1. All contract are agreement; but all agreement are not contract discuss?

Introduction: The law relating to contracts is to be found in the Indian Contract Act, 1872. It comes into force
from 1st September, 1872. It extends to the whole of India except the state of Jammu & Kashmir.

Meaning: The term contract is derived from the Latin word contractum which means draw together. It is an
agreement entered into between two or more person/ parties subject to certain terms & condition for lawful
consideration.

WHAT IS A CONTRACT?

Section 2(h) of the Indian Contract Act, 1872 defines a contract as an agreement enforceable by law.

Section 2(e) defines agreement as “every promise and every set of promises forming consideration for each other.”

Section 2(b) defines promise in these words: “When the person to whom the proposal is made signifies his assent
thereto, the proposal is said to be accepted. A proposal when accepted becomes a promise.”

According to Section 10, “All agreements are contracts if they are made by free consent of parties,
competent to contract, for a lawful consideration and with a lawful object and are not hereby expressly
declared to be void”.

As per the definition given in the Indian contract Act 1872 a contract must essentially consist of the following
elements:

1) An Agreement; 2) Enforceability by Law

An Agreement: The term Agreement has been defined under Section 2(e) of the Indian contract Act as “Every
promise and every set of promises, forming the consideration for each other, is an agreement.”

Enforceability by Law: an Agreement, to become a contract must give raise to a legal obligation. The term obligation
is defined as a legal tie, which imposes upon a definite person or persons the necessity of doing or abstaining from
doing a defiant act or acts. It may be social or legal matters. An agreement, which gives raise, to a social contract is
not a contract. In order to give raise to a contract the agreement must be a legal agreement.

Therefore Contract = Agreement + Enforceability by Law.

Agreement = Offer + Acceptance + Enforceability by Law

Distinction between contract and agreement:

contract
 It emerges from an agreement.
 Sec. (2(i) and 10 define contract.
 Every contract is an agreement.
 It is always legal and is enforceable.
Agreement and Contract
Agreement
 It emerges from consent of the parties.
 Sec. (2(e) define agreement.
 Every agreement is no contract.
 It may be moral and may not enforceable.

It is the most common method of making a contract through an agreement. One party makes an offer and the other
party accepts the same.

Agreement = Offer + Acceptance

Examples:

 A promises to deliver his house to B and in return B promises to pay a sum of Rs 50000/- to A. both of
them agree the offer made by the party. It is said to be an agreement between A and B. thus a valid
contract is concluded between them.
 An agreement to sell a scooter is a contact.
 An agreement of lease is a contract.
 An agreement of hire-purchase is a contract etc.
Section 2(h) defines a contract as an agreement enforceable by law. That means an agreement an agreement
should possess all legal requirements to become a valid contract. So that it can be enforceable by law an
agreement which cannot be enforceable by law is no useful. Such agreement becomes ‘void’. An agreement
enforceable by law is contract, and by such a contract only relations between the parties arise. All enforceable
agreements contain the legal obligations and not merely moral, social or religious obligations.

An agreement which is enforceable by law alone is a contract. The phrase Enforceability by Law means an
agreement which is intended to be enforced by law should possess all the essential requisites of a valid contract
section 10 of the Indian contract act explains what agreements are contracts that what are valid contracts.

Thus, the essential elements of a valid contract can be summed up as follows

 Free and genuine consent. .

 Parties must be competent to contract.
 There must be Lawful consideration and Lawful object.
 The Agreement musts not expressly be declared o void or illegal.
 Where the provisions of any other law in force require the agreements must be in writing.

If the above requisites are not found in any agreement, it cannot be treated as a valid contract. Contracts originate
from agreements which are intended by parties to give rise to legal obligations. However, there are certain
agreements which cannot be called as contracts.

Examples of agreements which are not contracts:

a) An agreement to come to dine is a mere agreement; it cannot be enforceable by law. Because the agreement
depends upon the volition.
b) A contract which runs into such minute or numerous details, or which is so dependent on the personal
qualification or volition of the parties, or otherwise from its nature is such that court cannot enforce specific
performance of its material terms.
c) An agreement to do illegal act is not enforceable by law. Examples: an agreement to kill a person is not a
contract an agreement to injure a person is not a contract. Because these agreements are against public policy
and against the law.
d) A an author makes an agreement with B a publisher to complete a literary work. B cannot enforce specific
performance of this agreement. Because it involves personal qualification of A.
e) A contract to marry B. B cannot enforce specific performance of this contract.
f) ( Rudar vs. Narayan) A a landlord and B a tenant made a contract that A would enter into a contract of lease
after 2 years. The Privy Council held that “A contract to grant a lease cannot be a contract enforceable in law
since law does not recognize a contract to enter into a contract”.
g) An agreement of which a material part of the subject matter supposed by both parties to exist, has before it
has been made ceased to exist. Illustration: A contracts to pay an annuity to B for the lives of C and D. it
turns out that at the date of contract. C though supposed A by and B to alive was dead. The contract cannot be
specifically performed.
h) All void contracts are not enforceable by law. An agreement with a minor is void. It cannot be enforced.
Section 2(g) states that an agreement not enforceable by law is said to be void.
i) An agreement the terms of which the court cannot find reasonable certainty is not a contract and is not
enforceable by law.

Conclusion: in the above examples of agreements, we have seen that they are not enforceable by law, and they do
not contain requisites of a valid contract. Therefore, it is said “all agreements are not contract, but all contracts are
agreements.” It means every contract enforceable by law consists an agreement. But every agreement may not
become a valid contract and may not be enforceable by law, if it does not possess the required elements as per
section 10.
 2. Distinguish between offer and invitation to treat?

Or How would you distinguish a proposal from an invitation to receive proposal refer to statutory
provisions and decided cases?

Offer: the offer as defined in section 2(a) has two purposes.

i. In the first place an expression of the offeror’s willingness to do or to abstain from doing something.
ii. Secondly, it is made with a view to obtaining the assent of the offeree to the proposed act or
abstinence.

The proposal must be made with a view to obtaining the assent of the other party. Since the contract requires
consensus ad idem, unless the offer is aware of the offer, there can be no acceptance and consequently no
contact. An offer cannot take effect so as to create binding contract, unless and until it has been brought to the
knowledge of the person to whom it is made. The offeror must have expressed his willingness to contract in terms
of his offer with such finality that the only thing to be awaited is the assent of the other party.

Invitation to offer: where a party without expressing his final willingness, proposes certain terms on which he is
willing to negotiate, he does not make an offer, he only invites the other party to make an offer on those terms. It
is called invitation to offer.

Illustrations for invitation to offer:

1. An advertisement in the newspaper house to let or house for sale etc.

2. An advertisement of the bookshop owner that he has a stock of book to sell.
3. An advertisement of the cloth shop owner that he has a stock of cloth to sell.
4. A tender
5. An auctioneer’s announcement that specified goods will be sold by auction of a certain day etc.

The above illustrations are not the offers. They are only invitation to offer. Because there is no final willingness
from the side of the party. Now itself the party cannot be termed as offeror. Invitation to offer is different from a
legal offer. Invitation to offer does not possess the legal; requirement of an offer, which are embodied in section
2(a). It is just like an enquiry.

Case law: Harvey vs. Facie (1893)

The plaintiffs telegraphed to the defendant: will you sell us bumper hall pen estate? Telegraph lowest cash price.
The defendants replied by telegram: lowest price for bumper hall pen estate is £ 900. The plaintiff sent their last
telegram: we agree to buy bumper hall pen for £ 900 asked by you.

Later, the defendants refused to sell the estate. The plaintiff sued the defendants for the breach of the contract.
The court held that the above correspondence did not conclude as successful contract. In their telegram the
plaintiffs asked the defendants answered only the second question. They did no answer the first questions: (1)
about their willingness to sell their estate, (2) the lowest rate. It was an enquiry. It was an invitation to offer. The
defendants answered only the second question. They did not answer the first question about willingness. The valid
offer must contain willingness. Hence mere statement of the lowest price itself was not an offer. Therefore, no
contract arose between the plaintiffs and defendants, and the defendants were not bound to it.

Case law: Pharmaceutical society of Great Britain vs. Boots cash chemists limited (1952-1 QB-795)
A shopkeeper’s catalogue of prices is not an offer. It is only an invitation to the intending customers to offer to buy
at the indicated prices. If the prices are themselves treated as offer then the shopkeeper will be put to irreparable
difficulties. Because the litigant customer may ask huge stock at the rate, and the quantity may not be available in
the city or country. Lord Herschell say: the transmission of a price list does not amount to an offer to supply an
unlimited quantity of the wine described at the price named, so that as soon as an order is given there is a binding
contract to supply that quantity. If it were so the merchant might find himself involved in any number of contractual
obligations to supply wine of a particular description which he would be quit unable to carry out, his stock of wine
of that description being necessarily limited. This principle is also applicable in the self service system in the shop.
It was decided in the above case.
The defendants had a retail shop of drugs. They exhibited the price list of the drugs. A pharmacist had to sit beside
the cashier, and verify drugs. If any customer took excess stock or any other drugs which statutory rules prohibit, the
pharmacist would instruct the cashier not to sell those drugs. In this case the plaintiff picked some drugs from
shelves and brought them to the cashier. Pharmacist refused to sell the drugs to the plaintiff. The plaintiff sued the
defendants alleging that the price list which was exhibited in the shop was the offer and he accepted the offer by
performance of his conduct, i.e. through picking the drugs and bringing them to the cashier. He contended that the
defendants had no right to refuse his offer. The defendants contended that mere exhibition of the price list was an
invitation to offer and he had every right not to sell, until he signified his offer. The House of Lords held that
exhibition of price list was an invitation to offer only and no contractual relation or obligations arose between the
defendants and plaintiff. Hence the defendants were not liable.

When “An invitation to offer” becomes “offer”?

In the book shops the book are arranged in systematically. The customers may go in and pick up books and look at
them even if they do not actually buy them. There is no contractual obligation between the shop keeper and the
customer. Until this stage, it is an invitation to offer. If the customer wants to purchase a book, he has to pick up that
book and comes to the counter and has to say to shop owner: “I want to buy this book.” If the shop keeper wants to
sell it: “welcome pay the amount.” If the shop keeper does not want to sell the book, he may say: sorry sir. I cannot
sell the book to you. Because this is the only copy I have and I have already promised to one of my customers.

Tender:

A tender is like a quotation of prices. It is not an offer. When a tender is approved then only it is converted into a
legal offer. A tenderer can withdraw his tender before its final acceptance by a work or supply order. But once an
order is place that must have to be performed. Approving the tender means an agreement of contract is formed. The
tenderer has the right to revoke his tender as to future orders. Similarly the acceptor has also a right to refuse further
supply.

Offer and invitation to offer:

offer Invitation to offer

1. In the offer the offeror has intention or
willingness to have the contact.
2. In the offer, the person making the proposal is
called as the offeror/promisor/proposer.
3. An offer, when accepted, becomes a promise.
4. In the offer, the offeror must signify his
willingness.
5. An offer may be classified into (1) general offer;
and (2) specific offer.
6. An offer contains legal requirements.
7. Illustrations (a) an advertisement for the lost
goods or children is an offer (general offer). (b)
An offer to sell one house at certain rate is an
offer. (Specific offer) etc.
1. In the invitation to offer, the party has no such
intention or willingness to have the contract.
2. In the invitation to offer, the party, who has put
or arranged the goods, or advertised in any
media, cannot be termed as offeror/ proposer/
promisor.
3. An invitation to offer may be changed as offer,
but cannot become as a promise. It is only an
enquiry.
4. In an invitation to offer, the party need not
signify his intention/willingness.
5. There is no such division among the invitation
to offer.
6. An invitation to offer does not contain legal
requirements.
7. Illustrations (a) price list in any shop, hotel is
an invitation to offer. (b) Tender, auction,
railway timetable, A.P.S.R.T.C time table etc.
are the invitation to offer.
3. Acceptance is to an offer what a lighted match is to gun power. Discuss in the light of leading case?

Or Acceptance is to an offer what a lighted match is to gun power. Discuss this principle with reference to
the English law and Indian law?

Or when a proposal said to be (a) accepted, and (b) revoked, with attendant legal consequences affecting
the parties?

General principle:

The effect of acceptance of an offer has been explained by Anson in his law of contracts 23 rd edition at page 55, in
the following word: “Acceptance is to an offer what a lighted match is to train of gunpowder.” This gives the
meaning that when an offer is accepted, it cannot be recalled or revoked. It is similar incidence that the gunpowder
may have laid without explosion, until it has been lighted. The man who laid the train of gunpowder can remove it
before the match is applied. But when once a lighted match is applied to the gunpowder, he cannot stop it from
explosion. Similarly an acceptance may be revoked at any time before the communication of the acceptance is
complete as against the acceptor, but not afterwards. Section 5 of Indian contract act, 1872 explains this principle.

Section 5. Revocation of proposals and acceptances. – A proposal may be revoked at any time before the
communication of its acceptance is complete as against the proposer, but not afterwards.

An acceptance may be revoked at any time before the communication of the acceptance is complete as against the
acceptor, but not afterward.

Illustration:

A proposes by a letter sent by post to sell his house to B. B accepts the proposal by a letter by post.

A may revoke his proposal at any time before or at the moment when B posts his letter of acceptance, but not
afterwards. B may revoke his acceptance at any time before or at the moment when the letter communicating it
reaches A, but not afterwards.

When the acceptance is delivered from the promise, it is not possible to revoke it. That is why the famous maxim
came into existence saying that the acceptance to an offer is equal to lighted match to a train of gun powder.

Difference between English law and Indian law: in India, the proposer can revoke his proposal, before the
acceptance received by adopting a speedy method. Example: A sent a proposal by post to sell his house for one
lakh rupees to B at Calcutta. Thereafter, he wanted to revoke his proposal. He can communicate the revocation of
his earlier offer by a telegram reaching the proposer before he becomes aware of the acceptance. In English law,
an unqualified acceptance once posted cannot be revoked even by telegram or special messenger which overtakes
the posted letter and informs the proposer of the revocation of the acceptance. This departure from the English law
enables the Indian acceptor a chance to revoke. However, in both the laws when an acceptor accepts a proposal,
there are no chances of revocation.

In English law, when a letter of acceptance is posted, both the offeror and the acceptor are irrevocably bound as
was said by Anson. In India, the same principle is applicable, when the acceptance is given by the promise, by
oral (telephone, telegram, telex or in the presence of each other). But the principle is liberal comparing with
English law regard to the acceptance given by post. The acceptor can withdraw his acceptance between the gap of
posting and the delivery of the acceptance by using speedier methods of communication. Section 5 and 6 explain
the same.

Example: A book seller orders 100 books of a particular title to the publishers by ordinary post. There after he
intends to revoke his offer. He may adopt the speed post by sending a notice of revocation or he may telephone to
the publishers or telegram etc. which will be speedier than ordinary post. In England, it is not possible to revoke.

Revocation of acceptance

It is the general principle laid down that when a proposal is accepted it cannot be revoked. Under the following
circumstance, an acceptance may be revoked:

1. Before the communication: According to the provisions of section 5, an acceptance may be revoked at any
time before the communication of the acceptance is complete as against the acceptor, but not afterward.
2. Offer granting time for acceptance: an acceptance to an offer creates legal relation between the offeror and
offeree. If an offer is coupled with a promise to keep it open for a certain time, such offer can be revoked even
 before that time. The offeree can refuse the offer at any time before the time fixed. But when he gives
acceptance to such offer, he cannot revoke it.
3. Auction sales: sinha j. explained the principle laid down in auction sales as follows: it is well settled that a
person who binds at an auction, there by does not conclude a contract, but merely stases an offer and like all
other offers it is subject to the ordinary incidents of law, namely that until it is accepted it is open to the
offeror to withdraw it, the time for withdrawal can however be always determined by a separate and binding
contract for consideration. In auction sales, the acceptance of bid may be three kinds:
 Conditional acceptance,
 Provisional acceptance and
 Absolute acceptance when the auctioneer has full powers to confirm the sale and the sale is complete as
soon as the hammer falls.
4. Qualified acceptance: An acceptance must be absolute and unqualified. Acceptance cannot be qualified. A
qualified acceptance cannot be concluded as a contract.

Jugal kishore gulab singh vs. parastal &sons AIR 1930

An order of goods was accepted subject to confirmation by mail. The Privy Council held that it was not a
concluded contract.

5. Grumbling assent: Grumbling assent is not qualified acceptance. It is an assent nevertheless. Sir Frederick
Pollock says: where the acceptor grumbles at the terms of the offer but nevertheless accepts, such grumbling
assent will be a good acceptance provided the dissatisfaction stops short of dissent.
6. Third party’s discretion: if the terms of the proposal depend upon the discretion of the third party’s
discretion, in such circumstances, the acceptor can revoke the acceptance. Where it is an essential condition to
acceptance which is left to a third party’s discretion, the acceptance can be said to be only qualified.

Stanley vs. dowdeswell

The offeree accepted the proposals of the offeror, and further wrote the offeror: my agent will arrange matter
matters with you, if you will put yourself in communication with him. The Court held that the acceptance was
not absolute and unqualified. It required the discretion of the agent of the offeree. Therefore, no contract was
concluded between them.

7. Death: English law: the death of either party before acceptance causes an offer to lapse and knowledge of
death is not essential to the other party. Death of propose revokes an offer, even if acceptance is made in
ignorance of death. The principle is that a dead man can no more continue to offer than he could begin to
offer. Indian law: in India the offer lapses once the fact of death or insanity is brought to knowledge of the
offeree before acceptance.
8. Insanity: According English law, the insanity of the proposer will give rise only to a voidable contract, in
India; there will be no contract at all.
1. An agreement without consideration is void. Discuss and state the exceptions to this general rule?
2. State the facts and principle laid down in foakes vs. Baer (1884) 9 AC 605.
3. Past consideration is no consideration?
4. Past and executed consideration.

Meaning: consideration =anything given or promised or forborne by one party in exchange for the promise or
undertaking of another (in a contractual agreement)

Definition: Blackstone:”consideration is the recompense given by the party contracting to the other.

Justice Patterson:”consideration means something which is of some value in the eye of law…it may be some benefit
to the plaintiff or some detriment to the defendant”.

Sec 2(d) of Indian contract Act: when at the desire of the promisor, the promisee or any other person has done or
abstained from doing or does or abstains from doing or promise to do or to abstain from doing, something, such
act or abstinence or promise is called a consideration for the promise “.

According to section 10, all agreements are contracts which are made by the (1) free consents of parties; (2)
competent to contact ;(3) for a law full consideration; and (4) with a lawful object. Hence a lawful consideration is
the most essential element of a valid agreement to become a contract. Agreement without consideration becomes
void. Section 25 provides the same.

Agreement without consideration is void, unless it is in writing and registered, or is a promise to compensate for
something done ,or promise to pay adept bared by limitation law ,--An agreement made without consideration is
void ,unless –

1- It is expressed in writing and registered under the law for the time being in force for the registration of
documents and is made on account of natural love and affection between parties standing in a near relation to
each other ,or unless;
2- It is a promise to compensate ,wholly or in part; a person who has already voluntarily done something for
the promisor , or something which the promisor was legally compellable to do; or unless
3- It is a promise ,made in writing and signed by the person to be charged therewith ,or by his agent generally
or by specifically authorised in that behalf ,to pay wholly or in part a debt of which the creditor might have enforced
payment but for the law for limitation of suits;
In any of these cases, such an agreement is a contract
Explanation 1.—nothing in these sections shall affect the validity, as between the donor and donee, of any gift
actually made.
Explanation 2.—An agreement to which the consent of the promisor is freely given is not void merely because the
consideration is adequate ; but the inadequacy of the consideration may be taken into account by the court in
determining the question whether the consent of the promisor was freely given.
ILLUSTRATIONS
a- A promise, for no consideration, to give to B Rs, 1000. This is a void agreement.
b- A, for natural love and affection ,promises to give his son ,B , Rs 1000.A puts his promise to B , into writing
and registers it .this is a contract .
c- A finds B’s Purse and gives it to him .B promises to give A Rs 50. This is a contract.
d- A supports B’s infant son .B promises to pay A’s expenses in so doing .this is a contract.
e- A owes B Rs 1000, but the debt is barred by the limitation act. A signs a written promise to pay B, Rs 500.on
account of the debt. This is a contract.
f- A agrees to sell a horse worth Rs 1000 For Rs 10. A’s consent to the agreement was freely given .this
agreement is a contract notwithstanding the inadequacy of the consideration.
g- A agrees to sell a horse .worth Rs 1000 for Rs 10. A denies that his consent to the agreement was freely
given.

Then inadequacy of the consideration is a fact which the court should take into account in considering whether
or not A’s consent was freely given .

LEGAL RULES AS TO CONSIDERATION

1. To become a contract every agreement must be supported with some consideration.

2. At the desire of the promisor (Promissory estoppels):- It is the promisor who is to move it. An act
constituting consideration must have been done at the desire or request of the promisor. If it is done at the
instance of a third party or without the desire of the promisor, it will not be a good consideration.

DURGA PRASAD VS. BALDEO (1880)

The plaintiff ,on the order of the collector , built at his own expense some shops in the town .The defendant took
some shops .in consideration of the plaintiff having expended money in the consideration ,promised to pay him a
commission on articles sold through there agency in the shops. Thereafter the defendant did not pay .The
plaintiffs used the defendant for the recovery of the commission .Court rejected the plaintiff’s prayer.

3. PRIVITY OF CONSIDERATION

Consideration may move from the promises or any other person .Under the English law, the consideration must
move from the promises only. Under Indian law , consideration may move from then promisee or any other
person i.e. , even a stranger .( Refer the topic on privity of contract in the coming pages )

4. CONSIDERATION MAY BE PAST, PRESENT OR FUTURE: Section 2(d) provides that the consideration may be
past, present or future.
a. Present consideration: When consideration is given simultaneously with promise, i.e., at the time of
promise, it is said to be present consideration .sec 2(d)”…….. Does or abstains from doing ……..”Shows the
consideration for the present tense, all cash sales, are the examples of this type.
b. Past consideration or executed consideration: An act which has already been done in the response to
the promise is called as “an excellent consideration “ or “past consideration “.sec 2(d)”…..has done or abstained
from doing …….”denotes the consideration for the past .when consideration by party for a present promise was
given in the past .i.e. Before the date of the promise, it is called past consideration. But Indian law is liberal and
flexible in this regard.

ILLUSTRATION

A is a doctor, B was brought to A’s dispensary .A rendered his services for the ten days. After ten days, B promises
to compensate A for the services rendered to him. It is a past consideration .A can recover the promised amount.

c. Future or executor consideration : Sec .2(d) “…… or , promises to do abstain from doing ……..” denotes the
future consideration .When consideration from one party to the other is to pass subsequently to the making of
the contract, it is future or executory consideration .

ILLUSTRATION

A is a bookseller and B is publisher. A request B to deliver some book to him within 10 days, and he would pay
the amount of the books after one months .B agrees. It is a future consideration.

Problem: X- student aged 19 years living in a hostel agrees to pay his postman Rs 10 per month , if he delivers
his letters promptly. Whether this agreement is enforceable. (Oct. 96 O.U)

Solution: No, it is not enforceable .Paying Rs 10. More or less to a postman ,who is a Govt. servant , is not valid
and lawful consideration .It can be treated as corruption. Therefore, such an agreement is not enforceable.

5. ADEQUACY IS NOT ASSENTIAL

Consideration means “something in returns “. This “something in returns” need not necessarily be equal in value
to” something given”. The law in this regard in India and English is the same. The courts will not inquire into the
adequacy of consideration. Courts adhere the principle that “consideration need not be adequate, but must be
real”.

ILLUSTRATION

A gave Rs 25000 to B on loan @ 2% monthly interest .after one year , the loan was repayable with interest. After
one year, B was not in a position to pay the amount and its interest. A expressed his willingness to take Rs 20000,
and forego Rs 2000 and interest thereon. It becomes a valid consideration; through there is no full consideration.
But the condition is that there must be a free consent and valid execution established.
Explanation 2 to section 25 and illustration (e) and (f) shows that the courts will not take into account regarding
the quantum of consideration ,if the consent is given freely. If the party to contract contents that his consent is
not given voluntarily agreeing for lesser consideration , then the courts will enquire into the question of facts
very particularly ”satisfaction and accord” of the parties pertaining to consideration . Because, in commerce, every
person is interested in his share of profit or need or satisfaction .In every transaction bargaining takes place.

According to English common law , a payment made less than what is due under a contract cannot be regarded
as a consideration . This principle was enunciated first in “ Pinnell’s Case”(1602) as follows : “payment of a lesser
sum on the day in satisfaction of a greater cannot be any satisfaction for the whole ,because it appears to the
judges that by no possibility can a lesser sum be a satisfaction to a plaintiff for a greater sum . But the gift of a
horse, hawk or robe etc. in satisfaction is a good. for it shall be intended that a horse , hawk or robe etc. might be
more beneficial to the plaintiff than the money in respect of some circumstances ;or otherwise ,the plaintiff
would not have accepted of it in satisfaction.”

 Foakes Vs. Beer ( 1884) 9 App Cas 605

Dr Foakes was a judgment-debtor .MRS. Beer was a judgment-creditor .The court ordered Dr Foakes to pay £
2000 to MRS Beer. He was not in a position to pay amount of judgment decree £2000 at once. He made an
agreement with Beer that he would pay £200 immediately and to pay the remaining amount in installments. She
agreed. According, he paid £ 2000 to her. After the amount £ 2000 was fully paid, Mrs. Sued Dr Foakes to recover
interest on the judgment debt.

Judgment: judgment was given in Mrs. Beer’s favour.

Principle: the House of Lords held that Mrs. Beer was entitled to the payment of the judgment debt including the
interest from the date of decree to the date of final payment. Her acceptance for less amount in satisfaction of the
whole and there was no consideration for her promise to accept anything less than the sum to which she was
entitled.

6. IT MUST BE REAL AND COMPRTENT

The consideration must be real, competent and of some values in the eyes of the law. There must be physically
impossibility, legal impossibility, uncertainty and illusory consideration.

7. Consideration must not be illegal or opposed to public policy. (sec.23)

8. FORBERANCE TO SUE:
It may be an act, abstinence or forbearance or a return promise .Forbearance to sue, compromise of a disputed
claim, compositions with creditors are the examples of this act and constitute a good consideration.

EXCEPTIONS: An agreement made without consideration is enforceable under occasions. These circumstances are
provided in section 25 itself.

1. It is in writing and registered : Section 25(1).An agreement made without consideration is void, unless—

It is expressed in writing and registered under the law for the time being in force for registration of documents,
and is made on account of natural love and affection between a parties standing in a near relation to each other.

ILLUSTRATION

A, for natural love and affection, promise to give his son. B, Rs 1000. A puts his promise to B into writing and
registers it. This is a contract.

All gifts deeds are the examples of clause of exception. Transfer for property act provides that all gift deeds must
be registered .For the registration , the provision of the Indian registration Act,1908 and Indian stamp Act 1899
are applicable.

2. It is a promise to compensate for something done:

Sec 25(2).An agreement made without consideration is void, unless—

It is a promise to compensate , wholly or in part , person who has already voluntarily done something for the
promisor was legally compellable to do.

ILLUSTRATION

A supports B’s infant son .B promises to pay A’s expenses in so doing. This is a contract.

3. It is a promise to pay a debt barred by limitation law:

Sec 25 (3). An agreement made without consideration is void, unless –

It is a promise ,made in writing and signed by the person to be charged therewith ,or by his agent generally or
specially authorized in that behalf, to pay wholly or in part a debt of which the creditor might have enforced
payment but for the law for the limitation of suits .

ILLUSTRATION

A owes B Rs 1000, but the debt is barred by the limitation Act. A signs a written a promise to pay B Rs 500 on
account of the debt .This is a contract.

Note: The distinction between English law and Indian law pertaining to “consideration “and ‘priority contract ‘is
given in the topics 3(a) and 3(b).
1. There is privity of contract, but there is no privity of consideration in Indian law. Explain?
2. A stranger to contract is different from a stranger to consideration. Discuss with reference to the rights of
such a stranger?
3. What is meant by privity of contract? Are there any exceptions to the privity rule and if so. What are they?
4. State the explain the law relating to privity of consideration?
5. Any other person as used in the definition of consideration in sec. 2(d)?
6. Consideration must move from the promisee. Explain?

Answer: Meaning:

Privy = a person having a part of interest in any action, matter of thing.

Privity = a relation between two parties that is recognized by law, e.g. that of a blood, lease or service.

Doctrine of privity of contract means a contract is a contract between the parties only and no third person can sue
upon it even if it is avowedly made for his benefit. This means a stranger to contact cannot sue.

English law:

It is a well-settled rule of English law that consideration must move from the promisee alone. A person who is not a
party to the contract but is intended to be the beneficiary under the contract and is nearly related to the promisee
has the right of action. This old view was rejected in 1861 from the case of Tweddle vs. Atkinson (1861)

Tweddle vs. Atkinson (1861)

A and B were the bridegroom and bride. There was a contract between A’s father and B’s father that each would
pay a certain sum of money to A and that A would have the power to sue for such sums. After the death of A’s
father and B’s father, A brought an action against the executors of the B’s father to recover the promised amount.
Court of appeal held that A had no right to claim, as he was the third person (stranger) to the contract.

Since the decision of Tweddle vs. Atkinson (1861), the rule of privity contract (stranger has no right to sue) came
into existence. The same was affirmed in Dunlop’s case.

Dunlop pneumatic tyre co. vs. Seleridger &co. (1915)

Dunlop & co. were the plaintiffs. They sold some goods to one Dew &co. with an undertaking and written
agreement that Dew & co. would sell the tyres on listed price only, and if they sold them to any third party, they
would obtain similar undertaking to maintain the price list. Dew & co. sold the motor tyres to defendant co. The
defendant company sold the tyres below the list price. The plaintiff company brought an action against the
defendants. The House of Lords held that assuming the plaintiffs were undisclosed principals, no consideration
moved from them to the defendants and that the contract was unenforceable by them.

Principle: One of the fundamental principles of law of contract of England is that only a person who is a party to a
contract can sue on it.

Indian law:

The principle of stranger to contract cannot bring an action is equally applicable in India as in England. But our law is
wider than English law. Section 2(d) of the India contract Act, 1872 defines consideration.

Section 2(d). “When at the desire of the promisor, the promisee or any other person has done or abstained from
doing, or does or abstains from doing, or promises to do or promises to abstain from doing something, such act or
abstinence or promise is called a consideration for the promise.”

The phrase in sec 2(d) the promisee or any other person. Gives the meaning that meaning that as long as there is a
consideration for a promise, it is immaterial who has furnished it. If the promisor has no objection. Yet the common
law principle of privity to contract is generally applicable in India.

JAMNADAS VS. RAM AVATAR (1911)

A mortgaged his property to C. A then sold this property to B. B agreed with A to pay off the mortgage debt to C. C
brought an action against B to recover the mortgage money. Privy council held that since there was no contract
between C and B, C could not enforce the contract to recover the amount from B.

Exceptions:

The exception to the rule stranger cannot sue are found in the contract of agency, bill of landing, negation
instruments, railways receipts, transfer of property etc. some of them are summed up in the following heads :

1. Trust of contractual rights

2. Conduct, acknowledgment or admission
3. Family arrangements
4. Covenants running with the land

A. Trust of contractual rights

A trust is created by one person, maintained by another person for the benefit of third person. Trust is one of the
exceptions to the doctrine of contract.
Rana Uma Nath Baksh Singh vs. Jang Bahadur (AIR 1938)
A and B the sons of C. A was major and B was still minor. C appointed A as his successor and put in possession of
his entire estate by a deed. In the same deed C instructed A to give a village to B on his attaining majority asked A to
give his property. A refused saying that B was a stranger to the contract. Privy Council held that a trust was created in
favour of B for the specified amount and village. Hence B was entitled to maintain the suit.
Khawaja Muhammad Khan vs. Hussaini Beegum (1910) 10 Bom LR 638
Brief facts: Khawaja Muhammad Khan was the father of bridegroom. Hussaini Begum was the bride. Both the bride
and bridegroom were minors at the time at the time of marriage. Khawaja Muhammad Khan and Hussaini Begum’s
father entered into an agreement at the time of marriage. (According to Muslim law. Marriage are contracts) Khawaja
Muhammad Khan executed an agreement with Hussaini Begum’s father that in consideration of the respondent’s
marriage with his son, he would pay to her a sum of Rs.500 every month in perpetuity for the betel-leaf expenses. He
also charged certain properties with the payment giving the power to Hussaini Begum to enforce it. The marriage
took place. After some years, Hussaini Begum and her husband separated due to the differences, quarrels between
them. She sued Khawaja Muhammad Khan for the recovery of the difference, quarrels between them. She sued
Khawaja Muhammad Khan for the recovery of the arrears of annuity @ Rs. 500 per month. The appellant Khawaja
Muhammad Khan argued that Hussaini Begum was not a party to the contract entered by him with the father of
Hussaini Begum.
Judgment: The Privy Council gave the judgment in favour of Hussaini Begum. It held that Hussaini Begum,
although no party to the agreement, was clearly entitled to proceed in equity. Being she was the beneficiary of the
contract, she could enforce her claim. The Privy Council held that A stranger to contract is different from a stranger
to consideration. Here Hussaini Begum was a stranger to the contract, but she was concerned with the consideration.
Hence the famous rule A stranger to a contract cannot sue” would not apply in her case and also in similar cases.
B. Conduct, acknowledgment or admission:
Sometimes there may be no privity of contract the two parties, but if one of them by his conduct, acknowledgement,
or admission recognizes the right of the other to sue him, he may be liable on the basis of the law of estoppels. Such
acknowledgment may be express or implied.
Devaraja Urs vs. Ram Krishnaiah (AIR 1952)
A was the house owner. He took some loan from C. A sold his to B under a registered sale deed, and A took the sale
priced deducting the loan amount and instructed B to pay the loan amount to C directly. B according paid half of the
loan amount. He failed to pay the balance amount. C brought an action against B. B contended that C was a third
person, and he could not sue. Supreme Court held that by the conduct of B he was stopped to take the plea of stranger
cannot sue. Hence C was entitled to get the balance of the amount.
C. Family arrangements:
Where under a family arrangement the contract is intend to secure a benefit to a third party he may sue in his own
right as a beneficiary. Family arrangements include such as provision for marriage expenses or maintenance.
Veeramma vs. Appaya (AIR 1957)
Property was divided among the family members. Father’s share was to be conveyed to his daughter who undertook
to maintain him in his life time. It was held that she was entitled to the property, even though she was not a party to
the contract.
D. Covenants running with the land:
This exception applies to the transfer of immovable property. When the ownership changes from one person to
another, the new one has to obey the obligations were already covenanted and running with the land such as water
supply canals, ways car ways etc. To the adjacent owners.
1. Explain the facts and principle of law laid down in Mohoribibl vs. Dharmadas ghosh (1903)?
2. Discuss the nature and scope of minor’s agreement?

Answer:

Section 10 of the Indian contract Act provides that all agreements are contracts if they are made by (1) the free
consent of parties (2) competent to contract (3) for a lawful consideration and (4) with a lawful object, and are not
hereby expressly declared to be void.

WHO ARE COMPETENT TO CONTRACT?

Section 11 provides that “Every person is competent to contract who is of the age of majority according to the law to
which he is subject, and who is of sound mind, and is not disqualified from contracting by any law to which he is
subject.” Thus, incapacity to contract may arise from: (i) minority, (ii) mental incompetence, and (iii) status.

Who is a minor?

According to Section 3 of the Indian Majority Act, 1875, a minor is a person who has not completed 18 years of age.
However, in the following two cases, a minor attains majority after 21 years of age:

1. Where a guardian of minor’s person or property has been appointed under the Guardians and Wards Act, 1890, or

2. Where the superintendence of minor’s property is assumed by a Court of Wards.

Thus a minor is not a competent person to contract. Here under some problems with solutions are given for easy
understanding.

Problem (1): A, a minor, borrows Rs. 25000 from B by executing a mortgage deed in favor of B. can B recover the
sum from A?

Solution: The mortgage made by A-a minor is void. The money lender B could not recover the sum of Rs.25000.
(Mohiri Bibi v. Dharmodas Ghose 1903).

Problem (2): Can a minor’s contract be specifically enforced and ratified? Can a plea of estoppels be taken against a
minor?

Solution: No since the minor’s contract is absolutely void, the question of specific performance of such a contract
does not arise. There can be no question of ratification. The consideration of the past agreement entered into during
minority, cannot be a good consideration for contract ratified on attaining majority. There are no estoppels against the
minor. (Bholaram Harban Lal vs. Bhagat Ram, 1927)

Problem (3): A, a minor, obtains a loan of Rs. 10000 from B, a money lender, by fraudulently representing that he is
of full age. Can B this amount in any form of action?

Solution: B, the money lender could not recover the sum of Rs.10000 though the minor had fraudulently represented
himself as of full age. (Mohiri Bibi v. Dharmodas Ghose 1903).

Problem (4): A and B were brothers A was major and B was minor. A and B jointly executed a promissory note and
obtained Rs. 10000 from C. can C recover the sum?

Solution: so far as the contract with minor B is concerned, it is void. Hence C could not recover anything from B. but
so far as A is concerned, it is valid. C can recover the money from A on the Basis of the promoter. Where a minor
and an adult jointly execute a bond, it is only the adult would be liable, and the minor does not incur any liability.

Problem (5): A, an infant, hired a mare from B to ride for an hour and injured her by riding the same for one day.
Can B recover any compensation from A?

Solution: the minor entered into a contract with B. A’s act was done in performance of the contract though
wrongfully, and minor’s contract is absolutely void. B could not recover anything from A.

Khangul vs. Lakha Singh (AIR 1928)

The minor misrepresented his age, and contracted to sell a plot of land to the plaintiff. He received Rs. 17500 from
the plaintiff. Later he refused to perform the contract. The plaintiff could not recover of possession or refund of
consideration.
Mohiri Bibi vs. Dharmodas Ghose 1903

The plaintiff, a minor, mortgaged his house in favour of the defendant, a money lender, to secure a loan of twenty
thousand rupees. A part of this amount was actually advanced to him. At that time, the money lender received
information that the plaintiff was still minor. Subsequently the plaintiff sued the defendant to cancel the mortgage.
The court granted the relief of cancellation to the plaintiff, considering him as minor.

Result: Mohiri Bibi’s case is a famous case law; in the law of the contract pertaining to minor’s capacity. The
decision of this case is binding in the entire India. It gives protection to every minor in India.

Delivering the above judgment, the privy council held: looking at section 11 their lordship are satisfied that the act
makes it essential that all contracting parties should be competent to contract and expressly provides that a person
who by reason of infancy is incompetent to contract cannot make a contract within the meaning of the act. The
question whether a contract is void or voidable presupposes the existence of a contract within the meaning of the act,
and cannot arise in the case of an infant.

Exceptions: As a general rule a minor’s agreement is absolutely void. But there are following exceptions, for the
benefit of the minor.

1. Mortgages and sales in favour of minors: A minor is incompetent to contract. Yet he may accept a benefit
and be a transferee. A duly executed transfer by way of sale or mortgage in favour of a minor, who has paid the
consideration money, is valid. It is enforceable by him or any other person on his behalf. In Raghavachariar vs.
Srinivas (1917), the Madras high court held that a mortgage executed in favour of minor, who has advanced the
mortgage money is enforceable by him or by any other person on his behalf.
2. Partnership: A minor maybe admitted to the benefits of a partnership, without personal liabilities of such
minor.
3. Payments of debt incurred during minority: It is permissible at law for a person after attaining majority to
elect to pay the debt incurred by him during his minority.
4. Specific performance: A minor’s agreement being void cannot void be specifically enforced. But a contract
may be entered into on behalf of a minor by his guardian or by a manager of his estate, for t6he benefit of the minor
and can specifically be enforced in court of law.
5. Necessaries: Section 68 of the Indian contract Act, 1872 provides for liability in respect of necessaries
applied to person incapable of entering into a contract. A minor is an incapable person. Hence the previsions of sec
68 apply to a minor. The liability is not personal. It pertains to the estate of minor. It resembles the obligations of
quasi contractual nature. What are the necessaries? Education, residence, clothes, funeral expenses of parents,
marriage expenses of sisters of the minor etc. are deemed to be the necessaries of minor. Luxuries are not treated as
necessaries.
The following are the necessaries:
a. Costs incurred in defending a suit successfully as to the minor’s estate. (Watkins v. Dhunne Baboo 1881)
b. Loan to a minor to avert sale of his property in execution of a decree.( Kidar Nath v. Ajudhia 1883)
c. Purchase of bulls and other agricultural appliances required for agricultural operations on the minor’s estate.
(Karim Khan v. Jai Karan 1937)
d. Necessary repairs required to the minor’s house and necessary clothes. ( Ramchandra v. Hri 1936)
e. The Privy Council, delivering the judgment in Kanhirampore Ramunil v. Nalauned (1928) observed: where
minors or incapacitated persons who are unable to take care of themselves are left adrift, a person who takes pay on
them and looks after them and raises money for their maintenance out of the family property does what is expected of
an ordinary human being and any debt incurred for the maintenances of such incapacitate person or minor must
discharged out of the estate of such persons or minors.
6. Insurance: A contract of insurance by a de facto guardian of a minor in respect of the minor’s goods and
property is held valid. It is being for the benefit of the minor. The minor would be entitled to sue thereon.
7. Joint documents: When a document is executed by a minor and a major, the document is void in respect of
minor, and valid in respect of major. It can be enforced against the major person.
8. Marriage: A contract for the marriage of a minor is done for his or her benefit in India. Minor marriage is a
voidable marriage.
9. Contracts of apprenticeship: The India apprentices Act, 1850 provides for service contracts to be entered
into by the guardian of a minor for the minor’s benefit is binding on minors.
Q-Define coercion .State when a contract is said to be affected by coercion?

Introduction: It is one of the fundamental rules of the valid contract that a contract must be entered into by parties
with their “free consent “The root of the contract and is crystallized into the language of offer and acceptance.”The
essential feature of a contract is that offeror and offeree should “agree the same thing in the same sense.”(Consensus
ad idem) the consent of both the parties must be given freely without coercion, undue influence, mistake,
misrepresentation, fraud. Section 14 defines “Free Consent with explains that consent is said to be free when it is not
caused by coercion, undue influence, fraud, misrepresentation, mistake”. If the consent is given by party due to
coercion of another party, such contract is voidable at the instance of the former.

Meaning: Coercion = force, compulsion.

Definition: Section 15 of the Indian contract act 1872 defines coercion

Section 15”coercion”define “Coercion” is the committing, or threatening to commit ,any act forbidden by the Indian
Penal code (XLV of the 1860) or unlawful detaining or threatening to detain ,any property, to the prejudice of any
person whatever with the intention of causing any person to enter into an agreement.

Explanation: It is immaterial whether the Indian Penal Code is not in force in the place where the coercion is
employed.

Illustrations

A, on board an English ship on the high seas, causes B to enter into an agreement by an act amounting to criminal
introduction under the Indian Penal Code.

A afterwards sues B for breach of contract at Calcutta.

A has employed coercion although his act is not an offence by the law of England and although Section 505 of the
Indian Penal Code was not in force at the time when or place where this act was done.

Essential Ingredients of Coercion

1. The consent is obtained by threat of an offence and the person is forced to give his consent.

2. It is mainly of a physical character.

3. The freedom of will is impaired.

4. It is a violent character.

5. The agreement made by coercion is voidable at the option of the party whose consent was so caused.

6. The burden of proof lies upon the plaintiff.

7. The party avoiding the contract is bound to restore to the other party any benefits which he may have received
under the contract.

Important Points:

A.A contract made under coercion is voidable.

B. Keshavji vs. Harjivan (1887)

S a son forged the signatures of his father –F on certain promissory notes .Basing on them a bank gave loan. Later the
bank found the forgery .They called F, and threatened to institute criminal proceedings against S and advised to
prevent such criminal proceedings, F ought to have settled with the bank and pay the entire amount of debt. Due to the
threat, F sued the bank for the recovery of the amount contending that he paid the amount under the settlement due to
coercion .The Privy Council held that father was entitled to revoke the settlement, and to receive back the payment.

C. Maung Shoay Att vs. KO Byaw (1876)

Maung Shoay Att the principal sent his agent to Siam to purchase the timber. Ko Byaw the defendant was the timber
merchant in Siam and had highly influence there. The defendant made allegations of theft against the agent of the
plaintiff principal and the Siamese government arrested the agent. To obtain his release the agent was compelled to
agree to pay the defendant a higher rate of price of the timber. The plaintiff sued the defendant to cancel the contract.
The Privy Council gave the judgment in favour of the plaintiff, opining that the agent was compelled to pay high rate
due to coercion, and thus such contract was voidable.

D. Chikkam Ammiraju vs. Chikkam Seshamma (AIR 1918 Mad. 414)

Chikkam Seshamma’s husband and Chikkam Ammiraju were brothers; Chikkam Ammiraju executed a mortgage deed
in favour of his brother and obtained certain amount of money. Later he failed to pay the amount to his brother. Due to
affection and some other reasons, Chikkam Seshamma’s husband wanted to release of mortgage in favour of his
brother. Chikkam Seshamma and her son did not accept this proposal. Chikkam Seshamma husband threatened to
commit suicide if his wife and son did not execute a release of mortgage in favour of his brother .Due to the threat of
suicide By Chikkam Seshamma’s husband, Chikkam Ammiraju. Later they claimed the said properties of their own.

JUDGMENT: The appeal was heard by Privy Council. Two of three Judges held that threat of suicide through not
punishable is forbidden by the Indian Penal Code and that therefore consent obtained under threat of suicide would be
‘coercion’ within the meaning of Section 15 of the Indian Contract Act and therefore rendered the release deed void.

Principles: There are three essential requisites to be fulfilled to prove coercion.

(i) There must be clear utterance of threat.

(ii)The threat should be to commit an act forbidden by the Penal Code.

(iii)It must be uttered with the intention of causing plaintiff to enter into an agreement.
UNDUE INFLUENCE

Q.1.Define and distinguish between ‘Coercion’ and ‘Undue Influence’.

Q.2. Explain the way in which sec 16 develops the concept of undue influence and its effects upon the rights of
the parties.

Meaning: In some circumstances, the parties to an agreement are so placed to each other that one party is in a position
to dominate the will of the other, consequently the other party is compelled to enter into an agreement against his will
as a result of unfair influence. Such an agreement is said to be induced “undue influence”. Section 16 to explain about
the undue influence in the law of contract.

Section 16 “Undue Influence “defined:- 1.A contract is said to be induced by “undue influence “where the relations
subsisting between the parties are such that one of the party is in the position to dominate the will of the other and uses
that position to obtain and unfair the advantages over the other.

2. In particular and prejudice to the generality of the foregoing principles, a person is deemed to be in a position to
dominate the will of another.

a. Where he holds real or apparent authority over the other he stands in a fiduciary relation to the other; or

b. Where he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason
of age, illness, or mental or bodily distress.

3. There a person who is in a position to dominate the will of another, enters into a contract with him, and the
transaction appears, on the face of it or on the evidence adduce, to be unconscionable, the burden of proving that such
contract was not induced by undue influence shall lie upon the person in a position to dominate the will of the other.

Illustrations

a. A, having advanced money to his son, B,during his minority, upon B’s coming of age obtains, by misuse of
parental influence, a bond from B for a greater amount than the sum in respect of the advance. A employs undue
influence.

b. A, a man enfeebled by disease or age, is induced by B’s influence over him as his medical attendant, to agree to
pay B an unreasonable sum for his professional service B employs undue influence.

c. A, applies to a banker for a loan at a time when there is stringency in the market. The banker declines to make the
loan except at an unusually high rate of interest. A accepts the loan on these terms. This is a transaction in the ordinary
course of business, and the contract is not induced by undue influence.

Relations causing undue influence:

A person by virtue of his authority or by fiduciary relations dominates the will of the other person under some special
circumstances.

Persons having dominate character Persons having weak position

Income-tax officer Assessee
Police officer Accused
Creditor Debtor
Spiritual adviser (Guru) Devotee
Doctor Patient
Parent Son
Master Servant
Burden of proof: Generally the burden of proof lies upon the plaintiff. He has to prove:

i. The defendant was in a position to dominate the will of the plaintiff:

ii. The defendant actually used his influence upon the plaintiff to obtain the consent to the contract.

But the clause (3) of the section 16 provides that where a person who is in a position to dominate the will of another,
enters into a contract with him and the transaction appears, on the face of it or on the evidence adduced to be
unconscionable, the burden of proving that such contract was not induced by undue influence shall lie upon the person
in a position to dominate the will of the other.
Presumption: Two things have to be proved in order to raise a presumption of undue influence:

a. That the relationships between the contracting parties are such that one was in a position to dominate the will of
other.

b. That the position was used to obtain an unfair advantage.

When these presumptions are proved, the proof of burden transfers from the plaintiff to the defendant i.e. the stronger
party.

Subhas Chandra Das vs. Ganga Prasad Das (AIR 1967) SC 876

Brief facts: A had two sons and only one grandson. A was of great age; however he was taking very active interest in
his agricultural and house property. Four years before his death, A had executed a gift deed in favour of his only
grandson. He intentionally excluded his two sons. Four years after the gift he died and still four years after that the
other sons questioned the validity of the gift on the ground of undue influence.

JUDGEMENT: The Supreme Court gave the judgment that on the facts of the case no presumption of undue
influence could arise. It observed.”The circumstances that a grandfather made a gift of a portion of his properties to
his only grandson (on account of natural love and affection) a few years later his death is not on the face of it an
unconscionable transaction.”

WAJID KHAN VS RAJA EWAZ ALI KHAN (1991)

Maid and illiterate woman were incapable to maintain business. She believed defendant and appointed for managing
agent. She conferred on her confidential managing agent without any available consideration. An important benefit
under the guise of a trust. The lords opined that there has active undue influence.

Some important points: 1. The unconscionable demands occur mostly in money lending transaction.

2. The unconscionableness of the bargain is not the first thing to be considered. The right thing to be considered in the
relations of the parties.

3. The relations need not be by blood, marriage or adoption. But there relation must be one of them in superior
position over the other.

4. There must be an inequality of bargaining power between the parties that one can cause concerns durass to the
other.

5. A contract with a pardanashin woman is presumed to have been induced by undue influence. The proof of burden
lies on the other party to show that there was no undue influence and that the terms of the contract were fully
explained to her and that she freely consented.

Distinction between COERCION and UNDUE INFLUENCE

COERCION UNDUE INFLUENCE

1. Sec. 15 of Indian contract Act defines coercion.
2. The consent is given under the threat. Threat is an
offence under I.P.C.
3. Coercion need not proceed from parties to the
contract.
4. The contract is voidable at the option of one of
the parties of the contract.
5. The court cannot draw the presumption of
coercion.
6. Coercion is mainly of physical nature.
7. Coercion may be done by any person forcing the
physical force.
1. Sec. 16 explains about the undue influence.
2. The consent is given by a person who is so
situated in relation to another that the other
person is in a position to dominate his will.
3. Undue influence is between the parties to the
agreement.
4. The contract is either voidable or the court may
enforce it in a modified form.
5. The court may draw the presumption of undue
influence if the circumstances so warrant it.
6. Undue influence is of moral and psychological
nature.
7. Undue influence may be used by one superior in
position on the other weaker in position. The
relations were already existed between them. The
person in dominate character exploits the weaker
person.
MISREPRESENTATION AND FRAUD

Q.1. what do you understand by “misrepresentation”? How is it different from fraud?

Q.2. what are ingredients of fraud as defined in Indian Contract Act?

Q.3. How do you distinguish innocent misrepresentation from fraudulent misrepresentation vitiating a
contract?

Q.4. what are the different kinds of misrepresentation and what is there effect on contractual obligation of
parties?

Q.5. Write the brief facts law on “Derry vs. Peck (1869) 14 AC 337.”

Q.6. Mere silence does not amount to fraud.”Explain. What are the points of distinction between
misrepresentation and fraud?

Q.7. Negligent misrepresentation.

Q.8. Define “Fraud” and point out its effects on the validity of an agreement. Give suitable examples to
illustrate your answer.

MISREPRESENTATION
Meaning: When a person positively asserts that a fact is true when his information does not warrant it to be. So,
though he believes it to be true this is misrepresentation.

Definition: Section 18 of the Indian Contract Act 1872 defines misrepresentation

Sec 18 “Misrepresentation” defines as “Misrepresentation” means and includes:-

1. The positive assertion to a manner not warranted by the information of the person making it of that which is not
true, he behaves it to be true.

2. Any breach of duty which without an indent deceive gains an advantage to the person committing it or any other
Under him by misleading another to be prejudice or to the prejudice of anyone claiming under him.

3. Causing however innocently to party an agreement to make a mistake as to the sustainer of the thing which is the
subject of the agreement.

ESSENTIAL INGREDIENTS:

1. It is a false statement without any intention to deceive.

2. It may be innocent some times.

3. Misrepresentation does not involve dishonest intention.

4. The effect of the agreement caused by misrepresentation is voidable, at the option of the party whose consent has
been so caused.

5. Misrepresentation may also arise from suppression of vital facts.

6. Misrepresentation should be of facts material to the contracts. A mere expression of opinion cannot be regarded as a
misrepresentation.

7. A party cannot complain of misrepresentation if he had the means of discovering the truth with ordinary diligence.

8. If must be made before the conclusion of the contract with a view to inducing the other party to enter into the
contact.

9. If need not be made directly to the plaintiff. A wrong statement of fact made to third person with the intention of
communicating it to the plaintiff also amounts to misrepresentation.
10. The aggrieved party has to remedies -- (i) He can avoid or rescind the contract; or (ii) He can accept the contract
but insist that he shall be placed in the position in which he would have been if the representation made had been true.
(Sec.19).

11. The aggrieved party losses the right to rescind or avoid the contract if he, after becoming aware of the
misrepresentation or fraud, takes a benefit under the contract or in some other way affirms it.

12. The aggrieved party losses the right to rescind or rescind or avoid the contract, when the subject-matter was
destroyed or a third party has acquired right in it.

FRAUD
Meaning: Intentional misrepresentation of facts is called “fraud”.
Definition: Sec.17 of the Indian Contract Act defines “Fraud”.
Sec.17”Fraud”defined. -- “Fraud” means and includes any of the following acts committed by a party to a of with his
connivance or by the agent with intent to deceive another party thereto or his agent or to induce him to enter into the
contract.

1. The suggestion as a fact of that which is not believes it to be true by who does not believe it to be true.

2. The active concealment of a fact by one having knowledge or believe of the fact.

3. A promise made without any intention of performing it.

4. Any other act fitted to deceive.

5. Any such act or omission as the law specially declares to be fraudulent.

Explanation: Mere science as to facts likely to affect the willingness of a person to enter into a contract is not a fraud
unless the circumstances of the case are such that regard being had to them, it is the duty of the person keeping
silence to speak, or unless his silence is in itself equivalent to speech.

Illustrations

a. A sells by auction to B a horse which A knows to be unsound. A says nothing to B about the horses unsoundness.
This is not fraud in A.

b. B is A’s daughter and has just come of age. Here, the relation between the parties would make it A’s duty to tell B
if the horse is unsound.

c. A and B being traders enter upon a contract. A has private information of a change in price which would affect B’s
willingness to proceed with the contract A is not bound to inform B.

ESSENTIAL INGREDIENTS:

1. The suggestion that a fact is true when it is not true and the person making the suggestion does not believe it to be
true.

2. The active concealment of a fact by a person having knowledge or belief of the fact.

3. A promise made without any intention of performing it.

4. Any such act or omission as the law specially declares to be fraudulent.

5. Intentional misrepresentation is of the essence of fraud.

DERRY VS. PEEK (1889) 14 A.C. 337

The defendant company was authorized by special Act of Parliament to run trams by steam or mechanical power. The
Company issued prospectus contained a representation that it was authorized by the Act of Parliament. The Plaintiff
purchased some shares. But the authority to use steam was subject to the approval of the Board of trade, which the
company did not mention it. As a result the company was wound up. The plaintiff sued the company stating that it did
fraud the house of Lards held that the company was not guilty of fraud as they honestly believed that once the
Parliament had authorised the use of steam, the consent of the Board was practically concluded.

When does silence amount to fraud?

Section 17(clause 2) states “Active concealment of a fact by a person who has knowledge or belief o the fact also
amounts fraud’. Mere silence does not amount to fraud. The illustration given to the section 17 clarity the same.
Silence is treated as a fraud in the following circumstances.

1. When there is a duty to reveal the truths: In the following contracts, the parties should reveal the truths. They
should not suppress the facts.

a. Partnership agreements:

b. Insurance contracts:

c. Family settlement agreements:

d. Contract about trust:

e. Contract of guarantee:

f. Contract to sell the shares of company, etc

If the parties to the above contracts knowingly conceal the truths it becomes fraud.

2. Where the silence is equivalent to speech: Where the person knows the truth, but does not speak it out. He keeps
silence, it becomes fraud.

3. When the circumstances changed: An agreement was made between two parties. Thereafter the circumstances
were changed. One of the parties knows the changes of circumstances. It is the duty of that person to reveal those
changed circumstances to the other party, if he keeps silence, it becomes fraud.

4. Half truths: Sometimes, there may be half truths, i.e., half truth and half false. It is the liability of the person who
knows them should reveal the other person, if not, it becomes fraud.

MISREPRESENTATION AND FRAUD DISTINGUISHED

The following are the points of difference between the two:

1. In case of fraud, the party making a false or untrue representation makes it with the intention to deceive the other
party to enter into a contract. Misrepresentation on the other hand, is innocent, i.e., without any intention to deceive or
to gain an advantage.

2. Both misrepresentation and fraud make a contract voidable at the option of the party wronged. But in case of fraud,
the party defrauded, gets the additional remedy of suing for damages caused by such fraud. In case of
misrepresentation, except in certain cases*, the only remedies are rescission and restitution.

3. Although in both the cases, the contract can be avoided; in case of misrepresentation the contract cannot be avoided
if the party whose consent was so caused had the means of discovering—the truth with ordinary diligence.
MISTAKE OF FACT & MISTAKE OF LAW
1. Write a detailed note on ‘Mistake’?
2. Discuss the fact and the principle laid down in Cundy v. Lindsay?
Answer:
For a valid contract, it is essential that both the parties should agree to the same thing in the same sense. There
must be mutuality. If one party understood the contract in one sense and the other in a different sense, there is no
mutuality. Thus there exists a difference of fact in a contract. If both the parties to the contract are under mistake
as to matter of fact, the contract will be void. Section 20 of the Indian contract Act, 1872 explains about the mistake
of fact. Mistake is a good ground for avoiding contract.
Section 20 agreement void where both where both parties are under mistake as to matter of fact. Where both the
parties to an agreement are under a mistake as to a matter fact essential to the agreement is void.
Explanation: An erroneous opinion as to the value of the thing which forms the subject matter of the agreement is
not to be deemed a mistake as to a matter of fact.
Illustrations
a. A agrees to sell to B 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. The agreement is void.
b. A agrees to buy from B a certain horse. It turns out that the horse was dead at the time the bargain, though
neither party was aware of the fact. The agreement is void.
c. A being entitled to an estate for life of B, agrees to sell it to C. B was dead at the time of the agreement, but
parties ware ignorant of the fact. The agreement is void.
Essential ingredients of the sec. 20:
1. Both the parties to the agreement must be under a mistake.
2. The mistake should not be unilateral.
3. The mistake must be as to some fact.
4. The fact must be essential to the agreement.
MISTAKE AS TO IDENTITY
Meaning: where one of the parties represents himself to be some person other than he really is, it is called mistake
of identity.
Illustrations
A is an unemployed. He represents B that he was a sales officer of C Company and obtains some money from B on
false documents. It is called mistake of identity. It is a mistake of fact and the agreement is void.
CUNDY vs. LINDSAY (1878) 3 AC 459:38 LT 573
There was a reputed firm named Blenkiron & co. in wood street. One fraudulent man named Blenkarn. Got printed
some letter heads as Blenkiron & co. in wood street. He approached the plaintiff company and gave huge orders in
writing. The plaintiff believed the firm as Blenkiron & co. in Wood Street as it was reputed him, gave bulk quantity
of goods to Blenkarn, who sold the goods to defendant. The plaintiffs sued the defendant.
Judgment: court of Appeal held that there was no contract between plaintiffs and Blenkarn. There was no
consensus of mind between them. Hence the contract between plaintiffs and Blenkarn was void. There was no good
title of the goods on the defendants. Hence defendants were to give the goods back to the plaintiffs.
INGRAM vs. LITTLE (1961) 1 QB 31
Three ladies gave a public advertisement to sell their ear. A person approaches them and introduced himself as
Hutchinson a leading businessman in the town. He convinced the ladies and gave a worthless cheque and took
away the car. Thereafter he sold the car to the defendants, who purchased the car in good faith. Later when the
plaintiffs found that were deceived, they sued the defendants. The defendant was held liable.
PHILLIPS vs. BROOKS LIMITED (1919)2 KB 234 ALL ER 246
North was a fraudulent man. He entered into the plaintiff’s jewellery shop. He introduced himself as Sir George
Bullough. A reputed person in the town. He purchase some gold rings worth £ 3000 and issued a cheque. The
plaintiffs telephoned to the house of Bullough and confirmed that the person was Sir George Bullough and then
handed over the jewellery to north on receiving cheques. Later he pledged the gold rings to the defendants.
Plaintiffs found that the cheque was worthless, and found that they were deceived by the person. The plaintiffs
sued the defendants.
Judgment: The House of Lords held that the principle established in Cundy vs. Lindsay could not be applied in this
case. Because the seller enquired and handed over the rings to the person present. Plaintiffs’ intention was to sell
the goods to the person present and identified by sight and hearing. Hence the sale cannot become void. The seller
was induced to sell the fraud of the buyer. Thus the sale became voidable. The defendants had therefore acquired a
good title in this case.
MISTAKE AS TO SUBJECT MATTER
Subject matter and its identity and quality are the important factors to every agreement. If the subject matter does
not coincide, or does not exist the contract become void. It may occur in the following ways:
1. Non-existent subject matter:
A contract was made by A and B for the sale of a horse on 20 th January. If the horse was died before that date, and
both the parties did not know the nonexistent of subject matter. I.e. the horse at the time of the contract was void
ad initio.
2. Mistake as to title or rights:
Nemo Dat Quod Non Habet. (No one can pass better title than what he has.) The doctrine applies to mistake as to
title or rights.
ISMAIL ALLARKHIA VS. DATTATRAYA (1916) ILR 40 BOM 638
The property belonged to A. he handed over his property to his brother B for some time and went to other city for
business purpose. B contracted C fraudulently representing himself as A and got it registered in C’s favour. When
this matter was known was known to A, he sued B and C. court found that B was guilty, and the contract was void.
3. Different subject matter in mind:
For a valid contract, there must be one subject matter between both the parties of an agreement. There are two
plots A and B belonging to Y. X contracted Y to purchase one plot. Y intends to sell A plot. X intended to purchase B
plot. Thus due to the different subject matter in mind. The contract becomes void.
4. Mistake as to the substance of the subject matter:
Substance nature or quality or time subject matter must coincide with the agreement of the parties. A mistake as to
the quality of the subject matter may not render the agreement void. A mistake as to the substance. The contract
becomes void. For example, an agreement for the sale of land was held void as, unknown to the parties; the land
had been notified for acquisition at the time of the contract.
SMITH vs. HUGES 1871 LR 6 QB 597
Hughes wanted to purchase old oats for his horses. He approached Smith. Merchant dealing with oats, smith
showed certain sample at oats. Hughes tool the sample to his house, and kept it for 24 hours later he placed an
order for the supply of oats smith supplied half of the portion of the quaintly ordered. At that stage Huges found
that the at supplied were new, and they did not his requirement. Therefore, he immediately rejected the entire
oats on the ground that he was mistaken about their quality.
Judgment: the court held that Hughes unilateral mistake could not render the contract invalid. He had no right to
reject. He had no valid ground to reject.
Principle:
Unilateral mistake does not render a contract invalid. Cockburn CJ observed: All that can be said is that the two
minds were not ad idem as to the age of the oats: they certainly were ad idem as to the sale and purchase of them.
BELL vs. LEVER BROS. (1932) AC 161
Bell was appointed by the defendant company as a managing director 5 years to manage one of their subsidiary
companies in Africa. The salary was agreed to pay £ 8000 annually. Before the expiration of 5 years, the subsidiary
company in Africa was merged with a third company. As a consequent, Bell was removed from his services. The
defendant company agreed to pay £ 30000 as compensation to Bell, and paid the amount. After the amount paid,
the company found that during his service as a managing director in Africa, Bell made certain secret profits. The
company sued Bell for return of £ 30000. The company contended that if secret profit was found before his
retirement, it could have terminated Bell’s services on dismissal ground without compensation.
Judgment: the majority of the court rejected the company’s agreement. They felt that the mutual mistake related
not to the subject matter, but to the quality of the service contract.
Principle: Lord Atkin observed: I have come to the conclusion that it would be wrong to decide that an agreement
to terminate a definite specified contract is void if it turns out that the agreement had already been broken and
could have been terminate otherwise. The contract of release is the identical contract in both cases, and the party
paying for release gets exactly what he bargains for it seems immaterial that he could have got the same result in
another way, or that if he had known the true facts he would not have entered into the bargain.
MISTAKE AS TO THE NATURE OF PROMISE:
A had some property. A wanted to appoint B as his power of Attorney. A gift deed was made instead of deed of
power of attorney by B. a signed on deed. The deed of gift is void. Because the nature of promise which a party
intends to execute is quite different. It is called mistake as to the nature of promise.
Non EST factum:
A person who has signed a contract to say that is not his document and he signed the document under some
mistake. Non est factum is a defect that document is mistakenly signed by some peculiar circumstances. This is a
defense available to illiterate or blind people, who cannot read the document themselves. If he pleads successfully
the deed does not bind him, it is mistake as to the nature of promise.
MISTAKE AS TO LAW
Section 21 of the Indian contract Act, 1872 explains the mistake as to law.
A contract is not voidable because it was caused by a mistake as to any law in force in India. But a mistake as to a
law not in force in India has the same effect as a mistake of fact.
Illustration
A and B make a contact grounded on the erroneous belief that a particular debt is barred by the Indian law of
limitation; the contract is not voidable.
Ends of mistake as to law:
1. Mistake with regard to the law of the country.
2. Mistake with regard to foreign law.
3. Mistake with regard to private rights.
RAM RATAN vs. MUNICIPAL COMMITTEE (AIR 1939)
A decree holder agreed to give up costs of, if the judgment debtor agreed not to life an appeal none the decision. It
was found that the judgment debtor had no right to appeal. It was held that the agreement is void under section
21.

MISTAKE OF FACT MISTAKE OF LAW

1. Sec.20 of the Indian contract Act defines 1. Sec.21 of the Indian contract Act defines
mistake of fact. mistake of law.
2. It vitiates a contract. 2. It does not vitiate a contract, unless it relates to:
3. It is a mutual mistake as to an existing fact a. Private right of property.
material to the agreement, the contract is void. b. Willful representation of law.
c. Mistake as to any foreign law in which case it
will vitiate the contract.
3. The contract is not voidable, unless the mistake
happens to be of foreign law.
 LEGALITY OF OBJECT (PUBLIC POLICY)
1. Explain the doctrine of public policy with suitable illustrations?
2. Maintenance and champerty.
3. Immorality of object.
4. What agreements are considered as unlawful agreements under the Indian contract Act?
5. When the object of a contract is considered to be unlawful?

ANSWER: PUBLIC POLICY

Definition: The precise and exact definition of the term “public policy” has not been given by any jurist up to now.
In simple it can be defined that an agreement which is injurious to the public or is against the interest of the society
is said to be opposed to public policy. It is void.

Introduction: The doctrine of public policy is only a branch of common law. It is governed by precedents. Courts
invoke to doctrine for the welfare of the society and nation under different circumstances. Several categories are
invented under this head. Lord Halsbury says that now there is no hope of a new category of public policy.

Examples:

a. A contract of marriage brokerage is void.

b. A contract enforcing bounded labour is void.
c. A condition in a laundry receipts that only half of the price will be paid if the garment is lost. It is void.
d. Any wagering contract is void.
e. A contract with the king’s enemy or to assist the king’s enemy is void.
f. An agreement to withdraw prosecution for a non compoundable offence in consideration of money is void
etc.
HEADS OF PUBLIC POLICY:
1. Trading with enemy: All trader with public enemies without license of the crown is unlawful and against
public policy. This principle is more applicable at the time of the war between the nations concerned of course at
the time of committing an agreement between the two different countries; there might have been no war. But after
starting the function of the contract, the war might have started between the two countries, and then the contract
becomes void, in the interest of the nation.
2. Stifling prosecution: Agreements for stifling prosecutions are well- known against the public policy rule. In
England, the compromise of any public offence is illegal. In India too, the same principle has been adopted. In civil
cases, the compromise is welcome. But when once the machinery of the criminal court is set for non compoundable
offences, it is for the criminal courts alone to deal with the allegation. That power cannot be vested in private
individuals, because it becomes against the doctrine of public policy.
3. Champerty and Maintenance: Champerty is an agreement whereby one party is to assist another to bring
an action for recovering money or property, and is to share in the proceeds of their action.
Champerty = a bargain between two litigants, to carry on a suit and share in the property.
Maintenance = is an agreement to give assistance, financial or otherwise, to another to enable him to bring or
defend legal proceedings when one has got no legal interest of his own.
4. Interference with the course of justice: Any agreement for the purpose or to the effect, of using improper of
any kind with judges or officers of justice is void. It interferes with the administration of justice. It is unlawful, void
and opposed to public policy.
5. Agreement interfering with marital duties: An agreement which interferes with the performance of
material duties is against the public policy and is void.
Examples:
a. An agreement to lend money to a woman in consideration of her getting a divorce and marrying the lender is
void.
b. A promise by a married person to marry during the life time of the spouse or after his or her death is void.
6. Marriage brokerage agreement: A marriage brokerage agreement is an agreement for reward to procurer in
marriage a husband or a wife. Marriage is a sacred thing. It ought to proceed from mutual affection or at least from
the free and deliberate decision of the parties. In England, an agreement to procure marriage for reward void by
common law. In India too it is void, but in the circumstances of custom it is not strictly adhered to child Marriage
Restraint Act, Dowry Prohibition Act, Hindu marriage Act etc, are the Acts enacted to prevent illegal marriages. Bad
elements in the marriage custom in Hindu community are eradicated by enacting the Acts. In Muslim personal law
to the marriage brokerage agreements are void and are opposed to public policy.
DEVARAYAN vs. MUTHURAMAN (1913)
An agreement between two parents to marry their minor children and on failure, to pay a penalty as held not
enforceable as the effect of such an agreement is to give third parties a peculiar interest on bringing about
marriage.
7. Trafficking in public offices and titles: An agreement by which it is intended to induce a public servant to act
corruptly is regarded against public policy. Agreements for the sale or transfer of public offices and titles for
monetary considerations are unlawful. Sec.6 (1) of the transfer of property act lays down that a public office cannot
be transferred nor can the salary of a public officer.
8. Agreement tending to create interest opposed to duty: An agreement with a public servant where under he
will have to follow a course of action which is inconsistent with his public or professional duty is void.
9. Agreements tending to create monopolies: Agreements having for their object the creation of monopolies
are void as opposed to public policy.
10. Agreements in restraint of parental right: A father and in his absence, mother is the legal guardian of
his/her minor child. He has the sole right to the guardianship and the custody of his children. This right of
guardianship cannot be alienated, except in the cases, where the custom and any law being in force allow.
11. Agreement not to bind: An agreement between persons not to bind against one another at auction sale is
not unlawful. If their object is to make profit in the bargaining. But it is unlawful if the object is so defraud a rival
decree holder.
12. Agreement restraining personal liberty: every citizen has the freedom. Any agreement restraining that
freedom is against the public policy.
Example: A took Rs. 1000 from B a money lender as loan and executed a bond expressing his willingness to do
labour for year. It is a bonded labour. The contract between A and B is against the public policy and is void.
13. Unfair or unreasonable dealings: where in the agreements, one of the parties is weaker than the other, and
is posed to exploitation by the unfair or unreasonable dealings by the other party; such agreements are against the
public policy.
Central inland water Transport Corporation vs. B.N Ganguly (AIR 1986 SC 1571)
Brief Facts: Central inland water Transport Corporation was a government corporation. It appointed B.N Ganguly in
their corporation. One of the terms of the appointment was that he can be removed just by three months notice or
pay in lieu of notice and without any grounds. He was removed from the services, by paying the three months
salary without any fault on his part.
Judgment: the Supreme Court gave the judgment in B.N Ganguly’s favour. Their lordship held that the terms of the
agreement and the way in which the corporation behaved were unfair, unreasonable and ruthless exploitation it
was against the public policy.
Principle laid down: Not only the public, but also the government or its corporations are also not exempted, if they
behave with unfair and unreasonable manner. It is against the public policy.
14. Agreements to fraud creditors: An agreement the object of which is to defraud the creditors or the Revenue
Authorities or the Bank officials etc. is not enforceable being opposed to public policy. (Gherulal Parekh Vs.
Mahadeo Das)
 RESTRAINT OF TRADE
1. An agreement in restraint of trade is void. Explain and state exception to the above rule?
2. Discuss the facts and principle laid down in ‘Nordenfelt vs. Maxim Nordenfelt Guns and Ammunitions’?
3. Restraint of trade?

Answer:

Meaning: Restraint of trade = action seeking to interfere with free market condition.

Trade = buying and selling of the goods.

Introduction: Freedom of trade and commerce is a right protected by the constitution of India. (Article 301)
Freedom of trade, commerce and intercourse. - Subject to the other provisions of this Part, trade, commerce and
intercourse throughout the territory of India shall be free. 

The constitution of India gives every citizen to have his liberty to do trade. But at the same time, he is not supposed
to exploit others. Hence the terms which are against the public policy are void. If such restrictions are imposed in
any agreement, it becomes agreement in restraint of trade and is void. Section 27 of the Indian contract Act
explains about agreement in restraint of trade void.

Section 27 Agreement in restraint of trade void.-Every agreement, by which any one is restrained from exercising a
lawful profession, trade or business of any kind, is to that extent void.

Saving of agreement not to carry on business of which good-will is sold.-Exception 1.-One who sells the good-will
of a business may agree with the buyer to refrain from carrying on a similar business, within specified local
limits, so long as the buyer, or any person deriving title to the good-will from him, carries on a like business
therein, provided that such limits appear to the Court reasonable, regard being had to the nature of the business.

KHEMCHAND MANKEKCHAND vs. DAYAYALDAS BASSARMAL (AIR 1942)

There was an agreement between the plaintiff and defendant for the sale and running of a mill. The defendant
imposed a condition that the mill must be closed 3 months in a year. Supreme Court held that the condition was
restraint of trade and was void.

NORDENFELT VS. MAXIM NORRDENFELT GUN COMPANY (1894) AC 565

The appellant Nordenfelt was the manufacturer of guns and ammunition. He sold his business to the respondent
company for a consideration of £ 287500. He agreed that for 25 years, he would not engage, either directly or
indirectly, (1) in the trade or business of manufacture of guns, gun mounting or carriage, gunpowder, explosives or
ammunition, or (2) in any business competing or liable to compete in any way with that for the time begin carried
on by the company.

Judgment: House of Lords held that the first part of the agreement provided a reasonable protection to the interest
of the buyer of the business for such a large sum, and the condition was valid. Whereas the second part requiring
him not to compete in any business was unreasonable and void.

Principles laid down: The judgment in this case laid the modern rules as to restraint of trade Anson formulated
those rules thus:

1. All restraints of trade, in the absence of special justifying circumstances are contrary to public policy and
therefore void.
2. It is a question of law for the decision of the court whether the special circumstances adduce do or do not
justify the restraint is not justified, the court will, if necessary take the point , since it relates to a matter of
public policy and the court does not enforce agreement which are contrary to public policy.
3. A restraint can only be justified if it is reasonable (a) in the interest of the contracting parties and (b) in the
interest of the public.
4. The onus of showing that the restraint is reasonable between the parties rests upon the person alleging that it
is so, that is to say, upon the covenantee. The onus of showing that notwithstanding that a covenant is
reasonable as between the parties, it is nevertheless injurious to the public interest and therefore void, rests
 upon the party alleging it to be so, and it has been said that if once the court is satisfied that the restraint is
reasonable as between the parties, the onus will be no light one.

Distinction between English and Indian law:

In both the countries the doctrine is applicable same, i.e. all restraints of trade whether partial total are void. The
only difference is that in England a restriction will be valid if it is reasonable in India; it will be valid if it falls within
any of the statutory or judicially created exceptions.

Exceptions:

1. Sale of goodwill: The exception given in the section 27 is that of good will. The exception is provided for the
benefit of the purchaser of a reputed firm along with its goodwill. The purchaser purchases the firm keeping
in view of its sales, reputation in the market and immediate profit thereon. Thus he pays more money. The
seller is restrained from carrying on a similar business.
2. Partnership Act: Partnership Act allows imposing the restriction which validates agreement of trade. It for
the benefit of the partnership firm. Each partner is an agent and partner of the firm. None the partners is
allowed to do any act against the firm, which may cause loss to the firm (sec.11). Further sec.36 also
restrains the outgoing partner from carrying on a similar business with in specified period or within specified
local limits. Sec.54 also restrains all the partners to make the agreements reaming other from carrying in a
business similar to that of the firm, in anticipation of dissolution.

Judicial interpretation:

1. Trade association: An association formed for the regulation of the business is valid. But it does not to
restrain it. Manufacturer’s association hardware merchants’ association, kirana merchants association etc.
are the examples of the trade combinations. The object of the associations is standardized goods, fixed
prices and eliminates ruinous competition etc. but the courts would not allow any restraint to be imposed.
2. Solus of exclusive dealing agreements: A manufacturer basing in Bombay produces certain product and
appoints one wholesale distributor for each state, for the easy distribution of the goods. In turn, such
wholesale distributor appointed for each state is restrained to have another dealership of similar products
manufactured. This restriction is valid. For example: wholesale dealer of hero Honda two wheeler is
restrained to take the dealership of Bajaj two wheeler or any other two wheeler dealership.
3. Restraints upon employees: Trade secrets names of customer etc. are the master’s property. An employee
is appointed, trained and well paid. He is not supposed to take part in any business in direct competition
with that of his employed.
CHARLESWORTH vs. MACDONAL (1898) 23 BOM 103
The plaintiff was a physician and surgeon practicing at Zanzibar. He appointed the defendant for 3 years as
his assistant. The defendant employee left the service within one year, and began practicing against his
employer. Court restrained the employee from doing so during the period of 3 years. But an agreement
between two companies that one would not employ the former employees of the other was held to be void
by reason of its generality.
V.N. DESHPANDE vs. ARVIND MILLS LIMITED (AIR 1946) BOM 423
The defendant took employment as a weaving master in mill and agreed not to serve in that capacity for
three years anyone else in any part of India. An injunction was granted to restrain him in terms of the
agreement. But the courts do not allow an agreement to restrain a servant from competing with his
employer after the termination of employment.
Niranjan Shanker Golikari vs. Century spinning & Manufacturing co. Ltd. (1967) AIR 1967 SC 1093
Brief Facts: Century spinning & Manufacturing co. Ltd. Was a manufacturer of tyre cord yarn. It concluded a
contract with a foreign producer to import certain technology, so that they were enabled to produce a good
quality of tyres in India. The foreign producer put a condition in the agreement that century spinning &
Manufacturing co. Ltd. Should maintain secrecy of all the technical information and that it should obtain
corresponding secrecy arrangements from its employees. The company appointed Niranjan Shanker Golikari
for this particular purpose for a period of five years, with a condition that during this period he shall not
serve anywhere else even if he left the service earlier. In the beginning he served well, later he thought to
obtain a better job having acquainted with the technical knowledge in century co. the company refused to
accept his resignation. Niranjan contended that the agreement between him and the company was against
the provisions of section 27 (restraint of trade).
 Judgment: The Supreme Court held that the agreement was valid. Niranjan Shankar Golikari was accordingly
restrained from serving anywhere else during the currency of the agreement. Their lordship observed the
evidence is clear that the appellant has torn the agreement to pieces only because he has been offered a
high remuneration. Obviously he cannot be heard to say that no injunction should be granted against him to
enforce the negative covenant which is not opposed to public policy. The injunction issued against him is
restricted as to time, the nature of employment and as to area and cannot therefore be said to be too wide
or unreasonable or unnecessary for the protection of the interest of the respondent company.

Principles laid down:

1. Courts take a stricter view of covenants between master and servant than it does of similar covenants between
vendor and purchaser or in partnership agreement. For a purchase of a business has to protect himself against
competition per se on the part of the vendor. On the other hand the employer has no such fears vis a vis the
employee.

2. An injunction will be granted to enforce the negative which is not opposed to public policy. In the instant case
there is nothing to show that if the negative covenant is enforced the appellant will be driven to idleness or would be
compelled to go back to the respondent company.

3. A restraint upon freedom of contract must be shown to be reasonably necessary for the protection of interest in
trade. A restraint reasonably necessary for the protection of the covenantee must fall under some specific ground of
public policy.

4. The general principal of freedom of trade must be applied with due regard to the principle that public policy
requires for men of full age and understanding the utmost freedom of contract and that it is public policy to allow a
trader dispose of his business to a successor by whom it may be efficiently carried on and to afford to an employer
an unrestricted choice of the assistants and the opportunity to instruct them in his trade and its secrets without fear
of their becoming his competitors.
 RESTRAINT OF LEGAL PROCEEDINGS
Q1. Agreements in restraint of legal proceedings are void. Discus the principle pointing out the exceptions if any?

Q2. Agreements in restraint of legal proceeding are void. What is the scope of rule and its exceptions, if any?

Q3. Restraint of legal proceedings?

ANSWER:

Meaning: if an agreement restricts a party thereto absolutely from enforcing his contractual rights by bringing usual
legal proceedings, the same is void. An agreement to oust the jurisdiction of a contract of a court is opposed to
public policy and the same is void, both in India and England. The agreement is void. If restraint is an absolute one. In
India, section 28 is enacted for this purpose with two exceptions.

Section 28. Agreements in restrain of legal proceedings, void 

Every agreement, by which any party thereto is restricted absolutely from enforcing his rights under or in respect of
any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus
enforce his rights, is void to the extent.
Exception 1: Saving of contract to refer to arbitration dispute that may arise. This section shall not render illegal
contract, by which two or more persons agree that any dispute which may arise between them in respect of any
subject or class of subject shall be referred to arbitration and that only and amount awarded in such arbitration shall
be recoverable in respect of the dispute so referred.
Exception 2: Saving of contract to refer question that have already arisen - Nor shall this section render illegal any
contract in writing, by which two or more persons agree to refer to arbitration any question between them which has
already arisen, or affect any provision of any law in force for the time being as to reference to arbitration.
M.G. BROS. LORRY SERVICE vs. PRASAD TEXTILE (1983) 3 SCC 61
A contract was made between the Textile Company and Transport Company in writing. A condition in that was notice
of loss or damage must be given with 30 days of the arrival of the consignment. Under section 10 of carriers Act, a
notice of loss or damage must be given within six months; otherwise the right to sue is lost. In one incident, the goods
of the textile company were lost, and they issued a notice of damages after 3 months after the arrival of goods. The
carriers opposed under the condition of the contract that they would not be held responsible Supreme Court held that
the condition in the contract to give a notice within 30 days was ultra vires and was restraint of legal proceedings and
thus it was void. The transporters were held responsible for the damages of the goods.
JURISDICTION OF THE COURT OF LAW:
In the business transaction two parties hail from different places. For example: one party hails from Hyderabad and
another party hails from Bombay, in their agreement they commit that the court of law in city of Hyderabad alone shall
have jurisdiction to adjudicate thereon. The said clause in the agreement shall be valid. It does not affect the section
28.
HAKIM SINGH vs. GAMMON (INDIA) LIMITED (1971) AIR SC 740
A clause in the agreement between the parties provided that the court of law in city of Bombay alone shall have
jurisdiction. The plaintiff filled a suit at Varanasi. But could not succeed. Two courts at Bombay and Varanasi can deal
with the subject matter of litigation. Both of them have equal competence. It was open to parties to commit an
agreement that the litigation shall be adjudicated upon by one of the two competent courts, and not by the other.
Hence the condition between the plaintiff and defendant was held valid and it did not restraint of legal proceedings.
EXCEPTIONS:
1. Reference to arbitration: The exception-1 of the section 28 provides that if the parties intend to refer the matter
of dispute to refer to arbitration, that clause is valid and not restrain of legal proceedings. It is for the public
policy to save the time expenses and amicableness.
2. Reference of existing question to arbitration: The exception-2 of section 28 the Indian contract Act provides
that if any dispute to arbitration. It is not restraint of legal proceeding.
 WAGERING AGREEMENTS
Q.1.Define and explain the nature of a wagering agreements.

Q.2.Define and explain the nature of a wagering agreement. How does a wagering agreement differ from a
conditional contract?

Q.3.What is the wagering agreements? What is the effect of a wagering contract?

Q.4.The essence of gaming and wagering is that one party is win and the other to lose upon a future event which
at the line contract is of an uncertain nature.”Elucidate.

ANSWER

Meaning:-

Wager = to bet

Wagering agreement = An agreement is that which is waged or pleaded.

Definition:-

Section 30 defines wagering agreements.

Sec 30 Agreements by way of wager, void:-Agreements by way of wager are void: and no suit shall be brought for
recovering anything alleged to be won on any wager, or entrusted to any person to abide by the results of any game
or other uncertain event on which any wage is made.

Exception in favour of certain prizes for horse racing:-This section shall not be deemed to render unlawful a
subscription or contribution, or agreement to subscribe or contribute, made or enter into tor or towards any plate,
prize or sum of money of the value or amount of five hundred rupees or onward to be awarded to the winner or
winners of any horse race.

Section 294: A of the Indian penal code not affected. Nothing is this section shall be deemed to be legalizing any
transaction connected with horse racing, to which the provision s of the section 294: A of the Indian penal code (45
of 1860) apply.

ESSENTIAL INGREDIENTS OF A WAGERING AGREEMENT:

1. Wagering agreements are void. It cannot be enforced in any court of law.

2. The agreement promises to pay money any equivalent consideration.

3. First condition is that the performance of the bargain must depend upon the happening of an uncertain event.

4. Generally it relates to a future an event.

5. The event must be uncertain.

6. Each party must stand to gain or loss, upon the determination of their anticipated event. The gain of one party
must be the loss of other. The essence of gaming and wagering is that one party is to win and the other to loss upon
a future event which at the time of contract is of an uncertain nature.

7. Both parties shall have no control on the anticipated event, i.e., the result must not be in their hands.

8. Neither party should have any interest in the happening of the event other than the sum he will win or lose.

9. Nature of business in wagering agreement is purely speculative.

10. All wagering contract is contingent contract but all contingent contracts are not by way of wager. A wagering
contract is void as per section30. Where as a contingent contract is valid as per section 31. A contingent contract is
become effective on the performance of certain president or subsequent condition. If the condition is not fulfilled
the contract is not performed. Whereas the wagering contract is void ab initio.

11. Collateral transactions: Wagering agreement is void but it is not an unlawful under section23 of the contract act.
The collateral transactions to the main transactions are enforceable.

GHERULAL PAREKH vs. MAHADEO (1959 AIR)

A partnership to enter into wagering transaction is not illegal under section 23. Therefore a partner who paid the
losses on wagering transactions may recover proportionate indemnity from his co-partners. This decision was given
by the supreme court in case.

12. Lotteries: A lottery is a game of chance. Conducting lottery is a wagering agreement. A government may
authorise a lottery. But such authorization is only to exempt the person, who is conducting the lottery from criminal
prosecution. In fact lottery remains a wager, though authorised by the government.

13. cross-word competitions: A cross-word puzzle, the solution is already with the management is a wagering
transaction. Cross-word competitions, involving skillness, talent and open are not a wagering transaction.

EXCEPTIONS:

There are two exceptions given under section 30.

1. A chit fund does not come within the scope of wager.

2. Shares: Though shares are speculative, they do not come within the scope of wager.
3. Games of skill: Games of skill e.g. picture puzzles or athletic competitions are not wagers.
4. Contract of insurance: A contract of insurance is not a wagering agreement.
5. Horse race: Horse race is also an exception to the wagering contract.

EFFECT OF WAGERING AGREEMENT:

A wagering agreement is void. No suit shall be brought for recovering anything alleged to be was on way any wager
or entrusted to any person to abide the result of any game on which any wager is made. Though a wagering contract
is void and unenforceable is not illegal as it is not forbidden by law, nor immoral nor opposed to public policy under
section 23.

King Yee Lone & Co. vs. Lawjee Namjee (1901) 29 cal 461

Brief facts: The plaintiff was a rice trader. The defendants were rice millers. The defendants agreed under several
contracts to sell 199000 bags of rice at various prices. Instead of paying money for selling rice, he actually passed a
promissory note to the plaintiff for difference on price. The prices of rice were increased in the market. The
defendant failed to pay the amount as per their agreement. The plaintiff sued the defendant basing on the
agreement and on promissory note. The recorder court passed judgment in favour of the plaintiff.

Judgment: On apple, the Privy Council reversed the judgment of recorder court, treating the agreement between the
plaintiff and defendant as a wagering contract. Their lordship observed: now the output of the firm itself would not
be much over 60000 bags during currency of the contract, and they (defendants) had dealing with other persons
besides the plaintiff. The capital of the firm as stated was a trifle more than a lakh of rupees. The cost of the goods
would be that amount basis of trade, but it is very unlikely. In point of fact, they never completed, nor were they
called upon to complete anyone of the ostensible transactions. The rational inference is that neither party ever
intended completion.

Principle laid down: where parties do not contemplate a real transfer of goods but intended only to pay or receive
money solely dependent on the rise or fall in the market, it is not a commercial transaction. It is a wagering contract
and therefore void.
 VOID, VOIDABLE AND UNENFORCEABLE CONTRACTS
1. Voidable contract.
2. Distinguish between void, voidable and unenforceable contracts?
3. What are the legal consequences flowing from an illegal agreement? Illustrate your answer?
4. What contracts are void contracts according to the India contract Act, 1872?

ANSWER:

VOIDABLE CONTRACTS:

Section 2(i) of the India contract Act, 1872 defines: voidable contracts.

Section 2(i) An agreement which is enforceable by law at the option of one or more of the parties thereto, but
not at the option of the other or others, is a voidable contract;

INGREDIENTS OF VOIDABLE CONTRACT:

1. Where consent to an agreement is caused by coercion (sec. 15), undue influence (sec. 16), fraud (sec.
17), misrepresentation (sec. 18), mistake (sec. 20, 21, 22), the agreement is a contract voidable at the
option of the party whose consent was so caused.
2. A party to a voidable contract can give effect to the contract.
3. A voidable contract has the flexibility of nature.
4. It is not initio void. It remains in force until one of its parties chooses to avoid it.
5. Anything obtained under a voidable contract can be transferred to a third party provided the party
entitled to declare the contract void has not already done so. In order to make the transfer valid. It is
necessary that the party entitled should have also accepted the contract as valid. Without this. There
cannot be of valid transfer.
6. A voidable contract is a contract which with a flaw of which one of the parties may, if it pleases, fake
advantage. A voidable contract takes its full and proper legal effect unless and until it is set aside by
person entitled to do so.
7. If a party to an executory contract prevents the other party from performing his part of the contract,
such agreement becomes voidable. (sec.53)
8. If a party to a contract, in which time is essential, fails to perform his part of the contract a fixed time,
such agreement becomes voidable. (sec.55)

Void contracts:

Sec.2 (g) defines void agreement. An agreement not enforceable by law is said to be void.

Essential ingredient of void contracts:

1. A contract is void, when it is immoral, impossible, opposed to public policy, with consideration or when
made with a minor.
2. A void contract cannot be converted into valid contract at the option of the parties thereto.
3. It is rigid in nature.
4. It is ab initio void.
5. Anything obtained under a void contract cannot be validly transferred to a third party.
6. When a contract is shown to be void it can create no legal rights. It is a nullity.
7. In a void contract collateral contracts are recognized.
8. A void contract is entered into on account of special reasons, though it is not enforceable law.
9. Void contract are:
a. Agreements without consideration. (sec. 25)
b. Agreements in restraint of marriage. (sec. 26)
c. Agreements in restraint of trade. (sec. 27)
d. Agreements in restraint of legal proceedings. (sec. 28)
e. Unmeaning agreements. (sec. 29)
f. Wagering agreement. (sec. 30)
g. Agreement to do impossible acts. (sec. 56)

Unenforceable contract

An unenforceable contract is one where the contract is perfectly valid, but which cannot be enter
because of certain technical defects.

Illustration

A promissory note is executed by A in favour of B for a loan of Rs 1000. The promissory note did not
contain stamp. Stamp worth Rs. 1.00 is required as per the Indian stamp Act. As the required stamp is
nit affixed, the promissory note is not enforceable by law on technical defect as it is stamped.

Distinction between void and voidable contracts

Void contract voidable contracts

1. It is often rigid in nature.
2. It is ab initio void.
3. A contract is void, when it is immoral,
opposed to public policy, with
consideration or when made with a minor.
4. A void contract cannot be converted into
valid contract at the option of the parties.
5. Anything obtained under a void contract
cannot be validly transferred to a third
party.
6. It cannot create any legal rights. It is
nullity.
Distinction between void and illegal contracts
1. It is flexible in nature.
2. It is nit ab initio void. It is valid, until of its
parties prefers to avoid it.
3. Contract is voidable only when it is induce
by coercion, undue influence, fraud,
misrepresentation, and mistake.
4. A voidable contract can be converted into
valid contract, at the option of the parties.
5. Anything obtained under a voidable
contract can be transferred to a third party
prove the party entitled to declare the
contract has not already done so. Further
the entitled should have also accepted
contract as valid.
6. A voidable contract is legally effective and
until it is disputed and also person entitled
to do so.

Void contract illegal contracts

1. A void contract is merely voidable and not
enforceable by law. The parties to it are
not necessarily liable to penalty.
2. In a void contract, collateral contracts are
recognised.
1. The parties to an illegal contract are liable
to be penalized.
2. In an illegal contract, the collateral
contracts are also illegal.