Contract, Sale of Goods, Specific Relief and Transfer of Property

What to remember

• A contract is an agreement enforceable by law. It needs offer, acceptance, lawful consideration, competent parties, free consent and a lawful object (Indian Contract Act, 1872).
• Sale of Goods Act, 1930 deals with movable goods; Transfer of Property Act, 1882 deals with transfer of property between living persons, especially immovable property. Specific Relief Act, 1963 gives remedies such as specific performance and injunction.
• Writing and registration matter: a sale, mortgage, lease above one year and gift of immovable property of the stated value need a registered instrument.

Indian Contract Act, 1872: essentials

Under the Act an agreement is a promise or set of promises forming consideration for each other. A contract is an agreement enforceable by law. A valid contract needs these elements.

Acceptance is complete against the proposer when it is put in the course of transmission to him, and against the acceptor when it comes to the proposer's knowledge. A proposal can be revoked before acceptance is communicated.

An agreement without consideration is void, except where it is in writing, registered and made out of natural love and affection between close relatives; where it is a promise to compensate for a past voluntary act; and where it is a written promise, signed, to pay a debt barred by limitation.

A minor's agreement is void from the start. A minor cannot be made liable and cannot ratify the agreement on becoming adult. A minor can be a promisee or beneficiary.

Free consent

• Coercion: committing or threatening an act forbidden by the Penal Code, or unlawful detaining of property, to get consent. The contract is voidable at the option of the party coerced.
• Undue influence: one party is in a position to dominate the other's will and uses it unfairly. Voidable.
• Fraud: a false statement or active concealment made knowingly to deceive. Voidable. Silence is not fraud unless there is a duty to speak.
• Misrepresentation: a wrong statement made innocently. Voidable.
• Mistake: a mistake of both parties about a fact essential to the agreement makes it void. A mistake as to the law of India does not. A unilateral mistake does not make the contract voidable.

Void agreements include agreements in restraint of marriage (other than of minors), in restraint of trade, in restraint of legal proceedings (with exceptions such as arbitration), uncertain agreements, and wagers (bets). Contingent contracts depend on the happening of an uncertain event.

Discharge of contract: by performance, by agreement (novation, rescission, alteration, remission), by impossibility that arises after the contract was made (frustration), by lapse of time, by operation of law, and by breach. Novation replaces an old contract with a new one. Under the rule of frustration a contract becomes void when it becomes impossible or unlawful to perform, for reasons beyond the parties' control.

Remedies for breach: damages for loss that naturally arose or that the parties knew was likely; remote and indirect loss is not paid. Where the parties fixed a sum in advance, the court gives reasonable compensation not above that sum (this applies whether it is stated as a penalty or as liquidated damages). Quantum meruit is a claim for payment for work done when the contract cannot be completed. Other remedies are specific performance and injunction.

Special contracts in the Act: indemnity (promise to save another from loss caused by the promisor's or another person's conduct), guarantee (a contract with three parties: creditor, principal debtor and surety; the surety's liability is co-extensive with that of the principal debtor), bailment (delivery of goods for a purpose, to be returned), pledge (bailment as security for a debt) and agency (acting for a principal).

Sale of Goods Act, 1930

Goods mean every kind of movable property except actionable claims and money. They include stock and shares, growing crops, and grass. Contract of sale has two forms. In a sale, the property in goods passes to the buyer at once. In an agreement to sell, the transfer of property is to take place at a future time or on a condition. An agreement to sell becomes a sale when the time elapses or the condition is met.

Implied terms: the seller has the right to sell (title); the goods match their description; they are of merchantable quality when sold by description; they are fit for the purpose when the buyer relies on the seller's skill; in sale by sample, the bulk corresponds with the sample. The general rule is caveat emptor (let the buyer beware), with these exceptions.

Nemo dat quod non habet: no one can give a better title than he has. Exceptions include sale by a mercantile agent, a seller or buyer remaining in possession, a person with a voidable title whose title has not been avoided, a joint owner in possession, and sale under a statutory power or court order.

Unpaid seller has rights against the goods: lien (right to retain possession until paid), stoppage in transit (when the buyer becomes insolvent), and resale (in certain conditions). Against the buyer, he can sue for the price when property has passed, or sue for damages for non-acceptance.

Specific Relief Act, 1963 (as amended in 2018)

Specific relief means that a court orders the very thing to be done rather than money in place of it. Before 2018, specific performance was at the court's discretion; after the 2018 amendment, it is a general rule that the court shall enforce a contract, subject to listed exceptions. The Amendment also brought in substituted performance (the aggrieved party can have the work done by a third party at the defaulter's cost after notice), and restricted injunctions that would obstruct infrastructure projects.

After 2018 (Section 14), specific performance is not ordered where the party has obtained substituted performance, for contracts involving a continuous duty the court cannot supervise, for contracts that depend on personal qualifications of the parties (such as personal service), and for contracts that are by nature determinable. Adequacy of money compensation is no longer a bar. A person who has not performed his own part, who is not ready and willing, or who has acted in fraud cannot get specific performance.

Transfer of Property Act, 1882 (basics)

Transfer of property is an act by which a living person conveys property to one or more living persons (a company is treated as a living person), or to himself and others. Transfer by will is not covered. Immovable property does not include standing timber, growing crops or grass. Property of any kind may be transferred, except these:

• chance of an heir succeeding to an estate;
• a mere right to re-enter; a mere right to sue;
• an interest restricted to the personal enjoyment of the owner;
• a public office, or the salary of a public officer;
• where the transfer would be for an unlawful object or against the nature of the interest.

A condition absolutely restraining alienation is void. A transfer by an ostensible owner with the real owner's consent binds the owner if the transferee acted in good faith for value. Lis pendens: during a suit about immovable property, the property cannot be transferred so as to affect the other party's rights. The doctrine of part performance protects a transferee in possession who has performed his part of a written contract that was not registered.

Six kinds of mortgage: simple mortgage (the mortgagor binds himself personally to pay, no possession is given), mortgage by conditional sale, usufructuary mortgage (possession given, the mortgagee takes rents and profits instead of interest), English mortgage (the property is transferred absolutely with a promise to retransfer on repayment), mortgage by deposit of title deeds (equitable mortgage, valid in notified towns without a registered document), and anomalous mortgage. The mortgagor's right to redeem the property on payment is a core right, and any clog on it is void ("once a mortgage, always a mortgage").

A lease is ended by notice: six months for a year-to-year lease and fifteen days for a month-to-month lease.

Exam traps

• A minor's agreement is void; it is not merely voidable, and it cannot be ratified.
• Fraud and misrepresentation make the contract voidable; mistake of both parties on an essential fact makes it void.
• An invitation to offer is not an offer.
• A condition's breach allows repudiation; a warranty's breach gives only damages.
• "Sale" passes property now; "agreement to sell" passes it later.
• After 2018, specific performance is the general rule, not a discretionary exception.
• A summary suit for possession must be filed within six months, and no title needs to be proved.
• A mortgage by deposit of title deeds needs no registered instrument; other mortgages of one hundred rupees or more need one.
• A gift of immovable property needs registration and two attesting witnesses; a sale needs registration but not attestation by two witnesses.

One-liners

• 1. A contract is an agreement enforceable by law.
• 2. The Indian Contract Act came in 1872; the Sale of Goods Act in 1930.
• 3. The age of majority for contract is eighteen.
• 4. Coercion, undue influence, fraud and misrepresentation make a contract voidable.
• 5. A condition goes to the root; a warranty is collateral.
• 6. Caveat emptor means "let the buyer beware".
• 7. Nemo dat quod non habet means no one gives better title than he has.
• 8. Unpaid seller's rights include lien, stoppage in transit and resale.
• 9. The Specific Relief Act was passed in 1963 and amended in 2018.
• 10. Transfer of Property Act, 1882 does not cover transfers by will.
• 11. Mortgage types include simple, usufructuary, English and equitable.
• 12. A gift needs registration for immovable property and acceptance by the donee.

Practice questions

1. A contract is an agreement that is

   1. made before a witness
   2. merely written
   3. signed by a lawyer
   4. enforceable by law
   Answer

   D. enforceable by law

   A contract is an agreement enforceable by law.

2. A minor's agreement in India is

   1. voidable at the minor's option only
   2. void from the beginning
   3. valid if the guardian agrees
   4. valid if for a luxury
   Answer

   B. void from the beginning

   The Privy Council held a minor's agreement to be void; it cannot be ratified after majority.

3. For contract purposes, the age of majority is generally

   1. twenty-one years in all cases
   2. fourteen years
   3. sixteen years
   4. eighteen years
   Answer

   D. eighteen years

   The age of majority is eighteen (twenty-one where a guardian has been appointed by a court).

4. A contract made under coercion is

   1. enforceable by the coercer
   2. voidable at the option of the party whose consent was so caused
   3. valid in all cases
   4. void from the beginning
   Answer

   B. voidable at the option of the party whose consent was so caused

   Coercion, undue influence, fraud and misrepresentation make a contract voidable.

5. Which of these is NOT an essential of a valid contract?

   1. Free consent
   2. Competent parties
   3. Lawful consideration
   4. Registration of every contract
   Answer

   D. Registration of every contract

   Registration is not needed for every contract; the other three are essentials.

6. A price list displayed in a shop is generally

   1. an acceptance
   2. a promise
   3. an invitation to offer
   4. a binding offer
   Answer

   C. an invitation to offer

   Display of goods or price lists is an invitation to treat, not an offer.

7. A mistake by both parties about a fact essential to the agreement makes the agreement

   1. valid
   2. enforceable
   3. void
   4. voidable
   Answer

   C. void

   Mutual mistake of an essential fact makes the agreement void.

8. A contract becomes impossible to perform after it is made, due to events beyond the parties' control. The contract is

   1. still enforceable
   2. voidable at the buyer's option
   3. valid but suspended for ever
   4. void (frustration)
   Answer

   D. void (frustration)

   Supervening impossibility makes the contract void.

9. Replacing an old contract with a new one is called

   1. remission
   2. novation
   3. rescission
   4. alteration
   Answer

   B. novation

   Novation substitutes a new contract for an old one.

10. A contract of guarantee involves how many parties?

    1. two
    2. four
    3. five
    4. three: creditor, principal debtor and surety
    Answer

    D. three: creditor, principal debtor and surety

    Guarantee involves creditor, principal debtor and surety.

11. Quantum meruit means

    1. the thing speaks for itself
    2. as much as is earned
    3. let the buyer beware
    4. no one gives better title
    Answer

    B. as much as is earned

    Quantum meruit is payment for work done as much as it is worth.

12. Which of these agreements is void?

    1. A contract of employment
    2. A written lease
    3. An agreement in restraint of trade
    4. An agreement to sell a car
    Answer

    C. An agreement in restraint of trade

    Agreements in restraint of trade are void under the Contract Act, with a narrow exception.

13. In the Sale of Goods Act, 'goods' do NOT include

    1. grass
    2. actionable claims and money
    3. growing crops
    4. stock and shares
    Answer

    B. actionable claims and money

    Goods mean movable property other than actionable claims and money.

14. In a contract of sale, a breach of a condition entitles the buyer to

    1. claim damages only
    2. repudiate the contract and claim damages
    3. nothing
    4. claim only a refund of 10 percent
    Answer

    B. repudiate the contract and claim damages

    Breach of condition allows treating the contract as repudiated; breach of warranty gives damages only.

15. A warranty in a sale contract is

    1. a form of consideration
    2. a kind of mortgage
    3. essential to the main purpose
    4. a stipulation collateral to the main purpose
    Answer

    D. a stipulation collateral to the main purpose

    A warranty is collateral; breach gives only damages.

16. The general rule of caveat emptor means

    1. the agent must beware
    2. the seller must beware
    3. the buyer must beware
    4. the court must beware
    Answer

    C. the buyer must beware

    The buyer must examine the goods; the rule has exceptions.

17. Nemo dat quod non habet means

    1. no one can give a better title than he has
    2. the buyer must beware
    3. once a mortgage always a mortgage
    4. the thing speaks for itself
    Answer

    A. no one can give a better title than he has

    This is the rule on transfer of title in sale of goods.

18. Which right is NOT of an unpaid seller against the goods?

    1. Stoppage in transit
    2. Resale
    3. Lien
    4. To rescind a bank loan
    Answer

    D. To rescind a bank loan

    The unpaid seller has lien, stoppage in transit and resale rights.

19. Under the Specific Relief Act as amended in 2018, specific performance is now

    1. wholly at the court's discretion
    2. abolished
    3. available only to companies
    4. the general rule, subject to listed exceptions
    Answer

    D. the general rule, subject to listed exceptions

    The 2018 amendment made specific performance a general rule rather than a discretionary relief.

20. The 2018 amendment introduced the concept of

    1. adverse possession
    2. lis pendens
    3. substituted performance
    4. part performance
    Answer

    C. substituted performance

    The aggrieved party may get the work done by a third party at the defaulter's cost after notice.

21. A summary suit for recovery of possession of immovable property under the Specific Relief Act must be filed within

    1. twelve years
    2. six months of dispossession
    3. one year
    4. three years
    Answer

    B. six months of dispossession

    Dispossession without consent and due process can be remedied within six months without proving title.

22. Specific performance is generally NOT ordered for

    1. a contract to deliver unique goods
    2. a contract to transfer a house
    3. a contract of personal service
    4. a contract to sell land
    Answer

    C. a contract of personal service

    Personal service contracts are not specifically enforced.

23. A court order that stops a person from doing an act is called

    1. an injunction
    2. a declaratory decree
    3. rescission
    4. rectification
    Answer

    A. an injunction

    Injunction is an order restraining (or mandatory order requiring) an act.

24. The Transfer of Property Act deals with transfers

    1. by order of the President
    2. by inheritance on death
    3. by will
    4. between living persons
    Answer

    D. between living persons

    Transfer of property means a transfer by a living person to one or more living persons.

25. A mortgage in which the mortgagee takes possession and receives rents and profits in place of interest is

    1. simple mortgage
    2. anomalous mortgage
    3. usufructuary mortgage
    4. English mortgage
    Answer

    C. usufructuary mortgage

    In usufructuary mortgage, the mortgagee enjoys the rents and profits.

26. A mortgage made by merely depositing title deeds is called

    1. conditional mortgage
    2. equitable mortgage
    3. simple mortgage
    4. English mortgage
    Answer

    B. equitable mortgage

    It is mortgage by deposit of title deeds, valid without a registered instrument in notified towns.

27. Which statement about the right of redemption is correct?

    1. It can be waived in the mortgage deed
    2. It ends when the mortgage is signed
    3. Any clog on the right of redemption is void
    4. It exists only for English mortgages
    Answer

    C. Any clog on the right of redemption is void

    The principle is 'once a mortgage, always a mortgage'.

28. A gift of immovable property must be made by

    1. a registered instrument signed by the donor and attested by at least two witnesses
    2. oral declaration alone
    3. delivery of one brick
    4. a letter to the donee
    Answer

    A. a registered instrument signed by the donor and attested by at least two witnesses

    This is the statutory mode for a gift of immovable property.

29. The transfer of an actionable claim is made by

    1. a postcard
    2. a written instrument
    3. delivery of the claim
    4. a verbal statement
    Answer

    B. a written instrument

    Actionable claims can be transferred only by an instrument in writing signed by the transferor.

30. Lis pendens means

    1. a lease for life
    2. an unpaid debt
    3. a transfer by gift
    4. the transfer of property during a pending suit about it does not affect the other party's rights
    Answer

    D. the transfer of property during a pending suit about it does not affect the other party's rights

    The doctrine limits transfers of property in suit.

31. Statements about acceptance: 1. It must be absolute and unqualified. 2. A qualified acceptance is a counter-offer.

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    C. Both 1 and 2

    Both are standard rules.

32. Statements about consideration: 1. It must be adequate. 2. It may be past, present or future.

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    B. 2 only

    Consideration must be real but need not be adequate; past, present and future are all valid in Indian law.

33. Statements about fraud: 1. It makes the contract voidable. 2. Mere silence is always fraud.

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    A. 1 only

    Silence is not fraud unless there is a duty to speak.

34. Statements about sale and agreement to sell: 1. In a sale, property in goods passes to the buyer at once. 2. In an agreement to sell, property passes at a future time or on a condition.

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    C. Both 1 and 2

    Both statements correctly describe the two forms.

35. Statements about conditions and warranties: 1. A condition may be treated as a warranty when the buyer accepts the goods. 2. A warranty may be treated as a condition at the buyer's choice.

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    A. 1 only

    Only a condition can be reduced to warranty; a warranty cannot be raised to a condition.

36. Statements about injunction: 1. A mandatory injunction orders a person to do an act. 2. A perpetual injunction is granted at the end of the suit.

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    C. Both 1 and 2

    Both are correct.

37. Statements about leases: 1. A lease for more than a year needs a registered instrument. 2. A year-to-year lease needs a registered instrument.

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    C. Both 1 and 2

    Both kinds need a registered instrument.

38. Statements about sale of immovable property of one hundred rupees or more: 1. It needs a registered instrument. 2. It can be made by delivery of possession alone.

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    A. 1 only

    Delivery alone suffices only for tangible immovable property of lower value.

39. Statements about guarantee: 1. The surety's liability is co-extensive with that of the principal debtor. 2. A guarantee is a contract with two parties only.

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    A. 1 only

    Guarantee involves three parties.

40. Statements about gifts: 1. A gift is a transfer without consideration. 2. A gift of immovable property needs no attesting witness.

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    A. 1 only

    Two attesting witnesses and registration are needed.

41. Match the mortgage with its feature: (a) Simple (b) Usufructuary (c) English (d) Equitable (i) personal promise to pay, no possession (ii) mortgagee enjoys rents (iii) property absolutely transferred with promise to retransfer (iv) deposit of title deeds

    1. a-ii, b-i, c-iv, d-iii
    2. a-iii, b-iv, c-i, d-ii
    3. a-iv, b-iii, c-ii, d-i
    4. a-i, b-ii, c-iii, d-iv
    Answer

    D. a-i, b-ii, c-iii, d-iv

    Each matches the feature given in the Act.

42. Match the Act with its subject: (a) Indian Contract Act (b) Sale of Goods Act (c) Specific Relief Act (d) Transfer of Property Act (i) 1872 (ii) 1930 (iii) 1963 (iv) 1882

    1. a-iii, b-iv, c-i, d-ii
    2. a-i, b-ii, c-iii, d-iv
    3. a-ii, b-i, c-iv, d-iii
    4. a-iv, b-iii, c-ii, d-i
    Answer

    B. a-i, b-ii, c-iii, d-iv

    Contract 1872; Sale of Goods 1930; Specific Relief 1963; Transfer of Property 1882.

43. Match the free consent defect with its effect: (a) Coercion (b) Fraud (c) Mutual mistake of essential fact (d) Minor's agreement (i) voidable (ii) voidable (iii) void (iv) void

    1. a-iii, b-iv, c-i, d-ii
    2. a-ii, b-i, c-iv, d-iii
    3. a-iv, b-iii, c-ii, d-i
    4. a-i, b-ii, c-iii, d-iv
    Answer

    D. a-i, b-ii, c-iii, d-iv

    Coercion and fraud make a contract voidable; mutual mistake and a minor's agreement make it void.

44. A promise to pay a debt that is barred by limitation is enforceable if it is

    1. made to a court clerk
    2. made to a stranger
    3. oral
    4. in writing and signed by the debtor
    Answer

    D. in writing and signed by the debtor

    A written, signed promise to pay a time-barred debt is a valid exception to the no-consideration rule.

45. In a lease of immovable property, notice to end a month-to-month tenancy must be given at least

    1. one year
    2. fifteen days before the end of the month
    3. six months
    4. three days
    Answer

    B. fifteen days before the end of the month

    The Act prescribes fifteen days for month-to-month tenancy.