understanding, the acknowledgment of such a proposition ought to be conveyed to the promisor. The correspondence ought to occur in the supported design, or any such construction in the normal course of business if no specific design has been suggested. 

Further, when the offeree recognizes the proposition, he probably understood that an offer was made. He can’t convey acknowledgment without data on the offer. 

So, when a proposal to supply B with items and B is satisfying to all of the terms. He creates a letter to recognize the offer yet fails to post the letter. So, since the acknowledgment isn’t imparted, it’s everything except substantial. 

Related case: Powell v. Lee 

5. Acceptance must be given inside a reasonable time and before the offer lapses and additionally is revoked:

To be really amazing acknowledgment ought to be given inside the foreordained time limit, expecting to be any, and if no time is determined, acknowledgment ought to be given inside a sensible time considering the way that an offer can’t be kept open uncertainty (Shree Jay a Mahal Cooperative Housing Society versus Zenith Chemical Works Pvt. Ltd.). 

Again, the acknowledgment ought to be given before the offer is disavowed or passes by reason of the offeree’s data on the death or franticness of the offeror. 

Related case: Ramsgate Victoria Hotel Co Vs Montefiore 

6. Acceptance should succeed the offer: 

Acknowledgment ought to be offered to result in getting the offer. It should not go before the offer. In an organization, shares were circulated to a not applied for singular them. Henceforth, he applied for shares being oblivious to the past conveyance. It was held that the assignment of offers past to the application was invalid. 

Examples: a piece of offers past to application invalid

7. Rejected offers can be accepted just, whenever recharged:

Offer once dismissed can’t be acknowledged except if a new offer is made. 

Related case: Hyde v. Wrench 

Conclusion: 

Assessment of offer and acceptance is a standard contract law method used to assess whether a two-party game-plan exists. An offer means that their capacity to surrender to explicit terms beginning with one individual then onto the following. Accepting there is an express or proposed course of action, a contract will be outlined. A contract is said to seem when the acceptance of an offer has been encouraged to the offeror by the offeree. 

when the offeree to whom the proposal is made, really recognizes the offer it will amount to acceptance. After a special offer is recognized the offer transforms into a guarantee. 

The correspondence of the offer will be done concerning the data on the person to whom the offer is made and the correspondence of the acceptance will be done when the acceptance is put in a course of transmission to the offeror. Thus, offer and acceptance are the central parts of a contract and in any case, it should be done dependent on one’s total opportunity and complete goal on shutting a legally definitive game plan. 

A legitimate acceptance should be in similarity with the accompanying standards. Without having great article end models before your eyes, it is hard to wind up the creative cycle on an incredible note. Acceptance should be clear and unambiguous. Finish the Contract on the Ground of the Offer, Fixing the Term of Acceptance. of the relative multitude of terms of the offer, and with no condition.

The article has been written by Vrunda Parekh, a first-year law student at United World School of Law, Karnavati University.

The article has been edited by Shubham Yadav, a fourth-year law student at Banasthali Vidyapith.

Latest Posts

• Job opportunity at EXO Edge, Sahibzada Ajit Singh Nagar, Punjab, India: Apply Now!!
• Internship opportunity at Vishwas Advisors, Kalyan, Maharashtra, India: Apply Now!!
• Internship opportunity at Kulfi Collective, Mumbai, Maharashtra, India: Apply Now!
• Job opportunity at The Neotia University, Diamond Harbour, West Bengal, India: Apply Now !!
• Job opportunity at Morgan Stanley, Mumbai, Maharashtra, India: Apply Now!!
• Job opportunity at VISA INTELLIGENCE CONSULTANCY LLP, New Delhi, Delhi, India: Apply Now!!  
• Job opportunity at Amazon Web Services (AWS), Gurugram, Haryana, India: Apply Now!!
• Job opportunity at Stelcore Management Services Private Limited, Mumbai, Maharashtra, India: Apply Now!!
• Job opportunity at Zscaler, Sahibzada Ajit Singh Nagar, Punjab, India: Apply Now!!
• Job opportunity at Irish Expert, Delhi, India: Apply Now!!
• Job opportunity at UnitedLex · Gurgaon, Haryana, India: Apply Now!
• Internship opportunity at Vineforce · Nabha, Punjab, India: Apply Now!!

---

• CLAT-Peeps! (10)
  • Current Affairs (2)
• competitions (132)
• Conferences and Seminars (201)
  • Webinar (1)
• Course and Workshops (107)
• Debates (46)
• Eassy Competitions (69)
• Fellowships & Scholarships (56)
• Guest Blogs (6)
• important (29)
• Internships and Jobs (2,317)
• interviews (8)
• moot court (180)
• Opportuintes (2,731)
  • Job Opportunity (1,191)
• opportunity (2,559)
  • Call for papers (475)
  • Quizes,fests and others (298)
  • Work Opportunity (836)
• Our Blog (1,049)
  • Administrative Law (17)
  • ADR (13)
  • Arms Act (2)
  • Case Analysis (205)
  • Company law (36)
  • Constitutional Law (143)
  • Consumer Protection Act (17)
  • Contract Law (62)
  • CPC (10)
  • Criminal Law (140)
  • Cyber Law (13)
  • Environmental Laws (30)
  • Evidence Act (20)
  • Family Law (12)
  • General (205)
  • International Humanitarian Law (8)
  • International law (23)
  • IPR (10)
  • Jurisprudence (13)
  • labor laws (7)
  • Maritime Laws (1)
  • Partnership Act (2)
  • personal law (33)
  • Taxation (10)
  • Tort (64)
  • Transfer of Property (2)
• Our Services (11)
  • career advice (2)
  • others (6)
• Top Stories (524)
• Uncategorized (720)

Archives

• November 2023 (26)
• October 2023 (1)
• September 2023 (5)
• August 2023 (2)
• July 2023 (25)
• June 2023 (23)
• May 2023 (40)
• April 2023 (136)
• March 2023 (124)
• February 2023 (138)
• January 2023 (61)
• December 2022 (39)
• November 2022 (103)
• October 2022 (178)
• September 2022 (342)
• August 2022 (240)
• July 2022 (273)
• June 2022 (196)
• May 2022 (27)
• April 2022 (99)
• March 2022 (190)
• February 2022 (196)
• January 2022 (193)
• December 2021 (152)
• November 2021 (203)
• October 2021 (189)
• September 2021 (177)
• August 2021 (192)
• July 2021 (393)
• June 2021 (293)
• May 2021 (179)
• April 2021 (61)
• March 2021 (46)
• February 2021 (56)
• January 2021 (63)
• December 2020 (86)
• November 2020 (94)
• October 2020 (146)
• September 2020 (220)
• August 2020 (173)
• July 2020 (165)
• June 2020 (119)
• May 2020 (136)
• April 2020 (7)
• February 2020 (37)
• January 2020 (3)
• November 2019 (1)