Contract Act_Practical Problems_42

A borrower grants a power of attorney to bank authorising the bank to sell a ertain property belonging to him and appropriate the sale proceeds towards his ndebtedness. He also agrees not to institute any legal proceedings against the bank challenging either the bank's actions or its statements of account. The property is sold for a low price and the bank calls upon the borrower to pay the balance. Can the borrower institute legal proceedings against the bank questioning the sale ?

Yes- The borrower can institute legal proceedings since the clause in the agreement restraining the borrower from legal proceedings is void as per Section 28 of the Indian Contract Act and thus unenforceable. Section 28 in this respect reads as :

Every agreement, by which any party thereto is restricted absolutely from enforcing his rights under the contract by the usual legal proceedings in the ordinary tribunals, is void to that extent.

Contract Act_Practical Problems_41

Anil was due to perform a contract on 20th Feb. 1989, but on 16th Feb., repudiated his obligation. On 23rd Feb., the contract became illegal through a change in law. Varun, the other party to the contract, filed a suit for breach of contract on 20th Feb. Decide the case with reasons.

Varun in this case will be held entitled to the remedies for breach of a contract. The case is not covered under Section 56 whereunder supervening illegality renders a contract void thereby relieving the promisor of his obligations. Section 56 covers those cases where supervening impossibility/illegality takes place before the time for performance is due. Since in the given case, performance was due on 20th Feb. 1989, the repudiation on 16th amounts to breach of contract and thereby entitles the aggrieved party, viz., Varun, to claim compensation (damages). He, however, will not be entitled to claim 'specific performance'—the transaction having become illegal.

Thus, the contract becoming illegal on 23rd Feb., will not affect Varun's right to claim damages.