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
and neither party was aware of these facts of the cargo being lost. Now BTS
Manufacturing Co.”, has filed a suit against your Client, Mr. JK

Q: Advice Mr. JK his liability in the matter. Elaborate with legal provisions and
relevant case laws.

Ans.1 –

Facts:

The facts of the case are such that Mr. JK had reached an agreement with BTS Manufacturing
Co. to sell them a specific cargo of goods. The ship with the cargo had been castaway a day
before the day of bargaining between the two parties and the cargo had been lost. Neither
party knew that the cargo had been lost on the day of the bargain. BTS Manufacturing Co.
has eventually filed a suit against Mr. JK.

Agreements and contracts

The Indian Contracts Act, 1872 has defined agreements under Section 2(e) where its stated
“every promise and every set of promises, forming the consideration for each other is an
agreement.” An agreement is only valid if it has the following:

1. Proposal
2. Acceptance
3. Lawful Object
4. Lawful Consideration
5. Capacity to contract

Another important thing to note is the fact that all contracts are valid agreement but not all
agreements qualify as valid contracts. There are two types of agreements: a) oral and b)
written.

Legal Advice:

According to the given facts, it is clear that both parties are under a mistake as regards to a
matter of fact as they are both unaware that the ship has been cast away and the goods have
been lost before the agreement was reached. Thus this agreement will be deemed to be void
under Section 20 of the Indian Contracts Act, 1872 which states “where both the parties to an
agreement are under a mistake as to a matter of fact essential to the agreement, the agreement
is void.”

The three conditions required for section 20 to apply are:

1. A bilateral mistake i.e. a mistake on part of both parties

There are also various kinds of bilateral mistakes that can be made that include:

1. Mistake regarding assumption about the subject matter’s existence

It is clear from the given facts that the mistake made in this case is a bilateral one and one
that is regarding assumption about the subject matter’s existence. In the case of Galloway v
Galloway1, the case revolved around a man and a woman who believed that they were
married and thus entered into a separation agreement when it was found that the man’s first
wife was still alive and thus the separation agreement was found to be void because of the
mistaken assumption that they were married but the existence of the first wife made their
agreement void as well. Since the mistake has been made on part of both parties, and is
regarding a fact such that it is essential to the contract, Section 20 will be applied successfully
and the agreement will be considered void. Thus Mr. JK will face no legal liability from BTS
Manufacturing Co.

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
at Bombay is delayed 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. Q- 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.

Ans.3 –
1
Galloway v. Galloway (1914)
Facts:

The facts of the case are such that Mr. V owner of a boat due to some reason, albeit avoidable
isn’t able to deliver Ms. YN’s cargo of jute to Bombay in time due to which she suffers a loss
as the price of jute falls by the time it is delivered.

Analysis

The situation in question is one where a party deserves compensation for failure to fulfil
contractual obligations similar to those set forth in a contract. Thus especially since the
situation was avoidable, and MR. V failed to fulfil his contractual obligations that he owed to
Ms. VN he will be entitled to pay her compensation for the losses faced by her due to his
erroneous behaviour. The same is talked about in

Section 73 of the Indian Contract Act, 1872 which provides compensation for losses or
damages incurred as a result of a breach of contract. When a contract is breached, the party
who suffers loss or damage as a result of the breach is entitled to compensation. Any remote
or indirect loss that has been caused by the breach isn’t to be compensated under this
provision as it only looks after direct losses. Section 73 states:

When a contract has been broken, the party who suffers by such breach is entitled to receive,
from the party who has broken the contract, compensation for any loss or damage caused to
him thereby, which naturally arose in the usual course of things from such breach, or which
the parties knew, when they made the contract, to be likely to result from the breach of it. —
When a contract has been broken, the party who suffers by such breach is entitled to receive,
from the party who has broken the contract, compensation for any loss or damage caused to
him thereby, which naturally arose in the usual course of things from such breach, or which
the parties knew, when they made the contract, to be likely to result from the breach of it."
Such compensation is not to be given for any remote and indirect loss or damage sustained by
reason of the breach. Compensation for failure to discharge obligation resembling those
created by contract. —When an obligation resembling those created by contract has been
incurred and has not been discharged, any person injured by the failure to discharge it is
entitled to receive the same compensation from the party in default, as if such person had
contracted to discharge it and had broken his contract. —When an obligation resembling
those created by contract has been incurred and has not been discharged, any person injured
by the failure to discharge it is entitled to receive the same compensation from the party in
default, as if such person had contracted to discharge it and had broken his contract."

A further explanation of the same is that in estimating the loss or damage arising from a
breach of contract, the means which existed of remedying the inconvenience caused by the
non-performance of the contract must be taken into account.

Legal Advice

According to Section 73 (e) of the Indian Contracts Act, 1872, a very similar example has
been given as an illustration to explain the concept as envisioned in the aforementioned
section. According to the illustration a boat owner doesn’t fulfil his contractual obligations of
delivering cargo goods due to avoidable circumstances. The other party is definitely entitled
to compensation for their losses. In the case of Tata Iron & Steel Co Ltd. v Ramanlal
Kandoi2, it was held that in the event of non-delivery of goods, damages are calculated based
on the price in effect on the day of which delivery is to be made. This was also extended to
cases of late goods delivery.

Further there needs to be established a difference between Special and General damages in
order to decide which will apply in this case. General Damages are those damages that arise
naturally during the normal course of events whereas special damages are those that do not
arise from the breach of the defendant and can only be recovered if they were in the
reasonable consideration of the parties at the time they made the contract.

Thus in this case, since the loss has directly resulted from a breach of contract between the
two parties, Ms. VN will be entitled to general damages where she will be entitled to receive
compensation which shall be calculated on the basis of the price of jute that existed on the
decided day of delivery.

2
Appeal from Original Decree No. 178 of 1965
Tata Iron and Steel Company Ltd v. Ramanlal Kandoi