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CMA Intermediate · Business Laws and Ethics · Indian Contracts Act, 1872

A, a singer, contracts to sing for B at a concert for Rs 1,000 paid in advance. A is too ill to sing, so the contract becomes void. Under Section 65, what is A's liability?

A must refund the Rs 1,000 received in advance but need not compensate B for lost profits. Section 65 requires restoring any advantage received under a contract that becomes void, and its illustration says the ill singer is not liable for B's lost profits.

  1. ARefund the Rs 1,000 only, with no liability for B's lost profitsCorrect
  2. BRefund Rs 1,000 and compensate B for the profits B would have earned
  3. CRetain Rs 1,000 as the contract cannot be enforced
  4. DRefund only half, as both parties are equally at fault

Explanation

Section 65 requires a person who has received an advantage under a contract that becomes void to restore it. Illustration (d) states that the singer must refund the advance but is not bound to compensate for lost profits. Adding lost profits wrongly treats this as breach damages.

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