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

Tara, a singer, agrees to perform for Uday at a concert for Rs 20,000, paid in advance. Before the concert, Tara falls too ill to sing and the contract becomes void. Uday claims Rs 20,000 refund plus Rs 15,000 as profits he would have earned. What is the correct position under the Act?

Tara must refund only the Rs 20,000 advance. When a contract becomes void through illness, the advantage received must be restored, but the singer is not bound to compensate for profits the promisee would have made.

  1. ATara must refund Rs 20,000 and pay Rs 15,000 as lost profits
  2. BTara need not refund anything as she was ill
  3. CTara must refund Rs 20,000 only, with no liability for lost profitsCorrect
  4. DTara must pay Rs 15,000 only, keeping the advance

Explanation

On the contract becoming void, the advance is an advantage to be restored, so Rs 20,000 is refunded. Illustration (d) states the singer is not bound to compensate for lost profits the promisee would have made. The claim for Rs 35,000 is therefore wrong.

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