II Year B.A./B.B.A., LL.

B – Semester- I(2021)
1st -Internal Assessment
Civil law practice
Situational questions
Name: Farin Hajra Shaffi
Division: B
PRN: 20010126138
Course: BBA LL.B. (Hons.)
Batch: 2020-2025
 QUESTION 1

Mr. JK, your client agrees to sell to “BTS Manufacturing Co”, a specific cargo of goods
supposed to be on its way from England to Bombay. It turns out that, before the day of the
bargain, the ship conveying the cargo had been cast away and the goods lost. Neither party
was aware of these facts. Now “BTS Manufacturing Co.” has filed a suit against your Client,
Mr. JK. Advice Mr. JK his liability in the matter. Elaborate with legal provisions and relevant
case laws.

INTRODUCTION

As a rule , when parties do not agree on what the same term means in the same way and
hence do not have a common understanding, there cannot be a contract and it becomes void.
In the present case, both parties were unaware and under mistake of fact regarding the cargo
as the ship conveying the cargo had been cast away and the goods lost.

LEGAL PROVISIONS

Section 20 of the Indian Contract Act, 1872

Section 20 of the Indian Contract Act, 1872,1 discusses the nature of an agreement when there
has been a mistake of fact by both the parties. As per the same, in the event that a
circumstance occurs where both parties have entered into an agreement under a mistake of
fact which is essential to the agreement, then in such a scenario the agreement in question
shall be void ab initio.

The applicability of Section 20 is dependent on the following three conditions:

(i) The mistake should be mutual for both the parties;

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Mutual Mistake

A contract shall be deemed to be void ab initio only if the mistake was mutual between both
the parties.4 It is inapplicable if the mistake was one – sided and the other party had
knowledge of such mistaken fact.5 It is mandated that the mistake must be made by both the
parties and both parties are indeed suffering from such mistake.6

With regards to the present case, Mr. JK agreed to sell to “BTS Manufacturing Co.”, a
specific cargo of goods supposed to be on its way from England to Bombay. They were under
mistake of fact regarding the very existence of these goods. Neither party was aware of the
fact that the goods were lost. It is evident that there was a mutual mistake of fact and the
first condition which would attract Section 20 of the Indian Contract Act, 1872 has been
satisfied.

Nature of Mistake

Section 20 can only be applied based on the nature of the mistake. The mistake must refer
to a mistake of fact and not of law. Section 20 does not cover mistake in law as it is held that
‘mistake of law is no excuse’.7

With regard to the present case, the mistake here refers to the loss of goods prior to the
bargain, which is clearly a mistake of fact. It is a mistake regarding the existence of the
subject matter.

Prior to the agreement being made, the existence of the contract subject matter may cease to
exist and the parties to the agreement may be unaware of this. The contract is deemed null
and invalid if the subject matter on which it is based can no longer be found as held in the
Galloway vs. Galloway8. An illustration for the same is as follows:

An agreement has been reached between "A" and "B" to sell a horse for a particular price.
While both parties (A and B) are oblivious of the fact that the horse has died before the
contract is completed, the agreement is still valid. The contract is invalid in this situation.

Applying the same, we can see that there was a mistake of fact regarding the existance of the
goods upon which the contract was dependant.

4
Ganga Retreat and Towers Ltd. v. State of Rajasthan, (2003) 12 SCC 91.; Soorath Nath v. Bhabasankar, 33
CWN 626.
5
Reily v. Rajkumari, 36 CLJ 245.
6
Tarsem Singh v. Sukhminder Singh, (1998) 3 SCC 471.
7
Habib Miyan v. Mahemud Mir, AIR 1959 MP 221.
8
Galloway vs. Galloway 622 S.E.2d 267

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Fact must be Essential to the Contract

Another condition for Section 20 is that the mistake of fact should be one which is absolutely
essential to the contract and its performance thereof. In Gustavus Couturier v. Robert
Hastie,9 The defendant was hired to sell the plaintiff's on-shipment cargo. He sold it to a third
party; but, at that time, it had already been sold in an intermediate port due to the damage
caused by the harsh weather. The defendant was sued for the price, but was not found
accountable for damages since the contract was void ab initio due to the loss of the contract's
subject matter, i.e., the products, prior to the agreement's execution.
In the present case, the goods lost formed the basis of the contract between the two
parties and hence is an essential part of the contract. Thereby section 20 of the Indian
Contract can be applied and the contract would be deemed void ab initio.

CONCLUSION

To summarise, the advise that should be offered is to invoke section 20 of the Indian Contract
Act 1872, as this is the only legitimate remedy. The current case meets the standards for
application of Section 20, as it concerns an agreement in which both parties to the contract
made a factual mistake with regard to a fact fact to the contract's execution. As a result, the
contract he signed into is null and invalid, and he is not obligated to pay any damages to
"BTS Manufacturing Co."

9
Gustavus Couturier v. Robert Hastie, 10 ER 1065.

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 QUESTION 3

Mr. V, the owner of a boat, contracts with Ms. YN to take a cargo of jute to Bombay, for sale
at that place, starting on a specified day. The boat, owing to some avoidable cause, does not
start at the time appointed, whereby the arrival of the cargo Bombay beyond the time when it
would have arrived if the boat had sailed according to the contract. After that date, and before
the arrival of the cargo, the price of jute falls. As an advocate Advice Ms. YN whether the
compensation is payable by Mr. V to her or not. Discuss with relevant cases and legal
provisions

INTRODUCTION

The facts if this case show that a loss was caused to Ms. YN as Mr Sumeet violated the terms
of the contract which specified a certain date of departure of the boat but there was a delay in
the same caused by something avoidable. This avoidable delay caused a monetary loss to MS.
YN as there was a fall in the price of jute in the time that the jute reached its destination. This
could have been avoided had the terms of the original contract been followed and boat
departed on time.

RELEVANT LEGAL PROVISIONS

Section 73 of the Indian Contract Act, 1972

Section 73 of the Indian Contract Act, 1872,10 deals with granting compensation for a loss
or damage resulting out of a breach of contract. As per this Section , if a party has
incurred losses or suffered damage as a result of a breach of contract, the party breaching
such contract would be liable to compensate the injured party for any loss or damage
resulting from such breach.11 Section 73 also includes such type of loss or damage which has
been incurred as a result of the failure to abide by the obligations and clauses represented in
the contract. This would also hold the party liable to pay compensation for the loss or
damage suffered. We must also note that the facts of the present case is perfectly analogous
to to Illustration (e) of Section 73 of the Indian Contract act. The illustration establishes that

10
The Indian Contract Act, 1872, No. 30, Acts of Parliament, 1872, § 73.
11
Hadley v. Baxendale, (1854) 9 Exch 341.

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the compensation would be payable to the amount of the difference between the price MS.
YN could have obtained for the cargo at the time it would have arrived if it was dispatched on
time and the market price of that time.

Applicability of Section 73

We must primarily note from the facts that the delay in departure of ship was due to an
“avoidable cause”, Mr. V did not take the adequate measures to prevent this delay. Applying
both the test of foreseeability and test of knowledge shows that the damage suffered by Ms.
YN arose directly from a breach on part of Mr. V. This thereby attracts section 73 of the
Indian Contract Act, 1872. The best advice to be parted to Ms. YN is to take legal recourse
and deand compensation from Mr. V.
“Section 73 mainly provides that compensation will be granted for any loss or damage:

(i) Which arises in the usual course of things, as a result of the breach; or
(ii) Which the parties knew during the time of contract, would be likely to result from such
breach.”

In the first situation, compensation can be claimed for damage that can be reasonably
foreseen as possible from the breach of contract. In the second situation, however, the
liability depends upon the knowledge of the parties while entering into the contract .12 In
the Murlidhar Chiranjilal v. Harishchandra Dwarkadas 13 it was held that it is the duty of
the offending party to take reasonable steps to mitigate consequences of the breach. The
burden of proof of showing the damage sustained and the measure for converting the loss to
money would lie on the plaintiff.14

In the current case, it is clear that there was a breach of contract as a result of the failure to
abide by the contract's terms. The boat delayed its departure, which was preventable, and so
behaved contrary to the contract's terms. This resulted in the delay in arrival, and as a result,
Ms.  the YN, client, experienced loss. This is referred to as a transit delay. Ms.YN should be
advised to seek compensation equal to the amount necessary to restore her to the position she
would have been in had the contract not been violated.

Consider the case of Union of India v. Steel Stock Holders’ Syndicate,15 in which a cargo of
goods was with the railroads and arrived at its destination after some delay due to their

12
M.P. Mines Ltd. v. Rai Bahadur Shriram Durga Prasad (P) Ltd., AIR 1971 SC 1983.
13
Murlidhar Chiranjilal v. Harishchandra Dwarkadas AIR 1962 SC 366.
14
Draupadi Devi v. Union of India, (2004) 11 SCC 425.
15
Union of India v. Steel Stock Holders’ Syndicate, AIR 1976 SC 879.

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carelessness. The plaintiff was permitted to collect interest on the funds as compensation for
the loss. In another instance involving comparable delays and damage, the railways were
deemed accountable to the amount that the value of the goods was lowered. 16 This position
was also taken in MSK Projects v. State of Rajasthan 17 Additionally, legal precedent has
indicated that an aggrieved party does not have to incur real losses before claiming damages
under S. 73, and the compensation value might be sought without an actual transaction.18

If we take the above examples into consideration, then Section 73 will also be applicable in
the present case and Ms. YN should claim the loss of expected profit as a result of the
contractual breach from Mr. V.

CONCLUSION

Ms. YN should claim compensation on grounds of section 73 of the Indian Contract act as
there was a breach of the contract which resulted in loss to her. Based on the legal position on
this, Ms. YN can claim damages on the expected profit that she lost as the delay was caused
by some avoidable cause which means that it could’ve been reasonably foreseen and a date of
departure was decided by the parties under the contract.The recommendation to demand
compensation serves to protect the rights of the aggrieved client, while also upholding the
sanctity of the requirement to fulfil a contract in its entirety.

16
Union of India v. B. Prahlad & Co., AIR 1976 Del 236.
17
MSK Projects v. State of Rajasthan (2011) 10 SCC 573..
18
Ismail Sait v. Wilson & Co., AIR 1919 Mad 1053..